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401(k) lump sum distribution limited because of highly compensated employees? | It's legal. In fact, they are required to do this, assuming you are in fact a HCE (highly compensated employee) to avoid getting in trouble with the IRS. I'm guessing they don't provide documentation for the same reason they don't explain to you explicitly what the income thresholds are for social security taxes, etc - that's a job for your personal accountant. Here's the definition of a HCE: An individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015, 2016 or 2017), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. There are rules the restrict distributions from plans like 401ks. For example, treasury reg 1.401a(4)-5(b)(3) says that a plan cannot make a distribution to a HCE if that payment reduces the asset value of the plan to below 110% of the value of the plan's current liabilities. So, after taking account all distributions to be made to HCEs and the asset value of the plan, everyone likely gets proportionally reduced so that they don't run afoul of this rule. There are workarounds for this. But, these are options that the plan administrators may take, not you. I suppose if you were still employed there and at a high enough level, a company accountant would have discussed these options with you. Note, there's a chance there's some other limitation on HCEs that I'm missing which applies to your specific situation. Your best bet, to understand, is simply ask. Your money is still there, you just can't get it all this year. |
How to calculate S corporation distribution from past K-1s? | Phil's answer is correct. Just to add to his response: Distributions are not taxable events -- you already paid your taxes, so you can take out $50k or $52k and the IRS is not concerned. You can simply write yourself a check for any amount you choose! To answer your specific question: to match your K1 losses and profit exactly, you could take out $50k. But that might leave the business strapped for cash. One way to decide how much to take out is to use your balance sheet. Look at your retained earnings (or just look at the business bank account balance), subtract however much cash you think you need to keep on hand for operations, and write yourself a check for the rest. |
Choosing which ESPP stocks to sell? | the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot. In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now. |
Can you sell a security through a different broker from which it was purchased? | I'm in the US and I once transferred shares in a brokerage account from Schwab to Fidelity. I received the shares from my employer as RSUs and the employer used Schwab. After I quit and the shares vested, I wanted to move the shares to Fidelity because that is where all my other accounts are. I called Fidelity and they were more than happy to help, and it was an easy process. I believe Schwab charged about $50 for the transfer. The only tricky part is that you need to transfer the cost basis of the shares. I was on a three-way phone call with Schwab and Fidelity for Schwab to tell Fidelity what the purchase price was. |
What is the best approach to save money for College for three kids? | Live where you live now untill your kids are about to go to college. Then move to Germany and send your children to college for FREE. The german universities may be not in the top 10 of the world (THE), but are still competitive enough on a worldwide scale. Also, if your children excell at college, it should not be a huge problem to transfer them to the top universities in the UK or US (with scholarships from Germany). In addition, your children can go on a exchange to other universities for a couple of months or multiple years, fully funded by the European Union or the german universities. |
Trading US stocks from India | I believe I have to pay taxes in US since it is a US broker. No, not at all. The fact that the broker is a US broker has nothing to do with your tax liabilities. You should update the banks and the broker with your change of status submitting form W8-BEN to them. Consult a tax professional proficient with Indo-US tax treaty as to what you should put in part II. The broker might withhold some of your income and remit it as taxes to the IRS based on what you put in W8-BEN and the type of income, but you can have it refunded (if it exceeds your liability) by submitting a tax return (form 1040-NR). You do have to pay tax in India, based on the Indian tax law, for your profits in the US. Consult with an Indian tax accountant on that. If I'm not mistaken, there are also currency transfer restrictions in India that you should be aware of. |
Why do banks insist on allowing transactions without sufficient funds? | Believe it or not, this is done as a service to you. The reason for this has to do with a fundamental difference between a credit card account and a checking account. With a credit card account, there is no money in the account; every charge is borrowed money. When you get to your credit limit, your credit transactions will start getting declined, but if the bank does for some reason let one get approved, it's not a big deal for anyone; it just means that you owe a little more than your credit limit. Note that (almost) every credit card transaction today is an electronic transaction. A checking account, however, has real money in it. When it is gone, it is gone. When a balance inquiry is done, the bank has no way of knowing how many checks you've written that have not been cashed yet. It is a customer's responsibility to know exactly how much money is available to spend. If you write more checks than you have money for in your account, technically you have committed a crime. Unfortunately, there are too many people now that are not taking the responsibility of calculating their own checking account balance seriously, and bad checks are written all the time. When a bank allows these transactions to be paid even though you don't have enough money in your account, they are preventing a crime from being committed by you. The fee is a finance charge for loaning you the money, but it is also there to encourage you not to spend more than you have. Even if you use a debit card, it is still tied to a checking account, and the bank doesn't know if you have written enough checks to overdraw your account or not. It is still your responsibility to keep track of your own available balance. Every time this happens to you, thank the bank as you pay this fee, and then commit to keeping your own running balance and always knowing how much you have left in your account. |
Oversimplify it for me: the correct order of investing | Great questions -- the fact that you're thinking about it is what's most important. I think a priority should be maximizing any employer match in your 401(k) because it's free money. Second would be paying off high interest debt because it's a big expense. Everything else is a matter of setting good financial habits so I think the order of importance will vary from person to person. (That's why I ordered the priorities the way I did: employer matching is the easiest way to get more income with no additional work, and paying down high-interest debt is the best way to lower your long-term expenses.) After that, continue to maximize your income and savings, and be frugal with your expenses. Avoid debt. Take a vacation once in a while, too! |
Is there a candlestick pattern that guarantees any kind of future profit? | John Person has a pattern called the High Close Doji that is probably the most reliable signal in the world of candle patterns. I would check out Candle Stick and Pivot Point Trade Triggers. It all I use in trading stocks + forex. |
At what age should I start or stop saving money? | As all said, the age limitation thing is nothing, and saving money not necessarily means to live poor nor Skimpy, spend your needs and try to get what you need instead of what you want, the 24 years old is a good start for saving money, the whole life still in front of you Good luck! |
When does it make financial sense to take advantage of employer's tuition reimbursement program? | If you know that you want that advanced degree; And there is a way to have your employer pay for some of it or all of it; And you are reasonably certain that you will not be quitting for X years after completing the degree; Then it is financially sound to consider having the company pay for it. If you are interested in finding out if an advanced degree in that field is possible/feasible for you; but you aren't 100% sure; And it is possible for your company to pay for the first few classes; then it is financially sound to consider having them pay for the first semesters worth of classes. The key is to determine if the company has a requirement that you must complete the degree, or you will owe them the money. In many cases you are not committed to having them pay for all semesters. I have known employees who used the company to pay for the early classes, then paid for the last few on their own. Keep in mind that most employers only pay you for the classes that you have good grades; they require you to submit paperwork before the semester; but don't pay you back until after the semester. Because of a rolling time frame you can protect yourself by keeping in reserve the maximum amount that you would have to repay the employer if you quit. For the companies I have worked for you only had to stay an extra year, you would only have owed them for that last year if you quit. Keeping a years tuition in reserve allows you to mitigate the risk of having to quit. If the question is about risk, then hedging make sense. |
Can I predict if it is better to save money in USD or local currency? | Typically, the higher interest rates in local currency cover about the potential gain from the currency exchange rate change - if not, people would make money out of it. However, you only know this after the fact, so either way you are taking a risk. Depending on where the local economy goes, it is more secure to go with US$, or more risky. Your guess is as good as anyone. If you see a chance for a serious meltdown of the local economy, with 100+% inflation ratios and possibly new money, you are probably better off with US$. On the other hand, if the economy develops better than expected, you might have lost some percentage of gain. Generally, investing in a more stable currency gets you slightly less, but for less risk. |
Should you always max out contributions to your 401k? | A terrific resource is this article. To summarize the points given: PROS: CONS: There is no generic yes or no answer as to whether you ought to max out your 401(k)s. If you are a sophisticated investor, then saving the income for investing could be a better alternative. Long term capital gains are taxed at 15% in the US, so if you buy and hold on to good companies that reinvest their earnings, then the share price keeps going up and you'll save a lot of money that would go in taxes. If you're not a very good investor, however, then 401(k)s make a lot of sense. If you're going to end up setting up some asset allocation and buying ETFs and rebalancing or having a manager rebalance for you every year or so, then you might as well take the 401(k) option and lower your taxable income. Point #1 is simply wrong, because companies that reinvest earnings and growing for a long time are essentially creating tax-free gains for you, which is even better than tax-deferred gains. Nonetheless, most people have neither the time nor the interest to research companies and for them, the 401(k) makes more sense. |
Can one be non-resident alien in the US without being a resident anywhere else? | If you aren't a US National (citizen or Green Card holder or some other exception I know not of), you're an alien, no matter where else you may or may not be a citizen. If you don't meet the residency tests, you're nonresident. Simple as that. |
Scammer wants details and credentials for my empty & unused bank account. What could go wrong? | First off, do not ever tell someone your password. Nobody who actually works for the bank would need your password to access the account. Also, it may or may not be a scam (it almost assuredly is), but it is not a good idea to let someone use your bank account in your name. What if they use your account to launder money for illegal or terrorist activities? Then you would potentially face criminal charges. There is no way this story makes sense. A company would never put their payroll in some random stranger's account; they would create an account in the company's name for handling payroll and use that. |
Paying restaurants in cash instead of credit card - how signficant is this? | The biggest advantage to small business owners paid in cash is not that it might save the 2 or 3 percent that would go to the credit card company. The biggest advantage is that they have the opportunity to keep the transaction entirely off the books and pocket the cash without paying income tax or sales tax, especially when no receipt is given, or when it's a service instead of a product being sold, or when it's an approximately-tracked inventory unit going out the door. Although it's illegal, it's widely done, and it's also often a temptation for employees to try and get away with doing it too. |
Should I pay my Education Loan or Put it in the Stock Market? | I read your question that you have a comfortable amount toward retirement. If not, pad your retirement accounts if possible. If your loan rate is locked at 2.67%, invest that money in the market and pay the loan as agreed. So long as you feel comfortable in your employment and income status for the next few years, I would bet you will get a lot more out of your cash investing in diversified, low cost funds or ETFs that you will save in interest on that loan. Finally, if you decide to lower your debt instead of increasing investments (based on your tolerance for risk) why not pay more on the mortgage? If you owe most of your mortgage and it is typically long term, you might cut many years off of the mortgage with a large payment. |
