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Please explain: What exactly is a CDS or “Credit Default Swap”? | A Credit Default Swap (CDS) is a contract between two parties. A useful analogy is insurance (but by no means exact). I pay a quarterly premium in order to insure myself against another event. In this case, it might be that I own some IBM Bonds. I am happy to own those bonds, and like the "coupon" that they pay me. But I am a little worried about IBM going bankrupt. So I can find someone willing to sell me a CDS. So long as I keep up my "premium" payments, if IBM goes into default on their bonds, I get a payout. This analogy does break down at a couple of levels. Firstly there is no requirement that I have to own the IBM bond in the first place. I can in effect then "take a view" on IBM going into default by purchasing a CDS without owning the underlying asset. Also in the real insurance world, there are various capital requirements that the companies have to adhere to, while CDS market, being essentially unregulated has none. So to summarize, and while The Pedia has a pretty good article, they are good both to hedge your bet (i.e. protect your actual owned asset) or as a speculative tool to take a "view" on the likelihood of a company to go bankrupt. |
Funneling money from a Traditional IRA to a Roth IRA using Options: Is my method possible and tax legal? | I am not a lawyer, but I can't think of a reason this is illegal (something that would be illegal would be to "trade with yourself" across the accounts to try to manipulate stock or option prices). I don't think you're "funneling," you're doing "asset location" which is a standard tax planning strategy. http://news.morningstar.com/articlenet/article.aspx?id=154126&t1=1303874170 discusses asset location. I'd be more concerned about whether it makes sense. |
Dealing with event driven market volatility | If you are worried about an increase in volatility, then go long volatility. Volatility itself can be traded. Here in the US there is an index VIX that is described as tracking volatility. What VIX actually tracks is the premium of S&P 500 options, which become more expensive when traders want to hedge against volatility. In the US you can trade VIX options or invest in VIX tracking ETFs like VXX. Apparently there are similar ETFs listed in Canada, such as HUV. Volatility itself is quite volatile so it is possible that a small volatility long position would cover the losses of a larger long position in stocks. If you do choose to invest in a volatility ETF, be aware that they experience quite a lot of decay. You will not want to hold it for very long. |
Do you know of any online monetary systems? | Congratulations! You see the problem. You can't get away from unstable currencies. The other problem is that the US will shut down anything that appears to be providing a replacement for the US Dollar. Once a token or medallion or gift certificate or whatever starts being used outside the confines of one business or one network of businesses, it will be shut down, quickly. It happened with Las Vegas gambling tokens. Another more recent attempt was with the Liberty Dollar, gold and silver coins and certificates that not only had precious metal backing, but whose proponents encouraged taking them to retailers and paying with them as if they were US Dollars. There were other problems with this idea, but it was the competitive stature of the Liberty dollar that got the headquarters raided and the main site shut down. Basically, all signs point toward dealing with currencies and their state of being systematically eroded over time. If you do find one that appears to exist, be wary, because the rules can change at any time, and the "money" will be nowhere near as liquid as a proper currency. |
What are some examples of unsecured loans | Unsecured loans are loans that have not been “secured” with any kind of collateral. For example, the bank does not have the ability to take your property or automobile if you stop making payments on an unsecured loan. These loans are sometimes referred “signature loans” due to the face your signature on the loan agreement is all that you deliver to the table. Unsecured loans are available in a variety of flavors. |
How can I lookup the business associated with a FEIN? | If it is Texas company, you can try doing a taxable entity search on the Texas Comptroller website. |
How does the spread on an orderbook affect shorting? | A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible. |
Do rental car agencies sell their cars at a time when it is risky for the purchaser? | I've been told by staff in my local car hire agency that they get such big discounts that they actually make money selling the cars, so they replace all their cars every six months (in the UK the number plate indicates when the car was registered, in six month periods). This suits the manufacturers, because it means they can offer a lower-cost product to price sensitive customers, while charging more to people who want something brand new. For example, you could buy a brand new Fiesta for £14,000 or a 6 month old version of the same car with a few thousand miles on the clock for £12,000. This means if you only have £12,000 then you can afford to buy a nearly new Fiesta, but if you can afford a bit more then Ford will happily take that off you for a brand new Fiesta. Ford sell an extra car, and if the car hire company only paid £11,000 then they make some profit too. |
Apartment lease renewal - is this rate increase normal? | Yes, automatic rate increases are typical in my experience (and I think it's very greedy, when it's based on nothing except that your lease is up for renewal, which is the situation you are describing). Yes, you should negotiate. I've had success going to the apartment manager and having this conversation: Make these points: Conclude: I am not open to a rate increase, though I will sign a renewal at the same rate I am paying now. This conversation makes me very uncomfortable, but I try not to show it. I was able to negotiate a lease renewal at the same rate this way (in a large complex in Sacramento, CA). If you are talking to a manager and not an owner, they will probably have to delay responding until they can check with the owner. The key really is that they want to keep units rented, especially when units are staying empty. Empty units are lost income for the owner. It is the other empty units that are staying empty that are the huge point in your favor. |
Is there a general guideline for what percentage of a portfolio should be in gold? | The "conventional wisdom" is that you should have about 5% of your portfolio in gold. But that's an AVERAGE. Meaning that you might want to have 10% at some times (like now) and 0% in the 1980s. Right now, the price of gold has been rising, because of fears of "easing" Fed monetary policy (for the past decade), culminating in recent "quantitative easing." In the 1980s, you should have had 0% in gold given the fall of gold in 1981 because of Paul Volcker's monetary tightening policies, and other reasons. Why did gold prices drop in 1981? And a word of caution: If you don't understand the impact of "quantitative easing" or "Paul Volcker" on gold prices, you probably shouldn't be buying it. |
Is there any reason not to put a 35% down payment on a car? | It sounds like you're basing your understanding of your options regarding financing (and even if you need a car) on what the car salesman told you. It's important to remember that a car salesman will do anything and say anything to get you to buy a car. Saying something as simple as, "You have a low credit score, but we can still help you." can encourage someone who does not realize that the car salesman is not a financial advisor to make the purchase. In conclusion, |
Will prices really be different for cash and cards? | There are many gas stations where I live that already have different prices if you pay for cash vs. credit. In addition, some small businesses are doing this as well. My wife bought a birthday cake from a bakery. If you paid with cash, you saved 5%. |
Buying Fixed Deposit in India from Europe | You could go further and do a carry trade by borrowing EUR at 2% and depositing INR at 10%. All the notes above apply, and see the link there. |
Investing in hemp producers in advance of possible legalization in Canada? | The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because of it's association with marijuana. If Marijuana is made legal, that stigma may or may not go away, changing which companies are interested in distribution. I don't believe that legalizing cannabis will create a great investing opportunity into existing hemp producers. |
Where can I invest my retirement savings money, where it is safer than stocks? | This is a very open ended question with no concrete answer as it depends on your personal situation. However, for starters I would suggest picking up a copy of The Investment Answer. It's a very light read, less than 100 pages, but it has some amazingly simple yet very concrete advice on investing and answers a lot of common questions (like yours). |
What's the smartest way to invest money gifted to a child? | American Century has their Heritage Fund: https://www.americancentury.com/sd/mobile/fund_facts_jstl?fund=30 It has a good track record. Here are all the mutual funds from American Century: https://www.americancentury.com/content/americancentury/direct/en/fund-performance/performance.html A mutual fund is a good wayway to go as it is not subject to fluctuations throughout the day whereas an ETF is. |
Clear example of credit card balance 55 days interest-free “trick”? | There are always little tricks you can play with your credit card. For example, the due date of your statement balance is not really set in stone as your bank would like you to believe. Banks have a TOS where they can make you liable to pay interest from the statement generation date (which is a good 25 days before your due date) on your balance, if you don't pay off your balance by your due date. However, you can choose to not pay your balance by your due date upto 30 days and they will not report your late payment to credit agencies. If they ask you to pay interest, you can negotiate yourself out of it as well (although not sure if it will work every-time if you make it a habit!) Be careful though: not all banks report your credit utilization based on your statement balance! DCU for example, reports your credit utilization based on your end-of-the-month balance. This can affect your short term credit score (history?) and mess around with your chances of pulling off these tricks with the bank CSRs. These "little tricks" can effectively net you more than 60 days of interest free loans, but I am not sure if anyone will condone this as a habit, especially on this website :-) |
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". |
Any difference between buying a few shares of expensive stock or a bunch of cheap stock | You are correct in thinking actual number of shares do not matter, the value is the value. However there are cases where share price does play a role. Berkshire Hathaway for example has not split because Warren Buffet believes it has cut down on the liquidity of the stock, as well as attracting investors with an eye for the longer term. There have also been things written on the psychology of a share price. For example, some people are attracted to shares that split, because it reflects a company is growing. |
Is trading stocks easier than trading commodities? | I would not argue if its more difficult, its different, and it much depends what kind of stocks you refer to, i take large caps as example. The players are different. Companies and even govts may hedge in the commodities (futures) market while in big caps this and other entities mainly invest. (Of course there’s HFT in large caps too). Futures often come with way higher leverage, lower spread and less commissions than stocks attracting retail and institutional speculators/HFT. Another big difference is that commodity prices react to all kind of news events (Stocks do too, but not that much and frequent), this kind of reactions big caps only do on earnings or on news directly affecting the company. Commodities are much more volatile on geo economic / political news events. This combined with higher leverage & HFT produces astounding moves. To sum it up, the players are different and act different than in large stocks, liquidity may be another thing. |
Should I sell my rental property or keep it if it has mold growth problems? | I'm going to assume that you will spend the money to fix the mold problem correctly. Using your numbers, after that is done, the home is worth perhaps $280k. To evaluate whether or not to sell, the amount you have spent on the house is irrelevant. The only thing you need to ask yourself is this: Would I spend $280k to buy this house today? You might, if you were happy with the rental income that you were getting. If the house is fully rented, it earns you $24k/year, which is an 8.6% return if you had purchased the house today at $280k. Of course, you will have vacancies, taxes, and other expenses bringing that return number down. Figure out what that is, and see if you are happy with the return based on those numbers. If you decide it would be a bad investment for you at $280k, then sell the house. By the way, this question works for any investment, not just real estate. When deciding whether or not to sell stock, the same thing applies. It is irrelevant what your cost basis is. You only need to ask yourself if the stock would be a good buy for you at the current price. |
