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What are the gains from more liquidity in ETF for small investors? | ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased. |
Starting a side business slowly | This is a great question! I've been an entrepreneur and small business owner for 20+ years and have started small businesses in 3 states that grew into nice income streams for me. I've lived off these businesses for 20+ years, so I know it can be done! First let me start by saying that the rules, regulations, requirements and laws for operating a business (small or large) legally, for the most part, are local laws and regulations. Depending on what your business does, you may have some federal rules to follow, but for the most part, it will be your locality (state, county, city) that determines what you'll have to do to comply and be "legal". Also, though it might be better in some cases to incorporate (and even required in some circumstances), you don't always have to. There are many small businesses (think landscapers, housekeepers, babysitters, etc.) that get income from their "business operations" and do so as "individuals". Of course, everyone has to pay taxes - so as long as you property record your income (and expenses) and properly file your tax returns every year, you are "income tax legal". I won't try to answer the income tax question here, though, as that can be a big question. Also, though you certainly can start a business on your own without hiring lawyers or other professionals (more on that below), when it comes to taxes, I definitely recommend you indeed plan to hire a tax professional (even if it's something like H&R Block or Jackson Hewitt, etc). In some cities, there might even be "free" tax preparation services by certain organizations that want to help the community and these are often available even to small businesses. In general, income taxes can be complicated and the rules are always changing. I've found that most small business owners that try to file their own taxes generally end up paying a lot more taxes than they're required to, in essence, they are overpaying! Running a business (and making a profit) can be hard enough, so on to of that, you don't need to be paying more than you are required to! Also, I am going to assume that since it sounds like it would be a business of one (you), that you won't have a Payroll. That is another area that can be complicated for sure. Ok, with those generics out of the way, let me tackle your questions related to starting and operating a business, since you have the "idea for your business" pretty figured out. Will you have to pay any substantial amount of money to attorneys or advisors or accountants or to register with the government? Not necessarily. Since the rules for operating a business legally vary by your operating location (where you will be providing the service or performing your work), you can certainly research this on your own. It might take a little time, but it's doable if you stick with it. Some resources: The state of Florida (where I live) has an excellent page at: http://www.myflorida.com/taxonomy/business/starting%20a%20business%20in%20florida/ You might not be in Florida, but almost every state will have something similar. What all do I need to do to remain on the right side of the law and the smart side of business? All of the answers above still apply to this question, but here are a few more items to consider: You will want to keep good records of all expenses directly related to the business. If you license some content (stock images) for example, you'll want to document receipts. These are easy usually as you know "directly". If you subscribe to the Apple Developer program (which you'll need to if you intend to sell Apps in the Apple App Stores), the subscription is an expense against your business income, etc. You will want to keep good records of indirect costs. These are not so easy to "figure out" (and where a good accountant will help you when this becomes significant) but these are important and a lot of business owners hurt themselves by not considering these. What do I mean? Well, you need an "office" in order to produce your work, right? You might need a computer, a phone, internet, electricity, heat, etc. all of which allow you to create a "working environment" that allows you to "produce your product". The IRS (and state tax authorities) all provide ways for you to quantify these and "count them" as legitimate business expenses. No, you can't use 100% of your electric bill (since your office might be inside your home, and the entire bill is not "just" for your business) but you are certainly entitled to some part of that bill to count as a business expense. Again, I don't want to get too far down the INCOME TAX rabbit hole, but you still need to keep track of what you spend! You must keep good record of ALL your income. This is especially important when you have money coming in from various sources (a payroll, gifts from friends, business income from clients and/or the App Stores, etc.) Do not just assume that copies of your bank deposits tell the whole story. Bank statements might tell you the amount and date of a deposit, but you don't really know "where" that money came from unless you are tracking it! The good news is that the above record keeping can be quite easy with something like Quicken or QuickBooks (or many many other such popular programs.) You will want to ensure you have the needed licenses (not necessarily required at all for a lot of small businesses, especially home based businesses.) Depending on your business activity, you might want to consider business liability insurance. Again, this will depend on your clients and/or other business entities you'll be dealing with. Some might require you to have some insurance. Will be efforts even be considered a business initially until some amount of money actually starts coming in? This might be a legal / accountant question as to the very specific answer from the POV of the law and taxing authorities. However, consider that not all businesses make any money at all, for a long time, and they definitely "are a business". For instance, Twitter was losing money for a long time (years) and no one would argue they were not a business. Again, deferring to the attorneys/cpas here for the legal answer, the practical answer is that you're performing "some" business activity when you start creating a product and working hard to make it happen! I would consider "acting as" a business regardless! What things do I need to do up-front and what things can I defer to later, especially in light of the fact that it might be several months to a couple years before any substantial income starts coming in? This question's answer could be quite long. There are potentially many items you can defer. However, one I can say is that you might consider deferring incorporation. An individual can perform a business activity and draw income from it legally in a lot of situations. (For tax purposes, this is sometimes referred to as "Schedule-C" income.) I'm not saying incorporation is a bad thing (it can shield you from a lot of issues), but I am saying that it's not necessary on day 1 for a lot of small businesses. Having said that, this too can be easy to do on your own. Many companies offer services so you can incorporate for a few hundred dollars. If you do incorporate, as a small business of one person, I would definitely consider a tax concept called an "S-Corp" to avoid paying double taxes.) But here too, we've gone down the tax rabbit hole again. :-) |
How can I improve my credit score if I am not paying bills or rent? | For those who are looking to improve credit for the sake of being able to obtain future credit on better terms, I think a rewards credit card is the best way to do that. I recommend that you only use as many cards as you need to gain the best rewards. I have one card that gives 6% back on grocery purchases, and I have another card that gives 4% back on [petrol] and 2% back on dining out. Both of those cards give only 1% back on all other purchases, so I use a third card that gives 1.5% back across the board for my other purchases. I pay all of the cards in full each month. If there was a card that didn't give me an advantage in making my purchases, I wouldn't own it. I'm generally frugal, so I know that there is no psychological disadvantage to paying with a card. You have to consider your own spending discipline when deciding whether paying with cards is an advantage for you. In the end, you should only use debt when you can pay low interest rates (or as in the case of the cards above, no interest at all). In the case of the low interest debt, it should be allowing you to make an investment that will pay you more by having it sooner than the cost of interest. You might need a car to get to work, but you probably don't need a new car. Borrow as little as you can and repay your loans as quickly as you can. Debt can be a tool for your advantage, but only if used wisely. Don't be lured in by the temptation of something new and shiny now that you can pay for later. |
“In-the-Money” vs “Out-of-the-Money” Call Options | First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. "In the money" means the price of a stock is trading above the strike price, if a call, or below it, if a put. On 10/20 of some year, Intel was trading at $23.34. The January $25 call strike was just $0.70, and April's was $1.82. These were out of the money. The $25 puts were "in the money" by $1.66 so you could have paid $1.90 for the Jan $25 put, with $.24 of time premium. By November, the price rose and the put fell, to $.85, all time premium. As with stocks, the key thing is to only buy calls of stock that are going to go up. If a stock will fall, buy puts. Curious, what was the class discussion just before the teacher gave you this image? |
Return of value to shareholders in an ISA | You will receive a combination of Verizon shares and cash whether you chose option B or C. Option B means that your "Return of Value" will be treated as capital - ie: as a capital gain. Option C means that your "Return of Value" will be treated as income - ie: as a dividend. As your ISA has favourable tax status, you don't end up paying any capital gain tax or income tax on dividend income. So it won't matter which option you chose. |
Covered calls: How to handle this trade? | I would expect that your position will be liquidated when the option expires, but not before. There's probably still some time value so it doesn't make sense for the buyer to exercise the option early and take your stock. Instead they could sell the option to someone else and collect the remaining time value. Occasionally there's a weird situation for whatever reason, where an option has near-zero or negative time value, and then you might get an early exercise. But in general if there's time value someone would want to sell rather than exercise. If the option hasn't expired, maybe the stock will even fall again and you'll keep it. If the option just expired, maybe the exercise just hasn't been processed yet, it may take overnight or so. |
Price graphs: why not percent change? | Actually, total return is the most important which isn't necessarily just price change as this doesn't account for dividends that may be re-invested. Thus, the price change isn't necessarily that useful in terms of knowing what you end up with as an ending balance for an investment. Secondly, the price change itself may be deceptively large as if the stock initial price was low, e.g. a few dollars or less adjusting for stock splits as most big companies will split the stock once the price is high enough, then the percentages can be quite large years later. Something else to consider is the percentage change would be based on what as the initial base. The price at the start of the chart or something else? Carefully consider what you want the initial starting point to be in determining price shifts here as one could take either end and claim a rationale for using it. Most people want to look at the price to get an idea of what would X shares cost to purchase rather than look at the percentage change from day to day. |
Do stock prices drop due to dividends? | I would say that the answer is yes. Investors may move on purchasing a stock as a result of news that a stock is set to pay out their dividend. It would be interesting to analyze the trend based on a company's dividend payouts over 10 or so years to see what/how this impacts the market value of a given company. |
Should I move my money market funds into bonds? | There is a thing called the Sharpe Ratio. This Ratio takes return/risk with risk being defined as the standard deviation of prices over time. According to Financial theory the investment with the highest (best) Sharpe Ratio is a market portfolio. Technically accepting the lower risk of a treasury is accepting an amplified lower return(market sharpe would be 1 than tbill sharpe would be at most .9999999999999). Because of this, unless there are liquidity restraints (don't buy ETFs with your payroll money DUH) you should ALWAYS be in market funds, otherwise you are leaving money on the table. Everything else is just speculation. Now the real question is value or growth....... |
If I have a home loan preapproval letter for x, can the seller know this without me explicitely telling them? | The seller has a legitimate desire to know of your preapproval. I have two current anecdotes on this issue. As a realtor helping a client buy a home, I worked closely with buyer's bank, and got a pre-approval for the amount we were offering. When there was a counteroffer, and we were going to raise the price, the bank upped the numbers on the pre-approval letter. I have a property of my own I am trying to sell. I had a negotiated price, P&S, but no pre-approval from the buyer. The buyer of his home couldn't get a mortgage, and so far, the deal has fallen through. I agree with you, you don't want to signal you can afford more, nor show any emotion about how great that house is. That's just giving the seller a bargaining chip. |
How to calculate how far a shorted stock's price can rise before broker issues a margin call? | Most brokers have a margin maintenance requirement of 30%. In your example, it would depend on how much money you're borrowing from your broker on margin. Consider this: You have $250, and short AAPL at $500 on margin. This would be a common scenario (federal law requires investors to have at least 50% of their margin equity when opening a transaction). If your broker had a requirement of 30%, they would require that for your $500 position, you have at least $500 * .3 = $150 equity. Since you are currently above that number at $250, you will not be hit with a margin call. Say the price of AAPL doubles, and now your position is worth $1000. $1000 * .3 = $300, which is $50 above your initial equity. Your broker will now consider you eligible for a margin call. Most will not execute the call right away, you will often have some time to either sell/cover stock or add funds to your account. But not all brokers will warn you if you are breaking margin requirements, and sometimes margin calls can take you by surprise if you are not paying attention. Also, many will charge interest on extra margin borrowed. |
I have $10,000 sitting in an account making around $1 per month interest, what are some better options? | Put the whole lot into a couple of low-cost broad index funds with dividends reinvested (also known as accumulation funds) and then don't look at them. Invest through a low-cost broker. There are a number to choose from and once you start googling around the theme of "index fund investing" you'll find them. The S&P 500 is a popular index to start with. |
