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How can one relatively easily show that low expense ratio funds outperform high expense ratio funds? | I hope a wall of text with citations qualifies as "relatively easy." Many of these studies are worth quoting at length. Long story short, a great deal of research has found that actively-managed funds underperform market indexes and passively-managed funds because of their high turnover and higher fees, among other factors. Longer answer: Chris is right in stating that survivorship bias presents a problem for such research; however, there are several academic papers that address the survivorship problem, as well as the wider subject of active vs. passive performance. I'll try to provide a brief summary of some of the relevant literature. The seminal paper that started the debate is Michael Jensen's 1968 paper titled "The Performance of Mutual Funds in the Period 1945-1964". This is the paper where Jensen's alpha, the ubiquitous measure of the performance of mutual fund managers, was first defined. Using a dataset of 115 mutual fund managers, Jensen finds that The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform a buy-the-market-and-hold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. Although this paper doesn't address problems of survivorship, it's notable because, among other points, it found that managers who actively picked stocks performed worse even when fund expenses were ignored. Since actively-managed funds tend to have higher expenses than passive funds, the actual picture looks even worse for actively managed funds. A more recent paper on the subject, which draws similar conclusions, is Martin Gruber's 1996 paper "Another puzzle: The growth in actively managed mutual funds". Gruber calls it "a puzzle" that investors still invest in actively-managed funds, given that their performance on average has been inferior to that of index funds. He addresses survivorship bias by tracking funds across the entire sample, including through mergers. Since most mutual funds that disappear are merged into existing funds, he assumes that investors in a fund that disappear choose to continue investing their money in the fund that resulted from the merger. Using this assumption and standard measures of mutual fund performance, Gruber finds that mutual funds underperform an appropriately weighted average of the indices by about 65 basis points per year. Expense ratios for my sample averaged 113 basis points a year. These numbers suggest that active management adds value, but that mutual funds charge the investor more than the value added. Another nice paper is Mark Carhart's 1997 paper "On persistence in mutual fund performance" uses a sample free of survivorship bias because it includes "all known equity funds over this period." It's worth quoting parts of this paper in full: I demonstrate that expenses have at least a one-for-one negative impact on fund performance, and that turnover also negatively impacts performance. ... Trading reduces performance by approximately 0.95% of the trade's market value. In reference to expense ratios and other fees, Carhart finds that The investment costs of expense ratios, transaction costs, and load fees all have a direct, negative impact on performance. The study also finds that funds with abnormally high returns last year usually have higher-than-expected returns next year, but not in the following years, because of momentum effects. Lest you think the news is all bad, Russ Wermer's 2000 study "Mutual fund performance: An empirical decomposition into stock‐picking talent, style, transactions costs, and expenses" provides an interesting result. He finds that many actively-managed mutual funds hold stocks that outperform the market, even though the net return of the funds themselves underperforms passive funds and the market itself. On a net-return level, the funds underperform broad market indexes by one percent a year. Of the 2.3% difference between the returns on stock holdings and the net returns of the funds, 0.7% per year is due to the lower average returns of the nonstock holdings of the funds during the period (relative to stocks). The remaining 1.6% per year is split almost evenly between the expense ratios and the transaction costs of the funds. The final paper I'll cite is a 2008 paper by Fama and French (of the Fama-French model covered in business schools) titled, appropriately, "Mutual Fund Performance". The paper is pretty technical, and somewhat above my level at this time of night, but the authors state one of their conclusions bluntly quite early on: After costs (that is, in terms of net returns to investors) active investment is a negative sum game. Emphasis mine. In short, expense ratios, transaction costs, and other fees quickly diminish the returns to active investment. They find that The [value-weight] portfolio of mutual funds that invest primarily in U.S. equities is close to the market portfolio, and estimated before fees and expenses, its alpha is close to zero. Since the [value-weight] portfolio of funds produces an α close to zero in gross returns, the alpha estimated on the net returns to investors is negative by about the amount of fees and expenses. This implies that the higher the fees, the farther alpha decreases below zero. Since actively-managed mutual funds tend to have higher expense ratios than passively-managed index funds, it's safe to say that their net return to the investor is worse than a market index itself. I don't know of any free datasets that would allow you to research this, but one highly-regarded commercial dataset is the CRSP Survivor-Bias-Free US Mutual Fund Database from the Center for Research in Security Prices at the University of Chicago. In financial research, CRSP is one of the "gold standards" for historical market data, so if you can access that data (perhaps for a firm or academic institution, if you're affiliated with one that has access), it's one way you could run some numbers yourself. |
Which Benjamin Graham book should I read first: Security Analysis or Intelligent Investor? | I would start with The Intelligent Investor. It's more approachable than Security Analysis. I read the revised edition which includes post-chapter commentary and footnotes from Jason Zweig. I found the added perspective helpful since the original book is quite old. Warren Buffet has called Intelligent Investor "the best book about investing ever written." (Source) I would suggest that endorsement ranks it before the other. :) Security Analysis is more detailed and, perhaps, oriented at a more professional audience – though individual investors would certainly benefit from reading it. Security Analysis is used as a textbook on value investing in some university-level business & finance courses. (p.s. If you haven't yet heard about William Bernstein's The Intelligent Asset Allocator, I also recommend adding it to your reading list.) |
Can my broker lock my cash account if I try to use the money from a stock sale during the three-day settlement period? | Here's how this works in the United States. There's no law regarding your behavior in this matter and you haven't broken any laws. But your broker-dealer has a law that they must follow. It's documented here: The issue is if you buy stock before your sell has settled (before you've received cash) then you're creating money where before none existed (even though it is just for a day or two). The government fears that this excess will cause undue speculation in the security markets. The SEC calls this practice freeriding, because you're spending money you have not yet received. In summary: your broker is not allowed to loan money to an account than is not set-up for loans; it must be a margin account. People with margin account are able to day-trade because they have the ability to use margin (borrow money). Margin Accounts are subject to Pattern Daytrading Rules. The Rules are set forth by FINRA (The Financial Industry Reporting Authority) and are here: |
How do wire transfers get settled? | Wire transfers normally run through either the Fedwire system or the Clearing House Interbank Payments System (CHIPS). The process generally works like this: You approach a bank or other financial institution and ask to transfer money. You give the bank a certain code, either an international bank account number or one of several other standards, which informs the bank where to send the money. The bank sends a message through a system like Fedwire to the receiving bank, along with settlement instructions. This is where the process can get a bit tricky. For the wire transfer to work, the banks must have reciprocal accounts with each other, or the sending bank must send the money to a bank that does have such an account with the receiver. If the sending bank sends the money to a third-party bank, the transaction is settled between them, and the money is then sent to the receiving bank from the third-party bank. This last transaction may be a wire transfer, ACH transfer, etc. The Federal Reserve fits into this because many banks hold accounts for this purpose with the Federal Reserve. This allows them to use the Fed as the third-party bank referred to above. Interestingly enough, this is one of the significant ways in which the Fed makes a profit, because it, along with every other bank and routing agent in the process, collects a miniscule fee on this process. You'll often find sources that state that Fedwire is only for transferring large transactions; while this is technically correct, it's important to understand that financial institutions don't settle every wire transfer or payment immediately. Although the orders are put in immediately, the financial institutions settle their transactions in bulk at the end of the business day, and even then they normally only settle the difference. So, if Chase owes Bank of America $1M, and Bank of America owes Chase $750K, they don't send these as two transactions; Chase simply credits BAC $250K. You didn't specifically ask about ACH transfers, which as littleadv pointed out, are different from wire transfers, but since ACH transfers can often form a part of the whole process, I'll explain that process too. ACH is a payment processing system that works through the Federal Reserve system, among others. The Federal Reserve (through the Fedline and FedACH systems) is by far the largest payment processor. The physical cash itself isn't transferred; in simple terms, the money is transferred through the ACH system between the accounts each bank maintains at the Federal Reserve. Here is a simple example of how the process works (I'm summarizing the example from Wikipedia). Let's say that Bob has an account with Chase and wants to get his paycheck from his employer, Stack Exchange, directly deposited into this account. Assume that Stack Exchange uses Bank of America as their bank. Bob, the receiver, fills out a direct deposit authorization form and gives it to his employer, called the originator. Once the originator has the authorization, they create an entry with an Originating Depository Financial Institution, which acts as a middleman between a payment processor (like the Federal Reserve) and the originator. The ODFI ensures that the transaction complies with the relevant regulations. In this example, Bank of America is the ODFI. Bank of America (the ODFI) converts the transaction request into an ACH entry and submits it, through an ACH operator, to the Receiving Depository Financial Institution (RDFI), which in this case is Chase bank. Chase credits (deposits) the paycheck in Bob's account. The Federal Reserve fits into all of this in several ways. Through systems like Fedline and FedACH, the Fed acts as an ACH operator, and the banks themselves also maintain accounts at the Federal Reserve, so it's the institution that actually performs the settling of accounts between banks. |
Take advantage of rock bottom oil prices | Probably the easiest way for individual investors is oil ETFs. In particular, USO seems to be fairly liquid and available. You should check carefully the bid/ask spreads in this volatile time. There are other oil ETFs and leveraged and inverse oil ETFs exist as well, but one should heed the warnings about leveraged ETFs. Oil futures are another possibility though they can be more complicated and tough to access for an individual investor. Note that futures have a drift associated with them as well. Be careful close or roll any positions before delivery, of course, unless you have a need for a bunch of actual barrels of oil. Finally, you can consider investing in commodities ETFs or Energy stocks or stock ETFs that are strongly related to the price of oil. As Keshlam mentions, care is advised in all these methods. Many people thought oil reached its bottom a few weeks back then OPEC decided to do nothing and the price dropped even further. |
Why do some online stores not ask for the 3-digit code on the back of my credit card? | @Jeremy Using CVV doesn't decrease the transaction cost. I know this because I have quotes for CC transactions and the cost/transaction doesn't depend on using CVV. That said we don't plan to use CVV because we sell insurance and the likelihood that someone who steals CC will buy insurance is very low. |
How do straddles that involve selling options protect against early assignment? | Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is. |
Are bonds really a recession proof investment? | No, they are not recession proof. Assume several companies, that issued bonds in the fund, go bankrupt. Those bonds could be worthless, they could miss principle payments, or they could be restructured. All would mean a decline in value. When the economy shrinks (which is what a recession is) how does the Fed respond? By lowering interest rates. This makes current bonds more valuable as presumably they were issued at a higher rate, thus the recession proof prejudice. However, there is nothing to stop a company (in good financial shape) from issuing more bonds to pay the par value on high-interest bonds, thus refinancing their debt. Sort of like how the bank feels when one refinances the mortgage for a lower rate. The thing that troubles me the most is that rates have been low for a long time. What happens if we have a recession now? How does the Fed fix it? I am not sure exactly what the fallout would be, but it could be significant. If you are troubled, you should look for sectors that would be hurt and helped by a Trump-induced recession. Move money away from those that will be hurt. Typically aggressive growth companies are hurt (during recessions), so you may want to move money away from them. Typically established blue chip companies fare okay in a recession so you may want to move money toward them. Move some money to cash, and perhaps some towards bonds. All that being said, I'd keep some money in things like aggressive growth in case you are wrong. |
