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Are lottery tickets ever a wise investment provided the jackpot is large enough? | Question: Does a billion dollars make you 1,000 times more happy than a million dollars? Answer: It doesn't. What counts is not the amount of money, but the subjective improvement that it makes to your life. And that improvement isn't linear, which is way the expected value of the inrease in your happiness / welfare / wellbeing is negative. The picture changes if you consider that by buying a ticket you can tell yourself for one week "next week I might be a billionaire". What you actually pay for is not the expected value of the win, but one week of hope of becoming rich. |
Wardrobe: To Update or Not? How-to without breaking the bank | New clothes isn't exactly an emergency expense :) so I would strongly suggest that you budget for it on a monthly basis. This doesn't mean you have to go spend the money every month, just put a reasonable amount of money into the clothes budget/savings every month and when you need a new shirt or two, take the money out of the saved money and go shopping. If you buy a piece or two of good quality clothing at a time you'd also not run into the situation where all your clothes fall apart at the same time. |
Is debt almost always the cause of crashes and recessions? | The statement can be true, but isn't a general rule. Crashes and recessions are two different things. A crash is when the market rapidly revalues something when prices are out of equilibrium, whether it be stocks, a commodity or even a service. When the internet was new, nobody knew how to design webpages, so web page designers were in huge demand and commanded insane price premiums. I literally had college classmates billing real companies $200+/hr for marginal web skills. Eventually, the market "clued up" and that industry collapsed overnight. Another example of a crash from the supply point of view was the discovery of silver in the western US during the 19th century -- these discoveries increased the supply of the commodity to the point that silver coin eroded in value and devastated small family farms, who mostly dealt in silver currency. Recessions are often linked to crashes, but you don't need a crash to have a recession. Basically, during a recession, trade and industrial activity drop. The economy operates in cycles, and the euphoria and over-optimistic projections of a growing or booming economy lead to periods of reduced growth where the economy essentially reorganizes itself. Capital is a (if not the) key element of the economic cycle -- it's a catalyst that makes things happen. Debt is one form of capital -- it's not good, not bad. Generally cheap capital (ie. low interest rates) bring economic growth. Why? If I can borrow at 4%, I can then perform some sort of economic activity (bake bread, make computers, assemble cars, etc) that will earn myself 6, 8 or 10% on the dollar. When interest rates go up, economic activity slows, because the higher cost of credit increases the risk of losing money on an investment. The downside of cheap capital is that risk taking gets too easy and you can run into situations like the $2M ranch houses in California. The downside of expensive/tight capital is that it gets harder for businesses to operate and economic activity slows down. The effects of either extreme cascade and snowball. |
Why would a car company lend me money at a very low interest rate? | This is "incentive financing". Simply put, the car company isn't in the business of making money by buying government bonds. They're in the business of making money by selling cars. If you are "qualified" from a credit standpoint, and want to buy a $20k car on any given Sunday, you'll typically be offered a loan of between 6% and 9%. Let's say this loan is for three years and you can offer $4000 down payment and/or trade. The required monthly payment on the remaining $16k at the high end of 9% is $508.80, which over 3 years means you'll pay $2,316.64 in interest. Now, that may sound like a good chunk of change, and for the ordinary individual, it is, possibly enough that you decide not to buy today. Now, let's say, all other things being equal, that the company is offering 0.9% incentive financing. Same price, same down payment, same loan term. Your payments over 3 years decrease to $450.64, and over the same loan term you would only pay $222.97 in interest. You save over $2,093.67 in interest over three years, which for you is again a decent chunk of change. Theoretically, the car company's losing that same $2,093.67 in interest by offering this deal, and depending on how it's getting the money it lends you (most financial companies are middlemen, getting money from bond-buying investors who expect a rate of return), that could be a real loss and not just opportunity cost. But, that incentive got you to walk in their door, and not their competitor's. It helped convince you to buy the $20,000 car. The gross margin on that car (price minus direct costs) is typically 20% for the dealer, plus another 20% for the manufacturer, so by giving up the $2,000 on the financing side, the dealer and manufacturer just earned themselves 4 times that much. On top of that, by buying that car, you're committing to buy the parts for the car, a side business with even higher margins, of which the car company gets a pretty big chunk. You may even be required to use dealer service while the car's under warranty in order to keep the warranty valid, another cha-ching. When you get right down to it, the loss from the incentive financing is drowned in the gross profits they make from selling the car to you. Now, in reality, it's a fine balance. The percentages I mentioned are gross margins (EBITDASG&A - Earnings Before Interest, Taxes, Depreciation, Amortization, Sales, General and Administrative costs; basically, just revenue minus direct cost of goods sold). Add in all these side costs and you get a net margin of only about 3.5% of revenue, so your $20k car purchase may only make the car company's stakeholders $700 on the sale, plus slightly higher net margins on parts and service over the life of the car. Because incentive financing is typically only offered through the company's own financing subsidiary, the loss isn't in the form of a cost paid, but simply a revenue not realized, but it can still move a car company from net positive to net negative earnings if the program is too successful. This is why not everyone does it, and not all at the same time; if you're selling enough cars without it, why give away money? Typically, these incentives are offered for two reasons; to clear out old cars or excess inventory, or to maintain ground against a competitor's stronger sales numbers. Keeping cars on a lot ready to sell is expensive, and so is not having your brand driving around on the street turning heads and imprinting their name on the minds of potential customers. |
An online casino owes me money and wants to pay with a wire transfer. Is this safe? | Someone online asking for your bank account info never has your best interests at heart. They can send you a check and while it may take a while to really clear, they can't use it to suck money out of your account. Be very cautious. |
What are some valuable sources for investment experience, when there is very little to no money to start with? | One way to start with stocks is by playing the fake stock market. Investigate what trading fees would be with a broker, then "invest" a certain amount of money - note it on paper or in a spreadsheet. Follow your stocks, make decisions on selling and buying, and see where you would be after a year or so. That way you can get an idea, even if not exactly precise, on what your returns would be if you really invested the money. |
Any experience with maxing out 401(k)? | On #1: One way to make it less painful is to "split" your raises between yourself and your 401k. That is, if you get a 2% raise, increase your contribution to the 401K by 1% and keep the other 1%. Keep doing this until you are maxed out. You won't miss money you never had nearly as much as money you were used to living on. On #2: Yes, go with the Roth. Another consideration: If you are ever going to max out your 401K it is best to do it early even if you have to cut back later than to wait. Take advantage of the extra investment time while you are young. |
what if a former employer contributes to my 401k in the year following my exit? | Publication 590a covers this in a fairly specific manner. Page 11, section "Are You Covered by an Employer Plan?", specifies: The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The “Retirement Plan” box should be checked if you were covered. So, by default, if that's checked, you're covered. 590 does go into more detail, though. Assuming you're covered under a Defined Contribution plan (a 401k for example): Defined contribution plan. Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. Tax Year: Tax year. Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. For almost all people, the tax year is the calendar year. Further, they cover issues related to an employee leaving Dec. 31 very specifically: A special rule applies to certain plans in which it is not possible to determine if an amount will be contributed to your account for a given plan year. If, for a plan year, no amounts have been allocated to your account that are attributable to employer contributions, employee contributions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you are not covered for the tax year in which the plan year ends. If, after the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Example: Example. Mickey was covered by a profit-sharing plan and left the company on December 31, 2014. The plan year runs from July 1 to June 30. Under the terms of the plan, employer contributions do not have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Such contributions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. As of June 30, 2015, no contributions were made that were allocated to the June 30, 2015, plan year, and no forfeitures had been allocated within the plan year. In addition, as of that date, the company was not obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. On December 31, 2015, the company decided to contribute to the plan for the plan year ending June 30, 2015. That contribution was made on February 15, 2016. Mickey is an active participant in the plan for his 2016 tax year but not for his 2015 tax year. Mickey is in a similar (but different) circumstance, and it's clear from the IRS's treatment of his circumstance that you would be in the same boat (just a year less off) - but be aware given Mickey's situation that it's theoretically possible for them to make another contribution next year, as Mickey had, depending on when their plan year/etc. ends. So - from the IRS's point of view, everything you said the company did is correct. They paid you in January, contributed to your 401k as a result of that paycheck, and thus you were officially considered covered for 2015. |
New to investing — I have $20,000 cash saved, what should I do with it? | Another thought: Higher education in the US is frightfully expensive with the sticker price for a 4-year undergraduate degree at a decent private college us sitting at around $250,000 and rising fast. Consider starting a 529 savings plan especially if you planning on more kids. |