How do you calculate the rate of return (ROR) when buying and selling put options? | What Jaydles said. I think of each strategy in terms of Capital at Risk (CaR). It's a good thing to know when considering any position. And then conveniently, the return is always profit / CaR. With covered calls it's pretty easy. Pay $1000 for stock, receive $80 in premium, net CaR is $920. If you own the stock and write calls many times (that expire worthless, or you that you buy back), there are two measurements to consider. First, treat every covered call as a buy-write. Even if you already own the stock, disregard the real cost basis, and calculate from the moment you write the call, using the stock price at that time. The second measure is more complicated, but involves using something like the XIRR function in a spreadsheet. This tracks the series as a whole, even accounting for times where there is no written call outstanding. For the written put, even though your broker may only require 30% collateral in a margin account, mentally treat them as cash-secured. Strike less premium is your true CaR. If the stock goes to zero by expiration, that's what you're on the hook for. You could just compute based on the 30% collateral required, but in my view that confuses cash/collateral needs with true risk. Note: a written put is exactly identical to a covered call at the same strike. If you tend to favor puts over CCs, ask yourself why. Just like a loaded gun, leverage isn't inherently bad, but you sure want to know when you're using it. |
Estimated Tax on Unplanned Capital Gains | In general, you are expected to pay all the money you owe in taxes by the end of the tax year, or you may have to pay a penalty. But you don't have to pay a penalty if: The amount you owe (i.e. total tax due minus what you paid in withholding and estimated taxes) is less than $1000. You paid at least 90% of your total tax bill. You paid at least 100% of last year's tax bill. https://www.irs.gov/taxtopics/tc306.html I think point #3 may work for you here. Suppose that last year your total tax liability was, say, $5,000. This year your tax on your regular income would be $5,500, but you have this additional capital gain that brings your total tax to $6,500. If your withholding was $5,000 -- the amount you owed last year -- than you'll owe the difference, $1,500, but you won't have to pay any penalties. If you normally get a refund every year, even a small one, then you should be fine. I'd check the numbers to be sure, of course. If you normally have to pay something every April 15, or if your income and therefore your withholding went down this year for whatever reason, then you should make an estimated payment. The IRS has a page explaining the rules in more detail: https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc |
If I buy a share from myself at a higher price, will that drive the price up so I can sell all my shares the higher price? | This probably won't be a popular answer due to the many number of disadvantaged market participants out there but: Yes, it is possible to distort the markets for securities this way. But it is more useful to understand how this works for any market (since it is illegal in securities markets where company shares are involves). Since you asked about the company Apple, you should be aware this is a form of market manipulation and is illegal... when dealing with securities. In any supply and demand market this is possible especially during periods when other market participants are not prevalent. Now the way to do this usually involves having multiple accounts you control, where you are acting as multiple market participants with different brokers etc. The most crafty ways to do with involve shell companies w/ brokerage accounts but this is usually to mask illegal behavior In the securities markets where there are consequences for manipulating the shares of securities. In other markets this is not necessary because there is no authority prohibiting this kind of trading behavior. Account B buys from Account A, account A buys from Account B, etc. The biggest issue is getting all of the accounts capitalized initially. The third issue is then actually being able to make a profit from doing this at all. Because eventually one of your accounts will have all of the shares or whatever, and there would still be no way to sell them because there are no other market participants to sell to, since you were the only one moving the price. Therefore this kind of market manipulation is coupled with "promotions" to attract liquidity to a financial product. (NOTE the mere fact of a promotion does not mean that illegal trading behavior is occurring, but it does usually mean that someone else is selling into the liquidity) Another way to make this kind of trading behavior profitable is via the derivatives market. Options contracts are priced solely by the trading price of the underlying asset, so even if your multiple account trading could only at best break even when you sell your final holdings (basically resetting the price to where it was because you started distorting it), this is fine because your real trade is in the options market. Lets say Apple was trading at $200 , the options contract at the $200 strike is a call trading at $1 with no intrinsic value. You can buy to open several thousand of the $200 strike without distorting the shares market at all, then in the shares market you bid up Apple to $210, now your options contract is trading at $11 with $10 of intrinsic value, so you just made 1000% gain and are able to sell to close those call options. Then you unwind the rest of your trade and sell your $210 apple shares, probably for $200 or $198 or less (because there are few market participants that actually valued the shares for that high, the real bidders are at $200 and lower). This is hardly a discreet thing to do, so like I mentioned before, this is illegal in markets where actual company shares are involved and should not be attempted in stock markets but other markets won't have the same prohibitions, this is a general inefficiency in capital markets in general and certain derivatives pricing formulas. It is important to understand these things if you plan to participate in markets that claim to be fair. There is nothing novel about this sort of thing, and it is just a problem of allocating enough capital to do so. |
Will there always be somebody selling/buying in every stock? | Well Company is a small assets company for example it has 450,000,000 shares outstanding and is currently traded at .002. Almost never has a bid price. Compare it to PI a relative company with 350 million marker cap brokers will buy your shares. This is why blue chip stock is so much better than small company because it is much more safer. You can in theory make millions with start up / small companies. You would you rather make stable medium risk investment than extremely high risk with high reward investment I only invest in medium risk mutual funds and with recent rallies I made 182,973 already in half year period. |
Making higher payments on primary residence mortgage or rental? | You're in the same situation I'm in (bought new house, didn't sell old house, now renting out old house). Assuming that everything is stable, right now I'd do something besides pay down your new mortgage. If you pay down the mortgage at your old house, that mortgage payment will go away faster than if you paid down the one on the new house. Then, things start to get fun. You then have a lot more free cash flow available to do whatever you like. I'd tend to do that before searching for other investments. Then, once you have the free cash flow, you can look for other investments (probably a wise risk) or retire the mortgage on your residence earlier. |
Why are Rausch Coleman houses so cheap? Is it because they don't have gas? | Research the company that is all I can say this company has horrible reviews. They show on their Facebook page great reviews but if you really look through all reviews the high ratings are from past and current employees. All other reviews from actual home owners are bad. They make a lot of false promises and build very cheap homes that will not last without several costly problems within the near future. Most people that buy one of their houses sell it within a few years because they start having so many problems. They have outside vendors doing all the work and do not make these vendors very accountable. I know I was a manager with Rausch for several years. STAY AWAY! |
What do the terms par value, purchase price, call price, call date, and coupon rate mean in the context of bonds? | Unless stated otherwise, these terms apply to all bonds. The par value or face value of a bond refers to the value of the bond when it's redeemed at maturity. A bond with a par value of $10,000 simply means that if you purchase the bond and hold it until the maturity date specified in the contract, you receive $10,000. The purchase price, however, is exactly that: it's what you paid for the bond. Bonds may sell below, at, or above par. Continuing the example from above, if you paid $9,800 for a bought a bond with a $10,000 par value, you bought the bond below par. A bond selling below par is said to be selling at a discount. For bonds selling above bar, they're selling at a premium. If the purchase price and the par value are the same, the bond is selling at par. These terms apply to callable bonds only, which are bond contracts that allow the issuer of the bond (in the case of municipal bonds, the institution or agency who created the contract) to buy back from bond holders at a given date (the call date) and at a given price (the call price) before the bond reaches maturity and pays the holder the full par value. Yes, the coupon rate is essentially the interest paid. It's usually represented as a percent of the par value, so if the $10,000 in the example above had a 5% coupon rate, this means that it paid out 0.05 * 10,000 = $500 each year. Usually, this payment is made as two semi-annual payments of $250. Some bonds are zero-coupon bonds, which means exactly what you would think; they don't make any coupon payments. U.S. Treasury Bills are one example of a zero-coupon bond. All of these factors are linked, because the coupon rate, callable provisions, and par value, along with the overall economic environment, can affect the purchase price of a bond. |
What are some good ways to control costs for groceries? | This may not help with the overall grocery issue, but I find that there are items that I can do without the name brand version of. A handy rule-of-thumb is to start with the least-expensive brand and work your way up, until you find one that your family likes. For instance, I've learned I can do without French's mustard in favour of no-name, but there's no way I can live without Kraft peanut butter. |
Calculating Pre-Money Valuation for Startup | Since you have no sales, I'd likely question how well could you determine the value of the company's assets in a reasonable fashion. You may be better to estimate sales and discount that back to a current valuation. For example, insurance companies could determine that if you wanted to be paid $x/month for the rest of your life, the present day value of that is $y. There are similar mechanisms for businesses but this does get tricky as the estimates have to be somewhat conservative and you have to be prepared for some other scenarios. For example, if you got the $200,000 then would you really never have to ask for more external equity financing in the future or is it quite likely that you'd want another infusion down the road? While you can mark it at $1,000,000 there will be questions about why that value that you'd have to answer and saying, "Cause I like big round numbers," may not go over well. My suggestion is to consider what kind of sales will the company have over the next 5 years that you could work back to determine a current price. If you believe the company can have $5,000,000 in sales over the 5 years then it may make sense to place the current valuation of $1,000,000 on it. I wouldn't look too much into the money and time you've invested as that isn't likely to go over well with investors that just because you've put in what is worth $x, the business may or may not be worth that. The challenge is that without sales, it is quite difficult to get an idea of what is the company worth. If it makes billions, then it is worth a lot more than a company that never turns a profit. Another way to consider this is the question of what kind of economic output do you think you could do working here for the next 5 years? Could you do thousands of dollars of work, millions of dollars or just a few bucks? Consider how you want this to be seen where if you want some help look up episodes of TV shows like "Dragon's Den" or "Shark Tank" as these give valuations often as part of the pitch which is what you are doing. |
Why doesn't the emerging markets index reflect GDP growth? | GDP being a measurement for an economy's growth and with the stock market being driven (mostly) by company profits you would expect a tight correlation between GDP growth and stock market performance. After all, a growing economy should lead to a corresponding increase in profit right? But the stock market is heavily influenced by investor mentality; irrational exuberant buying and panic selling make the stock market far more volatile than GDP ever can be. Just look at the 2001 bubble and 2008 panic sell-off for famous examples. I feel emerging markets are particularly prone to overly optimistic buying to "get in" on the GDP growth followed by overly pessimistic selling when politics get unfavorable. Also keep in mind that GDP measurements are all done after the fact, the growth that is reported has already happened. The stock market might have already expected the reported growth and priced it in. A final point: governments and companies in emerging markets have a reputation (sometimes deserved) of poor governance, think corruption, nepotism etc. So even if the economy grows substantially investors might not believe they can profit from the growth. P.S. What do you base the "no great increase" on? Emerging markets have had a rough decade but that index would have still returned 9% annually if you held it since 2001. |
Is it better to buy this used car from Craigslist or from a dealership? | The 200K vehicle is likely the better deal. Get your own mechanic to check it out. If it doesn't have major issues, it will likely cost you less. Why? Because you've wisely included $6000 in expected maintenance. Yet it has the possibility of not needing more than $500 of maintenance during the 4 years you plan on owning it. It's a gamble, but you have the chance to save $5500 of that estimated cost with that vehicle. Note that you will also need to factor in tires for either vehicle, unless that is included in your maintenance estimate. |
Do Americans really use checks that often? | In my business (estate planning law practice), probably 60-70% of my income is in the form of checks, with the balance as credit/debit cards. I prefer to get paid by check so I don't have to pay the approx 2.5% merchant fee, but I don't push clients to choose one method over the other. I offer direct deposit to my employees but most of them choose to be paid by check. Also, check processing is becoming more and more electronic - when I get paid by check, I scan the checks in a dedicated desktop scanner, and upload the check images to the bank at the end of the day, and the checks are processed very quickly. I also make deposits to my personal credit union account by scanning checks and uploading the images. So, yes, there's technically a paper check, but I (as the merchant/recipient/depositor) keep the check for a few months to make sure there's no problem with the deposit/payment, then shred them. The bank never sees the actual paper check. |
