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How do day-traders or frequent traders handle their taxes? | There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are "ready made" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a "frequent trader" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales. |
What happens to the insider trade profits? | You seem to have a little confusion over terminology that should be cleared up: You are calling this "day-trading" Day-trading is the term for performing multiple trading actions in a single day. While it appears that the COO has performed a buy and a sell on the same day, most people would consider this a 'single trade'. In reality, it seems that the COO had 'stock options' [a contract providing the option for the holder to buy stock at a specific price, at some point in the future], provided as part of his compensation package. He decided or was required to 'exercise' those options today. This means he bought the shares using his special 'option price'. It is extremely common for employees who exercise stock options, to sell all of the resulting stock immediately. This is very different from usual day-trading, which implies that he would have bought stock in the morning at a low price, and then sold it later at a high price. You are calling this 'insider trading'. That term specifically often implies some level of unethical behavior. In general, stock options offered to executive employees are strictly limited in how they can be exercised. For example, most stock option plans require employees to wait x number of years before they can exercise them. This gives the employee incentive to stay longer, and for a high-level executive with the ability to strongly impact company performance, it gives incentive to do well. Technically you are correct, this is likely considered an 'insider trade', but given that it seems to have been a stock option exercise, it does not necessarily imply that there was any special reasoning for why he did the trade today. It could simply be that today was the first day the stock option rules allowed him to exercise. As to your final question - no, these profits are the COO's, to do with as he likes. |
What are some pre-tax programs similar to FSA that I can take advantage of? | There is a dependent care spending account for child care related expenses. Also Medical and Dental expenses over a certain % of your income maybe deductible on your tax return. |
How to get started with options investing? | One answer in four days tells you this is a niche, else there should be many replies by now. The bible is McMillan on Options Note - I link to the 1996 edition which starts at 39 cents, the latest revision will set you back $30 used. The word bible says it all, it offers a great course in options, everything you need to know. You don't get a special account for option trading. You just apply to your regular broker, so depending what you wish to do, the amount starts at You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. |
Where do countries / national governments borrow money from? | Sovereign states borrow money explicitly in a two primary ways: A sovereign cannot be compelled to repay debt, and there isn't a judicial process like bankruptcy to erase debt. When sovereigns default, they negotiate new terms with creditors and pay back some fraction of the actual debt owed. They can also print money to repay debt, which has other nasty consequences. But, while a state cannot be compelled to repay a debt, creditors cannot be compelled to loan money to the state either! Any enterprise of sufficient size needs access to capital via loans to meet daily obligations in anticipation of revenue -- even when times are good. Defaulting makes borrowing impossible or expensive, and is avoided. Regarding using your military to avoid repaying debt... remember what Napoleon said: "An army travels on its stomach". Military campaigns are expensive... no borrowing ability means the soldiers don't get paid and the food, fuel and ammo don't get delivered. Smaller countries have other risks as well. Many nations are essentially forced to use US Dollars as a reserve currency, or are forced by the market to borrow money in a foreign currency. This creates a situation where any risk of non-payment results in a deep devaluation of the local currency. When your debt is denominated in dollars, these shifts can dramatically increase your debt obligations from a local currency point of view. You also run the risk that a larger or richer company will park warships in your harbor and seize assets as payment -- the US and Britain engaged in this several times during the 19th and 20th centuries. In general, not paying the bills has a cascading effect. Bad situations get worse, and they do so quickly. |
Would I ever need credit card if my debit card is issued by MasterCard/Visa? | You ask about the difference between credit and debit, but that may be because you're missing something important. Regardless of credit/debit, there is value in carrying two different cards associated with two different accounts. The reason is simply that because of loss, fraud, or your own mismanagement, or even the bank's technical error, any card can become unusable for some period of time. Exactly how long depends what happened, but just sending you a new card can easily take more than one business day, which might well be longer than you'd like to go without access to any funds. In that situation you would be glad of a credit card, and you would equally be glad of a second debit card on a separate account. So if your question is "I have one bank account with one debit card, and the only options I'm willing to contemplate are (a) do nothing or (b) take a credit card as well", then the answer is yes, take a credit card as well, regardless of the pros or cons of credit vs debit. Even if you only use the credit card in the event that you drop your debit card down a drain. So what you can now consider is the pros and cons of a credit card vs managing an additional bank account -- unless you seriously hate one or more of the cons of credit cards, the credit card is likely to win. My bank has given me a debit card on a cash savings account, which is a little scary, but would cover most emergencies if I didn't have a credit card too. Of course the interest rate is rubbish and I sometimes empty my savings account into a better investment, so I don't use it as backup, but I could. Your final question "can a merchant know if I give him number of debit or credit card" is already asked: Can merchants tell the difference between a credit card and embossed debit card? Yes they can, and yes there are a few things you can't (or might prefer not to) do with debit. The same could even be said of Visa vs. Mastercard, leading to the conclusion that if you have a Visa debit you should look for a Mastercard credit. But that seems to be less of an issue as time goes on and almost everywhere in Europe apparently takes both or neither. If you travel a lot outside the EU then you might want to be loaded down with every card under the sun, and three different kinds of cash, but you'd already know that without asking ;-) |
How can I estimate the value of private stock behind employee stock options? | Okay, I'm going to give you my opinion based on experience; not any technical understanding. The options - by themselves - are pretty meaningless in terms of determining their value. The business plan going forward, their growth expectations, the additional options to be authorized, the additional preferred stock offers they anticipate, even current estimated value of the company are some of the pieces of data you will be needing. I also want to say something cynical, like "to hell with the stock options give me cold hard" but that's just me. (My experience two-times so far has shown stock options to be worth very very little.) |
Is Cash Value Life Insurance (“whole life” insurance) a good idea for my future? | I am of the strong opinion that life insurance should be purchased as a term product and nothing more. The internal expense is usually high, the returns, poor and the product disclosure is often incomprehensible. The only purpose Cash Value Life Insurance serves, in my opinion, is to fund the retirement and college educations of those selling it. |
Value investing | As an aside, why does it seem to be difficult to get a conclusive answer to this question? I'm going to start by trying to answer this question and I think the answer here will help answer the other questions. Here is a incomplete list of the challenges involved: So my question is, is there any evidence that value investing actually beats the market? Yes there is a lot of evidence that it works and there is a lot of evidence that it does not. timday's has a great link on this. Some rules/methods work over some periods some work during others. The most famous evidence for value investing probably comes from Fama and French who were very careful and clever in solving many of the above problems and had a large persistent data set, but their idea is very different from Damodaran's, for instance, and hard to implement though getting easier. Is the whole field a waste of time? Because of the above problems this is a hard question. Some people like Warren Buffet have clearly made a lot of money doing this. Though it is worth remembering a good amount of the money these famous investors make is off of fees for investing other peoples' money. If you understand fundamental analysis well you can get a job making a lot of money doing it for a company investing other peoples' money. The markets are very random that it is very hard for people to tell if you are good at it and since markets generally go up it is easy to claim you are making money for people, but clearly banks and hedge funds see significant value in good analysts so it is likely not entirely random. Especially if you are a good writer you can make a more money here than most other jobs. Is it worth it for the average investor saving for retirement? Very, very hard to say. Your time might be better spent on your day job if you have one. Remember because of the fees and added risk involved over say index investing more "Trading is Hazardous to Your Wealth." |
Why would someone want to buy an option on the day of expiry | The short answer to your initial question is: yes. The option doesn't expire until the close of the market on the day of expiration. Because the option is expiring so soon, the time value of the option is quite small. That is why the option, once it is 'in-the-money', will track so closely to the underlying stock price. If someone buys an in-the-money option on the day of expiration, they are likely still expecting the price to go up before they sell it or exercise it. Many brokers will exercise your in-the-money options sometime after 3pm on the day of expiration. If this is not what you desire, you should communicate that with them prior to that day. |
How much do brokerages pay exchanges per trade? | There is no one answer to this question, but there are some generalities. Most exchanges make a distinction between the passive and the aggressive sides of a trade. The passive participant is the order that was resting on the market at the time of the trade. It is an order that based on its price was not executable at the time, and therefore goes into the order book. For example, I'm willing to sell 100 shares of a stock at $9.98 but nobody wants to buy that right now, so it remains as an open order on the exchange. Then somebody comes along and is willing to meet my price (I am glossing over lots of details here). So they aggressively take out my order by either posting a market-buy, or specifically that they want to buy 100 shares at either $9.98, or at some higher price. Most exchanges will actually give me, as the passive (i.e. liquidity making) investor a small rebate, while the other person is charged a few fractions of a cent. Google found NYSEArca details, and most other exchanges make their fees public as well. As of this writing the generic price charged/credited: But they provide volume discounts, and many of the larger deals do fall into another tier of volume, which provides a different price structure. |
What's the point of a chargeback when they just ask the merchant whether they owe money to the buyer? | When you initiate a chargeback, the merchant has the right to dispute the chargeback. If they can provide proof that the purchase actually took place, the chargeback will fail. We don't know all the details of your situation, of course, but it appears from what you have said that the tax chain probably has documents that you signed agreeing to the charges. They prepared your return (even if they did a poor job), and so from their perspective, they have decided that they deserve to be paid. Whether or not they did a good job is a matter of opinion, of course; their position might be that they did it correctly, and the second business did it poorly. The chargeback is a powerful tool, but it is not a magic button that makes a charge disappear. If the merchant can show that a sale did indeed take place and show that the proper amount was charged, the chargeback will fail. For a service, it isn't enough usually to simply state that you were unsatisfied; if you received the service at the agreed-upon price, the charge is valid. A chargeback is sort of a nuclear option when it comes to getting a refund. There are negative ramifications and expenses every time a merchant gets a chargeback (even if they ultimately win), and so often they will be willing to work something out to avoid a chargeback. You should go to the merchant first, if you can, and ask for a refund before considering the chargeback option. If you file a chargeback without even giving them the opportunity to work it out with you, the merchant will usually want to fight back. |