What could a malicious party potentially achieve by having *just* a name, account number, and sort code? | When you want to pay a bill on line there are several ways to do it. You can give them your credit card details: Name on Card, zip code, credit card number, and 3 or 4 digit security code on the back. Most of the information is available on the card or via an easy Google search. If the crook has your card they can use it to buy something. You can contact your bank's website and establish a one time or recurring transfer. You provide the information about the person/company. Your bank knows who you are because you used a secure system and your password. Their bank accepts the money because who would refuse money, they don't care who you are. You can provide the company with your bank info (bank number, your account number, and your name). If your bank limits their transactions via this method only to legitimate organizations, then your money will only be sent to legitimate organizations. But if the organization has no way of knowing who is on the other end of the phone or webpage, they may be withdrawing money from a bank account without the account owners permission. In the example article a person found a charity that had lax security standards, they were recognized by the bank as a legitimate organization, so the bank transferred the money. The charity will point to the form and say they had permission from the owner, but in reality they didn't. The subject of the article was correct, all the info required is on every check. It is just that most people are honest, and the few security hurdles that exist do stop most of the fraud. |
Who can truly afford luxury cars? | It comes down to individual priorities. Some people prefer to spend their money on a luxury car or SUV, rather than on computer gear, a bigger house, having three extra kids, eating in restaurants, or whatever. Some people are quite happy to take out a loan to get more expensive products, and service that loan over several years. There is also "status" attached to some makes (e.g. german marques). That comes with a status premium, which some people are prepared to pay for, or take out debt to get - and some are not. Compare (say) a base model Audi or BMW with a similarly priced non-luxury model from a Japanese competitor. The Japanese model will probably have more features (leather, large rims, safety aids, etc) than the European at the same price point - and it will be necessary to tick several options (and pay extra for them - which can amount to 30-40% extra cost) to get the luxury car with a comparable set of features. For some people, the luxury brand is worth the difference. For some it is not. |
Where to find turnover / average amount of time investors & mutual funds held stocks they purchased? | You can make a rough calculation of the annual turnover rate of stocks by calculating the institutional investors holding of that stock. Institutional investors are the only firms that are required to provide such data. The good this is they usually make the lion share of trading activity. On the other hand, this task might proof arduous A different ratio that could be used as a substitute Share Turnover which is calculated as: Share Turnover gives the number of shares traded as a fraction of the number of shares outstanding. For example, if you compare the results of stock turnover for three companies and the results came as follows: Company A-share turnover: 1.5 Times Company B share turnover: 3 times Company C share turnover: 0.3 times From the results, we can conclude that for a particular period, company C had the least activity and the number of shares traded for that period was only a small fraction of the shares outstanding while other traders of company C hold most shares and never trade them. If you make a cross sectional analysis of a list of businesses you intend to invest in, you could figure which one has the least number of rapidity in the shares traded. |
Is this investment opportunity problematic? | Every time I have loaned money to family members I have never gotten the money back. If they can't make the down payment, they should not be taking out the loan. It's a bad idea to loan money to friends, because when they can't pay you back (which might be forever) they avoid you. So, you lose both your money and your friends. |
Is it true that Income Tax was created to finance troops for World War I? | Income tax was seen as a way to exploit the revenues available from the rapidly expanding ranks of people with mid to high incomes. It was initially targeted at the very wealthy. Previously, most Federal revenues came from excise taxes and tariffs, both of which have many negative economic effects, leave the government with limited revenue generating ability and bring a host of international and domestic political problems. Since the successful implementation of the income tax required a constitutional amendment, it is very unlikely that anyone at the time seriously considered the income tax a temporary measure. |
How does on-demand insurance company Trov prevent insurance fraud or high prices? | I am not familiar with the startup you mentioned, but in general there are three approaches to avoid losing money in insurance business: review before policy is issued (underwriting) review before claim is paid (claims handling) setting high enough rates to cover underwriting losses The fact that Trov is customer friendly / lax (make your choice of term) when issuing a policy says nothing about their rates or claims payment. It is even possible they are building a portfolio for sale, and do not really care about the claims performance (policies are sold / customers acquired now, and it takes a time for claims to arrive). |
If I sell a stock that I don't have, am I required to buy it before a certain amount of time? | I'm just began playing in the stock market. I assume you mean that you're not using real money, but rather you have an account with a stock simulator like the one Investopedia offers. I am hopeful that's the case due to the high level of risk involved in short selling like you're describing. Here is another post about short selling that expands a bit on that point. To learn much more about the ins and outs of short selling I will point again to Investopedia. I swear I don't work for them, but they do have a great short selling tutorial. When you short sell a stock you are borrowing the stock from your broker. (The broker typically uses stock held by one or more of his clients to cover the loan.) Since it's basically a loan you pay interest. Of course the longer you hold it the more interest you pay. Also, as Joe mentioned there are scenarios in which you may be forced to buy the stock (at a higher price than you sold it). This tends to happen when the stock price is going against the short sell (i.e. you lose money). Finally, did anyone mention that the potential losses in a short sell are infinite? |
Should I buy my house from my landlord? | There are probably thousands of houses that you could buy. If you want to buy a house, it is very unlikely that the one you are renting right now is the best possible buy. Usually people living in the houses they own are more interested in the quality of their property and the quality of their neigborhood than people who are renting, so I'd say that you are generally better off finding a home to buy in an area where the majority own their homes. |
What would the broker do about this naked call option? | Yes, it can buy back the call, but much before stock hits the $30 mark. Let us say you got 1$ from selling the call. So the total money in your account is 4$ + 1 $ = 5 $. When stock hits 10$ (your strike), the maintenance margin is 5$. As soon as stock goes past 10, your maintenance margin is violated. So broker will buy back your call (at least IB does that, it does not wait for a margin call). Now if the stock gapped up from 8 to 30,then yes, broker will buy it back at 30, so your account will have a negative balance. Assume the call cost 20$ when stock hit 30, your balance is: 5 - (30-10) = -15. Depending on broker, I suppose they will ask you to bring your account balance back up to positive. If they don't do that, they risk going out of business. |
Found an old un-cashed paycheck. How long is it good for? What to do if it's expired? | This varies by jurisdiction somewhat but speaking as a Canadian, a small business owner, and accountant (unregistered but some courses and accounting for multiple businesses) this is the answer if you were in Canada. In Canada the cheque cashing limit is 6 months. Therefor any bank will refuse to cash this cheque. It would be totally morally and legally acceptable to ask for a replacement cheque from your employer. In Canada they would generally have no problem issuing a replacement; in other jurisdictions with differing time limits they might want to cancel the original cheque first. |
Why should one only contribute up to the employer's match in a 401(k)? | Early this year I wrote an article Are you 401(k)o’ed? I described the data from a 401(k) expense survey and the punchline was that the average large retirement plan (over 1000 participants) expense was 1.08%, and for smaller plans it rose to 1.24%. As I commented below, if one's goal is to make deposits with income that avoid a tax of 25%, and hope to withdraw it at retirement at 15%, it doesn't take long for a 1% fee to completely negate the benefit of pretax savings. These numbers are averages, in the same article, I mention (ok, I brag) that my company plan has an S&P fund that costs .05%. That's 1% over 20 years. The sound bite of "deposit to the match" needs to be followed by "depending on the choice of investments and their expenses" within the 401(k). Every answer here has added excellent points, fennec's last sentence shouldn't be ignored, there's a phaseout for IRA deductibility, and another for Roth eligibility. For Married filing joint, IRA deduction starts to be lost at $92K, and Roth deposit disallowed at $173K. This adds a bit to the complexity of the decision, but doesn't change the implication of the 1%+ 401(k) fees. |
Formula that predicts whether one is better off investing or paying down debt | Old question I know, but I have some thoughts to share. Your title and question say two different things. "Better off" should mean maximizing your ex-ante utility. Most of your question seems to describe maximizing your expected return, as do the simulation exercises here. Those are two different things because risk is implicitly ignored by what you call "the pure mathematical answer." The expected return on your investments needs to exceed the cost of your debt because interest you pay is risk-free while your investments are risky. To solve this problem, consider the portfolio problem where paying down debt is the risk-free asset and consider the set of optimal solutions. You will get a capital allocation line between the solution where you put everything into paying down debt and the optimal/tangent portfolio from the set of risky assets. In order to determine where on that line someone is, you must know their utility function and risk parameters. You also must know the parameters of the investable universe, which we don't. |
Why is auto insurance ridiculously overpriced for those who drive few miles? | One reason is because car insurance is mandated. Mandated insurance means the government is forcing people to purchase it, which also means that everyone must have the opportunity to purchase it at a reasonable cost, even if the insurer would normally not choose to insure them. In mandated industries, risk pools are formed which means that as a whole, lower risk members partially subsidize higher risk members. In mandated industries that have a large risk variance, the insurance system would break down if everyone was charged their "fair share" because high risk members would be unable to afford a policy. (This is even more prominent with health insurance than car insurance because the difference in risk is vastly greater.) On a positive note, perhaps you may get a warm and fuzzy feeling knowing that you are helping out others "in need". |
Pros/cons of replicating a “fund of funds” with its component funds in my IRA? | In your entire question, the only time you mention that this is an investment inside an IRA is when you say Every quarter, six months, whatever Id have to rebalance my IRA while Vanguard would do this for the fund of funds without me needing to. Within an IRA, there are no tax implications to the rebalancing. But if this investment were not inside an IRA, then the rebalancing done by you will have tax implications. In particular, any gains realized when you sell shares in one fund and buy shares in another fund during the rebalancing process are subject to income tax. Similarly, losses also might be realized (and will affect your taxes). However, if you are invested in a fund of funds, there are no capital gains (or capital losses) when re-balancing is done; you have gains or losses only when you sell shares of the fund of funds for a price different than the price you paid for them. |
What low-fee & liquid exchange-traded index funds / ETFs should I consider holding in a retirement portfolio? | Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. "US-LC" is large cap, MC is mid cap, SC is small cap. "Intl-Dev" is international stocks from developed economies, "Emer" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals. |
Using Loan to Invest - Paying Monthly Installments with Monthly Income | The best strategy? Skip the loan. Find a way to invest for a low starting amount via a retirement account (such as a 401K or IRA in the United States) or non-retirement account. Use this money to buy individual stocks or funds. Every month put money from your regular income into this investment account. Then buy more stocks or sell if the conditions change based on what the market is doing, not to meet a loan payment. This helps you because if the price fluctuates you will buy more shares if the price is down; and you will buy fewer shares when the price is up. It also allows you to skip worrying about how to repay the loan. It also means that you not have to pull more money out of savings to make the final loan payments if it doesn't make as much money as you plan. Regarding your math. This is a better understanding of the money flow than the earlier question. |
