Question stringlengths 14 166 | Answer stringlengths 3 17k |
|---|---|
Why are capital gains taxed at a lower rate than normal income? | Here are three key factors that you do not explicitly state: So while I cannot say exactly why the tax law is the way it is, I can infer that it encourages long-term investments rather than short-term, which would seem to be a good thing for society overall. The fast that capital gains are taxed at all somewhat discourages cashing out investments (although I suspect it's more of a nuisance factor - the cash received is likely more on an incentive that the tax is a disincentive). |
How do I choose 401k investment funds? | I disagree strongly with chasing expenses. Don't chase pennies until your are comfortable with an allocation that makes sense to you. Focus on building a diversified portfolio. Look at all of the funds, and put them in a portfolio in a tool like Google finance. Screen out funds with 1-3 stars. Search around on this site for questions about portfolios -- there's good advice there. If you're still not comfortable, look for a fee-based advisor. |
What does it mean that stocks are “memoryless”? | @jidugger mostly got it right. It basically mean that past performance of a stock, or a basket of stocks, are not at all useful when trying to predict its future. There is no proven correlation between past and future performance. If there was such a correlation, that was "proven" or known, then investors would quickly exploit this correlation by buying or selling this stock, thus nullifying the prediction. It doesn't mean the specific individuals cannot predict the future stock market - hell, if I set up 2^100 different robots, where every robots gives a different series of answers to the 100 questions "how will stock X do Y days from now" (for 1<=Y<=100), then one of those robots would be perfectly correct. The problem is that an outside observer has no way of knowing which of the predictor robots is right. To say that stock is memoryless strikes me as not quite right -- to the extent that stocks are valued based on earnings, much of what we infer about future earnings relies on past and present earnings. To put it another way - you have $1000 now, and need to decide whether to invest in a particular stock, or a stock index. The "memoryless" property means that no matter how many earning reports you view ... by the time you see them, the stock price already accounts for them, so they're not useful to you. If the earning reports are positive, the stock is already "too high" because people bought it before you did. So on average, you can't use this information to predict the stock's future performance, and are better off investing in an index fund (unless you desire extra risk that doesn't come with more profitability). |
Why does Warren Buffett say his fund performance, relatively, is likely to be better in a bear market than in a bull market? | If I have $100 and put it under the bed it will return 0%. Relatively good in a bear market and relatively bad in a bull market. |
When a stock price goes down, does the money just disappears into thin air? | You buy a $100k sport car, but don't buy any insurance. You take a curve too fast and jump out just in time to see your car go off a cliff, like a chase movie. The value went from $100k to zero in seconds. Where did the $100k go? |
Strategies for putting away money for a child's future (college, etc.)? | Saving for school is [fundamentally] no different than saving for any other major purchase: in addition to some of the great answers already provided, here are a couple other thoughts: Just to have the [simplified] numbers handy: If you can increase that to $2000/yr, after 18 years: One final thought - I would personally avoid the 529 plans because if your child decides to not go to school (eg goes in the Coast Guard, decides to be a farmer, enters the Peace Corps, etc), you're penalized on withdrawal, whereas with any other savings/investment methodology, you won't have those penalties. |
Can a dividend reinvestment plan (DRIP) and share purchase plan (SPP) be used with a TFSA? | You can hold a wide variety of investments in your TFSA account, including stocks such as SLF. But if the stocks are being purchased via a company stock purchase plan, they are typically deposited in a regular margin account with a brokerage firm (a few companies may issue physical stock certificates but that is very rare these days). That account would not be a TFSA but you can perform what's called an "in-kind" transfer to move them into a TFSA that you open with either the same brokerage firm, or a different one. There will be a fee for the transfer - check with the brokerage that currently holds the stock to find out how costly that will be. Assuming the stock gained in value while you held it outside the TFSA, this transfer will result in capital gains tax that you'll have to pay when you file your taxes for the year in which the transfer occurs. The tax would be calculated by taking the value at time of transfer, minus the purchase price (or the market value at time of purchase, if your plan allowed you to buy it at a discounted price; the discounted amount will be automatically taxed by your employer). 50% of the capital gain is added to your annual income when calculating taxes owed. Normally when you sell a stock that has lost value, you can actually get a "capital loss" deduction that is used to offset gains that you made in other stocks, or redeemed against capital gains tax paid in previous years, or carried forward to apply against gains in future years. However, if the stock decreased in value and you transfer it, you are not eligible to claim a capital loss. I'm not sure why you said "TFSA for a family member", as you cannot directly contribute to someone else's TFSA account. You can give them a gift of money or stocks, which they can deposit in their TFSA account, but that involves that extra step of gifting, and the money/stocks become their property to do with as they please. Now that I've (hopefully) answered all your questions, let me offer you some advice, as someone who also participates in an employee stock purchase plan. Holding stock in the company that you work for is a bad idea. The reason is simple: if something terrible happens to the company, their stock will plummet and at the same time they may be forced to lay off many employees. So just at the time when you lose your job and might want to sell your stock, suddenly the value of your stocks has gone way down! So you really should sell your company shares at least once a year, and then use that money to invest in your TFSA account. You also don't want to put all your eggs in one basket - you should be spreading your investment among many companies, or better yet, buy index mutual funds or ETFs which hold all the companies in a certain index. There's lots of good info about index investing available at Canadian Couch Potato. The types of investments recommended there are all possible to purchase inside a TFSA account, to shelter the growth from being taxed. EDIT: Here is an article from MoneySense that talks about transferring stocks into a TFSA. It also mentions the importance of having a diversified portfolio! |
Advantages of Shareholder over Director in new Company | I don't know Australian law, but I will give my US perspective here. The custom in the US is for officers and directors to be indemnified by the corporation, and that LLCs have an even broader power to indemnify (even to remove the duty of loyalty!). Moreover, directors will typically be able to purchase D&O insurance to protect them from loss in the event of liability. For US corporations (not LLCs), the duty of care (prudence) requires that directors behave responsibly in weighing major decisions, and consult experts and specialists before coming to rash decisions. It usually becomes a court case in the context of a large public company in the midst of an acquisition event. The only people with standing (in the US) are shareholders. If all the other shareholders are directors, then it may be hard for them to blame you. Additionally, if you are concerned about the propriety of your actions, there may be sources to rely on. First, discussion with your fellow directors can be a helpful guide (though will not usually immunize you from any accusation of wrongdoing), and disclosure tends to cure almost any accusation of breaching the duty of loyalty. Second, boards often secure the advice of legal counsel, and sometimes bring on lawyers as members or will outright hire counsel for the board. Third, there may be services that will provide you with generic advice (e.g. UK Companies House and US-based IOD), which might set you at ease a little bit. I don't know the details of Australian law, as I say. But my sense of common law countries is that, like the US, they are primarily concerned about negligence (incompetently or imprudently neglecting to understand the business and make informed decisions), disloyalty (fraudulently engaging in self-interested transactions that either hurt the company or should have been offered to the company), and recklessness (not bothering to seek out information). As long as you are active, informed, engaged, and not engaging in secret deals outside the company (especially deals where either side is competing with the company), then that would be more than sufficient under the US standard. If you are concerned about liability, then inquire into indemnifications by the company (in the US, the company can usually pay all legal costs of directors), insurance, and legal counsel. I imagine your business partners are no more savvy than you are. My impression is you are overreacting to relatively rare and exotic expression of corporate law (at least in the US). But I'll close by repeating that I don't know Australian corporate law. |
Why are bank transactions not instant? | If you want your bank to pay $1 to a beneficiary Bob, then the service (no matter how implemented) needs to result in Bob's bank saying to Bob "Hey, I owe you $1". The usual way how this is done consists of two parts - your bank needs to somehow tell Bob's bank "hey guys, do us a favor and please give Bob $1 with a message from the sender", and your bank needs to convince the other bank that they'll pay for (cover) that. This is the main source for the delays in international payments - there are thousands of banks, and most of possible pairs have no legal contact between themselves whatsoever, no bilateral agreements, no trust and no reasonable enforcement mechanism for small claims. If I'm Bob's bank, then a random bank from anywhere from Switzerland to Nigeria can send me an instruction "give Bob $1, we'll make it up for you", the SWIFT network is a common way of doing this. However, most likely I'm going to give Bob the money only after I receive the funds somehow, which means that they have given the money to some institution I work with. For payments within a single country, it often is a centralized exchange or a central bank, and the payment speed is then determined by the details of that particular single payment network - e.g. UK Faster Payments or the various systems used in USA. For international payments, it may require a chain of multiple intermediaries (correspondent banks) - for example, a payment of $1mm from Kazakhstan to China will likely involve the Kazakhstan bank asking their main correspondent in USA (some major bank such as Chase JPMorgan) to give the money to the relevant chinese bank's correspondent in USA (say, Citi) to then give the money to that chinese bank to then give the money to the actual recipient. Each of those steps can happen because those entities have bilateral agreements, trust and accounts with each other; and each of those steps generally takes time and verification. If you want all payments to happen instantly, then you need all institutions to join a single binding payment system. It's not as easy as it sounds, as it is a nightmare of jurisdiction - for example, if you'd want me (as Bob's bank) to credit Bob instantly, then the system needs to provide solid guarantees that I would get paid even if (a) the payer institution changes its mind, made a mistake or intentional fraud; (b) the payer institution goes insolvent; (c) the system provider gets insolvent. Providing such guarantees is expensive, they need to be backed by multi-billion capital, and they're unrealistic to enforce across jurisdictions (e.g. would an Iranian bank get recourse if some funds got blocked because of USA sanctions). The biggest such project as far as I know is SEPA, across most of Europe. Visa and MasterCard networks perform the same function - a merchant gets paid by the CC network even if the payer can't pay his CC bill or the paying bank goes insolvent. |
Can a company charge you for services never requested or received? | No. A company cannot bill you for services you did not request nor receive. If they could, imagine how many people would just randomly get bills in their mail. Ignore them. They don't have a contract or agreement with you and can't do anything other than make noise. If they get aggressive or don't stop requesting money, hire an attorney and it will be taken care of. |
If a stock doesn't pay dividends, then why is the stock worth anything? | Since I'm missing the shortest and simplest answer, I'll add it: A car also doesn't offer dividends, yet it's still worth money. A $100 bill doesn't offer dividends, yet people are willing to offer services, or goods, or other currencies, to own that $100 bill. It's the same with a stock. If other people are willing to buy it off you for a price X, it's worth at least close to price X to you. In theory the price X depends on the value of the assets of the company, including unknown values like expected future profits or losses. Speaking from experience as a trader, in practice it's very often really just price X because others pay price X. |
