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Online tutorials for calculating DCF (Discounted Cash Flow)? | Check out Professor Damodaran's website: http://pages.stern.nyu.edu/~adamodar/ . Tons of good stuff there to get you started. If you want more depth, he's written what is widely considered the bible on the subject of valuation: "Investment Valuation". DCF is very well suited to stock analysis. One doesn't need to know, or forecast the future stock price to use it. In fact, it's the opposite. Business fundamentals are forecasted to estimate the sum total of future cash flows from the company, discounted back to the present. Divide that by shares outstanding, and you have the value of the stock. The key is to remember that DCF calculations are very sensitive to inputs. Be conservative in your estimates of future revenue growth, earnings margins, and capital investment. I usually develop three forecasts: pessimistic, neutral, optimistic. This delivers a range of value instead of a false-precision single number. This may seem odd: I find the DCF invaluable, but for the process, not so much the result. The input sensitivity requires careful work, and while a range of value is useful, the real benefit comes from being required to answer the questions to build the forecast. It provides a framework to analyze a business. You're just trying to properly fill in the boxes, estimate the unguessable. To do so, you pore through the financials. Skimming, reading with a purpose. In the end you come away with a fairly deep understanding of the business, how they make money, why they'll continue to make money, etc. |
How does on-demand insurance company Trov prevent insurance fraud or high prices? | For example, it is not allowed to buy flood insurance at peak flood season and then cancel it when it is over. They are not offering this right now. So it would be interesting to see if they offer this and how they offer this. For example, you can insure your camera for a week when you are going on vacation. They call it on-demand insurance. They segment Trov is targeting consumer electronics. More often people don't take insurance in this segment as the insurance cost is high and benefits low. However if going on vacation, most are afraid of loosing / damaging equipments. Generally although we are afraid, most often nothing happens. It is this segment; you make the insurance cheap and easy to buy and create a new segment. Insurance fraud detection is an important part of insurance process such that insurance companies allocate a lot of resources to detect improper insurance claims. The website does not mention how they process claims. Although it looks easy, they may have a more stringent process. For example what is stopping me from buying an insurance after event; i.e. break my phone Monday, buy insurance on Monday and make a claim on Tuesday saying the phone broke on Tuesday. |
How do I get bill collectors who call about people I know to stop calling me? | If they really won't stop calling you, just waste their time. Usually the best thing I do to telemarketers (the ones that constantly call even through I've told them to stop) is to say "oh yes, I'm interested I'll just get a pen" - put them on hold and keep them on hold. Do it every time they call and soon they'll get the idea that you're a waste of time. |
Should I always pay my credit at the last day possible to maximize my savings interest? | If you have the ability to pay online with a guaranteed date for the transaction, go for it. My bank will let me pay a bill on the exact date i choose. When using the mail, of course, this introduces a level of risk. I asked about rates as the US currently has a near zero short term rate. At 3.6%, $10,000, this is $30/month or $1/day you save by delaying. Not huge, but better in your pocket than the bank's. |
If I invest in securities denominated in a foreign currency, should I hedge my currency risk? | Like most other investment decisions - it depends. Specifically in this case it depends upon your view of the FX (Foreign Exchange) market over the next few years, and how sensitive you are to losses. As you correctly note, a hedge has a cost, so it detracts from your overall return. But given that you need to repatriate the investment eventually to US Dollars, you need to be aware of the fluctuations of the dollar versus other currencies. If you believe that over your time horizon, the US dollar will be worth the same as now or less, then you should not buy the hedge. If the dollar is the same - the choice is/was obvious. If you believe the US dollar will be weaker in the future, that means that when you repatriate back to US dollars, you will purchase more dollars with your foreign currency. If on the other hand, you believe the US Dollar will get stronger, then you should certainly lock in some kind of hedge. That way, when your foreign currency would have effectively bought fewer US, you will have made money on the hedge to make up the difference. If you choose not to hedge now, you can likely hedge that exposure at any time in the future, separate from the initial investment purchase buy buying/selling the appropriate FX instrument. Good Luck |