What actions should I be taking to establish good credit scores for my children? | My son who is now 21 has never needed me to cosign on a loan for him and I did not need to establish any sort of credit rating for him to establish his own credit. One thing I would suggest is ditch the bank and use a credit union. I have used one for many years and opened an account there for my son as soon as he got his first job. He was able to get a debit card to start which doesn't build credit score but establishes his account work the credit union. He was able to get his first credit card through the same credit union without falling work the bureaucratic BS that comes with dealing with a large bank. His interest rate may be a bit higher due to his lack of credit score initially but because we taught him about finance it isn't really relevant because he doesn't carry a balance. He has also been able to get a student loan without needing a cosigner so he can attend college. The idea that one needs to have a credit score established before being an adult is a fallacy. Like my son, I started my credit on my own and have never needed a cosigner whether it was my first credit card at 17 (the credit union probably shouldn't have done that since i wasn't old enough to be legally bound), my first car at 18 or my first home at 22. For both my son and I, knowing how to use credit responsibly was far more valuable than having a credit score early. Before your children are 18 opening credit accounts with them as the primary account holder can be problematic because they aren't old enough to be legally liable for the debt. Using them as a cosigner is even more problematic for the same reason. Each financial institution will have their own rules and I certainly don't know them all. For what you are proposing I would suggest a small line of credit with a credit union. Being small and locally controlled you will probably find that you have the best luck there. |
Are variable rate loans ever a good idea? | First, let me fill in the gaps on your situation, based on the numbers you've given so far. I estimate that your student loan balance (principal) is $21,600. With the variable rate loan option that you've presented, the maximum interest rate you could be charged would be 11.5%, which would bring your monthly payment up to that $382 number you gave in the comments. Your thoughts are correct about the advantage to paying this loan off sooner. If you are planning on paying off this loan sooner, the interest rate on the variable rate loan has less opportunity to climb. One thing to be cautious of with the comparison, though: The $1200 difference between the two options is only valid if your rate does not increase. If the rate does increase, of course, the difference would be less, or it could even go the other way. So keep in mind that the $1200 savings is only a theoretical maximum; you won't actually see that much savings with the variable rate option. Before making a decision, you need to find out more about the terms of this variable rate loan: How often can your rate go up? What is the loan rate based on? I'm not as familiar with student loan variable rate loans, but there are other variable rate loans I am familiar with: With a typical adjustable rate home mortgage, the rate is locked for a certain number of years (perhaps 5 years). After that, the bank might be allowed to raise the rate once every period of months (perhaps once every year). There will be a limit to how much the rate can rise on each increase (perhaps 1.0%), and there will be a maximum rate that could be charged over the life of the loan (perhaps 12%). The interest rate on your mortgage can adjust up, inside of those parameters. (The actual formula used to adjust will be found in the fine print of your mortgage contract.) However, the bank knows that if they let your rate get too high above the current market rates, you will refinance to a different bank. So the mortgage is typically structured so that it will raise your rate somewhat, but it won't usually get too far above the market rate. If you knew ahead of time that you would have the house paid off in 5 years, or that you would be selling the house before the 5 years is over, you could confidently take the adjustable rate mortgage. Credit cards, on the other hand, also typically have variable rates. These rates can change every month, but they are usually calculated on some formula determined ahead of time. For example, on my credit card, the interest rate is the published Prime Rate plus 13.65%. On my last statement, it said the rate was 17.15%. (Of course, because I pay my balance in full each month, I don't pay any interest. The rate could go up to 50%, for all I care.) As I said, I don't know what determines the rate on your variable rate student loan option, and I don't know what the limits are. If it climbs up to 11.5%, that is obviously ridiculously high. I recommend that you try to pay off this student loan as soon as you possibly can; however, if you are not planning on paying off this student loan early, you need to try to determine how likely the rate is to climb if you want to pick the variable rate option. |
If a stock doesn't pay dividends, then why is the stock worth anything? | I haven't seen any of the other answers address this point – shares are (a form of) ownership of a company and thus they are an entitlement to the proceeds of the company, including proceeds from liquidation. Imagine an (extreme, contrived) example whereby you own shares in a company that is explicitly intended to only exist for a finite and definite period, say to serve as the producers of a one-time event. Consider a possible sequence of major events in this company's life: So why would the shares of this hypothetical company be worth anything? Because the company itself is worth something, or rather the stuff that the company owns is worth something, even (or in my example, especially) in the event of its dissolution or liquidation. Besides just the stuff that a company owns, why else would owning a portion of a company be a good idea, i.e. why would I pay for such a privilege? Buying shares of a company is a good idea if you believe (and are correct) that a company will make larger profits or capture more value (e.g. buy and control more valuable stuff) than other people believe. If your beliefs don't significantly differ from others then (ideally) the price of the companies stock should reflect all of the future value that everyone expects it to have, tho that value is discounted based on time preference, i.e. how much more valuable a given amount of money or a given thing of value is today versus some time in the future. Some notes on time preference: But apart from whether you should buy shares in a specific company, owning shares can still be valuable. Not only are shares a claim on a company's current assets (in the event of liquidation) but they are also claims on all future assets of the company. So if a company is growing then the value of shares now should reflect the (discounted) future value of the company, not just the value of its assets today. If shares in a company pays dividends then the company gives you money for owning shares. You already understand why that's worth something. It's basically equivalent to an annuity, tho dividends are much more likely to stop or change whereas the whole point of an annuity is that it's a (sometimes) fixed amount paid at fixed intervals, i.e. reliable and dependable. As CQM points out in their answer, part of the value of stock shares, to those that own them, and especially to those considering buying them, is the expectation or belief that they can sell those shares for a greater price than what they paid for them – irrespective of the 'true value' of the stock shares. But even in a world where everyone (magically) had the same knowledge always, a significant component of a stock's value is independent of its value as a source of trading profit. As Jesse Barnum points out in their answer, part of the value of stocks that don't pay dividends relative to stocks that do is due to the (potential) differences in tax liabilities incurred between dividends and long-term capital gains. This however, is not the primary source of value of a stock share. |
Are the AARP benefits and discounts worth the yearly membership cost? | It depends on you. If you're not an aggressive shopper and travel , you'll recoup your membership fee in hotel savings with one or two stays. Hilton brands, for example, give you a 10% discount. AARP discounts can sometimes be combined with other offers as well. From an insurance point of view, you should always shop around, but sometimes group plans like AARP's have underwriting standards that work to your advantage. |
What are investment options for young married couple with no debt that have maxed out retirement savings? | Paying the mortgage down is no different than investing in a long term taxable fixed instrument. In this economy, 4.7% isn't bad, but longer term, the stock market should return higher. When you have the kid(s), is your wife planing to work? If not, I'd first suggest going pre-tax on the IRAs, and when she's not working, convert to Roth. I'd advise against starting the 529 accounts until your child(ren) is actually born. As far as managed funds are concerned, I hear "expenses." Why not learn about lower cost funds, index mutual funds or ETFs? I'd not do too much different aside from this, until the kids are born. |
Shorting versus selling to hedge risk | It's not quite identical, due to fees, stock rights, and reporting & tax obligations. But the primary difference is that a person could have voting rights in a company while maintaining zero economic exposure to the company, sometimes known as empty voting. As an abstract matter, it's identical in that you reduce your financial exposure whether you sell your stock or short it. So the essence of your question is fundamentally true. But the details make it different. Of course there are fee differences in how your broker will handle it, and also margin requirements for shorting. Somebody playing games with overlapping features of ownership, sales, and purchases, may have tax and reporting obligations for straddles, wash sales, and related issues. A straight sale is generally less complicated for tax reporting purposes, and a loss is more likely to be respected than someone playing games with sales and purchases. But the empty voting issue is an important difference. You could buy stock with rights such as voting, engage in other behavior such as forwards, shorts, or options to negate your economic exposure to the stock, while maintaining the right to vote. Of course in some cases this may have to be disclosed or may be covered by contract, and most people engaging in stock trades are unlikely to have meaningful voting power in a public company. But the principle is still there. As explained in the article by Henry Hu and Bernie Black: Hedge funds have been especially creative in decoupling voting rights from economic ownership. Sometimes they hold more votes than economic ownership - a pattern we call empty voting. In an extreme situation, a vote holder can have a negative economic interest and, thus, an incentive to vote in ways that reduce the company's share price. Sometimes investors hold more economic ownership than votes, though often with morphable voting rights - the de facto ability to acquire the votes if needed. We call this situation hidden (morphable) ownership because the economic ownership and (de facto) voting ownership are often not disclosed. |
What does it mean for a normal citizen like me when my country's dollar value goes down? | Essentially imported goods from the country (in this case the US) that is improving against your local currency will become more expensive. For the most part, that is the only practical effect on you on an individual financial level. |
Advice on low-risk long-term strategy for extra cash? | Congratulations on being in such good financial state. You have a few investment choices. If you want very low risk, you are talking bonds or CDs. With the prime rate so low, nobody is paying anything useful for very low risk investments. However, my opinion is that given your finances, you should consider taking on a little more risk. A good step is a index fund, which is designed to mirror the performance of a stock index such as the S&P 500. That may be volatile in the short-term, but is likely to be a good investment in the longer term. I am not a fan of non-index mutual funds; in general the management charge makes them a less attractive investment. The next step up is investing in individual stocks, which can provide very big gains or very big losses. The Motley fool site (www.fool.com) has a lot of information about investing overall. |
Why can't you just have someone invest for you and split the profits (and losses) with him? | Give me your money. I will invest it as I see fit. A year later I will return the capital to you, plus half of any profits or losses. This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. Think about incentives. If you wanted an investment where your losses were only half as bad, but your gains were only half as good, then you could just invest half your assets in a risk-free investment. So if you want this hypothetical instrument because you want a different risk profile, you don't actually need anything new to get it. And what does the fund manager get out of this arrangement? She doesn't get anything you don't: she just gets half your gains, most of which she needs to set aside to be able to pay half your losses. The discrepancy between the gains and losses she gets to keep, which is exactly equal to your gain or loss. She could just invest her own money to get the same thing. But wait -- the fund manager didn't need to provide any capital. She got to play with your money (for free!) and keep half the profits. Not a bad deal, for her, perhaps... Here's the problem: No one cares about your thousands of dollars. The costs of dealing with you: accounting for your share, talking to you on the phone, legal expenses when you get angry, the paperwork when you need to make a withdrawal for some dental work, mailing statements and so on will exceed the returns that could be earned with your thousands of dollars. And then the SEC would probably get involved with all kinds of regulations so you, with your humble means and limited experience, isn't constantly getting screwed over by the big fund. Complying with the SEC is going to cost the fund manager something. The fund manager would have to charge a small "administrative fee" to make it worthwhile. And that's called a mutual fund. But if you have millions of free capital willing to give out, people take notice. Is there an instrument where a bunch of people give a manager capital for free, and then the investors and the manager share in the gains and losses? Yes, hedge funds! And this is why only the rich and powerful can participate in them: only they have enough capital to make this arrangement beneficial for the fund manager. |