What are the economic benefits of owning a home in the United States? | It is almost a sure thing that the housing market will crash again hugely.For this reason I prefer to own several houses that way when it does no one can ask for their money back and leave me homeless. Current economics suggest a fall of between 40-60% from 2011 prices meaning that if you have bought a house in the last 12 years you can wave bye bye to any and all equity, and this will happen very soon. I recommend saving your money and buying a house outright (like I did 3 times) from someone who has spent 12 years or so paying a mortgage. |
What kind of symbol can be shorted? | Any publicly traded financial instrument can be sold short, in theory. There are, however, many regulations associated with short sales of US equities that may prevent certain stocks from being sold short at certain times or through certain brokers. Some examples: the most basic requirement (this isn't a regulation, it's just the definition of a short sale) is that you or your broker must have access to someone willing to loan you his/her shares. If you are interested in shorting a security with few shares outstanding or low trade volume, there may simply not be enough people in the world willing to loan you theirs. Alternatively, there may be a shareholder willing to loan shares, but your broker may not have a relationship with the clearing house that shareholder is using. A larger/better/different broker might be able to help. threshold securities list - since 2005, each day certain securities are not allowed to be sold short based on their recent history of liquidity. Basically, if a certain number of transactions in a security have not been correctly settled over the past few days, then the SEC has reason to believe that short sales (which require extra transactions) are at higher risk of falling through. circuit breaker a.k.a. alternative uptick - since 2011, during certain market conditions, exchanges are now required to reject short sales for certain securities in order to prevent market crashes/market abuse. |
May I Invest as a non accredited investor? | Does me holding stock in the company make me an accredited investor with this company in particular? No. But maybe the site will let you trade it your shares to another accredited investor. Just ask, if the site operators have a securities lawyer they should be able to accomodate |
What to do with $50,000? | Before anything else, pay down any debt at higher interest rates. Best guaranteed return on investment you can get. What do you plan to use the money for, when, with how much advance planning? How risk-tolerant are you, and how patient are you ? Would you see a dip in an asset's value as lost money or a buying opportunity? A good financial advisor -- and I mean one who is ONLY an advisor and not trying to sell you anything but their services -- can take answers of that sort and recommend a mix of investment types that will suit your needs. Knowing that balance, you can the pick specific investments to suit. (I remain a fan of low-fee index funds as a painless way to get good diversification, with some small percentage for more active trading if you really want to invest the effort and are convinced you can beat the odds.) Other answers here on the personal finance discussion go into this in detail, so I don't think it's worth repeating here unless there's something really unusual about your situation. |
How much of each stock do index funds hold? | Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index. |
Inverse Relationship between Volatility and Beta | For any isolated equity market, its beta will less resemble the betas of all other interconnected equity markets. For interconnected markets, beta is not well-dispersed, especially during a world expansion because richer nations have more wealth thus a dominant influence over smaller nations' equity markets causing a convergence. If the world is in recession, or a country is in recession, all betas or the recessing country's beta will start to diverge, respectively. If the world's economies diverge, their equity markets' betas will too. If a country is having financial difficulty, its beta too will diverge. Beta is correlation against a ratio of variance, so variance or "volatiliy" is only half of that equation. Correlation or "direction" is the other half. The ratio of variance will give the magnitude of beta, and correlation will give the sign or "direction". Therefore, interconnected emerging equity markets should have higher beta magnitudes because they are more variant but should generally over time have signs that more closely resemble the rest. A disconnected emerging equity market will improbably have average betas both by magnitude and direction. |
Basic Info On Construction Loans | Construction loans have an entirely set of rules and factors than mortgages and that's hard to reconcile into one instrument. Also, I'm guessing the bank would be a bit shy about giving a commitment to a home loan before they have any information about how the construction process is going. There would have to be a ton of contingencies put into mortgage and they probably can't account for everything. |
Is there a way to tell how many stocks have been shorted? | Generally the number of shares of a U.S. exchange-listed stock which have been shorted are tracked by the exchange and reported monthly. This number is usually known as the open short interest. You may also see a short interest ratio, which is the short interest divided by the average daily volume for the stock. The short interest is available on some general stock data sites, such as Yahoo Finance (under Key Statistics) and dailyfinance.com (also on a Key Statistics subpage for the stock). |
Does dividend on 401K have any effect on gains | It appears from your description that the 401k account has the automatic dividend reinvestment policy, and that the end result is exactly the same as the external account with the same policy. I.e.: no difference, the dividend affected the 401k account in exactly the same way it affected the external account. The only thing is that for external account you can take the dividend distribution, while for 401k you cannot - it is reinvested automatically. Were you expecting something else? |
How do you save money on clothes and shoes for your family? | I feel the same way too! With two kids, I feel like I am spending what it would cost to run a small country just on clothes, shoes, jackets, replacing everything as it is grown out of! A few things I do: I shop in affordable places and check out sales, and look for the cutest things I can find there in a reasonable price range. If you aren't browsing in the $60 baby dresses, you aren't tempted by them. I don't go looking at $60 shirts for my son, he's five and he doesn't need a $60 shirt. I also really only shop for him two or three times a year for clothing...back to school and early spring are the big ones. For fall I got him five pairs of jeans, maybe 8 tops, new socks, etc. I'll add in a couple of heavier sweatshirts, etc as I go, but I really don't browse for him...it's too easy to find something to buy! I look for inexpensive lines for the things that don't really matter...bright T's for my son for summer that just get dirty and spilled on, sleepers, socks, pj's, etc. Joe Fresh, Walmart, Old Navy, Costco. Then I choose a few things that I know I want brand name or more stylish options for, and find ways to buy them more cheaply. These might be things like logo'd fleece tops, trendy jackets, things where the style is actually noticed. I buy jeans at Old Navy for my son when they are on sale, I buy Gusti/Genevieve LaPierre snowsuits at Sears when they are 40% off in Sept/Oct. The Childrens' Place has good quality, stylish clothing for kids and if you watch, they always have deals on their jeans or tops...then I stock up. And for younger kids, Old Navy and The Children's Place jeans have adjustable waistbands. I've already unrolled cuffs and let out the waist in my son's back to school jeans. I have friends who are starting to take in bags of too-small clothing to consignment shops...if they come away with $100, it's still $100! For preteen and teen kids who want certain brands, etc, I think it is very reasonable to say "we will pay x for each pair of jeans, or x for winter boots. If you want to throw in some babysitting/birthday money and go buy something more expensive, you are welcome to do so!" That way, you are still paying for basics, but they can feel like they aren't stuck wearing things they don't like. Tell them...you can buy 5 tops at $x each for back to school, or 10 tops at $x. And lastly, and most sadly of all: buy less..and stop shopping. There, I said it out loud. I try to be careful of what I buy, but I still find things I bought that were never worn. Now I keep a return basket in laundry/mudroom...if I don't love it, if it seems impractical now that I got it home, if I wanted it just in case item #1 didn't work...it goes in the basket. And I return them. I suck it up, I take it with me and go get my money back. Mistakes can be fixed if the items haven't been worn or washed. |
At what interest rate should debt be used as a tool? | This post has a great discussion on the topic. Basically, there is no single interest rate above which you should pay off and below which you should keep. You have to keep in mind factors such as |
Basic mutual fund investment questions | In summary, you are correct that the goal of investing is to maximize returns, while paying low management fees. Index investing has become very popular because of the low fees. There are many actively traded mutual funds out there with very high management fees of 2.5% and up that do not beat the market. This begs the question of why you are paying high management fees and not just investing in index funds. Consider maxing out your tax sheltered accounts (401(k) and ROTH IRA) to avoid even more fees on your returns. Also consider having a growth component of your portfolio which is generally filled with equity, along with a secure component for assets such as bonds. Bonds may not have the exciting returns of equity, but they help to smooth out the volatility of your portfolio, which may help to keep peace of mind when the market dips. |
Why does quantitative easing negatively affect stocks? | Can you isolate the market impact to just the Fed's quantitative easing? Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy? Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly. Some stocks may be down and others may be up so it isn't necessarily bad for all equally. |
How long does it take for a Tangerine no-fee money-transfer email to be delivered? | I phoned Tangerine; they enlightened me. It generally takes 2 hours for the email to arrive. Next, the recipient must open the email, click the link, and enter their bank account number. They'll generally receive the money 2-3 business days after that. This forum post suggests that the delays are due to systemic risk management, tendering, and clearing. |
Why doesn't GnuCash auto-reconcile non-bank accounts? | The answer is just close your eyes and ignore it (in your words). I'm right there with you, the amount of detail that I track in my personal finances would be called obscene by some people. But as you look at these features in any accounting application, you need to ask the question "What does this information represent?" In the case of your bank and credit card accounts, the reconciliation marker represents that you have received documentation from the issuing institution which you have verified against your accounts. Marking them off confirms that you have reviewed the information, and that you checked for errors. These markers exist on all transactions, whichever end of the splits you are looking at. When reviewing the Expense side of the transaction, it might make less sense to see these reconciliation markers, because as you stated, nobody receives documentation related to their expenses. However, if you itemized your expenses and kept a separate log of certain transactions (like a notebook where you track gasoline and/or mileage on your car), it might be useful to 'reconcile' your records once a month. Checking off individual transactions, and verifying a new 'balance' in terms of gas consumed or miles driven, would allow you to identify any inconsistencies in your records. Not everyone would find such an activity useful, thus the reconciliation markers are present everywhere but required nowhere. |
New car price was negotiated as a “cash deal”. Will the price change if I finance instead? | Yes, he can retract the offer - it was a cash-only offer, and if you're financing, it's no longer "cash". Unless, of course, you get the financing through your local bank / credit union, and they hand you a check (like on a personal loan). Then it's still cash. However, the salesman can still retract the offer unless it's in writing because you haven't signed anything yet. The price of financing will always be higher because the dealer doesn't get all their money today. Also, if you finance, you are not paying just the cost of the vehicle, you are paying interest, so your final cost will be higher (unless you were one of the lucky souls who got 0% financing atop employee pricing, and therefore are actually saving money by having a payment). |