Do ETF dividends make up for fees? | It depends. Dividends and fees are usually unrelated. If the ETF holds a lot of stocks which pay significant dividends (e.g. an S&P500 index fund) these will probably cover the cost of the fees pretty readily. If the ETF holds a lot of stocks which do not pay significant dividends (e.g. growth stocks) there may not be any dividends - though hopefully there will be capital appreciation. Some ETFs don't contain stocks at all, but rather some other instruments (e.g. commodity-trust ETFs which hold precious metals like gold and silver, or daily-leveraged ETFs which hold options). In those cases there will never be any dividends. And depending on the performance of the market, the capital appreciation may or may not cover the expenses of the fund, either. If you look up QQQ's financials, you'll find it most recently paid out a dividend at an annualized rate of 0.71%. Its expense ratio is 0.20%. So the dividends more than cover its expense ratio. You could also ask "why would I care?" because unless you're doing some pretty-darned-specific tax-related modeling, it doesn't matter much whether the ETF covers its expense ratio via dividends or whether it comes out of capital gains. You should probably be more concerned with overall returns (for QQQ in the most recent year, 8.50% - which easily eclipses the dividends.) |
Buying from an aggressive salesperson | From your question and how you have framed it, I get you find Agressive Sales tactics disturb the buying process for you. ;) I understand because I also find the whole process of Research / Negotiating / Buying / Owning / Using is all on one continuum, so anything that ruins the process will likely lose the sale or enjoyment of the item, at the end of the day. [Very long answer .... Sorry :) ] The answer to this is to KNOW what you want before you have to deal with the Sales people. A good Sales person likes a customer who knows what they want. I would suggest that you follow my 'Buying Process' (Much you have already done) : Before you Buy: Identify the item you want and the max/min 'realistic' price you would buy at. [Stick to this price else 'Buyers Remorse' may bite later.] Write the questions you have down on paper before you visit the Dealer. Write the answers you want on the same list, if known. Decide which questions are most important and therefore must get the answer you want. These should be the questions you ask first. Mark these on the list. Re-visit points 1-3 are they complete and to your satisfaction ? Would you buy if all the answers & the price are right ? If NO then re-visit point 1-3 else you are not ready to buy now !!! If YES then Organise your visit to the Dealer. [Book appointment etc if needed.] At Dealer: Meet your Sales person and clearly state what you want (the item) and importantly when you intend to buy, if all your questions are answered to your satisfaction. There is no need to discuss price at this point as the 'haggling' is only possible IF the questions are answered to your satisfaction. Do not give information such as your maximum budget or similar requests, as they give the sales person the upper hand to maximise his/her pricing. If asked state that your budget is conditional on the answers you get. As the questions are answered assess the answer and assign +/- to the question on your list. If any of your most critical / important questions are answered in the negative, they are the reasons you have to call it a day and walk out. You can assess whether they are worth ignoring but you will need to factor this into your price and if you have identified your questions correctly there should be little room for debate. Assuming you have got all your questions answered you should know what you are buying and have assessed what is a reasonable price for it, if you still want it as this point. If you have lost interest, say so and let the Sales person go. Don't waste their time. They may make some sort of offer to you BUT don't forget that if you have doubts now they will not go away easily no matter what the 'great' price is. If you want it then continue. Buying your Item: [None of the following is really usefull if you have told the Sales person your Budget, as they will be aiming for the highest end of your budget. You will often find that the best price is very close to your maximum budget !!! :)] Do not forget your realistic price range, this should limit your buying price no matter what tactics are used by the Sales person. Only you know what you are prepared to pay and if an extra 1% or 50% is considered worth it to you, if you have to have the item :) Regardless, you have to have some idea of your limit and be prepared to stick to it. You must be able to walk away if the price is silly and not worth it. Assuming you have not been smitten by your item and funds are NOT unlimited, ask for the price and assess it against your price range. At this point I can only offer pointers as there are no 'magic' rules to get what you want at the lowest price. The only advice I would offer is that you will be lucky to get something at your 1st offer price unless the seller really needs to sell, because of this your 1st offer should be less than your price range lowest band. You will need to assess how much less but be prepared to get a 'No' response. If you get a 'Yes' and your research is good 'Buy It !!!' If you get too enthusiastic a response, question your research & if not sure bail out [No Sale] :) At this point you are likely to be 'Haggling' so you need to be ready for all the 'Must buy Now' tactics. If you have clearly stated your wants and timescales there is no reason to be pulled in by these tactics and they can be ignored until the price has reached the level you are happy with. If the price is not moving where you want than clearly state you cannot 'buy at that price'. If you get a total stop and no movement than you need to assess your 'need' and if priced too high then you should walk out. Remember if you stated that you had a timescale to buy of 1/2/3 weeks you should act like you have 1/2/3 weeks to keep looking. Any eagerness on your part will tell the Sales person that you have lied !!! :) You can always come back and try again, reminding the Sales person that the 'item' is still there and perhaps it is priced too high to sell and make the same offer. !!! (A bit of cheek sometimes works.) If the price is close and you still want it and the Sales person is not moving you need to try walking out while stating that you would love the 'item' if it was priced better, if no improved offer as you go, try an increased offer but again you need to assess how much and remember you can only go up, or walk out and come back another day. If the price is at a level you are happy with then you should have no reason not to buy (if you have followed this process) but this does not mean that you should be forced into buying now if you do not want to. Regardless of any 'Must buy now' tactics if the price is right and you cannot buy now, tell the Sales person when you CAN buy and see if you can get an agreement with this. It is unfair to expect a price to be held for an indeterminate time, so you do need to state when you could buy if not now when a price has been agreed. This is a point where the deal may break down if the Sales person thinks they have a sale and trys to force the Sale now. Once again you have to assess your 'need' and whether buying now is better than walking out. If the deal breaks down there is nothing stopping you from coming back and offering the same price when you can buy. A final option is to agree if a deposit can be left to reserve the item until you can buy. This gives the Sales person some assurance that you will come back and is sometimes NON-Refundable unless you agree otherwise before you pay, so check this detail first. (This tends to be smaller Dealers but generally in the UK the large companies offer refundable deposits as part of their Customer Service, the advantage of using larger Stores/Dealers etc.) Apologies for the epic reply, hope it helps. |
Does the IRS give some help or leniency to first-time taxpayers? | No, there is no special leniency given to first time tax payers. In general, this shouldn't be an issue. The IRS collects your taxes out of every one of your paychecks throughout the entire year in what is called a Withholding Tax. The amount that the IRS withholds is calculated on your W-4 Form that you file with your employer whenever you take a new job. The form helps you calculate the right number of allowances to claim (usually this is the number of personal exemptions, but depending upon if you work a second job, are married and your spouse works, or if you itemize, the number of allowances can be increased. WITHHOLDING TAX Withholding tax (also known as “payroll withholding”) is essentially income tax that is withheld from your wages and sent directly to the IRS by your employer. In other words, it’s like a credit against the income taxes that you must pay for the year. By subtracting this money from each paycheck that you receive, the IRS is basically withholding your anticipated tax payment as you earn it. In general, most people overestimate their tax liability. This is bad for them, because they have essentially given the IRS an interest free loan (and weren't able to use the money to earn interest themselves.) I haven't heard of any program targeted at first time tax payers to tell them to file a return, but considering that most tax payers overpay they should or they are giving the government a free grant. |
New to investing — I have $20,000 cash saved, what should I do with it? | My advice to you is not to take any advice from anyone when it comes to investing, especially when you don't know much about what you are investing in. mbhunter is correct, take your time to learn about what you want to invest in. If your goal at the moment is short term don't invest in stocks unless you really know what you are doing. Put your money where you can get the highest interest rate, continue saving and do a lot of research on the house you wish to buy. Even if you are not ready to buy a house yet, start looking so that by the time you are ready to buy, you know how much the house is really worth. Before buying our house we spent about 7 months looking and researching and looked at more than 100 houses. |
Do corporate stock splits negate share repurchase programs? | Companies do both quite often. They have opposite effects on the share price, but not on the total value to the shareholders. Doing both causes value to shareholders to rise (ie, any un-bought back shares now own a larger percentage of the company and are worth more) and drops the per-share price (so it is easier to buy a share of the stock). To some that's irrelevant, but some might want a share of an otherwise-expensive stock without paying $700 for it. As a specific example of this, Apple (APPL) split its stock in 2014 and also continued a significant buyback program: Apple announces $17B repurchase program, Oct 2014 Apple stock splits 7-to-1 in June 2014. This led to their stock in total being worth more, but costing substantially less per share. |
T-mobile stock: difference between TMUSP vs TMUS | The difference between TMUSP and TMUS is that the "with P" ticker is for a TMobile Preferred Stock offering. The "without P" ticker is for TMobile common stock. The difference between the apparent percentage yields is due to Yahoo! Stock misreporting the dividend on the preferred stock for the common stock, which has not paid a dividend (thanks Brick for pointing this out!) Preferred stock holders get paid first in the event of liquidation, in most scenarios they get paid first. They sometimes get better returns. They typically lack voting rights, and after a grace period, they may be recalled by the company at a fixed price (set when they were issued). Common stock holders can vote to alter the board of directors, and are the epitome of the typical "I own a trivial fraction of the company" model that most people think of when owning stocks. As the common stock is valued at much less, it appears that the percent yield is much higher, but in reality, it's 0%. |
Option on an option possible? (Have a LEAP, put to me?) | I understand what you're asking for (you want to write options ON call options... essentially the second derivative of the underlying security), and I've never heard of it. That's not to say it doesn't exist (I'm sure some investment banker has cooked something like this up at some point), but if it does exist, you wouldn't be able to trade it as easily as you can a put or a LEAP. I'm also not sure you'd actually want to buy such a thing - the amount of leverage would be enormous, and you'd need a massive amount of margin/collateral. Additionally, a small downward movement in the stock price could wipe out the entire value of your option. |
How to share income after marriage and kids? | What equal percentage of both you and your girlfriend's income will cover the essential household expenses? Although we earned different amounts, both of us turned over half our income over to the household. Between us this percentage slice from each of our earnings neatly covered all the essentials. The amounts contributed were different, but the contributions where nonetheless equal. Beyond this the financial relationship was fast and loose. |
Why is auto insurance ridiculously overpriced for those who drive few miles? | Not all miles carry the same amount of risk. A survey by Progressive indicated that accidents are most likely to occur within 5 miles of home, and 77% of accidents occur within 15 miles of home. Only 1% of accidents occurred 50 or more miles from home. That's from 2002, but it seems unlikely to have changed much. Since the miles closest to your home carry more risk, they cost more, and low-mileage discounts reflect that. There are per-mile insurance options in a few states which could save you money, but they do constant monitoring via that ODB2 telematics device, and other insurers offer discounts if you accept their monitoring either in perpetuity or for a limited period of time. Without monitoring, insurers don't know if that 4,000 miles of driving is spread into a few mid-day trips each week, or maybe you're doing all that driving from midnight to 4am on weekends (fatalities far more likely), or from 5-7pm during weekdays (accidents far more likely). Personally, I save ~10% by being a 'low-mileage' driver, and am currently in the middle of a 90-day monitoring, so might go lower, but given that accidents are far more likely close to home, 10% feels pretty significant and appropriate. |
What is a checking account and how does it work? | A checking account is one that permits the account holder to write demand drafts (checks), which can be given to other people as payment and processed by the banks to transfer those funds. (Think of a check as a non-electronic equivalent of a debit card transaction, if that makes more sense to you.) Outside of the ability to write checks, and the slightly lower interest rate usually offered to trade off against that convenience, there really is no significant difference between savings and checking accounts. The software needs to be designed to handle checking accounts if it's to be sold in the US, since many of us do still use checks for some transactions. Adding support for other currencies doesn't change that. If you don't need the ability to track which checks have or haven't been fully processed, I'd suggest that you either simply ignore the checking account feature, or use this category separation in whatever manner makes sense for the way you want to manage your money. |
Annuities question - Equations of value | The solution is x = 8.92. This assumes that Chuck's six years of deposits start from today, so that the first deposit accumulates 10 years of gain, i.e. 20*(1 + 0.1)^10. The second deposit gains nine years' interest: 20*(1 + 0.1)^9 and so on ... If you want to do this calculation using the formula for an annuity due, i.e. http://www.financeformulas.net/Future-Value-of-Annuity-Due.html where (formula by induction) you have to bear in mind this is for the whole time span (k = 1 to n), so for just the first six years you need to calculate for all ten years then subtract another annuity calculation for the last four years. So the full calculation is: As you can see it's not very neat, because the standard formula is for a whole time span. You could make it a little tidier by using a formula for k = m to n instead, i.e. So the calculation becomes which can be done with simple arithmetic (and doesn't actually need a solver). |