Personal finance app where I can mark transactions as “reviewed”? | Otto, I totally agree with you. That feature would be awesome addition to mint. Have you thought of adding Custom tag called "reviewed" and just mark that to the transaction. Ved |
what is a mortgage gift exchange? | The issue is that the lender used two peoples income, debts, and credit history to loan both of you money to purchase a house. The only way to get a person off the loan, is to get a new loan via refinancing. The new loan will then be based on the income, debt, and credit history of one person. There is no paperwork you can sign, or the ex-spouse can sign, that will force the original lender to remove somebody from the loan. There is one way that a exchange of money between the two of you could work: The ex-spouse will have to sign paperwork to prove that it is not a loan that you will have to payback. I picked the number 20K for a reason. If the amount of the payment is above 14K they will have to document for the IRS that this is a gift, and the amount above 14K will be counted as part of their estate when they die. If the amount of the payment is less than 14K they don't even have to tell the IRS. If the ex-souse has remarried or you have remarried the multiple payments can be constructed to exceed the 14K limit. |
Understanding a Trailing Limit if Touched Order | This is rather simple if you understand a trailing limit order but to be sure I am going to explain a limit, trailing limit, and trailing LIT order. I am going to use an example assuming that you already own a stock and want to sell it. Limit Order I place an order to sell 100 PG @ 65.00. This order will only be executed if the bid price of PG is at $65.0000 or greater. Trailing Limit Order I place an order to sell 100 CAT @ 85.25 with a trailing 5%. This order will be executed when CAT drops 5% below the highest point it reaches after you place this order. So if you place this order at 85.25 and the stock drops 5% to $80.9875, your order will be executed. However, if the stock jumps to $98, the order will not be executed until the stock falls to $93.10. The sell point will go up with the stock and will always remain at the specified % or $ amount behind the high point. Trailing Limit If Touched Order I place an order to sell 100 INTC @ 24.75 with a trailing 5% if the stock touches $25.00. Essentially, this is the same as the trailing limit except that it doesn't take effect until the stock first gets $25.00. I think the page they provide to explain this is confusing because I think they are explaining it from the shorting a stock perspective instead of the selling a stock you want to profit from. I could also be wrong in how I understand it. My advice would be to either call their customer support and ask for a better explanation or what I do in my finances, avoid things I don't understand. |
Dividends - Why the push to reinvest? | There is a basis for that if you consider the power of compounding. So, the sooner you re-invest the dividends the sooner the time will give you results (through compounding). There is also the case of the commissions, if they are paid with a percentage of the amount invested they automatically gain more from you. Just my 2cents, though the other answers are probably more complete. |
Why would a car company lend me money at a very low interest rate? | This is "incentive financing". Simply put, the car company isn't in the business of making money by buying government bonds. They're in the business of making money by selling cars. If you are "qualified" from a credit standpoint, and want to buy a $20k car on any given Sunday, you'll typically be offered a loan of between 6% and 9%. Let's say this loan is for three years and you can offer $4000 down payment and/or trade. The required monthly payment on the remaining $16k at the high end of 9% is $508.80, which over 3 years means you'll pay $2,316.64 in interest. Now, that may sound like a good chunk of change, and for the ordinary individual, it is, possibly enough that you decide not to buy today. Now, let's say, all other things being equal, that the company is offering 0.9% incentive financing. Same price, same down payment, same loan term. Your payments over 3 years decrease to $450.64, and over the same loan term you would only pay $222.97 in interest. You save over $2,093.67 in interest over three years, which for you is again a decent chunk of change. Theoretically, the car company's losing that same $2,093.67 in interest by offering this deal, and depending on how it's getting the money it lends you (most financial companies are middlemen, getting money from bond-buying investors who expect a rate of return), that could be a real loss and not just opportunity cost. But, that incentive got you to walk in their door, and not their competitor's. It helped convince you to buy the $20,000 car. The gross margin on that car (price minus direct costs) is typically 20% for the dealer, plus another 20% for the manufacturer, so by giving up the $2,000 on the financing side, the dealer and manufacturer just earned themselves 4 times that much. On top of that, by buying that car, you're committing to buy the parts for the car, a side business with even higher margins, of which the car company gets a pretty big chunk. You may even be required to use dealer service while the car's under warranty in order to keep the warranty valid, another cha-ching. When you get right down to it, the loss from the incentive financing is drowned in the gross profits they make from selling the car to you. Now, in reality, it's a fine balance. The percentages I mentioned are gross margins (EBITDASG&A - Earnings Before Interest, Taxes, Depreciation, Amortization, Sales, General and Administrative costs; basically, just revenue minus direct cost of goods sold). Add in all these side costs and you get a net margin of only about 3.5% of revenue, so your $20k car purchase may only make the car company's stakeholders $700 on the sale, plus slightly higher net margins on parts and service over the life of the car. Because incentive financing is typically only offered through the company's own financing subsidiary, the loss isn't in the form of a cost paid, but simply a revenue not realized, but it can still move a car company from net positive to net negative earnings if the program is too successful. This is why not everyone does it, and not all at the same time; if you're selling enough cars without it, why give away money? Typically, these incentives are offered for two reasons; to clear out old cars or excess inventory, or to maintain ground against a competitor's stronger sales numbers. Keeping cars on a lot ready to sell is expensive, and so is not having your brand driving around on the street turning heads and imprinting their name on the minds of potential customers. |
Snowball debt or pay off a large amount? | There are some calculators that you can use to figure out the best approach, such as this one by CNN. But in general the rule of thumb tends to be the following: For the purposes of the Best Buy card, I would put it up there at number one so you don't get hit with the deferred interest. No point in giving them more money if you can pay them before the end of the cycle. Next, I would look at what you have for emergency savings, if you have an account established and that is at a comfortable number than putting the money towards the Citi card might be good, otherwise, split part of the money between savings and the credit cards. If an emergency pops up you don't want to dig a deeper hole because you can't pay for something with cash. |
What is a reasonable salary for the owner and sole member of a small S-Corp? | The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to "billable" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner. Watson owned an S-Corp where he was the sole employee. The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through. All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions. Watson was paying himself $24k a year in salary and taking over $175k a year in distributions. For comparison, even first-year accountants at the firm were making more than $24k a year in salary. The IRS determined that this salary amount was too low. To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners. The number that the IRS arrived at was $93k. Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers. It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm. Clearly, Watson was paying himself far too low of a salary. But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice. They can help you determine an appropriate amount for your salary. Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case. See these articles for more information: |
Should I cash out my Roth IRA to pay my mother's property tax debt, to avoid foreclosure on her home? | You're crazy to cash out your Roth or take on 401k loan, as that is addressing a short-term problem without doing anything about the longer-term issue. Just don't do it. Through no fault of her own, your mom is insolvent. It happens to people all of the time, and the solution is chapter 7 bankruptcy. The only thing that I would do with my money in this situation is help her with bankruptcy attorney fees if needed, and maybe bid on it at auction, if the house in in good shape. |
Is it wise to invest in bond fund when interest rates are low? | This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is: |
How much time does a doctor's office have to collect balance from me? | They have forever to collect a balance from you. Furthermore they can add whatever penalties and fees they wish to increase that balance. Worst of all, they don't have to remind you or send you bills or any other notification. You owed it when you left the office. (There very well could be local laws that require notifications, but that isn't really the issue here.) That dentist has every right to deny you service until you settle the account. Forever. The statute of limitations on collecting that debt via court: http://www.bankrate.com/finance/savings/when-does-your-debt-expire.aspx Which covers the rules on HOW LONG they have to collect the debt. Owing the money is one thing, but the rules and tools that you creditor has to collect the debt are another. You are probably worried about them suing you. But if you don't pay the debt (or settle in some way), that dentist can refuse to provide services to you, even if they write off the debt. Ways you can be punished by your dentist for not paying the bill are: Depending on your jurisdiction and/or type of debt, they typically only report it on your credit (if they are reporting at all) for 7 years. Even if you pay and settle the account, it will still be reported on your credit report for 7 years. The difference is how it is reported. They can report that "user133466 is a super reliable person who always pays debts on time". They can say "user133466 is a flake who pays, but takes a while to pay". Or they can say "user133466 is a bad person to provide services before collecting money, because user133466 don't pay bills". Other people considering lending you money are going to read these opinions and decide accordingly if they want to deal with you or not. And they can say that for 7 years. The idea of credit reporting is that you settle up as soon as possible and get your credit report to reflect the truth. One popular way to collect a debt to is to sue you for it. There, each state has a different time period on how long a creditor has to sue you for a debt. http://www.bankrate.com/finance/credit-cards/state-statutes-of-limitations-for-old-debts-1.aspx If you pay part of the debt, that will often reset the clock on the statute of limitations, so be sure any partial or negotiated settlements state very clearly, in writing, that payment is considered payment in full on the debt. Then you keep that record forever. There are other interesting points in the Fair Debt Collection Practices Act. See Debt collectors calling? Know your rights. They can only contact you in certain ways, they must respond to you in certain ways, and they have limits on what they can say, who they can say it to, and when they can say it. There are protections from mean or vicious bill collectors, but that doesn't sound like who you are dealing with. I don't know that the FDCPA is a tool you need to use in this case. You should negotiate your debt and try your best to settle up. From your post, both parties dropped the ball, and both parties should give a little. You should pay no or minor late fees, and the doctor should report your credit positively when you do so. If you both made honest mistakes, they both parties should acknowledge that and be fair, and not defensive. This is not legal advice. But you owe the debt, so you should settle up. I don't think it is fair for you to not pay because they didn't mail you a paper. However I also do not think it is fair for the doctor to run up fees and not remind you of the bill. Finally, you didn't bring up insurance or many other details. Those details can change the answer. |