Why does my checking/savings account offer a higher interest rate than a standalone savings account? | The key is that you need to use your debit card to earn the higher interest rate. The bank can offer a higher interest rate on accounts connected with a debit card because: They earn additional income through debit card fees charged towards account holders, among other things. They offer the higher interest rate specifically to encourage people to use their debit cards. By offering a joint checking/savings account that requires you to use your debit card, the bank is assuming that you'll keep more money in your account than you would in a standard checking-only account. Your higher balance translates into more money the bank can loan out or invest, which usually leads to higher profit for them. Businesses pay fees to the bank to accept debit cards. These fees represent another source of profit for the bank. The more you use your debit card, the more the bank earns in fees, so the bank encourages you to use your debit card more frequently through incentives like a higher interest rate or waiving fees on your account if you use your card enough. Plus, since it's likely that an individual who maintains a fairly high balance in an account linked to a debit card is going to spend more (simply because they can spend more), banks will sometimes waive fees on the consumer side for balances over a certain amount. |
How do I calculate two standard deviations away from the stock price? | The formula for standard deviation is fairly simple in both the discrete and continuous cases. It's mostly safe to use the discrete case when working with adjusted closing prices. Once you've calculated the standard deviation for a given time period, the next task (in the simplest case) is to calculate the mean of that same period. This allows you to roughly approximate the distribution, which can give you all sorts of testable hypotheses. Two standard deviations (σ) away from the mean (μ) is given by: It doesn't make any sense to talk about "two standard deviations away from the price" unless that price is the mean or some other statistic for a given time period. Normally you would look at how far the price is from the mean, e.g. does the price fall two or three standard deviations away from the mean or some other technical indicator like the Average True Range (an exponential moving average of the True Range), some support level, another security, etc. For most of this answer, I'll assume we're using the mean for the chosen time period as a base. However, the answer is still more complicated than many people realize. As I said before, to calculate the standard deviation, you need to decide on a time period. For example, you could use S&P 500 data from Yahoo Finance and calculate the standard deviation for all adjusted closing prices since January 3, 1950. Downloading the data into Stata and applying the summarize command gives me: As you can probably see, however, these numbers don't make much sense. Looking at the data, we can see that the S&P 500 hasn't traded close to 424.4896 since November 1992. Clearly, we can't assume that this mean and standard deviation as representative of current market conditions. Furthermore, these numbers would imply that the S&P 500 is currently trading at almost three standard deviations away from its mean, which for many distribution is a highly improbable event. The Great Recession, quantitative easing, etc. may have changed the market significantly, but not to such a great extent. The problem arises from the fact that security prices are usually non-stationary.. This means that the underlying distribution from which security prices are "drawn" shifts through time and space. For example, prices could be normally distributed in the 50's, then gamma distributed in the 60's because of a shock, then normally distributed again in the 70's. This implies that calculating summary statistics, e.g. mean, standard deviation, etc. are essentially meaningless for time periods in which prices could follow multiple distributions. For this and other reasons, it's standard practice to look at the standard deviation of returns or differences instead of prices. I covered in detail the reasons for this and various procedures to use in another answer. In short, you can calculate the first difference for each period, which is merely the difference between the closing price of that period and the closing price of the previous period. This will usually give you a stationary process, from which you can obtain more meaningful values of the standard deviation, mean, etc. Let's use the S&P500 as an example again. This time, however, I'm only using data from 1990 onwards, for the sake of simplicity (and to make the graphs a bit more manageable). The summary statistics look like this: and the graph looks like this; the mean is the central horizontal red line, and the top and bottom lines indicate one standard deviation above and below the mean, respectively. As you can see, the graph seems to indicate that there were long periods in which the index was priced well outside this range. Although this could be the case, the graph definitely exhibits a trend, along with some seemingly exogenous shocks (see my linked answer). Taking the first difference, however, yields these summary statistics: with a graph like this: This looks a lot more reasonable. In periods of recession, the price appears much more volatile, and it breaches the +/- one standard deviation lines indicated on the graph. This is only a simple summary, but using first differencing as part of the wider process of detrending/decomposing a time series is a good first step. For some technical indicators, however, stationary isn't as relevant. This is the case for some types of moving averages and their associated indicators. Take Bollinger bands for instance. These are technical indicators that show a number of standard deviations above and below a moving average. Like any calculation of standard deviation, moving average, statistic, etc. they require data over a specified time period. The analyst chooses a certain number of historical periods, e.g. 20, and calculates the moving average for that many previous periods and the moving/rolling standard deviation for those same periods as well. The Bollinger bands represent the values a certain number of standard deviations away from the moving average at a given point in time. At this given point, you can calculate the value two standard deviations "away from the value," but doing so still requires the historical stock price (or at least the historical moving average). If you're only given the price in isolation, you're out of luck. Moving averages can indirectly sidestep some of the issues of stationarity I described above because it's straightforward to estimate a time series with a process built from a moving average (specifically, an auto-regressive moving average process) but the econometrics of time series is a topic for another day. The Stata code I used to generate the graphs and summary statistics: |
Why would I pick a specific ETF over an equivalent Mutual Fund? | In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees. |
What options are available for a home loan with poor credit but a good rental history? | Why not just do an FHA loan? The minimum credit score is 580, and you can sometimes even go lower than that. Another alternative is to consider a rent-to-own agreement with his landlord, since it sounds like if he doesn't buy he'd continue renting there anyway. |
How does a bank make money on an interest free secured loan? | A "true" 0% loan is a losing proposition for the bank, that's true. However when you look at actual "0%" loans they usually have some catches: There might also be late payment fees, prepayment penalties, and other clauses that make it a good deal on average to the bank. Individual borrowers might be able to get away with "free money", but the bank does not look to make money on each loan, they look to make money on thousands of loans overall. For a retailer (including new car sellers). the actual financing costs will be baked into the sales price. They will add, say, 10% to the sales price in exchange for an interest-free loan. They can also sell these loans to an investment bank or other entity, but they would be sold at a deep discount, so the difference will be made up in the sales price or other "fees". It's possible that they would just chalk it up to promotional discounts or customer acquisition costs, but it would not be a good practice on a large scale. |
Someone asks you to co-sign a loan. How to reject & say “no” nicely or politely? | No, I don't mix business and personal affairs. |
How are RSU's factored into Income during loan qualification? | RSUs are not "essentially cash". "R" in the RSU stands for restricted. These awards have strings attached, and as long as the strings are attached - you don't really own the money. As such, most banks do not include RSUs in the income considerations. Some do, especially if they have a specific agreement with your employer (check your HR/benefits coordinator). Specifically for mortgage loan, where the underwriting is very strict, I'm not aware of banks that include RSUs as income without a specific agreement with the employer as a perk. For credit cards/car loans, where you just need to write a number, they would probably care less. Some banks (but not all) consider past performance, and would include bonuses (and maybe RSUs) if you can show several consecutive years of comparable bonuses. |
How do government bond yields work? | Why does the rising price of a bond pushes it's yield down? The bond price and its yield are linked; if one goes up, the other must go down. This is because the cash flows from the bond are fixed, predetermined. The market price of the bond fluctuates. Now what if people are suddenly willing to pay more for the same fixed payments? It must mean that the return, i.e. the yield, will be lower. Here we see that risk associated with the bonds in question has skyrocketed, and thus bonds' returns has skyrocketed, too. Am I right? The default risk has increased, yes. Now, I assume that bonds' price is determined by the market (issued by a state, traded at the market). Is that correct? Correct, as long as you are talking about the market price. Then who determines bonds' yields? I mean, isn't it fixed? Or - in the FT quote above - they are talking about the yields for the new bonds issued that particular month? The yield is not fixed - the cash flows are. Yield is the internal rate of return. See my answer above to your first question. |
Be a partner, CTO or just a freelancer? | First, determine the workload he will expect. Will you have to quit your other work, either for time or for competition? How much of your current business will be subsumed into his business, if any? Make sure to understand what he wants from you. If you make an agreement, set it in writing and set some clear expectations about what will happen to your business (e.g. it continues and is not part of your association with the client). Because he was a client for your current business, it can blur the lines. Second, if you join him, make sure there is a business entity. By working together for profit, you will have already formed a partnership for tax purposes. Best to get an entity, both for the legal protection and also for the clarity of law and accounting. LLCs are simplest for small ventures; C corps are useful if you have lots of early losses and owners that can't use them personally, or if you want to be properly formed for easy consumption by a strategic. Most VCs and super-angels prefer everybody be a straight C. Again, remember to define, as necessary, what you are contributing to be an owner and what you are retaining (your original business, which for simplicity may already be in an entity). As part of this process, make sure he defines the cap table and any outstanding loans. Auntie June and Cousin Steve might think their gifts to him were loans or equity purchases; best to clear this issue up early before there's any more money in it. Third, with regard to price, that is an intensely variable question. It matters what the cap table looks like, how early you are, how much work he's already done, how much work remains to be done, and how much it will pay off. Also, if you do it, expect to be diluted by other employees, angels, VCs, other investors, strategics, and so on. Luckily, more investors usually indicates a growing pie, so the dilution may not be at all painful. But it should still be on your horizon. You also need to consider your faith in your prospective partner's ability to run the business and to be a trustworthy partner (so you don't get Zuckerberg'd), and to market the business and the product to customers and investors. If you don't like the prospects, then opt for cash. If you like the business but want to hedge, ask for compensation plus equity. There are other tricks you could use to get out early, like forced redemption, but they probably wouldn't help either because it'd sour your relationship or the first VC or knowledgeable angel to come along will want you to relinquish that sort of right. It probably comes down to a basic question of your need for cash, his willingness to let you pursue outside work (hopefully high) and your appraisal of the business' prospects. |
How can rebuilding a city/large area be considered an economic boost? | It certainly creates an opportunity for the re-distribution of wealth. Money will be transferred from insurance companies to construction companies. Businesses that go under will be replaced by ones that survived. Some companies will make a profit out of this, but as you have already figured out, no new wealth is created by the disaster. (Although lots has been destroyed, so we are looking at a net loss.) |
Are there cons to paying monthly bills with a rewards card and then paying it off monthly? | There are a few potential downsides but they are minor: If you forget to make the payment the interest hit the following month could be significant. With many cards the new charges will be charged interest from the start if the previous payment was late/missed. Just make sure you don't forget to pay the entire bill. If the $5K in monthly bills is a large portion of the credit limit for that credit card you could run into a problem with the grace period. During the three weeks between when the monthly bill closes and the payment is due, new charges will keep rolling in. Plan on needing a credit limit for the card of 2x the monthly bills. Of course you don't have to wait for the due date. Just go online and pay the bill early. If the monthly bills are a significant portion of the total credit limit for all credit cards, it can decrease your credit score because of the high utilization rate. The good news is that over time the credit card company will increase your credit limit thus reducing the downsides of the last two items. Also keep in mind you generally can't pay a credit card bill or loan with a credit card, but many of the other bills each month can be handled this way. |