Tenant wants to pay rent with EFT | I'd consider this offer. Keep in mind, any time you write a check, there's the information he's asking for. If it makes you feel comfortable, use the small balance account, or set up a 4th one you'll use for these incoming deposits only. |
Is insurance worth it if you can afford to replace the item? If not, when is it? | Another factor to consider is that resale value of the laptop is quite bit more if it is still under warranty. This would apply to people who replace their laptop often. It is higher because the purchaser can be assured they are not getting a lemon. I determined this by comparing prices on ebay before selling my computer. Of course, if you keep your laptop longer than the warranty, this means nothing. But for me it meant I could sell my old laptop quickly and for a better price. Because I used my laptop for work and totally depended on it, even one day of downtime would cost me a lot, so it was worthwhile to keep a relatively new laptop under warranty. Also, for those using Apple Care, there is an undocumented perk: Apple covered an out of warranty repair on a time capsule under my apple care for my laptop even tho they were not purchased at the same time. |
Should the poor consider investing as a means to becoming rich? | Yes, you can indeed become rich by investing even small amounts over time. Let's say that you begin with nothing invested, and you start investing $100 per week. Suppose you choose to put your money in an S&P 500 index mutual fund. The CAGR (Compound Annual Growth Rate) of the S&P 500 over the last 35 years has been about 11%. (That 35 years includes at least two fairly serious crashes.) You may get more or less than that number in the future, but let's guess that you'll average 9%. 35 years from now, you would be a millionaire ($1.2 Million, actually). This math works out for anyone, no matter who your parents are, where you are from, where you went to school, etc. Yes, you have a better chance of becoming wealthy the more you invest, the longer you have to stay invested, and the better choices you make in your investments. By starting early, you will maximize your time invested, which allows you the flexibility to be more conservative in your investments and to invest smaller amounts. But for those with a shorter time to invest, it is still doable for most people. Get your financial life under control by eliminating your debt, setting a household budget, and investing for the future. |
Pros/cons for buying gold vs. saving money in an interest-based account? | What you are seeing is the effects of inflation. As money becomes less valuable it takes more of it to buy physical things, be they commodities, shares in a company's stock, and peoples time (salaries). Just about the only thing that doesn't track inflation to some degree is cash itself or money in an account since that is itself what is being devalued. So the point of all this is, buying anything (a house, gold, stocks) that doesn't depreciate (a car) is something of a hedge against inflation. However, don't be tricked (as many are) into thinking that house just made you a tidy sum just because it went up in value so much over x years. Remember 1) All the other houses and things you'd spend the money on are a lot more expensive now too; and 2) You put a lot more money into a house than the mortgage payment (taxes, insurance, maintenance, etc.) I'm with the others though. Don't get caught up in the gold bubble. Doing so now is just speculation and has a lot of risk associated with it. |
How to calculate interest payments without EBIT | The actual financial statements should always be referenced first before opening or closing a position. For US companies, they are freely available on EDGAR. Annual reports are called 10-Ks, and quarterly reports are called 10-Qs. YHOO and GOOG do a great job of posting financials that are quickly available, but money.msn has the best. These should be starting point, quick references. As you can see, they may all have the same strange accounting. Sometimes, it's difficult to find the information one seeks in the consolidated financial statements as in this case, so searching through the filing is necessary. The notes can be helpful, but Ctrl-F seems to do everything I need when I want something in a report. In AAPL's case, the Interest expense can be found in Note 3. |
Advice on what to do with my equity? | How will 45K-60K "end up in your pocket"? Are you selling your home? Where are you going to live? You talk about moving to Arizona, what is so magical about that place? Congratulations on making a wise purchase. Some people with new found money use it to correct past mistakes. However, if they do not change their behavior they end up in the same situation just less them money they once had. While 50K income is respectable at your age, it is below the national average for households. One factor in having a college education is those with them tend to experience shorter and fewer periods of unemployment especially for males. Nothing will ever replace hustle, however. I'd ask you to have a plan to raise your income. Can you double it in 5 years? You need to get rid of the revolving debt. Do that out of current income. No need to touch the house proceeds for something so small. Shoot for 9 months. Then you need to get rid of the speeding fines and the vehicle loan. That is a lot of vehicle for your income. Again, I would do that out of current income or by selling the vehicle and moving to something more inline with your income. As far as to moving or flipping foreclosures that is more of a question that has to do with your hopes and dreams. Do you want to move your children every 3 years? What if you move to Arizona and it turns out to be quite horrible? You and your wife need to sit down and discuss what is best for your family. |
Does the stock market create any sort of value? | I probably don't understand something. I think you are correct about that. :) The main way money enters the stock market is through investors investing and taking money out. Money doesn't exactly "enter" the stock market. Shares of stock are bought and sold by investors to investors. The market is just a mechanism for a buyer and seller to find each other. For the purposes of this question, we will only consider non-dividend stocks. Okay. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say "I own $399 of you, here you go it back, give me an iPhone." The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.) It is true that when you own stock, you own a small portion of the company. No, you can't just destroy your portion of the company; that wouldn't be fair to the other investors. But you can very easily sell your portion to another investor. The stock market facilitates that sale, making it very easy to either sell your shares or buy more shares. It's not a Ponzi scheme. The only reason your hypothetical share is said to be "worth" $399 is that there is a buyer that wants to buy it at $399. But there is a real company behind the stock, and it is making real money. There are several existing questions that discuss what gives a stock value besides a dividend: The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do. The value of a stock is simply what a buyer is willing to pay for it. You are correct that there is not always a correlation between the price of a stock and how well the company is doing. But let's look at another hypothetical scenario. Let's say that I started and run a publicly-held company that sells widgets. The company is doing very well; I'm selling lots of widgets. In fact, the company is making incredible amounts of money. However, the stock price is not going up as fast as our revenues. This could be due to a number of reasons: investors might not be aware of our success, or investors might not think our success is sustainable. I, as the founder, own lots of shares myself, and if I want a return on my investment, I can do a couple of things with the large revenues of the company: I can either continue to reinvest revenue in the company, growing the company even more (in the hopes that investors will start to notice and the stock price will rise), or I can start paying a dividend. Either way, all the current stock holders benefit from the success of the company. |
Will the popularity of index funds cause a pricing bubble in the stocks that make up an index? | With regard to commodity futures, a paper released in January 2010 by Aulerich, Irwin, and Garcia, concluded that index funds have essentially no impact on commodity futures. Looking at stocks, a stock that gets included in a major index does increase in price. It increases its turnover by 27% and increases its price by between 2.7% and 5.5%, according to information cited by Kula in this paper, though it looks like the price increase tends to happen in the lead up to the stock being included. Interestingly, I have read an article but cannot now locate it, which states that there's a measurable, albeit fairly small, price bubble on stocks included in common indexes, on Monday mornings, Friday afternoons, and at the start and end of the month. That is, the times when mutual funds are most likely to rebalance their holdings. This almost certainly applies to a lesser extent to other stocks, too. My understanding is that the price difference was very small, however. Generally speaking, stocks which make part of well-known indexes will tend to be in higher demand than stocks which do not. It remains the case that almost all actively-managed mutual funds are unable to consistently beat the indexes, even with this taken into account. |
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). |
Can I contribute to an IRA from investment income? | Your contributions must come from "compensation". Quoting IRS Publication 590 on IRAs, "Generally, compensation is what you earn from working." So it is unlikely that your stock sale proceeds, if they're your sole source of income, can be used to fund your IRA. If you do have W-2 income, or self employment income, you can use the proceeds of a stock sale to fund an IRA. The IRS doesn't care where the exact dollars that go into the IRA come from, only that you earned (from working) at least as much as you contributed. |
Am I considered in debt if I pay a mortgage? | Mortgage is a (secured) debt, a combination of a promissory note, and a security interest providing the mortage holder a secured interest in the property. Yes, you are "in debt". But that depends upon whether you define the term "in debt" as a debt appearing on the balance sheet, or the net of assets - liabilities is less than zero, whether you have a "debt" expense on the income statement (budget), or whether the net of income - expenses is less than zero. One person might look at their budget, find the (monthly) mortgage payment listed, and judge that they have a debt payment, and thus are "in debt". Or they might look at their expenses, find they exceed their income, and judge that they are "in debt". Another person might look at their balance sheet, compare assets to liabilities, and only say they were "in debt" when their liabilities exceeded their assets. Some people view mortgage debt as "good debt", as they view certain debts as "good" and others as "bad". Trust me, having a high mortgage payment (higher 30% of your net income) is hard, and over 40% is bad. Consider you balance sheet and your income statement. On your balance sheet, the house appears on the "asset" side with an (estimated) value, while the "mortgage" (really, the promissory note part of the mortgage) appears on the "liability" side. On your income statement, your house does not appear on the income side, but the mortgage (promissory note) payment appears on the expense side. So, you clearly have both a "liability" with a clearly-defined value and an "expense" with a clearly-defined payment. But do you have an "asset"? According to an accountant, you have an "asset" and a "liability". But you do not have a business asset that is producing revenue (income), nor do you have a business asset that can be amortized and expensed to reduce taxable income. When we think about an asset, does the word have the connotation of some thing with value, something that produces income? Well, by that measure, a house only provides income when we rent it out, and only has value when we consider selling it. As millions of families discovered during the housing (price) collapse, when the market price of your "asset" falls substantially, your personal financial status can fall negative and you can be "broke". |