What's the difference between TaxAct and TurboTax? | I have used TurboTax for years with no problems. I clicked on the TaxAct link in an ad and decided to see if there was much different. Using the free version of Taxact, and inputting the exact same information, my federal taxes came out with a $1500 difference while my state taxes (NJ) came out almost identically. I rechecked my inputs twice and could find no typos in either program. While I would make out better with the TaxAct program in my wallet, I find the detailed questioning and directions in TurboTax to be superior. Somehow I am thinking that TaxAct has missed something but I can't figure out what. And the only way to actually print out your forms with TaxAct is to get the paid version, so comparing the final forms side bybside isn't a free option. |
How to withdraw money from currency account without having to lose so much to currency conversion? | If I understand your question, you're misunderstanding the buy/sell spread, and at least in this instance seem to be in an unfortunate situation where the spread is quite large. The Polish Zloty - GBP ideal exchange rate is around 5.612:1. Thus, when actually exchanging currency, you should expect to pay a bit more than 5.612 Zloty (Zloties?) to get one Pound sterling, and you should expect to get a bit less than 5.612 Zloty in exchange for one Pound sterling. That's because you're giving the bank its cut, both for operations and so that it has a reason to hold onto some Zloty (that it can't lend out). It sounds like Barclay's has a large spread - 5.211 Buy, 5.867 Sell. I would guess British banks don't need all that many Zloty, so you have a higher spread than you would for USD or EUR. Other currency exchange companies or banks, particularly those who are in the primary business of converting money, may have a smaller spread and be more willing to do it inexpensively for you. Also, it looks like the Polish banks are willing to do it at a better rate (certainly they're giving you more Zloty for one Pound sterling, so it seems likely the other way would be better as well, though since they're a Polish bank it's certainly easier for them to give you Zloty, so this may be less true). Barclay's is certainly giving you a better deal on Pounds for a Zloty than they are Zloty for a Pound (in terms of how far off their spread is from the ideal). |
Will one’s education loan application be rejected if one doesn't have a payslip providing collateral? | A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out. |
What percent of my salary should I save? | Its been years since I lived there, but I found Seattle to be pretty expensive. Housing costs seem out of line with expected salaries. Coming from Puerto Rico you might be shocked how expensive it is to live there, and also how infrequently you see the sun. Your question is highly subjective. One person would need 100K to cover those things you are talking about, while others would need less then 30K. Also where you live in the Seattle area makes a difference. Will you be in Redmond or Bothell? Housing costs vary considerably. One nice thing about that part of the country is can be very inexpensive to vacation. A fishing license, a packed lunch, and a bit of gas is all that is necessary to really enjoy that part of the country. Back in the day I used to ski Steven's Pass during the week, and the lift tickets were a 1/3 of the weekend rate. Having hiking/camping gear and or a bicycle is also a good way to enjoy life. Bottom line I would make a budget, and go from there. If you intend on retiring in PR, then you would need a lot less then if you choose to remain in Seattle so even that is subjective. Perfect Example, Marysville, which is way out of town so a commute would be a problem. However, unlike many parts south of Seattle, it is safe and nice. ~200K for a 1200 sq ft home. Holy cow. Here in Orlando, figure about 130K for the same home with less of a commute. And you will see the sun more than 5 days per year. |
Is Stock Trading legal for a student on F-1 Visa in USA? [duplicate] | As an F1 student, I have been investing (and occasionally buying and selling within few weeks) for several years, and I have never had problems (of course I report to IRS gains/losses every year at tax time). On the other hand, the officer in charge of foreign students at my school advised me to not run ads on a website and make a profit. So, it seems to me that investing is perfectly legit for a F1 student, as it's not considered a business activity. That's obviously my personal understanding, you may want to speak with an immigration attorney to be on the safe side. |
What is the theory behind Rick Van Ness's risk calculation in the video about diversification? | John Bensin's answer covers the math, but I like the plain-English examples of the theory from William Bernstein's fine book, The Intelligent Asset Allocator. At the author's web site, you can find the complete chapter 1 and chapter 2, though not chapter 3, which is the one with the "multiple coin toss" portfolio example I want to highlight. I'll summarize Bernstein's multiple coin toss example here with some excerpts from the book. (Another top user, @JoeTaxpayer, has also written about the coin flip on his blog, also mentioning Bernstein's book.) Bernstein begins Chapter 1 by describing an offer from a fictitious "Uncle Fred": Imagine that you work for your rich but eccentric Uncle Fred. [...] he decides to let you in on the company pension plan. [...] you must pick ahead of time one of two investment choices for the duration of your employment: Certificates of deposit with a 3% annualized rate of return, or, A most peculiar option: At the end of each year Uncle Fred flips a coin. Heads you receive a 30% investment return for that year, tails a minus 10% (loss) for the year. This will be hereafter referred to as "Uncle Fred’s coin toss," or simply, the "coin toss." In effect, choosing option 2 results in a higher expected return than option 1, but it is certainly riskier, having a high standard deviation and being especially prone to a series of bad tosses. Chapters 1 and 2 continue to expand on the idea of risk, and take a look at various assets/markets over time. Chapter 3 then begins by introducing the multiple coin toss example: Time passes. You have spent several more years in the employ of your Uncle Fred, and have truly grown to dread the annual coin-toss sessions. [...] He makes you another offer. At the end of each year, he will divide your pension account into two equal parts and conduct a separate coin toss for each half [...] there are four possible outcomes [...]: [...] Being handy with numbers, you calculate that your annualized return for this two-coin-toss sequence is 9.08%, which is nearly a full percentage point higher than your previous expected return of 8.17% with only one coin toss. Even more amazingly, you realize that your risk has been reduced — with the addition of two returns at the mean of 10%, your calculated standard deviation is now only 14.14%, as opposed to 20% for the single coin toss. [...] Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk. [...] If the second coin toss were perfectly inversely correlated with the first and always gave the opposite result [hence, outcomes 1 and 4 above never occurring], then our return would always be 10%. In this case, we would have a 10% annualized long-term return with zero risk! I hope that summarizes the example well. Of course, in the real world, one of the tricks to building a good portfolio is finding assets that aren't well-correlated, and if you're interested in more on the subject I suggest you check out his books (including The Four Pillars of Investing) and read more about Modern Portfolio Theory (MPT). |
Is there any way to buy a new car directly from Toyota without going through a dealership? | As others have addressed the legality in their answers, I want to address the idea of the dealership being 'a middleman'. A dealership serves more of a purpose than just 'middlemanning' a car to a consumer. Actually, they consume a great deal of risk. Let's remember that a dealership is really an extension of the OEM, albeit independently owned and operated, the dealership must still answer to the brand they represent, if people have a bad experience with a dealership, a customer might go to another of the same brand, but more often than not they will go to the competition out of spite. Therefore, it's in the dealership's best interest to represent the brand as best as possible, but unfortunately that doesn't always happen. While the internet has made a certain part of a salesman's role null and void, and since this is a finance (read money) Q/A site let's take a moment to consider the risk assume and therefore the value added by a dealership: Test Drive. A car is a huge purchase, and while it's okay to buy a pair of shoes online without trying them on, a car is a bit different of course, we want to make sure it 'fits' before we shell out several thousand dollars. Yes, you (meaning consumers) can look at car pictures and specs online, but if you want to see how that vehicle handles on your town's roads, if it fits in your garage and/or driveway, then you need to take it for a test drive. It's not feasible for OEMs to have millions of people showing up to car plants for a test drive, right? Scalability aside, some business that is handled in automotive plants are confidential and not for the general public to know about. A dealership provides an opportunity for those who live locally to see and experience the car without flying or driving wherever the car was assembled. They provide this at a risk, banking on the fact that a good experience with the vehicle will lead to a sale. Service. A car is a machine, and no machine is perfect, neither will it last forever without proper service. A dealership provides a place for people to bring their vehicles when they need to be serviced. Let's set aside the fact that the service prices are higher than we'd like, because the fact remains most of it is skilled (and warrantied) labor that the majority of people don't want to do themselves. Trade Ins. It is not in an OEMs best interest to accept a vehicle just to sell you another vehicle, especially if that vehicle is from another brand. Dealership's assume this risk, and often offer incentives to do so, hoping it will lead to a sale. That trade in was an asset to you, but is a liability to them, because they now have to liquidate that trade in, just so that you can purchase a car. Sure, you could sell your car yourself, and now you would assume that risk: What if your car is not in perfect shape, or has a lot of miles for it's age? Would it do well in the used car market? What if it takes too long to sell and you miss that Memorial Day car sale at the dealer? This might be okay for some, but generally speaking most people would rather avoid the risk and trade it in at the dealer toward the purchase of a new car rather than the headache of selling it themselves. I'm sure there are more, but those are the one's that immediately sprung to mind. Just like Starbucks, there are terrible dealerships out there and there are great ones, and very few of us venture to farms and jungles just for fresh coffee beans :-) |
Explanation on Warren Buffett's famous quote | In the short term the market is a popularity contest In the short run which in value investing time can extend even to many years, an equity is subject to the vicissitudes of the whims by every scale of panic and elation. This can be seen by examining the daily chart of any large cap equity in the US. Even such large holdings can be affected by any set of fear and greed in the market and in the subset of traders trading the equity. Quantitatively, this statement means that equities experience high variance in the short rurn. in the long term [the stock market] is a weighing machine In the long run which in value investing time can extend to even multiple decades, an equity is more or less subject only to the variance of the underlying value. This can be seen by examining the annual chart of even the smallest cap equities over decades. An equity over such time periods is almost exclusively affected by its changes in value. Quantitatively, this statement means that equities experience low variance in the long run. |
Does dollar cost averaging apply when moving investments between fund families? | As mentioned by others, dollar cost averaging is just a fancy term for how many shares your individual purchases get when you are initially adding money to your investment accounts. Once the money is invested, annual or quarterly rebalancing serves the purpose of taking advantage of higher rates of growth in particular market sectors. You define the asset allocation based on your risk profile, time to retirement, etc., then you periodically sell the shares of the investments that have grown faster than the rest and buy more shares of the investments that are relatively cheaper. |
How is it possible that a stock has a P/E of 0.01? | See Berkshire Hathaway Inc. (BRK-A) (The Class A shares) and it will all be clear to you. IMHO, the quote for the B shares is mistaken, it used earning of A shares, but price of B. strange. Excellent question, welcome to SE. Berkshire Hathaway is a stock that currently trades for nearly US$140,000. This makes it difficult for individual investors to buy or sell these shares. The CEO Warren Buffet chose to reinvest any profits which means no dividends, and never to split the shares, which meant no little liquidity. There was great pressure on him to find a way to make investing in Berkshire Hathaway more accessible. In June '96, the B shares were issued which represented 1/30 of a share of the Class A stock. As even these "Baby Berks" rose in price to pass US$4500 per share, the stock split 50 to 1, and now trade in the US$90's. So, the current ratio is 1500 to 1. The class B shares have 1/10,000 the voting rights of the A. An A share may be swapped for 1500 B shares on request, but not vice-versa. |