Does Reuters provide the 4pm London Spot rate for currencies? | The interpretation is correct. The Reuters may give you the London 4PM rates if you query after the close for the day. The close rate is treated as the rate. http://uk.reuters.com/business/currencies/quote?srcAmt=1&srcCurr=GBP&destAmt=&destCurr=USD The London 4PM rate may be obtained from Bank of England at the link below; http://www.bankofengland.co.uk/mfsd/iadb/index.asp?Travel=NIxSTxTIx&levels=1&XNotes=Y&XNotes2=Y&Nodes=X3790X3791X3873X33940&SectionRequired=I&HideNums=-1&ExtraInfo=false&A3836XBMX3790X3791.x=4&A3836XBMX3790X3791.y=3 Or any other Bank that provides such data |
Options on the E-mini S&P 500 Futures at the CME: what's the expiry date of the underlying future? | I don't see EWQ6 in any of your links, so I can't say for certain, but when you buy an option contract on a future, the option will be for a specific future (and strike). So the page you're looking at may be for options on E-mini S&P 500 futures in general, and when you actually purchase one through your broker, you pick a specific expiry (which will be based on the "prompt" future, meaning the next future that expires after the option) and strike. UPDATE: Based on this page mirror, the option EWQ7 is an option on the ESU7 (SEP 2017) future. The next 3 monthly options use ESZ7 as the underlier, which confirms that they use the next prompt future as the underlier. |
Is it possible to create a self-managed superannuation fund to act as a mortage offset? (Australia) | You can set up a Self Managed Super Fund (SMSF) and use it to buy residential investment property, and as Justin has mentioned even borrow to acquire the investment property through the SMSF. However, you cannot hold your home in the SMSF, as this would be classed as an in-house asset, and you are only allowed to hold a maximum of 5% of the total market value of SMSF as in-house assets. Furthermore, as you already own your house, you are not allowed to transfer residential property into a SMSF from a related party, even if done at current market value (you are allowed to transfer business real property from a related party at current market value). Regarding loans, you are not allowed to lend money from your SMSF to a related party as well. |
Are there any Social Responsibility Index funds or ETFs? | TIAA-Cref has their Social Choice Equity Fund, which is a Large Blend primarily equity fund that invests given the following consideration: The Fund primarily invests in companies that are screened by MSCI Inc. (“MSCI”) to favor companies that meet or exceed certain environmental, social and governance (“ESG”) criteria. The Fund does this by investing in U.S. companies included in one or more MSCI ESG Indices that meet or exceed the screening criteria described below. Prior to being eligible for inclusion in the MSCI ESG Indices, companies are subject to an ESG performance evaluation conducted by MSCI, consisting of numerous factors. The ESG evaluation process favors companies that are: (i) strong stewards of the environment; (ii) devoted to serving local communities where they operate and to human rights and philanthropy; (iii) committed to higher labor standards for their own employees and those in the supply chain; (iv) dedicated to producing high-quality and safe products; and (v) managed in an exemplary and ethical manner. https://www.tiaa.org/public/offer/products/mutual-funds/responsible-investing |
Is there such a thing as “stock insurance”? | First off, the jargon you are looking for is a hedge. A hedge is "an investment position intended to offset potential losses/gains that may be incurred by a companion investment" (http://en.wikipedia.org/wiki/Hedge_(finance)) The other answers which point out that put options are frequently used as a hedge are correct. However there are other hedging instruments used by financial professionals to mitigate risk. For example, suppose you would really prefer that Foo Corporation not go bankrupt -- perhaps because they own you money (because you're a bondholder) or perhaps because you own them (because you're a stockholder), or maybe you have some other reason for wanting Foo Corp to do well. To mitigate the risk of loss due to bankruptcy of Foo Corp you can buy a Credit Default Swap (http://en.wikipedia.org/wiki/Credit_default_swap). A CDS is essentially a bet that pays off if Foo Corp goes bankrupt, just as insurance on your house is a bet that pays off if your house burns down. Finally, don't ever forget that all insurance is not just a bet that the bad thing you're insuring against is going to happen, it is also a bet that the insurer is going to pay you if that happens. If the insurer goes bankrupt at the same time as the thing you are insuring goes bad, you're potentially in big trouble. |
Should I be more aggressive in a Roth IRA, 401k, or taxable account? | I think you may be drawing the wrong conclusion about why you put what type of investment in a taxable vs. tax-advantaged account. It is not so much about risk, but type of return. If you're investing both tax-advantaged and taxable accounts, you can benefit by putting more tax-inefficient investments inside your tax-advantaged accounts. Some aggressive asset types, like real estate, can throw off a lot of taxable income. If your asset allocation calls for investing in real estate, holding it in a 401k or IRA can allow more of your money to remain invested, rather than having to use it to pay for taxes. And if you're holding in a Roth IRA, you get that tax free. But bonds, a decidedly non-aggressive asset, also throw off a lot of taxable income. You're able to hold them in a tax-advantaged account and not pay taxes on the income until you withdraw it from the account (or tax free in the case of a Roth account.) An aggressive stock fund that is primarily expected to provide returns via price appreciation would do well in a taxable account because there's likely little tax consequence to you until it is sold. |
Is there an advantage to keeping a liquid emergency fund if one also has an untapped line of credit? | Stop trying to make money with your emergency fund. It's purpose is to sit there idly waiting for a bad day. A day when you need that cash (liquid) not in a bank or a line-of-credit. The few dollars you might make trying to chase interest/investments with your emergency fund aren't worth it if a true emergency came up and you couldn't get to your cash in time. Once you have a fully funded EF then start investing heavily. That's your future game plan. Not the EF. |
Personal Loan: How to define loan purpose | Does that justify the purpose? That is for individual Banks to decide. No bank would pay for daily expenditure if you are saying primary salary you are spending on eduction. So your declaration is right. You are looking at funding your eduction via loan and you are earning enough for living and paying of the loan. I noticed that a lot of lenders do not lend to applicants whose purpose is to finance the tuition for post-secondary education This could be because the lenders have seen larger percentage defaults when people opt for such loans. It could be due to mix of factors like the the drag this would cause to an individual who may not benefit enough in terms of higher salary to repay the loan, or moves out of country getting a better job. If it is education loan, have you looked at getting scholarships or student loans. |
Where to deduct gambling losses? | 1: Gambling losses not in excess of gambling winnings can be deducted on Schedule A, line 28. See Pub 17 (p 201). Line 28 catches lots of deductions, and gambling losses are one of them. See Schedule A instructions. 2: If the Mississippi state tax withheld was an income tax (which I assume it was), then it goes on Schedule A, line 5a. In the unlikely event it was not a state or local tax on income, but some sort of excise on gambling, then it may be deductible on line 8 as another deductible tax. It probably is not a personal property tax, which is generally levied against the value of things like cars and other movable property but not on receipts of cash; line 7 probably is not appropriate. The most likely result, without researching Mississippi SALT, is that it was an income tax. See Sched A Instructions for more on the differences between the types of taxes paid. Just to be clear, these statements hold if you are not engaging in poker as a profession. If you are engaging in poker as a business, which can be difficult to establish in the IRS' eyes, then you would use Schedule C and also report business and travel expenses. But the IRS is aware that people want to reduce their gambling income by the cost of hotels and flights to casinos, so it's a relatively high hurdle to be considered a professional poker player. |
What emergencies could justify a highly liquid emergency fund? | Emergency funds are defined in terms of months of tightened-belt living -- that's according to the usual gurus such as Suze Orman, Dave Ramsey etc. They aren't for short-term emergencies like a blown transmission. Use other money for those. Why? People with bad financial habits have short-term emergencies all the time, and that emergency fund doesn't have a chance of lasting. This is just their financial habits manifesting. Here's what an emergency fund is for. Scenario: big economic bubble bursts. Stock market drops 50%. Credit dries up. This happened in 2007 by the way. The dominoes start falling boom, boom, boom: I'm exaggerating a bit here, but a lot of people lived at least half this stuff in 2007-11. Nothing starts those dominoes falling like lack of cash at a key moment. That's what an emergency fund is all about - keeping things tight-normal for long enough to get back on your feet. If you want to keep your emergency fund in something risky -- keep a lot more of it! |
How should I think about stock dividends? | Different stocks balance dividend versus growth differently. Some have relatively flat value but pay a strong dividend -- utility stocks used to be examples of that model, and bonds are in some sense an extreme version of this. Some, especially startups, pay virtually no dividends and aim for growth in the value of the stock. And you can probably find a stock that hits any point between these. This is the "growth versus income" spectrum you may have heard mentioned. In the past, investors took more of their return on investment as dividends -- conceptually, a share of the company's net profits for the year reflecting the share's status as partial ownership. If you wanted to do so, you could use the dividend to purchase more shares (via a dividend reinvestment plan or not), but that was up to you. These days, with growth having been strongly hyped, many companies have shifted much more to the growth model and dividends are often relatively wimpy. Essentially, this assumes that everyone wants the money reinvested and will take their profit by having that increase the value of their shares. Of course that's partly because some percentage of stockholders have been demanding growth at all costs, not always realistically. To address your specific case: No, you probably aren't buying Microsoft because you like its dividend rate; you're buying it in the hope it continues to grow in stock value. But the dividend is a bit of additional return on your investment. And with other companies the tradeoff will be different. That's one of the things, along with how much you believe in the company, that would affect your decision when buying shares in specific companies. (Personally I mostly ignore the whole issue, since I'm in index funds rather than individual stocks. Picking the fund sets my overall preference in terms of growth versus income; after that it's their problem to maintain that balance.) |