What are Vanguard's Admiral Shares? | Vanguard's Admiral shares are like regular ("investor") shares in their funds, only they charge lower expense ratios. They have higher investment minimums, though. (For instance, the Vanguard Total Stock Market Index Fund has a minimum of $3,000 and an expense ratio of .18% for the Investor Shares class, but a minimum of $10,000 and an expense ratio of .07% for Admiral Shares). If you've bought a bunch of investor shares and now meet the (recently-reduced) minimum for Admiral shares, or if you have some and buy some more investor shares in the future and meet the minimums, you will qualify for a free, no-tax-impact conversion to the Admiral Shares and save yourself some money. For more information, see the Vanguard article on their recent changes to Admiral Shares minimums. Vanguard also offers institutional-class shares with even lower expense ratios than that (with a minimum of $5 million, .06% expense ratios on the same fund). A lot of the costs of operating a fund are per-individual, so they don't need to charge you extra fees for putting in more money after a certain point. They'd rather be competitive and offer it at cost. Vanguard's funds typically have very low expense ratios to begin with. (The investor shares I've been using as an example are advertised as "84% lower than the average expense ratio of funds with similar holdings".) In fact, Vanguard's whole reason for existing is the premise (stated in founder John C Bogle's undergraduate thesis at Princeton) that individuals can generally get better returns by investing in a cheap fund that tracks an index than by investing in mutual funds that try to pick stocks and beat the index and charge you a steep markup. The average real return of the stock market is supposedly something like 4%; even a small-looking percentage like 1% can eat a big portion of that. Over the course of 40 years waiting for retirement, saving 1% on expenses could leave you with something like 50% more money when you've retired. If you are interested in the lower expense ratios of the Admiral share classes but cannot meet the minimums, note that funds which are available as ETFs can be traded from Vanguard brokerage accounts commission-free and typically charge the same expense ratios as the Admiral shares without any minimums (but you need to trade them as individual shares, and this is less convenient than moving them around in specific dollar amounts). |
“Infinite Banking” or “Be Your Own Bank” via Whole Life Insurance…where to start? | There are a lot of false claims around the internet about this concept - the fact of the matter is you are giving yourself the ability to have money in a tax favored environment with consistent, steady growth as well as the ability to access it whenever you want. Compare this to a 401k plan for example....money is completely at risk, you can't touch it, and you're penalized if you don't follow the government's rules. As far as commissions to the agent - an agent will cut his commission in half by selling you an "infinite banking" style policy as opposed to a traditional whole life policy. @duffbeer703 clearly doesn't understand life insurance in the slightest when he says that the first three years of your premium payements will go to the agents pocket. And as usual offers no alternative except "pick some high yielding dividen stocks and MLPs" - Someone needs to wake up from the Dave Ramsey coma and realize that there is no such thing as a 12% mutual fund....do your research on the stock market (crestmont research). don't just listen to dave ramseys disciples who still thinking getting 12-15% year in and year out is possible. It's frustrating to listen to people who are so uneducated on the subject - remember the internet has turned everyone into "experts" if you want real advice talk to a legitimate expert that understands life insurance and how it actually works. |
I earn $75K, have $30K in savings, no debt, rent from my parents who are losing their home. Should I buy a home now or save? | For the vast majority, "buying" a house via a mortgage is not an investment. I use quotes around buying because from a technical perspective you don't own anything until you've paid it off; this is often an important point that people forget. It's highly unlikely you'll make more on it than the amount you put into it (interest, repairs, etc). Even with relatively low interest rates. The people who successfully invest in homes are those that use actual cash (not borrowed) to buy a home at well below market value. They then clean it up and make enough repairs to make it marketable and sell it shortly there after. Sometimes these people get hosed if the housing market tumbles to the point that the home is now worth less than the amount they put into it. This is especially problematic if they used bank loans to get the process going. They were actually the hardest hit when the housing bubble popped several years ago. Well, them and the people who bought on interest only loans or had balloon payments. Whereas the people who use a mortgage are essentially treating it like a bank account with a negative interest rate. For example, $180k loan on a 30 yr fixed at 4% will mean a total payout of around $310k, excluding normal repairs like roofs, carpet, etc. Due to how mortgage's work, most of the interest is collected during the first half of the loan period. So selling it within 2 to 5 years is usually problematic unless the local housing market has really skyrocketed. Housing markets move up and down all the time due to a hundred different things completely out of your control. It might be a regional depression, weather events, failed large businesses, failed city/local governments, etc. It could go up because businesses moved in, a new highway is built, state/local taxes decline, etc. My point is, homes are not long term investments. They can be short term ones, but only in limited circumstances and there is a high degree of risk involved. So don't let that be a driving point of your decision. Instead you need to focus on other factors. Such as: what is really going on with the house you are currently in? Why would they lose it? Can you help out, and, should you help out? If things are precarious, it might make more sense to sell that home now and everyone move into separate locations, possibly different rentals or apartments. If they are foreclosed on then they will be in a world of financial hurt for a long time. If we ignore your parents situation, then one piece of advice I would give you is this: Rent the cheapest apartment you can find that is still a "safe" place to live in. Put every dollar you can into some type of savings/investment that will actually grow. Stay there for 5+ years, then go pay cash for a nice home. Making $75k a year while single means that you don't need much to live on. In other words, live extremely cheap now so you can enjoy a fantastic living experience later that is free from financial fear. You should be able to put $30k+ per year aside going this route. edit: A bit of support data for those that somehow think buying a home on a mortgage is somehow a good investment: Robert Shiller, who won a Nobel prize in economics and who predicted the bursting of the housing bubble, has shown that a house is not a good investment. Why? First, home prices (adjusted for inflation) have been virtually unchanged for the past 100 years. (link 1, link 2) Second, after you add in the costs of maintenance alone then those costs plus what you've paid for the home will exceed what you get out of it. Adding in the cost of a mortgage could easily double or even triple the price you paid which makes things even worse. Maintenance costs include things like a new roof, carpet/flooring, water heater, appliances, etc. Yes, a home might cost you $100k and you might sell it for $200k after 15 years. However during that time you'll likely replace the roof ($10k to $20k), replace appliances ($2k to $5k), water heater ($1k), carpet/flooring ($5k to $20k), paint ($3k to $6k), and mortgage related costs (~$60k - assuming 30 yr fixed @4%). So your "costs" are between $180k and $200k just on those items. There are many more that could easily escalate the costs further. Like a fence ($5k+), air conditioner ($5k+), windows, etc. The above is assuming the home actually appreciates in value faster than inflation: which they historically haven't over the long term. So you have to consider all of the costs ultimately paid to purchase and maintain the home vs the costs of renting during the same time period. Point is: do your research and be realistic about it. Buying a home is a huge financial risk. |
Can an unmarried couple buy a home together with only one person on the mortgage? | I did that. What is allowed changes over time, though — leading up to the crisis, lenders would approve at the flimsiest evidence. In particular, my SO had only been in the country a couple years and was at a sweet spot where lack of history was no longer counting against her. Running the numbers, the mortgage was a fraction of a percent cheaper in her name than in mine. Even though she used a “stated income” (self reported, not backed by job history) of the household, not just herself. The title was in her name, and would have cost money to have mine added later so we didn’t. This was in Texas, which is a “community property” state so after marriage for sure everything is “ours”. |
Should I stockpile nickels? | At one point it was illegal to melt silver coins in the US, but it is legal now. I don't know that will happen with copper coins, but that's what happened with silver coins. Accumulating nickels and leaving them as-is (in their spendable state) is legal. It's also a way to take physical ownership of copper. I expect to see more sales of nickels based on weight. People are already selling high-copper-content cents on eBay, by weight. There are machines in production that sort the zinc ones from the copper ones. Gresham's Law has small business backing. ;) Copper cents are already worth twice their face value in the copper content. Nickels will get up there, too. They are awfully heavy and bulky relative to their value, though. Precious metals give you better bang for your ounce. |
How to calculate the standard deviation of stock returns? | For implied volatility it is okey to use Black and scholes but what to do with the historical volatility which carry the effect of past prices as a predictor of future prices.And then precisely the conditional historical volatility.i suggest that you must go with the process like, for stock returns 1) first download stock prices into excel sheet 2) take the natural log of (P1/po) 3) calculate average of the sample 4) calculate square of (X-Xbar) 5) take square root of this and you will get the standard deviation of your required data. |
What is this discrepency between Fidelity's and Google's stock price chart; large price spike? | This is from Google Finance right now. |
Best way to start investing, for a young person just starting their career? | Warren Buffett answered this question very well at the 2009 Berkshire Hathaway annual meeting. He said that it was important to read everything you can about investing. What you will find is that you will have a number of competing ideas in your head. You will need to think these through and find the best way to solve them that fits you. You will mostly learn how to invest through good examples. There are fewer good examples out there than you might think, given how many books there are and how many people get paid to give advice in this area. If you want to see how professional investors actually think about specific investments, over a thousand investment examples can be found at www.valueinvestorsclub.com, just login as a guest. The site is run by Joel Greenblatt (you would benefit from reading his books also), and it will give you a sense of the work that investors put into their research. Good luck. |
If NYSE has market makers, what is the role of NYSE ARCA which is an ECN | Electronic trading is many orders of magnitude cheaper and more liquid than floor trading and is rapidly displacing it. Stil, electronic trading accounts for 79% of stock trading volume in the U.S. Polcari is losing the battle. Floor trading is still offered, but it's only used for bulk orders, so electronic trading is servicing small trades at minimum prices while floor trading is now the concierge service. |
Do “Instant Approved” credit card inquires appear on credit report? | Those two hard inquiries will only count as one on your score because you applied for the two cards immediately one after the other. Credit bureaus see this as just credit card shopping, so will hit your score only once as a single hard inquiry. If you had applied for these two cards days apart, then your score would have been hit with two hard inquiries. Find more details here, specifically under the "What to know about rate shopping" section. |
If a stock doesn't pay dividends, then why is the stock worth anything? | The answer is Discounted Cash Flows. Companies that don't pay dividends are, ostensibly reinvesting their cash at returns higher than shareholders could obtain elsewhere. They are reinvesting in productive capacity with the aim of using this greater productive capacity to generate even more cash in the future. This isn't just true for companies, but for almost any cash-generating project. With a project you can purchase some type of productive assets, you may perform some kind of transformation on the good (or not), with the intent of selling a product, service, or in fact the productive mechanism you have built, this productive mechanism is typically called a "company". What is the value of such a productive mechanism? Yes, it's capacity to continue producing cash into the future. Under literally any scenario, discounted cash flow is how cash flows at distinct intervals are valued. A company that does not pay dividends now is capable of paying them in the future. Berkshire Hathaway does not pay a dividend currently, but it's cash flows have been reinvested over the years such that it's current cash paying capacity has multiplied many thousands of times over the decades. This is why companies that have never paid dividends trade at higher prices. Microsoft did not pay dividends for many years because the cash was better used developing the company to pay cash flows to investors in later years. A companies value is the sum of it's risk adjusted cash flows in the future, even when it has never paid shareholders a dime. If you had a piece of paper that obligated an entity (such as the government) to absolutely pay you $1,000 20 years from now, this $1,000 cash flows present value could be estimated using Discounted Cash Flow. It might be around $400, for example. But let's say you want to trade this promise to pay before the 20 years is up. Would it be worth anything? Of course it would. It would in fact typically go up in value (barring heavy inflation) until it was worth very close to $1,000 moments before it's value is redeemed. Imagine that this "promise to pay" is much like a non-dividend paying stock. Throughout its life it has never paid anyone anything, but over the years it's value goes up. It is because the discounted cash flow of the $1,000 payout can be estimated at almost anytime prior to it's payout. |