Why buy SPY when there is S&P500? | The S&P500 is an index, not an investment by itself. The index lists a large number of stocks, and the value of the index is the price of all the stocks added together. If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index. This, however, is impractical for just about everyone. Index mutual funds provide an easy way to make this investment. SPY is an ETF (exchange-traded mutual fund) that does the same thing. An index CFD (contract for difference) is not the same as an index mutual fund. There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere. |
Which student loans to pay off first: Stafford or private? | Without knowledge of the special provisions of your loan contract, the one with the highest interest rate should be paid first. Or, if one's fixed payment is much larger than the other, and it is a burden, then it should be paid first, but refinancing may be an option. Socially speaking and possibly even economically since it could affect your reputation, it is probably best to either refinance the cosigned loan or pay that off as rapidly as possible. Economically speaking, I would recommend no prepayment since the asset that is leveraged is your mind which will last many decades, probably exceeding the term of the loan, but some caveats must be handled first: Many would disagree, but I finance the way I play poker: tight-aggressive. |
Is there any instance where less leverage will get you a better return on a rental property? | Leverage means you can make more investments with the same amount of money. In the case of rental properties, it means you can own more properties and generate more rents. You exchange a higher cost of doing business (higher interest fees) and a higher risk of total failure, for a larger number of rents and thus higher potential earnings. As with any investment advice, whenever someone tells you "Do X and you are guaranteed to make more money", unless you are a printer of money that is not entirely true. In this case, taking more leverage exposes you to more risk, while giving you more potential gain. That risk is not only on the selling front; in fact, for most small property owners, the risk is primarily that you will have periods of time of higher expense or lower income. These can come in several ways: If you weather these and similar problems, then you will stand to make more money using higher leverage, assuming you make more money from each property than your additional interest costs. As long as you're making any money on your properties this is likely (as interest rates are very low right now), but making any money at all (above and beyond the sale value) may be challenging early on. These sorts of risks are magnified for your first few years, until you've built up a significant reserve to keep your business afloat in downturns. And of course, any money in a reserve is money you're not leveraging for new property acquisition - the very same trade-off. And while you may be able to sell one or more properties if you did end up in a temporarily bad situation, you also may run into 2008 again and be unable to do so. |
Finding a good small business CPA? | People to ask: Granted I live in a small town, but when the same guy's name comes up more than once that's who you should hire... |
Oil Price forcasting | If past is prologue, I'd say $20, give or take, inflation adjusted of course. http://www.antagoniste.net/WP-Uploads/2007/01/oil_prices_1861_2006.jpg If supplies are at nightmare oversupply, say, as an absurd unlikely scenario, 82 year high in US oil supplies or an all time record in EIA weekly inventories, it looks like the oil price could be capped at the cost of oil sands: This one's just plain scary. Unless if there were some changes refinery laws or technology that I'm not aware of, refineries cutting 50% of the retail gasoline volumes looks bad: |
How come we can find stocks with a Price-to-Book ratio less than 1? | Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps |
What actions can I take against a bank for lack of customer service? | Figure out who regulates the bank. Complain to your state banking/consumer affairs department. Complain to your state Attorney General. The Feds regulate most banks too, there are several different agencies, and I believe the way they regulate banks has changed recently. Try contacting the US Comptroller of the Currency. |
The best credit card for people who pay their balance off every month | PenFed Platinum Cashback Rewards Visa Card is another good choice. Pros: Cons: |
Is there a generally accepted term for fractions of Currency Units? | The Coinage Act of 1792 of the Continental Congress established that the lowest money of account for the United States is one-thousandth (1/1000) of a dollar. This sub-unit is the mille (also written mil, mill). Other sub-units given by the act are the disme for one-tenth (1/10) of a dollar (for which, etymologically, is the origin of the word dime), and the cent for one-hundredth (1/100) of a dollar. The ten-thousandth of the dollar value is taken on account by a few financial organizations, but has no official given term. For the monetary value of USD 27.4955, it may be quoted as twenty-seven dollars, forty-nine cents, and five-and-a-half milles. |
Why invest for the long-term rather than buy and sell for quick, big gains? | There are many technical answers above , but the short story to me is that very few active fund managers consistently beat the market. Look at the results of actively managed funds. Depending on whose analysis you read, you will find out that somewhere between 80-90% of fund managers in a given year do not beat passive index funds. So go figure how you will do compared to a mutual fund manager who has way more experience than you likely have. So, that in itself is moderately interesting, but if you look at same-manager performance over several consecutive years it is rare to find anyone that goes beats the market for more than a few years in a row. There are exceptions, but go pick one of these guys/gals - good luck. Getting in and out of the market is a loser. This is because there is no way to see market spikes and down turns. There are many behavioral studies that have been done that show people do the wrong thing: they sell after losses have occurred and they buy after the market has gone up. Missing an up spike and not being in before the spike is as devastating as missing a down turn and not getting out in time. There is another down side, if you are trading in a personal account, rather than a tax deferred account, going in and out of stocks has tax complications. In short, a broad based equity index will, over time, beat about anything out there and it will do it in a tax efficient manner. Exchange traded funds (ETFs) are a wonderful way to obtain diversification immediately at very low cost. |
What are the differences among all these different versions of Vivendi? | VIV.PA - is Vivendi listed on a stock exchange in Paris VIVEF - is Vivendi listed on the OTC Other Exchange. VIVHY - is Listed on the OTC:Pink Sheets. A company can be listed on multiple exchanges, they are known as a dual-listed company. It's a corporate structure in which two corporations function as a single operating business through a legal equalization agreement, but retain separate legal identities and stock exchange listings. Pretty much all DLCs are cross-border, and have tax advantages for the corporations and their stockholders. When a DLC is created, in essence two companies are created and have two separate bodies of shareholders, but they agree to share all the risks and rewards of the ownership of all their operating businesses in a fixed proportion, laid out in a contract called an "equalization agreement". The shares of a DLC parents have claim to the exact same underlying cash flows. So in theory the stock prices of these companies should move exactly the same. However in practice there can be differences between these prices. More info on OTC exchanges can be found here - keep in mind this info is from the company that runs these listings. Over the counter stocks are held to a FAR lesser regulation standard. I would recommend doing further interdependent research before pursuing any action. |
How to prevent myself from buying things I don't want | My approach won't work for everyone, but I keep a longer list of things I want in my head, preferably including higher value items. I then look at the cost of an item vs the amount of benefit it gets me (either enjoyment or ability to make more money or both). If I only had a few things I wanted, it would be easy to buy them even if the payback wasn't that great, but because I have a large list of things I'd like to be able to do, it's easier to play the comparison game in my head. Do I want this $50 thing now that will only give me a little bit of enjoyment and no income, or would I rather be able to get that $3000 digital cinema camera that I would enjoy having and could work on projects with and actually make money off of? (This is a RL example that I actually just bought last week after making sure I had solid leads on enough projects to pay myself back over time.) For me, it is much easier to compare with an alternative thing I'd enjoy, particularly since I enjoy hobbies that can pay for themselves, which is really the situation this strategy works best in. It might not work for everyone, but hobbies that pay for themselves can take many different forms. Mine tends to be very direct (get A/V tool, do projects that pay money), but it can also be indirect (get sports stuff, save on gym membership over time). If you can get things onto your list that can save you money in the long run, then this strategy can work pretty well, if not, you'll still have the overall saving problem, just with a longer wish list. That said, if you are good about saving already and simply want to make better use of your disposable income, then having a longer list may also work to let you seek out better deals for you. If you have funds that you know you can healthily spend on enjoyment, it is going to be difficult to choose nothing over something that gives enjoyment, even if it isn't a great return on the money. If you have alternatives that would give you better value, then it's easier to avoid the low value option. |
How companies choose earnings release dates, & effect on Implied Volatility | I can't speak authoritatively to your broader question about stocks in general, but in several years tracking AAPL closely, I can tell you that there's little apparent pattern to when their earnings call will be, or when it will be announced. What little I do know: - AAPL's calls tend to occur on a Tuesday more than any other day of the week - it's announced roughly a month in advance, but has been announced w/ less notice - it has a definite range of dates in which it occurs, typically somewhere in the 3rd week of the new quarter plus or minus a few days More broadly for #1: Given the underlying nature of what an option is, then yes, the day an earnings call date is announced could certainly influence the IV/price of options - but only for options that expire inside the "grey area" (~2 weeks long) window in which the call could potentially occur. Options expiring outside that grey area should experience little to no price change in reaction to the announcement of the date - unless the date was itself surprising, e.g. an earlier date would increase the premium on earlier dated options, a later date would increase the premium for later-dated options. As for #2: The exact date will probably always be a mystery, but the main factors are: - the historical pattern of earnings call dates (and announcements of those dates) which you can look up for any given company - when the company's quarter ends - potentially some influence in how long it takes the company to close out their books for the quarter (some types of businesses would be faster than others) - any special considerations for this particular quarter that affect reporting ability And finally: - a surprise of an earnings call occurring (substantively) later than usual is rarely going to be a good sign for the underlying security, and the expectation of catastrophe - while cratering the underlying - may also cause a disproportionate rise in IVs/prices due to fear |
Is a real estate attorney needed for builder deposit contract? | You are planning on signing a contract for, likely, hundreds of thousands of dollars, and plan on paying, likely, tens of thousands of dollars in a deposit. For a house that is not built yet. This isn't particularly unusual, lots of people do this. But, you need a lawyer. Now, before you sign anything. Your agent may be able to recommend a lawyer, but beware; your agent may have a conflict of interest here. |
How can I pay for school to finish my degree when I can't get a student loan and have bad credit? | Wesley gave a great answer and a follow up comment. Heed his advice. If you cannot make ends meet by working two jobs, either you are working very few hours or you have a spending problem. I feel it is more of a spending problem as you should have been able to complete your program and stay within the FAFSA limit. This is a tough situation of your own making. If you are at UNC and an engineering student, you have a good mind. You should use it to find a solution. Then learn the lessons and do not make those decisions again. While many people in authority told you that it was a good idea to go to school on student loans one of the paramount lessons to learn is that sometimes those people give bad advice. In your case that is exactly what happened. |
How exactly does a country devalue its currency? | Does some official tell the Foreign Exchange the the new exchange rate for the yuan is 0.98 * the current exchange rate? For China (and other countries with fixed/controlled exchange rates) - that's exactly how it happens. Does it just print more? This is the way to go for fully convertible currencies (like the USD, EUR, GBP, and handful of others, there're about 20 in the world). Flood the market and as with any commodity - flooding the market leads to a price drop. Obviously "just print more" is much harder to do than picking up the phone and saying "Now you're buying/selling dollars at this price and if you don't I'll have you executed". |