How do I calculate ownership percentage for shared home ownership? | Accounting for this properly is not a trivial matter, and you would be wise to pay a little extra to talk with a lawyer and/or CPA to ensure the precise wording. How best to structure such an arrangement will depend upon your particular jurisdiction, as this is not a federal matter - you need someone licensed to advise in your particular state at least. The law of real estate co-ownership (as defined on a deed) is not sufficient for the task you are asking of it - you need something more sophisticated. Family Partnership (we'll call it FP) is created (LLC, LLP, whatever). We'll say April + A-Husband gets 50%, and Sister gets 50% equity (how you should handle ownership with your husband is outside the scope of this answer, but you should probably talk it over with a lawyer and this will depend on your state!). A loan is taken out to buy the property, in this case with all partners personally guaranteeing the loan equally, but the loan is really being taken out by FP. The mortgage should probably show 100% ownership by FP, not by any of you individually - you will only be guaranteeing the loan, and your ownership is purely through the partnership. You and your husband put $20,000 into the partnership. The FP now lists a $20,000 liability to you, and a $20,000 asset in cash. FP buys the $320,000 house (increase assets) with a $300,000 mortgage (liability) and $20,000 cash (decrease assets). Equity in the partnership is $0 right now. The ownership at present is clear. You own 50% of $0, and your sister owns 50% of $0. Where'd your money go?! Simple - it's a liability of the partnership, so you and your husband are together owed $20,000 by the partnership before any equity exists. Everything balances nicely at this point. Note that you should account for paying closing costs the same as you considered the down payment - that money should be paid back to you before any is doled out as investment profit! Now, how do you handle mortgage payments? This actually isn't as hard as it sounds, thanks to the nature of a partnership and proper business accounting. With a good foundation the rest of the building proceeds quite cleanly. On month 1 your sister pays $1400 into the partnership, while you pay $645 into the partnership. FP will record an increase in assets (cash) of $1800, an increase in liability to your sister of $1400, and an increase in liability to you of $645. FP will then record a decrease in cash assets of $1800 to pay the mortgage, with a matching increase in cost account for the mortgage. No net change in equity, but your individual contributions are still preserved. Let's say that now after only 1 month you decide to sell the property - someone makes an offer you just can't refuse of $350,000 dollars (we'll pretend all the closing costs disappeared in buying and selling, but it should be clear how to account for those as I mention earlier). Now what happens? FP gets an increase in cash assets of $350,000, decreases the house asset ($320,000 - original purchase price), and pays off the mortgage - for simplicity let's pretend it's still $300,000 somehow. Now there's $50,000 in cash left in the partnership - who's money is it? By accounting for the house this way, the answer is easily determined. First all investments are paid back - so you get back $20,000 for the down payment, $645 for your mortgage payments so far, and your sister gets back $1400 for her mortgage payment. There is now $27,995 left, and by being equal partners you get to split it - 13,977 to you and your husband and the same amount to your sister (I'm keeping the extra dollar for my advice to talk to a lawyer/CPA). What About Getting To Live There? The fact is that your sister is getting a little something extra out of the deal - she get's the live there! How do you account for that? Well, you might just be calling it a gift. The problem is you aren't in any way, shape, or form putting that in writing, assigning it a value, nothing. Also, what do you do if you want to sell/cash out or at least get rid of the mortgage, as it will be showing up as a debt on your credit report and will effect your ability to secure financing of your own in the future if you decide to buy a house for your husband and yourself? Now this is the kind of stuff where families get in trouble. You are mixing personal lives and business arrangements, and some things are not written down (like the right to occupy the property) and this can really get messy. Would evicting your sister to sell the house before you all go bankrupt on a bad deal make future family gatherings tense? I'm betting it might. There should be a carefully worded lease probably from the partnership to your sister. That would help protect you from extra court costs in trying to determine who has the rights to occupy the property, especially if it's also written up as part of the partnership agreement...but now you are building the potential for eviction proceedings against your sister right into an investment deal? Ugh, what a potential nightmare! And done right, there should probably be some dollar value assigned to the right to live there and use the property. Unless you just want to really gift that to your sister, but this can be a kind of invisible and poorly quantified gift - and those don't usually work very well psychologically. And it also means she's going to be getting an awfully larger benefit from this "investment" than you and your husband - do you think that might cause animosity over dozens and dozens of writing out the check to pay for the property while not realizing any direct benefit while you pay to keep up your own living circumstances too? In short, you need a legal structure that can properly account for the fact that you are starting out in-equal contributors to your scheme, and ongoing contributions will be different over time too. What if she falls on hard times and you make a few of the mortgage payments? What if she wants to redo the bathroom and insists on paying for the whole thing herself or with her own loan, etc? With a properly documented partnership - or equivalent such business entity - these questions are easily resolved. They can be equitably handled by a court in event of family squabble, divorce, death, bankruptcy, emergency liquidation, early sale, refinance - you name it. No percentage of simple co-ownership recorded on a deed can do any of this for you. No math can provide you the proper protection that a properly organized business entity can. I would thus strongly advise you, your husband, and your sister to spend the comparatively tiny amount of extra money to get advice from a real estate/investment lawyer/CPA to get you set up right. Keep all receipts and you can pay a book keeper or the accountant to do end of the year taxes, and answer questions that will come up like how to properly account for things like depreciation on taxes. Your intuition that you should make sure things are formally written up in times when everyone is on good terms is extremely wise, so please follow it up with in-person paid consultation from an expert. And no matter what, this deal as presently structured has a really large built-in potential for heartache as you have three partners AND one of the partners is also renting the property partially from themselves while putting no money down? This has a great potential to be a train wreck, so please do look into what would happen if these went wrong into some more detail and write up in advance - in a legally binding way - what all parties rights and responsibilities are. |
What are the primary investment strategies people use and why do they use them? | Your question seems to be making assumptions around “investing”, that investing is only about stock market and bonds or similar things. I would suggest that you should look much broader than that in terms of your investments. Investment Types Your should consider (and include) some or all of the following for your investments, depending on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. I love @Blackjack’s explanation of diversification into other asset classes producing a lower risk portfolio. Excellent! All the above need to be considered in this spread of risk, depending as I said earlier on your age, your attitude towards risk, the number of dependents you have, your lifestyle, etc. Stock Market Investment I’ll focus most of the rest of my post on the stock markets, as that is where my main experience lies. But the comments are applicable to a greater or lesser extent to other types of investing. We then come to how engaged you want to be with your investments. Two general management styles are passive investment management versus active investment management. @Blackjack says That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. The difficulty with this idea is that profitability is very dependent upon when the stocks are purchased and when they are sold. This is why active investing should be considered as a viable alternative to passive investment. I don’t have access to a very long time frame of stock market data, but I do have 30 or so years of FTSE data, so let’s say that we invest £100,000 for 10 years by buying an ETF in the FTSE100 index. I know this isn't de-risking across a number of asset classes by purchasing a number of different EFTs, but the logic still applies, if you will bear with me. Passive Investing I have chosen my example dates of best 10 years and worst 10 years as specific dates that demonstrate my point that active investing will (usually) out-perform passive investing. From a passive investing point of view, here is a graph of the FTSE with two purchase dates chosen (for maximum effect), to show the best and worst return you could receive. Note this ignores brokerage and other fees. In these time frames of data I have … These are contrived dates to illustrate the point, on how ineffective passive investing can be, depending if there is a bear/bull market and where you buy in the cycle. One obviously wouldn’t buy all their stocks in one tranche, but I’m just trying to illustrate the point. Active Investing Let’s consider now active investing. I use the following rules for selling and buying:- This is obviously a very simple technical trading system and I would not recommend using it to trade with, as it is overly simplistic and there are some flaws and inefficiencies in it. So, in my simulation, These beat the passive stock market profit for their respective dates. Summary Passive stock market investing is dependent upon the entry and exit prices on the dates the transactions are made and will trade regardless of market cycles. Active stock market trading or investing engages with the market using a set of criteria, which can change over time, but allows one’s investments to be in or out of the market at any point in time. My time frames were arbitrary, but with the logic applied (which is a very simple technical trading methodology), I would suggest that any 10 year time frame active investing would beat passive investing. |
Why are interest rates on saving accounts so low in USA and Europe? | Banks in general will keep saving rates as low as possible especially if there is a surplus of funds or alternative access for funding as in the case of the Fed in the USA. Generally speaking, why would bank pay you a high interest rate when they cannot generate any income from your money? Usually we will expect to see a drop in the loan interest rate when their is a surplus of funds so as to encourage investment. But if the market is volatile then no banks will allow easy access to money through loans. The old traditional policy of lending money without proper security and no control from the central bank has created serious problems for savings account holders when some of these banks went into bankruptcy. It is for this reason most countries has modified their Financial Act to offer more protection to account holders. At the moment banks must follow rigid guidelines before a loan can be approved to a customer. In my country (Guyana) we have seen the collapse of a few banks which sent a shock wave across the county for those that have savings held at those bank. We have also seen unsecured loans having to be written off thus putting serious pressure of those banks. So government stepped in a few years ago and amended the act to make it mandatory to have commercial banks follow certain strict guidelines before approving a loan. |
Planning to invest in stock, age 16 | First of all, since you're 16 - you will not invest in anything. You cannot, you're a minor. You cannot enter contracts, and as such - you cannot transact in property. Your bank accounts are all UGMA accounts. I.e.: your guardian (or someone else who's the trustee on the account) will be the one transacting, not you. You can ask them to do trades, but they don't have to. They must make decisions in your best interest, which trades may not necessarily be. If however they decide to make trades, or earn interest, or make any other decision that results in gains - these are your gains, and you will be taxed on them. The way taxes work is that you're taxed on income. You're free to do with it whatever you want, but you're taxed on it. So if you realized gains by selling stocks, and reinvested them - you had income (the gains) which you did with whatever you felt like (reinvested). The taxman doesn't care what you did with the gains, the taxman cares that you had them. For losses it is a bit more complicated, and while you can deduct losses - there are limitations on how much you can deduct, and some losses cannot be deducted at all when realized (like wash sale losses or passive activity losses). When you have stock transactions, you will probably need to file a tax return reporting the transactions and your gains/losses on them. You may end up not paying any tax at all, but since the broker is reporting the transactions - you should too, if only to avoid IRS asking why you didn't. This, again, should be done by your guardian, since you personally cannot legally sign documents. You asked if your gains can affect your parents' taxes. Not exactly - your parents' taxes can affect you. This is called "Kiddie Tax" (unofficially of course). You may want read about it and take it into account when discussing your investments with your guardian/parents. If kiddie tax provisions apply to you - your parents should probably discuss it with their tax adviser. |