how much of foreign exchange (forex/fx) “deep liquidity” is really just unbacked leverage and what is the effect? | First it is worth noting the two sided nature of the contracts (long one currency/short a second) make leverage in currencies over a diverse set of clients generally less of a problem. In equities, since most margin investors are long "equities" making it more likely that large margin calls will all be made at the same time. Also, it's worth noting that high-frequency traders often highly levered make up a large portion of all volume in all liquid markets ~70% in equity markets for instance. Would you call that grossly artificial? What is that volume number really telling us anyway in that case? The major players holding long-term positions in the FX markets are large banks (non-investment arm), central banks and corporations and unlike equity markets which can nearly slow to a trickle currency markets need to keep trading just for many of those corporations/banks to do business. This kind of depth allows these brokers to even consider offering 400-to-1 leverage. I'm not suggesting that it is a good idea for these brokers, but the liquidity in currency markets is much deeper than their costumers. |
How do Islamic Banking give loans for housing purposes? | As I understand it, if the "borrower" puts a down payment of 20% and the bank puts down 80%, then the bank and the "borrower" own the home jointly as tenants in common with a 20%-80% split of the asset amongst them. The "borrower" moves into the home and pays the bank 80% of the fair rental value of the home each month. {Material added/changed in edit: For the purposes of illustration, suppose that the "borrower" and the bank agree that the fair rental per month is 0.5% of the purchase cost. The "borrower" pays 80% of that amount i.e. 0.4% of the purchase cost to the bank on a monthly basis. The "borrower" is not required to do so but may choose to pay more money than this 0.4% of the purchase cost each month, or pay some amount in a lump sum. If he does so, he will own a larger percentage of the house, and so future monthly payments will be a smaller fraction of the agreed-upon fair rental per month. So there is an incentive to pay off the bank.} If and when the house is sold, the sale price is divided between "borrower" and bank according to the percentage of ownership as of the date of sale. So the bank gets to share in the profits, if any. On the other hand, if the house is sold for less than the original purchase price, then the bank also suffers in the loss. It is not a case of a mortgage being paid off from the proceeds and the home-owner gets whatever is left, or even suffering a loss when the dust has settled; the bank gets only its percentage of the sale price even if this amount is less than what it put up in the first place minus any additional payments made by the "borrower". I have no idea how other costs of home ownership (property taxes, insurance, repair and maintenance) or improvements, additions, etc are handled. Ditto what happens on Schedule A if such a "loan" is made to a US taxpayer. |
Is there any drawback in putting all my 401K into a money market fund? | Yes. There are huge disadvantages to saving money in a money market account. Money market account can be a good place to save some of your emergency fund, because it's basically a cash account and you can withdraw from it at will, with few delays. It's liquid. |
Saving up for an expensive car | If you can afford to put $1,333 towards saving for a new car each month, then there is nothing wrong with your logic You should be aware that your car will probably cost around $110,000 in 6.5 years, but other than that the logic is fine. However... |
How to deal with the credit card debt from family member that has passed away? | Don't pay it, see a lawyer. Given your comment, it will depend on the jurisdiction on the passing of the house and the presence of a will or lack thereof. In some states all the assets will be inherited by your mom. Debts cannot be inherited; however, assets can be made to stand for debts. This is a tricky situation that is state dependent. In the end, with few assets and large credit card debt, the credit card companies are often left without payment. I would not pay the debt unless your lawyer specifically told you to do so. Sorry for your loss. |
Are you preparing for a possible dollar (USD) collapse? (How?) | Buying gold, silver, palladium, copper and platinum. The first two I am thinking about new currencies. The last three for the perpetual need for the metals in industry. I also have invested in Numismatic coins. They are small portable and easy to hide around the house. I only collect silver coins, so even if the world really blows up and numismatics goes out the window, I can depend on them forming a barter system through the content value of the silver. The problem with collectable items is that they are easy to see. For example, a nice painting just shouts out "steal me!". I don't buy large gold coins. As long as the coin is below 1/4 Oz gold I collect it. If the dollar does finaly collapse, to be honest it will be so bad that I think weapons will be order of the day. Do I think it will collapse...nah never. |
Should I pay off a 0% car loan? | My theory, if you must be in debit, own it at the least expense possible. The interest you will pay by the end, combined with the future value of money. Example: The Future value of $3000 at an effective interest rate of 5% after 3 years =$3472.88 Present value of $3000 at 5% over 3 years =$2591.51 you will need more money in the future to pay for the same item |
Accepting high volatility for high long-term returns | This is basically what financial advisers have been saying for years...that you should invest in higher risk securities when you are young and lower risk securities when you get older. However, despite the fact that this is taken as truth by so many financial professionals, financial economists have been unable to formulate a coherent theory that supports it. By changing the preferences of their theoretical investors, they can get solutions like putting all your investments in a super safe asset until you get to a minimum survival level for retirement and then investing aggressively and many other solutions. But for none of the typically assumed preferences does investing aggressively when young and becoming more conservative as you near retirement seem to be the solution. I'm not saying there can be no such preferences, but the difficulty in finding them makes me think maybe this idea is not actually correct. Couple of problems with your intuition that you should think about: It's not clear that things "average out" over time. If you lose a bunch of money in some asset, there's no reason to think that by holding that asset for a while you will make back what you lost--prices are not cyclical. Moreover, doesn't your intuition implicitly suggest that you should transition out of risky securities as you get older...perhaps after having lost money? You can invest in safe assets (or even better, the tangency portfolio from your graph) and then lever up if you do want higher risk/return. You don't need to change your allocation to risky assets (and it is suboptimal to do so--you want to move along the CAL, not the curve). The riskiness of your portfolio should generally coincide (negatively) with your risk-aversion. When you are older and more certain about your life expectancy and your assets, are you exposed to more or less risks? In many cases, less risks. This means you would choose a more risky portfolio (because you are more sure you will have enough to live on until death even if your portfolio takes a dive). Your actual portfolio consists both of your investments and your human capital (the present value of your time and skills). When you are young, the value of this capital changes significantly with market performance so you already have background risk. Buying risky securities adds to that risk. When you are old, your human capital is worth little, so your overall portfolio becomes less risky. You might want to compensate by increasing the risk of your investments. EDIT: Note that this point may depend on how risky your human capital is (how likely it is that your wage or job prospects will change with the economy). Overall the answer to your question is not definitively known, but there is theoretical evidence that investing in risky securities when young isn't optimal. Having said that, most people do seem to invest in riskier securities when young and safer when they are older. I suspect this is because with life experience people become less optimistic as they get older, not because it is optimal to do so. But I can't be sure. |
CD interest rate US vs abroad, is there a catch? | I think your approach of looking exclusively at USD deposits is a prudent one. Here are my responses to your questions. 1) It is highly unlikely that a USD deposit abroad be converted to local currency upon withdrawal. The reason for offering a deposit in a particular currency in the first place is that the bank wants to attract funds in this currency. 2) Interest rate is a function of various risks mostly supply and demand, central bank policy, perceived risk etc. In recent years low-interest rate policy as led by U.S., European and Japanese central banks has led particularly low yields in certain countries disregarding their level of risk, which can vary substantially (thus e.g. Eastern Europe has very low yields at the moment in spite of its perceived higher risk). Some countries offer depository insurance. 3) I would focus on banks which are among the largest in the country and boast good corporate governance i.e. their ownership is clean and transparent and they are true to their business purpose. Thus, ownership is key, then come financials. Country depository insurance, low external threat (low war risk) is also important. Most banks require a personal visit in order to open the account, thus I wouldn't split much further than 2-3 banks, assuming these are good quality. |
Did basically all mutual funds have a significant crash in 2008? | In 2008, the S&P was down 37%. I love charts that show sector performance by year, as it helps show that 2008 wasn't like the crash of 2000-01 which was more tech-centric. Funds that were more geared towards bonds would have been up as the 10 year Treasury was up 20%. I understand you have a low risk tolerance. Over the long term, this will cost you. The CAGR for the S&P from 1928-2011 was 9.23%, for treasuries, 5.14%. This difference adds up dramatically over time. These rates double your stock investments every 8 years on average vs nearly 14 years for bonds. See the MoneyChimp site to tinker with start/finish years to understand long term returns. |
Buying a home with down payment from family as a “loan” | I would recommend against loans from family members. But if you decide to go down that path take care of the basics: This is a business decision so treat it like one. I would add that the situation you describe sounds extremely generous to your family member. I'd look at standard loan agreements (ie. in the marketplace) and model your situation more on them - if you do this, even with you paying a premium, you'd never come up with something as generous as what you have described. |