Are large companies more profitable than small ones? | This isn't as rigorous as it should be, but may offer some useful insight into how big and small companies differ operationally. Putting Apple aside, larger companies tend to sell larger volumes of products (even if they're MRI devices, or turbines) relative to what smaller companies can sell (obviously, in absolute terms as well). They are also able to negotiate volume discounts as well as payment terms. This allows them to finance sales through their supply chain. However, their large direct competitors are able to do the same thing as well. Competitive forces then drive prices down. Smaller businesses, without these advantages of scale, tend to have to charge higher margins since they have to pay directly (and, if their clients are large businesses, finance the sale). Small businesses still have higher proportional costs of operation. Sadly, my reference here is a study I performed for the South African Revenue Service about ten years ago, and not available online. However, the time taken by a small business to manage admin, tax, HR is a greater proportion of revenue than for larger companies. If the small business is a start-up with big investment from venture finance, then they could subsidise their selling price, run at a loss and try and gain scale. Funnily enough, there is a fantastic article on this by Joel Spolsky (Ben and Jerry's vs. Amazon) For the average highly-competitive smaller company, the best choice is to chase design/quality/premium markets in order to justify the higher margins they have to charge. And that's what makes Apple interesting as a case study. They were a small company in the presence of giants (Intel, Microsoft, IBM). They were "forced" to concentrate on design and premium markets in order to justify their need for higher margins. It almost didn't work but then they broke through. Now they're in the unique position of having gained scale but are still small enough relative to other electronics manufacturers to continue charging that premium (by volume their sales are still relatively small but their margins make them a giant). This type of variation from market to market makes developing some sort of generalised solution very unlikely but the general requirement holds: that smaller companies must charge higher margins in order to create equivalent profits to larger companies which must gain scale through volume. |
Calculating Pre-Money Valuation for Startup | The value of a business without proven profits is really just a guess. But to determine what % ownership the VC takes some measure must be used. He is asking the OP to start the negotiations. So you start high - higher than you will settle for. The value of the business should always be WAY more the $$ you have put into it ... because you have also invested your time (which has an opportunity cost) and assumed huge risk that you will never get those $$ back. When you need the cash and only one person will give it to you, you are over a barrel. You either take the terms they offer, or you let the business collapse. So keep a show of strength and invent other funders. Or create a business plan showing that you can continue without their $$ (just at a smaller volume). |
When does a pricing error become false advertising? | It's definitely annoying, but it's not necessarily false advertising. There is no rule or law that says they have to fix a pricing error at all, let alone within a certain period of time. Unfortunately they have no obligation to do business with you unless they take (and keep) your money. If they canceled the order and returned your money you have no binding agreement with them. On top of that, in the US... 'misleading advertising' usually refers to "Any advertising or promotion that misrepresents the nature, characteristics, qualities or geographic origin of goods, services or commercial activities" (Lanham Act, 15 U.S.C.A. § 1125(a)). The main criteria that they evaluate before taking legal action is whether or not someone has suffered harm or loss due to the reliance on the bad information. But you're in Europe. The EU ideas behind misleading advertising tend to focus a lot more on comparing one product to someone else's and making subjective claims or false promises. Pricing does come up, but still, you need to have an ability to prove that you suffered harm or a loss from the business' actions. Even if you were able to prove that, to force the business to change its price catalog, you would need to go through legal proceedings, demonstrate the harm that you've sustained, and then have a judge decide in your favor and order the supplier to comply. My guess is that it's just not worth it for you, but you haven't specified if this is just an annoying shoe-shopping experience or if you are regularly experiencing bait-and-switch tactics from a supplier that is a crucial part of a business operation. If it's the former, just like a physical shop reserves the right to kick you out if you're not behaving, (but usually doesn't because they'd like to keep you as a customer), an online shop can update its prices whenever they like. They can change their prices too, and cancel orders. If it's the latter, then start putting together some documentation on how many times this has happened and how it has damaged your business. But before you get on the warpath I would recommend you look for another place to buy whatever you have in mind, or else try a pound of sugar in your approach to this supplier... My own business experience has shown that can go a lot way in figuring out a mutually beneficial resolution. If you want to see a bit more... Here is the EU Justice Commission's website on false advertising, Here is a PDF leaflet from the UK Office of Fair Trading that spells out what is explicitly not allowed from a business by way of advertising & business practices. |
How can a company charge a closed credit card? | Wow, I had never heard of this before but I looked into it a bit and Mikey was spot on. It seems that if you don't pay attention to the fine print when making credit card purchases (as most of us tend to skip) many companies have stipulations that allow continued charges if they are recurring fees (monthly, yearly, etc.) even after you have cancelled the card. |
Sales Tax Licence/Permit - When is it required and how can I make a use of it as a non-US resident selling in USA? | Disclaimer: I am not a tax specialist You probably need a sales tax permit if you're going to sell goods, since just about every state taxes goods, though some states have exemptions for various types of goods. For services, it gets tricker. There is a database here that lists what services are taxed in what states; in Wyoming, for example, cellphone services and diaper services are taxed, while insurance services and barber services are not. For selling over the internet, it gets even dicier. There's a guide on nolo.com that claims to be comprehensive; it states that the default rule of thumb is that if you have a physical presence in a state, such as a warehouse or a retail shop or an office, you must collect tax on sales in that state. Given your situation, you probably only need to collect sales tax on customers in Wyoming. Probably. In any event, I'd advice having a chat with an accountant in Wyoming who can help walk you through what permits may or may not be needed. |
What does a contract's worth mean? | The amount stated is the total amount of money the customer will be paying to the company. How much profit that will translate into is dependent on the type of contract. Some types of contracts: Cost plus fixed fee: they are paid what it costs to complete the contract plus a fee on top of that. That fee represents their profits. The costs will include salary, benefits, overhead, equipment, supplies. Firm fixed price: They perform the service, and they get paid a fixed amount. If their costs are higher than they forecast, then they may lose money. If they can be more efficient than they forecast, then they make more money. Time and materials: They are paid for completing each sub-task based on the number of hours it takes to complete each sub task, plus materials. This is used to hire a company to maintain a fleet of trucks. If the trucks are used a lot they will need more standard maintenance, plus additional repairs based on the type of use. They pay X for labor and Y for materials for an oil change, but A for labor and B for materials for a complete engine rebuild. There are many variations on these themes. Some put the risk on the customer, some on the company. How and when the company is paid is based on the terms of the contract. Some pay X% a month, others pay based on meeting milestones. Some pay based on the number of tasks completed in each time period. Some contracts run for a specific period of time, others have an initial period plus option years. The article may or may not specify if the quoted amount is the minimum amount of the contract or the maximum amount. The impact on the stock price is much more complex. Much more needs to be known about the structure of the contract, and who will be providing the service to determine if there will be profits. Some companies will bid to lose money, if it will serve as a bridge to another contract or to fill a gap that will allow them to delay layoffs. |
ESPP advantages and disadvantages | It would be difficult to answer without knowing specifics about a particular offer. In certain cases, it's definitely great and one could become a millionaire [Google for example]. In other cases one could lose money. In most cases one makes a decent return. As the specifics are not available, in general look out for: Most of these would determine if the plan is good for you to get into. |
What is the purpose of endorsing a check? | Paper trail of who did the deposit. Less significant for a personal account, but a bigger deal for accounts that are used by multiple people (e.g. a corporate checking account). |
Will unpaid taxes prevent me from getting a business license? | Generally these things are unrelated. Your tax debt is to agency X, your license is (mostly) from agency Y. If your business involves agency X, then it may be a problem. For example, you cannot get a EA license (IRS Enrolled Agent) if you have unsettled tax debt or other tax compliance issues. You should check Michigan state licensing organizations if there are similar dependencies. Also, some background checks may fail, and some state licenses require them to pass. For example, you can probably not get an active bar registration or a CPA license with an unsettled tax debt. You might have a problem with registering as a Notary Public, or other similar position. You can probably not work in law enforcement as a contractor. If you're on an approved payment plan - then your tax debt is settled unless you stop paying as agreed, and shouldn't be a problem. |
Mortgage vs. Cash for U.S. home buy now | I'm in the "big mortgage" camp. Or, to put this another way - what would you be happier to have in 15 years? A house that is worth $300,000, or $50,000 of equity in a house and $225,000 in the bank? I would much rather have the latter; it gives me so many more options. (the numbers are rough; you can figure it out yourself based on the current interest rate you can get on investments vs the cost of mortgage interest (which may be less if you can deduct the mortgage interest)). |
Thrift Saving Plan (TSP) Share Price Charts | The recommended way to track TSP funds in online portfolio tools is to track the underlying index and know that the results are pretty close. Not a perfect solution: :( Source including suggested ETFs: http://finance.yahoo.com/news/breaking-down-tsp-investment-funds-194600393.html Related, but not exactly what you are looking for, Personal Capital will track your TSP holdings: http://themilitarywallet.com/manage-thrift-savings-plan/ |
Does a budget comprise expenses, and/or revenue? | Budget means both expenses and revenue. In quite a few cases, say personal finance, typically one refers to budget more from expenses point of view as the revenue is typically fixed/known [mostly salary]. The Operating budget and capital budget are laid out separately as Operating budget gives out day to day expenses that are typically essential, employee salaries, routine maintenance of infrastructure etc. The revenue is also tied in to match this. These are done within the same year. Where as capital budget is to build new infrastructure say a new bridge or other major expense that are done over period of years. The revenues to this are typically tied up differently and can even be linked to getting more funding from other agencies or loans. |
Should I charge my children interest when they borrow money? | Would you expect your parents to charge you interest if you borrowed from them? Yes, if they said so when the money was borrowed. No, if there were no terms communicated when the money was borrowed. Expectations need to be clearly laid out up-front. What is your advice? I think you are asking the wrong question of whether or not you should charge interest. The real issue is that you are concerned about the 'borrowing', which are really turning out to be 'gifts'. The money amounts are not the issue as much as the lack of responsibility. Going back to your children and asking for interest will not fix this issue. This is my advice: This is a difficult process, and may not go over well with your children. Remember that this is not hurting them. You are actually hurting them more by allowing them to put off developing good habits, independence, and maturity. It is hard to see someone make choices that hurt themselves and others, but you cannot prevent them from making that choice. If they never feel the results of that choice, they will lack the motivation to change. |