What percentage of my company should I have if I only put money? | Question (which you need to ask yourself): How well are your friends paid for their work? What would happen if you just took your money and bought a garage, and hired two car mechanics? How would that be different from what you are doing? The money that you put into the company, is that paid in capital, or is it a loan to the company that will be repaid? |
I thought student loans didn't have interest, or at least very low interest? [UK] | nan |
Do there exist any wikipedia type sites for evaluating financial service providers? | It is always a good idea if you are worried about customer service and hidden gotchas to visit http://getsatisfaction.com - they operate as an independent complaint board for many companies. http://getsatisfaction.com/bankofamerica for example alerts you to many problems with using BofA. In addition, googling for common complaint terms is a great idea. It's easy to learn why bank of america sucks and to see that not too many people think bank of america rocks. |
More money towards down payment versus long-term investments | I'd put the 20% down, close on the house, live in it for a year, and save the difference. If you find your cash flow is fine, run a calculation and start on a program of prepaying a bit of principal each month as an extra payment. If you study how amortization works, you'll understand that an extra payment of about 1/6 the amount due will knock off a full payment at the end. This is how a 30 year mortgage starts out. Meanwhile, you should keep in mind, it's easy to prepay the mortgage, but there's really no getting it back. So, before letting go of your money, I'd do a few things; I may be stating the obvious, but consider - No matter how low the payment on your mortgage, a payment is due each and every month until it's paid off. You put 80% down, take a 10 year mortgage, you still have payments for 10 years. You want to insure yourself against needing to sell in a hurry if you both lose your jobs, so whatever you put down, I'd recommend a healthy emergency account, 9-12 months worth of expenses. |
Why can Robin Hood offer trading without commissions? | They mostly make money off of the spread between your order and the spread of the buy and sell currently in the market. As others have previously explained, their buy/sell spreads are a little lacklustre. |
What is this type of risk-free investment called? | This is what is called a Structured Product. The linked page gives an overview of the relative pros and cons. They tend to hold the bulk of funds in bonds and then used equity index futures and other derivatives to match returns on the S&P, or other indices tracked. All combine to provide the downside protection. Note that your mother did not receive the dividends paid by the constituent companies. She only received the capital return. Here is a link to Citigroup (Europe) current structured product offerings. Here is a link to Fidelity's current offerings of structured products. Here is Investopedia's article detailing the pitfalls. The popularity of these products appears to be on the wane, having been heavily promoted and sold by the providers at the time your mother invested. Most of these products only provide 100% protection of capital if the market does not fall by a specified amount, either in successive reporting periods or over the life of the product. There are almost as many terms and conditions imposed on the protection as there are structured products available. I have no personal experience buying this type of product, preferring to have the option to trade and receive dividend income. |
How can this be enough to fund a scholarship in perpetuity? | The Trinity study looked at 'safe' withdrawal rates from retirement portfolios. They found it was safe to withdraw 4% of a portfolio consisting of stocks and bonds. I cannot immediately find exactly what specific investment allocations they used, but note that they found a portfolio consisting largely of stocks would allow for the withdrawal of 3% - 4% and still keep up with inflation. In this case, if you are able to fund $30,000, the study claims it would be safe to withdraw $900 - $1200 a year (that is, pay out as scholarships) while allowing the scholarship to grow sufficiently to cover inflation, and that this should work in perpetuity. My guess is that they invest such scholarship funds in a fairly aggressive portfolio. Most likely, they choose something along these lines: 70 - 80% stocks and 20 - 30% bonds. This is probably more risky than you'd want to take, but should give higher returns than a more conservative portfolio of perhaps 50 - 60% stocks, 40 - 50% bonds, over the long term. Just a regular, interest-bearing savings account isn't going to be enough. They almost never even keep up with inflation. Yes, if the stock market or the bond market takes a hit, the investment will suffer. But over the long term, it should more than recover the lost capital. Such scholarships care far more about the very long term and can weather a few years of bad returns. This is roughly similar to retirement planning. If you expect to be retired for, say, 10 years, you won't worry too much about pulling out your retirement funds. But it's quite possible to retire early (say, at 40) and plan for an infinite retirement. You just need a lot more money to do so. $3 million, invested appropriately, should allow you to pull out approximately $90,000 a year (adjusted upward for inflation) forever. I leave the specifics of how to come up with $3 million as an exercise for the reader. :) As an aside, there's a Memorial and Traffic Safety Fund which (kindly and gently) solicited a $10,000 donation after my wife was killed in a motor vehicle accident. That would have provided annual donations in her name, in perpetuity. This shows you don't need $30,000 to set up a scholarship or a fund. I chose to go another way, but it was an option I seriously considered. Edit: The Trinity study actually only looked at a 30 year withdrawal period. So long as the investment wasn't exhausted within 30 years, it was considered a success. The Trinity study has also been criticised when it comes to retirement. Nevertheless, there's some withdrawal rate at which point your investment is expected to last forever. It just may be slightly smaller than 3-4% per year. |
What is a checking account and how does it work? | A checking account is one that permits the account holder to write demand drafts (checks), which can be given to other people as payment and processed by the banks to transfer those funds. (Think of a check as a non-electronic equivalent of a debit card transaction, if that makes more sense to you.) Outside of the ability to write checks, and the slightly lower interest rate usually offered to trade off against that convenience, there really is no significant difference between savings and checking accounts. The software needs to be designed to handle checking accounts if it's to be sold in the US, since many of us do still use checks for some transactions. Adding support for other currencies doesn't change that. If you don't need the ability to track which checks have or haven't been fully processed, I'd suggest that you either simply ignore the checking account feature, or use this category separation in whatever manner makes sense for the way you want to manage your money. |
Does reading financial statements (quarterly or annual reports) really help investing? | Financial statements provide a large amount of specialized, complex, information about the company. If you know how to process the statements, and can place the info they provide in context with other significant information you have about the market, then you will likely be able to make better decisions about the company. If you don't know how to process them, you're much more likely to obtain incomplete or misleading information, and end up making worse decisions than you would have before you started reading. You might, for example, figure out that the company is gaining significant debt, but might be missing significant information about new regulations which caused a one time larger than normal tax payment for all companies in the industry you're investing in, matching the debt increase. Or you might see a large litigation related spending, without knowing that it's lower than usual for the industry. It's a chicken-and-egg problem - if you know how to process them, and how to use the information, then you already have the answer to your question. I'd say, the more important question to ask is: "Do I have the time and resources necessary to learn enough about how businesses run, and about the market I'm investing in, so that financial statements become useful to me?" If you do have the time, and resources, do it, it's worth the trouble. I'd advise in starting at the industry/business end of things, though, and only switching to obtaining information from the financial statements once you already have a good idea what you'll be using it for. |
Why is economic growth so important? | One of the best answers to this question that I've ever read is in a paper published by Robert Lucas in the Journal of Economic Perspectives. That journal is meant to a be a place for experts to write about their area of expertise (in economics) for a general but still technically-minded audience. They recently opened up the journal as free to the public, which is a fantastic resource -- you no longer need a subscription to JSTOR (or whatever) to read it. You can read the abstract to the paper, and find a link to it, here. One of the things that I like a lot about this paper is that it strips out absolutely everything even slightly unnecessary to thinking about a macroeconomy, and just discusses what one can arrive at with a very very simple model. Of course, with great simplicity come sacrifice about details. However, it does a great job of answering your question, "why do people care about growth?" A quick note: the key to understanding the answer to your question is to think about things in terms of "the long term" -- not even looking forward to the future, because we'll be dead by then, but looking back to the past. The key to the importance of growth is that, for the last ~200 years, the US has, on average, had maybe 2-3% "real growth" per year (I'm pulling these numbers out of my head; I think much better numbers are in that paper somewhere). On average, over that period of time, this growth has meant that the quality of life that one has, if one lives in a country experiencing this growth, is enormous compared to countries that do not experience this average growth over that period. Statistically speaking, growth is also somewhat auto-correlated. Roughly speaking, if it was low the last few periods, you can expect it to be low the next period. Same thing if it's high. Then, the reason we care about growth right now: if you have too many periods of low growth, pretty soon the average "over the long term" growth will be pulled down -- and then quality of life can't be higher in the future (which quickly becomes someone's "present"). The paper above makes this point with a very simple model. Of course, none of this touches on distributional issues, which are another issue entirely. With respect to, "The economy needs to grow to just keep up with its debt repayments," I think the answer is along the lines of, "sometimes countries get into debt expecting that growth will increase their resources in the future, and thus they can pay back their debt." That strategy is, of course, the strategy that anyone borrowing ("taking out a loan") should be employing -- you should expect that your future income will be enough to pay back your interest+principle on a loan you took. Otherwise you're irresponsible. At the aggregate level, production is the nation's "income" -- it is what you have, all that you have (as a nation) to pay back any debt you've incurred at the national level. |
Insider trading of a linked security like an ETF your company has a heavy weighting in | If you are in a position to have information that will impact the shares of a stock or index fund and you use that information for either personal gain or to mitigate the losses that you would have felt then it is insider trading. Even if in the end your quiet period passes with little or no movement of the stocks in question. It is the attempt to benefit from or the appearance of the attempt to benefit from inside information that creates the crime. This is the reason for the quiet periods to attempt to shield the majority of the companies employees from the appearance of impropriety, as well as any actual improprieties. With an index you are running a double edged sword because anything that is likely to cause APPLE to drop 10% is likely to give a bump to Motorola, Google, and its competitors. So you could end up in jail for Insider trading and lose your shirt on a poor decision to short a Tech ETF on knowledge that will cause Apple to take a hit. It is certainly going to be harder to find the trade but the SEC is good at looking around for activity that is inconsistent with normal trading patterns of individuals in a position to have knowledge with the type of market impact you are talking about. |
Is buying and selling Bitcoin (and other cryptocurrency) legal for a student on F-1 Visa doing OPT in USA? | Given your clarification that you re only intending to use cryptocurrency as a capital asset & a long term investment vehicle, and not as a business day trading or trading for others, I would say this definitely is NOT illegal. The tax man says cryptocurrency is property. The IRS made this clear in Notice 2014-21. As long as you report it every time you do transfer it and an income loss/gain is triggered, I see nothing wrong here. |
15 year mortgage vs 30 year paid off in 15 | All of the answers given so far are correct, but rather narrow. When you buy a 30-year-mortgage, you are buying the right to pay off the debt in as long as 30 years. What you pay depends on the interest rate and how long you actually take to pay it off (and principal and points and so on). Just as you are buying that right, the mortgager is selling you that right, and they usually charge something for it, typically a higher rate. After all, they, and not you, will be exposed to interest risk for 30 years. However, if some bank has an aneurism and is willing to give you a 30-year loan for the same price as or lower than any other bank is willing to go for a 15-year loan, hey, free flexibility. Might as well take it. If you want to pay the loan off in 15 year, or 10 or 20, you can go ahead and do so. |