How FTB and IRS find mistakes in amended tax returns? Are their processes reliable? | The FTB, as any government agency, is understaffed and underpaid. Even if someone took a glance and it wasn't just an automated letter - consider the situation: you filed as a LLC and then amended to file as a partnership. Unless someone really pays attention - the obvious assumption would be that you had a limited partnership. Yes, you'll need to call them and work with them on fixing this. They do have all the statements you've attached. However, there's a lot of automation and very little attention to details when it comes to matching errors, so don't get surprised if no-one even looked at these statements. Next time your elected government officials talk about "small government" and "cutting government expenses" - you can remind yourself how it looks in action with this experience. |
What should I do with my $10K windfall, given these options? | Have you looked at DIY roof repair? Caulking with tar adhesive, and shingle replacement isn't that hard, if you're in good health. Totally depends on how bad your roof is/what the demands on it are going to be. If you can squeak another year out of it, with minimal investment, you'll have a year's worth of, say car-debt (at what percent interest?) to put into your roof fund. |
Want to buy above market price? | Buy and sell orders always include the price at which you buy/sell. That's how the market prices for stocks are determines. So if you want to place a buy order at 106, you can do that. When that order was fulfilled and you have the stock, you can place a sell order at 107. It will be processed as soon as someone places a buy order at 107. Theoretically you can even place sell orders for stocks you haven't even bought yet. That's called short selling. You do that when you expect a stock to go down in the future. But this is a very risky operation, because when you mispredict the market you might end up owing more money than you invested. No responsible banker will even discuss this with you when you can not prove you know what you are doing. |
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. |
Can I use FOREX markets to exchange cash? | As far as I understand, OP seems to be literally asking: "why, regarding the various contracts on various exchanges (CBE, etc), is it that in some cases they are 'cash settled' and in some 'physically settled' -?" The answer is only that "the exchange in question happens to offer it that way." Note that it's utterly commonplace for contracts to be settled out physically, and happens in the billions as a daily matter. Conversely zillions in "cash settled" contracts play out each day. Both are totally commonplace. Different businesses or entities or traders would use the two "varieties" for sundry reasons. The different exchanges offer the different varieties, ultimately I guess because they happen to think that niche will be profitable. There's no "galactic council" or something that enforces which mode of settlement is available on a given offering - ! Recall that "a given futures contracts market" is nothing more than a product offered by a certain exchange company (just like Burger King sells different products). I believe in another aspect of the question, OP is asking basically: "Why is there not, a futures contract, of the mini or micro variety for extremely small amounts, of currency futures, which, is 'physically' settled rather than cash settled ..?" If that's the question the answer is just "whatever, nobody's done it yet". (Or, it may well exist. But it seems extremely unlikely? "physically" settled currencies futures are for entities operating in the zillions.) Sorry if the question was misunderstood. |
Do I pay taxes on a gift of mutual funds? | First of all, in the U.S., no Federal gift tax has to be paid by the recipient of the gift; it is the donor who has to pay gift tax, if any is due. Nor does the recipient have to pay Federal income tax on the gift; it is not considered taxable income. I do not believe that any states view matters differently for the purposes of state gift and income taxes, but I am always ready to be disabused of any such fondly-held notions. If your parents were required to pay any gift tax, that would have been at the time the gift was originally given and only if they gifted more than the maximum allowable exemption per person for that year. Currently the exemption is $14K from each donor per recipient per year. Additional gifts were made by your parents to you during your minority when your parents paid any income tax due on the distributions in your account, but these amounts would unlikely to have been larger than the exemption for that year. In any case, gift tax is none of your concern. If you have been declaring the income from distributions from the mutual funds all these years, then the only tax due on the distributions from the funds in 2013 is the Federal income tax for the 2013 tax year (plus a special assessment of Medicare tax on investment income if your income is large; unlikely based on your question and follow-up comment). If you sold all or part of your shares in the funds in 2013, then you would need to calculate the basis of your investments in the fund in order to figure out if you have capital gains or losses. Ditto if you are thinking of cashing out in 2014 and wish to estimate how much income tax is due. But if you want to just hang on to the funds, then there is no immediate need to figure out the basis right away, though taking care of the matter and keeping in top of things for the future will be helpful. As a final note, there is no tax due on the appreciation of the fund's shares. The increased value of your account because the fund's share price rose is not a taxable event (nor are decreases in the account deductible). These are called unrealized capital gains (or losses) and you do not pay tax on them (or deduct them as losses) until you realize the gains by disposing of the property. |
Should I open a credit card when I turn 18 just to start a credit score? | The length of time you have established credit does improve your credit score in the long run. As long as you can avoid paying interest, you might see if you can get a card with cash back rewards. I have one from Citi that sends me a $50 check every so often when I have enough rewards built up. |
Borrow from 401k for down payment on rental property? | Make sure you can really do what you plan on doing: Look at the maximum loan length and the maximum loan amount. From the IRS- retirement plans faqs regarding loans A qualified plan may, but is not required to provide for loans. If a plan provides for loans, the plan may limit the amount that can be taken as a loan. The maximum amount that the plan can permit as a loan is (1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less ... A plan that provides for loans must specify the procedures for applying for a loan and the repayment terms for the loan. Repayment of the loan must occur within 5 years, and payments must be made in substantially equal payments that include principal and interest and that are paid at least quarterly. Loan repayments are not plan contributions. The referenced documents also discuss the option regarding multiple loans, and the maximum amount of all active and recent loans Having a 401K loan will still count against the maximum amount of monthly payments you can afford. Also check the interest rate, and yes they required to charge interest. Some companies will not allow you to make contributions to a 401K while you have an outstanding loan. If that is true with your company then you will miss out on the matching funds. |
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. |
What do the terms par value, purchase price, call price, call date, and coupon rate mean in the context of bonds? | Unless stated otherwise, these terms apply to all bonds. The par value or face value of a bond refers to the value of the bond when it's redeemed at maturity. A bond with a par value of $10,000 simply means that if you purchase the bond and hold it until the maturity date specified in the contract, you receive $10,000. The purchase price, however, is exactly that: it's what you paid for the bond. Bonds may sell below, at, or above par. Continuing the example from above, if you paid $9,800 for a bought a bond with a $10,000 par value, you bought the bond below par. A bond selling below par is said to be selling at a discount. For bonds selling above bar, they're selling at a premium. If the purchase price and the par value are the same, the bond is selling at par. These terms apply to callable bonds only, which are bond contracts that allow the issuer of the bond (in the case of municipal bonds, the institution or agency who created the contract) to buy back from bond holders at a given date (the call date) and at a given price (the call price) before the bond reaches maturity and pays the holder the full par value. Yes, the coupon rate is essentially the interest paid. It's usually represented as a percent of the par value, so if the $10,000 in the example above had a 5% coupon rate, this means that it paid out 0.05 * 10,000 = $500 each year. Usually, this payment is made as two semi-annual payments of $250. Some bonds are zero-coupon bonds, which means exactly what you would think; they don't make any coupon payments. U.S. Treasury Bills are one example of a zero-coupon bond. All of these factors are linked, because the coupon rate, callable provisions, and par value, along with the overall economic environment, can affect the purchase price of a bond. |
Do Americans really use checks that often? | I know this an old thread, but one that caught my interest as I just moved to the USA from Australia. As per the OP I had never written a check in my whole life, and upon arriving in the US I was surprised as to their proliference. In Australia pretty much all bills you receive can be paid in a number of ways: For small amounts between friends cash is probably used most, but for larger amounts direct transfer is popular. Your friend/landlord will give you their bank account number and BSB number, which identifies their bank, and then you transfer the money in. We don't have a SSN like some other countries. Cheques are still used by some however, esp by the older generations. Now that I'm in the US initially I had tried to set up direct transfer to pay my rent however the bank has a $1000 daily transfer limit. I contacted the bank to get this increased however I was informed that this limit applies to ALL accounts at the bank. I asked how do people pay their rents with this low limit and was told that most people used cheques. (This explains the strange look I got from my landlord when I asked for their bank account details so I could pay the rent!) I now have some bills to pay here and I use online banking. You enter the biller's name and address and then the bank actually prints off a cheque and posts it to the biller on your behalf! My first couple of pays here were also cheques, which were the first actual "paychecks" I had ever received. |
Should I have a higher credit limit on my credit card? | I wouldn't say you should have any particular limit, but it can't hurt to have a higher limit. I'd always accept the increase when offered, and feel free to request it sometimes, just make sure you find out if it will be a hard or soft inquiry, and pass on the hard inquires. From my own experience, there doesn't seem to be any rhyme or reason to the increases. I believe each bank acts differently based on the customer's credit, income, and even the bank's personal quotas or goals for that period. Here is some anecdotal evidence of this: I got my first credit card when I was 18 years old and a freshman in college. It had a limit of $500 at the time. I never asked for a credit line increase, but always accepted when offered one, and sometimes they didn't even ask, and in the last 20 years it worked it's way up to $25K. Another card with the same bank went from $5K to $15K in about 10 years. About 6 years ago I added two cards, one with a $5K limit and one with a $3K limit. I didn't ask for increases on those either, and today the 5K is up to $22K, and the 3K is still at $3K. An even larger disparity exists on the business side. Years ago I had two business credit cards with different banks. At one point in time both were maxed out for about 6 months and only minimums were being paid. Bank 1 started lowering my credit limit as I started to pay off the card, eventually prompting me to cancel the card when it was paid in full. At the same time Bank 2 kept raising my limit to give me more breathing room in case I needed it. Obviously Bank 1 didn't want my business, and Bank 2 did. Less than a year later both cards were paid off in full, and you can guess which bank I chose to do all of my business with after that. |
What is the purpose of property tax? | Property taxes, at least in Canada, are levied by the municipality or city in which the property is situated. For many cities, it is a significant source of income. Part of the justification from the municipal point of view is that the land is serviced, in that it generally has city services like water, sewer, garbage collection and the like. The taxes also commonly pay for city services like libraries, fire and ambulance. The tax rates vary widely across cities, so where your dream house is located may have a large impact on your overall tax bill. Property tax is more-or-less a government imposed lien on your house. You can be foreclosed on if you are unable to pay. This is a last resort of course, but can and does happen. |