What's behind the long secular bull market in U.S. Treasuries? | In a secular bull market, strong investor sentiment drives prices higher, as participants, over time, are net buyers. Secular markets are typically driven by large-scale national and worldwide events... demographic/ population shifts, governmental policies... bear market periods occur within the longer interval, but do not reverse the trend. There are still many reasons to buy the long bond, despite the lack of yield (nearly flat term structure of interest rates). Despite the recent credit ratings agency downgrades of U.S. sovereign risk, the T-bond offers greater relative security than many alternatives. If Germany were NOT part of the EU, its government bonds would be issued by the Bundesbank, denominated in Deutsche Marks. German government bonds would probably be a better choice than the U.S. Treasury's 30-year bond. Long-term maturity U.S. Treasuries are in demand by investment and portfolio managers because: |
What does “interest rates”, without any further context, generically refer to? | The generic representative of interest rates is the 10 year treasury bond rate. (USA). As an approximation most other interest rates do tend to move up and down with the treasury rate, but with more or less sensitivity. Another prominently discussed interest rate is the short term loan rate established by the Federal Reserve for loans it makes to banks. |
Direct Registration System vs Brokerage Firm | You'll need to talk to your broker about registering positions you already hold. I would personally expect this will cost you a not-insignificant fee. And I don't think you'll be able to do this on any shares held in a tax-advantaged account. That said, I'd recommend you go to the Investors sections of the company's website in question. This will usually tell you who the registrar of the company's stock is, and if they offer any direct-purchase, or DRIP, programs. You should find out from these contacts and program details how the direct program works and what it's costs are. I suspect, but have no firsthand knowledge that this will be true, that you'll end up with lower costs if you just sell the shares in your brokerage, take the cash out, send the cash to the registrar and re-purchase shares that way. I say this only because I know, from inheritance situations, that de-registering stock cost me a $75 fee at my brokerage, whereas transactions at the registrar were $19.95. My answers to your direct questions: (Edited to fully answer the question with itemized answers.) |
Why can't I short a stock that sells for less than $5? Is there another way to “go short” on them? | If this is the initial transaction, the rules of a short margin account say that if you shorted 1000 share of ABC at $5/share your credit balance would be $5000 from the short plus you would have to put up yourself $5000 cash or $10,000 of marginal securities. So this is not really leveraging using margin. You have to put in just as much as the short generates. Is that what this relates to? Once the initial purchase has been made the minimum maintenance for a stock trading under $5 per share is 100% of the short market value in the margin account or $2.50 per share whichever is greater. For stock trading at $5/share or greater the minimum maintenance requirement is $5/share or 30% of the short market value, whichever is greater. The minimum maintenance requirements can be tighter. |
The U.S. National Debt: What is it, where did it come from, and how does it work? | nan |
Why do put option prices go higher when the underlying stock tanks (drops)? | Options pricing is based on the gap between strike and the current market, and volatility. That's why the VIX, a commonly accepted volatility index, is actually just a weighted blend of S&P 500 future options prices. A general rise in the price of options indicates people don't know whether it will go up or down next, and are therefore less willing to take that risk. But your question is why everything underwater in the puts chain went higher, and that's simple: now that Apple's down, the probability of falling a few more points is higher. Especially since Apple has gone through some recent rough times, and stocks in general are seen as risky these days. |
Do I need to start a 529 plan for each child (2 separate plans), or can I just open one 529 plan and let both children use it? | MrChrister makes some good points, but I saw his invitation to offer a counter opinion. First, there is a normal annual deposit limit of $13,000 per parent or donee. This is the gift limit, due to rise to $14,000 in 2013. If your goal is strictly to fund college, and this limit isn't an issue for you, the one account may be fine unless both kids are in school at the same time. In that case, you're going to need to change beneficiaries every year to assign withdrawals properly. But, as you mention, there's gift money that your considering depositing to the account. In this case, there's really a legal issue. The normal 529 allows changes in beneficiary, and gifts to your child need to be held for that child in an irrevocable arrangement such as a UTMA account. There is a 529 flavor that provides for no change of beneficiary, a UTMA 529. Clearly, in that case, you need separate accounts. In conclusion, I think the single account creates more issues than it potentially solves. If the true gift money from others is minimal, maybe you should just keep it in a regular account. Edit - on further reflection, I strongly suggest you keep the relatives' gifts in a separate account, and when the kids are old enough to have legitimate earned income, use this money to open and deposit to Roth IRAs. They can deposit the lesser of their earned income or $5000 in 2012, $5500 in 2013. This serves two goals - avoiding the risk of gift money being 'stolen' from one child for benefit of the other, and putting it into an account that can help your children long term, but not impact college aid as would a simple savings or brokerage account. |
Should I use put extra money toward paying off my student loans or investing in an index fund? | From a purely financial standpoint (psychology aside) the choice between paying off debt and investing on risky investments boils down to a comparison of risk and reward. Yes, on average the stock market has risen an average of 10% (give or take) per year, but the yearly returns on the S&P 500 have ranged from a high of 37.6% in 1995 to a low of -37% in 2008. So there's a good chance that your investment in index funds will get a better return than the guaranteed return of paying off the loan, but it's not certain, and you might end up much worse. You could even calculate a rough probability of coming out better with some reasonable assumptions (e.g. if you assume that returns are normally distributed, which historically they're not), but your chances are probably around 30% that you'll end up worse off in one year (your odds are better the longer your investment horizon is). If you can tolerate (meaning you have both the desire and the ability to take) that risk, then you might come out ahead. The non-financial factors, however - the psychology of debt, the drain on discretionary cash flow, etc. cannot be dismissed as "irrational". Paying off debt feels good. Yes, finance purists disagree with Dave Ramsey and his approaches, but you cannot deny the problems that debt causes millions of households (both consumer debt and student loan debt as well). If that makes them mindless "minions" because they follow a plan that worked for them then so be it. (disclosure - I am a listener and a fan but don't agree 100% with him) |
401k vs. real estate for someone who is great at saving? | With an appropriate selection within a 401K and if operating expenses are low, you get tax deferred savings and possibly a lower tax bracket for now. The returns vary of course with market fluctuations but for almost 3 years it has been double digit growth on average. Some health care sector funds were up over 40% last year. YMMV. With stocks and mutual funds that hold them, you also are in a sense betting that people want their corporations to grow and succeed. Others do most of the work. Real estate should be part of your savings strategy but understand that they are not kidding when they talk about location. It can lose value. Tenants tend to have some problem part of the year such that some owners find it necessary to have a paid property manager to buffer from their complaints. Other owners get hauled into court and sued as slum lords for allegedly not doing basics. Tenants can ruin your property as well. There is maintenance, repair, replacement, insurance against injury not just property damage, and property taxes. While some of it might be deductible, not all is. You may want to consider that there are considerable ongoing costs and significant risks in time and money with real estate as an investment at a level that you do not incur with a 401K. If you buy mainly to flip, then be aware that if there are unforeseen issues with the house or the market sours as it can, you could be stuck with an immovable drain on your income. If you lose your job could you make payments? Many, many people sadly lost their homes or investment properties that way in 2008-2010. |
First job: Renting vs get my parents to buy me a house | As everyone is saying, this depends on a lot of variables. However... I had my dad help me with the downpayment on my house. In my case, the cost of mortgage payment and all maintenance expenses is still lower than paying rent. If I sell my house and walk away from the closing office with just $1 then I've still come out ahead compared to renting. The New York Times has a fantastic tool figure out if it's a good idea to buy vs. rent. http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 It's asks all the relevant questions, and then it tells you how cheap rent would have to be make it the better option. |
What happens if I intentionally throw out a paycheck? | How/when does my employer find out? Do they get a report from their bank stating that "check 1234 for $1212.12 paid to John Doe was never deposited" or does it manifest itself as an eventual accounting discrepancy that somebody has to work to hunt down? The accounting department or the payroll company they use will report that the check was not deposited. The bank has no idea that a check was written, but the accounting deportment will know. The bank reports on all the checks that were cashed. Accounting cares because the un-cashed check for $1212.12 is a liability. They have to keep enough money in the bank to pay all the liabilities. It shouldn't be hard for them to track down the discrepancy, they will know what checks are outstanding. Can my employer punish me for refusing the money in this way? Do they have any means to force me to take what I am "owed?" They can't punish you. But at some time in the future they will will tell their bank not to honor the check. They will assume that it was lost or misplaced, and they will issue a new one to you. When tax time comes, and I still have not accepted the money, would it be appropriate to adjust my reported income down by the refused amount? You can't decide not to report it. The company knows that in year X they gave you a check for the money. They are required to report it, since they also withheld money for Federal taxes, state taxes, payroll taxes, 401K, insurance. They also count your pay as a business expense. If you try and adjust the numbers on the W-2 the IRS will note the discrepancy and want more information. Remember the IRS get a copy of every W-2. The employer has to report it because some people who aren't organized may not have cashed a December check before the company has to generate the W-2 in late January. It would confuse everything if they could skip reporting income just because a check wasn't cashed by the time they had to generate the W-2. |