Joint account that requires all signatures of all owners to withdraw money? | Savings accounts have lower fees. If you don't anticipate doing many transactions per month, e.g. three or fewer withdrawals, then I would suggest a savings account rather than a checking account. A joint account that requires both account holder signatures to make withdrawals will probably require both account holders' signature endorsements, in order to make deposits. For example, if you are issued a tax refund by the U.S. Treasury, or any check that is payable to both parties, you will only be able to deposit that check in a joint account that has both persons as signatories. There can be complications due to multi-party account ownership if cashing versus depositing a joint check and account tax ID number. When you open the account, you will need to specify what your wishes are, regarding whether both parties or either party can make deposits and withdrawals. Also, at least one party will need to be present, with appropriate identification (probably tax ID or Social Security number), when opening the account. If the account has three or more owners, you might be required to open a business or commercial account, rather than a consumer account. This would be due to the extra expense of administering an account with more than two signatories. After the questioner specified interest North Carolina in the comments, I found that the North Carolina general banking statutes have specific rules for joint accounts: Any two or more persons may establish a deposit account... The deposit account and any balance shall be as joint tenants... Unless the persons establishing the account have agreed with the bank that withdrawals require more than one signature, payment by the bank to, or on the order of (either person on) the account satisfys the bank's obligation I looked for different banks in North Carolina. I found joint account terms similar to this in PDF file format, everywhere, Joint Account: If an item is drawn so that it is unclear whether one payee’s endorsement or two is required, only one endorsement will be required and the Bank shall not be liable for any loss incurred by the maker as a result of there being only one endorsement. also Joint accounts are owned by you individually or jointly with others. All of the funds in a joint account may be used to repay the debts of any co-owner, whether they are owed individually, by a co-owner, jointly with other co-owners, or jointly with other persons or entities having no interest in your account. You will need to tell the bank specifically what permissions you want for your joint account, as it is between you and your bank, in North Carolina. |
How to get rid of someone else's debt collector? | Suing is a legitimate option as well as screening your calls but here's another idea which has personally worked and relates to the collections I did for awhile. Talk with the collector. Outstanding debt gets sold many times and each time a new collector gets their hands on an account they do their due diligence which means calling every single number multiple times. Collectors a looking for consumers who actively evade collections calls for years. My recommendation is to use logic and explain the situation. Give your first name and describe when you received the phone number and then ask a simple question. When in the last 3 1/2 years have you or any collector had a successful hit from this number. They'll respond never in 3 1/2 years. The collector notes the account for themselves and future collectors. Debt collectors are about about making money, not wasting time and they do review all notes pertaining to an account. Will it work? Maybe not but hopefully it will stop the calls with a short conversation. Good luck. |
Companies that use their cash to buy back stock, issue dividends, etc. — how does this this typically affect share price? | If a company is valued correctly, then paying dividends should lower the share price, and buying back shares should leave the share price unchanged. If the share price is $100, and the company pays a $10 dividend, then either its cash goes down by $10 per share, it is has to borrow money for the same amount, or some mixture. Either way, the value of the company has gone down by $10 per share. If the share price is $100, and the company buys back 10 percent of its shares, then it also has to find the money, just as for the dividend, and the value of the company goes down by 10 percent. However, the number of shares also goes down by 10 percent, so the amount of value per share is the same, and the share price should stay unchanged. Now there are psychological effects. Many people like getting paid dividends, so they will want to own shares of a company paying dividends, so the share price goes up. Similar with a share buyback; the fact that someone buys huge amounts of shares drives the price up. Both effects are purely psychological. A buyback has another effect if the shares are not valued correctly. If the company is worth $100 per share but for some reason the shareprice is down to $50, then after the buyback the value per share has even gone up. Basically the company buys from stupid investors, which increases the value for clever investors holding on to their shares. If the shareprice were $200, then buying back shares would be a stupid move for the company. |
Medium-term money investment in Germany | Due to the zero percent interest rate on the Euro right now you won't find any investment giving you 5% which isn't equivalent to gambling. One of the few investment forms which still promises gains without unreasonable risks right now seems to be real estate, because real estate prices in German urban areas (not so in rural areas!) are growing a lot recently. One reason for that is in fact the low interest rate, because it makes it very cheap right now to take a loan and buy a home. This increased demand is driving up the prices. Note that you don't need to buy a property yourself to invest in real estate (20k in one of the larger cities of Germany will get you... maybe a cardboard box below a bridge?). You can invest your money in a real estate fund ("Immobilienfond"). You then don't own a specific property, you own a tiny fraction of a whole bunch of different properties. This spreads out the risk and allows you to invest exactly as much money as you want. However, most real estate funds do not allow you to sell in the first two years and require that you announce your sale one year in advance, so it's not a very liquid asset. Also, it is still a risky investment. Raising real estate prices might hint to a bubble which might burst eventually. Financial analysts have different opinions about this. But fact is, when the European Central Bank starts to take interest again, then the demand for real estate property will drop and so will the prices. When you are not sure what to do, ask your bank for investment advise. German banks are usually trustworthy in this regard. |
How to tell if an option is expensive | One way is to compare the implied volatility with the realised volatility over a period similar to the time left to expiry. However there are plenty of reasons why the implied may be higher than the historical, for example because the market volatility has increased overall or because the underlying company is going to report their results before the option expires. |
On what dates do the U.S. and Canada release their respective federal budgets? | To the best of my knowledge, there's no firm date requirement. The fiscal year for the US Federal Government starts on October 01, but if my memory serves me right, last time a budget was approved before the fiscal year started was during the Clinton administration. |
Why would a company with a bad balance sheet be paying dividends? | Ford paid off a tremendous amount of debt prior to reinstating the dividend. While they still have a sizable amount of debt on the balance sheet, they've been able to refinance this debt to a much more affordable point. Their free cash flow + cash on the balance could enable them to pay it off in the very near future (12 - 16 months). Most auto companies have debt on their balance sheet if they choose to offer financial services. Their overall credit rating (if you really think such things are valid) has also improved. Generally speaking, I agree its a poor idea to give money back to shareholders if you have high-interest bearing debt. |
Should Emergency Funds be Used for Infrequent, but Likely, Expenses? | I don't think there is a definite single answer for this. I think it largely depends on where you are on your financial journey. In the ideal world you'd have everything in bucket 2 built into your budget and be putting a little bit aside every paycheck to cover each of those things when they do come up but that takes a fair bit of discipline to do and experience (and data) to estimate reasonably. When you are just starting out in actually setting and keeping a budget or digging yourself out of CC debt/living paycheck to paycheck the odds are you aren't going to have the experience or disciple necessary to actually budget for those things in bucket 2 and even if you did the better option might well be to pay off that high interest debt you already have rather than saving up for an eventual expense. How ever as you start to improve your situation and pay off that debt, develop the disciple to set and follow a budget that is when you should start adding more of those things into your budget. How you track them doesn't really matter. A separate account at your bank. A total for a category in your budgeting software. An XLS file or even paper (ick). Ultimately it isn't about how you plan for and track things but more about actually doing that. So my question to the OP is where are you? If you already have a budget and do a good job of following it but don't have those items in it then consider that the next step in your financial journey. |
Are my parents ripping me off with this deal that doesn't allow me to build my equity in my home? | Basically, you have purchased 25% of the condo for $40,000, and your parents bought 75% of the condo for another $115,000. We imagine for a moment that it wasn't you who lived in the condo, but some unrelated person paying rent. You are paying $7,500 a year for tax and fees, plus $6,000 a year, so there is $13,500 leaving your wallet. If $15,500 a year was a reasonable rent, then the tax and fee would be paid out of that, there would be $8,000 left, of which you would get 25% = $2,000. If you were officially "renting" it, you would pay $15,500 a year, and get $2,000 back, again $13,500 leaving your wallet. So you are in exact the same situation financially as you would be if you paid $15,500 rent. Question: Is $15,500 a year or $1,290 a month an appropriate rent for your condo? If a neighbour is renting his condo, is he or she paying $1,290 or more or less? Could you rent the same place for the same money? If $1,290 is the correct rent then you are fine. If the rent should be lower, then you are overpaying. If the rent should be higher, then you are making money. Keep in mind that you will also be winning if rents go up in the future. |
Is the interest on money borrowed on margin in/for an RRSP considered tax deductible? | I believe your question is based on a false premise. First, no broker, that I know of, provides an RRSP account that is a margin account. RRSP accounts follow cash settlement rules. If you don't have the cash available, you can't buy a stock. You can't borrow money from your broker within your RRSP. If you want to borrow money to invest in your RRSP, you must borrow outside from another source, and make a contribution to your RRSP. And, if you do this, the loan interest is not considered tax deductible. In order for investment loan interest to be tax deductible, you'd need to invest outside of a registered type of account, e.g. using a regular non-tax-sheltered account. Even then, what you can deduct may be limited. Refer to CRA - Line 221 - Carrying charges and interest expenses: You can claim the following carrying charges and interest [...] [...] You cannot deduct on line 221 any of the following amounts: |
Mortgage loan and move money to US | Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss. |
US citizen married to non-resident alien; how do I file taxes? | From what you've described, your spouse is a non-resident alien for US tax purposes. You have two choices: Use the Nonresident Spouse Treated As Resident election and file as Married Filing Jointly. Since your spouse doesn't have, and doesn't currently qualify for, an SSN, he/she will need to apply for an ITIN together with the tax filing. Note that by becoming a resident alien, your spouse's worldwide income the whole year would be subject to US taxes, and would need to be reported on your joint tax filing, though he/she will be able to use the Foreign Earned Income Exclusion to exclude $100k of her foreign earned income, since he/she will have been out of the US for 330 days in a 12-month period. Or, file as Married Filing Separately. You write "NRA" for your spouse's SSN on your tax return. As a nonresident alien, if your spouse doesn't have any US income, he/she doesn't have to file a US tax return, and doesn't need to apply for an ITIN. Which one is better is up to you to figure out. |
Ways to get individual securities from ETF's | Save the effort. For personal finance purpose, just use the simple tools. For example, if you like P&G very much but you want to diversify with ETF, use: http://etfdb.com/stock/PG/ https://www.etfchannel.com/finder/?a=etfsholding&symbol=PG Pick a ETF with highest weighting. Replace "PG" in the link with other tickers. |
Best way to start investing, for a young person just starting their career? | Adding to the very good advises above - Concentrate on costs related to investment activity. Note all expenses and costs that you pay. Keep it low. |
What are the risks & rewards of being a self-employed independent contractor / consultant vs. being a permanent employee? | In the current economy there is no upside to working for yourself. Get in a salaried position as soon as you can, and sacrifice to whatever gods you worship that you don't get made redundant. If you're already working for yourself, and wouldn't give it up for anything, hire someone, and get them off the street. |