How is gold shared in worldwide economies? | I think you are asking a few questions here. Why is gold chosen as money? In a free market there are five characteristics of a good money: Gold and silver meet all five characteristics. Diamonds are not easily divisible which is why they are not normally used as money. Copper, Iron, and lead are not scarce enough - you would need a lot of these metals to make weekly or daily purchases. Paper is also way too plentiful to be used as money. By the way, historically silver has been used for money more than gold. How does international trade work with gold as money (is this what you are asking with your hypothetical example of 10 countries each with y amount of gold?) Typically a government will issue a currency that is backed by gold. This means you can redeem your currency for actual gold. Then when an American spends 5 US dollars (USD) to purchase a Chinese good the Chinese man now owns 5 USDs. The Chinese man can either redeem the 5 USD for gold or spend the 5 USD in the US. If a government issues more currency then they have gold for then the gold will start to flow from that country to other countries as the citizens of the other countries redeem the over-issued currency for gold. This outflow of gold restricts governments from over-issuing paper currency. Who creates the procedures and who supervises them in modern worldwide economy? The Federal Reserve, IMF, and Bank of International Settlements all are involved in the current system where the US dollar (see Bretton Woods agreement) is the reserve currency used by central banks throughout the world. Some think this system is coming to an end. I tend to agree. |
On a debt collection agency's letter, what does “balance” refer to? | Without more info to go on (such as a screenshot of the relevant portion of the statement or what country you're in), I will run with the answer that "balance" is the amount the collection agency is attempting to collect from you, including any and all fees the agency may have added. One important idea to keep in mind is that depending on how old the debt is, the amount involved, and the importance to the agency to collect it, you may be able to negotiate a settlement for less than the full amount. This isn't always possible, but sometimes you get lucky, and it doesn't hurt to try. Collection agencies work in several ways. Some will actually buy the outstanding debt from the original creditor for some percentage of the debt's face value and then take their chances on whether they collect anything at all, while others work on behalf of the creditor and earn some percentage of what they manage to recover. In the latter case, your chance of negotiating a reduced amount is better, because the agency is being evaluated by the creditor on how quickly and efficiently they collect debts. An agency that is slower or less effective than another is less likely to continue earning the creditor's business. I hope this helps. Good luck! |
Advantages/disadvantages of buying stocks on dips vs buying outright? | If your stock is rising and you want to buy on a dip, the best way to do this is by looking at the chart and incorporating simple Technical Analysis techniques. Firstly, an uptrend is defined as a price chart with higher highs and higher lowers. If you get a lower high or a lower low (or both), it could be the end of the uptrend - be cautious. This can be seen on the chart below with an uptrend line drawn. If you draw a trend line you can wait for the price to approach the trend line, bounce off it and start moving up again to buy your stock on a dip. If instead the price closes below the trend line, be very cautious - this could be the end of the uptrend and the start of a downtrend - no telling how low the price will go. If this is the case you can then draw a downtrend line and wait for the price to close above the downtrend line before making your purchase. |
Where should my money go next: savings, investments, retirement, or my mortgage? | I frequently advise to go 401(k) up to the match. With no match, I'm not so sure. If you are in the 15% bracket, I'd skip the 401(k). Your standard deduction is $5800 this year, do you itemize? I ask because the 15% bracket ends at $34,500, and I don't know if you manage enough deductions to get under that. But - I'd only pt into the 401(k) what would otherwise be taxed at 25%, no more. Even then only if the 401(k) expenses were pretty reasonable. Will all the hoopla over retirement accounts, we easily forget the beauty of the investment in ETFs long term. You buy the SPY (S&P 500 ETF) and hold it forever. The gains are all deferred until you sell, and then they have a favored rate. You control the timing of the sale with no risk of penalty. The expenses are low, and over time, can make up for the lack of tax deduction (The pretax deposit) vs the 401(k) account. You die and the beneficiaries have a stepped up basis with no tax due (under whatever the limit is that year). Long term, I'd go with low cost ETFs and pay the mortgage at the minimum payments. Even without itemizing, 4.2% is pretty low compared to the expected return over the next decade in stocks. I recommend a look at Fairmark to help understand your marginal rate. Your gross doesn't matter as much as that line on 1040 "taxable income." This will tell you if you are in the 25% bracket and if so, how deep. Edit - If one's taxable income, line 43 on your 1040, I believe, puts him into the 15% bracket, there are issues using a pretax 401(k). The priority should be to use a Roth IRA or Roth 401(k). Being so close to that 25% bracket at 26 tells me you will grow, and/o marry into it over time, that's the ideal time to use the pre-tax 401(k) to stay at 15%. i.e. deposit just enough to bring your taxable income right to that line of 15/25%. |
What makes a Company's Stock prices go up or down? | I always liked the answer that in the short term, the market is a voting machine and in the long term the market is a weighing machine. People can "vote" a stock up or down in the short term. In the long term, typically, the intrinsic value of a company will be reflected in the price. It's a rule of thumb, not perfect, but it is generally true. I think it's from an old investing book that talks about "Mr. Market". Maybe it's from one of Warren Buffet's annual letters. Anyone know? :) |
What happens to dividends on stock held in TFSA or RRSP account? | For an RRSP, you do not have to pay taxes on money or investments until you withdraw the money. If you do not reinvest the dividends but instead, take them out as cash, that would be withdrawing the money. For mutual funds, you would normally reinvest the dividends if holding the investment inside an RRSP. For stocks, I believe the dividends would end up sitting in the cash part of your RRSP account (and you'd probably use the money to buy more stocks, though would not be required to do so). Either way, you do not pay tax on this investment income unless you withdraw it from your RRSP. For example, you invest $10,000 inside your RRSP. You get the tax benefit from doing so. You get dividends of $1,000 (hey, it was a good year), and use these to buy more stock. As the money never left your RRSP account, you are considered to have invested only your initial $10,000. If instead, you withdraw the $1,000 in dividends, you are taxed on $1000 income. TFSA are slightly more complicated. You don't get a tax benefit from your initial contribution, but then do not pay tax when you withdraw from the TFSA. Your investment income is still tax-free, and you are (generally) much more limited in how much you can contribute. For example, you invest $10,000 inside your TFSA. You get dividends of $1,000, and use these to buy more stock. Your total contributions to your TFSA remains at $10,000 as the money never left your account. You could instead withdraw the $1000 from your TFSA and would not pay tax on it. In the next calendar year (or later) after the withdrawal, you could "repay" the $1000 you took out without suffering an overcontribution penalty. This makes TFSA an excellent place to park emergency funds, as you can withdraw and subsequently replace the investment while continuing to get the tax benefits on your investment income. RRSPs are better for retirement or for the home buyers plan. In general, you should not be withdrawing money from either your TFSA or RRSP, except in emergencies, when retiring, or when purchasing a home. I prefer indexed mutual funds or money market accounts for both my RRSP and TFSA rather than individual stocks, but that's up to you. |
What is a good rental yield? | Historically that 'divide by 1000' rule of thumb is what many people in Australia have thought of as normal, and yes, it's about a 5.2% gross yield. Net of expenses, perhaps 3-4%, without allowing for interest. If you're comparing this to shares, I think the right comparison is to the dividend yield, not to the overall PE. A dividend yield of about 3-5% is also about typical: if you look at the Vanguard Index Australian Shares Fund as a proxy for the ASX the yield last year was about 4%. Obviously a 4% return is not very competitive with a term deposit. But with both shares and housing you can hope for some capital growth in addition to the income yield. If you get 4% rental yield plus 5% growth it is more attractive. Is it "good" to buy at what people have historically thought was "normal"? Perhaps you are better off looking around, or sitting out, until you find a much better price than normal. "Is 5% actually historically normal?" deserves a longer answer. |
Is stock trading based more on luck than poker playing? | This depends strongly on what you mean by "stock trading". It isn't a single game, but a huge number of games grouped under a single name. You can invest in individual stocks. If you're willing to make the (large) effort needed to research the companies and their current position and potentialities, this can yield large returns at high risk, or moderate returns at moderate risk. You need to diversify across multiple stocks, and multiple kinds of stocks (and probably bonds and other investment vehicles as well) to manage that risk. Or you can invest in managed mutual funds, where someone picks and balances the stocks for you. They charge a fee for that service, which has to be subtracted from their stated returns. You need to decide how much you trust them. You will usually need to diversify across multiple funds to get the balance of risk you're looking for, with a few exceptions like Target Date funds. Or you can invest in index funds, which automate the stock-picking process to take a wide view of the market and count on the fact that, over time, the market as a whole moves upward. These may not produce the same returns on paper, but their fees are MUCH lower -- enough so that the actual returns to the investor can be as good as, or better than, managed funds. The same point about diversification remains true, with the same exceptions. Or you can invest in a mixture of these, plus bonds and other investment vehicles, to suit your own level of confidence in your abilities, confidence in the market as a whole, risk tolerance, and so on. Having said all that, there's also a huge difference between "trading" and "investing", at least as I use the terms. Stock trading on a short-term basis is much closer to pure gambling -- unless you do the work to deeply research the stocks in question so you know their value better than other people do, and you're playing against pros. You know the rule about poker: If you look around the table and don't see the sucker, he's sitting in your seat... well, that's true to some degree in short-term trading too. This isn't quite a zero-sum game, but it takes more work to play well than I consider worth the effort. Investing for the long term -- defining a balanced mixture of investments and maintaining that mixture for years, with purchases and sales chosen to keep things balanced -- is a positive sum game, since the market does drift upward over time at a long-term average of about 8%/year. If you're sufficiently diversified (which is one reason I like index funds), you're basically riding that rise. This puts you in the position of betting with the pros rather than against them, which is a lower-risk position. Of course the potential returns are reduced too, but I've found that "market rate of return" has been entirely adequate, though not exciting. Of course there's risk here too, if the market dips for some reason, such as the "great recession" we just went through -- but if you're planning for the long term you can usually ride out such dips, and perhaps even see them as opportunities to buy at a discount. Others can tell you more about the details of each of these, and may disagree with my characterizations ... but that's the approach I've taken, based on advice I trust. I could probably increase my returns if I was willing to invest more time and effort in doing so, but I don't especially like playing games for money, and I'm getting quite enough for my purposes and spending near-zero effort on it, which is exactly what I want. |