Discussing stock and stock index movement: clarifying percentage vs. points? | Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27% Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument. |
Are the sellers selling pre-IPO shares over these websites legitimate or fake? | I think you're right that these sites look so unprofessional that they aren't likely to be legitimate. However, even a very legitimate-looking site might be a fake designed to separate you from your money. There is an entire underground industry devoted to this kind of fakery and some of them are adept at what they do. So how can you tell? One place that you can consult is FINRA's BrokerCheck online service. This might be the first of many checks you should undertake. Who is FINRA, you might ask? "The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States." See here. My unprofessional guess is, even if a firm's line of business is to broker deals in private company shares, that if they're located in the U.S. or else dealing in U.S. securities then they'd still need to be registered with FINRA – note the "all securities firms" above. I was able to search BrokerCheck and find SecondMarket (the firm @duffbeer703 mentioned) listed as "Active" in the FINRA database. The entry also provides some information about the firm. For instance, SecondMarket appears to also be registered with the S.E.C.. You should also note that SecondMarket links back to these authorities (refer to the footer of their site): "Member FINRA | MSRB | SIPC. Registered with the SEC as an alternative trading system for trading in private company shares. SEC 606 Info [...]" Any legitimate broker would want you to look them up with the authorities if you're unsure about their legitimacy. However, to undertake any such kind of deal, I'd still suggest more due diligence. An accredited investor with serious money to invest ought to, if they are not already experts themselves on these things, hire a professional who is expert to provide counsel, help navigate the system, and avoid the frauds. |
How to manage household finances (income & expenses) [duplicate] | Obviously, there are many approaches. I’ll describe what we do and why we think it is successful. I have seen many couples having disagreements and even divorce over money; it seems that this is a typical reason to fight and sometimes fight badly. The realization is that different people have different preferences what to spend their money on, and if you are not rich, it continuously leads to disagreements - ‘did you really need another pair of shoes?’, etc. Our solution is a weekly allowance. First, all our money goes into one pot and is considered equal. Many couples find that a difficult step, but I never thought twice about it - I trust my spouse, and I share my life with her, so why not my money? From this, we agree on an ‘allowance’ that is used to cover any non-common cost; this includes all clothing, dining out, buying things, etc. The amount was chosen to match about what we spent for those things anyway, and then adjusted annually. The main point is that there is no critique allowed about what this is spent on - you can blow it all on shoes, or buy books, or wine and dine, or gamble it away, whatever. We are doing this since 23 years now, and we are very happy with the results; we never have financial ‘fights’ anymore. Disadvantages are the effort - you need to keep track of it somehow. Either you use a separate credit card, or hand it out in cash, or have a complete accounting (I do the latter, because I want to). Regarding all other spend, we use the accounting to plan ahead for at least a year on all cost and income that are expected, and that shows us the available cash flow and where it might get tight. It also shows you where the money goes, and where you could cut if cutting is needed (or wanted). Again, there is some effort in collecting the data, but it is worth it (for us). |
What home improvements are tax deductible? | On a personal income tax return home improvements are generally not deductible on a federal level. There might be some exceptions made for special tax programs, such as solar panels, but they tend to be the exception rather than the rule. |
Would the effects of an anticipated default by a nation be mostly symbolic? | It's only symbolic if things continue as if nothing had happened. Once large segments of people start becoming poor, it ceases to be symbolic and starts becoming real. Will a Greek default be felt in the US? Hard to say, but probably not. Will it be felt in Greece? You bet it will. |
What does PMI mean? | Yes, PMI is what the lender requires to loan you more than 8O% of the home's value. I could easily present scenarios where it's exactly the right decision to use PMI and get the purchase done. A 100K mortgage at 90% LTV will cost you $521/year in PMI. If you are renting and struggling to get a higher downpayment, it can take quite a long time to save the additional $11K to put down. Only the buyer can know if the house is such s bargain, or if rates have bottomed, but the decision isn't so clear cut. |
Will prices really be different for cash and cards? | I would say minimal price differences. Stores will need to remain competative, and the difference (if any) will likely be to cover the cost of the transaction that Visa and other card companies charge them. |
Buying a house for a shorter term | When on this topic, you'll often hear general rules of thumb. And, similar to the 'only buy stocks if you plan to hold more than X years' there are going to be periods where if you buy at a bottom right before the market turns up, you might be ahead just months after you buy. I'd say that if you buy right, below market, you're ahead the day you close. Edit - I maintain, and have Schiller providing supporting data) that real estate goes up with inflation in the long term, no more, no less. If the rise were perfectly smooth, correlated 100% month to month, you'd find it would take X years to break even to the costs of buying, commission and closing costs. If we call that cost about 8%, and inflation averages 3, it points to a 3 year holding period to break even. But, since real estate rises and falls in the short term, there are periods longer than 4 years where real estate lags, and very short periods where it rises faster than the costs involved. The buy vs rent is a layer right on top of this. If you happen upon a time when the rental market is tight, you may buy, see the house decline 10% in value, and when the math is done, actually be ahead of the guy that rented. |
When a stock price rises, does the company get more money? | When a stock price rises, the company's assets are worth more. This doesn't mean it gets more cash directly, but it can liquidate (= sell) some of its stocks for a higher return than before. |
Does gold's value decrease over time due to the fact that it is being continuously mined? | There is another aspect too for the high prices of GOLD. After the current economical crisis people are no more investing in property and a big chunk of investment has been diverted to GOLD. |
What would happen if the Euro currency went bust? | The result would be catastrophic. The almost-reserve currency would collapse which would produce a medium sized depression, perhaps same with with 2008-now, or even larger, since don't forget, that one was produced from a housing bubble existing in only a part of the american economy; imagine what would happen if almost the full size of the economy (Europe) would collapse, even if Europe isn't as much "connected". But reality here is, there's no chance to that. The real reason you hear those rumors is that America (along with minor partners like the British Sterling) want to bring down the Euro for medium-term benefit. e.g. Several economists get on Bloomberg announcing they are short selling the Euro. Irony is, all this is helping the Euro since selling and short-selling and selling and short-selling helps massively its liquidity. It's like several nay sayers actually making a politician famous with their spite. |
Against what income are broker fees deducted? | You don't "deduct" transaction fees, but they are included in your cost basis and proceeds, which will affect the amount of gain/loss you report. So in your example, the cost basis for each of the two lots is $15 (10$ share price plus $5 broker fee). Your proceeds for each lot are $27.50 (($30*2 - $5 )/2). Your gain on each lot is therefore $12.50, and you will report $12.50 in STCG and $12.50 in LTCG in the year you sold the stock (year 3). As to the other fees, in general yes they are deductible, but there are limits and exceptions, so you would need to consult a tax professional to get a correct answer in your specific situation. |
If you want to trade an equity that reflects changes in VIX, what is a good proxy for it? | VXX VZX XVIZ and there are plenty others correlated to market volatility if you want the wildest hedge, use VXX, it is also the most liquid |
Wardrobe: To Update or Not? How-to without breaking the bank | The way I handle clothing purchases, is I save a little bit with each paycheck but don't commit to spending each month. I wait until I find the exact item I need or know I will need in the near future. I have a list of things to look for so I don't get off track and blow my budget. And each time I consider hitting Starbucks or buying a random something at Target, I think which is a better investment - a great pair of pants that will work for me for a decade, or a latte? Thank you for linking to me. Your question is one many people have. I feel that clothing should be purchased slowly, with care. If you do it this you will buy items that don't need to be replaced every two years, and will maintain style and quality longer. :) |
Why is the stock market price for a share always higher than the earnings per share? | Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment. |
How to rebalance a passive portfolio if I speculate a war is coming? | At a risk of stating the obvious: a passive portfolio doesn't try to speculate on such matters. |
On what dates do the U.S. and Canada release their respective federal budgets? | To the best of my knowledge, there's no firm date requirement. The fiscal year for the US Federal Government starts on October 01, but if my memory serves me right, last time a budget was approved before the fiscal year started was during the Clinton administration. |
How to properly collect money from corporate sponsors? | http://www.legalzoom.com/business-management/starting-your-business/turn-your-calling Answering this, but I expect an expert to give an answer with some insight too There are many more steps, but not having done them personally I suggest you read the legalzoom.com site. |
Should Emergency Funds be Used for Infrequent, but Likely, Expenses? | I would suggest that you use Emergency Funds for things that have a Low likelihood of happening but if they do happen can be devastating. I used to work as a financial advisor and the sugfestion we gave people is to have about 3 months worth of expenses in cash. This was primarily to cover things luke loss of work or some unforseen even that would prevent you from missing work for an extended period of time. Once you have your emergency fund saved do not touch it! Leave it where it is. Then tou can start working on a savings account for those items that are more likely to happen but dont have as much of a negative impact. |