Confirming that stocks are listed under my name | The answer to your question is "no". Unless you specifically ask to receive paper share certificates, then brokers will hold your shares with a custodian company in the broker's own nominee account. If you are able to receive paper certificates, then the registrar of the company whose shares you own will have a record of your name, however this is exceptionally rare these days. Using a stockbroker means that your shares will be held in the broker's nominee account. A nominee company is a custodian charged with the safekeeping of investors’ securities. It should be a separate entity from the broker itself. In essence, the nominee is the legal owner of the securities, while you retain actual ownership as the beneficiary. Your broker can move and sell the securities on your behalf – and gets to handle all the lovely paperwork – but the assets still belong to you. They can’t be claimed by the broker’s creditors if things get messy. The main reason for this kind of set-up is cost, and this is why brokers are able to offer relatively low dealing costs to their clients. You can, if you wish, ask your broker for an account that deals with paper share certificates. However, few brokers will offer such an account and it will mean that you incur much higher dealing costs and may mean that you cannot sell you shares without first submitting the paper certificates back to your stock broker. Note that the stock exchange plays no role in recording ownership. Nor does your broker's account with the clearing house. |
Freelancing Tax implication | If you have income in the US, you will owe US income tax on it, unless there is a treaty with your country that says otherwise. |
Splitting Hackathon Prize Money to minimize tax debt | I would deduct all the other payments out as subcontractors, but I typically have all the paperwork and entities set up to make that applicable. In Turbotax I do this with as subcontracting expense under my business entity, but for the IRS the categories of the deductions do not matter This isn't tax advice, it is what I would do, and how I would defend it under an audit. Everyone else that was paid also needs to report it. The lack of reciprocal filing (you deducted income paid to someone else, the person did not report that income, or reported it in a different way) is a number one thing to trigger IRS scrutiny. Although accurate, you need to be aware that you are shifting the tax burden away from yourself, by deducting it. |
Where to borrow money between college graduation and employment? | You have asked about getting a loan, the issue is that you don't have collateral to offer up in exchange for the loan, you also don't have a regular source of income. Getting a low level job, even one not related to your major will provide income. Getting a not-so-perfect job related to your major will allow your to sustain yourself, and provide experience that can help you find the perfect job. The time from application to interview to offer letter to start date can be measured in months. This is even with positions you are perfect for. Since it can take months to get started in a new job you should focus on something that you can get started right away. This type of job will have a shorter time frame for the interview cycle. You may feel overqualified for the jobs based on the fact you just graduated from college but this was the type of job you should have had to bridge you from school to the job you want. Regarding the end goal of getting the perfect job, you might have to refocus your efforts. When you had time and money you could afford to be picky about company, location and salary. Now that money is in short supply you will need to change your standards. Keep in mind it is not just an issue about being able to travel to job interviews, it is also about needing a way to afford food, and health insurance. Go back to your college campus and talk to the career counselors they can help your with your resume, and give job search advice. They may also have contacts that can help you find a position with a good local company or even a national company. They may even know of companies that need employees for just a few months to fill a need. |
Not paying cash for a house | You could use the money to buy a couple of other (smaller) properties. Part of the rent of these properties would be used to cover the mortgage and the rest is income. |
Any experience with maxing out 401(k)? | I moved from contributing 10% to maxing as my salary rose over the course of three years after graduation. Because of my raises, my monthly take home still increased, so it was a pretty painless way to increase my 401(k) contribution and also avoid lifestyle inflation. That said, I would not do it if you have any credit card debt, school loans, or an auto loan. Pay that off first. Then work on maxing the 401(k). Personally I rate owning a home behind that, but that's partially because I'm in an area where the rent ratios are barely on the side of buying, so I don't find buying to be a pressing matter. One thing to investigate is if your company offers a Roth 401(k) option. It's a nice option where you can go Roth without worrying about income limits. My personal experience does not include a Roth IRA because when I still qualified for one I didn't know much about them, and now that I know about them I have the happy issue of not qualifying. |
World Indexes - Variance between representation of a country's stocks and the country's proportion of world GDP | Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization. For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing "developed" economies like the US to "developing" (or "less-developed") economies in which there is less participation in large-scale financial systems like stock markets. For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil. Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's. Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks. This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index. But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP. |
Does this plan make any sense for early 20s investments? | I would wait, and invest that money in a Roth IRA. Because taxes are paid on the contributions to a Roth IRA, you can withdraw the contributions at any time, tax and penalty-free. In addition, you can withdraw contributions and earning to purchase your first home. |
The Asset Allocation Paradox | I recommend you take a look at this lecture (really, the whole series is enlightening), from Swenson. He identifies 3 sources of returns: diversification, timing and selection. He appears to discard timing and selection as impossible. A student kinda calls him out on this. Diversification reduces risk, not increase returns. It turns out they did time the market, by shorting .com's before the bubble, and real estate just before the downturn. In 1990, Yale started a "Absolute Return" unit and allocated like 15 percent to it, mostly by selling US equities, that specializes in these sorts of hedging moves. As for why you might employ managers for specific areas, consider that the expense ratio Wall Street charges you or me still represent a very nice salary when applied to the billions in Yale's portfolio. So they hire internally to reduce expenses, and I'm sure they're kept busy. They also need people to sell off assets to maintain ratios, and figuring out which ones to sell might take specialized knowledge. Finally, in some areas, you functionally cannot invest without management. For example, Yale has a substantial allocation in private equity, and by definition that doesn't trade on the open market. The other thing you should consider is that for all its diversification, Yale lost 25 percent of their portfolio in 2009. For a technique that's supposed to reduce volatility, they seem to have a large range of returns over the past five years. |
Why does gold have value? | Why does the value of gold go up when gold itself doesn't produce anything? Why do people invest in gold? Your perception, that the value of gold goes up in the long run, is based on the price of gold measured in your favorite paper currency, for example the US Dollar. An increasing price of gold means that in the visible gold market, market participants are willing to exchange more paper currency units for the same amount of gold. There are many possible reasons for this: While HFT became extremely important for the short term price movements, I will continue with long term effects, excluding HFT. So when - as a simple thought experiment - the amount of available paper currency units (US $ or whatever) doubles, and the amount of goods and services in an economy stay the same, you can expect that the price of everything in this economy will double, including gold. You might perceive that the value of gold doubled. It did not. It stayed the same. The number of printed dollars doubled. The value of gold is still the same, its price doubled. Does the amount of paper currency units grow over time? Yes: https://research.stlouisfed.org/fred2/series/BASE/ In this answer my term "paper currency units" includes dollars that exist only as digits in bank accounts and "printing currency" includes creating those digits in bank accounts out of thin air. So the first answer: gold holds its value while the value of paper currency units shrinks over time. So gold enables you to pass wealth to the next generation (while hiding it from your government). That gold does not produce anything is not entirely true. For those of us mortals who have only a few ounces, it is true. But those who have tons can lease it out and earn interest. (in practice it is leased out multiple times, so multiple that gain. You might call this fraud, and rightfully so. But we are talking about tons of gold. Nobody who controls tons of physical gold goes to jail yet). Let's talk about Fear. You see, the perceived value of gold increases as more paper currency is printed. And markets price in expected future developments. So the value of gold rises, if a sufficient number of wealthy people fear the the government(s) will print too much paper currency. Second Answer: So the price of gold not only reflects the amount of paper currency, it is also a measurement of distrust in government(s). Now you might say something is wrong with my argument. The chart mentioned above shows that we have now (mid 2015) 5 times as much printed currency units than we had 2008. So the price of gold should be 5 times as high as 2008, assuming the amount of distrust in governments stayed the same. There must be more effects (or I might be completely wrong. You decide). But here is one more effect: As the price of gold is a measurement of distrust in governments (and especially the US government since the US Dollar is perceived as the reserve currency), the US government and associated organizations are extremely interested in low gold prices to prove trust. So people familiar with the topic believe that the price of gold (and silver) is massively manipulated to the downside using high frequency trading and shorts in the futures markets by US government and wall street banks to disprove distrust. And wall street banks gain huge amounts of paper currency units by manipulating the price, mostly to the downside. Others say that countries like china and russia are also interested in low gold prices because they want to buy as much physical gold as possible. Knowing of the value that is not reflected by the price at the moment. Is there one more source of distrust in governments? Yes. Since 1971, all paper currencies are debt. They receive their value by the trust that those with debt are willing and able to pay back their debt. If this trust is lost, the downward manipulation (if you think that such a thing exists) of the gold and silver prices in the futures markets might fail some day. If this is the case (some say when this is the case). you might see movements in gold and silver prices that bring them back to equilibrium with the amount of printed paper currencies. In times of the roman empire you got a good toga and a pair of handmade shoes for an ounce of gold. In our days, you get a nice suite and a good pair of shoes for an ounce of gold. In the mean time, the value of each paper currency in the history of each country went to zero and the US $ lost 98% of its initial value. As long as there is not enough distrust, more paper currency is made in equity markets and bond markets on average. (Be aware that you earn that currency only after you were able to sell at this price, not while you hold it) Gerd |
I might use a credit card convenience check. What should I consider? | I tried this a few months ago when I got one from Chase for 0%. Thought it might be fun to play with, maybe make some money with the interest elsewhere over the 6 months. Read the term and called Chase for more information on these and didn't see any issues at first. The big thing that got me was that the rest of my account (not the money from the convenience check) was converted so that interests accrued on a daily basis even if you paid it all off at the end of the month. So even though I was making the required payments that would normally not incur any interest, just by having the convince check balance on my account I was being charged the interest for my normal credit card charges over the month. The amount of charges came out to only be around $10-$20, so wasn't much of a loss really. But something to keep in mind when using these, (I tried it with 0% APR and still couldn't get away from the interest). If I had needed the money this would still be an excellent way to go. But if your trying to beat Chase with this game, it doesn't work... Although if you don't use the card for anything other than the convenience check it's free money (or cheap @ 3.99% in your case) Everything in my account went back to normal after it was paid off, so no harm really, but some things to keep in mind at least. |