Are bonds really a recession proof investment? | During the hyperinflation of the Wiermer republic, corporate stocks and convertible bonds were thought second only to the species (gold, silver etc) as the only secure currencies. As Milton Friedman proved, inflation is caused solely by the monetary token supply increasing faster than productivity. In the past, days of species of currency, it was caused by governments debasing the currency e.g. streatching the same amount of silver in 50 coins to 100 coins. Sudden increases in the supply of precious metals can also trigger it. The various gold rushes in 19th century and later, improvements in extraction methods caused bouts of inflation. Most famously, the huge amounts of silver the Spanish extracted from the New World mines, devastated the European economy with high inflation. Governments use inflation as a form of stealth flat tax. Money functions as an Abstract Universal Trade Good and it obeys all the rules of supply and demand. If the supply of money goes up suddenly, then its value drops in relation to real goods and service. But that drop in value doesn't occur instantly, the increased quality of tokens has to percolate through the market before the value changes. So, the first institution to spend the infalted/debased currency can get the full current value from trade. The second gets slightly less, the third even less and so on. In 2008, the Federal reserve began printing money and loaning at 0% to insolvent backs who then used that money to buy T-Bill. This had the duel effect of giving the banks an (arbitrary) A1 rated asset for their fractional reserve while the Federal government got full pre-inflation value of the money paid for the T-bills. As the government spent that money, the number of tokens increased fast than the economy. In times of inflation, the value of money per unit drops as its supply increases and increases The best hedges against inflation are real assets e.g. land, equipment, stocks (ownership of real assets) and convertible bonds which are convertible to stock. It's important to remember that money is, of itself, worthless. It's just a technology that abstracts and smilies trading which at the base, is still a barter system. During inflation the barter value of money plunges owing to increased supply. But the direct barter value between any two real assets remain the same because their supplies have not changed. The value of stocks and convertible bonds is maintained by the economic activity of the company whose ownership they represent. Dividends, stock prices and bond equity, as measured in the inflated currency continue to rise in sync with inflation. Thus they preserve the original value of the money paid for them. Not sure why you expect more inflation. The only institution that can create inflation in the US is the Federal Reserve which Trump has no direct control off. Deregulation of banks won't cause inflation in and of itself as the private banks cannot alter the money supply. If banks fail, owing to deregulation, unlikely I think given the dismal nearly century long record of regulation to date, then the Federal Reserve might fix the problem with another inflation tax, but otherwise not. |
Why diversify stocks/investments? | Diversification is used by many to hopefully reduce the risk when bad investments are made. Diversification does not help you make more profits but instead averages down your profits. There is no way one can tell whether a stock or portfolio of stocks will go up or down once they are purchased. In order to try to provide some protection against total loss of the portfolio, a lazy so called long term investor will use diversification as a way of risk management. But the best outcome for them will be an averaging down of their profits. A better method is to let the market tell you when your purchased investment is a bad one and get out of that investment early and thus limiting your losses, whilst letting your good investments (as determined by the market) run and make larger profits. |
Tax me more: Can I pay extra to the government so I don't have to deal with all this paperwork? | Perhaps the real question you are asking is "How can the tax code be fixed to make it simple for everyone (including me), and what would it take to effect those changes"? There are really two causes for the complexity of the tax code. Many of those who enter Government hold a desire for power, and Government uses the tax code as one lever of power to distribute largess to their supporters, and to nudge everyone to behaviors which they favor. The current system enables incumbents to spend taxpayer money to reward those they favor, and thus they accumulate power and security. Those who enter Government also love to spend money (especially other people's money), and their rapacious behavior recognizes no boundaries. They will spend money without control until the taxpayers yank them to a brutal stop. They enact complex rules which are used to ease the (tax) burden for some, which buys their support (with taxpayer money), and they spend money to benefit those which they favor. The system of lobbyists and contributors exists to entice Government to treat them and the causes they support favorably. This system enables incumbents to spend taxed money to reward those they favor, and to tax those they disfavor. Thus their greed is satisfied, and their power is increased. The freedom you seek is not available, although you can minimize the effort required for compliance. You can take the standard deduction, and use nothing but the W-2 provided by your employer, and unless you are subject to the Alternative Minimum Tax, you will find that the tax software will do most of the work for you. Do you want to approach the Nirvana of minimal effort to appease your tax collectors? Avoid starting your own business, charitable donations, investment income, 1099 income, and you will need minimal paperwork. Avoid earning enough to risk the AMT (Alternative Minimum Tax). Refuse to take the mortgage interest deduction, tax credits for electric vehicles, tax credits for high-efficiency appliances and air conditioners, tax credits for residential solar panel installations. Do not own investments which pay interest, or own stocks where you need to track the "basis" (purchase price) of the stocks, nor buy and then sell valuable items that might gain value (where you would need to track the purchase price, the "basis"). Avoid owning and leasing a rental home for income, deducting businesses expenses and mileage for business purposes, contributions to a retirement plan (outside an employer plan) -- all complicate your tax filing. The solution you truly desire is either a "Flat Tax" or the "Fair Tax". These solutions would effect either a single tax rate (with no deductions or adjustments to income, yeah right), or a national retail sales tax, which would tax the money spent in the economy regardless of the source of the money (legal, gifts, crime) and there would be no need to report income, or classify it. The largest objection to either is that the tax code might become less "progressive" (increasing tax rate with increasing income). Good Luck! |
Understanding the Nasdaq insider trading information | Their argument is mostly nonsense. Take someone like Tim Cook, CEO of Apple. He has a not very large salary, and makes a lot more money through stock bonuses. You would never, ever expect him to buy Apple shares. And assuming that he doesn't want to end up one day as the richest man in the cemetery, you would expect him to sell significant numbers of shares, independent on whether he expects Apple to go up or down. |
Book or web site resources for an absolute beginner to learn about stocks and investing? | The Winning Investor http://winninginvestor.quickanddirtytips.com/ This is a blog and a podcast. Load a bunch of these onto your iPod and start listening. Stikky Stock Charts http://www.amazon.com/Stikky-Stock-Charts-professionals-smart/dp/1932974008 This is a beginner's guide on how to read charts. Lots of charts, not too many words. |
Cons of withdrawing money from an Roth IRA account? | One "con" I have not yet seen mentioned: retirement accounts are generally protected from creditors in a bankruptcy. There are limits and exceptions, Roth has a 1.2 million dollar limit and can be split by a divorce QDRO for instance. Link Since it seems you have no income this year, you may may be raiding your IRA for living expenses. If there is a chance you may declare bankruptcy in the next year or so, consider doing that first and raid the IRA for seed money after. |
S Corp with Straddles Income | If this activity were to generate let's say 100K of profit, and the other corporate activities also generate 100K of revenue, are there any issues tax-wise I need to be concerned about? Yes. Having 25% or more of passive income in 3 consecutive years will invalidate your S-Corp status and you'll revert to C-Corp. Can I deduct normal business expenses from the straddles (which are taxed as short term capital gains) profit? I don't believe you can. You can deduct investment expenses from the investment income. On your individual tax return it will balance out, but you cannot mix types of income/expense on the corporate return or K-1. |
what are the downsides of rolling credit card debt in this fashion | Awesome, you are a math guy. Very good for you. In theory, what you are proposing, should work out great as the math works out great. However have you taken a economics or finance coursework? The math that they do in these class will leave a most math guys uncomfortable with the imprecision even when one is comfortable with chaos theory. Personal finance is worse. If it were about math things like reverse mortgages, payday lenders, and advances on one income tax returns would not exist. The risk derived from the situation you describe is one born out of behavior. Sometimes it is beyond control of the person attempting your scheme. Suppose one of these happen: In my opinion the market is risky enough without borrowing money in order to invest. Its one thing to not pay extra principle to a mortgage in order to put that money in play in the market, it is another thing to do what you are suggesting. While their may be late fees associated with a mortgage payment, a fixed rate mortgage will not change if you late on payment(s). On these balance transfer CC schemes they will jack your rate up for any excuse possible. I read an article that the most common way to end up with a 23%+ credit card was to start out with a 0% balance transfer. One thing that is often overlooked is that the transfer fee paid jacks up the stated rate of the card. In the end, get out of consumer debt, have an emergency fund, then start investing. Building a firm financial foundation is the best way to go about it. Without one it will be difficult to make headway. With one your net worth will increase faster then you imagined possible. |
When's the best time to sell the stock of a company that is being acquired/sold? | This is but one opinion. Seek others before your act. "When someone puts a million dollars in your hand, close your hand." A 50% gain in two weeks is huge. |
Purchase same stock twice | how does the trading company know which one I want to sell? It doesn't need to know. You just sell one. From taxation point of view depending on the country / tax jurisdiction, it can be only be FIFO or specific stock. |
valuing options | Below I will try to explain two most common Binomial Option Pricing Models (BOPM) used. First of all, BOPM splits time to expiry into N equal sub-periods and assumes that in each period the underlying security price may rise or fall by a known proportion, so the value of an option in any sub-period is a function of its possible values in the following sub period. Therefore the current value of an option is found by working backwards from expiry date through sub-periods to current time. There is not enough information in the question from your textbook so we may assume that what you are asked to do is to find a value of a call option using just a Single Period BOPM. Here are two ways of doing this: First of all let's summarize your information: Current Share Price (Vs) = $70 Strike or exercise price (X) = $60 Risk-free rate (r) = 5.5% or 0.055 Time to maturity (t) = 12 months Downward movement in share price for the period (d) = $65 / $70 = 0.928571429 Upward movement in share price for the period (u) = 1/d = 1/0.928571429 = 1.076923077 "u" can be translated to $ multiplying by Vs => 1.076923077 * $70 = $75.38 which is the maximum probable share price in 12 months time. If you need more clarification here - the minimum and maximum future share prices are calculated from stocks past volatility which is a measure of risk. But because your textbook question does not seem to be asking this - you probably don't have to bother too much about it yet. Intrinsic Value: Just in case someone reading this is unclear - the Value of an option on maturity is the difference between the exercise (strike) price and the value of a share at the time of the option maturity. This is also called an intrinsic value. Note that American Option can be exercised prior to it's maturity in this case the intrinsic value it simply the diference between strike price and the underlying share price at the time of an exercise. But the Value of an option at period 0 (also called option price) is a price you would normally pay in order to buy it. So, say, with a strike of $60 and Share Price of $70 the intrinsic value is $10, whereas if Share Price was $50 the intrinsic value would be $0. The option price or the value of a call option in both cases would be fixed. So we also need to find intrinsic option values when price falls to the lowest probable and rises to the maximum probable (Vcd and Vcu respectively) (Vcd) = $65-$60 = $5 (remember if Strike was $70 then Vcd would be $0 because nobody would exercise an option that is out of the money) (Vcu) = $75.38-$60 = $15.38 1. Setting up a hedge ratio: h = Vs*(u-d)/(Vcu-Vcd) h = 70*(1.076923077-0.928571429)/(15.38-5) = 1 That means we have to write (sell) 1 option for each share purchased in order to hedge the risks. You can make a simple calculation to check this, but I'm not going to go into too much detail here as the equestion is not about hedging. Because this position is risk-free in equilibrium it should pay a risk-free rate (5.5%). Then, the formula to price an option (Vc) using the hedging approach is: (Vs-hVc)(e^(rt))=(Vsu-hVcu) Where (Vc) is the value of the call option, (h) is the hedge ratio, (Vs) - Current Share Price, (Vsu) - highest probable share price, (r) - risk-free rate, (t) - time in years, (Vcu) - value of a call option on maturity at the highest probable share price. Therefore solving for (Vc): (70-1*Vc)(e^(0.055*(12/12))) = (75.38-1*15.38) => (70-Vc)*1.056540615 = 60 => 70-Vc = 60/1.056540615 => Vc = 70 - (60/1.056540615) Which is similar to the formula given in your textbook, so I must assume that using 1+r would be simply a very close approximation of the formula above. Then it is easy to find that Vc = 13.2108911402 ~ $13.21 2. Risk-neutral valuation: Another way to calculate (Vc) is using a risk-neutral approach. We first introduce a variable (p) which is a risk-neutral probability of an increase in share price. p = (e^(r*t)-d)/(u-d) so in your case: p = (1.056540615-0.928571429)/(1.076923077-0.928571429) = 0.862607107 Therefore using (p) the (Vc) would be equal: Vc = [pVcu+(1-p)Vcd]/(e^(rt)) => Vc = [(0.862607107*15.38)+(0.137392893*5)]/1.056540615 => Vc = 13.2071229185 ~ $13.21 As you can see it is very close to the hedging approach. I hope this answers your questions. Also bear in mind that there is much more to the option pricing than this. The most important topics to cover are: Multi-period BOPM Accounting for Dividends Black-Scholes-Merton Option Pricing Model |