Merrill Lynch historical stock prices - where to find? | You could try asking Merrill Lynch, (general inquiries) :- http://www.ml.com/index.asp?id=7695_114042 So far I only found a few graphics :- http://topics.nytimes.com/top/news/business/companies/merrill_lynch_and_company/ http://www.reuters.com/article/2008/01/17/us-merrilllynch-results-idUSWNAS674520080117 http://www.stocktradingtogo.com/2008/09/15/merrill-lynch-saved-by-bank-of-america-buyout/ |
Comparing IRA vs 401K's rate-of-return with dollar cost averaging | Google Docs spreadsheets have a function for filling in stock and fund prices. You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance("symbol", "attribute", "start_date", "num_days|end_date", "interval") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that. |
Previous owner of my home wants to buy it back but the property's value is less than my loan… what to do? | It's a short sale. See these for good overviews: http://www.realtor.org/library/library/fg335 http://homebuying.about.com/od/4closureshortsales/a/shortsalebasics.htm You'll want input from your lawyer and accountant (assuming the lender says they would accept such a sale). Best of luck - sounds like this could be a great opportunity for you if it all comes together. DO NOT talk to a realtor. |
How would I go about selling the stock of a privately held company? | The easiest way to find a buyer should be to ask the company to connect you to some of their other shareholders. I imagine they are much more likely to take those shares off you than a random investor on the street. Otherwise, well, talk to people. At a golf club, maybe? :) Valuation is not going to be very straightforward. Basically you'll get whatever someone is willing to pay. That's what FMV means when there's no real "market". Realistically, the price is mainly going to be based on divididend history and the company's assets, discounted for risk and liquidity (you're currently feeling the reason for the latter discount). |
What time period is used by yahoo finance to calculate beta | Citing the Yahoo Finance Help page, Beta: The Beta used is Beta of Equity. Beta is the monthly price change of a particular company relative to the monthly price change of the S&P500. The time period for Beta is 3 years (36 months) when available. Regarding customised time periods, I do not think so. |
Why do some companies report how well their EBITDA performed even if their overall net profit did equally well? | EBITDA is in my opinion not a useful measure for an investor looking to buy shares on the stock market. It is more useful for private businesses open to changing their structuring, or looking to sell significant parts of their business. One of the main benefits of reporting Earnings Before Interest, Taxes, Depreciation & Amortization, is that it presents the company as it would look to a potential buyer. Consider that net income, as a metric, includes interest costs, taxes, and depreciation. Interest costs are (to put it simply) a result of multiplying a business's debt by its interest rate. If you own a business, and personally guarantee the loan that the company has with the bank, your interest rates might be artificially low. If you have a policy of reaching high debt levels relative to your equity, in order to achieve high 'financial leveraging', your interest cost might be artificially high. Either way, if I bought your business, my debt structure could be completely different, and therefore your interest costs are not particularly relevant to me, a potential buyer. Instead, I should attempt to anticipate what my own interest costs would be, under my plans for your business. Taxes are a result of many factors, including the corporate structure of the business. If you run your business as a sole proprietorship (ie: no corporation), but I want to buy it under my corporation, then my tax rates could look nothing like yours. Or if we operated in multiple jurisdictions. etc. etc. Instead of using your taxes as an estimate for mine, I should anticipate my taxes based on my plans for your business. Depreciation / amortization is a measure that estimates how much of a business's "fixed assets" were "used up" during the year. ie: how much wear and tear occurred on your fleet of trucks? It is generally calculated as a % of your overall asset value. It is a (very loose) proxy for the cash costs which will ultimately be incurred to make repairs/replacements. D&A is also something which could significantly change if a business changes hands. If the value of your building is much higher now than when you bought it, I will have higher D&A costs than you [because I will be recording a % of total costs higher than yours], and therefore I should forecast my own D&A. Removing these costs from Net Income is not particularly relevant for a casual stock investor, because these costs will not change when you buy shares. Whatever IBM's interest cost is, reflects the debt structuring policy that the company currently has. Therefore when you buy a share in IBM, you should consider the impact that interest has on net income. Similarly for taxes and D&A - they reflect costs to the business that impact the company's ability to pay you a dividend, and therefore you should look at net income, which includes those costs. Why would a business with 'good net income' and 'good EBITDA' report EBITDA? Because EBITDA will always be higher than net income. Why say $10M net income, when you could say $50M EBITDA? The fact is, it's easy to report, and is generally well understood - so why not report it, when it also makes you look better, from a purely "big number = good" perspective? I'm not sure that reporting EBITDA implies any sort of manipulative reporting, but it would seem that Warren Buffet feels this is a risk. |