Why do people buy stocks that pay no dividend? | There are many stocks that don't have dividends. Their revenue, growth, and reinvestment help these companies to grow, and my share of such companies represent say, one billionth of a growing company, and therefore worth more over time. Look up the details of Berkshire Hathaway. No dividend, but a value of over $100,000. Not a typo, over one hundred thousand dollars per share. |
Calculating Future Value: Initial deposit and recurring deposits of a fixed but different Value | Illustrating with a shorter example: Suppose I deposit 1,000 USD. Every year I deposit another 100 USD. I want to know how much money will be on that savings account in 4 years. The long-hand calculation is Expressed with a summation And using the formula derived from the summation (as shown by DJohnM) So for 20 years Note in year 20 (or year 4 in the shorter example) the final $100 deposit does not have any time to accrue interest before the valuation of the account. |
Why buy stock of a company instead of the holding company who has more than 99% of the stocks | Also VW has more brands, i.e. is more diversified This isn't necessarily a good thing for investing. It makes the company less likely to go down, but it limits your portfolio. For example, say you think that Hyundai is a good alternative to Volkswagen (VW) but really like Audi. If you buy VW, you get some Audi but a lot more of the rest of VW. Then if you bought Hyundai, you'd be overrepresented in that segment of the market. Audi may not be structured uniquely, but it is still the only company selling Audi brand cars. Perhaps someone thinks that those models will do well. That person may think that Audi will do exceptionally well in its niche. Having many brands isn't necessarily great. General Motors had something like sixteen brands before declaring bankruptcy. It only has twelve now. Now, it sounds like you feel the opposite about it. You don't particularly like Audi as a stock and like VW better. Your reasons sound perfectly reasonable (I know little about either company). It may even be that VW is the only one buying Audi stock, because everyone else has the same view as you. |
How do I adjust to a new social class? | The prices reflect what the market will bear. People have more money, things will likely cost more. Think of it in terms of percentages and you can start to justify the higher housing costs. My father likes to tell me that his first mortgage cost him $75 a month, and he had no idea how he was going to pay it each month. He also earned $3/hr at his job. So his housing costs were 15% of his gross income. My dear father almost passed out when he learned that my mortgage was $1000 a month, but since I earn $4000/month gross, I am really only paying 25% of my salary. (Numbers made up) So if he complains I pay 10% more, so be it, but complaining I pay $925 more isn't worrying to me because of my increased salary. So if your complaint is the amounts, you must take ratios, percentages and relative comparisons. However if you are baffled by people having money and wasting it on silly or foolish purchases, I am with you. I still don't understand why people will use the closest ATM and just pay the $2 fee. Do right by yourself and don't mind what others are up to. |
My investment account is increasingly and significantly underperforming vs. the S&P 500. What should I do? | Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped. But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house. |
How should I pay off my private student loans that have a lot of restrictions? | Excellent question and it is a debate that is often raised. Mathematically you are probably best off using option #1. Any money that is above and beyond minimum payments earns a pretty high interest rate, about 6.82% in the form of saved interest payments. The problem is you are likely to get discouraged. Personal finance is a lot about behavior, and after working at this for a year, and still having 5 loans, albeit a lower balance, might take a bit of fight out of you. Paying off such a large balance, in a reasonable time, will take a lot of fight. With the debt snowball, you pay the minimum to the student loan, save in an outside account, and when it is large enough, you execute option #2. So a year from now you might only have three loans instead of five. If you behaved exactly the same your balance would be higher after that year then using the previous method. However often one does not behave the same. Because the goals are shorter and more attainable it is easier to delay some gratification. The 8 dollars you are saving in your weekly gas budget, because of low prices, is meaningful when saving for a 4K goal, where it is meaningless when looking at it as a 74K goal. With the 4K goal you are more apt to put that money in your savings, where the 74K goal you might spend it on a latte. For me, the debt snowball worked really well. With either option make sure that excess payments actually go to a reduction in principle not a prepayment of interest. Given this you may be left with no option. For example if method #1 you only prepay interest, you are forced to use option #2. |
How to tell if you can trust a loan company? | Look for people who have done business with them. If you don't know anyone who has used their services, look for a company that at least has a brick and mortar branch in your area. Being able to deal with them face to face is a must. Have you checked with your local bank? |
Understanding differences between S&P500 index-tracking ETFs | Back in the olden days, if you wanted to buy the S&P, you had to have a lot of money so you can buy the shares. Then somebody had the bright idea of making a fund that just buys the S&P, and then sells small pieces of it to investor without huge mountains of capital. Enter the ETFs. The guy running the ETF, of course, doesn't do it for free. He skims a little bit of money off the top. This is the "fee". The major S&P ETFs all have tiny fees, in the percents of a percent. If you're buying the index, you're probably looking at gains (or losses) to the tune of 5, 10, 20% - unless you're doing something really silly, you wouldn't even notice the fee. As often happens, when one guy starts doing something and making money, there will immediately be copycats. So now we have competing ETFs all providing the same service. You are technically a competitor as well, since you could compete with all these funds by just buying a basket of shares yourself, thereby running your own private fund for yourself. The reason this stuff even started was that people said, "well why bother with mutual funds when they charge such huge fees and still don't beat the index anyway", so the index ETFs are supposed to be a low cost alternative to mutual funds. Thus one thing ETFs compete on is fees: You can see how VOO has lower fees than SPY and IVV, in keeping with Vanguard's philosophy of minimal management (and management fees). Incidentally, if you buy the shares directly, you wouldn't charge yourself fees, but you would have to pay commissions on each stock and it would destroy you - another benefit of the ETFs. Moreover, these ETFs claim they track the index, but of course there is no real way to peg an asset to another. So they ensure tracking by keeping a carefully curated portfolio. Of course nobody is perfect, and there's tracking error. You can in theory compare the ETFs in this respect and buy the one with the least tracking error. However they all basically track very closely, again the error is fractions of the percent, if it is a legitimate concern in your books then you're not doing index investing right. The actual prices of each fund may vary, but the price hardly matters - the key metric is does it go up 20% when the index goes up 20%? And they all do. So what do you compare them on? Well, typically companies offer people perks to attract them to their own product. If you are a Fidelity customer, and you buy IVV, they will waive your commission if you hold it for a month. I believe Vanguard will also sell VOO for free. But for instance Fidelity will take commission from VOO trades and vice versa. So, this would be your main factor. Though, then again, you can just make an account on Robinhood and they're all commission free. A second factor is reliability of the operator. Frankly, I doubt any of these operators are at all untrustworthy, and you'd be buying your own broker's ETF anyway, and presumably you already went with the most trustworthy broker. Besides that, like I said, there's trivial matters like fees and tracking error, but you might as well just flip a coin. It doesn't really matter. |
Accepting high volatility for high long-term returns | Modern portfolio theory has a strong theoretical background and its conclusions on the risk/return trade-off have a lot of good supporting evidence. However, the conclusions it draws need to be used very carefully when thinking about retirement investing. If you were really just trying to just pick the one investment that you would guess would make you the most money in the future then yes, given no other information, the riskiest asset would be the best one. However, for most people the goal retirement investing is to be as sure as possible to retire comfortably. If you were to just invest in a single, very risky asset you may have the highest expected return, but the risk involved would mean there might be a good chance you money may not be there when you need it. Instead, a broad diversified basket of riskier and safer assets leaning more toward the riskier investments when younger and the safer assets when you get closer to retirement tends to be a better fit with most people's retirement goals. This tends to give (on average) more return when you are young and can better deal with the risk, but dials back the risk later in life when your investment portfolio is a majority of your wealth and you can least afford any major swings. This combines the lessons of MPT (diversity, risk/return trade-off) in a clearer way with common goals of retirement. Caveat: Your retirement goals and risk-tolerance may be very different from other peoples'. It is often good to talk to (fee-only) financial planner. |
How can I remove the movement of the stock market as a whole from the movement in price of an individual share? | As others have pointed out, the value of Apple's stock and the NASDAQ are most likely highly correlated for a number of reasons, not least among them the fact that Apple is part of the NASDAQ. However, because numerous factors affect the entire market, or at least a significant subset of it, it makes sense to develop a strategy to remove all of these factors without resorting to use of an index. Using an index to remove the effect of these factors might be a good idea, but you run the risk of potentially introducing other factors that affect the index, but not Apple. I don't know what those would be, but it's a valid theoretical concern. In your question, you said you wanted to subtract them from each other, and only see an Apple curve moving around a horizontal line. The basic strategy I plan to use is similar but even simpler. Instead of graphing Apple's stock price, we can plot the difference between its stock price on business day t and business day t-1, which gives us this graph, which is essentially what you're looking for: While this is only the preliminaries, it should give you a basic idea of one procedure that's used extensively to do just what you're asking. I don't know of a website that will automatically give you such a metric, but you could download the price data and use Excel, Stata, etc. to analyze this. The reasoning behind this methodology builds heavily on time series econometrics, which for the sake of simplicity I won't go into in great detail, but I'll provide a brief explanation to satisfy the curious. In simple econometrics, most time series are approximated by a mathematical process comprised of several components: In the simplest case, the equations for a time series containing one or more of the above components are of the form that taking the first difference (the procedure I used above) will leave only the random component. However, if you want to pursue this rigorously, you would first perform a set of tests to determine if these components exist and if differencing is the best procedure to remove those that are present. Once you've reduced the series to its random component, you can use that component to examine how the process underlying the stock price has changed over the years. In my example, I highlighted Steve Jobs' death on the chart because it's one factor that may have led to the increased standard deviation/volatility of Apple's stock price. Although charts are somewhat subjective, it appears that the volatility was already increasing before his death, which could reflect other factors or the increasing expectation that he wouldn't be running the company in the near future, for whatever reason. My discussion of time series decomposition and the definitions of various components relies heavily on Walter Ender's text Applied Econometric Time Series. If you're interested, simple mathematical representations and a few relevant graphs are found on pages 1-3. Another related procedure would be to take the logarithm of the quotient of the current day's price and the previous day's price. In Apple's case, doing so yields this graph: This reduces the overall magnitude of the values and allows you to see potential outliers more clearly. This produces a similar effect to the difference taken above because the log of a quotient is the same as the difference of the logs The significant drop depicted during the year 2000 occurred between September 28th and September 29th, where the stock price dropped from 26.36 to 12.69. Apart from the general environment of the dot-com bubble bursting, I'm not sure why this occurred. Another excellent resource for time series econometrics is James Hamilton's book, Time Series Analysis. It's considered a classic in the field of econometrics, although similar to Enders' book, it's fairly advanced for most investors. I used Stata to generate the graphs above with data from Yahoo! Finance: There are a couple of nuances in this code related to how I defined the time series and the presence of weekends, but they don't affect the overall concept. For a robust analysis, I would make a few quick tweaks that would make the graphs less appealing without more work, but would allow for more accurate econometrics. |
Why is it possible to just take out a ton of credit cards, max them out and default in 7 years? | Well, primarily because that's fraud and fraud prevents a debtor from receiving a discharge in bankruptcy court. Fraud would be pretty easy to prove if you didn't have an income change and you have several lines of credit opened on and around the same day with almost no payments made toward them. Additionally, thanks to the reforms of the bankruptcy code, if your income exceeds the median income of your state you'll be forced in to a Chapter 13 and committed to a repayment plan that allocates all of your "disposable income" to your creditors. Now if whoever posted that will attempt to simply not pay then negotiate repayment plans with their creditors the process will last far longer than 7 years. It takes a long time to be in default for enough time that a consumer creditor will negotiate the debt and this is assuming the creditor doesn't sue you and get a judgement which could apply liens to any property you may own. The judgment(s) will likely cause you to pursue bankruptcy anyway; only now you're at least a few years beyond the point at which you ruined your credit. |
Why is a stock trade flat on large volume? | Large volume just means a lot of market participants believe they know where the stock price will be (after some amount of time). The fact that the price is not moving just means that about 50% of those really confident traders think the stock will be moving up, and about 50% of those really confident traders think the stock will be moving down. |