Debit cards as bad as credit cards? | Debit cards are the dumbest development ever. I now have a piece of plastic that allows any yahoo to cause me to bounce my mortgage. Great. Throw away the debit card. Use a credit card and exercise some self control. Take out a sufficient amount of cash to cover your weekly incidental expenses under $50. If you want something that costs more than $50, wait a week and use the credit card. You'll find that using cash at places like the convenience store or gas station will cause you to not spend $3 for a slim jim, lotto ticket, donut or other dumb and unnecessary item. |
If I can be claimed as a dependent, what do I do without my parent's tax information? | The request for your parent's income comes from Form 8615, Tax for Certain Children Who Have Unearned Income. I typically see this form appear as I'm doing my daughter's taxes and start to enter data from stock transactions. In other words, your earned income is your's. But if you are a dependent, or 'can be,' the flow avoids the potentially lucrative results from gifting children appreciated stock, and have them take the gain at their lower, potentially zero cap gain rate. I suggest you grab a coffee and thumb through Pub 929 Tax Rules for Children and Dependents to understand this better. From page 14 of the linked doc - Parent's return information not available. If a child can’t get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). How to request. After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS can’t process a request received before the end of the tax year.) It also suggests that you file for an extension for the due date of your return. Include payment for the tax you expect to pay, say by plugging in $200K for parent income as an estimate. My parents' accountant tells them I do not need it. Well, a piece of software told you that you do, and 3 people on line who collectively qualify as experts documented why. (Note, I am not full of myself. This board operates via the wisdom of crowds. Members DStanley, and Ben Miller, commented and edited to help me form a well documented response that would be tough to argue against.) |
Why do credit card transactions take up to 3 days to appear, yet debit transactions are instant? | Take a look at http://en.wikipedia.org/wiki/Payment_gateway There is essentially a lead time between when the transaction is made and when it is settled, 2-3 business days is the lead time for settlement. The link explains the process step-by-step |
Should I move my money market funds into bonds? | Your only real alternative is something like T-Bills via your broker or TreasuryDirect or short-term bond funds like the Vanguard Short-Term Investment-Grade Fund. The problem with this strategy is that these options are different animals than a money market. You're either going to subject yourself to principal risk or lose the flexibility of withdrawing the money. A better strategy IMO is to look at your overall portfolio and what you actually want. If you have $100k in a money market, and you are not going to need $100k in cash for the forseeable future -- you are "paying" (via the low yield) for flexibility that you don't need. If get your money into an appropriately diversified portfolio, you'll end up with a more optimal return. If the money involved is relatively small, doing nothing is a real option as well. $5,000 at 0.5% yields $25, and a 5% return yields only $250. If you need that money soon to pay tuition, use for living expenses, etc, it's not worth the trouble. |
Why would we need a “stop-limit order” for selling? | One practical application would be to protect yourself from a "flash crash" type scenario where a stock suddenly plunges down to a penny due to transient market glitches. If you had a stop-loss order that executed at a penny (for a non-penny stock) it would be probably be voided by the exchange, but you might not want to take that risk. |
Should I get a auto loan to diversify my credit lines if I have the cash to pay upfront | You should not seek a kind of debt just for it's appearance on your credit report. If you don't need an auto loan don't get an auto loan. Getting a credit card for the purpose of building credit is a little bit of a different animal because you can use a credit card such that you never pay any interest or fees. With a loan, you will pay interest. Altering your score by paying interest doesn't provide you with a net benefit. With that said, depending on the auto loan rate you may want to accept the loan just to fee up your capital. Some promotional rates are so low you may even make money leaving the cash in a regular savings account. But don't let your credit score wag the dog. |
Why would someone buy a way out-of-the-money call option that's expiring soon? | Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry. |
Where does the stock go in a collapse? | If we can agree that 2010 was closer to the low of 2009 than 2007 then the rich did all the buying while the super-rich did all the selling. http://www2.ucsc.edu/whorulesamerica/power/wealth.html Looks like the rich cleaned up during the Tech Crash too, but it looks like the poor lost faith. That limited data makes it look like the best investors are the rich. Market makers are only required by the exchanges to provide liquidity, bids & asks. They aren't required to buy endlessly. In fact, market makers (at least the ones who survive the busts) try to never have a stake in direction. They do this by holding equal inventories of long and shorts. They are actually the only people legally allowed to naked short stock: sell without securing shares to borrow. All us peons must secure borrowed shares before selling short. Also, firms involved in the actual workings of the market like bookies but unlike us peons who make the bets play by different margin rules. They're allowed to lever through the roof because they take on low risk or near riskless trades and "positions" (your broker, clearing agent, etc actually directly "own" your financial assets and borrow & lend them like a bank). http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p004001.pdf This is why market makers can be assumed not to load up on shares during a decline; they simply drop the bids & asks as their bids are hit. |
give free budgeting advice | The counsel of a friend doesn't come with a legal or professional liability. The key to doing this sort of thing successfully is to respect boundaries. You are providing advice and discussion, not taking over your friend's life. |
Can I register for VAT to claim back VAT without selling VAT applicable goods? (UK) | You cannot "claim back" VAT. What happens is that if you sell goods with VAT and charge customers VAT, you would have to send that VAT straight to HMRC, but if your business itself paid VAT, then you already paid VAT, so you have to send less. As an example, if you send an invoice for £10,000 plus £2,000 VAT, and you paid yourself £500 VAT on business related expenses, then you need to send £2,000 - £500 = £1,500 to HMRC. But if you don't send invoices including VAT, then you owe HMRC £0. Any VAT you paid on business related expenses is lost; HMRC won't pay you money. BTW. Only VAT on business related expenses can be deducted. So if you want to be "smart", register for VAT and get the VAT on your weekly shopping bill refunded, forget it. |
Paying over the minimum mortgage payment | First off, putting extra cash toward a mortgage early on, when most of the payments are going to interest, is the BEST time. If you pay an extra $1 on your mortgage today, you will save 30 years worth of interest (assuming a 30 year mortgage). If in 29 years you pay an extra dollar, you will only save 1 year worth of interest. That said, there are lots of things that go into a decision like this. Do you have other debts? How stable is your income? What is the interest rate on your mortgage compared to any other debts you may have or potential investments you might make? How much risk are you willing to take? Etc. Mortgages tend to be very low interest, and, at least in the U.S., the interest on them is tax-deductible, making the effective interest rate even lower. If you have some other loan, you are almost always better to pay the other loan off first. If you don't mind a little risk, you are usually better off to invest your money rather than pay off the mortgage. Suppose your mortgage is 5%. The average return on the stock market is something like 7% (according to my buddy who works for Wells Fargo). So if you put $1000 toward your mortgage, you'd save $50 the first year. (Ignoring compounding for simplicity, changes the exact numbers but not the basic idea.) If you put that same $1000 in the stock market, than if it's a typical year you'd make $70. You could put $50 of that toward paying the interest on your mortgage and you'd have $20 left to go on a wild spending spree. The catch is that the interest on a mortgage is fixed, while the return on an investment is highly variable. In an AVERAGE year the stock market might return 7%, but this year it might return 20% or it might lose 10% or a wide range of other possible numbers. (Well, you might have a variable rate mortgage, but there are still usually some defined limits on how much it can vary.) |
Is Cost of Living overstated? | You mention: High rent places are usually also high property value places. Given the tax incentives, it seems like a good long term idea to grab a house, so if we assume you have the option of working and buying a house in a high CoL or a low CoL city, I think you'd prefer the high cost. Because essentially, after 30 years, you'd have a million dollar house vs a quarter million dollar house. You've captured three quarters of a million dollars in rent, given my napkin math hypothetical. I think you're forgetting about some of the associated costs with "owning" a home, including: |
Which is better when working as a contractor, 1099 or incorporating? | I'll just re-post my comment as an answer as i disagree with Michael Pryor. According to this article (and few others) you may save money by incorporating. These factors don’t change the general payroll tax advantage of an S corporation, however: A S corporation can often save business owners substantial amounts of payroll tax if the business profit greatly exceeds what the business needs to pay owners for their work. |
How important is disability insurance, e.g. long-term, LTD? Employer offers none | (Oops - I had been meaning to come back to this Q. sooner. Just saw my reminder, so here goes.) Shortly before this question was asked, I actually read a good blog post on the subject of disability insurance at Evolution of Wealth - 7 Ways Your Group Disability Will Fail. I know the OP doesn't have group disability (and hence the question), but the reason I'm highlighting it is: Even somebody with a group disability policy from their employer may want to consider supplementing it with an individual policy that has better coverage. In my case, the reason I opted for an individual policy was due to point #6 from the post: ... ways that group disability coverage will fail you: ... [etc] 6) You can go work somewhere else. With disability insurance there is a feature called own-occupation. This means that you are unable to perform the duties of your specific occupation even if you are able to work in an other occupation. Good group disability coverage will cover your own-occupation for a period of 2 years after that if you can work anywhere (yes, even McDonald’s) then you receive no more benefits. Notice I said ‘good’ coverage, a lot of policies don’t even have the own-occupation benefit. ... I made sure my own individual LTD policy included coverage of own-occupation until age 65. So, do pay attention to the specific features and limitations of LTD policies when shopping for one. |