Why is the dominant investing advice for individuals to use mutual funds, exchanged traded funds (ETFs), etc | No. You're lucky, maybe, but not really a successful investor. Warren Buffet is, you're not him. Sometimes it is easier to pick stocks to bid on, sometimes its harder. I got my successes too. It is easier on a raising market, especially when it is recovering after a deep fall, like now. But generally it is very hard to beat the market. You need to remember that an individual investor, not backed by deep pockets, algo-trading and an army of analysts, is in a disadvantage on the market by definition. So what can you do? Get the deep pockets, algo-trading and an army of analysts. How? By pooling with others - investing through funds. |
My previous and current employers both use Fidelity for 401(k). Does it make sense to rollover? | I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons. First off, it opens up your investment choices significantly and can allow you significantly reduced expenses related to the account. You may be able to find a superior offering from Vanguard or Fidelity to what your employer's 401(k) plan allows; typically they only allow a small selection of funds to choose from. You also may be able to reduce the overhead fees, as many 401(k) plans charge you an administrative fee for being in the plan separate from the funds' costs. Second, it allows you to condense 401(k)s over time; each time you change employers, you can rollover your 401(k) to your regular IRA and not have to deal with a bunch of different accounts with different passwords and such. Even if they're all at the same provider, odds are you will have to use separate accounts. Third, it avoids issues if your employer goes out of business. While 401(k) plans are generally fully funded (particularly for former employers who you don't have match or vesting concerns with), it can be a pain sometimes when the plan is terminated to access your funds - they may be locked for months while the bankruptcy court works things out. Finally, employers sometimes make it expensive for you to stay in - particularly if you do have a very small amount. Don't assume you're allowed to stay in the former employer's 401(k) plan fee-free; the plan will have specific instructions for what to do if you change employers, and it may include being required to leave the plan - or more often, it could increase the fees associated with the plan if you stay in. Getting out sometimes will save you significantly, even with a low-cost plan. |
Definitions of leverage and of leverage factor | This would clear out a lot more. 1) Leverage is the act of taking on debt in lieu of the equity you hold. Not always related to firms, it applies to personal situations too. When you take a loan, you get a certain %age of the loan, the bank establishes your equity by looking at your past financial records and then decides the amount it is going to lend, deciding on the safest leverage. In the current action leverage is the whole act of borrowing yen and profiting from it. The leverage factor mentions the amount of leverage happening. 10000 yen being borrowed with an equity of 1000 yen. 2) Commercial banks: 10 to 1 -> They don't deal in complicated investments, derivatives except for hedging, and are under stricter controls of the government. They have to have certain amount of liquidity and can loan out the rest for business. Investment banks: 30 to 1 -> Their main idea is making money and trade heavily. Their deposits are limited by the amount clients have deposited. And as their main motive is to get maximum returns from the available amount, they trade heavily. Derivatives, one of the instruments, are structured on underlyings and sometimes in multiple layers which build up quite a bit of leverage. And all of the trades happen on margins. You don't invest $10k to buy $10k of a traded stock. You put in, maybe $500 to take up the position and borrow the rest of the amount per se. It improves liquidity in the markets and increases efficiency. Else you could do only with what you have. So these margins add up to the leverage the bank is taking on. |
What is the correct answer for percent change when the start amount is zero dollars $0? | There are some assumptions which can be made in terms of the flexibility you have - I will start with the least flexible assumption and then move to more flexible assumptions. If you must put down a number 1, your go-to for this("Change the start period to 1"), is pretty good, and it's used frequently for other divide-by-zero calculations like kda in a video game. The problem I have with '1' is that it doesn't allow you to handle various scales. Some problems are dealt with in thousands, some in fractions, and some in hundreds of millions. Therefore, you should change the start period to the smallest significantly measurable number you could reasonably have. Here, that would take your example 0 and 896 and give you an increase of 89,500%. It's not a great result, but it's the best you can hope for if you have to put down a number, and it allows you to keep some of the "meaning in the change." If you absolutely must put something This is the assumption that most answers have taken - you can put down a symbol, a number with a notation, empty space, etc, but there is going to be a label somewhere called 'Growth' that will exist. I generally agree with what I've seen, particularly the answers from Benjamin Cuninghma and Nath. For the sake of preservation - those answers can be summarized as putting 'N/A' or '-', possibly with a footnote and asterisk. If you can avoid the measurement entirely The root of your question is "What do my manager and investors expect to see?" I think it's valuable to dig even further to "What do my manager and investors really want to know?". They want to know the state of their investment. Growth is often a good measurement of that state, but in cases where you are starting from zero or negative, it just doesn't tell you the right information. In these situations, you should avoid % growth, and instead talk in absolute terms which mention the time frame or starting state. For example: |
A little advice please…car loan related | Suggested way to make the decision to repair or buy: Figure out what it will cost to repair your car. (If necessary, pay a garage to evaluate it "as if your daughter was interested in buying it".) Then think about whether you would pay that much to buy a car just like yours but without those problems. If the answer is yes, fixing it us probably your most cost-effective choice, even if it is a big bill. If the answer is no, consider a used car, and again have the mechanic check it for any lurking horrors before committing to buy it. That avoids the "proprty-line tax" where a new car loses a significant percentage of its value the moment it leaves the dealership. An almost-toy car us virtually indistinguishable from a new car, costs much less, and realistically has about the same expected life span. I bought a new car once -- at about $300 over the dealer's real (as opposed to sticker) cost, since I was willing to take the one he was stuck with from the previous model year. (Thank you, Consumer Reports, for providing the dealer's cost info and making this a five-minute transaction.) If it hadn't suffered flood damage I'd probably still be driving it, and even so I sorta regret not pricing what it would have cost go completely replace the engine. If you really plan to drive it until it is completely unrepairable, you may be able to justify a new car... But realistically buying a one- or two-year-old car would have been a better choice. |
If a company's assets are worth more than its market cap, can one say the shares must be undervalued? | Imagine a poorly run store in the middle of downtown Manhattan. It has been in the family for a 100 years but the current generation is incompetent regarding running a business. The store is worthless because it is losing money, but the land it is sitting on is worth millions. So yes an asset of the company can be worth more than the entire company. What one would pay for the rights to the land, vs the entire company are not equal. |
Why are American-style options worth more than European-style options? | Differences in liquidity explain why American-style options are generally worth more than their European-style counterparts. As far as I can tell, no one mentioned liquidity in their answer to this question, they just introduced needlessly complex math and logic while ignoring basic economic principles. That's not to say the previous answers are all wrong - they just deal with periphery factors instead of the central cause. Liquidity is a key determinant of pricing/valuation in financial markets. Liquidity simply describes the ease with which an asset can be bought and sold (converted to cash). Without going into the reasons why, treasury bills are one of the most liquid securities - they can be bought or sold almost instantly at any time for an exact price. The near-perfect liquidity of treasuries is one of the major reasons why the price (yield) of a t-bill will always be higher (lower yield) than that of an otherwise identical corporate or municipal bond. Stated in general terms, a relatively liquid asset is always worth more than an relatively illiquid asset, all else being equal. The value of liquidity is easy to understand - we experience it everyday in real life. If you're buying a house or car, the ability to resell it if needed is an important component of the decision. It's the same for investors - most people would prefer an asset that they can quickly and easily liquidate if the need for cash arises. It's no different with options. American-style options allow the holder to exercise (liquidate) at any time, whereas the buyer of a European option has his cash tied up until a specific date. Obviously, it rarely makes sense to exercise an option early in terms of net returns, but sometimes an investor has a desperate need for cash and this need outweighs the reduction in net profits from early exercise. It could be argued that this liquidity advantage is eliminated by the fact that you can trade (sell) either type of option without restriction before expiration, thus closing the long position. This is a valid point, but it ignores the fact that there's always a buyer on the other side of an option trade, meaning the long position, and the right/restriction of early exercise, is never eliminated, it simply changes hands. It follows that the American-style liquidity advantage increases an options market value regardless of one's position (call/put or short/long). Without putting an exact number on it, the general interest rate (time value of money) could be used to approximate the additional cost of an American-style option over a similar European-style contract. |
Job Offer - Explain Stock Options [US] | Since the 2 existing answers addressed the question as asked. Let me offer a warning. You have 10,000 options at $1. You've worked four years and the options are vested. The stock is worth $101 when you get a job offer (at another company) which you accept. So you put up $10k and buy the shares. At this moment, you put up $10K for stock worth $1.01M, a $1M profit and ordinary income. You got out of the company just in time. For whatever reason, the stock drops to $21 and at tax time you realize the $1M gain was ordinary income, but now the $800k loss is a capital loss, limited to $3000/yr above capital gains. In other words you have $210k worth of stock but a tax bill on $1M. This is not a contrived story, but a common one from the dotcon bubble. It's a warning that 'buy and hold' has the potential to blow up in your face, even if the shares you buy retain some value. |
Which U.S. online discount broker is the best value for money? | I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effective January 19th), the value for your money is even better. |
What percentage of my stock portfolio should be international (non-US) stocks? | Rephrasing your question: Am I diversified if I have more than 50% US stocks? I would say that you can certainly be diversified and have more than 50% of your portfolio invested in US Stocks. I view the amount of international stocks (non-US) as a risk choice. My observations have been that my international stocks have higher risk which comes with a higher reward. I'm not comfortable with putting too much of my portfolio into a very high risk category. I personally invest 25% directly in mutual funds that invest in foreign stocks. When you couple that with the money I invest in US stocks via mutual funds that have foreign interests (Coke, GE, etc.), I'm somewhat over 25% international in my portfolio. |
classify investments in to different asset types | A foreign stock mutual fund definitely belongs in stocks. It's composed of stocks. Your self occupied house is definitely real estate. You don have to keep in mind,however that selling it would create costs such as rent. I wouldn't leave it out, if doing that would cause you to buy more real estate. This would cause you to be overweighted in the real estate area. I would tend to think if a CD as cash. While it could be considered a bond, as you said the principal doesn't go down. The REIT is the toughest one. I would really like to see a graph showing how correlated it is to the real estate market. That would determine where I would put it. |
Why would you sell your bonds? | You sell any investment because you need to do something else with the money -- rebalance your investments, buy something, pay off a debt.... |
Advantages of paying more of your mortgage while you know you won't continue to live there your whole life | I will add one thought on to this thread. This is a financial concept called "Net Present Value". In plain English, it means "What's the best use for your money right now?" So, let's say you have an extra €300/month which is not being spent on living expenses. If you leave that money under your pillow (or spend it on beer or fancy electronics!) instead of paying off your startersloan early, that is costing you 300*(0.04/12) per month, every month. So €1/month, or €12/year. This is cumulative for the life of your loan. So not paying €300 this month will ultimately cost you €120 assuming you keep the loan open for 10 years. If you're saying "pay my debts or spend the money on a snappy smartphone?" the answer is that you should pay your debts. Now, here's the important part. Let's suppose you have a better use for the money than beer or electronics. Let's suppose you have a mutual fund which will reliably provide you with a return of 10% a year. If you put that €300/month into a high-yield fund, and if the returns are consistent, you are STILL paying that €12/year (because you invested elsewhere and didn't pay your debts), but you are realizing profits of 300*(0.1/12)=€2.5/month on the invested money. €2.5-1=€1.5/month, which is a net gain. So, in some cases, paying off your debt may not be the best use of your money. There are a number of other questions involved which are related to your exposure to capital gains taxes, incentives or disincentives for holding debt, &c. &c. These are generally country specific. A poster above who seems to be familiar with Netherlands law did a good explanation of some of those incentives. I'm in the US, and our incentive and disincentive system is different. TL;DR: It depends. |