First time home buyer. How to negotiate price? | No offer is too low. You can always offer more but you can't offer less once you have made your first offer. And there is always another great deal just around the corner. The more enthusiastic you are about buying this property the less your negotiating power will be. The pproperty has already been on the market for a long while, so the vendor may be getting desperate to sell, so their negotiating power is already lessened. Know what the market is in the the area and offer at least 10% below the market. If it is a weak market then offer at least 20% below market. (Note: the list price is usually more than the market price). So offer as low as possible and you can always offer more if you think it is still a good price. Treat it like a game and have some fun, don't stress out if you miss out, there will always be a better deal just around the corner. |
Opening offshore account from UK | I think your best bet here would be HSBC. They will provide the required currencies, credit/debit cards, and very easy to use online banking transfers. This includes an online "Global Account View" which features all of your accounts on a single screen and allows you to "drag and drop" money between accounts. Regarding fees, I suspect you will need to be a "Premier Account" holder in order to avoid any fees imposed on transactions such as money transfers and exchanging money between currencies. In my experience HSBC offers extremely good exchange rates when exchanging "large" amounts of money ( greater than $10,000 / GBP 5,000 ). Exchanging small amounts will carry a larger spread but still much better than most banks offer. In my experience, exchanging GBP 5000 will have a spread of about 0.50-to-0.75 percent, while exchanging more than GBP10,000 will have a spread of as little as 0.10-to-0.20 percent. In order to qualify for a "Premier Account", if my memory of HSBC UK serves me correctly, you will need to have at least GBP 50,000 net across all of your HSBC managed accounts, including stockbroking and other investment accounts. In order to open a banking Swiss account, you will need to travel to Switzerland and apply in person. You cannot open a foreign bank account remotely. With a foreign investment account, I believe you can open accounts remotely. For example, I opened an account with Fidelity Switzerland using my Fidelity UK account directly from the UK, however obviously Fidelity does not provide banking services so this is not of interest to you. The simplest thing to do is to visit your local HSBC branch and discuss it with them in person. Other UK banks, such as Barclays, will also provide such services, but in my experience they are not as competitive on fees. |
How May Cash be Spent Approaching Bankruptcy? | Bankruptcy law is complex. You need a lawyer who can advise you both on the statute and relevant case law for the district where you file. Your lawyer can advise you whether actions you contemplate are allowed. You can obtain advice prior to filing as you seek to determine whether the law and the relief it offers are suitable to your situation. Anyone considering filing BK should know that they will need to provide fairly extensive information. You should learn about BK as you seek to understand whether that path is the best for your situation. You should ask your lawyer specific questions about your situation and try to learn as much as you can. You should read about the problems with taking out debt or making debt repayments to creditors (especially family) prior to filing BK. These actions could impact your case and cause it to be dismissed, and could even be considered criminal (again, you need a lawyer). Some things to learn about as you contemplate Bankruptcy Be aware that BK is federal law, and you will be required to provide extensive information about your financial situation. You will be required to show up for the creditors meeting and testify that you have provided correct information. The trustee may (will) supply objections to which you and your lawyer will need to respond. Among other things, you will supply, You should seek legal advice about things that might become important, Even though you will have guidance from your lawyer, you are the one seeking relief, and you need to understand your own situation and the law. |
Taxes on foreign and local dividends held in a TFSA | As far as I read in many articles, all earnings (capital gains and dividends) from Canadian stocks will be always tax-free. Right? There's no withholding tax, ie. a $100 dividend means you get $100. There's no withholding for capital gains in shares for anybody. You will still have to pay taxes on the amounts, but that's only due at tax time and it could be very minor (or even a refund) for eligible Canadian dividends. That's because the company has already paid tax on those dividends. In contrast, holding U.S. or any foreign stock that yields dividends in a TFSA will pay 15% withholding tax and it is not recoverable. Correct, but the 15% is a special rate for regular shares and you need to fill out a W8-BEN. Your broker will probably make sure you have every few years. But if you hold the same stock in a non-registered account, this 15% withholding tax can be used as a foreign tax credit? Is this true or not or what are the considerations? That's true but reduces your Canadian tax payable, it's not refundable, so you have to have some tax to subtract it from. Another consideration is foreign dividends are included 100% in income no mater what the character is. That means you pay tax at your highest rate always if not held in a tax sheltered account. Canadian dividends that are in a non-registered account will pay taxes, I presume and I don't know how much, but the amount can be used also as a tax credit or are unrecoverable? What happens in order to take into account taxes paid by the company is, I read also that if you don't want to pay withholding taxes from foreign > dividends you can hold your stock in a RRSP or RRIF? You don't have any withholding taxes from US entities to what they consider Canadian retirement accounts. So TFSAs and RESPs aren't covered. Note that it has to be a US fund like SPY or VTI that trades in the US, and the account has to be RRSP/RRIF. You can't buy a Canadian listed ETF that holds US stocks and get the same treatment. This is also only for the US, not foreign like Europe or Asia. Also something like VT (total world) in the US will have withholding taxes from foreign (Europe & Asia mostly) before the money gets to the US. You can't get that back. Just an honourable mention for the UK, there's no withholding taxes for anybody, and I hear it's on sale. But at some point, if I withdraw the money, who do I need to pay taxes, > U.S. or Canada? Canada. |
What Happens to Bank Stocks If Country Defaults | The prices seem very low even considering the risk? The prices are low because of the risk. Nothing happens to the banks if the sovereign defaults. However, the sovereign debt holders - lose some or all the money they lent to that sovereign. Incidentally, many banks invest in the treasury bonds of various countries, especially those they're located in. They also invest in other companies that rely on the government, or the currency. If that dependency is too high - the bank may fail. If the dependency is not high, or non-existent - the bank will survive. If the bank fails - yes, your shares will be wiped out, that's what happens with bankrupt companies. If you considering investing in banks in a country that you think may default - research them and see how much investments they have that will be affected by that default. |
Advice on preserving wealth in a volatile economic/political country | I suggest that you're really asking questions surrounding three topics: (1) what allocation hedges your risks but also allows for upside? (2) How do you time your purchases so you're not getting hammered by exchange rates? (3) How do you know if you're doing ok? Allocations Your questions concerning allocation are really "what if" questions, as DoubleVu points out. Only you can really answer those. I would suggest building an excel sheet and thinking through the scenarios of at least 3 what-ifs. A) What if you keep your current allocations and anything in local currency gets cut in half in value? Could you live with that? B) What if you allocate more to "stable economies" and your economy recovers... so stable items grow at 5% per year, but your local investments grow 50% for the next 3 years? Could you live with that missed opportunity? C) What if you allocate more to "stable economies" and they grow at 5%... while SA continues a gradual slide? Remember that slow or flat growth in a stable currency is the same as higher returns in a declining currency. I would trust your own insights as a local, but I would recommend thinking more about how this plays out for your current investments. Timing You bring up concerns about "timing" of buying expensive foreign currencies... you can't time the market. If you knew how to do this with forex trading, you wouldn't be here :). Read up on dollar cost averaging. For most people, and most companies with international exposure, it may not beat the market in the short term, but it nets out positive in the long term. Rebalancing For you there will be two questions to ask regularly: is the allocation still correct as political and international issues play out? Have any returns or losses thrown your planned allocation out of alignment? Put your investment goals in writing, and revisit it at least once a year to evaluate whether any adjustments would be wise to make. And of course, I am not a registered financial professional, especially not in SA, so I obviously recommend taking what I say with a large dose of salt. |
Is there a limit on the dollar amount of a personal check? | Many businesses will request that you get a bank-issued check for large amounts of money. The exception is often in cases where you're not going anywhere: you can write a 50,000 check for a deposit on a new house, and you'll never have a problem, but a car dealer will probably request a counter check for the same sum. |
Does a SIM only cell phone contract help credit rating? | I have never seen any of my mobile phone providers report any data to any credit agency. They tend to only do that if you don't pay on time. Maybe sometimes it helps, but from my experience over the last decade - it must be some very rare times. |
Buying a small amount (e.g. $50) of stock via eToro “Social Trading Network” using a “CFD”? | There are some useful answers here, but I don't think any of them are quite sufficient. Yes, there are some risks involved in CFD trading, but I will try and give you information so you can make your own decision. Firstly, Cyprus is part of the EU, which gives it a level of credibility. I'm not saying it's the safest or most well regulated market in the world, but that in itself would not particularly scare me away. The far more important issue here is the risk of using CFDs and of eToro themselves. A Contract for Difference is really just a specialization of an Equity Swap. It is in no way like owning a real stock. When you purchase shares of a company you own a real Asset and are usually entitled to dividends and voting rights. With a CFD, what you own is one side of a Swap contract. You have a legal agreement between yourself and eToro to "swap" the return earned on the underlying stock for whatever fees eToro decide to charge. As already mentioned, CFDs are not available to US citizens. Equity swaps have many benefits in financial markets. They can allow access to restricted markets by entering into swaps with banks that have the necessary licenses to trade in places like China. Many "synthetic" ETFs use them in Europe as a way to minimize tracking error as the return is guaranteed by the swap counterparty (for a charge). They also come with one signficant risk: counterparty credit risk. When trading with eToro, for as long as your position is open, you are at risk of eToro going bankrupt. If eToro failed, you do not actually own any stocks, you only own swap contracts which are going to be worthless if eToro ceased to exist. CFDs also have an ongoing cost to maintain the open position. This makes them less suitable for buy and hold strategies as those ongoing costs will eat into your returns. It's also not clear whether you would receive any dividends paid by the stock, which make up a significant proportion of returns for buy and hold investors. eToro's website is fairly non-committal: eToro intends to offer a financial compensation representing the dividends which will be allocated on stocks, to the extent such dividends shall be available to eToro. All of these points expose what CFDs are really for - speculating on the stock market, or as I like to call it: gambling. If you want to invest in stocks for the long term, CFDs are a bad idea - they have high ongoing costs and the counterparty risk becomes significant. Wait until you have enough money and then buy the real thing. Alternatively, consider mutual funds which will allow you to purchase partial shares and will ensure your investment is better diversified across a large number of stocks. If however, you want to gamble and only keep your position open for a short time, these issues may not be of concern to you. There's nothing wrong with gambling, it can be fun, many people gamble in casinos or on football matches - but bear in mind that's what CFDs are for. CFDs were in fact originally created for the UK market as a way to avoid paying capital gains tax when making short term speculative trades. However, if you are going to gamble, make sure you're not putting any more than 1% of your net worth at risk (0.1% may be a better target). There are a few other ways to take a position on stocks using less money than the share price: Fortunately, eToro do not allow leveraged purchase of stocks so you're reasonably safe on this point. They claim this is because of their 'responsible trading policy', although I find that somewhat questionable coming from a broker that offers 400:1 leverage on FX pairs. One final word on eToro's "social trading" feature. A few years ago I was in a casino playing Blackjack. I know nothing about Blackjack, but through sheer luck of the draw I managed to treble my money in a very small amount of time. Seeing this, a person behind me started "following" me by putting his chips down on my seat. Needless to say, I lost everything, but amazingly the person behind me got quite annoyed and started criticizing my strategy. The idea of following other people's trades just because they've been lucky in the past sounds entirely foolish to me. Remember the warning on every mutual fund: Past performance does not guarantee future returns |