Auto insurance on new car | Auto insurance is a highly personalized item, so depending on your driving record and other factors, $600 a month for full coverage may be as good as you can get. Look at the premium for each category, and consider raising the deductible if you have some savings that could be used in the event that you have a claim. Also, you're not only buying insurance to cover the other person's damage and medical expenses, you're paying for insurance for your car. Brand-new cars are more expensive to replace (and thus insure) than used cars. Leasing is effectively renting a car for a long period of time. While the payments are less, when the lease expires you're going to have to decide whether to give up the car or buying it, usually at a price much higher than market value. I'm glad you discovered that the insurance would break your budget before it's too late. My suggestion would be to look for a 1-2 year old car that's less expensive to buy and to insure. |
What is the best credit card for someone with no credit history | Consider getting yourself a gas card. Use it for a year. Make your payments on time. Then reapply for a credit card. |
How can I report pump and dump scams? | Start with your local police department then move on to these sites. Fill out the United States Postal Service fraud complaint form http://ehome.uspis.gov/fcsexternal/ Contact your State Attorneys General. Your state Attorney General or local office of consumer protection is also listed in the government pages of your telephone book Write to the Federal Trade Commission: spam@uce.gov If you are aware of a securities (e.g., stocks) scam, insider trading, etc., you will want to contact the SEC (Securities and Exchange Commission). http://www.consumerfraudreporting.org/SEC.php |
Emptying a Roth IRA account | nan |
Is the money you get from shorting a stock free to use for going long on other stocks? | You will be charged a stock borrow fee, which is inversely related to the relative supply of the stock you are shorting. IB claims to pay a rebate on the short proceeds, which would offset part or all of that fee, but it doesn't appear relevant in your case because: It is a bit strange to me that IB would not require you to keep the cash in your account, as they need the cash to collateralize the stock borrow with the lending institution. In fact, per Regulation T, the short position requires an initial margin of 150%, which includes the short proceeds. As described by Investopedia: In the first table of Figure 1, a short sale is initiated for 1,000 shares at a price of $50. The proceeds of the short sale are $50,000, and this amount is deposited into the short sale margin account. Along with the proceeds of the sale, an additional 50% margin amount of $25,000 must be deposited in the account, bringing the total margin requirement to $75,000. At this time, the proceeds of the short sale must remain in the account; they cannot be removed or used to purchase other securities. Here is a good answer to your question from The Street: Even though you might see a balance in your brokerage account after shorting a stock, you're actually looking at a false credit, according to one big brokerage firm. That money is acting as collateral for the short position. So, you won't have use of these funds for investment purposes and won't earn interest on it. And there are indeed costs associated with shorting a stock. The broker has to find stock to loan to you. That might come out of a broker's own inventory or might be borrowed from another stock lender. |
Sell or keep rental Property? | How is the current mortgage payment broken out? I have a mortgage on a rental property with a payment of $775, but $600 is principal. If I were at breakeven on a sale or a bit underwater, I'd be better off just holding still, the tenant paying the loan down over $7000/year. You question is a good one, but a good answer would require more details. A bank may not agree to a short sale on an investment property, especially since there's a second property to go after. I'm not making a judgement, just saying, it's not a slam-dunk to just short sell it. |
What evidence or research suggests that mid- or small-capitalization stocks should perform better than large caps? | I think it's safe to say that Apple cannot grow in value in the next 20 years as fast as it did in the prior 20. It rose 100 fold to a current 730B valuation. 73 trillion dollars is nearly half the value of all wealth in the world. Unfortunately, for every Apple, there are dozens of small companies that don't survive. Long term it appears the smaller cap stocks should beat large ones over the very long term if only for the fact that large companies can't maintain that level of growth indefinitely. A non-tech example - Coke has a 174B market cap with 46B in annual sales. A small beverage company can have $10M in sales, and grow those sales 20-25%/year for 2 decades before hitting even $1B in sales. When you have zero percent of the pie, it's possible to grow your business at a fast pace those first years. |
I paid a contractor to make roof repairs to a house in my LLC. How can I deduct this cost? | This new roof should go on the 2016 LLC business return, but you probably won't be able to expense the entire roof as a repair. A new roof is most likely a capital improvement, which means that it would need to be depreciated over many years instead of expensed all in 2016. The depreciation period for a residential rental property is 27.5 years. Please consider seeking a CPA or Enrolled Agent for the preparation of your LLC business return. See also: IRS Tangible Property Regulations FAQ list When you made the loan to the LLC (by paying the contractor and making a contract with the LLC), did you state an interest rate? If not, you and your brother should correct the contract so that an interest rate is stated, then follow it. The LLC needs to pay you interest until the loan is paid off. You need to report the interest income on your personal return, and the LLC needs to report the interest expense in its business return. |
If a stock doesn't pay dividends, then why is the stock worth anything? | If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable. Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. "But wait," you say, "that's not the same - my net worth has decreased!" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, "no we're not done, we're still building our business!". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market. |
Why don't brokerages charge commissions on forex trades? | Investopedia has a section in their article about currency trading that states: The FX market does not have commissions. Unlike exchange-based markets, FX is a principals-only market. FX firms are dealers, not brokers. This is a critical distinction that all investors must understand. Unlike brokers, dealers assume market risk by serving as a counterparty to the investor's trade. They do not charge commission; instead, they make their money through the bid-ask spread. Principals-only means that the only parties to a transaction are agents who actively bear risk by taking one side of the transaction. There are forex brokers who charge what's called a commission, based on the spread. Investopedia has another article about the commission structure in the forex market that states: There are three forms of commission used by brokers in forex. Some firms offer a fixed spread, others offer a variable spread and still others charge a commission based on a percentage of the spread. So yes, there are forex brokers who charge a commission, but this paragraph is saying mostly the same thing as the first paragraph. The brokers make their money through the bid-ask spread; how they do so varies, and sometimes they call this charge a commission, sometimes they don't. All of the information above differs from the stock markets, however, in which The broker takes the order to an exchange and attempts to execute it as per the customer's instructions. For providing this service, the broker is paid a commission when the customer buys and sells the tradable instrument. The broker isn't taking a side in the trade, so he's not making money on the spread. He's performing the service of taking the order to an exchange an attempting to execute it, and for that, he charges a commission. |
Better to rent condo to daughter or put her on title? | @Pete B.'s answer is good, but there's an important note to consider for tax purposes. It's too large for a comment, so I'm adding it as an answer. And that is: you cannot claim the property as a rental property under certain conditions. This affects things like claiming mortgage interest (which you don't have), and depreciation in value (which a rental is allowed). See IRS topic 415 for details, but I've included an important excerpt below with emphasis added: If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of: ... A day of personal use of a dwelling unit is any day that it's used by: Talk to a tax accountant to better understand the ramifications of this, but it's worth noting that you can't just rent it to her for a paltry sum and be able to take tax advantages from this arrangement. |
Advantages of Shareholder over Director in new Company | I don't know Australian law, but I will give my US perspective here. The custom in the US is for officers and directors to be indemnified by the corporation, and that LLCs have an even broader power to indemnify (even to remove the duty of loyalty!). Moreover, directors will typically be able to purchase D&O insurance to protect them from loss in the event of liability. For US corporations (not LLCs), the duty of care (prudence) requires that directors behave responsibly in weighing major decisions, and consult experts and specialists before coming to rash decisions. It usually becomes a court case in the context of a large public company in the midst of an acquisition event. The only people with standing (in the US) are shareholders. If all the other shareholders are directors, then it may be hard for them to blame you. Additionally, if you are concerned about the propriety of your actions, there may be sources to rely on. First, discussion with your fellow directors can be a helpful guide (though will not usually immunize you from any accusation of wrongdoing), and disclosure tends to cure almost any accusation of breaching the duty of loyalty. Second, boards often secure the advice of legal counsel, and sometimes bring on lawyers as members or will outright hire counsel for the board. Third, there may be services that will provide you with generic advice (e.g. UK Companies House and US-based IOD), which might set you at ease a little bit. I don't know the details of Australian law, as I say. But my sense of common law countries is that, like the US, they are primarily concerned about negligence (incompetently or imprudently neglecting to understand the business and make informed decisions), disloyalty (fraudulently engaging in self-interested transactions that either hurt the company or should have been offered to the company), and recklessness (not bothering to seek out information). As long as you are active, informed, engaged, and not engaging in secret deals outside the company (especially deals where either side is competing with the company), then that would be more than sufficient under the US standard. If you are concerned about liability, then inquire into indemnifications by the company (in the US, the company can usually pay all legal costs of directors), insurance, and legal counsel. I imagine your business partners are no more savvy than you are. My impression is you are overreacting to relatively rare and exotic expression of corporate law (at least in the US). But I'll close by repeating that I don't know Australian corporate law. |