Why do credit card transactions take up to 3 days to appear, yet debit transactions are instant? | When you swipe your credit card, the terminal at the store makes a request of your bank, and your bank has only a few seconds to accept or reject the transaction. Once the transaction is accepted by your bank, it appears in the Pending transactions. At the end of the business day, the store submits all of the final transactions for the day to their bank in a batch, and the banks all trade transactions in a batch, and money is sent between banks. This is the process that takes a couple of days, and after this happens, you see the transaction move from your Pending transactions into the regular transactions area. Most of the time, the pending transaction and the final transaction are the same. However, there are cases where it is different. A couple of examples: With a credit account, the fact that the final amount is not known for a few days is no big deal: after all, you don't have any money in the account, and if you end up spending more than you have, the bank will happily let you take your time coming up with the money (at a steep cost, of course). With a debit card tied to your checking account, the transaction is handled the same way, as far is the store is concerned. However, your bank is not going to run the risk of you overdrawing your checking account. They also are not going to run the risk of you withdrawing money from your account that is needed to cover pending transactions. So they usually treat these pending transactions as final transactions, deducting the pending transaction from your account balance immediately. When the final transaction comes through, they adjust the transaction, and your balance goes up or down accordingly. This is one of the big drawbacks to using a debit card, in my opinion. If a bad pending transaction comes through, you are out this money until it gets straightened out. |
What is the best use of “spare” money? | nan |
What are the top “market conditions” to follow? | Check out http://garynorth.com if you have $15/month. Or at least subscribe to his free newsletters (Tip of the Week, Reality Check). Well worth it. He doesn't pay much attention to the US market indicators, except to note that people are about 20% poorer than they were 10 years ago. He looks at more basic indicators like M1, treasury rates, unemployment figures, etc. He recommended buying gold in 2001. He changed his recommended investment portfolio most recently about a couple of years ago (!) and it's done quite well. |
Using stable short-term, tax-free municipal bond funds to beat the bank? | Banks' savings interest is ridiculous, has always been, compared to other investment options. But there's a reason for that: its safe. You will get your money back, and the interest on it, as long as you're within the FDIC insurance limits. If you want to get more returns - you've got to take more risks. For example, that a locality you're borrowing money to will default. Has happened before, a whole county defaulted. But if you understand the risks - your calculations are correct. |
Having a separate bank account for business/investing, but not a “business account?” | When I was younger I had a problem with Washington Mutual. Someone had deposited a check in to my account then ran my account negative with a "dupe" of my debit card. WaMu tied up my account for three months while they investigated because it wasn't simply a debit card fraud issue, this was check fraud (so they claimed). At the time all the money I had in the world was in that account and the ordeal was extremely disruptive to my life. Since the, I never spend on my debit card(s) and I keep more than one checking account to disperse the risk and avoid disruption in the event anything ever happens again. Now one of the accounts contains just enough money (plus a small buffer) to pay my general monthly expenses and the other is my actual checking account. There's no harm in having more than one checking account and if you think it will enhance your finances, do it. Though, there's no reason to get a business account unless you've actually formed a business. |
Can someone help me understand my student loans? | If you want to pay them off as quickly as possible, pay the minimum payment on the larger two and dump as much as you can into the one with the 8.75% interest. Then, even though it has a slightly lower interest rate, I would attack the one with the next smallest balance after that, while continuing to make the minimum payment on the one with the largest balance. |
Does a stock holder profit from a reverse-stock split? | If I held stock in these companies yesterday, would I have profited by these gains? No. For DZSI, your 5 shares at $1.10 would now be 1 share at $5.50, so you would have the same total amount. For SGY, they closed at $6.95, and opened at $32.80, so your five shares at $6.95 would now be one share at $32.80, so you would have actually lost money (not purely because of the split, but because the "new" shares are trading lower then the expected 1:5 split price). A split in general does not affect market cap (how much your total shares are worth) but there may be residual effects that cause the market value to fluctuate after a split that affect the price. |
Historical company performance data | The S&P report (aka STARS report) for each company has 10 years of financial data. These reports are available free at several online brokers (like E-Trade) if you have an account with the brokerage. |
What should I be aware of as a young investor? | If you're tending toward stocks because you have a long time horizon, you're looking at them for the right reasons. I'm twice your age. I have a mortgage -- two of them, actually! -- a wife, and a six-year-old. I can't really justify being terribly risky with my money because I have others depending on my income. You're nineteen. Unless you've gotten a really early start on life and already have a family, you can take on a lot more risk than stocks. You have time to try things (income things) that I wish I would have tried at that age, like starting a business. The only thing that would push me to do that now would be losing my job, and that wouldn't be the rush I'd like. That's not to say that you can't make a lot of money with stocks, but if that's what you're looking to do, really dig in and research them. You have the time. Whether the tide makes all boats rise or sink is a matter of timing the economy, but some of the companies will ride the waves. It takes time to find those more often than not. Which blue chips are likely to ride the waves? I have no clue. But I'm not invested in them at the moment, so it doesn't matter. :) |
Prepaying a loan: Shouldn't the interest be recalculated like a shorter loan? | You are expecting, that if you pay off a 30 mortgage after 16 years, you should be charged the same amount of interest as someone who had a 16 year mortgage for the same amount and with the same interest rate. This isn't correct, and here's why: the person with the 16 year mortgage paid it off faster than you. They paid more each month and the size of their loan shrunk faster than yours. After 15 years they had paid off a LOT more than you. You paid a lump sum after 16 years, but at this point, the extra money which they had paid had been in the banks hands for a long time. You caught up with them then, but you had been behind them for all of the previous years. On the other hand, you owed the same amount in each of those years as the person who took out a 30 year mortgage and didn't prepay. Therefore you paid the same amount of interest as this person, not the first person. If you could arrange in advance a loan where you made the same payment as you did for 16 years, then paid the balance in a lump sum, then you would have paid exactly what you did. |
Can two companies own stock in each other? | Yes, this can and does certainly happen. When two companies each own stock in each other, it's called a cross holding. I learned about cross holdings in reference to Japanese companies (see Wikipedia - Keiretsu) but the phenomenon is certainly not exclusive to that jurisdiction. Here are a few additional references: |
Why do stocks gap up after a buyout is announced? | The price gaps up because the offer is for a price above the current price. Therefore people want to buy now before the price jumps to the offer level. Of course it does depend on the tone of the announcement, which party is making the announcement, and are they announcing an offer or a deal. If the price is $10, and the offer is for $12; then the price may quickly jump. The early buyers will make the most quick money. They hope that the deal is done quickly, or if not the final price ends up higher. There are risks. The company could reject the offer. The due diligence could expose a problem. The regulators could reject the deal based on anti-trust issues. The deal could take many months to complete. Or the final deal could be for shares in the new company. The risks are one reason people sell after the deal/offer is announced. In other cases the seller finally is seeing a profit, or a smaller loss and wants out while they can. |
How can I determine which stores are regarded as supermarkets for a rewards credit card? | Credit card companies organize types of businesses into different categories. (They charge different types of businesses different fees.) When a business first sets up their credit card processing merchant account, they need to specify the category. Here is a list of categories that Visa uses. Grocery stores and supermarkets are category number 5411. Other types of businesses, such as the examples you provided in your question, have a different category number. American Express simply looks at the merchant category code for each of your transactions and only gives you rewards for the ones in the grocery store category. It's all automated. They likely don't have a list of every grocery store in the US, and even if they did, they would probably not provide it to the public, for proprietary reasons. If you are in doubt about whether or not a particular store is in the grocery category, you'll just have to charge it to your card and see what happens. Often, the category of transaction will be shown for each transaction on your credit card's website. |
Impact of RMD on credit worthiness | My understanding is that credit card companies are allowed to accept retirement income as part of the income that would qualify you for credit. The Consumer Finance Protection Bureau issued a final rule amendment to Regulation Z (the regulations around Truth in Lending Act) in 2013 in response to some of the tightening of credit that resulted from the Credit CARD Act of 2009. The final rule allows for credit issuers to "consider income and assets to which such consumers have a reasonable expectation of access." (Page 1) On page 75, it outlines some examples: Other sources of income include interest or dividends, retirement benefits, public assistance, alimony, child support, and separate maintenance payments.... Current or reasonably expected income also includes income that is being deposited regularly into an account on which the consumer is an accountholder (e.g., an individual deposit account or joint account). Assets include, for example, savings accounts and investments. Fannie Mae explicitly mentions IRA distributions in its Documentation Requirements on mortgage applications. For them, they require that the income be "expected to continue for at least three years after the date of the mortgage application." Lenders can reject or lower your credit limit for just about any reason that they want, but it seems appropriate for you to include your retirement distributions in your income for credit applications. |