How does a big lottery winner cash his huge check risk-free? | If the funds are deposited into a noninterest-bearing account, they will be covered by FDIC insurance regardless of the amount (However, this extended coverage may not be valid after Dec. 31, 2012): On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. (Source: http://www.fdic.gov/deposit/deposits/changes.html) |
Trading on exchanges or via brokerage companies? | I was wondering what relations are between brokerage companies and exchanges? Are brokers representing investors to trade on exchanges? Yes...but a broker may also buy and sell stocks for his own account. This is called broker-delaer firm. For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? Doesn't the former save the investors any costs/expenses paid to the brokers? Yes, but to trade directly on an exchange, you need to register with them. That costs money and only a limited number of people can register I believe. Note that some (or all?) exchanges have their websites where I think trading can be done electronically, such as NASDAQ and BATS? Can almost all stocks be found and traded on almost every exchange? In other words, is it possible that a popular stock can only be found and traded on one exchange, but not found on the other exchange? If needed to be more specific, I am particularly interested in the U.S. case,and for example, Apple's stock. Yes, it is very much possible with smaller companies. Big companies are usually on multiple exchanges. What are your advices for choosing exchange and choosing brokerage companies? What exchanges and brokerage companies do you recommend? For brokerage companies, a beginner can go with discount broker. For sophisticated investors can opt for full service brokers. Usually your bank will have a brokerage firm. For exchanges, it depends...if you are in US, you should send to the US exchanges. IF you wish to send to other exchanges in other countries, you should check with the broker about that. |
Has anyone compared an in-person Tax Advisor to software like Turbo Tax? | Generally speaking no person or program is really going to be able to help you lower your current tax burden, most tax decisions are done well before you reach the tax time. You either qualify for the deduction/credit or your don't. Where a good accountant will really be able to help you out is in planning that will limit your future tax burden. Particularly if you run a small business or are very wealthy you will probably want to consider using an accountant. I would always avoid the large scale tax prep places like HR Block they provide the same or lower quality service for a higher price than the software. I run a small business and do my own taxes using turbo tax, but my business isn't overly complex Sole prop, no employees, couple 1099's simple expenses (nothing to amortize) etc. |
Growth rate plus dividend yieid total? | In my mind its not the same. If growth is stock value then this is incorrect because of compound interest in stock price. $100 stock price after one year would be $105 and a dividend would be $2 Next year the stock would be $110.20 (Compound Interest) and would the Dividend really go up in lock step with the stock price? Well probably not, but if it did then maybe you could call it the same. Even if the dollars are the same the growth rate is more variable than the dividends so its valuable to segregate the two. I am open to criticism, my answer is based on my personal experience and would love to hear contrary positions on this. |
Can we compare peer-to-peer loans to savings accounts? | I don't think you can compare savings accounts and peer-to-peer lending. The former is a liquid way of stashing some money away (IOW you can get at it pretty much any time you want) whereas the latter is extremely illiquid (you only get your money back if and when the loan has been repaid). Also, as mentioned by the other posters, there is a risk attached to p2p lending, even if the borrowers are vetted by the p2p lending platform. You're essentially taking the same risks that a bank would take when writing a couple of personal loans, and that's quite far removed from a safe haven for your cash. If you have enough money to invest (not save, invest) then it might be worth putting a small amount into p2p lending, but it's anything but an alternative to a savings account. |
Are there any countries where citizens are free to use any currency? | If I understand correctly, you're actually asking why there isn't a society whose members generally accept/use any currency for transactions, and just like, Google the exchange rate or something. The answer is because it's exceptionally inconvenient. Can you imagine having a wallet with 200 pouches for all the different currencies? Why would you want to deal with exchange rates all the time? What if the value of a currency changes? (A single currency at least has the illusion of being stable). Et cetera. |
Credit card statement dates follow pattern? | Each bank is different. Usually in my experience for newer credit card accounts, there is a specific number of days in a billing cycle (something like 28) and then a 20-25 day grace period. Older accounts usually have 30+ day billing cycles. Back in the 90's, many cards also had 30-40 day grace periods. The language specific to your card is in the card agreement. |
Where to start with personal finance? | First of all, make sure you have all your credit cards paid in full -the compounding interests on those can zero out returns on any of your private investments. Fundamentally, there are 2 major parts of personal finance: optimizing the savings output (see frugal blogs for getting costs down, and entrepreneur sites for upping revenues), and matching investment vehicles to your particular taste of risk/reward. For the later, Fool's 13 steps to invest provides a sound foundation, by explaining the basics of stocks, indexes, long-holding strategy, etc. A full list Financial instruments can be found on Wikipedia; however, you will find most of these to be irrelevant to your goals listed above. For a more detailed guide to long-term strategies on portfolio composition, I'd recommend A Random Walk Down Wall Street: The Time-tested Strategy for Successful Investing. One of the most handy charts can be found in the second half of this book, which basically outlines for a given age a recommended asset allocation for wealth creation. Good luck! |
US Bank placing a hold on funds from my paycheck deposit: Why does that make sense? | It is possible that they only do the hold on the first deposit from a given source. It is probably worth asking if they intend to do the hold on every paycheck or just the first one. |
Do money markets fluctuate during market crashes? | As the commenters have already indicated, money market mutual funds are not guaranteed to maintain principal during all market conditions, and investments in mutual funds are not insured against loss due to market changes. That said, you can run a price search on Vanguard's website and see these results: So, despite all the economic problems since 1975, VMMXX has never traded at a price other than $1.00. |
Why should we expect stocks to go up in the long term? | A lot of these answers are strong, but at the end of the day this question really boils down to: Do you want to own things? Duh, yes. It means you have: By this logic, you would expect aggregate stock prices to increase indefinitely. Whether the price you pay for that ownership claim is worth it at any given point in time is a completely different question entirely. |
Why are Rausch Coleman houses so cheap? Is it because they don't have gas? | A 25% variance in price, in most markets, isn't so crazy as to require it be some sort of terrible scam, but that doesn't mean much else. It could be the inclusion of floor plans that are carefully designed to add square footage at minimum cost and thus reduce the average cost per square foot without actually being cheaper otherwise, less insulation, thinner walls, cheap piping, minimized wiring, or they are just efficient and competitive. As you pointed out they don't have gas, so that's certainly one way you know they cut costs - no gas lines to install! As the article from NAHB: Cost of Constructing A Home points out, though, what this figure includes can vary. Does it include the finished lot? If so then a smaller lot would mean lower square footage building price - because the land is smaller and cheaper, not the house! Is any kind of financing quoted in the price? Compare also change-plan costs, any penalties for delays in construction, grade of materials, floor plans, customization costs, fees or premiums to pick colors/floors/counters/cabinets/fixtures, and so on. What about central cooling and heating - are they quoting an electric furnace? How does electrical heating in your area compare to the cost of gas heat? (relative pricing of electric and gas vary widely by region and climate) In short: often square footage price isn't the whole story of what it would cost to construct a home. Ensure you are comparing everything that's important to you and you are getting a full quote, not comparing small isolate sales-pitch figures with no clear details. If it turns out the price is 25% lower than other builders in your area and they give you what you are wanting, and you have the good sense to have a qualified home inspector and/or structural engineer inspect the home thoroughly before you take possession, then you might just have found a good builder! I'd encourage you to personally visit some of their past construction work, such as houses they build 2-10 years ago and ensure they are in the sort of condition you'd expect. |
May 6, 2010 stock market decline/plunge: Why did it drop 9% in a few minutes? | I hate attributing an event like this to a single cause. That implies that the market is an orderly system where everything operates smoothly. I prefer to see it as much chaotic. When I see a drop like that happen, I'd say that there were a lot of sellers of stocks and all the buyers were bidding less and less for those few minutes. Perhaps the catalyst for that was a typo or a strange order. But in the end all the participants in the market responded by bidding down stocks, not just one person. It takes sides to complete a trade. I know my model is a bit simplistic... I'd be happy if someone corrected me :-) |
How does investment into a private company work? | Each company has X shares valued at $Y/share. When deals like "Dragon's Den" in Canada and Britain or "Shark Tank" in the US are done, this is where the company is issuing shares valued at $z total to the investor so that the company has the funds to do whatever it was that they came to the show to get funding to do, though some deals may be loans or royalties instead of equity in the company. The total value of the shares may include intangible assets of course but part of the point is that the company is doing an "equity financing" where the company continues to operate. The shareholders of the company have their stake which may be rewarded when the company is acquired or starts paying dividends but that is a call for the management of the company to make. While there is a cash infusion into the company, usually there is more being done as the Dragon or Shark can also bring contacts and expertise to the company to help it grow. If the investor provides the entrepreneur with introductions or offers suggestions on corporate strategy this is more than just buying shares in the company. If you look at the updates that exist on "Dragon's Den" or "Shark Tank" at least in North America I've seen, you will see how there are more than a few non-monetary contributions that the Dragon or Shark can provide. |
Why ever use a market order? | The purpose of a market order is to guarantee that your order gets filled. If you try to place a limit order at the bid or ask, by the time you enter your order the price might have moved and you might need to keep amending your limit order in order to buy or sell, and as such you start chasing the market. A market order will guarantee your order gets executed. Also, an important point to consider, is that market orders are often used in combination with other orders such as conditional orders. For example if you have a stop loss (conditional order) set at say 10% below your buy price, you might want to use a market order to make sure your order gets executed if the price drops 10% and your stop loss gets triggered, making sure that you get out of the stock instead of being stuck with a limit order 10% below your buy price whilst the stock keeps falling further. |
What is a Master Limited Partnership (MLP) & how is it different from plain stock? | I was hesitant to answer this question since I don't own MLP even though I'm aware of how they work. But hear crickets on this question, so here goes. I'll try to keep this as non technical as possible. MLPs are partnerships where a shareholder is a partner and liable for the partnership's taxes. MLPs don't pay corporate tax since the tax burden flows to you, the shareholder. So does that mean like a partnership the partners are liable for the company's actions? Technically, yes. Has it happened before? No. Of course there are limitations to the liability, but are not definitely shielded in a way normal shareholders are. MLPs issue a K-1 at the beginning of the year (feb/mar). The tax calculations are relatively complex and I'm not going to go over that in this post. Generally MLPs are a bad choice for tax-deferred accounts like IRAs since there are tax implications beyond certain limits of distribution (yes even out of an IRA you'll have to pay taxes if above the limit). Not all types of businesses can become MLPs (hey no corporate tax, let's form an MLP!) Only companies engaged in businesses related to real estate, commodities or natural resources can become MLPs. There are a number of MLPs out there. The largest is Kinder Morgan Energy Partners. Hope this helps! |