Remote jobs and incidental wage costs: What do I have to consider? | An employee costs the company in four ways: Salary, taxes, benefits, and capital. Salary: The obvious one, what they pay you. Taxes: There are several taxes that an employer has to pay for the privilege of hiring someone, including social security taxes (which goes to your retirement), unemployment insurance tax (your unemployment benefits if they lay you off), and workers compensation tax (pays if you are injured on the job). (There may be other taxes that I'm not thinking of, but in any case those are the main ones.) Benefits: In the U.S. employers often pay for medical insurance, sometimes for dental, life, and disability. There's usually some sort of retirement plan. They expect to give you some number of vacation days, holidays, and sick days where they pay you even though you're not working. Companies sometimes offer other benefits, like discounts on buying company products, membership in health clubs, etc. Capital: Often the company has to provide you with some sort of equipment, like a computer; furniture, like a chair and desk; etc. As far as the company is concerned, all of the above are part of the cost of having you as an employee. If they would pay a domestic employee $60,000 in salary and $20,000 in taxes, then assuming the same benefits and capital investment, if a foreign employee would cost them $0 in taxes they should logically be willing to pay $80,000. Any big company will have accountants who figure out the total cost of a new employee in excruciating detail, and they will likely be totally rational about this. A smaller company might think, "well, taxes don't really count ..." This is irrational but people are not always rational. I don't know what benefits they are offering you, if any, and what equipment they will provide you with, if any. I also don't know what taxes, if any, a U.S. company has to pay when hiring a remote employee in a foreign country. If anybody on here knows the answer to that, please chime in. Balanced against that, the company likely sees disadvantages to hiring a foreign remote employee, too. Communication will be more difficult, which may result in inefficiency. My previous employer used some contractors in India and while there were certainly advantages, the language and time zone issues caused difficulties. There are almost certainly some international bureaucratic inconveniences they will have to deal with. Etc. So while you should certainly calculate what it would cost them to have a domestic employee doing the same job, that's not necessarily the end of the story. And ultimately it all comes down to negotiations. Even if the company knows that by the time they add in taxes and benefits and whatever, a domestic employee will cost them $100,000 a year, if they are absolutely convinced that they should be able to hire an Austrian for $60,000 a year, that might be the best offer you will get. You can point out the cost savings, and maybe they will concede the point and maybe not. |
Dollar Cost Averaging (Or value averaging) vs Lot sizes, what am I missing? | This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example). |
How safe is a checking account? | US checking accounts are not really secure, though many people use them. One form of check fraud has been highlighted by Prof. Donald Knuth and carried out by Frank Abagnale, as portrayed in the film Catch Me If You Can. Basically, anyone can write a check that would draw from your account merely by knowing your account number and your bank's ABA routing number. With those two pieces of information (which are revealed on every check that you write), anyone can print a working check, either using a laser printer with MICR (magnetic ink character recognition) toner, or by placing an order with a check-printing company. The only other missing element is a signature, which is a pretty weak form of authentication. When presented with such a check, your bank would probably honor it before finding out, too late, that it is fraudulent. A variant of this vulnerability is ACH funds transfers. This is the mechanism through which you could have, say, your utility company automatically withdraw money from your account to pay your bill. Unfortunately, the transfer is initiated by the recipient, and the system relies largely on trust with some statistical monitoring for suspicious patterns. Basically, the whole US checking system is built with convenience rather than security in mind, since other institutions are able to initiate withdrawal transactions by knowing just the ABA number and account number. In practice, it works well enough for most people, but if you are paranoid about security, as you seem to be, you don't want to be using checks. The European system, which has largely eliminated checks in favor of payer-initiated push transactions, is safer by design. |