Is buying a home a good idea? | A home actually IS a terrible investment. It has all the traits of something you would NEVER want to plunge your hard-earned money into. The only way that buying a house makes good money sense is if you pay cash for it and get a really good deal. It should also be a house you can see yourself keeping for decades or until you're older and want something easier to take care of. Of course, nothing can replace "sense of ownership" or "sense of pride" other than owning a house. And your local realtor is banking (really, laughing all the way to the bank) on your emotions overcoming your smart money savvy. This post really goes to work listing all the reasons why a house is a horrible investment. Should be required reading for everyone about to buy a house. Why your house is a terrible investment - jlcollinsnh.com TLDR; - You must decide what is more important, the money or the feelings. But you can't have both. If you read the article linked and still want to buy a house...then you probably should. |
Is it a gift or not? | Part of 'consideration', I imagine, would be the obligation of either party to follow through on an agreement, not only fair market value. Look at the thought experiment from the opposite perspective. If you did not pay him $150 (maybe just $50 or even $0), would you be breaking a contractual obligation to him? If he left after 2 hours because he forgot about a family event and did not finish your move, would he be breaking a contractual obligation to you even if you gave him $150? It seems it can be considered a gift (Update: in all cases) There was no agreement of what either party viewed as full consideration in a mutual exchange. To put it another way: From your examples, there is no evidence that the performance of either party hinged on receiving mutual consideration from the other. More Updates from comments: Patterns Matter Similarly to how the IRS may determine W2 employee vs independent contractor, patterns do matter. If your friend has a pattern of helping people move in exchange for tens of thousands of dollars in gifts every year, the IRS would view that in a different light. A waitress/waiter has a pattern of accepting 'gifts' of tips in exchange for good service as a part of their established job duties. If you gifted your friend with $150/week when they watched your kids every Monday-Wednesday, that would be different. You are establishing a pattern, and I would suggest you may be establishing mutual consideration. In that case, consult a professional if you are worried. Amounts Matter This is why the gift tax exemption was created. The IRS does not care about the amounts in question here. It is too much of a burden to track and account for transactions that are this questionable and this small. You gift your friend with a $20k car? Now you need to pay attention. Consult your CPA. You gift your friend $1k for helping build your new deck? The IRS does not care. Intent Matters Even in the first case, it is not necessarily true that your friend considers $150 to be mutual consideration for his services. Would he open a business where he offers that rate to the general public? I doubt it. He intends to gift you services out of his own free will, not because there will be an equitable exchange of value. The intent of both parties is to give a gift. There is no evidence that would suggest otherwise to the IRS, it seems, even if they cared in the first place. |
Is it worth it to buy TurboTax Premier over Deluxe if I sold investments in a taxable account? | I have found that using the online version can help determine the correct product. Try Deluxe online, you can upload the data from last year. When you get to the key forms see what happens if you don't switch. Then switch to Premiere. Compare the results. |
I'm 20 and starting to build up for my mortgage downpayment, where should I put my money for optimal growth? | The big question is whether you will be flexible about when you'll get that house. The overall best investment (in terms of yielding a good risk/return ratio and requiring little effort) is a broad index fund (mutual or ETF), especially if you're contributing continuously and thereby take advantage of cost averaging. But the downside is that you have some volatility: during an economic downturn, your investment may be worth only half of what it's worth when the economy is booming. And of course it's very bad to have that happening just when you want to get your house. Then again, chances are that house prices will also go down in such times. If you want to avoid ever having to see the value of your investment go down, then you're pretty much stuck with things like your high-interest savings account (which sounds like a very good fit for your requirements. |
Why is the stock market closed on the weekend? | Simply, most of the above given 'answers' are mere 'justifications' for a practice that has become anachronistic. It did make sense once in the past, but not any more. Computers and networks can run non-stop 24/7; even though the same human beings cannot be expected to work 24/7, we have invented the beautiful concept of multiple shifts; banks may be closed during nights and weekends, but banking is never closed in the internet era; ...The answer must lie in the vested interests of a few stakeholder groups - or - it could just be our difficult to change habits. |
Where can I find filings of HUD-1 statements? | Three companies may have copies of it: the bank, the Title Company (aka settlement company), and perhaps the real estate agent. The bank (assuming you had a mortgage) is usually the easiest one to contact, as you're probably still making payments to them. They may have sent you the form in a large packet when you sold the house and paid off the old mortgage. There is a tradition of sending customers their entire mortgage file once they pay off the mortgage after 30 years - which is very rare nowadays but many banks still adhere to it because the mortgage business is built on momentum and very slow to change. Otherwise, the title company should have a copy of it. If you don't know which company was used, they should be named as Trustee on the Deed Of Trust (which in most states is the official name of the document that we call a "mortgage"). The county recorder's office will have a copy of that Deed Of Trust on record if you can't find it anywhere. Some counties have digitized these so you could find it online, but some would require you to request a copy and pay a small printing fee for it. |
For somebody that travels the same route over and over again, what are some ways to save on airfare? | I remember when humorist Dave Barry discussed some guy who invented the software that guaranteed that no two airline passengers ever paid the same fare. As with much of Dave Barry's stuff, it has way too much truth in it. Research when the best time frame to buy your tickets is. It varies wildly with time of day, time of week, time of year, whether the plane is half-empty or not, which airline you're traveling on, etc. Beyond that, if you can rack up frequent flier miles fast enough, you maybe can offset the cost of one of those trips. |
I have $12k in a Chase checking account, but want to start earning interest/saving/investing/etc to make more money. What should I do? | First thing's first: migrate your savings to an interest-bearing savings account (such as from Ally Bank). While it still lags behind inflation, 0.84% is still better than 0.00%. Short-term CDs are also an option. I've personally thought about experimenting with peer-to-peer lending, but a few thousand in savings isn't all that much in the grand scheme of things, and you don't want it tied up in a risky, speculative loan when you might need it the most. As the others have said, the general savings rules apply too: pay off high-interest debt, divert more money into your 401k (especially if you aren't hitting the match yet), then work on either whittling down other debts or saving more for a big purchase in the future. |
Self-employed individual 401k self, match, and profit sharing contribution limits? | It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? "Deductible"? Nothing is deductible. First you need to calculate your "compensation". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not "deducted" - deferred). |
Which U.S. online discount broker is the best value for money? | I've never used them myself, but Scottrade might be something for you to look at. They do $7 internet trades, but also offer $27 broker assisted trades (that's for stocks, in both cases). Plus, they have brick-and-morter storefronts all over the US for that extra "I gotta have a human touch". :-) Also, they do have after hours trading, for the same commission as regular trading. |
In Canada, how much money can I gift a friend or family member without them being taxed on it? | When you give a gift to another person or receive a gift from another person there is no impact on your taxes. You do not have to report certain amounts in your income, including the following: ... -most gifts and inheritances; http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/nttxd-eng.html If you give a gift to a charity or similar organization you can reduce your taxes. It is my recollection that when a family member gives a large amount of money to a child, tax on the income that money earns (typically interest) should be paid by the giver, not the child, but I can't find any publications to that effect on the CRA Site. There is a bit of language about "Gifts" from an employer that are really employment income: Gifts and other voluntary payments 1.3 The term gift is not defined in the Act. In common law jurisdictions, the courts have said that a bona fide gift exists when: •There is a voluntary transfer of property, •A donor freely disposes of his or her property to a donee, and •The donee confers no right, privilege, material benefit, or advantage on the donor or on a person designated by the donor. 1.4 Whether a transfer of property has been made voluntarily is a question of fact. In order for a transfer to be considered voluntary, there must be no obligation to make such a transfer. Amounts received as gifts, that is, voluntary transfers without consideration and which cannot be attributed to an income-earning source, are not subject to tax in the hands of the recipient. 1.5 However, sometimes individuals receive a voluntary payment or other valuable transfer or benefit by virtue of an office or employment from an employer, or from some other person. In such cases, the amount of the payment or the value of the transfer or benefit is generally included in employment income pursuant to subsection 5(1) or paragraph 6(1)(a). (See also Guide T4130, Employers’ Guide - Taxable Benefits and Allowances.) Similarly, voluntary payments (or other transfers or benefits) received by virtue of a profession or in the course of carrying on a business are taxable receipts. http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s3/f9/s3-f9-c1-eng.html#N10244 If the people in question are adults who are not related to each other and don't have a business or employment relationship, then you should find that regardless of the amount of the gift, neither giver nor recipient will have a tax consequence. |
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