Avoiding timing traps with long term index investing | 1) The risks are that you investing in financial markets and therefore should be prepared for volatility in the value of your holdings. 2) You should only ever invest in financial markets with capital that you can reasonably afford to put aside and not touch for 5-10 years (as an investor not a trader). Even then you should be prepared to write this capital off completely. No one can offer you a guarantee of what will happen in the future, only speculation from what has happened in the past. 3) Don't invest. It is simple. Keep your money in cash. However this is not without its risks. Interest rates rarely keep up with inflation so the spending power of cash investments quickly diminishes in real terms over time. So what to do? Extended your time horizon as you have mentioned to say 30 years, reinvest all dividends as these have been proven to make up the bulk of long term returns and drip feed your money into these markets over time. This will benefit you from what is known in as 'dollar cost averaging' and will negate the need for you to time the market. |
Price/Time priority order matching - limit order starvation | Market orders do not get priority over limit orders. Time is the only factor that matters in price/time order matching when the order price is the same. For example, suppose the current best available offer for AAPL is $100.01 and the best available bid is $100.00. Now a limit buy for $100.01 and a market buy arrive at around the same instant. The matching engine can only receive one order at a time, no matter how close together they arrive. Let's say that by chance the limit buy arrives first. The engine will check if there's a matching sell at $100.01 and indeed there is and a trade occurs. This all happens in an instant before the matching engine ever sees the market buy. Then it moves on to the market buy and processes it accordingly. On the other hand, let's say that by chance the market buy arrives first. The engine will match it with the best available sell (at $100.01) and a trade occurs. This all happens in an instant before the matching engine ever sees the limit buy. Then it moves on to the limit buy and processes it accordingly. So there's never a comparison between the two orders or their "priorities" because they never exist in the system at the same time. The first one to arrive is processed first; the second one to arrive is processed second. |
Taking partial capital loss purely for tax purposes | When a question is phrased this way, i.e. "for tax purposes" I'm compelled to advise - Don't let the tax tail wag the investing dog. In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full. |
For very high-net worth individuals, does it make sense to not have insurance? | Everyone is usually better off without insurance. A very few people are much better off with insurance. Insurance is a gamble and when you lose, you win. Very few people lose badly enough to win. Most people just pay money into insurance and never get as much back as they pay in. For most people, in most lives, insurance is a bad deal. The reason people crave insurance is because they cannot calculate the probability of something bad happening as well as an actuary can do so. The gap in knowledge between you and and actuary is what make insurance providers rich and you poor. They are smart, you are not. You think some terrible thing is going to happen to you, they know it probably won't. So they sell you a product you probably will never need. Anyhow, most people can't understand probability, and how to analyze risk, so they won't get what I'm saying here. Understanding the real cost of risk is the first lesson in understanding money and wealth. Rich people usually understand the value and cost of risk. Hence, they only buy insurance when they expect to lose, that is, to win. We rich people do everything only when we know already we are going to win. We don't gamble, unless we are the house. When a self-made rich man buys something, its because he knows already he is going to come out ahead on it, most probably. |
Is inflation a good or bad thing? Why do governments want some inflation? | Basically, in any financial system that features fractional reserve banking, the monetary supply expands during times of prosperity. Stable, low inflation of 2-4% keeps capital available while keeping the value of money stable. It also discourages hoarding of wealth. Banks aren't vaults. They take deposits and make an explicit promise to repay the depositor on demand. Since most depositors don't need to withdraw money regularly, the lend out the money you deposited and maintain a reserve sufficient to meet daily cash needs. When times are good, banks lend to people and businesses who need capital, who in turn do things that add value to the overall economy. When times are bad, people and businesses either cannot get capital or pay more for it, which reduces the number of times that money changes hands and has a negative impact on the wider economy. People who are trying to sell you commodities or who have a naive view of how the economy actually works decry the current monetary system and throw around scary words like "fiat currency" and "inflation is theft". What these people don't realize is that before the present system, where the value of money is based on promises to repay, the gold and silver backed systems also experienced inflation. With gold/silver based money, inflation was driven by discoveries of gold and silver deposits |
Expecting to move in five years; how to lock mortgage rates? | First consider the basic case of what you are asking: you expect to have a future obligation to pay interest, and you are concerned that the rate when you pay it, will be higher than the rate today. In the simplest case, you could theoretically hedge that risk by buying an asset which pays the market interest rate. As the interest rate rises, increasing your costs, your return on this asset would also increase. This would minimize your exposure to interest rate fluctuations. There are of course two problems with this simplified solution: (1) The reason you expect to pay interest, is because you need/want to take on debt to purchase your house. To fully offset this risk by putting all your money in an asset which bears the market interest rate, would effectively be the same as just buying your house in cash. (2) The timing of the future outflow is a bit unique: you will be locking in a rate, in 5 years, which will determine the payments for the 5 years after that. So unless you own this interest-paying asset for that whole future duration, you won't immediately benefit. You also won't need / want to buy that asset today, because the rates from today to 2022 are largely irrelevant to you - you want something that directly goes against the prevailing mortgage interest rate in 2022 precisely. So in your specific case, you could in theory consider the following solution: You could short a coupon bond, likely one with a 10 year maturity date from today. As interest rates rise, the value of the coupon bond [for it's remaining life of 5 years], which has an implied interest rate set today, will drop. Because you will have shorted an asset dropping in value, you will have a gain. You could then close your short position when you buy your house in 5 years. In theory, your gain at that moment in time, would equal the present value of the rate differential between today's low mortgage rates and tomorrow's high interest rates. There are different ways mechanically to achieve what I mention above (such as buying forward derivative contracts based on interest rates, etc.), but all methods will have a few important caveats: (1) These will not be perfect hedges against your mortgage rates, unless the product directly relates to mortgage rates. General interest rates will only be a proxy for mortgage rates. (2) There is additional risk in taking this type of position. Taking a short position / trading on a margin requires you to make ongoing payments to the broker in the event that your position loses money. Theoretically those losses would be offset by inherent gains in the future, if mortgage rates stay low / go lower, but that offset isn't in your plan for 5 years. (3) 5 years may be too long of a timeline for you to accurately time the maturity of your 'hedge' position. If you end up moving in 7 years, then changes in rates between 2022-2024 might mean you lose on both your 'hedge' position and your mortgage rates. (4) Taking on a position like this will tie up your capital - either because you are directly buying an asset you believe will offset growing interest rates, or because you are taking on a margin account for a short position (preventing you from using a margin account for other investments, to the extent you 'max out' your margin limit). I doubt any of these solutions will be desirable to an individual looking to mitigate interest rate risk, because of the additional risks it creates, but it may help you see this idea in another light. |
Why do people buy insurance even if they have the means to overcome the loss? | For a car, you're typically compelled to carry insurance, and picking up "comprehensive" coverage (fire, theft, act of god) is normally cheap. If the car was purchased with a loan, the lender will stipulate that you carry comprehensive and collision insurance. People buy insurance because it limits their liability. In the grand scheme of things, pricing in a fixed rate of loss every year (insurance premium + potential deductible) is appealing to many versus having to cover a catastrophic loss when your car is wrecked or stolen. |
Scam or Real: A woman from Facebook apparently needs my bank account to send money | Yes, it is a scam. Think about it: Why would a stranger offer to give you money? Why would she need you to pay her own employees? She wouldn't. It is a scam. You have more to lose than just the $25 that is in the account. Just as has happened to your dad before, you will be receiving money that is not real, but paying real money out somewhere else. One more thing: If your dad has fallen for these scams so many times that he can't get a bank account anymore, why are you still taking financial advice from him? |
Why do people buy stocks that pay no dividend? | Shares in a company represent a portion of a company. If that company takes in money and doesn't pay it out as a dividend (e.g. Apple), the company is still more valuable because it has cold hard cash as an asset. Theoretically, it's all the same whether your share of the money is inside the company or outside the company; the only immediate difference is tax treatment. Of course, for large bank accounts that means that an investment in the company is a mix of investment in the bank account and investment in the business-value of the company, which may stymie investors who aren't particularly interested in buying larve amounts of bank accounts (known for low returns) and would prefer to receive their share of the cash to invest elsewhere (or in the business portion of the company.) Companies like Apple have in fact taken criticism for this. Your company could also use that cash to invest in itself (growing the value of its profits) or buy other companies that are worth money, essentially doing the job for you. Of course, they can do the job well or they can do it poorly... A company could also be acquired by a larger company, or taken private, in exchange for cash or the stock of another company. This is another way that the company's value could be returned to its shareholders. |
What software do you recommend for Creating a To-The-Penny, To-The-Day Budget? | I've tried Mint, and I've tried Quicken. Now, I think Quicken is an annoying, crashy little piece of software, but it is also quite capable; overall I think it has the features you want. You can enter your bills, broken down by category, in advance. You can enter your paychecks, broken down by category (gross income, federal income tax, state income tax, social security, SDI, transfers to tax-protected 401(k) account, etc) in advance. You can enter in your stock trades and it can tell you how much you'll need to end up paying in capital gains taxes. You can even enter in your stock option vesting schedule in advance (it's a royal pain because you can't go back and change anything without deleting everything, but you can do it). It'll forecast your bank account balance in all of your bank accounts in advance with a shiny chart. It'll even model your loans, if you set it up right. I didn't do too much with the "budgeting" tools per se, but the account-balances-daily features sound like the closest thing to what you're looking for that's likely to exist. The only thing that's a trifle tricky is that transfers from one account to another may take multiple days (hello, ACH) and you'll have to decide whether to record them at departure or arrival. |
Why is it rational to pay out a dividend? | First, you need to understand that not every investor's goals are the same. Some investors are investing for income. They want to invest in a profitable company and use the profit from the company as income. If that investor invests only in stocks that do not pay a dividend, the only way he can realize income is to sell his investment. But he can invest in companies that pay a regular dividend and use that income while keeping his investment intact. Imagine this: Let's say I own a profitable company, and I offer to sell you part ownership in that company. However, I tell you this upfront: no matter how much profit our company makes, you will never get a penny from me. You will be getting a stock certificate - a piece of paper - and that's it. You can watch the company grow, and you can tell yourself you own it, but the only way you will personally benefit from your investment would be to sell your piece to someone else, who would also never see a penny in profit. Does that sound like a good investment? The fact of the matter is, stocks in companies that do not distribute dividends do have value, but this value is largely based on the potential of profits/dividends at some point in the future. If a company vows never ever to pay dividends, why would anyone invest? An investment would be more of a donation (like Kickstarter) at that point. A company that pays dividends is possibly past their growth stage. That doesn't necessarily mean that they have stopped growing altogether, but remember that an expansion project for any company does not automatically yield a good result. If a company does not have a good opportunity currently for a growth project, I as an investor would rather get a dividend than have the company blow all the profit on a ill-fated gamble. |
Do I pay a zero % loan before another to clear both loans faster? | Use the $11k to pay down either car loan (your choice). You should be able to clear one loan very quickly after that lump sum. After that, continue to aggressively pay down the other car loan until it is clear. Lastly, pay off the mortgage while making sure you are financially stable in other areas (cash-on-hand, retirement, etc) Reasoning: The car loans are very close in value, making it a wash as far as payoff speed. The 2.54% interest is not a large factor here. As a percentage of all these numbers, the few bucks a month isn't going to change your financial situation. This is assuming you will pay off both loans well ahead of schedule, making the interest rate negligible in the answer. Paying off the mortgage last is due to the risk associated with the car loans. The cars are guaranteed to lose value at an alarming rate. While a house certainly may lose value, it is far from an expectation. It is likely that your house will maintain and/or increase in value, unless you have specific circumstances not disclosed here. This makes the mortgage a lower risk loan in your financial world. You can probably sell the house to clear the loan balance if necessary. The cars are far more likely to depreciate beyond the loan balance. |
How do I go about finding an honest & ethical financial advisor? | If someone recommends a particular investment rather than a class of investments, assume they are getting a commission and walk away. If someone recommends whole life insurance as an investment vehicle, walk away. Find someone whose fiduciary responsibility is explicitly to you as their client. That legally obligated them to consider your best interests first. It doesn't guarantee they are good, but it's done protection against their being actively evil. |