Advantages of paying more of your mortgage while you know you won't continue to live there your whole life | In the Netherlands specifically, there are several reasons to pay extra off on your mortgage. First, house prices have dropped significantly in the last several years. They are rising slowly now, but it's region specific and you can still borrow more than 100% of the price of the house. Under these conditions, if you choose to sell your house and the outstanding mortgage amount is greater than the value of your house, you are left with a gap (restschuld) to finance. I think the rules have changed recently around this, allowing you to finance this gap with a new mortgage, but this is not a good idea. The tax implications of this are likely to be complicated in the long run and your new house may not cover this gap for some time. Second, the less you owe on your house, the lower mortgage rates you can get. Mortgages in the Netherlands usually fall into categories based on percentage of the auction price at a foreclosure sale (executiewaarde). If you pay more of your mortgage off, you may qualify for a lower interest rate, possibly making refinancing interesting. This is especially important if interest rates continue to drop but the value of your house does not increase or even decreases. Third, if you choose to keep your house and rent it out, the banks in the Netherlands have very strict rules on this if you want to do it above board. I've read that some banks require the mortgage amount (NB not the value you may have built up in a linked savings or insurance account) to be less than 50% of the foreclosure auction price (executiewaarde). Also, related to point 2, if you have something other than a linear or annuity mortgage, you will need to refinance to do this as the tax advantages around savings mortgages ([bank]spaarhypotheken) do not apply if it is not used as your own residence. Finally, if you choose to sell and you are in the happy position of having the value of your house be greater than the value of your mortgage (you have an overwaarde), there may still be some obstacles. Any value you have accumulated in a linked savings or life insurance account is not available until after you sell your house. Extra value derived purely from the difference between mortgage value and sale price may be easier to deal with. EDIT: As a final note, I've made extra payments on both a "Spaarhypotheek" (linked life insurance) and a "Bankspaarhypotheek" (linked savings account). In one, the principal paid each month reduced and the mortgage lifetime stayed the same. In the other, the principal paid each month stayed the same and the lifetime reduced. In both cases, interest payments were less each month. I would contact your mortgage provider to understand what the expected impact of extra payments will be. |
Swiss-style Monetary Policy | This is what is called "weasel words". They're trying to put some authority into their ad, but since they don't have any - they're putting meaningless words that sound important. Monetary policy is the state/central bank policy to control the supply of the available currency. Cannot think of a way to connect it to private investments. |
What happens when a calendar spread is assigned in a non-margin account? | I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your "insurance" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations |
Can I evaluate the performance of a company using just OHLC data? | No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports. |
What is the best asset allocation for a retirement portfolio, and why? | Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is "100 minus your age". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the "100" number has varied. Some financial advisor types have suggested "150" or "200". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a "passive" index fund, not an actively managed fund with a high expense ratio. Personally, I like "total market" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/ |
Does a stock really dip in price on the ex-dividend date? And why would it do this? | This effect has much empirical evidence as googling "dividend price effect evidence" will show. As the financial economic schools of thought run the gamut so do the theories. One school goes as far to call it a market inefficiency since the earning power thus the value of an equity that's affected is no different or at least not riskier by the percentage of market capitalization paid. Most papers offer that by the efficient market hypothesis and arbitrage theory, the value of an equity is known by the market at any point in time given by its price, so if an equity pays a dividend, the adjusted price would be efficient since the holder receives no excess of the price instantly before payment as after including the dividend since that dividend information was already discounted so would otherwise produce an arbitrage. |