Does Vanguard grant admiral shares only on a per-account basis? | Yes, each of Vanguard's mutual funds looks only at its own shares when deciding to upgrade/downgrade the shares to/from Admiral status. To the best of my knowledge, if you hold a fund in an IRA as well as a separate investment, the shares are not totaled in deciding whether or not the shares are accorded Admiral shares status; each account is considered separately. Also, for many funds, the minimum investment value is not $10K but is much larger (used to be $100K a long time ago, but recently the rules have been relaxed somewhat). |
Should I pay a company who failed to collect VAT from me over 6 months ago? | It looks like businesses selling services (like software downloads) from outside the EU to the UK have to register for VAT if the amount of such sales goes over the UK VAT registration threshold: [If] the value of the taxable supplies you make is over a specified threshold [then] you must register for VAT So it seems plausible that this business does have some requirement to charge VAT on its sales, but clearly it should have done so at the time of sale, not months later. As you say, UK and EU law require that prices are displayed including relevant taxes. Since this business is in the US, they might be able to claim that those rules don't apply to them. But I'm not aware of even US businesses being able to claim sales tax from a US customer months after originally making a sale, and it goes against all reasonable principles of law if they would be able to do it. So the business should really just accept that they screwed up and they'll now have to take the hit and pay the tax themselves. They can work as if the pre-tax price was $12.99/1.2 = $10.825, leaving $2.165 they need to hand over to HMRC. I don't think there's any legal way they can demand money from you now, and certainly for such a low sum of money there's no practical way they could. I can't find anything definitive one way or the other, but I suppose it's possible that HMRC would consider you the importer under these circumstances and so liable for the VAT yourself. But I don't know of any practial way to actually report this to HMRC or pay them the money, and again given the amount there's no realistic chance they'd want to chase you for it. In your shoes I would either ignore the email, or write back and politely tell them that they should have advertised the cost at the time and you're not willing to pay extra now. And you might want to keep an eye on the card you used to pay them to make sure they don't try to just charge it anyway. EDIT: as pointed out in a comment, the company behind this (or at least one with a very similar problem and wording in their emails!) did end up acknowledging that they can't actually do this and that they'll need to pay the tax out of the money they already collected, as I described above. It seems they didn't contact the people they originally emailed to let them know this, though. There's some more discussion here. |
Will paying off my car early hinder my ability to build credit? | 12% is ridiculously high and routine for loans with no credit history, esp. from the dealer. I don't think though paying off would hurt your credit - you've already got installment loan on your report, and you have history of payments, so it shouldn't matter how long the history is (warning: this is kind of guesswork compiled from personal experience and stuff read on the net, since officially how credit score calculated is Top Secret). If you have the loan and credit card with good payments, only thing you need to build credit is time (and, of course, keeping everything nicely paid). Of course, if you could find a loan with lower rate somewhere it's be great to refinance but with low credit you would probably not get the best rates from anywhere, unfortunately. |
Does the “Free Ride” rule always apply to your entire collection of shares in a particular stock? | Your question is unanswerable as you haven't provided enough information. I.e. If those shares cost $1000 and you have $50000 ( or any number above $1000) of cash available in the account then you can't possibly free ride. I think your understanding of the free ride rule is incorrect. Basically what this rule is stating is that you have to have the cash when the trade is placed in order to settle the trade. Otherwise you are taking on margin (which you can't do in a cash account). So at order entry you have to have the cash to cover the purchase so it's able to be settled. If you do, no problem and you can sell that stock before trade settlement. There is no law that says you have to hold it past trade settlement. However, you cannot spend the same dollar more than once before it settles. This site does a good job explaining this more throughly with examples: http://www.invest-faq.com/articles/trade-day-free-ride.html |
What's my risk of buying a house for a friend and sell back to him? | This is fraud, the related legal code is "11 USC 548 - Fraudulent transfers and obligations"; also see the wiki page for Fraudulent Conveyance in the United States. Highly suggest cutting off contact with this person, and speaking with a lawyer as soon as possible to make sure you have not already broken the law. |
Why not just invest in the market? | Most of it is probably due to ignorance and disbelief. A few years ago, I started doing week-long trades with my IRA. For a while I would make money each time, and over the first year I had about a 20% rate of return. If you asked me if I thought I was smarter than other people in the market, I would've told you no - I just spent more time, and most people accepted a small financial penalty for not having to spend the time directly managing their portfolio. Then I made a few poor choices, and all my previous earnings disappeared quickly. In the short term, yeah, things were great, but that didn't extrapolate out. So now that I'm a few years into investing, I'm almost entirely in index funds. |
What does the average log-return value of a stock mean? | Probably the best way to investigate this is to look at an example. First, as the commenters above have already said, the log-return from one period is log(price at time t/price at time t-1) which is approximately equal to the percentage change in the price from time t-1 to time t, provided that this percentage change is not big compared to the size of the price. (Note that you have to use the natural log, ie. log to the base e -- ln button on a calculator -- here.) The main use of the log-return is that is a proxy for the percentage change in the price, which turns out to be mathematically convenient, for various reasons which have mostly already been mentioned in the comments. But you already know this; your actual question is about the average log-return over a period of time. What does this indicate about the stock? The answer is: if the stock price is not changing very much, then the average log-return is about equal to the average percentage change in the price, and is very easy and quick to calculate. But if the stock price is very volatile, then the average log-return can be wildly different to the average percentage change in the price. Here is an example: the closing prices for Pitchfork Oil from last week's trading are: 10, 5, 12, 5, 10, 2, 15. The percentage changes are: -0.5, 1.4, -0.58, 1, -0.8, 6.5 (where -0.5 means -50%, etc.) The average percentage change is 1.17, or 117%. On the other hand, the log-returns for the same period are -0.69, 0.88, -0.88, 0.69, -1.6, 2, and the average log-return is about 0.068. If we used this as a proxy for the average percentage change in the price over the whole seven days, we would get 6.8% instead of 117%, which is wildly wrong. The reason why it is wrong is because the price fluctuated so much. On the other hand, the closing prices for United Marshmallow over the same period are 10, 11, 12, 11, 12, 13, 15. The average percentage change from day to day is 0.073, and the average log-return is 0.068, so in this case the log-return is very close to the percentage change. And it has the advantage of being computable from just the first and last prices, because the properties of logarithms imply that it simplifies to (log(15)-log(10))/6. Notice that this is exactly the same as for Pitchfork Oil. So one reason why you might be interested in the average log-return is that it gives a very quick way to estimate the average return, if the stock price is not changing very much. Another, more subtle reason, is that it actually behaves better than the percentage return. When the price of Pitchfork jumps from 5 to 12 and then crashes back to 5 again, the percentage changes are +140% and -58%, for an average of +82%. That sounds good, but if you had bought it at 5, and then sold it at 5, you would actually have made 0% on your money. The log-returns for the same period do not have this disturbing property, because they do add up to 0%. What's the real difference in this example? Well, if you had bought $1 worth of Pitchfork on Tuesday, when it was 5, and sold it on Wednesday, when it was 12, you would have made a profit of $1.40. If you had then bought another $1 on Wednesday and sold it on Thursday, you would have made a loss of $0.58. Overall, your profit would have been $0.82. This is what the average percentage return is calculating. On the other hand, if you had been a long-term investor who had bought on Tuesday and hung on until Thursday, then quoting an "average return" of 82% is highly misleading, because it in no way corresponds to the return of 0% which you actually got! The moral is that it may be better to look at the log-returns if you are a buy-and-hold type of investor, because log-returns cancel out when prices fluctuate, whereas percentage changes in price do not. But the flip-side of this is that your average log-return over a period of time does not give you much information about what the prices have been doing, since it is just (log(final price) - log(initial price))/number of periods. Since it is so easy to calculate from the initial and final prices themselves, you commonly won't see it in the financial pages, as far as I know. Finally, to answer your question: "Does knowing this single piece of information indicate something about the stock?", I would say: not really. From the point of view of this one indicator, Pitchfork Oil and United Marshmallow look like identical investments, when they are clearly not. Knowing the average log-return is exactly the same as knowing the ratio between the final and initial prices. |
Who gets the dividend when a stock is bought/sold around the ex-dividend date? [duplicate] | Your understanding is incorrect. The date of record is when you have to own the stock by. The ex-dividend date is calculated so that transaction before that date settles in time to get you listed as owner by the date of record. If you buy the stock before the ex-dividend date, you get the dividend. If you buy it on or after the ex-dividend date, the seller gets the dividend. |
I spend too much money. How can I get on the path to a frugal lifestyle? | There's plenty of advice out there about how to set up a budget or track your expenses or "pay yourself first". This is all great advice but sometimes the hardest part is just getting in the right frugal mindset. Here's a couple tricks on how I did it. Put yourself through a "budget fire drill" If you've never set a budget for yourself, you don't necessarily need to do that here... just live as though you had lost your job and savings through some imaginary catastrophe and live on the bare minimum for at least a month. Treat every dollar as though you only had a few left. Clip coupons, stop dining out, eat rice and beans, bike or car pool to work... whatever means possible to cut costs. If you're really into it, you can cancel your cable/Netflix/wine of the month bills and see how much you really miss them. This exercise will get you used to resisting impulse buys and train you to live through an actual financial disaster. There's also a bit of a game element here in that you can shoot for a "high score"... the difference between the monthly expenditures for your fire drill and the previous month. Understand the power of compound interest. Sit down with Excel and run some numbers for how your net worth will change long term if you saved more and paid down debt sooner. It will give you some realistic sense of the power of compound interest in terms that relate to your specific situation. Start simple... pick your top 10 recent non-essential purchases and calculate how much that would be worth if you had invested that money in the stock market earning 8% over the next thirty years. Then visualize your present self sneaking up to your future self and stealing that much money right out of your own wallet. When I did that, it really resonated with me and made me think about how every dollar I spent on something non-essential was a kick to the crotch of poor old future me. |
Google Finance: Input Parameters For Simple Moving Averages | The difference is that for the one year time frame the data is represented based on daily data and the SMA is 20 days, whilst for the 5 year timeframe the data is automatically represented as weekly data with the SMA represented by 20 weeks not 20 days anymore. This happens due to daily data on this chart being too much data to represent over a 5 year period so the data defaults to weekly data over such a long period. If the chart is represented as weekly data then any indicators will also have to be represented in weekly data. If you use a more sophisticated charting program you can actually select to see daily or weekly data over longer periods such as 5 years or more. |