Can another tax loss be used to offset capital gains taxes? How does it work? | Capital gains and losses offset each other first, then your net gain is taxed at the applicable rate. If you have a net loss, you can offset your other income by up to $3,000. In your example, you have no net-gain or loss, so no tax implications from your activity. |
What type of investments should be in a TFSA, given its tax-free growth and withdrawal benefits? | A questoin that I deal with almost every day. Like most investments it comes down to.....What is the purpose for this money? If it is truly a rainy day savings account that you may need in the short term, then fixed income investments like savings accounts, GIC's, Bonds, Bond funds and Fixed Income ETF's are ideal as they are taxed very inefficiently outside of any registered plan (therefore tax free in here). However if you have a plan in place that has all your short term needs covered elsewhere, I believe this is the place that you should be the most aggressive in your overall portfolio. If that mining stock goes up by 1000% wouldn't it be nice to put all of that gain in your pocket? |
Should I wait to save up 20% downpayment on a 500k condo? | The simple answer is yes - put 20% (or more) down. In the past I have paid PMI and used a combination first and second mortgage to get around it. I recommend avoiding both of those situations. I am much more comfortable now with just a regular mortgage payment. The more equity you have in your home the more options you will have in the future. |
If a put seller closes early, what happens to the buyer? | You're assuming options traded on the open market. To close open positions, a seller buys them back on the open market. If there's little on offer, this will drive the price up. |
What steps are required to transfer real estate into a LLC? | especially considering it has a mortgage on it (technically a home equity loan on my primary residence). I'm not following. Does it have a mortgage on it, or your primary residence (a different property) was used as a security for the loan? If it is HELOC from a different property - then it is really your business what to do with it. You can spend it all on casinos in Vegas for all that the bank cares. Is this a complicated transaction? Any gotchas I should be aware of before embarking on it? Obviously you should talk to an attorney and a tax adviser. But here's my two cents: Don't fall for the "incorporate in Nevada/Delaware/Wyoming/Some other lie" trap. You must register in the State where you live, and in the State where the property is. Incorporating in any other State will just add complexity and costs, and will not save you anything whatsoever. 2.1 State Taxes - some States tax LLCs. For example, in California you'll pay at least $800 a year just for the right of doing business. If you live in California or the property is in California - you will pay this if you decide to set up an LLC. 2.2 Income taxes - make sure to not elect to tax your LLC as a corporation. The default for LLC is "disregarded" status and it will be taxed for income tax purposes as your person. I.e.: IRS doesn't care and doesn't know about it (and most States, as well). If you actively select to tax it as a corporation (there's such an option) - it will cost you very dearly. So don't, and if someone suggest such a thing to you - run away from that person as fast as you can. Mortgages - it is very hard to get a mortgage when the property is under the LLC. If you already have a mortgage on that property (the property is the one securing the loan) - it may get called once you transfer it into LLC, since from bank's perspective that would be transferring ownership. Local taxes - transferring into LLC may trigger a new tax assessment. If you just bought the property - that will probably not matter much. If it appreciated - you may get hit with higher property taxes. There are also many little things - once you're a LLC and not individual you'll have to open a business bank account, will probably need a new insurance policy, etc etc. These don't add much to costs and are more of an occasional nuisance. |
What is the best way to stay risk neutral when buying a house with a mortgage? | You can hedge your house price from losing value if you believe that the housing market is correlated with major stock indices. Speak with a commodities broker because they will be able to help you buy puts on stock indices which if correlated with housing prices will offer somewhat of a hedge. Example. House prices drop 30% because of weak economy, stocks will generally drop around that same amount 30%. If you have enough exposure to in the puts compared to your house value you will be protected. You can also buy calls in 30 year bonds for interest rate lock if you are not on a fixed interest rate. Many investors like warren buffet and carl icahn have been protecting them selves from a potential market downward turn. Speak to a local commodity broker to get some detailed advice, not etrade or any discount brokers they won't be able to help you specialize your trades. look for a full time commodity broker house. |
Primerica: All it claims to be? | Primerica's primary value proposition is that switching from whole or universal life to term life, and investing the difference is a good idea for most people. However, there are a number of other important factors to consider when purchasing life insurance, and I would also be wary of anyone claiming that one product will be the "best" for you under all circumstances. Best Insurance? Without getting into a much larger discussion on how to pick insurance companies or products, here are a few things that concern me about Primerica: They have a "captive" sales force, meaning their agents sell only Primerica products. This means that they are not shopping around for the best deal for you. Given how much prices on term life have changed in recent years, I would highly recommend taking the time to get alternate quotes online or from an independent broker who will shop around for you. Their staff are primarily part-time employees. I am not saying they are incompetent or don't care, just that you are more likely to be working with someone for whom insurance is not their primary line of work. If you have substantial reason to believe that you may someday need whole life, their products may not suit you well. Primerica does not offer whole life as far as I am aware, which also means that you cannot convert your term life policy through them to whole life should you need to do so. For example, if you experience an accident, are disabled, or have a significant change in your health status in the future and do not have access to a group life policy, you may be unable to renew your individual policy. Above Average Returns? I am also highly skeptical about this claim. The only possible context in which I could find this valid would be if they mean that your returns on average will be better if you invest in the stock market directly as compared to the returns you would get from the "cash value" portion of a life insurance product such as universal life, as those types of products generally have very high fees. Can you clarify if this is the claim that was made, or if they are promising returns above those of the general stock market? If it is the latter, run! Only a handful of superstar investors (think Warren Buffet, Peter Lynch, and Bill Gross) have ever consistently outperformed the stock market as a whole, and typically only for a limited period of time. In either case, I would have the same concerns here as stated in reasons #1 and #2 above. Even more so than with insurance, if you need investment advice, I'd recommend working with someone who is fully dedicated to that type of work, such as a fee-only financial planner (http://www.napfa.org/ is a good place to find one). Once you know how you want to invest, I would again recommend shopping around for a reputable but inexpensive broker and compare their fees with Primerica's. Kudos on having a healthy level of skepticism and listening to your gut. Also, remember that if you are not interested in their offer, you don't have to prove them wrong - you can simply say "no thank you." Best of luck! |
When does Ontario's HST come into effect? | It looks like the HST will be in effect in Ontario on July 1st, 2010. As to whether it will replace GST with HST for all services, it looks like some sectors may get special treatment: Ontario may exempt mutual funds from HST (National Post). But it doesn't look final yet. However, I would suggest that most service-based businesses in Ontario need to prepare to start charging 13% HST instead of 5% GST. It will be the law. On the "goods" side of the new harmonized tax, it looks like certain goods will still be exempt from the provincial portion. Here's a quote from the Ontario Budget 2009 News Release: "Books, diapers, children's clothing and footwear, children's car seats and car booster seats, and feminine hygiene products would be exempt from the provincial portion of the single sales tax." Here's some additional information on the introduction of the HST, from the province: General Transitional Rules for Ontario HST. And finally, another interesting article from the Ottawa Business Journal: Preparing For Ontario Sales Tax Harmonization – It's Not Too Early UPDATE: I just received an insert from Canada Revenue Agency included with my quarterly GST statement. Titled "Harmonization of the Sales Tax in Ontario and British Columbia", it contains a section titled "What this means for you" (as in, you the business owner). Here's an excerpt: [...] All Ontario and B.C. registrants would need to update their accounting and point-of-sale systems to accomodate the change in rate and new point-of-sale rebates for the implementation date of July 1, 2010. The harmonization of the sales tax in Ontario and B.C. may affect the filing requirements of registrants outside of these two provinces. Registrants will report their HST according to their current GST filing frequency. As a result of the harmonization, there will be changes to the rebates for housing and public service bodies. More information will be released as it becomes available. Visit the CRA web site often, at www.cra.gc.ca/harmonization, for the most up-to-date information on the harmonization of the sales tax and how it may affect you. [...] Last, I found some very detailed information on the HST here: NOTICE247 - Harmonized Sales Tax for Ontario and British Columbia - Questions and Answers on General Transitional Rules for Personal Property and Services. Chances are anything you want to know is in there. |
Does borrowing from my 401(k) make sense in my specific circumstance? | You're getting great wisdom and options. Establishing your actionable path will require the details that only you know, such as how much is actually in each paycheck (and how much tax is withheld), how much do you spend each month (and yearly expenses too), how much spending can you actually cut or replace, how comfortable are you with considering (or not considering) unexpected/emergency spending. You mentioned you were cash-poor, but only you know what your current account balances are, which will affect your actions and priorities. Btw, interestingly, your "increase 401k contributions by 2% each year" will need to end before hitting the $18K contribution limit. I took some time and added the details you posted into a cash-flow program to see your scenario over the next few years. There isn't a "401k loan" activity in this program yet, so I build the scenario from other simple activities. You seem financially minded enough to continue modeling on your own. I'm posting the more difficult one for you (borrow from 401k), but you'll have to input your actual balances, paycheck and spending. My spending assumptions must be low, and I entered $70K as "take-home," so the model looks like you've got lots of cash. If you choose to play with it, then consider modeling some other scenarios from the advice in the other posts. Here's the "Borrow $6500 from 401k" scenario model at Whatll.Be: https://whatll.be/d1x1ndp26i/2 To me, it's all about trying the scenarios and see which one seems to work with all of the details. The trick is knowing what scenarios to try, and how to model them. Full disclosure: I needed to do similar planning, so I wrote Whatll.Be and I now share it with other people. It's in beta, so I'm testing it with scenarios like yours. (Notice most of the extra activity occurs on 2018-Jan-01) |
Why do some expiration dates have more open interest for options? | The third Friday of each month is an expiration for the monthly options on each stock. Stock with standardized options are in one of three "cycles" and have four open months at any give time. See http://www.investopedia.com/terms/o/optioncycle.asp In addition some stocks have weekly options now. Those generally have less interest because they are necessarily short-term. Anything expiring on April 8 and 22 (Fridays this year but not third Fridays of the month) are weeklies. The monthly options are open for longer periods of time so they attract more interest over the time that they are open. They also potentially attract a different type of investor due to their length of term, although, as it gets close to their expiration date they may start to behave more like weeklies. |
Mortgage sold to yet another servicer. What are my options? | Are my mortgage terms locked in? Who oversees this? Yes your terms like rate, balance, penalties, due dates, are all covered in the mortgage documents. Those will not change. If the mortgage is an adjustable or has a balloon payment those terms will be followed by the new company. That being said, mistakes can be made. Double check everything. I had a transfer get messed up once, and all the terms were wrong. It took a few months but everything was worked out. In fact because they first tried to stonewall me I was able to negotiate some additional concessions out of them. Running your own escrow account is one thing you always want to do. That makes sure that the taxes and insurance are always paid by you, even if the servicing company has a glitch. Generally you have to have enough equity to not have PMI in order to get them to agree to the self-escrow option. If you have a problem with the servicing company then contact the Consumer Finance Protection Bureau a part of the US Government. They have only been a round a few years, thus I have no experience with them. Have an issue with a financial product or service? We'll forward your complaint to the company and work to get a response from them. The last few times I applied for a mortgage or refinanced a mortgage the lender had to reveal as part of the application stage the percentage of recent mortgages they still own/service. Check those numbers the next time you apply. |
I'm thinking about selling some original artwork: when does the government start caring about sales tax and income tax and such? | First - get a professional tax consultation with a NY-licensed CPA or EA. At what point do I need to worry about collecting sales taxes for the city and state of New York? Generally, from the beginning. See here for more information on NYS sales tax. At what point do I need to worry about record-keeping to report the income on my own taxes? From the beginning. Even before that, since you need the records to calculate the costs of production and expenses. I suggest starting recording everything, as soon as possible. What sort of business structures should I research if I want to formalize this as less of a hobby and more of a business? You don't have to have a business structure, you can do it as a sole proprietor. If you're doing it for-profit - I suggest treating it as a business, and reporting it on your taxes as a business (Schedule C), so that you could deduct the initial losses. But the tax authorities don't like business that keep losing money, so if you're not expecting any profit in the next 3-4 years - keep it reported as a hobby (Misc income). Talk to a licensed tax professional about the differences in tax treatment and reporting. You will still be taxed on your income, and will still be liable for sales tax, whether you treat it as a hobby or as a business. Official business (for-profit activity) will require additional licenses and fees, hobby (not-for-profit activity) might not. Check with the local authorities (city/county/State). |