Buying a house for a shorter term | When on this topic, you'll often hear general rules of thumb. And, similar to the 'only buy stocks if you plan to hold more than X years' there are going to be periods where if you buy at a bottom right before the market turns up, you might be ahead just months after you buy. I'd say that if you buy right, below market, you're ahead the day you close. Edit - I maintain, and have Schiller providing supporting data) that real estate goes up with inflation in the long term, no more, no less. If the rise were perfectly smooth, correlated 100% month to month, you'd find it would take X years to break even to the costs of buying, commission and closing costs. If we call that cost about 8%, and inflation averages 3, it points to a 3 year holding period to break even. But, since real estate rises and falls in the short term, there are periods longer than 4 years where real estate lags, and very short periods where it rises faster than the costs involved. The buy vs rent is a layer right on top of this. If you happen upon a time when the rental market is tight, you may buy, see the house decline 10% in value, and when the math is done, actually be ahead of the guy that rented. |
Comparing option data between yahoo finance and CBOE for SPY options | The CBOE site, as well as some other sites and trading platforms, will show the bid/ask and statistics for that option at each individual options exchange, in addition to statistics and the best bid/offer across all exchanges. cboe.com: Delayed Quote Help lists what the single-letter codes mean. A is for the AMEX options exchange, B is for BOX, X is for PHLX, etc. |
I carelessly invested in a stock on a spike near the peak price. How can I salvage my investment? | I am very surprised no one mentioned the Stock Repair Option Strategy which has real benefits and is one of the mainstream Option Strategies. Quote: Who Should Consider Using the Stock Repair Strategy? In a nutshell, you are buying call options with current strike price (at-the-money) and sell call options with higher strike price (out-of-the-money), all with the same expiry dates. The only reason to also sell call options here is to recover your premium paid for the other call options. If you are comfortable paying that premium, you just buy the call options without selling the others. In case your stock will rise moderately to a price between the two strike prices, your call option will rise together with your stock, so you will be faster to recover your money. This is the main reason it is called Repair. If you have sold any call options, as the price rises, you have to be careful when it reaches the strike price of the options sold, as from there on you will begin incurring losses. It is however exactly the lucky outcome you were hoping for, your stock is higher, and you can buy back those loss making options - then or shortly before. If you didn't sell any options and payed your premium, you don't need to worry at all at this stage. WARNING It should be noted that the Stock Repair Strategy offers no protection for your stock price further falling down. In that case all those options will expire worthless or you can sell back the ones your bought but likely not for much. In order to have the downside protection for your stock, there are other strategies, the simplest one being buying a Put Option at-the-money or slightly lower. That will effectively cut your possible losses to the Option Premium (which is the main use of that option). Again, if you hate to pay that premium, you can offset it by selling other options that you either hope won't be exercised or take steps to protect you against those. |
How do top investors pull out 20% ROI? | It's called leverage. Here's an example from real estate. The underlying appreciation on a house in certain parts of America is something like 7% a year. So if you bought the house "all cash," your return would be something like 7% a year. (Actually, a little more, because of the rent you would be collecting, or saving, if you were the "renter.") Suppose you buy the same house, 20% down, 80% mortgage. The rent pays for your mortgage, taxes, insurance, etc. like it is supposed to. The house goes up the same 7% each year. But now your rate of return is 35%, that is 7%/20% (your down payment). You get the whole appreciation but put up only 20% of the money. The bank (and your renter) did the rest. |
Why do credit cards have minimum limits? | They have a minimum to discourage applications for that particular card. Every application costs them money because they have to pay the credit agencies to pull the applicant's credit history. So one way they save money and reduce their cost of business is to discourage people from applying if they're not creditworthy enough for that product. Credit card companies tailor their products into different income/credit brackets. Those who have less creditworthiness would be better suited for a different product than what you're referring, similar to those with greater creditworthiness. |
Am I understanding buying options on stock correctly | There is a reason why most professional option traders are sellers instead of buyers. Option sellers IMO are analogous to insurance companies that come out ahead in the long run. That is not to say if you are bullish about a stock then you should not buy it. I personally would never buy an option outright and look to reduce my cost basis by selling options around it such as: |
Taking Losses To Save On Tax | Tax questions require that you specify a jurisdiction. Assuming that this is the US, you owe Federal income tax (at the special long-term capital gains tax rate) on the net long-term capital gains (total long-term capital gains minus total long-term capital losses) and so, yes, if these two were your only transactions involving long-term holdings, you would pay long-term capital gains tax on $3000-$50 = $2950. Many States in the US don't tax long-term capital gains at special rates the way the Federal Government does, but you still pay taxes on the net long-term capital gains. I suspect that other countries have similar rules. |
Where do large corporations store their massive amounts of cash? | You can find out the general types of investments by reading the public corporation 10-Q report that is filed with the SEC it can be accessed via the EDGAR system. It will not tell you what securities they have, but it does identify the short term and long term investments categories and their value. |
Using Loan to Invest - Paying Monthly Installments with Monthly Income | Here are my re-run figures. Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan. It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission. It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount. Ref. r, logarithmic return |
Is there a good rule of thumb for how much I should have set aside as emergency cash? | The main factor should be what sorts of emergencies you are trying and also need to protect yourself against. Overall I'd say at least 6-9 months of expenses, adjusted for the above factors. More might be better but I'd probably keep that in a different type of investment vehicle, mainly because it doesn't really need to be accessible instantaneously like your normal emergency fund would need to be. |
Annualized Rate of Return on Stock Purchased in Tranches | So, there is no truly "correct" way to calculate return. Professionals will often calculate many different rates of return depending on what they wish to understand about their portfolio. However, the two most common ways of calculating multi-period return though are time-weighted return and money-weighted return. I'll leave the details to this good Investopeadia article, but the big picture is time-weighted returns help you understand how the stock performed during the period in question independent of how you invested it it. Whereas money-weighted return helps you understand how you performed investing in the stock in question. From your question, it appears both methods would be useful in combination to help you evaluate your portfolio. Both methods should be fairly easy to calculate yourself in a spread sheet, but if you are interested there are plenty of examples of both in google docs on the web. |
How do share buybacks work? | Something to note is that when a company announces a share buyback program there is usually a time frame and amount of shares that are important details as it isn't like the company will make one big buy back of stock generally. Rather it may take months or even years as noted in the Wikipedia article about share repurchases. Wikipedia covers some of the technical details here but to give a specific set of answers: When a company announces a share buyback program, who do they actually buy back the shares from? From the Wikipedia link: "Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights, and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction." Thus, there are open market and a couple of other possibilities. Openly traded shares on a stock exchange? Possibly, though there are other options. Is there a fixed price that they buy back at? Sometimes. I'd think a "fixed price tender offer" would imply a fixed price though the open market way may take various prices. If I own shares in that company, can I get them to buy back my shares? Selective Buy-Backs is noted in Wikipedia as: "In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. In the US, no special shareholder approval of a selective buy-back is required. In the UK, the scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favor of a special resolution to approve a selective buy-back. The notice to shareholders convening the meeting to vote on a selective buy-back must include a statement setting out all material information that is relevant to the proposal, although it is not necessary for the company to provide information already disclosed to the shareholders, if that would be unreasonable." Thus it is possible, though how probable is another question. While not in the question, something to consider is how the buybacks can be done as a result of offsetting the dilution of employees who have stock options that may exercise them and spread the earnings over more shares, but this is more on understanding the employee stock option scenario that various big companies use when it comes to giving employees an incentive to help the stock price. |
GNUCash: How to count up equity? | I would say when starting with Gnucash to start with the level of granularity you are comfortable with while sticking to the double entry bookkeeping practices. So going through each one: Refund for Parking Pass. Assuming you treat the Parking Pass as a sunk cost, i.e. an Expense account, its just a negative entry in the Expense account which turns into a positive one in your Bank account. Yes it may look weird, and if you don't like it you can always 'pay from Equity' the prior month, or your Bank Account if you're backfilling old statements. Selling physical items. If you sold it on eBay and the value is high enough you'll get tax forms indicating you've earned x. Even if its small or not done via eBay, treat it the same way and create a 'Personal Items/Goods' Income account to track all of it. So the money you get in your Bank account would have come from there. Found jacket money would be an Equity entry, either Opening Balances into Cash or Bank account. Remember you are treating Equity / Opening Balances as the state before you started recording every transaction so both the value going into Assets (Banks,Stock,Mutual Funds) and Liabilities (Mortgage, Student Debt, Credit Card Debt) originate from there. |
How to account for Capital Gains (Losses) in double-entry accounting? | Capital is an Asset. Decreasing value of capital is the decreasing value of an asset. When you buy the forex asset * DR Forex Asset * CR Cash When you sell * DR Cash * CR Forex Asset The difference is now accounted for Here is how: Gains (and losses) are modifications to your financial position (Balance sheet). At the end of the period you take your financial performance (Profit and Loss) and put it into your balance sheet under equity. Meaning that afterwards your balance sheet is better or worse off (Because you made more money = more cash or lost it, whatever). You are wanting to make an income account to reflect the forex revaluation so at the end of the period it is reflected in profit then pushed into your balance sheet. Capital gains directly affect your balance sheet because they increase/decrease your cash and your asset in the journal entry itself (When you buy and sell it). If making money this way is actually how you make you make an income it is possible to make an account for it. If you do this you periodically revalue the asset and write off the changes to the revaluation account. You would do something like *DR Asset *CR Forex Revaluation account; depending on the method you take. Businesses mostly do this because if the capital gains are their line of business they will be taxed on it like it is income. For simplicity just account for it when you buy and sell the assets (Because you as an individual will only recognise a profit/loss when you enter and exit). Its easier to think about income and expenses are extensions of equity. Income increases your equity, expenses decrease it. This is how they relate to the accounting formula (Assets = Liabilities + Owners Equity) |
Is there a benefit, long term, to life insurance for a youngish, debt, and dependent free person? | There is no benefit in life insurance as such (ie, death insurance.) There is a great deal of value in other types though: total and permanent disability insurance, trauma insurance (a lump sum for a major medical event), and income protection insurance (cover against a temporary but disabling medical condition). If you don't have that, you should get it right now. This is about the most important insurance you can carry. Being unable to work for the rest of your life has a far larger impact than having, say, your car stolen. ... If, later on, you acquire dependents, and you feel you ought to have life insurance, then you will have a relationship with a life insurance company, and maybe they will let you upgrade from income/TPD to income/TPD/life without too much fuss or requalification. Some do; whether yours would I don't know. But at least you have a toe in the door with them, in a way that is infinitely more immediately useful than getting life insurance that you don't actually need. |