How to avoid getting back into debt? | Depending on how marketable your degree is, in the long run you may be better aquiring some student debt rather than slowing down your studies. For example finishing finance, medicine, or engineering a year later would mean one less year of your life that you are earning substantial income. The only situation where slowing down your studies is of benefit is if your savings plus interest would be greater than the income you are giving up by taking longer. Live frugally, take whatever work you can without hurting your studies, don't stress if you can't get this to balance perfectly. I speak from experience on this. Screwing around with working through school cost me 2.5 years of earning potential ($120,000+). |
Should you keep your stocks if you are too late to sell? | You should distinguish between the price and the value of a company: "Price is what you pay, value is what you get". Price is the share price you pay for one share of the company. Value is what a company is worth (based on fundamental analysis, one of the principles of value investing). I would recommend selling the stock only if the company's value has deteriorated due to fundamental changes (e.g. better products from competitors, declining market) and its value is lower than the current share price. |
Joint account that requires all signatures of all owners to withdraw money? | Savings accounts have lower fees. If you don't anticipate doing many transactions per month, e.g. three or fewer withdrawals, then I would suggest a savings account rather than a checking account. A joint account that requires both account holder signatures to make withdrawals will probably require both account holders' signature endorsements, in order to make deposits. For example, if you are issued a tax refund by the U.S. Treasury, or any check that is payable to both parties, you will only be able to deposit that check in a joint account that has both persons as signatories. There can be complications due to multi-party account ownership if cashing versus depositing a joint check and account tax ID number. When you open the account, you will need to specify what your wishes are, regarding whether both parties or either party can make deposits and withdrawals. Also, at least one party will need to be present, with appropriate identification (probably tax ID or Social Security number), when opening the account. If the account has three or more owners, you might be required to open a business or commercial account, rather than a consumer account. This would be due to the extra expense of administering an account with more than two signatories. After the questioner specified interest North Carolina in the comments, I found that the North Carolina general banking statutes have specific rules for joint accounts: Any two or more persons may establish a deposit account... The deposit account and any balance shall be as joint tenants... Unless the persons establishing the account have agreed with the bank that withdrawals require more than one signature, payment by the bank to, or on the order of (either person on) the account satisfys the bank's obligation I looked for different banks in North Carolina. I found joint account terms similar to this in PDF file format, everywhere, Joint Account: If an item is drawn so that it is unclear whether one payee’s endorsement or two is required, only one endorsement will be required and the Bank shall not be liable for any loss incurred by the maker as a result of there being only one endorsement. also Joint accounts are owned by you individually or jointly with others. All of the funds in a joint account may be used to repay the debts of any co-owner, whether they are owed individually, by a co-owner, jointly with other co-owners, or jointly with other persons or entities having no interest in your account. You will need to tell the bank specifically what permissions you want for your joint account, as it is between you and your bank, in North Carolina. |
Could the loan officer deny me even if I have the money as a first time home buyer? | A financial institution is not obligated to offer you a loan. They will only offer you a loan if they believe that they will make money off you. They use all the info available in order to determine if offering you a loan is profitable. In short, whether they offer you a loan, and the interest rate they charge for that loan, is based on a few things: How much does it cost the bank to borrow money? [aka: how much does the bank need to pay people who have savings accounts with them?]; How much does the bank need to spend in order to administer the loan? [ie: the loan officer's time, a little time for the IT guy who helps around the office, office space they are renting in order to allow the transaction to take place]; and How many people will 'default' and never be able to repay their loan? [ex: if 1 out of 100 people default on their loans, then every one of those 100 loans needs to be charged an extra 1% in order to recover the money the bank will lose on the person who defaults]. What we are mostly interested in here is #3: how likely are you to default? The bank determines that by determining your income, your assets, your current debts outstanding, your past history with payments (also called a credit score), and specifically to mortgages, how much the house is worth. If you don't have a long credit history, and because you don't have a long income history, and because you are putting <10% down on the condo [20% is often a good % to strive for, and paying less than that can often imply you will need mandatory mortgage insurance, depending on jurisdiction] the bank is a little more uncertain about your likelihood to pay. Banks don't like uncertainty, and they can deal with that uncertainty in two ways: (1) They can charge you a higher interest rate; OR (2) They can refuse you the loan. Now just because one bank refuses you a loan, doesn't mean all will - but being refused by one bank is probably a good indication that many / most institutions would refuse you, because they all use very similar analytical tools to determine your 'risk level'. If you are refused a loan, you can try again at another institution, or you can wait, save a larger down payment, and build your credit history by faithfully paying your credit card every month, paying your utilities, and making your car and rent payments on time. This will give the banks more comfort that you will have the ability to pay your mortgage every month, and a larger down payment will give them comfort that if the housing market dips, you won't owe more than the house is worth. My parting shot is this: If you are new in your career with no income history, be very careful about buying a property immediately, even if you get approved. A good rule of thumb is to only buy a property when you plan on living there for at least 5 years, or else you are likely to lose money overall, after factoring closing costs and maintenance fees. If you are refused a loan, that's probably a good sign that you aren't financially ready yet, but even if a bank approves you for a loan, you might not be ready yet either. |
Should I buy a home or rent in my situation? | First, you are not a loser nor an idiot! You have avoided many debt mistakes and have a stable income. This move will be good for you and your family and an opportunity to continue to build your life together. The fact you are even thinking about this and asking questions shows that you are responsible. To your rent/buy question, Ben Miller has a great summary in his answer. I have nothing more to add except that you already know you cannot buy. That question is not really your main problem. You need some financial goals and then you need a plan to achieve those goals. As you become more educated about finances, it can be like drinking from a fire hose. Trying to analyze too much information can paralyze you and make you 'freak out' that you are messing everything up! Try this. Think about where you want to be in 5 years or so. Write down with your fiance some of those dreams and goals. Maybe things like finish college degree(s), buy a house, pay off student loans, wedding, have more kids, etc... As you prioritize these things, you will see that some are short-term goals and some are long-term. Then you lay out a step by step plan to get there. By focusing on each step at a time, you see more success and are more motivated. As you see movement towards your goals, you will be willing to sacrifice more to get there. You will be willing to rent a cheaper place with less room to make more headway on these things. This will be a several year plan, which is why it is so important to define your goals at the beginning. This will give you motivation and the mental toughness to follow through when it is difficult. |
How to get rid of someone else's debt collector? | I have been in a similar position for quite a while now and the only thing that seems to help is screening phone calls. I have a long list of collector numbers set to not ring on my phone. They can still leave a voice mail but they never do. As far as I know there aren't any laws that protect you from nuisance phone calls. FDCPA letters only apply to the debtor and the collector it is sent to it doesn't protect an unrelated third party from getting annoying phone calls. I have a feeling that sending FDCPA letters is just confirming that you probably are the debtor and prolong the collection calls. |
Payroll reimbursments | As @Dilip suggested in the comments, the problem is the accountability of the reimbursement plans. In order for the reimbursement to be non-taxable, there has to be a reimbursement plan and policy set up by the employer, it has to be done per receipt, and accounted for correctly. If the employer just cuts you a check - the conditions may not be met, and as such - the reimbursement becomes taxable. In your case, it seems like the employer has not set up a proper (accountable) reimbursement plan, thus your reimbursements are taxable. @Joe pointed out that since the employer also doesn't withhold taxes (as he should), you may have an unexpected tax bill on April 15. This Chron article describes the distinction between the accountable and non-accountable plans. Only with the accountable plans the reimbursements are non-taxable. |
Rate of change of beta | If you do not need it for a day or a week or something like that, an easy thing to do to get the beta of a security is to use wolframalpha. Here is a sample query: BETA for AAPL Calculating beta is an important metric, but it is not a be all end all, as there are ways to hedge the beta of your portfolio. So relying on beta is only useful if it is done in conjunction with something else. A high beta security just means that overall the security acts as the market does with some multiplier effect. For a secure portfolio you want beta as close to zero as possible for capital preservation while trying to find ways to exploit alpha. |
Can expenses for attending stockholders meetings be deducted in U.S. income taxes? | Nope, not deductible. It's true that some investment expenses are deductible, mainly as "miscellaneous itemized expenses", though only the amount that exceeds 2% of your adjusted gross income. But as explained in IRS Pub 550, which lays out the relevant rules: Stockholders' meetings. You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. This is true even if your purpose in attending is to get information that would be useful in making further investments. |
A little advice please…car loan related | Let's assess the situation first, then look at an option: This leaves you with about $1,017/mo in cash flow, provided you spend money on nothing else (entertainment, oil changes, general merchandise, gifts, etc.) So I'd say take $200/mo off that as "backup" money. Now we're at $817/mo. Question: What have you been doing with this extra $800/mo? If you put $600/mo of that extra towards the 10% loan, it would be paid off in 12 months and you would only pay $508 in interest. If you have been saving it (like all the wisest people say you should), then you should have plenty enough to either pay for a new transmission or buy a "good enough" car outright. 10% interest rate on a vehicle purchase is not very good. Not sure why you have a personal loan to handle this rather than an auto loan, but I'll guess you have a low credit score or not much credit history. Cost of a new transmission is usually $1,700 - $3,500. Not sure what vehicle we're talking about, so let's make it $3,000 to be conservative. At your current interest rate, you'll have paid another $1,450 in interest over the next 33 months just trying to pay off your underwater car. If you take your old car to a dealership and trade it in towards a "new to you" car, you might be able to roll your existing loan into a new loan. Now, I'm not sure when you say personal loan if you mean an official loan from a bank or a personal loan from a friend/family-member, so that could make a difference. I'm also not sure if a dealership will be willing to recognize a personal loan in the transaction as I'd wager there's no lien against the vehicle for them to worry about. But, if you can manage it, you may be able to get a lower overall interest rate. If you can't roll it into a new financing plan, then you need to assess if you can afford a new loan (provided you even get approved) on top of your existing finances. One big issue that will affect interest rates and approvals will be your down payment amount. The higher it is, the better interest rate you'll receive. Ultimately, you're in a not-so-great position, but if your monthly budget is as you describe, then you'll be fine after a few more years. The perils of buying a used car is that you never know what might happen. What if you don't repair your existing car, buy another car, and it breaks down in a year? It's all a bit of a gamble. Don't let your emotions get in the way of making a decision. You might be frustrated with your current vehicle, but if $3,000 of repairs makes it last 3 more years, (by which time your current loan should be paid off), then you'll be in a much better spot to finance a newer vehicle. Of course it would be much better to save up cash over that time and buy something outright, but that's not always feasible. Would you rather fix up your current car and keep working to pay down the debt, or, would you rather be rid of the car and put $3,000 down on a "new to you" car and take on an additional monthly debt? There's no single right answer for you. First and foremost you need to assess your monthly cash flow and properly allocate the extra funds. Get out of debt as soon as reasonably possible. |