Do stock prices really go down by the amount of the dividend? | Ex-Dividend Price Behavior of Common Stocks would be a study from the Federal Reserve Bank of Minneapolis and University of Minnesota if you want a source for some data. Abstract This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations - some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts such mixing will result in a nonlinear relation between percentage price drop and dividend yield - not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop have been an excellent (average) rule of thumb. |
I carelessly invested in a stock on a spike near the peak price. How can I salvage my investment? | Yes, you could sell what you have and bet against others that the stock price will continue to fall within a period of time "Shorting". If you're right, your value goes UP even though the stock price goes down. This is a pretty darn risky bet to make. If you're wrong, there's no limit to how much money you can owe. At least with stocks they can only fall to zero! When you short, and the price goes up and up and up (before the deadline) you owe it! And just as with stocks, someone else has to agree to take the bet. If a stock is pretty obviously tanking, its unlikely that someone would oppose your bet. (It's probably pretty clear that I barely know what I'm talking about, but I was surprised not to see this listed among the answers.) |
How can I buy an ETF? | First of all, you'll need a securities account. Nowadays, most large banks offer this as a standard product for all their customers, though it may require some extra paperwork. Then you need to buy shares in the ETF. This is indeed typically done through the stock market, but there are alternatives. Some banks will sell securities to you directly, but usually only those they create themselves (options and such). Some also offer ETF investment plans that allow you to buy shares for a fixed amount each month through the bank. In any case, the bank's online banking interface should support all these options. However, fees are an important consideration! With some banks, the securities account is free, others charge an annual fee. And the fees on stock market transactions and investment plans also vary considerably, so it could be worth it to consider some alternatives. |
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. |
What taxes are assessed on distributions of an inherited IRA? | For an inherited IRA, there are a few options for taking distributions. You clearly haven't done option 1. It sounds like you haven't done option 2 because otherwise you would probably know how it is taxed. That leaves you with option 3. With option 3, you must distribute the entire amount within 5 years. For you, I'm not sure if that means you need to distribute the entire amount by the end of 2016 or 2017. If it was 2016, then you'll probably have to pay penalties. Distributions from an inherited IRA are taxed as ordinary income regardless of your age or the distribution option you select. |
What's the catch with biweekly mortgage payments? | Making extra principal payments will reduce the term of your loan. I wouldn't sign up for a biweekly schedule, just do it yourself so you have more flexibility. A simple spreadsheet will allow you to play "What if?" and make it clear that extra principal payments are most effective early in the term of the loan. My wife and I paid off our home in less than 10 years with this approach. Some will say that the opportunity costs of not using that money for something else outweighs the gains. I would say that not having a mortgage has a positive impact on your cash flow and your assets (you own the home), which combine to create more opportunity, not less. That being said, It should be obvious that paying off higher interest debt first is the priority, (Paying off a zero percent interest car loan early is just foolish) |
How can a person protect his savings against a country default? | Since you are going to be experiencing a liquidity crisis that even owning physical gold wouldn't solve, may I suggest bitcoins? You will still be liquid and people anywhere will be able to trade it. This is different from precious metals, whereas even if you "invested" in gold you would waste considerable resources on storage, security and actually making it divisible for trade. You would be illiquid. Do note that the bitcoin currency is currently more volatile than a Greek government bond. |
Should I use a credit repair agency? | Here's what my wife and I did. First, we stopped using credit cards and got rid of all other expenses that we absolutely didn't need. A few examples: cable TV, home phone, high end internet - all shut off. We changed our cell phone plan to a cheap one and stopped going out to restaurants or bars. We also got rid of the cars that had payments on them and replaced them with ones we paid cash for. Probably the most painful thing for me was selling a 2 year old 'vette and replacing it with a 5 year old random 4 door. Some people might tell you don't do this because older cars need repairs. Fact is, nearly all cars are going to need repairs. It's just a matter of whether you are also making payments on it when they need them and if you can discipline yourself enough to save up a bit to cover those. After doing all this the only payments we had to make were for the house (plus electric/gas/water) and the debt we had accumulated. I'd say that if you have the option to move back into your parent's house then do it. Yes, it will suck for a while but you'll be able to pay everything off so much faster. Just make sure to help around the house. Ignore the guys saying that this tanks your score and will make getting a house difficult. Although they are right that it will drop your score the fact is that you aren't in any position to make large purchases anyway and won't be for quite some time, so it really doesn't matter. Your number one goal is to dig yourself out of this hole, not engage in activity that will keep you in it. Next, if you are only working part time then you need to do one of two things. Either get a full time job or go find a second part time one. The preference is obviously on the first, which you should be able to do in your spare time. If, for some reason, you don't have the tech skills necessary to do this then go find any part time job you can. It took us about 3 years to finally pay everything (except the house) off - we owed a lot. During that time everything we bought was paid for in cash with the vast majority of our money going to pay off those accounts. Once the final account was paid off, I did go ahead and get a credit card. I made very minor purchases on it - mostly just gas - and paid it off a few days before it was due each month. Every 4 months they increased my limit. After around 18 months of using that one card my credit score was back in the 700+ range and with no debt other than the mortgage. *note: I echo what others have said about "Credit Repair" companies. Anything they can do, you can too. It's a matter of cutting costs, living within your means and paying the bills. If the interest rates are killing you, then try to get a consolidation loan. If you can't do that then negotiate settlements with them, just get everything in writing prior to making a payment on it if you go this route. BTW, make sure you actually can't pay them before attempting to settle. |
One of my stocks dropped 40% in 2 days, how should I mentally approach this? | I haven't seen anyone mention tax considerations and that's why I'm answering this. The rest of my answer is probably covered in the aggregate of other responses. Here's how I would look at this in a taxable (not an IRA) account: This could be an opportunity to harvest the tax losses to offset taxable gains this year or in future years. Unless I have compelling reasons to believe that the price will recover by at least (Loss% x ApplicableTaxRate) in the next 31 days then I would take the known - IRS tables - opportunities over the unknown. Here's what I would consider for all accounts: Is this the most likely place to earn a good return on my money and is it contributing to a strategy that fits my risk tolerance? You might need to get some emotional distance from the pain to make this determination objectively. As you consider your trading and investment strategy going forward consider that when it hurts and you have to pull yourself up by the bootstraps to think clearly about your situation, you were most likely trading with too much size for you in that particular position. I'm willing to make exceptions to that rule of thumb, but it's a good way to use the painful losses as a gut check on how your strategy fits your real situation. P.S. All traders experience individual losses that hurt and find their way to the most suitable strategies for them through these painful experiences. |
where to get stock price forecast | First, stock prices forecasts are usually pretty subjective so in the following resources you will find differing opinions. The important thing is to read both positive and negative views and do some of your additional research and form your own opinion. To answer your question, some analysts don't provide price targets, some just say "Buy", "Sell", "Hold", and others actually give you a price target. Yahoo provides a good resource for collecting reports and giving you a price target. http://screener.finance.yahoo.com/reports.html |
Settling before T+3? | It is possible but unlikely. Securities firms would prefer never to settle externally; rather, they prefer to wait until the liabilities can be netted. They are forced to make and take payment in three business days. The reason why is because settlement is costly in the same way as any other business would prefer to build trade credit instead of taking or making payment rapidly. The only circumstance where a financial firm would wish to take full delivery is when a counterparty is no longer trusted to be solvent. |
What are the usual terms of a “rent with an option to buy” situation? | While the other people have tried to answer your question as thoroughly as possible, I fear they are entirely incorrect in answering your question itself as it stands. The answer is that there are no usual terms. There are a handful of different options coming out now for this exact scheme. Examples include the UK Governments "Help To Buy" scheme. Accomodation is offered at a normal rate, and a small portion of the rent is set aside each month. At the end of a fixed period, that money becomes a deposit which the letter hands over to a mortgage provider who accepts it as a deposit. This might well be a terminology thing, since the other scenario which people described falls into the same name you've used. That scenario is where the investor who owns the property is considering sale of the property, and is happy to negotiate a price up front for the next year. Usually the rent and price is higher than the market rate because if the market goes well over the next year they could end up out of pocket. Putting that into perspective, over that year they are gaining their $1,000 a month or so, but having $100,000 invested means a return of 12%. If the property value is over $250,000 which I believe to be more likely, they are achieving a return of (I think) 4.8%. That's not a bad rate, by any means, but realistically they are losing a bit more for maintenance, and they could be making more from their money. If the market were to go up in that time by more than 4.8% (my house, for instance, increased in value by over 15% in the last 12 months), they are making a substantial loss since you are getting a house at 15% below the market rate. The total works out to a 10.2% loss for them. Note that I don't know the US housing market at all, I'm speaking mostly from my experience of the market here in the UK. This is what I hear, what I see, and what I've played. To summarise a bit: Make sure you check your terms before signing anything. |
How do I make a small investment in the stock market? What is the minimum investment required? | A rough estimate of the money you'd need to take a position in a single stock would be: In the case of your Walmart example, the current share price is 76.39, so assuming your commission is $7, and you'd like to buy, say, 3 shares, then it would cost approximately (76.39 * 3) + 7 = $236.17. Remember that the quoted price usually refers to 100-share lots, and your broker may charge you a higher commission or other fees to purchase an odd lot (less than 100 shares, usually). I say that the equation above gives an approximate minimum because However, I second the comments of others that if you're looking to invest a small amount in the stock market, a low cost mutual fund or ETF, specifically an index fund, is a safer and potentially cheaper option than purchasing individual stocks. |
Creating a Limited company while still fully employed | I was just thinking ahead, can I apply for Limited company now, while fully time employed, and not take any business until I get a contract. Yes. You can open as many companies you want(assuming you are sane). There is no legal provisions regarding who can open a company. What happens if I create a company and it has no turnover at all? Does this complicate things later? After you open a company, you have to submit your yearly statements to Companies House, whether you have a billion pounds turnover or 0. If you claim VAT that has also to be paid after you register for VAT. VAT registration is another registration different from opening a limited company. Is it the same if I decided to take a 1,2 or x month holiday and the company again will not incur any turnover? Turnover is year end, so at the year end you have to submit your yearly results, whether you took a 12 month holiday or a week's holiday. Is it a OK to do this in foresight or should I wait weeks before actually deciding to search for contracts. No need to open a limited company now, if you are so paranoid. Opening a company in UK takes 5 minutes. So you can open a company after landing a contract. |