Money Structuring | In the Anti-Money Laundering World ( AML) , structuring consists of the division ( breaking up) of cash transactions, deposits and withdrawals, with the intent to avoid the Currency Transaction Reporting ( CTR) filings. In your case the issue is not structuring but the fact that you have another person ( unknown to the bank) depositing cash , event if it is above the CTR threshold, for you to withdraw later . The entire scenario raises a lot of questions. |
Retirement planning 401(k), IRA, pension, student loans | I'd suggest you avoid the Roth for now and use pretax accounts to get the greatest return. I'd deposit to the 401(k), enough to get as much match as permitted, then use a traditional IRA. You should understand how tax brackets work, and aim to use pre-tax to the extent it helps you avoid the 25% rate. If any incremental deposit would be 15% money, use Roth for that. Most discussions of the pre-tax / post tax decision talk about 2 rates. That at the time of deposit and time of withdrawal. There are decades in between that shouldn't be ignored. If you have any life change, a marriage, child, home purchase, etc, there's a chance your marginal bracket drops back down to 15%. That's the time to convert to Roth, just enough to "top off" the 15% bracket. Last, I wouldn't count on that pension, there's too much time until you retire to count on that income. Few people stay at one job long enough to collect on the promise of a pension that takes 30+ years to earn, and even if you did, there's the real chance the company cancels the plan long before you retire. |
Taxing GoFundMe Donations | From WePay (GoFundMe's payment processor) support. I received only gifts and donations. Will I receive a Form 1099-K? As of 2015, the IRS has clarified that WePay is not required to send a Form 1099-K with respect to payments that are made solely as gifts or donations. The purpose of Form 1099-K is to report payments for the provision of goods or services, which may be subject to tax. Gifts and donations typically are not reported as income by recipients, so it is not necessary to send them a Form 1099-K. https://support.wepay.com/hc/en-us/articles/203609483-Tax-Reporting |
Personal Loan: How to define loan purpose | I would imagine that it goes beyond purpose and also addresses the demographic as a poor credit risk. Those seeking a post secondary education are a poor credit risk. They are at the beginning of their careers so tend to have low income, a short credit history, and a very short time of managing money on their own. Also many don't know how to work. This later fact, to me, is a great predictor of financial success. Reading into the financial data surrounding student loans, it pretty easy to see that this demographic makes poor money decisions. I live near a state university. A large percentage of students drive late model luxury cars, frequent expensive bars and restaurants, and wear pretty nice clothes. They also graduate with, on average 60K in student loans. Keep in mind a 4 year degree could be had for about 30K and could be paid for working a part time job. And that, to me, is the wisdom in bank's decision. Sure they will loan you all the money you want with a government guarantee. However, once that disappears they will not you money for unnecessary purposes. |
Should I buy a home or rent in my situation? | If I were you, I would rent. Wait to buy a home. Here is why: When you say that renting is equal in cost to a 30-year mortgage, you are failing to consider several aspects. See this recent answer for a list of things that need to be considered when comparing buying and renting. You have no down payment. Between the two of you, you have $14,000, but this money is needed for both your emergency fund and your fiancée's schooling. In your words: "we can’t reeaallllly afford a home." A home is a big financial commitment. If you buy a home before you are financially ready, it will be continuous trouble. If you need a cosigner, you aren't ready to buy a home. I would absolutely advise whoever you are thinking about cosigning for you not to do so. It puts them legally on the hook for a house that you can't yet afford. You aren't married yet. You should never buy something as big as a home with someone you aren't married to; there are just too many things that can go wrong. (See comments for more explanation.) Wait until you are married before you buy. Your income is low right now. And that is okay for now; you've been able to avoid the credit card debt that so many people fall into. However, you do have student loans to pay, and taking on a huge new debt right now would be potentially disastrous for you. Your family income will eventually increase when your fiancée gets her degree and gets a job, and at that time, you will be in a much better situation to consider buying a house. You need to move "ASAP." Buying a house when you are in a hurry is a generally a bad idea. When you look for a home, you need to take some time looking so you aren't rushed into a bad deal that you will regret. Even if you decide you want to buy, you should first find a place to rent; then you can take your time finding the right house. To answer your question about escrow: When you own a house, two of the required expenses that you will have besides the mortgage payment are property taxes and homeowner's insurance. These are large payments that are only due once a year. The bank holding the mortgage wants to make sure that they get paid. So to help you budget for these expenses and to ensure that these expenses are paid, the bank will add these to your monthly mortgage payment, and set them aside in a savings account (called an escrow account). Then when these bills come due once a year, they are paid for out of the escrow account. |
Why does the Fed use PCE over CPI? | Consumers aren't the only economic participants impacted by a change in the Fed rate.... Inflation has WIDE ranging implications from the future liabilities of pension funds to the ongoing cost of our national debt. It doesn't make sense to consider only consumer inflationary experience. PCE is considered because it relates to consumption, which includes things paid for by other entities, like employer healthcare spend. |
Refinance when going to sell? | In the first years of a loan, most of what you're paying is interest, so my guess is that this is a bad idea. But there are lots of mortgage calculators offered for free on the web (your bank's website may have one) so I'd suggest that you spend some time running actual numbers before deciding. Reminder: Most renovations do NOT pay for themselves in increased sales price, not least because you'll lose the buyers who don't like what you've done but would have been happy to renovate it themselves to their own tastes. Unless there is something which will actively impair your ability to sell the house, you should usually renovate when you plan to stay there for a while and take your returns in enjoying the house more, NOT on the way out. (There's been some recent discussion of this over in Home Improvement, pointing out that the changes which return more than they cost are usually simple things like refreshing the paint, "staging" the house so it looks lived in but not cluttered, replacing damaged blinds, washing windows, putting out a few more flowers, and so on.) |
If I were to get into a life situation where I would not be able to make regular payments, do lenders typically provide options other than default? | Some lenders will work with you if you contact them early and openly discuss your situation. They are not required to do so. The larger and more corporate the lender, the less likely you'll find one that will work with you. My experience is that your success in working out repayment plan for missed payments depends on the duration of your reduced income. If this is a period of unemployment and you will be able to pay again in a number of months, you may be able to work out a plan on some debts. If you're permanently unable to pay in full, or the duration is too long, you may have to file bankruptcy to save your domicile and transportation. The ethics of this go beyond this forum, as do the specifics of when it is advisable to file bankruptcy. Research your area, find debt counselling. They can really help with specifics. Speak with your lenders, they may be able to refer you to local non-profit services. Be sure that you find one of those, not one of the predatory lenders posing as credit counselling services. There's even some that take the money you can afford to pay, divide it up over your creditors, allowing you to keep accruing late/partial payment fees, and charge you a fee on top of it. To me this is fraudulent and should be cause for criminal charges. The key is open communication with your lenders with disclosure to the level that they need to know. If you're disabled, long term, they need to know that. They do not need to know the specific symptoms or causes or discomforts. They need to know whether the Social Security Administration has declared you disabled and are paying you a disability check. (If this is the case, you probably have a case worker who can find you resources to help negotiate with your creditors). |
Over how much time should I dollar-cost-average my bonus from cash into mutual funds? | Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation. |
When to trade in a relatively new car for maximum value | I love giving non-answer answers. It will depend on you. Suppose you are embarrassed by driving older cars, your significant other doesn't like having you drive an older car, you don't really maintain the car well, it develops a variety of problems, acquires a few dents and you really worry about reliability. Then the value of the car will probably drop rather quickly below the blue book value and you should sell it. On the other hand, if you don't care how the car looks, it runs pretty well (fewer repairs than you would expect), you maintain it yourself (aka cheaply) and do a good job at that, and have plenty of friends who owe you a favor and will give you a ride if your car won't start, there will probably never be a time that the value to you drops below the 'official' blue book value (what others will pay), so you would drive it until the engine drops out of the chassis. The blue book value represents some kind of rough consensus about what a car of that age and exterior condition is worth to the typical person; it will be the discrepancy between the 'typical' person and you that determines whether you'll sell. An illustration of this: I know a few people who (1) don't care what their car looks like and (2) are very handy at repairs. These people started out by buying cheap used cars and ran them until they basically fell to pieces. However, even though their 'taste' in cars didn't changes, as their incomes increased, it finally reached the point where doing their own repairs was too much of a time sink, so the value of really old cars dropped in their minds and they shifted to buying newer cars and selling them before they completely fell apart. That's why this is a hard question to answer. |
Do Fundamentals Matter Anymore in Stock Markets? | All you have to do is ask Warren Buffet that question and you'll have your answer! (grin) He is the very definition of someone who relies on the fundamentals as a major part of his investment decisions. Investors who rely on analysis of fundamentals tend to be more long-term strategic planners than most other investors, who seem more focused on momentum-based thinking. There are some industries which have historically low P/E ratios, such as utilities, but I don't think that implies poor growth prospects. How often does a utility go out of business? I think oftentimes if you really look into the numbers, there are companies reporting higher earnings and earnings growth, but is that top-line growth, or is it the result of cost-cutting and other measures which artificially imply a healthy and growing company? A healthy company is one which shows year-over-year organic growth in revenues and earnings from sales, not one which has to continually make new acquisitions or use accounting tricks to dress up the bottom line. Is it possible to do well by investing in companies with solid fundamentals? Absolutely. You may not realize the same rate of short-term returns as others who use momentum-based trading strategies, but over the long haul I'm willing to bet you'll see a better overall average return than they do. |
Is my wash sale being calculated incorrectly? | According to Wikipedia this is still a wash sale: In the USA wash sale rules are codified in "26 USC § 1091 - Loss from wash sales of stock or securities." Under Section 1091, a wash sale occurs when a taxpayer sells or trades stock or securities at a loss, and within 30 days before or after the sale: |
When does it make sense for the money paid for equity to go to the corporation? | If Jack owns all of the one million founding shares (which I assume you meant), and wants to transfer 250,000 shares to Venturo, then he is just personally selling shares to Venturo and the corporation gains nothing. If Jack does not own all of the founding shares, and the corporation had retained some, then the corporate shares could be sold to raise cash for the corporation. Usually in situations like this, the corporation will create more shares, diluting existing shareholders, and then sell the new shares on the open market to raise cash. |
How do I hedge stock options like market makers do? | Buying the underlying asset will not completely hedge you, only what lies above 155 dollars (strike + price of option) - you still have the risk of losing everything but 5. You have a maximum earnings-potential of 55 dollars (strike of 150 - investment of 100 + option of 5) but you have a risk of losing 95$ (investment of 100 - option of 5). Say chance of winning everything or losing everything is 50-50, your expected outcome is 0.5 x -95 + 0.5 x 55 = -20$. Is this a great investment? Sure you don't know your odds - otherwise it would be a sure thing. You shouldn't sell the call option if you do not expect prices to go up - but in that case - why not just buy the underlying alone? Speculating in options is a dangerous game with infinite earnings-potential but also infinite loss potential. (Consider selling a call option and not buying the underlying and the price goes from 100 to 1.000.000.000). |