How can I cash out a check internationally? | This question was asked three years ago, but now that it's 2017 there is actually a relatively easy, cheap and fast solution to at least the first half of your question. To cash the check: I've done this a half dozen times while abroad (from the US) without any problems. |
How to maximize small business 401k contribution? | According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it. An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the lesser of: There are separate, smaller limits for SIMPLE 401(k) plans. Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits |
Monthly payment on a compounded daily car loan? [duplicate] | I would like to know how they calculated such monthly payment The formula is: Your values would come out to be: r = (1+3.06/(100*365))^31-1=0.002602 (converting your annual percentage to a monthly rate equivalent of daily compounded interest) PV = 12865.57 n = 48 Inserting your values into the formula: P = [r*(PV)]/[1-(1+r)^(-n)] P = [0.002602*(12865.57)]/[1-(1.002602)^(-48)] P = 285.47 |
I received $1000 and was asked to send it back. How was this scam meant to work? | I've skimmed through the answers given and I'd like do add another possible scenario. I've recently heard about this exact thing happening to someone only the money originally was a loan taken in the receivers name. 1) Scumbag finds out personal data – including social number, bank account and phone – of Innocent Victim. 2) Scumbag takes out a loan in the name of Innocent Victim. The money are sent to IV's account. 3) Scumbag calls IV saying 'Oh, I've made a mistake, blah, blah, yada, yada. Could you please send the money back to me? My bank account is...' 4) Innocent Victim, being the good guy that he/she is, of course want to help out and send the money to Scumbag. 5) Scumbag makes a cash withdrawal and is no longer anywhere to be found and Innocent Victim is left with a loan but no money. |
How can I calculate the volatility(standard deviation) of a stock price? and/or ROI (return on investment) of a stock? | Use the Black-Scholes formula. If you know the current price, an options strike price, time until expiration, and risk-free interest rate, then knowing the market price of the option will tell you what the market's estimation of the volatility is. This does rely on a few assumptions, such as Gaussian random walk, but those are reasonable assumptions for most stocks. You can also get a list of past stock prices, put them in Excel, and ask Excel to calculate the standard deviation with stdev.s(), but that gives you the past volatility. The market's estimate of future volatility is more relevant. |
How risky is it to keep my emergency fund in stocks? | Keeping your “big emergency” fund in stocks if you have 12 months income saved is OK. However you should keep your “small emergency” fund in cash. (However I find that even my stock broker accounts have some cash in them, as I like to let the dividends build up enough to make the dealing charges worthwhile. You don’t wish to be forced to sell at a bad time due to your boiler needing replacing or your car breaking down. However if you lost your job in the same week that your boiler broke down and your car needed replacing then being forced to sell stocks at a bad time is not much of an issue. Also if you are saving say 1/3 of your income each month and you have a credit card with large unused credit limit that is paid of each month, then most “small emergency” that are under 2/3 of your monthly income can be covered on the credit card with little or no interest charges. One option is to check you bank balance on the day after you are paid, and if it is more than 2x your monthly income, then move some of it to long term savings, but only if you tend to spend a lot less then you earn most months. |
Executing a stop loss at the purchase price? | You will lose out on your spread, you always pay a spread. Also, if you are looking at a strategy for using stop losses, try taking into account the support lines if you are going long. So, if the stock is on an upward trend but is dropping back from profit taking, your best best is to take a position closest to the next support line. You place your stop just below the support. this will give you the best chance of a winning position as most technical analysts will have looking towards the support as a buy back area. Obviously, in a bear market the opposite is true. If you have taken your position and the market move past the first resistance line, then bring your stop to just below that line as once resistance is broken, it then becomes support. You then have a profitable position with profit locked in. Leave the position to break the next resistance and repeat. |
How does on-demand insurance company Trov prevent insurance fraud or high prices? | There is not necessarily a need to prevent what you describe - 'turning insurance on before high risk situations'. They just need to calculate the premiums accordingly. For example, if an insurance needs to take 50$/year for insuring your house against flood, and a flood happens in average every 10 years, if you just insure the two weeks in the ten years where heavy rain is predicted, you might pay 500$ for the two weeks. The total is the same for the insurance - they get 500$, and you get insurance for the dangerous period. In the contrary; if a flooding (unexpectedly) happens outside your two weeks, they are out. From the home owners view, 500$ for two weeks when heavy rains and floods are expected, and nothing otherwise sounds pretty good, compared to 50$ every year. It is the same of course, but psychology works that way. |
When the Reserve Bank determines the interest rates, do they take the house prices into account? | The Central Banks sets various rate for lending to Banks and Paying interest to Banks on excess funds. Apart from these the Central Banks also sets various other ratios that either create more liquidity or remove liquidity from Market. The CPI is just one input to the Central Bank to determine rate, is not the only deciding criteria. The CPI does not take into account the house price or the cost of renting in the basket of goods. One of the reasons could be that CPI contains basic essentials and also the fact that it should be easily mesurable over the period of time. For example Retail Price of a particular item is easily mesurable. The rent is not easily mesurable. |
In the event of a corporate spin-off, how can I calculate the correct cost basis for each company's shares? | Having all of the numbers you posted is a start. It's what you need to perform the calculation. The final word, however, comes from the company itself, who are required to issue a determination on how the spin-off is valued. Say a company is split into two. Instead of some number of shares of each new company, imagine for this example it's one for one. i.e. One share of company A becomes a share each in company B and company C. This tell us nothing about relative valuation, right? Was B worth 1/2 of the original company A, or some other fraction? Say it is exactly a 50/50 split. Company A releases a statement that B and C each should have 1/2 the cost basis of your original A shares. Now, B and C may very well trade ahead of the stock splitting, as 'when issued' shares. At no point in time will B and C necessarily trade at exactly the same price, and the day that B and C are officially trading, with no more A shares, they may have already diverged in price. That is, there's nothing you can pull from the trading data to identify that the basis should have been assigned as 50% to each new share. This is my very long-winded was of explaining that the company must issue a notice through your broker, and on their investor section of their web site, to spell out the way you should assign your basis to each new stock. |
What should my finances look like at 18? | To buy a house, you need: At least 2 years tax returns (shows a steady income history; even if you're making 50k right now, you probably weren't when you were 16, and you might not be when you're 20; as they say, easy come, easy go). A 20% down payment. These days, that easily means writing a $50k check. You make $50k a year, great, but try this math: how long will it take you to save 100% of your annual salary? If you're saving 15% of your income (which puts you above many Americans), it'll still take 7 years. So no house for you for 7 years. While your attitude of "I've got the money, so why not" is certainly acceptable, the reality is that you don't have a lot of financial experience yet. There could easily be lean times ahead when you aren't making much (many people since 2008 have gone 18 months or more without any income at all). Save as much money as possible. Once you get $10k in a liquid savings account, speak to a CPA or an investment advisor at your local bank to set up tax deferred accounts such as an IRA. And don't wait to start investing; starting now versus waiting until you're 25 could mean a 100% difference in your net worth at any given time (that's not just a random number, either; an additional 7 years compounding time could literally mean another doubling of your worth). |
What are the pros and cons of buying a house just to rent it out? | I would suggest the use of a management company to handle a rental property. They will take care of things like collecting rent, coordinating repairs and all the little things that come up when dealing with a renters. They typically charge a percentage of the rent or a flat fee, so make sure you include that in your rent calculation. You take a little bit of a financial hit, but save a lot of head aches - especially if you decide to acquire multiple properties in the future. |
What happens if a purchase is $0.02 in Canada? | As someone who works for a company that deploys POS systems in Canada, I can tell you that your best bet would be to have a configuration option that lets the client decide what to do. If they have a business practice that would allow for a sale total to be $0.01 or $0.02, they should first evaluate their business practice. If you're building a POS system to deploy in Canada, I'm sure you have access to resources (potential clients) who would already know how they would want to handle this. Ask them. |
Possible Risks of Publicizing Personal Stock Portfolio | I am considering making my investment history publicly available online What is the benefit you are looking for by doing this? Just to establish that you are a successful investor, so in long run can predict things ... have tons of followers? If so yes. Go ahead. Updates to the portfolio would have to be near real-time than post facto else no one will believe you and it would be useless. are there any reasons (legal, personal, etc.) not to publicize my personal investment history legal, depends on country; I can't think any [check the agreement with your broker / depository] on how much can be displayed. i.e. they may forbid from revealing contract ref / or some other details. On Personal front, it depends who takes a liking to your stuff. Relatives: They know you are making huge profits and may want to borrow stuff ... or queue up to you requesting to make similar huge profits for them; only to realize when there is loss they blame you ... this can strain relationships. Friends: Although close friends may have a general idea, if you are too successful and it shows; it can have its own set of issues to deal with. Colleagues / Manager: If you are too successful, it may mean you may notionally be earning more than them ... they would start unconsciously monitoring your behaviour ... this guy spends all day in office researching for stocks and doesn't work. That way he knows how to pick good stock ... he is wasting company time. The same happens if you are loosing stock ... a unrelated bad day you are having maybe equated to loss in stocks. Depending on the job / roles, they may move you to different role as the perceived risk of you swindling goes up. Generally important work doesn't get assigned, as it would be assumed that if you are successful in investing, you may quite soon and start full time into it. Identify Theft: As mentioned by keshlam, to much data one can easily risk identity theft. Realize phone banking to get some routine stuff just asks for basic details [that are available on face book] and few recent debits / credits to the account. This will be easy see the trades you have done. None of us here are expert identity theifs. But the real one have tons of way t |