Why not just invest in the market? | Index funds do leech a "free ride" on the coattails of active traders. Consider what would happen if literally everyone bought index funds. For a company there would be no motivation to excel. Get listed; all the index funds are forced to buy your stock; now sit on your derriere playing Freecell, or otherwise scam/loot the company. Go bankrupt. Rinse wash repeat. This "who cares who John Galt is" philosophy would kill the economy dead. Somebody has to actually buy stocks based on research, analysis and value. Company managers need to actively fear, respect and court those people. They don't need to be mutual-fund managers, but they do need to be somebody. Maybe activist investors like Warren Buffett will suffice. Maybe retirement fund or endowment managers like CalPERS or Harvard can do this. Better be somebody! I'm all for index funds... Just saying only a fraction of the market's capital can be in index funds before it starts into a tragedy of the commons. |
I have $10,000 sitting in an account making around $1 per month interest, what are some better options? | There are many considerations before deciding on the best place for your funds: How liquid do you need the funds to be? If this is for an emergency fund I would keep at least some in an account that you have instant access to, What is your risk (volatility) tolerance? Would you be OK with the value dropping by as much as 30% in a year knowing that over time you'll probably earn 8-12% on it? If not, then equity funds or other stock investments are probably not the best move for you. Do you need the funds now or are they for long-term (retirement) savings? Are you eligible to fund an IRA? That would defer your taxes until you withdraw the funds from the account, but there are age restrictions that you must heed to avoid penalties. Are CDs a good idea? They do pay decent interest, but in return for that you lock up your funds for a set period of time. All that to say that there are many facets to determining the best place for your funds. If you provide more specifics you can get a more specific answer. |
Is investing into real estate a good move for a risk-averse person at the moment | If you live and work in the euro-zone, then even after a "crash" all of your income and most of your expenses will still be in euros. The only portion of your worth you need to worry about protecting is the portion you intend to spend on goods from outside the euro-zone (i.e. imports). In that case, you may want to consider parking some of your money in short-term government bonds issued by other countries, such as the UK, Switzerland, and USA (or wherever else your favorite goods tend to come from). If the euro actually "massively devalues" (an extremely unlikely scenario), then you can expect foreign goods to cost a lot more than they do now. Inflation might also pick up, so you might also want to purchase some OATis. |
How to evaluate stocks? e.g. Whether some stock is cheap or expensive? | I look at the following ratios and how these ratios developed over time, for instance how did valuation come down in a recession, what was the trough multiple during the Lehman crisis in 2008, how did a recession or good economy affect profitability of the company. Valuation metrics: Enterprise value / EBIT (EBIT = operating income) Enterprise value / sales (for fast growing companies as their operating profit is expected to be realized later in time) and P/E Profitability: Operating margin, which is EBIT / sales Cashflow / sales Business model stability and news flow |
What are the alternatives to compound interest for a Muslim? | My understanding of Muslim finance is that you may not lend money at interest, including investing in in things that pay interest. However you may still make investments: it just has to be in places where you get a share of profit, rather than a fixed rate of return. You would be better asking the Muslim community specifically for more details. The benefits of compound interest apply, more or less, to other non-fixed-interest investments. If you invest $1000 in a business and get a 10% rate of return, you have $1100 to invest in your next venture, which means it will be more profitable and so on. That's why the growth happens, not specifically because it is interest. Stocks do not pay interest, and the 'magic' applies to them too. The fact that you might lose as well as win complicates things, but doesn't change the principle. |
Is this follow-up after a car crash a potential scam? | You have to realize that you're trying to have your cake and eat it too. You want to do things "unofficially" by not reporting the accident (to insurance companies and/or police), but you want to do it "officially" in that you want to have legal recourse if they try to hit you up for more money. The only way to have it both ways is to trust the other person. From a financial perspective, ultimately you need to decide if the monetary cost of your raised insurance premiums, etc., outweighs the cost of whatever money the other party in the accident will try to squeeze out of you (factoring in the likelihood that they will do so). You also would need to factor in the likelihood that, rather than trying to scam you, they'll pursue legal action against you. In short, from a purely monetary perspective, if the legitimate cost of repairs is $700 and the cost to you of doing it by the book via insurance is $2000, you should be willing to be scammed for up to $1300, because you'll still come out ahead. Of course, there are psychological considerations, like whether someone unscrupulous enough to scam you will stop at $1300. But those numbers are the baseline for whatever outcome calculations you want to do. On the more qualitative side of things, it is possible they're trying to scam you, but also possible they're just trying to hustle you into doing everything quickly without thinking about it. They may not be trying to gouge you monetarily, they just want to pressure you so they get their money. I agree with other answerers here that the ideal way would be for them to send you an actual bill after repairs are complete. However, you could ask them to send you a written copy of the repair shop estimate, along with a written letter in which they state that they will consider payment of that amount to resolve the issue and won't pursue you further. The legal strength of that is dubious, but at least you have some documentation that you didn't just try to stiff them. If they won't give you some form of written documentation, I would read that as a red flag, bite the bullet, and contact your insurance company. |
What does bank do with “Repaid Principal”? | Does it add to their lending reserves or is it utilized in other ways? It depends on how the economy and the bank in particular are doing. To simplify things greatly, banks get deposits and lend (or otherwise invest) the majority of those deposits. They must keep some percentage in reserve in case depositors want to make withdrawals, and if they get a high percentage of withdrawals (pushing them to be undercapitalized) then they may sell their loans to other banks. Whether they lend the money to someone else or use the money for something else will depend completely on how many reserves they have from depositors and whether they have people lined up to take profitable loans from them. I wrote this answer for the benefit of CQM, I'd vote to close this question if I had 49 more reputation points, since it's not really about personal finance. |
Is it unreasonable to double your investment year over year? | I know it may not last longer but i was able to 2.5x my wealth over last 2 years.(2016, 2017 cont) I was successfully able to convert 70k into 452k in 21months. Now at this amount, I am really worried and want to take all the profit. I agree that I have been lucky with these returns but it was not all outright luck. Now my plan is to take 100k of it and try high risk investments while investing 350k in index funds. |
Variations of Dual momentum | There's a few layers to the Momentum Theory discussed in that book. But speaking in general terms I can answer the following: Kind of. Assuming you understand that historically the Nasdaq has seen a little more volatility than the S&P. And, more importantly, that it tends to track the tech sector more than the general economy. Thus the pitfall is that it is heavily weighted towards (and often tracks) the performance of a few stocks including: Apple, Google (Alphabet), Microsoft, Amazon, Intel and Amgen. It could be argued this is counter intuitive to the general strategy you are trying to employ. This could be tougher to justify. The reason it is potentially not a great idea has less to do with the fact that gold has factors other than just risk on/off and inflation that affect its price (even though it does!); but more to do with the fact that it is harder to own gold and move in and out of positions efficiently than it is a bond index fund. For example, consider buying physical gold. To do so you have to spend some time evaluating the purchase, you are usually paying a slight premium above the spot price to purchase it, and you should usually also have some form of security or insurance for it. So, it has additional costs. Possibly worth it as part of a long-term investment strategy; if you believe gold will appreciate over a decade. But not so much if you are holding it for as little as a few weeks and constantly moving in and out of the position over the year. The same is true to some extent of investing in gold in the form of an ETF. At least a portion of "their gold" comes from paper or futures contracts which must be rolled every month. This creates a slight inefficiency. While possibly not a deal breaker, it would not be as attractive to someone trading on momentum versus fundamentals in my opinion. In the end though, I think all strategies are adaptable. And if you feel gold will be the big mover this year, and want to use it as your risk hedge, who am I or anyone else to tell you that you shouldn't. |
declaring payments to a credit card for a shared expense | If this is a business expense - then this is what is called reimbursement. Reimbursement is usually not considered as income since it is money paid back to you for an expense you covered for your employer with your after-tax money. However, for reimbursement to be considered properly executed, from income tax stand point, there are some requirements. I'm not familiar with the UK income tax law specifics, but I reason the requirements would not differ much from places I'm familiar with: before an expense is reimbursed to you, you should usually do this: Show that the expense is a valid business expense for the employer benefit and by the employer's request. Submit the receipt for reimbursement and follow the employer's procedure on its approval. When income tax agent looks at your data, he actually will ask about the £1500 tab. You and you'll employer will have to do some explaining about the business activity that caused it. If the revenue agent is not satisfied, the £750 that is paid to you will be declared as your income. If the required procedures for proper reimbursement were not followed - the £750 may be declared as your income regardless of the business need. Have your employer verify it with his tax accountant. |
Could someone please provide an example of a portfolio similiar to the GFP or Couch potato, but for Australia? | The portfolio described in that post has a blend of small slices of Vanguard sector funds, such as Vanguard Pacific Stock Index (VPACX). And the theory is that rebalancing across them will give you a good risk-return tradeoff. (Caveat: I haven't read the book, only the post you link to.) Similar ETFs are available from Vanguard, iShares, and State Street. If you want to replicate the GFP exactly, pick from them. (If you have questions about how to match specific funds in Australia, just ask another question.) So I think you could match it fairly exactly if you wanted to. However, I think trying to exactly replicate the Gone Fishin Portfolio in Australia would not be a good move for most people, for a few reasons: Brokerage and management fees are generally higher in Australia (smaller market), so dividing your investment across ten different securities, and rebalancing, is going to be somewhat more expensive. If you have a "middle-class-sized" portfolio of somewhere in the tens of thousands to low millions of dollars, you're cutting it into fairly small slices to manually allocate 5% to various sectors. To keep brokerage costs low you probably want to buy each ETF only once every one-two years or so. You also need to keep track of the tax consequences of each of them. If you are earning and spending Australian dollars, and looking at the portfolio in Australian dollars, a lot of those assets are going to move together as the Australian dollar moves, regardless of changes in the underlying assets. So there is effectively less diversification than you would have in the US. The post doesn't mention the GFP's approach to tax. I expect they do consider it, but it's not going to be directly applicable to Australia. If you are more interested in implementing the general approach of GFP rather than the specific details, what I would recommend is: The Vanguard and superannuation diversified funds have a very similar internal split to the GFP with a mix of local, first-world and emerging market shares, bonds, and property trusts. This is pretty much fire-and-forget: contribute every month and they will take care of rebalancing, spreading across asset classes, and tax calculations. By my calculations the cost is very similar, the diversification is very similar, and it's much easier. The only thing they don't generally cover is a precious metals allocation, and if you want that, just put 5% of your money into the ASX:GOLD ETF, or something similar. |
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