Challenged an apparently bogus credit card charge, what happens now? | Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you want to be on the lookout in case they try to use it again. However, your credit card company is going to be much, much better than you at detecting patterns of fraud, which is why you should leave it to them unless and until you actually see more suspicious activity. |
Buying real estate with cash | To give the seller cash at the closing, you will need to borrow the money ahead of time, which means a mortgage is out. A bank will only make a mortgage if they get the deed. Therefore, you will have to borrow a different way, such as through a more-expensive home equity loan. |
Is there any circumstance in which it is necessary to mark extra payments on a loan as going to “principal and not interest”? | The mortgage I got last year through Wells Fargo explicitly indicates in its terms that excess payment will be considered against future payments (i.e., pay $500 extra in January and you owe $500 less in February) unless indicated otherwise. It goes on to state that with electronic payments you do not get to specify where excess payment goes, so excess payment made electronically always goes toward future payments. If you want to make excess payments toward principal, you must actually send them a check and your payment stub, with the appropriate box ticked. This won't be very different for other major banks, I wouldn't imagine. |
Do people tend to spend less when using cash than credit cards? | First, let me answer the question the best way I can: I don't know if there are any studies other than those that have already been mentioned. Now, let's talk about something more interesting: You don't need to base your behavior on any study, even if it is scientific. Let's pretend, for example, that we could find a scientifically valid study that shows that people spend 25% more when using a credit card than they do when spending cash. This does not mean that if you use a credit card, you will spend 25% more. All it means is that the average person spending with a credit card spends more than the average person paying cash. But there are outliers. There are plenty of people who are being frugal while using a credit card, and there are others who spend too much cash. Everyone's situation is different. The idea that you will automatically spend less by using cash would not be proven by such a study. When hearing any type of advice like this, you need to look at your own situation and see if it applies to your own life. And that is what people are doing with the anecdotal comments. Some say, "Yep, I spend too much if I use a card." Others say, "Actually, I find that when I have cash in my wallet, I spend it on junk." And both are correct. It doesn't matter what the study says the average person does, because you are not average. Now, let's say that you are a financial counselor who helps people work through disastrous financial messes. Your client has $20,000 in credit card debt and is having trouble paying all his bills. He doesn't have a budget and never uses cash. Probably the best advice for this guy is to stop using his card and start paying cash. It doesn't take a scientific study to see that this guy needs to change his behavior. For what it is worth, I keep a strict budget, keeping track of my spending on the computer. The vast majority of my spending is electronic. I find tracking my cash spending difficult, and sometimes I find that when I have cash in my wallet, it seems to disappear without a trace. :) |
When should I walk away from my mortgage? | The value of debt is that it allows you to profit from the return of equity beyond the amount of actual net equity you own. Of course, this only works if the cost of borrowing is less than your return on equity. Market timing matters a great deal but isn't accounted for in this view. For my answer I would like to hand-wave away market timing considerations. One plausible justification is that you could default on your current home and then immediately go buy one of equal value. If you buy a new home of a lesser value (due to lack of funds) and then prices appreciate, then you missed some opportunity cost but probably not $100k worth of it. Moving on, here are some helpful assumptions I'll make. I'll ignore performance of your portfolio after retirement and only seek to optimize F, which will be your net worth upon retirement. In either case, your current net worth is earning the R2 rate. We can convert this for both your current net worth and future savings using conversion formulas. Present to future value F = P (1+R2)^x Annual to future value F = S ( (1+R2)^x - 1 ) / R2 Adding these together is sufficient to obtain F in the case that you have no borrowing power. The case where you do not default and maintain your credit score is different due to an initial $100k penalty and the amortized value of borrowing power. In a completely theoretical sense, you get an effective (R2-R1) yield on all borrowed money. The future value will be the following: F = A1 (1+R2-R1)^x One step is missing, however, which is to convert this value (the value of having a good credit score) into present value to compare to value of your defaulting. P of borrowing power = F / (1+R2)^x = A1 { (1+R2-R1)/(1+R2) }^x Now, let's put some specific values in. Say that you can borrow $300k with your good credit history and this applies for the next 25 years, after which you retire. The borrowing rate is 7% and the time-value of money to you is 10%. I would then calculate: P of borrowing power = $58 k < $100 k This indicates that it would be more economical to default. Of course, some people might point out that it will be removed from your record after 7 years. If you plug 7 years instead of 25 years into the equation, almost no assumptions about rates will lead to the option of keeping your house being preferable. So in a nutshell, the value of your credit is probably less than $100k in a purely mathematical sense. But there are other factors too. If you don't have that borrowing ability maybe you wouldn't be able to borrow money to start the business of your dreams. If you are a rock star entrepreneur, then time-value of money to you could be 1,000% yield, sure, then maybe you could make the above numbers work (to favor keeping the house). I've also neglected ethics. As other people point out, it would be like stealing from the bank. |
Is it smart to only invest in mid- and small-cap stock equity funds in my 401(k)? | If the stock market dropped 30%-40% next month, providing you with a rare opportunity to buy stocks at a deep discount, wouldn't you want to have some of your assets in investments other than stocks? If you don't otherwise have piles of new cash to throw into the market when it significantly tanks, then having some of your portfolio invested elsewhere will enable you to back up the proverbial truck and load up on more stocks while they are on sale. I'm not advocating active market timing. Rather, the way that long-term investors capitalize on such opportunities is by choosing a portfolio asset allocation that includes some percentage of safer assets (e.g. cash, short term bonds, etc.), permitting the investor to rebalance the portfolio periodically back to target allocations (e.g. 80% stocks, 20% bonds.) When rebalancing would have you buy stocks, it's usually because they are on sale. Similarly, when rebalancing would have you sell stocks, it's usually because they are overpriced. So, don't consider "safer investments" strictly as a way to reduce your risk. Rather, they can give you the means to take advantage of market drops, rather than just riding it out when you are already 100% invested in stocks. I could say a lot more about diversification and risk reduction, but there are plenty of other great questions on the site that you can look through instead. |
What is the daily rebalanced leverage ratio that is ideal for the S&P 500 based on past performance? | The reason that UltraLong funds and the like are bad isn't because of the leverage ratio. It's because they're compounded daily, and the product of all the doubled daily returns is not mathematically equivalent to the double the long-term return. I'd consider providing big fancy equations using uppercase pi as the 'product of elements in a sequence' operator and other calculus fanciness, but that would be overkill, I don't think I can do TeX here, and I don't know the relevant TeX anyway. Anyway. From the economics theory perspective, the ideal leverage ratio is 1X - that is, unlevered, straight investment. Consider: Using leverage costs money. You know that, surely. If someone could borrow money at N% and invest at an expected N+X%, where X > 0, then they would. They would borrow all the money they could and buy all the S&P500 they could. But when they bought all that S&P500, they'd eventually run out of people who were willing to sell it for that cheap. That would mean the excess return would be smaller. Eventually you'd get to a point where the excess return is... zero? .... well, no, empirically, we can see that it's definitely not zero, and that in the real world that stocks do return more than bonds. Why? Because stocks are riskier than bonds. The difference in expected return between an index like the S&P500 and a US Treasury bond is due to the relative riskiness of the S&P500, which isn't guaranteed by the US Government to return your principal. Any money that you make off of leverage comes from assuming some sort of a risk. Now, assuming risk can be a profitable thing to do, but there are also a lot of people out there with higher risk tolerance than you, like insurance companies and billionaires, so the market isn't exactly short of people willing to take risks, and you shouldn't expect the returns of "assuming risk" in the general case to be qualitatively awesome. Now, it's true that investing in an unlevered fashion is risky also. But that's not an excuse to go leveraged anyway; it's a reason to hold back. In fact, regular stocks are sufficiently risky that most people probably shouldn't be holding a 100% stock portfolio. They should be tempering that risk with bonds, instead, and increasing the size of their bond holdings over time. The appropriate time to use leverage is when you have information which limits your risk. You have done research, and have reason to believe that you understand the future of an individual stock/index better than the rest of the stock market does. You calculate that the potential for achieving returns with leverage outweighs the risks. Then you dump your money into the leveraged position. (In exchange for this, the market receives information about anticipated future returns of this instrument, because of the price movement which occurs as a result of someone putting his money where his mouth is.) If you're just looking to dump money into broad market indicies in a leveraged fashion, you're doing it wrong. There is no free money. (Ed. Which is not to say there's not money. There's lots of money. But if you go looking for the free kind, you won't find it, and may end up with money that you thought was free but was actually quite expensive.) Edit. Okay, so you don't like my answer. I'm not surprised. I'm giving you a real answer instead of a "make free money" answer. Okay. Here's your "how to make free money" answer. Assume you are using a constant leverage ratio over the length of time you've invested your money, and you don't get to just jump into and out of the market (that's market-timing, not leverage) so you have to stay invested. You're going to have a scenario which falls into one of these categories: The S&P500 historically rises over time. The average rate of return probably exceeds the average interest rate. So the ideal leverage ratio is infinite. Of course, this is a stupid answer in real life because you can't pull that off. Your risk tolerance is too low and you will have trouble finding a lender willing to lend you unsecured money, and you'll probably lose all your money in a crash sooner or later. Ultimately it's a stupid answer because you're asking the wrong question. You should probably ask a better question: "when I use leverage to gain additional exposure to risk, am I being properly compensated for assuming that risk?" |
How to explain an income discrepancy to the IRS? | The IRS doesn't tax "increased wealth" They tax Revenue -- income. If this money or property came to you as a gift, you would owe no tax on it but the giver probably would owe gift tax. If it came to you as a loan, you would owe no tax on it but the lender would owe tax on any interest you pay (and must charge at least minimal interest, though they could give that to you as a gift and possibly not have it be taxable). But if came as payment for goods or services or investment or anything of that sort, and you aren't demonstrably tax-exempt, it is income and you are responsible for declaring it as such and paying tax on it. |
What assets would be valuable in a post-apocalyptic scenario? | Guns. Without them, any other conceivable asset would be taken from you. By someone with guns. |