How to convince someone they're too risk averse or conservative with investments? | Remind him that, over the long-term, investing in safe-only assets may actually be more risky than investing in stocks. Over the long-term, stocks have always outperformed almost every other asset class, and they are a rather inflation-proof investment. Dollars are not "safe"; due to inflation, currency exchange, etc., they have some volatility just like everything else. |
Will I be paid dividends if I own shares? | Yes, as long as you own the shares before the ex-dividend date you will get the dividends. Depending on your instructions to your broker, you can receive cash dividends or you can have the dividends reinvested in more shares of the company. There are specific Dividend ReInvestment Plans (or DRIPs) if you are after stock growth rather than income from dividend payments. |
Tenant wants to pay rent with EFT | I am able to set this up for my tenants by providing them with a form to fill out so that they provide their name and bank account information, and then I gave that to my bank and they establish a recurring ACH transfer. This way the tenant never gets my bank information. One note about this, I had a tenant break her lease and move out. She notified me a couple of days before the first of the month, and by the time she had moved a few days later the rent had been automatically paid. She called her bank and asked them to reverse the most recent transaction so she could have that month's rent refunded, and much to my surprise, they did. So the financial transfer is not necessarily one-way. This is in the US. |
If accepting more than $10K in cash for a used boat, should I worry about counterfeiting? | If you get counterfeit money, then you're dealing with the criminal who is going to be punished by the law for doing that. The portion of the total sum that was paid with the counterfeit currency is considered unpaid and you can claim the money from the criminal and sue him, while he's in jail. He'll work hard on those license plates to pay you off. However, making false statements and assisting in a tax evasion scheme compromises your ability to go to the law enforcement in case of any wrongdoing, and then you should worry about the counterfeit money, because the law won't be on your side to help you. And you don't even get anything out of it... Why on earth are you willing to take this risk? Just so you know, it may also be money laundering, which may get you in trouble even more with the law. |
Allocation between 401K/retirement accounts and taxable investments, as a young adult? | First off, great job on your finances so far. You are off on the right foot and have some sense of planning for the future. Also, it is a great question. First, I agree with @littleadv. Take advantage of your employer match. Do not drop your 401(k) contributions below that. Also, good job on putting your contributions into the Roth account. Second, I would ask: Are you out of debt? If not, put all your extra income towards paying off debt, and then you can work your plan. Third, time to do some math. What will your business look like? How much capital would you need to get started? Are there things you can do now on a part-time basis to start this business or prepare you to start the business? Come up with a figure, find some mutual funds that have a low beta, and back out how much money you need to save per month, so you have around that total. Then you have a figure. e.g. Assume you need $20,000, and you find a fund that has done 8% over the past 20 years. Then, you would need to save about $110/month to be ready to go in 10 years, or $273/month to go in about 5 years. (It's a time value of money calculation.) The house is really a long way off, but you could do the same kind of calculation. I feel that you think your income, and possibly locale, will change dramatically over the next few years. It might not be bad to double what you are saving for the business, and designate one half for the house. |
Why would a bank take a lower all cash offer versus a higher offer via conventional lending? | One other point to consider is that cash offers often include no contingencies. That is, the offer comes in and if the seller signs then the deal is done, without any chance that the buyer backs out. As you can imagine, this is an attractive option in some situations. |
Tax Efficiency with Index Investing | Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund. |
Wash Sales and Day Trading | Yes, an overall $500 loss on the stock can be claimed. Since the day trader sold both lots she acquired, the Wash Sale rule has no net impact on her taxes. The Wash Sale rule would come into play if within thirty days of second sale, she purchased the stock a third time. Then she would have to amend her taxes because claiming the $500 loss would no longer be a valid under the Wash Sale rule. It would have to be added to the cost basis of the most recent purchase. |
IRA contributions in a bear (bad) market: Should I build up cash savings instead? | You have heard the old adage "Buy low, sell high", right? That sounds so obvious that you'd have to wonder why they would ever bother coining such an expression. It should rank up there with "Don't walk in front of a moving car" on the Duh scale of advice. Well, your question demonstrates exactly why it isn't quite so obvious in the real world and that people need to be reminded of it. So, in your example, the stock prices are currently low (relative to what they have been). So per that adage, do you sell or buy when prices are low? Hint: It isn't sell. Yes. Your gut is going to tell you the exact opposite thanks to the fact that our brains are unfortunately wired to make us susceptible to the loss aversion fallacy. When the market has undergone a big drop is the WORST time to stop contributing (buying stocks). This example might help get your brain and gut to agree a little more easily: If you were talking about any other non-investment commodity, cars for instance. Your question equates to.. I really need a car, but the prices have been dropping like crazy lately. Maybe I should wait until the car dealers start raising their prices again before I buy one. Dollar Cost Averaging As littleadv suggested, if you have an automatic payroll deduction for your retirement account, you are getting the benefit of Dollar Cost Averaging. Because you are investing the same amount on a scheduled interval, you are buying more shares when they are cheap and fewer when they are expensive. It is like an automatic buy low strategy is built into the account. The alternative, which you are implying, is a market timing strategy. Under this strategy, instead of investing regularly you try to get in and out of investments right before they go up/drop. There are two MAJOR flaws with this approach: 1) Your brain will work against you (see above) and encourage you to do the exact opposite of what you should be doing. 2) Unless you are clairvoyant, this strategy isn't much better than gambling. If you are lucky it can work, but because of #1, the odds are stacked against you. |
How much would it cost me to buy one gold futures contract on Comex? | Brokers usually have this kind of information, you can take a look at interactive brokers for instance: http://www.interactivebrokers.co.uk/contract_info/v3.6/index.php?action=Details&site=GEN&conid=90384435 You are interested in the initial margin which in this case is $6,075. So you need that amount to buy/sell 1 future. In the contract specification you see the contract is made for 100 ounces. At the current price ($1,800/oz), that would be a total of $180,000. It is equivalent to saying you are getting 30x leverage. If you buy 1 future and the price goes from $1,800 to $1,850, the contract would go from $180,000 to $185,000. You make $5,000 or a 82% return. I am pretty sure you can imagine what happens if the market goes against you. Futures are great! (when your timing is perfect). |
Should I buy a home or rent in my situation? | MY recommendation is simple. RENT The fact that you have to ask the question is a clear sign that you have no business buying a home. That's not to say that it's a bad question to ask though. Far more important then rather it's finically wise for you to buy a home, is the more important question of "are you emotionally ready for the responsibility and permanence" of a home. At best, you are tying your self to the same number of rooms, same location, and same set of circumstances for the next 5-7 years. In that time it will be very unlikely that you will be able to sell the house for a profit, get your minor equity back, or even get a second loan for any reason. You mentioned getting married soon, that means the possibility of more children, divorce, and who knows what else. You are in an emotionally and financially turblunt time in your life. Now is not the right time to buy anything large. Instead rent, and focus on improving your credit rating. In 5 years time you will have a much better credit rating, get much better rates and fees, and have a much better handle on where you want to be with your home/family situation. Buying a house is not something you do on a weekend. For most people it's the culmination of years of work, searching, researching, and preparation. Often times people that buy before they are ready, will end up in foreclosure, and generally have a crappy next 15 years, as they try to work themselves out of the issue. |
Can I invest in gold through Vanguard (Or another instrument that should perform well in financial crisis)? | In 2008, 10 year treasuries were up 20.1%, to gold's 4.96%. Respectfully, if I were certain if a market drop, I'd just short the market, easily done by shorting SPY or other index ETFs. If you wish to buy gold, the easiest and least expensive way is to buy an ETF, GLD to be specific. It trades like a stock, for what that's worth. There are those who would suggest this is not like buying gold, it's just 'paper'. I believe otherwise. It's a non leveraged, fully backed ETF. I try not to question other's political or religious beliefs or as it pertains to this ETF, their conspiracy theories. |
Would it make sense to take a loan from a relative to pay off student loans? | Personally, I avoid making business deals with friends and relatives. There's just too much of a possibility that things can go wrong. Let's assume that you're honest people and you have no intention of cheating your mother-in-law. Still, all sorts of things could happen that could make it difficult for you to repay the loan. You could lose your job. You could get some big medical expense. Etc. Then what happens? Then your financial problems become family problems. There's a strong temptation when people borrow from relatives to make paying the loan the lowest priority in their budget. "I know I promised to pay \$X per month, but things are really tight right now and Mom should understand." Maybe she does understand and can manage without it. But maybe not. And then it becomes a family fight. "You promised you'd pay it back." "And we will, we're having a hard time right now. Can't you just give us a break?" Etc. Or she might have some extra expense, and say, "Hey, can't you pay a little more this month? I really need some extra cash." "I'm sorry, we're struggling just to make the regular payments, we can't." "Well I was willing to loan you all this money. The least you could do is pay me back when I need it." Etc. You can end up ruining family relationships over money. Your wife can find herself in the position of having to choose whether to side with her mother or her husband. Etc. I'm sure plenty of people do things like this and it works out just great. But there are big risks. And by the way, apparently this was your idea, not your mother-in-laws. I wonder what her reaction is. Is she eager to help out her daughter and son-in-law and had nothing in particular to do with the money anyway? Or is she feeling very imposed on? It's one thing to ask relatives to let you borrow their car for the weekend. Asking someone to loan you $50,000 is a very big request. If one of my kids asked me to loan them $50,000 from my retirement fund, I'd consider that a very presumptuous request. (Unless they needed the money for life-saving surgery for my grandchild or some such.) |
Learning investing and the stock market | I would recommend getting a used set of Chartered Financial Analyst books. The series is a great broad introduction to the most important aspects of investing and the markets. Combining both day-to-day knowledge and fundamental theory. CFA materials include in depth discussions of: After you have a strong base then stop by quant.stackexchange and ask about more specialized books or anything else that interests you. Have fun with your journey. |
How can foreign investor (residing outside US) invest in US company stocks? | (Note: out of my depth here, but in case this helps...) While not a direct answer to your question, I'll point out that in the inverse situation - a U.S. investor who wants to buy individual stocks of companies headquartered outside US - you would buy ADRs, which are $-denominated "wrapper" stocks. They can be listed with one or multiple brokerages. One alternative I'd offer the person in my example would be, "Are you really sure you want to directly buy individual stocks?" One less targeted approach available in the US is to buy ETFs targeted for a given country (or region). Maybe there's something similar there in Asia that would eliminate the (somewhat) higher fees associated with trading foreign stocks. |