How risky is it to keep my emergency fund in stocks? | Keeping your “big emergency” fund in stocks if you have 12 months income saved is OK. However you should keep your “small emergency” fund in cash. (However I find that even my stock broker accounts have some cash in them, as I like to let the dividends build up enough to make the dealing charges worthwhile. You don’t wish to be forced to sell at a bad time due to your boiler needing replacing or your car breaking down. However if you lost your job in the same week that your boiler broke down and your car needed replacing then being forced to sell stocks at a bad time is not much of an issue. Also if you are saving say 1/3 of your income each month and you have a credit card with large unused credit limit that is paid of each month, then most “small emergency” that are under 2/3 of your monthly income can be covered on the credit card with little or no interest charges. One option is to check you bank balance on the day after you are paid, and if it is more than 2x your monthly income, then move some of it to long term savings, but only if you tend to spend a lot less then you earn most months. |
How can I diversify $7k across ETFs and stocks? | You may want to look into robo-investors like Wealthfront and Betterment. There are many others, just search for "robo investor". |
Is it possible for all the owners of a stock to gain or lose money at the same time? | I'm not sure I understand your question. If the stock price is at an all-time high, everyone who owns the stock is 'in the money'. Of course, they won't actually realise a capital gain until they sell the stock. Similarly, if the stock becomes worthless (the company shuts down after declaring bankruptcy, etc.), everyone who owns the stock is out whatever they paid for the stock. |
What does market cap (or market capitalization) mean? | Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company. Or share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization |
Are bond ETF capital gains taxed similar to stock or stock funds if held for more than 1 year? | Appreciation of a Capital Asset is a Capital Gain. In the United States, Capital Gains get favorable tax treatment after being held for 12 months. From the IRS newsroom: Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2009, the maximum capital gains rate for most people is15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%. The IRS defines a Capital Asset as "most property you own" with a list of exclusions found in Schedule D Instructions. None of the exclusions listed relate to Bond ETFs. |
Why is it rational to pay out a dividend? | The real value of a share of stock is the current cash value of all dividends the owner will receive, plus the current cash value of the final liquidation if any. Since people with different needs may judge the current cash value of an income stream differently, there would be a market basis for people to buy and sell stocks even if everyone could predict all future payouts perfectly. If shareholders knew that a company wouldn't pay any dividends until it was liquidated in the year 2066, whereupon it would pay $2000/share, then each share would in 2016 effectively be a fifty-year zero-coupon bond with a $2000 maturity value. While some investors would be willing to trade in such an instrument, the amount of money a company could charge for such an instrument would be far lower than the money it could charge for one with payouts that were more evenly distributed through time. Since the founders of most companies want their companies to be around for a long time, that would mean that shareholders would have no expectation of their shares ever yielding anything of value within any foreseeable timeframe. Even those who would be more interested in share-price appreciation than dividends wouldn't be able to see share prices rise if there wasn't any likelihood of the stock being bought by someone who wanted the dividends. |
Why do requirements after a margin call vary? | I believe the reasons: |
Recommendation on Options Back Testing tool please | As JoeTaxpayer says, there's a lot you can do with just the stock price. Exploring that a bit: Stock prices are a combination of market sentiment and company fundamentals. Options are just a layer on top of that. As such, options are mostly formulaic, which is why you have a hard time finding historical option data -- it's just not that "interesting", technically. "Mostly" because there are known issues with the assumptions the Black-Scholes formula makes. It's pretty good, and importantly, the market relies on it to determine fair option pricing. Option prices are determined by: Relationship of stock price to strike. Both distance and "moneyness". Time to expiration. Dividends. Since dividend payments reduce the intrinsic value of a company, the prospect of dividend payments during the life of a call option depresses the price of the option, as all else equal, without the payments, the stock would be more likely to end up in the money. Reverse the logic for puts. Volatility. Interest rates. But this effect is so tiny, it's safe to ignore. #4, Volatility, is the biggie. Everything else is known. That's why option trading is often considered "volatility trading". There are many ways to skin this cat, but the result is that by using quoted historical values for the stock price, and the dividend payments, and if you like, interest rates, you can very closely determine what the price of the option would have been. "Very closely" depending on your volatility assumption. You could calculate then-historical volatility for each time period, by figuring the average price swing (in either direction) for say the past year (year before the date in question, so you'd do this each day, walking forward). Read up on it, and try various volatility approaches, and see if your results are within a reasonable range. Re the Black-Scholes formula, There's a free spreadsheet downloadable from http://optiontradingtips.com. You might find it useful to grab the concept for coding it up yourself. It's VBA, but you can certainly use that info to translate in your language of choice. Or, if you prefer to read Perl, CPAN has a good module, with full source, of course. I find this approach easier than reading a calculus formula, but I'm a better developer than math-geek :) |
Is foreign stock considered more risky than local stock and why? | In addition to @MD-tech's answer: I'd distinguish between stock of a foreign company traded in local currency at a local exchange from the same stock traded in the foreign currency at a foreign exchange (and maybe with a foreign bank holding your accounts). The latter option will typically have higher variation because of exchange rate, and (usually) higher risks associated with possibility of recovery, (double) taxation and the possible legal difficulties @MD-tech mentions. Trading the foreign stock at a local exchange may mean that the transaction volume is far lower than at their "home" exchange. Holding stock of companies working in foreign markets OTOH can be seen as diversification and may lower your risk. If you only invest in the local market, your investments may be subject to the same economic fluctuations that your wage/employment/pension situation is subject to - it may be good to try de-correlating this a bit. Of course, depending on political circumstances in your home country, foreign investments may be less risky (though I'd suspect these home countries also come with a high risk of seizing foreign investments...) |
Are these really bond yields? | But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive. |
How to trade at Athens Stock Exchange (ASE) | Saxo Bank offers direct access to Athens Stock Exchange. Interactive Brokers is your next best bet, and as you probably already noticed, they do not have a free platform. They are open to US and non-US citizens. Although they do not currently have direct exposure to individual companies on the Athens Stock Exchange, the various european exchanges they do provide direct market access for will give a lot of exposure. There are a few Greek companies that trade on non-Greek stock exchanges, if you want exposure. There are also Greek ETFs which bundle several companies together or try to replicate Greek company indices. |
Should a retail trader bother about reading SEC filings | I use 10-K and 10-Qs to understand to read the disclosed risk factors related to a business. Sometimes they are very comical. But when you see that risk factor materializing you can understand how it will effect the company. For example, one microlending company's risk factor stated that if Elizabeth Warren becomes head of the Consumer Financial Protection Bureau we will have a hard time... so we are expanding in Mexico and taking our politically unfavorable lending practices there. I like seeing how many authorized shares there are or if there are plans to issue more. An example was where I heard from former employees of a company how gullible the other employees at that company were and how they all thought they were going to get rich or were being told so by upper management. Poor/Quirky/Questionable/Misleading management is one of my favorite things to look for in a company so I started digging into their SEC filings and saw that they were going to do a reverse split which would make the share prices trade higher (while experiencing no change in market cap), but then digging further I saw that they were only changing the already issued shares, but keeping the authorized shares at the much larger amount of shares, and that they planned to do financing by issuing more of the authorized shares. I exclaimed that this would mean the share prices would drop by 90%-99% after the reverse split and you mean to tell me that nobody realizes this (employees or the broad market). I was almost tempted to stand outside their office and ask employees if I could borrow their shares to short, because there wasn't enough liquidity on the stock market! This was almost the perfect short but it wasn't liquid or have any options so not perfect after all. It traded from $20 after the reverse split to $1.27 I like understanding how much debt a company is in and the structure of that debt, like if a loan shark has large payments coming up soon. This is generally what I use those particular forms for. But they contain a lot of information A lot of companies are able to act they way they do because people do not read. |
Does home equity grow with the investment put into the house? | If I have a house that its market value went from $100k to $140k can I get HELOC $40K? Maybe - the amount that you can borrow depends on the market value of the house, so if you already have $100k borrowed against it, it will be tough to borrow another $40k without paying a higher interest rate, since there is a real risk that the value will decrease and you will be underwater. Can I again ask for HELOC after I finish the renovation in order to do more renovation and maybe try to end up renovating the house so its value raises up to $500k? I doubt you can just "renovate" a house and increase its market value from $140k to $500K. Much of a house's value is determined by its location, and you can quickly outgrow a neighborhood. If you put $360k in improvements in a neighborhood where other homes are selling for $140k you will not realize nearly that amount in actual market value. People that buy $500k houses generally want to be in an area where other homes are worth around the same amount. If you want to to a major renovation (such as an addition) I would instead shop around for a Home Improvement Loan. The main difference is that you can use the expected value of the house after improvements to determine the loan balance, instead of using the current value. Once the renovations are complete, you roll it and the existing mortgage into a new mortgage, which will likely be cheaper than a mortgage + HELOC. The problem is that the cost of the improvements is generally more than the increase in market value. It also helps you make a wise decision, versus taking out a $40k HELOC and spending it all on renovations, only to find out that the increase in market value is only $10k and you're now underwater. So in your case, talk to a contractor to plan out what you want to do, which will tell you how much it will cost. Then talk to a realtor to determine what the market value with those improvements will be, which will tell you how much you can borrow. It's highly likely that you will need to pay some out-of-pocket to make up the difference, but it depends on what the improvements are and what comparable homes sell for. |
Why is there such disparity of max contribution limits between 401K accounts and regular IRA accounts? | The 401k was not written with the specific intent of enabling retirement savings. Why do tax advantages favor employees of large employers... It seems that large businesses have been more effective at influencing legislators despite that there are more people are employed by small than large businesses. |
Estimated Taxes after surge in income | You will not necessarily incur a penalty. You can potentially use the Annualized Income Installment method, which allows you to compute the tax due for each quarter based on income actually earned up to that point in the year. See Publication 505, in particular Worksheet 2-9. Form 2210 is also relevant as that is the form you will use when actually calculating whether you owe a penalty after the year is over. On my reading of Form 2210, if you had literally zero income during the first quarter, you won't be expected to make an estimated tax payment for that quarter (as long as you properly follow the Annualized Income Installment method for future quarters). However, you should go through the calculations yourself to see what the situation is with your actual numbers. |