Can I get a dumbed down explanation of risk measures used for evaluating stocks? | Standard deviation from Wikipedia : In statistics and probability theory, the standard deviation (represented by the Greek letter sigma, σ) shows how much variation or dispersion from the average exists.1 A low standard deviation indicates that the data points tend to be very close to the mean (also called expected value); a high standard deviation indicates that the data points are spread out over a large range of values. In the case of stock returns, a lower value would indicate less volatility while a higher value would mean more volatility, which could be interpreted as high much change does the stock's price go through over time. Mean would be interpreted as if all the figures had to be the same, what would they be? So if a stock returns 10% each year for 3 years in a row, then 10% would be the mean or average return. Now, it is worth noting that there are more than a few calculations that may be done to derive a mean. First, there is the straight forward sum and division by the number of elements idea. For example, if the returns by year were 0%, 10%, and 20% then one may take the sum of 30% and divide by 3 to get a simple mean of 10%. However, some people would rather look at a Compound Annual Growth Rate which in this case would mean multiplying the returns together so 1*(1+.1)*(1+.2)=1.1*1.2=1.32 or 32% since there is some compounding here. Now, instead of dividing a cubic root is taken to get approximately 9.7% average annual return that is a bit lower yet if you compound it over 3 years it will get up to 32% as 10% compounded over 3 years would be 33.1% as (1.1)^3=1.331. Sharpe Ratio from Investopedia: A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. Thus, this is a way to think about given the volatility how much better did the portfolio do than the 10 year bond. R-squared, Alpha and Beta: These are all around the idea of "linear regression" modelling. The idea is to take some standard like say the "S & P 500" in the case of US stocks and see how well does the portfolio follow this and what if one were to use a linear model are the multipliers and addition components to it. R-squared can be thought of it as a measure as to how good is the fit on a scale of 0 to 1. An S & P 500 index fund may well have an R-squared of 1.00 or 0.99 to the index as it will track it extremely closely while other investments may not follow that well at all. Part of modern portfolio theory would be to have asset classes that move independently of each other and thus would have a lower R-squared so that the movement of the index doesn't indicate how an investment will do. Now, as for alpha and beta, do you remember the formula for a line in slope-intercept form, where y is the portfolio's return and x is the index's return: y=mx+b In this situation m is beta which is the multiple of the return, and b is the alpha or how much additional return one gets without the multiple. Going back to an index fund example, m will be near 1 and b will be near 0 and there isn't anything being done and so the portfolio's return computed based on the index's return is simply y=x. Other mutual funds may try to have a high alpha as this is seen as the risk-free return as there isn't the ups and downs of the market here. Other mutual funds may go for a high beta so that there is volatility for investors to handle. |
Is owning ADR share for a good idea for long term investor | Usually the ADR fee comes out of dividend payments and is modest. The ADR that I am most familiar with (Vodafone - VOD) pays dividends twice a year and deducts either $0.02 or $0.01 per share. IMO, the ADR fee is not really a material factor. ADRs do have some disadvantages though: |
Why are U.S. credit unions not open to everyone? | It's required by law. 12 USC 1759 (b) requires that membership in a credit union be limited to one or more groups with a "common bond", or to people within a particular geographic area. For lots more gory details on how this is interpreted and enforced, you can read the manual given to credit unions by the National Credit Union Administration, which is their regulatory agency. |
How can I invest my $100? | Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of "small account" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100. |
What are the options for a 19-year-old college student who only has about $1000? | At that sum, it essentially doesn't matter what you do, unless you just want to outright gamble the money. Let's look at some options: "High" interest guaranteed savings. A five year CD returns a sad 2% right now. That means if you invest all $1,000 into a CD, by 2016 you will have earned $105.08 in interest. Think about that: About a hundred bucks over the next five years. Of course, with 3% inflation, that $105.08 will be worth about $90.57. In fact, the total amount will be worth $953.25. Your "doing something with your money" did nothing. Stocks can return significantly more interest, but there is no guarantee. Even if you made 20% year on year, you would only make maybe $1,500 in returns or so in the next 5 years, and 20% every year is like Warren Buffet territory--totally unrealistic. That's also not taking into account inflation. And neither of these is taking into account taxes! However, if you go to a casino and gamble the $1,000, it is possible you could turn it into significantly more. It's very much unlikely, and I do not advise it at all, but it's possible. The point is, you need money to make money, and, in some sense, $1,000 is not money at all. I recommend you work on your skills, knowledge, and preparation for making money in the future, and by 25 or so you can really be cooking with gas. Don't waste your efforts trying to find a brilliant way to make a few hundred bucks over the next half decade. Save the money and find ways to try to double it by earning money on small projects. Then challenge yourself to double it again, and keep honing your skills. |
How can I transfer and consolidate my 401k's and other options? | You should ask your broker of choice for paperwork to move funds to them. You can't move into an account that doesn't exist, so when I wanted to move my money from an old pension plan to an IRA I set up the IRA with the broker first. When I told them it was to receive this money, they weren't asking for any initial deposit. You then have a broker and account number to give the old company to set up the move. |
Cheapest way to “wire” money in an Australian bank account to a person in England, while I'm in Laos? | I successfully used Currency Fair a few times, they seem to cater for both Australia and the UK. If I remember correctly, you can set everything up via Internet. As they explain on their website, first you open an account with them, then you transfer AUD to an Australian bank account that they will give you, then you exchange and transfer the money to your friend on their web page. Usually they are cheaper than PayPal, especially if you have time to play with their exchange by marketplace functionality (not recommended if you just want to do the transfer). |
What is the rationale behind stock markets retreating due to S&P having a negative outlook on the USA? | Many of the major indices retreated today because of this news. Why? How do the rising budget deficits and debt relate to the stock markets? The major reason for the market retreating is the uncertainty regarding the US Dollar. If the US credit rating drops that will have an inflationary effect on the currency (as it will push up the cost of US Treasuries and reduce confidence in the USD). If this continues the loss of USD confidence could bring an end to the USD as the world's reserve currency which could also create inflation (as world banks could reduce their USD reserves). This can make US assets appear overvalued. Why is there such a large emphasis on the S&P rating? S&P is a large trusted rating agency so the market will respond to their analysis much like how a bank would respond to any change in your rating by Transunion (Consumer Credit Bureau) Does this have any major implications for the US stock markets today, in the short term and in July? If you are a day-trader I'm sure it does. There will be minor fluctuations in the market as soon as news comes out (either of its extension or any expected delays in passing that extension). What happens when the debt ceiling is reached? Since the US is in a deficit spending situation it needs to borrow more to satisfy its existing obligations (in short it pays its debt with more debt). As a result, if the debt ceiling isn't raised then eventually the US will be unable to pay its existing obligations. We would be in a default situation which could have devastating affects on the value of the USD. How hard the hit will depend on how long the default situation lasts (the longer we go without an increased ceiling after the exhaustion point the more we default on). In reality, Congress will approve a raise, but they will drag it out to the last possible minute. They want to appear as if they are against it, but they understand the catastrophic effects of not doing so. |
How do I bring money overseas? | This page from TripAdvisor may be of interest. Look at what fees are charged on your ATM cards and credit cards, and consider overpaying your credit card so you have a credit balance that you can draw on for cash "advances" from ATMs that will dispense in local currency. Depending on what fees your bank charges, you may get a better rate than the forex cash traders at the airport. Edit: Cards may not always have the best rate. I recently heard from a traveler who was able to use a locally but not globally dominant currency to buy cash of a major currency at a shopping mall (with competitive forex traders) at rates even better than the mid-market rates posted at xe.com and similar places; I don't think you'll have that experience going from Australia to Malaysia (but another traveler reading this might have a different pair). In my experience the card rates are slightly worse than those and the airport forex traders significantly worse. |
Buy home and leverage roommates, or split rent? | I've done this, both as one of the renters and (in a different house) as the landlord. I had roommates I had not lived with before though. It's definitely doable, but can get awkward. Some advice in no particular order Make sure you can afford the house on your own. This avoids the awkward situation of making you financially dependent on your friends. Also, it shouldn't be a problem for a 110k house on a 70k salary. Set the rent below market rates. The arrangement should be financially beneficial to everyone, not just yourself. Expect your roommates to leave eventually. These days people will go where job opportunities take them. |
Wash Sales and Day Trading | Yes, an overall $500 loss on the stock can be claimed. Since the day trader sold both lots she acquired, the Wash Sale rule has no net impact on her taxes. The Wash Sale rule would come into play if within thirty days of second sale, she purchased the stock a third time. Then she would have to amend her taxes because claiming the $500 loss would no longer be a valid under the Wash Sale rule. It would have to be added to the cost basis of the most recent purchase. |
How do ETF fees get applied? | The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security. Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees. |
Advice for college student: Should I hire a financial adviser or just invest in index funds? | Couple of clarifications to start off: Index funds and ETF's are essentially the same investments. ETF's allow you to trade during the day but also make you reinvest your dividends manually instead of doing it for you. Compare VTI and VTSAX, for example. Basically the same returns with very slight differences in how they are run. Because they are so similar it doesn't matter which you choose. Either index funds and ETF's can be purchased through a regular taxable brokerage account or through an IRA or Roth IRA. The decision of what fund to use and whether to use a brokerage or IRA are separate. Whole market index funds will get you exposure to US equity but consider also diversifying into international equity, bonds, real estate (REITS), and emerging markets. Any broker can give you advice on that score or you can get free advice from, for example, Future Advisor. Now the advice: For most people in your situation, you current tax rate is currently very low. This makes a Roth IRA a very reasonable idea. You can contribute $5,500 for 2015 if you do it before April 15 and you can contribute $5,500 for 2016. Repeat each year. You won't be able to get all your money into a Roth, but anything you can do now will save you money on taxes in the long run. You put after-tax money in a Roth IRA and then you don't pay taxes on it or the gains when you take it out. You can use Roth IRA funds for college, for a first home, or for retirement. A traditional IRA is not recommended in your case. That would save you money on taxes this year, when presumably your taxes are already low. Since you won't be able to put all your money in the IRA, you can put the rest in a regular taxable brokerage account (if you don't just want to put it in a savings account). You can buy the same types of things as you have in your IRA. Note that if your stocks (in your regular brokerage account) go up over the course of a year and your income is low enough to be in the 10 or 15% tax bracket and you have held the stock for at least a year, you should sell before the end of the year to lock in your gains and pay taxes on them at the capital gains rate of 0%. This will prevent you from paying a higher rate on those gains later. Conversely, if you lose money in a year, don't sell. You can sell and lock in losses during years when your taxes are high (presumably, after college) to reduce your tax burden in those years (this is called "tax loss harvesting"). Sounds like crazy contortions but the name of the game is (legally) avoiding taxes. This is at least as important to your overall wealth as the decision of which funds to buy. Ok now the financial advisor. It's up to you. You can make your own financial decisions and save the money but it requires you putting in the effort to be educated. For many of us, this education is fun. Also consider that if you use a regular broker, like Fidelity, you can call up and they have people who (for free) will give you advice very similar to what you will get from the advisor you referred to. High priced financial advisors make more sense when you have a lot of money and complicated finances. Based on your question, you don't strike me as having those. To me, 1% sounds like a lot to pay for a simple situation like yours. |