how can a US citizen buy foreign stocks? | For question #1, at least some US-based online brokers do permit direct purchases of stocks on foreign exchanges. Depending on your circumstances, this might be more cost effective than purchasing US-listed ADRs. One such broker is Interactive Brokers, which allows US citizens to directly purchase shares on many different foreign exchanges using their online platform (including in France). For France, I believe their costs are currently 0.1% of the total trade value with a 4€ minimum. I should warn you that the IB platform is not particularly user-friendly, since they market themselves to traders and the learning curve is steep (although accounts are available to individual investors). IB also won't automatically convert currencies for you, so you also need to use their foreign exchange trading interface to acquire the foreign currency used to purchase a foreign stock, which has plusses and minuses. On the plus side, their F/X spread is very competitive, but the interface is, shall we say, not very intuitive. I can't answer question #2 with specific regards to US/France. At least in the case of IB, though, I believe any dividends from a EUR-denominated stock would continue to accumulate in your account in Euros until you decide to convert them to dollars (or you could reinvest in EUR if you so choose). |
Malaysian real estate: How to know if the market is overheated or in a bubble? | The Motley Fool suggested a good rule of thumb in one of their articles that may be able to help you determine if the market is overheating. Determine the entire cost of rent for a piece of property. So if rent is $300/month, total cost over a year is $3600. Compare that to the cost of buying a similar piece of property by dividing the property price by the rent per year. So if a similar property is $90,000, the ratio would be $90,000/$3600 = 25. If the ratio is < 20, you should consider buying a place. If its > 20, there's a good chance that the market is overheated. This method is clearly not foolproof, but it helps quantify the irrationality of some individuals who think that buying a place is always better than renting. P.S. if anyone can find this article for me I'd greatly appreciate it, I've tried to use my google-fu with googling terms with site:fool.com but haven't found the article I remember. |
Selling equities for real-estate down payment | My suggestion would be to do the math. That is the best advice you can get when considering any investment. There are other factors you haven't considered, too... like the fact that interest rates are at extremely low levels right now, so borrowing money is relatively cheap. If you're outside the US though, that may be less of a consideration as the mortgage lending institutions in Europe only tend to give 5-year locks on loan rates without requiring a premium. You may be somewhere else in the world. You will probably struggle to do the actual math about the probability of the market going down or up, but what you can do is this: Figure out what it would cost you to cash out the investments. You say your balance is $53,000 in various items. (Congrats! That's a nice chunk of money.) But with commissions and taxes and etc., it may reduce the value of your investments by 10% - 25% when you try to cash out those investments. Paying $3,000 to get that money out of the investments is one thing... but if you're sending $10,000 to the tax man when you sell this all off, that changes the economics of your investments a LOT. In that case you might be better off seeing what happens if the markets correct by 10%... you'd still have more than if you sold out and paid major taxes. Once you know your down payment, calculate the amount of property you could afford. You know your down payment could be somewhere around $50,000 after taxes and other items... At an 80:20 loan-to-value ratio that's about $250,000 of a property that you can qualify for, assuming you could obtain the loan for $200,000. What could you buy for that? Do some shopping and figure out what your options are... Once you have two or three potential properties, figure out the answer to "What would the property give you?" Is it going to be rented out? Are you going to live there? Both? If you're living in it, then you come out ahead if the costs for the mortgage debt and the ongoing maintenance and repairs are less than what you currently pay in rent. Figure out what you pay right now to put a roof over your head. Will the place you could buy need repairs? Will you pay more on a mortgage for $200,000 USD (in your local currency) than what you currently do for housing? Don't even factor in the possible appreciation of a house you inhabit when you're making this kind of investment decision... it could just as easily burn down as go up in value. If you would rent it, what kind of rental would that be? Long-term rental? Expect to pay for other people to break your stuff. Short-term rental? You can collect more money per tenant per day, but you'll end up with higher vacancy rates. And people still break your stuff. But do the math and see if you could collect enough in rent from a tenant (person or business or whatever the properties are you could buy) to cover the amount you are paying in debt, plus what you would pay in taxes (rent is income), plus what you would need for maintenance, plus insurance. IF the numbers make sense, then real estate can be a phenomenally lucrative investment. I own some investment properties myself. It is a great hedge against inflation (you can raise rents when contracts lapse... usually) and it is an excellent way to own a tangible item. But if you don't know the numbers and exactly how it would make you better off than sitting and hoping that the markets go up, because they generally do over time, then don't take the jump. |
What to ask Warren Buffet at the Berkshire Hathaway shareholder meeting? | For whatever it's worth, when I went to the meeting a couple of years ago, the question and answer segment is mostly students asking how to pick a stock or what book they should read. I'm sure someone else will ask but it would be interesting to hear their take on the Syrian refugee situation in Europe and how it may impact the EU in general. Or how he/they think the drought in the south western region of the US will impact the national economy, if at all. Like Keshlam says, if YOU don't care about the answer there's really no point to asking the question. The most important thing you can do is listen to what he and Munger have to say. The way they think is interesting and they have great rapport with eachother. It's a great experience and unfortunately I wasn't able to make my schedule work to attend this year. It's almost comical how many cans of Coke Warren will knock out through the day. Another fun thing to do is take the shuttle to the airstrip to check out the NetJets. I wish I had the interest and wherewithal to go when I was 16... |
Which is better when working as a contractor, 1099 or incorporating? | Unless the amounts involved are very small, it is MUCH better to incorporate. First, incorporation gives you limited liability for your acts as an employee. As an individual, you have unlimited liability. Second, incorporating allows you to deduct (for tax purposes) the costs of doing business, including all of your health insurance, most transportation, and some meals. The exception to the rule is if the amounts you are earning are so small that they don't cover the cost of incorporating, accounting fees, etc. (a few hundred, or at most a few thousand dollars). |
Is the need to issue bonds a telltale sign that the company would have a hard time paying coupons? | One more scenario is when the company already has maturing debt. e.g Company took out a debt of 2 billion in 2010 and is maturing 2016. It has paid back say 500 million but has to pay back the debtors the remaining 1.5 billion. It will again go to the debt markets to fund this 1.5 billion maybe at better terms than the 2010 issue based on market conditions and its business. The debt is to keep the business running or grow it. The people issuing debt will do complete research before issuing the debt. It can always sell stock but that results in dilution and affects shareholders. Debt also affects shareholders but when interest rates are lower, companies tend to go to debt markets. Although sometimes they can just do a secondary and be done with it if the float is low. |
How to donate to charity that will make a difference? | In the. US, i'd suggest hitting the Charity Navigator website for evaluation of how efficiently various charities will use your money. At this point I won't donate money to anything that gets less than three stars unless I know the organization very well indeed -- and I've been progressively swapping out 3-star groups for 4-star organizations in the same category. Many of the groups reviewed by CN are international, so you might find it useful even if you're donating from/to elsewhere. |
How to compute for losses in an upside down trade-in of a financed car? | I'm going to ignore your numbers to avoid spending the time to understand them. I'm just going to go over the basic moving parts of trading an upside down car against another financed car because I think you're conflating price and value. I'm also going to ignore taxes, and fees, and depreciation. The car has an acquisition cost (price) then it has a value. You pay the price to obtain this thing, then in the future it is worth what someone else will pay you. When you finance a car you agree to your $10,000 price, then you call up Mr. Bank and agree to pay 10% per year for 5 years on that $10,000. Mr. Banker wires over $10,000 and you drive home in your car. Say in a year you want a different car. This new car has a price of $20,000, and wouldn't you know it they'll even buy your current car from you. They'll give you $7,000 to trade in your current car. Your current car has a value of $7,000. You've made 12 payments of $188.71. Of those payments about $460 was interest, you now owe about $8,195 to Mr. Banker. The new dealership needs to send payment to Mr. Banker to get the title for your current car. They'll send the $7,000 they agreed to pay for your car. Then they'll loan you the additional $1,195 ($8,195 owed on the car minus $7,000 trade in value). Your loan on the new car will be for $21,195, $20,000 for the new car and $1,195 for the amount you still owed on the old car after the dealership paid you $7,000 for your old car. It doesn't matter what your down-payment was on the old car, it doesn't matter what your payment was before, it doesn't matter what you bought your old car for. All that matters is how much you owe on it today and how much the buyer (the dealership) is willing to pay you for it. How much of this is "loss" is an extremely vague number to derive primarily because your utility of the car has a value. But it could be argued that the $1,195 added on to your new car loan to pay for the old car is lost. |
What is a “retail revolving account,” and does it improve my credit score? | A retail revolving account is a more formal name for a general credit card. A revolving account is an account created by a lender to represent debts where the outstanding balance does not have to be paid in full every month by the borrower to the lender. The borrower may be required to make a minimum payment, based on the balance amount. Retail Revolving Account Wikipedia This is different from something like a car loan or mortgage or other more structured or secured debt. It used to be somewhat common for very large retailers to issue lines of credit to their customers in the form of a store card. This card was a lot like a credit card but only accepted at the specific retailer. These kinds of cards are all but extincted. Now major retailers will simply co-brand a credit card with a major bank, the differentiation being preferred rewards when used at the retailer. |
How credible is Stansberry's video “End of America”? | I listened to about 15 minutes of the video, but then I read your other link, which gives a much better summary. This guy is an idiot. Just consider this statement: "If everyone was taxed at 100%, it wouldn't be enough to balance the federal budget." This is true to some extent. It wouldn't be enough to balance the federal budget in one year. Experts often cite things like debt to GDP to show that a country's debt is ballooning, but they don't mention this obvious fact: We don't have to pay off our debts in a single year. Nobody does. Debt to GDP is a ratio and not the end all be all. Reinhart & Rogoff wrote a paper about how countries with high debt to GDP tend to have slower economic growth, but they don't mention that this occurs at every stage of debt growth. See Debt & Delusion by Dr. Robert Shiller for a great article on this subject. The daily kos article goes over most of the points I would make, but let me generalize a little: Always be wary of doomsday-predictors and free advice. This guy talks about correctly calling Fannie and Freddie. Even if he's right, why is he mentioning it? If he's such a good accountant and financial expert, surely he could've seen the tech bubble before the housing bubble right? It took a lot of analysis to figure out that CDO's were junk - anybody with the ability to read a balance sheet could see that many tech companies were overvalued. Every now and then, you get one hit wonders. They might never be right again, but they have the "credentials." If these people were really that good, they wouldn't be selling investment newsletters. They'd be applying their strategies and getting rich. Buffett has been getting rich for over 50 years, and he's not publishing newsletters with "secret, genius" strategies. He's made it pretty clear what his philosophy is, and anyone who follows it patiently will make money. Stransberry's argument only makes sense if you agree with the assumptions. The US will implode if nobody accepts our money. Nobody will accept our money if we're no longer the reserve currency or hyperinflation occurs or something like that. People have been predicting doom after every bubble, but that doesn't make it true. Some of his points (like the fact that we have too much debt) are valid, and I predict that the world will go into a period of deleveraging now. Nonetheless, the whole "we will implode" story is a scary picture, but it's just that - a picture. |
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