How can I raise finance to build a home for my family | Wanting save enough money to purchase a home is an issue that a lot of people face, regardless of where they live. The most simple answer is to save, save, save. Create a budget so that you are able to track every dollar. After you do so for a few weeks, then you will be able to see exactly how your money is being spent and where you can cut costs. If you need to, pick up a second or third job in your spare time. Then you can contribute your salary from that to your savings. If possible, consider moving in with friends or family - paying them rent of course, but it might be cheaper than renting on your own (you might also consider exchanging house work for rent). Times might be lean when you are saving, but you should remind yourself of what the ultimate goal is. I am unfamiliar with the government policies in Pakistan, but perhaps there is some kind of housing relief program where you can relocate to temporarily? Your situation is unfortunate and I sympathize with you. Best of luck! |
Selling an app, sharing income, how does it work tax-wise? | There are a few different ways to organize this, but mostly I think you need to talk to a lawyer. The 50/50 split thing should be in writing along with a bunch of other issues. You could have one of you doing a sole proprietorship where the other person is a contractor that receives half of all revenues/profits. The person that owns the sole proprietorship may be entitled to deduct certain costs of running the entity. The other person would then be 1099'd his share of revenues. You could set up a partnership, again legal paperwork is necessary. You could also setup an S-Corp, where each of you is a 50% owner. You could also setup an LLC that is organized as any of the above. I would only do this if you can self fund some additional tax preparation costs. Figure about $600/year at a minimum. There are a lot of options with a sole proprietorship being the easiest. Your first step on the new venture would be to apply for an EIN (free), and then opening a business bank account. Good luck. |
How can I determine which stores are regarded as supermarkets for a rewards credit card? | Contact AmEx. They are the only ones who might have a current list. |
Would I qualify for a USDA loan? | Sounds feasible. I make $45000 a year, with two car payments, credit card and student loan debt. Also, my wife doesn't work. I was approved for a $116000 house with a USDA loan. There are limits or how much debt you can have when applying for a USDA (sorry, I can't remember off the top of my head) and you'll also be getting the house inspected under different regulations. For instance, we couldn't get approved until the seller put a handrail on a set of exterior stairs. That regulation is specific to USDA along with a few others. I'm living in southern Indiana and this just happened a couple months ago for us. Make sure you have some money set aside for various things like a lawn mower and if the siding blows off the night after you move in (yup, that happened). Also, shop around for homeowner's insurance. We did some hunting, and we found a provider who was willing to price match and ended up saving some money on our car insurance as well. |
If earning as freelancer, is it better to be a Sole Trader or Limited Company? | As I understand it (please correct me if i'm wrong, i've looked at this before and i've been a sole trader briefly but I've never formed a LTD company) there are pros and cons to forming a limited company. Pros Cons |
Personal finance management: precise or approximately? | Here is what we do. We use YNAB to do our budgeting and track our expenses. Anything that gets paid electronically is tracked to the penny. It really needs to be, because you want your transaction records to match your bank's transaction records. However, for cash spending, we only count the paper money, not the coins. Here is how it works: If I want a Coke out of a vending machine for 75 cents, and I put a dollar bill in and get a quarter back as change, I record that as a $1.00 expense. If, instead, I put 3 quarters in to get the Coke, I don't record that expense at all. Spending coins is "free money." We do this mainly because it is just easier to keep track of. I can quickly count the cash in my wallet and verify that it matches the amount that YNAB thinks I have in my wallet, and I don't need to worry about the coins. Coins that are in my car to pay for parking meters or coins in the dish on my dresser don't need to be counted. This works for us mainly because we don't do a whole lot of cash spending, so the amount we are off just doesn't add up to a significant portion of our spending. And, again, bank balances are exact to the penny. |
First concrete steps for retirement planning when one partner is resistant | To answer your question: As far as what's available in addition to your 401(k) at work (most financial types will say to contribute up to the match first), you may qualify for a Roth IRA (qualification is based on income), if not, then you may have to go with a Traditional IRA. You and your husband can each have one and contribute up to the limit each year. After that, you could get just a straight up mutual fund, and/or contribute up to limit on your 401(k). My two cents: This may sound counter-intuitive (and I'm sure some folks will disagree), but instead of contributing to your 401(k) now, take whatever that amount is, and use it to pay extra on the car loan. Also take the extra being paid on the mortgage and pay it on the car loan too. Once the car loan is paid off, then set aside 15% of your gross income and use that amount to start your retirement investing. Any additional money beyond this can then go into the mortgage. Once it's paid off, then you can take the extra you were paying, plus the mortgage and invest that amount into mutual funds. You may want to check out Chris Hogan's Retire Inspired book or podcast as well. |
Is Real Estate ever a BAD investment? If so, when? | Real estate is a lousy investment because: Renting a home and buying a home, all else being equal, are pretty similar in costs in the long term (if you can force yourself to invest the would-be down payment). So, buy a home if you want to enjoy the benefits of home ownership. Buy a home if you need to hedge against rising housing prices (e.g. you're on a fixed income and couldn't cope if rent increased a bunch when the economy heated up). Maybe buy a home if you're in a high tax bracket to save yourself from being taxed on your imputed rent, if it works out that way (consult your financial advisor). But don't consider it a really great investment vehicle. Returns are average and the risk profile isn't that attractive. |
Does a rescheduled conference call generally mean “something's wrong” with a company? | Insiders (those who are aware of non-public material information, not necessarily employees) are the ones who actually cannot sell once they learned about whatever, by law. Martha Stewart went to jail for that. Any such deviation from the norm triggers abnormal response and avalanche of rumors, so by default investors assume something bad and try to minimize the loss. When dealing with a tiny company (market cap of less than 15M) with a tiny market volume (6.2M), the swings can be very significant. For such a small company, it is safe to assume that something happened that lead them to delay the conference call, and since they didn't tell what happen, investors assume the worst. It might end up as the CEO and CFO having bad stomach after celebrating 100% growth in revenue they were going to announce, but you'll have to wait and see.... |
What is the principle of forming an arbitrage strategy? | Arbitrage is basically taking advantage of a difference in price. Generally extending to "in different places for the same thing". A monetary version would be interlisted stocks, that is stocks in companies that are on both the NYSE/Nasdaq and Toronto stock exchanges. If somebody comes along and buys a large number of shares in Toronto, that will tend to make the price go up - standard supply and demand. But if someone else can buy shares instead in NY, and then sell them in Toronto where the first person is buying up shares, where the price is higher, they the the arbitrageur (second person) can make pretty easy money. By its very nature, this tends to bring the prices back in line, as NY will then go up and Toronto will then go down (ignoring FX rates and the like for ease of explanation). The same can work for physical goods, although it does tend to get more complex with taxes, duties, and the like. |
Question about stock taxes buy/sell short term | If you have made $33k from winning trades and lost $30k from loosing trades your net gain for the year would be $3k, so obviously you would pay taxes only on the net $3k gains. |
How are unmarketable market orders (other side of the order book is empty) matched with incoming orders? [duplicate] | I don't have all the answers. On a illiquid stock, such situations do arise and there are specific mechanisms used by exchanges to match the order. It is generally not advisable to use market order on illiquid stock. There are lots of different variations here. I guess this comes down to specifications for individual exchanges, but I'm wondering if there's a standard here or a way to approach it from basic rules that clears up all these situations. There are quite a few variations and different treatments. Market order that are placed when the market is closed or just around market opening are traded at Market Open price that each exchange has a formulae to calculate. In the process Market Buy are matched to Market Sell at the Exchange calculated price. Not all order get matched and there could be spill over's. These are then matched to limit orders. Is this determined based on which sell order came first, or based on which would result in the best deal for the incoming buyer? Generally Market orders have highest priority of execution. |
One Share Stock Reverse Split | Any time there is a share adjustment from spin-off, merger, stock split, or reverse slit; there is zero chance for the stockholders to hang on to fractional shares. They are turned into cash. For the employees in the 401K program or investors via a mutual fund or ETF this isn't a problem. Because the fraction of a share left over is compared to the thousands or millions of shares owned by the fund as a collective. For the individual investor in the company this can be a problem that they aren't happy about. In some cases the fractional share is a byproduct that will result from any of these events. In the case of a corporate merger or spin-off most investors will not have an integer number of shares, so that fraction leftover that gets converted to cash isn't a big deal. When they want to boost the price to a specific range to meet a regulatory requirement, they are getting desperate and don't care that some will be forced out. In other cases it is by design to force many shareholders out. They want to go private. They to 1-for-1000 split. If you had less than 1000 shares pre-split then you will end up with zero shares plus cash. They know exactly what number to use. The result after the split is that the number of investors is small enough they they can now fall under a different set of regulations. They have gone dark, they don't have to file as many reports, and they can keep control of the company. Once the Board of Directors or the majority stockholders votes on this, the small investors have no choice. |
Shares in stock exchange and dividend payout relationship | It would be 0.22 * Rs 5 per share, i.e. Rs 1.1 per share. For 1000 share it would be Rs 1.1 * 1000, i.e. 1100 |
How to read Google Finance data on dividends | The dividend is for a quarter of the year, three months. 80 cents is 3.9% of $20.51. Presumably the Div/yield changes as the stock price changes. On Yahoo, they specify that the yield is based on a particular stated date. So it's only the exact number if the stock trades at the price on that date. |
Why do people use mortgages, when they could just pay for the house in full? | Besides all of the other answers, I will point out that many people simply don't have enough cash sitting around to buy a home outright. It would take many years (or even decades) for the average family to accumulate the necessary cash. Also, while you are pinching your pennies for years in an attempt to save up for your dream house, remember that inflation is steadily driving up the cost of goods and services. A house that costs $200K today could cost $230K in 5 years due to inflation. |
How to value employee benefits? | It would depend on the health insurance that was being offered, and if it covers your family or just you. We pay around $500-600 for individual health insurance for our employees (families cost north of 1500 a month). It's extremely expensive. Provide more details on the stock purchase plan as well (it sounds to me like in that case you'd only be getting for free what it would cost to purchase the stock... but that's only $10-15, so negligible in this case.) |
What ways are there to invest in stocks, options, indexes, etc, and where should one start (what funds)? | Ryan's suggestion to index for your main strategy is dead on. Your risk is highest with one given stock, and decreases as you diversify. Yet, picking the stocks one at a time is an effort, when done right, it's time consuming. For what one can say about Jim "mad money" Cramer, his advice to spend an hour a month studying each stock you own, is pretty decent advice. Penny stocks are sub one dollar priced, typically small companies which in theory can grow to be large companies, but the available information tends to be tougher to get hold of. Options are a discussion for a different thread, I discussed the covered call strategy elsewhere and show that options are not necessarily high risk, it depends how they are used. |
Are 'no interest if paid in in x months' credit cards worth it? | No, because of the balance transfer fees, which could be 4%. Unless of course you get a deal for 12 months of no payment, and you pay it back in 12 months, in which case a 4% annual interest rate is much less than a loan! At that point you are gambling that you will be responsible with the payments, and the card company is taking the opposite bet. |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.