If I get cash compensation for my stocks (following a merger for example) does that qualify for capital gains tax? | In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different. |
When should you use an actively managed mutual fund in a 401k? | For US stocks it's a bit of a gamble. Many actively managed funds underperform the market indexes, but some of them outperform in many years. With an index you will get average results. With an active manager you "might" do better than average. So you can view active management as a higher risk, potentially higher reward investment approach. On the other hand, if you want to diversify some of your investments into international stocks, bonds, junk bonds, and real estate (REITs) active management is highly likely to be better than indexing. For these specialized areas specialized knowledge and research is needed. |
To pay off a student loan, should I save up a lump sum payoff payment or pay extra each month? | The interest accrues daily based on the amount you owe. The less you owe the less the daily interest accrual. The faster you pay it off the less you pay in the lifetime of the loan. You are losing money if you bank money rather than applying it to the loan immediately. Since student loans cannot be declared in bankruptcy and interest rates cannot be refinanced, or are nonnegotiable, then you should consider your student loan a priority in case your employment/income runs into problems. |
Does longterm investment in index funds still make sense in a reality of massive algotrading? | There is a difference between trading which is short term focussed and investing which is longterm focussed. On the long term what drives stock prices is still the overall economy and the performance of the underlying business aspects. I do not think that any trading algorithms will change this. These are more concerned with short term profits regardless of the underlying business economics. Therefore I think that longterm investing using index funds is still a viable strategy for most private investors. |
Why do 10 year-old luxury cars lose so much value? | Personally, I buy newer luxury cars for two reasons. 1) Status symbol Newer cars have the latest looks, performance, and features like heated side mirrors and sensors that adjust cruse control speed when in heavy traffic etc. 2) Older cars have more wear and tear. No one has spent any significant amount of time in the car before and therefore you know the history of what the car has been through, like buying a new pair of pants. You know that no one has pissed in them ;). After I have pissed in and tore up my now older luxury car, I sell it off and get a new one. Cars wear out and as they get older, they need parts replaced. My brother's Mazda, for example, just blew the head gasket after buying the car new and driving 130k miles over a four year period. Part of the luxury for owning a new car is the luxury of time, not having your car spend any significant amount of time in a garage being worked on, unless you buy a Land Rover of course ;). |
Accounting for currency depreciation | Yes - it's called the rate of inflation. The rate of return over the rate of inflation is called the real rate of return. So if a currency experiences a 2% rate of inflation, and your investment makes a 3% rate of return, your real rate of return is only 1%. One problem is that inflation is always backwards-looking, while investment returns are always forward-looking. There are ways to calculate an expected rate of inflation from foreign exchange futures and other market instruments, though. That said, when comparing investments, typically all investments are in the same currency, so the effect of inflation is the same, and inflation makes no difference in a comparative analysis. When comparing investments in different currencies, then the rate of inflation may become important. |
If you buy something and sell it later on the same day, how do you calculate 'investment'? | Nothing wrong with the other answers, but here's a "trick" to hopefully make it totally transparent. Imagine that you're not the one implementing this business plan, but someone else is. Let's call this other person your asset manager. So on the first day, you give your asset manager $9. He takes this and generates $1 profit from it, recovering the $9 which he then reinvests to generate $1 profit every day. From your perspective, you just gave him $9. At the end of the year, he gives you $365 in addition to your original investment of $9 (in real life he'd take the fees of course, or perhaps he's been lending out the money he's been accumulating and taking the interest from that as pay for his services). So your return on investment is 365 / 9 * 100 % > 4000 %, as claimed by your source. |
How to choose a company for an IRA? | I use TIAA-Cref for my 403(b) and Fidelity for my solo 401(k) and IRAs. I have previously used Vanguard and have also used other discount brokers for my IRA. All of these companies will charge you nothing for an IRA, so there's really no point in comparing cost in that respect. They are all the "cheapest" in this respect. Each one will allow you to purchase their mutual funds and those of their partners for free. They will charge you some kind of fee to invest in mutual funds of their competitors (like $35 or something). So the real question is this: which of these institutions offers the best mutual and index funds. While they are not the worst out there, you will find that TIAA-Cref are dominated by both Vanguard and Fidelity. The latter two offer far more and larger funds and their funds will always have lower expense ratios than their TIAA-Cref equivalent. If I could take my money out of TIAA-Cref and put it in Fidelity, I'd do so right now. BTW, you may or may not want to buy individual stocks or ETFs in your account. Vanguard will let you trade their ETFs for free, and they have lots. For other ETFs and stocks you will pay $7 or so (depends on your account size). Fidelity will give you free trades in the many iShares ETFs and charge you $5 for other trades. TIAA-Cref will not give you any free ETFs and will charge you $8 per trade. Each of these will give you investment advice for free, but that's about what it's worth as well. The quality of the advice will depend on who picks up the phone, not which institution you use. I would not make a decision based on this. |
Are stores that offer military discounts compensated by the government? | This story is about military grocery stores - i.e.: grocery stores for military personnel on military bases. There are no discounts for military personnel in a regular grocery store. But they may have subsidised prices in grocery stores located inside a military installation, and these are those stores that the story is talking about. |
I am moving to a new city. How do I plan and prepare - financially - for the move? | Utilities and cost of living vary from city to city but maybe not that much. For basic planning purposes you can probably figure to spend as much as you are now, maybe a little more. And adjust as needed when you get there. (And adjust if, for example, you're moving from a very low cost of living area or to a very high cost of living area.) The cost of housing varies quite a bit from city to city, but you can do this research using Zillow, Craigslist, other places. Now, on to moving itself. The cost of moving can vary hugely depending on how much stuff you have and how much work you want to do. On the cheap end, you can rent a U-Haul or one of those portable boxes that they plant outside your old house and move for you. You'll do all the packing/loading/unloading/unpacking yourself but it saves quite a bit of money. My family and I moved from Seattle to California last year using one of those portable box places and it ended up costing us ~$1400 including 30 days of storage at the destination while we looked for a place. We have a <1000 sq foot place with some furniture but not a huge amount and did all the packing/loading ourselves. If we had wanted full service where people come pack, load, unpack, etc, it could have been 2-3x that amount. (And if we had more stuff, it could have been a lot more expensive too. Try not to acquire too much stuff as you just end up having to move it around and take care of it all!) Your employer may cover moving expenses, ask about this when talking about job offers. Un-reimbursed moving expenses are tax-deductible in the US (even if you don't itemize). Since you're just starting out, your best bet is to overestimate how much you think things will cost, then adjust as you arrive and settle in for a few months. Try to save as much as you can, but remember to have fun too. Hope this helps! |
I cosigned on a house for my brother | This is why we tell people not to co-sign unless they are able and willing to risk that money becoming a gift... or are able and willing to treat it as business rather than family. Unfortunately that advice is a bit late now to help you. When you cosigned, you promised the bank that you would make any payments he didn't. The bank doesn't care why he didn't, they just want their money on time. Getting him to repay you for covering this is strictly between the two of you, and unless you signed paperwork at the time establishing a contract other than the promise to cover his loan this becomes Extremely Messy. First step is to make the payments so the loan doesn't continue acquiring fees and hurting your credit rating, and keep it from falling behind again. Then you have to convince him to repay the money you have effectively given him. Depending on your relationship, and financial situations, you may decide to carry him for a while and trust that he'll pay you back when he can, or sic a lawyer on him. You need to make that decision, recognizing that it may be a matter of how much family drama you are willing to tolerate. |
How does the purchase of shares on the secondary market benefit the issuing company? | First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here. |
Why would a company sell debt in order to buy back shares and/or pay dividends? | It's a tax shelter. Foreign affiliates hold most of Microsoft's cash and investments. The cost of borrowing is much cheaper than repatriating the money and paying taxes. Those bonds are selling at rates similar to US Treasury Debt. Also, many people and organizations with lots of assets still borrow money for day to day expenses. Why? You tend to make a better return on investments which are committed for a number of years, and the timing of income from those investments may not coincide with your expenses. |
Buying my first car out of college | I support the strategy to buy a less expensive car at the outset and then save for that more expensive car. You mentioned that you would be able to save $9000 by the time you had to start making payments. That sounds like a great budget for car shopping. For $9k you can get a dependable used car. If you find the right high-yield savings account you can get around 2% on your $500/month direct deposit. That's a difference of about 5% when you add in the 2.9% interest that you would have been paying on the loan. (You can't find such a low risk investment that would yield 5% these days.) Also, at that rate (2%) you would have $27k saved up in less than 52 months, or over $31k in 60 months. Then you could buy a BMW with cash! And I'm sure they would give you a cash discount. Alternatively you could be just finishing paying off the loan and might already be looking at the next car you'll take a loan out for. The point is not that you have to completely deprive yourself for the rest of your life. But by not taking out a loan you were certainly come out ahead in 5-10 years time. Also, one common mistake that new grads make is thinking that they are rich right out of college. Yes, you definitely have a nice salary and "could afford it" by most people's standards. I have a coworker that graduated and started work a year ago. He first bought a brand new Subaru. Why Subaru I do not know, but that is what he thought he wanted. After driving the car for a few months he decided for a few reasons that it was not what he wanted. So he sold the car (for a loss) and bought a slightly used Nissan Z. He has since decided that he needs a more practical car for day to day driving to minimize the abuse that his Z takes. So he has bought another car. This time a low budget Honda. Had he started with a low budget car he could be driving the same car to work right now, but have a good chunk of savings for a new car instead of a loan and a car that he drives only occasionally. |
Why is gold not a good investment? | Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream. |
Are there any investment strategies which take advantage of an in-the-money option price that incorporates no “time value”? | It depends on the volatility of the underlying stock. But for "normal" levels of volatility, the real value of that option is probably $3.50! Rough estimates of the value of the option depending on volatility levels: Bottom line: unless this is a super volatile stock, it is trading at $3.50 for a reason. More generally: it is extremely rare to find obvious arbitrage opportunities in the market. |
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