Looking for a good source for Financial Statements | The best source of financial statements would be from the company in question. On corporate websites of public listed companies, you can find such financial statements uploaded in the Investor's Relations section of their website. If their company does not have an online presence, another alternative would be to go to the website of the exchange the company is trading in (e.g. NYSE or NASDAQ) for financial data. |
Should I charge my children interest when they borrow money? | This is largely a cultural issue. I would be appalled at the very idea that my parents would charge me interest for lending me money. Just as they would be appalled if I were to do so if lending them money. I find the idea of attempting to make money off of your children fundamentally wrong. I realize that you only want to do this to teach them, that you have their best interests in mind and not your own profit. Nevertheless, what will actually happen were you to charge them interest is that you would accrue a monetary gain at the expense of your children. Is that really something you would be comfortable with? Now, as I stated at the beginning, this is clearly a cultural issue. Based on the other answers here, many cultures, probably including your own, find nothing wrong with this. I've even heard of people charging their adult children rent when they come home for the holidays, something that is completely baffling to me. The point I am trying to make is that asking other people's opinions on whether you should do this is not very useful unless those people share your own cultural background. My family and culture are such that the idea of charging interest to one's family members seems downright immoral to me. Given that you are asking here, it seems like you might be on the fence about it yourself. However, I freely admit that my answer is colored by my own cultural prejudices and may very well not be applicable to you. Still, ask yourself, is a relatively small amount of money in the grand scheme of things—or, for that matter, an entire fortune—worth jeopardizing your relationship with your children? Do you really believe that having their parents retroactively charge them interest for a loan will somehow teach them something about the "real world" that your already adult children don't know? One of the main reasons they came to you and didn't go to a bank is precisely that they expected the loan to be interest free. So, sure, tell them that you won't lend any more until they repay what they owe. Even better, sit them down and have an honest, adult conversation, explaining that the absence of the money they owe is making itself felt in your household and work out a way they can repay you. What, in my opinion, you most certainly shouldn't do is treat your relationship with your children as a regular business transaction. It isn't and I am sure you don't want it to be. |
Why does gold have value? | Most of the answers here reflect a misunderstanding of what gold actually is from a financial perspective. I'll answer your question by asking two questions, and I do challenge you to stop and think about what we mean when we say "cash" or "unit of exchange" because without understanding those, you will completely miss this answer. In 1971, the DXY was 110. For people who don't know, the DXY is the US Dollar Index - it weighs the strength of the US Dollar relative to other currencies. Hey look, it's a pretty graph of the DXY's history. In 1971, gold was $35 an ounce. The DXY is 97 today. Gold is $1170 an ounce today. Now the questions: If shares of Company A in 1971 were $10 a share, but now are $100 a share and some of this is because the company has grown, but some of it is because of inflation and the DXY losing value, what would the value of the company be if it was held in grams of gold and not dollars? Benjamin Graham, who influenced Warren Buffett, is a "supposed" critic of gold, yet what percent of his life were we not on a gold standard? In his day, the dollar was backed by gold - why would you buy gold if every dollar represented gold. Finally, consider how many US Dollars exist, and how few metric tonnes of gold exist (165,000). Even Paul Volcker admitted that a new gold standard would be impossible because the value of gold, if we did it today, would put gold in the $5000-$10000 range - which is absurd: To get on a gold standard technically now, an old fashioned gold standard, and you had to replace all the dollars out there in foreign hands with gold, God the price, you buy gold, because the price of gold would have to be enormous. So, you're all left hoping the Federal Reserve figures how to get us all out of this mess without causing trouble, otherwise, let me just kindly say, you WILL realize the value of gold then. As the old saying goes, "A fool and his money are soon parted." I could be wrong, but I'd say that those who've been buying gold since 1971 for their "cash holdings" (not index funds) aren't the suckers. |
How do you compare the sales of a company like Coca Cola against another company like JPMorgan Chase to figure out the best investment opportunity? | The question isn't sales but profits. Banks traditionally profit by making loans. Just as with a physical product, there are costs involved, income produced, and the difference between the two is gross profit. From there you can get net profit, and from there you can look at efficiency or profit per share or whatever other metric floats your boat. Or you can just buy index funds, get average rates of return, and not have to think about it. |
How does the person lending shares to the short selller protect themselves if the short sellers are correct? | Lending of shares happens in the background. Those who have lent them out are not aware that they have been lent out, nor when they are returned. The borrowers have to pay any dividends to the lenders and in the end the borrowers get their stock back. If you read the fine print on the account agreement for a margin account, you will see that you have given the brokerage the permission to silently loan your stocks out. Since the lending has no financial impact on your portfolio, there's no particular reason to know and no particular protection required. Actually, brokers typically don't bother going through the work of finding an actual stock to borrow. As long as lots of their customers have stocks to lend and not that many people have sold short, they just assume there is no problem and keep track of how many are long and short without designating which stocks are borrowed from whom. When a stock becomes hard to borrow because of liquidity issues or because many people are shorting it, the brokerage will actually start locating individual shares to borrow, which is a more time-consuming and costly procedure. Usually this involves the short seller actually talking to the broker on the phone rather than just clicking "sell." |
How do I bring money overseas? | This page from TripAdvisor may be of interest. Look at what fees are charged on your ATM cards and credit cards, and consider overpaying your credit card so you have a credit balance that you can draw on for cash "advances" from ATMs that will dispense in local currency. Depending on what fees your bank charges, you may get a better rate than the forex cash traders at the airport. Edit: Cards may not always have the best rate. I recently heard from a traveler who was able to use a locally but not globally dominant currency to buy cash of a major currency at a shopping mall (with competitive forex traders) at rates even better than the mid-market rates posted at xe.com and similar places; I don't think you'll have that experience going from Australia to Malaysia (but another traveler reading this might have a different pair). In my experience the card rates are slightly worse than those and the airport forex traders significantly worse. |
How Do Scammers / Money Launderers Profit From Loans To Victims | What was the true reason they wanted to use my accounts for? We wouldn't know the true reason. The scammer can do multiple things. What exactly he would do in your case ... I am very eager to know what a person was up to who would give to me so much information about themselves. I know some of you will jump on the chance to yell "it was not their true address", but.... it is where they wanted me to send the cards to. And I was to give proof of my identification ie; a copy of my drivers license, my articles of incorporation and the real estate development project prospectus. Also they were only willing to work with certain banks ie; Citibank, Bank of America etc. I can not understand what they were doing wanting such access to accounts that had no money in them save the amount I used to open them with. It looks more like they would open accounts under your name, but they would be controlling the accounts. i.e. what goes in and out. i.e. they would be able to deposit and withdraw from a new account they set-up. They would want to use this account for illegal activities, so that if caught, the account opening paper trail leads to you. Even if they gave you an address, it could be rental. Like they have copies of your Company registration and ID proofs, they can use these to get another rental property ... and then send letters to some and ask them to met there. |
How do I account for 100 percent vendor discounts in GnuCash 2.6.5 | I am no expert on the situation nor do I pretend to act like one, but, as a business owner, allow me to give you my personal opinion. Option 3 is closest to what you want. Why? Well: This way, you have both the record of everything that was done, and also IRS can see exactly what happened. Another suggestion would be to ask the GnuCash maintainers and community directly. You can have a chat with them on their IRC channel #gnucash, send them an email, maybe find the answer in the documentation or wiki. Popular software apps usually have both support people and a helpful community, so if the above method is in any way inconvenient for you, you can give this one a try. Hope this helps! Robert |
Why buy insurance? | The odds could very well be in your favor, even when the insurance company expects profit. What matters to you is not the expected amount of money you'll have, but the expected amount of utility you'll get from it: getting enough money to buy food to eat is much more important than getting enough money to be able to buy that fiction book too. The more money you have, the less a dollar is worth to you: consequently, if you have enough money, it's worth spending some to prevent yourself from getting into a situation where you don't have enough money. |
Evaluating stocks useless? | Is evaluating stocks just a loss of time if the stock is traded very much? Not at all! Making sound investment decisions based on fundamental analysis of companies will help you to do decide whether a given company is right for you and your risk appetite. Investing is not a zero-sum game, and you can achieve a positive long-term (or short-term, depending on what you're after) outcome for yourself without compromising your ability to sleep at night if you take the time to become acquainted with the companies that you are investing in. How can you ensure that your evaluation is more precise than the market ones which consists of the evaluation of thousands of people and professionals? For the average individual, the answer is often simply "you probably cannot". But you don't have to set the bar that high - what you can do is ensure that your evaluation gives you a better understanding of your investment and allows you to better align it with your investment objectives. You don't have to beat the professionals, you just have to lose less money than you would by paying them to make the decision for you. |
What should I do with the change in my change-jar? | I don't know if those machines work this way in the UK too, but here in the US you can often avoid the coin-counting fee if you opt to convert the money into a gift certificate instead of cash. I routinely convert my coins to Amazon gift certificate money with no charge. Individual machines differ in which particular gift cards they use, but at the least, almost all of them offer the option for a no-fee conversion to a voucher/gift certificate to the store where the machine is. So it's likely you'd be able to use the machine to convert the cash to "money" you can use to buy groceries. |
Why will the bank only loan us 80% of the value of our fully paid for home? | Imagine the bank loaning 100% of the sum of money you needed to buy a house, if the valuation of the house decreases to 90% of the original price after 3 months, would it be unfair for them to ask them for 10% of the original price from you immediately? I suppose the rationale for loaning 80% is so that you will fork our 20% first, and so your property is protected from fluctuations in the market, that they do not need to collect additional money from you as your housing valuation rarely drops below 80% of the original price. Banks do need to make money too, as they run as a business. |
Should a high-school student invest their (relative meager) savings? | You should invest in that with the best possible outcome. Right now that is in yourself. Your greatest wealth building tool, at this point, is your future income. As such anything you can do to increase your earnings potential. For some that might mean getting an engineering degree, for others it might mean starting a small business. For some it is both obtaining a college degree and learning about business. A secondary thing to learn about would be personal finance. I would hold off on stocks, at this time, until you get your first real job and you have an emergency fund in place. Penny stocks are worthless, forget about them. Bonds have their place, but not at this point in your life. Saving up for college and obtaining a quality education, debt free, should be your top priority. Saving up for emergencies is a secondary priority, but only after you have more than enough money to fund your college education. You can start thinking about retirement, but you need a career to help fund your savings plan. Put that off until you have such a career. Investing in stocks, at this juncture, is a bit foolish. Start a career first. Any job you take now should be seen as a step towards a larger goal and should not define who you are. |
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