Market Making vs Market Taking (Quotes vs Orders) | Quote driven markets are the predecessors to the modern securities market. Before electronic trading and HFTs specifically, trading was thin and onerous. Today, the average investor can open up a web page, type in a security, and buy at the narrowest spread permitted by regulators with anyone else who wants to take the other side. Before the lines between market maker and speculator became blurred to indistinction, a market maker was one who was contractually obligated to an exchange to provide a bid and ask for a given security on said exchange even though at heart a market maker is still simply a trader despite the obligation. A market maker would simultaneously buy a large amount of securities privately and short the same amount to have no directional bias, exposure to the direction of the security, and commence to making the market. The market maker would estimate its cost basis for the security based upon those initial trades and provide a bid and ask appropriate for the given level of volume. If volumes were high, the spread would be low and vice versa. Market makers who survived crashes and spikes would forgo the potential profit in always providing a steady price and spread, ie increased volume otherwise known as revenue, to maintain no directional bias. In other words, if there were suddenly many buyers and no sellers, hitting the market maker's ask, the MM would raise the ask rapidly in proportion to the increased exposure while leaving the bid somewhere below the cost basis. Eventually, a seller would arise and hit the MM's bid, bringing the market maker's inventory back into balance, and narrowing the spread that particular MM could provide since a responsible MM's ask could rise very high very quickly if a lack of its volume relative to its inventory made inventory too costly. This was temporarily extremely costly to the trader if there were few market makers on the security the trader was trading or already exposed to. Market makers prefer to profit from the spread, bidding below some predetermined price, based upon the cost basis of the market maker's inventory, while asking above that same predetermined cost basis. Traders profit from taking exposure to a security's direction or lack thereof in the case of some options traders. Because of electronic trading, liquidity rebates offered by exchanges not only to contractually obligated official market makers but also to any trader who posts a limit order that another trader hits, and algorithms that become better by the day, market making HFTs have supplanted the traditional market maker, and there are many HFTs where there previously were few official market makers. This speed and diversification of risk across many many algorithmically market making HFTs have kept spreads to the minimum on large equities and have reduced the same for the smallest equities on major exchanges. Orders and quotes are essentially identical. Both are double sided auction markets with impermenant bids and asks. The difference lies in that non-market makers, specialists, etc. orders are not shown to the rest of the market, providing an informational advantage to MMs and an informational disadvantage to the trader. Before electronic trading, this construct was of no consequence since trader orders were infrequent. With the prevalence of HFTs, the informational disadvantage has become more costly, so order driven markets now prevail with much lower spreads and accelerated volumes even though market share for the major exchanges has dropped rapidly and hyperaccelerated number of trades even though the size of individual trades have fallen. The worst aspect of the quote driven market was that traders could not directly trade with each other, so all trades had to go between a market maker, specialist, etc. While this may seem to have increased cost to a trader who could only trade with another trader by being arbitraged by a MM et al, paying more than what another trader was willing to sell, these costs were dwarfed by the potential absence of those market makers. Without a bid or ask at any given time, there could be no trade, so the costs were momentarily infinite. In essence, a quote driven market protects market makers from the competition of traders. While necessary in the days where paper receipts were carted from brokerage to brokerage, and the trader did not dedicate itself to round the clock trading, it has no place in a computerized market. It is more costly to the trader to use such a market, explaining quote driven markets' rapid exit. |
How would one follow the “smart money” when people use that term? | To supplement Ben's answer: Following 'smart money' utilizes information available in a transparent marketplace to track the holdings of professionals. One way may be to learn as much as possible about fund directors and monitor the firms holdings closely via prospectus. I believe certain exchanges provide transaction data by brokers, so it may be possible for a well-informed individual to monitor changes in a firms' holdings in between prospectus updates. An example of a play on 'smart money': S&P500 companies are reviewed for weighting and the list changes when companies are dropped or added. As you know there are ETFs and funds that reflect the holdings of the SP500. Changes to the list trigger 'binary events' where funds open or close a position. Some people try to anticipate the movements of the SP500 before 'smart money' adjusts their positions. I have heard some people define smart money as people who get paid whether their decisions are right or wrong, which in my opinion, best captures the term. This Udemy course may be of interest: https://www.udemy.com/tools-for-trading-investing/ |
Why do some people go through contortions to avoid paying taxes, yet spend money on expensive financial advice, high-interest loans, etc? | I think sometimes this is simply ignorance. If my marginal tax rate is 25%, then I can either pay tax deductible interest of $10K or pay income tax of $2.5K. I think most americans don't realize that paying $10K of tax deductible interest (think mortgage) only saves them $2.5K in taxes. In other words, I'd be $7.5K ahead if I didn't have the debt, but did pay higher taxes. |
Why is the price of my investment only updated once per day? | Mutual funds are only traded once per day, while other securities can be traded any time during the day. Mutual funds are actually a collection of other things that have value, such as stocks. The price of a mutual fund is calculated at the end of the day after the market closes by looking at how much the collection of things changed in value during the day. |
What happened when the dot com bubble burst? | What happened was that people would start an "Internet" company without any viable business plan, and investors would pour money. Any company with ".COM" or "eSomething" or "netXXX" or whatever would get tons of money from investors, basically selling dreams of getting rich fast. The companies that flourished back than had often no sales and no income, yet they paid high salaries and provided very lucrative benefits to the employees. One of the examples is Mirabilis - company that invented the on-line messenger (ICQ), but provided free service and free products (there were no fees associated with using the ICQ messenger). They got bought for almost half a billion dollars when they had ZERO revenues, by AOL. AOL sold the company, ten years later, for less than 200 million dollars when at that time ICQ (or, as re-branded, AIM) was already providing revenue (from advertisements). Eventually, investors stopped pouring the money in (for various reasons, but amongst others the higher rates and the slower overall economy), and almost immediately companies started going out of business, and then it all blew up. |
Optimal Asset Allocation | There are a couple of reasons to diversify your assets. First, since we cannot predict which of our investments will perform best, we want to "cast our net" broadly enough to have something invested in what's going to be performing well. Second, diversification isn't intended to provide the highest returns, but rather it is used to soften the effects of market volatility. By softening the downsides and lowering the overall volatility among our assets, returns are more consistent. If a model does not address future downside risk it is only telling you part of the story. (Past performance does not guarantee... you get the picture) |
One Share Stock Reverse Split | Any time there is a share adjustment from spin-off, merger, stock split, or reverse slit; there is zero chance for the stockholders to hang on to fractional shares. They are turned into cash. For the employees in the 401K program or investors via a mutual fund or ETF this isn't a problem. Because the fraction of a share left over is compared to the thousands or millions of shares owned by the fund as a collective. For the individual investor in the company this can be a problem that they aren't happy about. In some cases the fractional share is a byproduct that will result from any of these events. In the case of a corporate merger or spin-off most investors will not have an integer number of shares, so that fraction leftover that gets converted to cash isn't a big deal. When they want to boost the price to a specific range to meet a regulatory requirement, they are getting desperate and don't care that some will be forced out. In other cases it is by design to force many shareholders out. They want to go private. They to 1-for-1000 split. If you had less than 1000 shares pre-split then you will end up with zero shares plus cash. They know exactly what number to use. The result after the split is that the number of investors is small enough they they can now fall under a different set of regulations. They have gone dark, they don't have to file as many reports, and they can keep control of the company. Once the Board of Directors or the majority stockholders votes on this, the small investors have no choice. |
Why does it take two weeks (from ex-date) for dividends to pay out? | Why does it take two weeks (from ex-date) for dividends to pay out? For logistical and accounting purposes. This article says on the payment date: This date is generally a week or more after the date of record so that the company has sufficient time to ensure that it accurately pays all those who are entitled. It is for the same reasons that there is a often a two-week period between the time an employee submits her time sheet and the employee's pay date. The company needs time to set and send the payment while minimizing accounting errors. |
Incorporating real-world parameters into simulated(paper) trading | I think you're on the wrong track. Getting more and more samples from the real world does not make your backtest more accurate, it just confirms that your strategy can withstand one particular sample path of a stochastic process. The reason why you find it simple to incorporate fees, commissions, taxes, etc. is because they're a static and constant process -- well they might change over time but most definitely uncorrelated to the markets. Modelling overnight returns or the top levels of the order book the next day is serious work. First you have to select a suitable model (that's mostly theoretical work but experience can help a lot). Then, in order to do it data-driven, you'd have to plough through thousands of days of sample data on a set of thousands of instruments to get a "feeling" (aka significant model parameters). Apropos data mining, I think Excel might be the wrong tool for the job. Level-2 data (even just the first 10 levels) is a massive blob. For example, the NYSE OpenBook historical data weighs in at a massive 15 TB compressed (uncompressed 74 TB) for the last 10 years, and costs USD 200k. Anyway, as for other factors to take into account: So how to account for all this in a backtest? Personally, I would put in some penalty terms (as % on a return basis) for every factor you want to consider, don't hardcode them. You can then run a stress test by exploring these parameters (i.e. assign some values in the range of 0 to whatever fits). Explore them individually (only set one penalty term at a time) to get a feeling how the strategy might react to stress from that factor. Then you can run the backtest with typical (or observed) combinations of penalty factors and slowly stress them altogether. Edit Just to avoid confusion about terminology. A backtest in the strict sense (had I implemented this strategy X years ago, what would have happened?) won't benefit from any modelling simply because the real-world "does the sampling" for us. However, to evaluate a strategy's robustness you should account for the additional factors and run some stress tests. If the strategy performs well in the real-world or no-stress scenario but produces losses once a tiny slippage occurs every now and again, you could conclude that the strategy is very fragile. The key is to explore the maximum stress the strategy can handle (by whatever measure); if a lot you can call the strategy robust. The latter is what I personally call a backtest; the first procedure would go by the name "extension towards the past" or so. Some lightweight literature: |
Is this mortgage advice good, or is it hooey? | I think the idea here is that because of the way mortgages are amortized, you can drop additional principal payments in the early years of the mortgage and significantly lower the overall interest expense over the life of the loan. A HELOC accrues interest like a credit card, so if you make a large principal payment using a HELOC, you will be able to retire those "chunks" of debt quicker than if you made normal mortgage payments. I haven't worked out the numbers, but I suspect that you could achieve similar results by simply paying ahead -- making even one extra payment per year will take 7-9 years off of a 30 year loan. I think that the advantage of the HELOC approach is that if you borrow enough, you may be able to recalculate/lower the payment of the mortgage. |
Why have U.S. bank interest rates been so low for the past few years? | These rates are so low because the cost of money is so low. Specifically, two rates are near zero. The Federal Reserve discount rate, which is "the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window." The effective federal funds rate, which is the rate banks pay when they trade balances with each other through the Federal Reserve. Banks want to profit on the loans they make, like mortgage loans. To do so, they try to maximize the difference between the rates they charge on mortgages and other loans (revenue), and the rates they pay savings account holders, the Federal Reserve or other banks to obtain funds (expenses). This means that the rates they offer to pay are as close to these rates as possible. As the charts shows, both rates have been cut significantly since the start of the recession, either through open market operations (the federal funds rate) or directly (the discount rate). The discount rate is set directly by the regional Federal Reserve banks every 14 days. In most cases, the federal funds rate is lower than the discount rate, in order to encourage banks to lend money to each other instead of borrowing it from the Fed. In the past, however, there have been rare instances where the federal funds rate has exceeded the discount rate, and it's been cheaper for banks to borrow money directly from the Fed than from each other. |
Is there any way to buy a new car directly from Toyota without going through a dealership? | sadly, it is illegal in most states to buy a car directly from the manufacturer. as such, most manufacturers do not offer the option even where it is legal. if you really do know exactly what you want (model, color, options, etc.) i recommend you write down your requirements and send it to every dealer in town (via email or fax). include instructions that if they want your business, they are to reply via email (or fax) with a price within 7 days. at least one dealer will reply, and you can deal with whoever has the best price. notes: |
should the Market Capitalization be equal to the Equity of the firm | Lots of questions: In general, no. Market Capitalization and Equity represent 2 different things. Equity first, the equity of a firm is the value of the assets (what it owns) less its liabilities (what it owes) and consists (broadly) of two components - share capital (what the firm gets when it sells to investors as part of an IPO or subsequent share issue) and retained earnings (what the firm has as a result of making profits and not paying them out as dividends). This is the theoretical liquidation value of the firm - what it is worth if it stops trading, sells all its assets and pays all its debts. Market Capitalization is the current value of the future cash flow of the firm as perceived by the market - the value today of all the dividends that the firm will pay in the future for as long as it exists. This is the theoretical going concern value of the firm - what it is worth as a functioning business. In general, Market Capitalization is bigger than Equity - if it isn't the firm is worth more as scrap than as an operating business. Um ... no. If you don't have any shares then you are by definition not an owner. Having shares is what makes you an owner. What I think you mean is, is it possible for the owner(s) of a private company to sell all of its shares when it goes public? The answer is yes. It is uncommon for a start-up owner to do this but it is standard practice for "corporate raiders" who buy failing companies, take them private, restructure them and then take them public again - they have done their job and they are not interested in maintaining an ownership stake. Nope. See above and below. Not at all, equity is an accounting construct and market capitalization is about market sentiment. Consider the following hypothetical firm: It has $1m in equity, it makes $4m in profit and will do for the foreseeable future, it pays all of that $4m out as dividends - if we work on a simple ROI of 10% then this firm is worth $40m dollars - way more than its equity. |
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