Do rental car agencies sell their cars at a time when it is risky for the purchaser? | Many Web sites and articles warn against buying former rental cars, because people renting these cars often mistreat them. Many of those are also written by unqualified individuals for publication on blog farms and encourage all sorts of odious financial practices. That's not even considering the interests of who is paying to advertise on said blogs-- I'm sure their interests align with making sure you always pay top dollar for a new car. Because those icky used ones are so mistreated! Never trust financial advice published on the internet (or in the media, for that matter). Edit: One caveat on further thought-- never, never buy used vehicles from government auctions (impounds, asset seizures, old police cars, etc). Anybody irresponsible enough to go to jail or abandon their car long enough to lose their assets likely isn't a responsible owner of such, and cops and crooks alike do absolutely beat the snot out of police cars. When it comes to government-owned vehicles (police cars, schoolbuses) municipal governments are notoriously stingy and will squeeze every last minute of use out of them before putting them on the market. If you're buying a government vehicle, assume it's being sold because it has intractable problems. But from a financial point of view, I notice that rental agencies sell cars within the first two years, during the time when they depreciate the most. Bingo. I figure many large rental companies will have mathematicians who calculate the best time to sell. Does the fact that they sell the car mean during this time suggest that they know the car's cost of further maintenance or other costs will be higher? Or is there another reason they sell at this time which, has a calculated advantage to them, but which is less than idea statistically for me, the purchaser? It doesn't take a PhD to realize it's bad for business if your model revolves around renting out 1970s rustbuckets that run the risk of breaking down and leaving customers stranded in inopportune or dangerous places. Uhaul in particular has a terrible reputation for this, and it shows in the condition of their trucks-- relics of the 90s, all of them. Uber won't let you drive for them if your car is older than 7-10 years for the same reasons. Yes, as a car ages, the chance of having to make repairs increases. Rental agencies are in the business of renting vehicles, not running service centers and garages. It's more aligned with their core business model to just dispose of cars once they've squeezed the most reliable years out of them and amortize the vehicles' depreciation across the tax deductions and fleet pricing they enjoy when buying new ones. This gets them out of the service game and lets them focus on their core business-- procurement and rental. There's no calculated "time-to-lemon" that they're trying to skirt here; they're just trying to avoid having to make any repairs whatsoever. |
Is it true that if I work 6 months per year, it is better than to work for 1 calendar year and take a break for 1 year? | Yes, if you can split your income up over multiple years it will be to your advantage over earning it all in one year. The reasons are as you mentioned, you get to apply multiple deductions/credits/exemptions to the same income. Rather than just 1 standard deduction, you get to deduct 2 standard deductions, you can double the max saved in an IRA, you benefit more from any non-refundable credits etc. This is partly due to the fact that when you are filing your taxes in Year 1, you can't include anything from Year 2 since it hasn't happened yet. It doesn't make sense for the Government to take into account actions that may or may not happen when calculating your tax bill. There are factors where other year profit/loss can affect your tax liability, however as far as I know these are limited to businesses. Look into Loss Carry Forwarded/Back if you want to know more. Regarding the '30% simple rate', I think you are confusing something that is simple to say with something that is simple to implement. Are we going to go change the rules on people who expected their mortgage deduction to continue? There are few ways I can think of that are more sure to cause home prices to plummet than to eliminate the Mortgage Interest Deduction. What about removing Student Loan Interest? Under a 30% 'simple' rate, what tools would the government use to encourage trade in specific areas? Will state income tax deduction also be removed? This is going to punish those in a state with a high income tax more than those in states without income tax. Those are all just 'common' deductions that affect a lot of people, you could easily say 'no' to all of them and just piss off a bunch of people, but what about selling stock though? I paid $100 for the stock and I sold it for $120, do I need to pay $36 tax on that because it is a 'simple' 30% tax rate or are we allowing the cost of goods sold deduction (it's called something else I believe when talking about stocks but it's the same idea?) What about if I travel for work to tutor individuals, can I deduct my mileage expenses? Do I need to pay 30% income tax on my earnings and principal from a Roth IRA? A lot of people have contributed to a Roth with the understanding that withdrawals will be tax free, changing those rules are punishing people for using vehicles intentionally created by the government. Are we going to go around and dismantle all non-profits that subsist entirely on tax-deductible donations? Do I need to pay taxes on the employer's cost of my health insurance? What about 401k's and IRA's? Being true to a 'simple' 30% tax will eliminate all 'benefits' from every job as you would need to pay taxes on the value of the benefits. I should mention that this isn't exactly too crazy, there was a relatively recent IRS publication about businesses needing to withhold taxes from their employees for the cost of company supplied food but I don't know if it was ultimately accepted. At the end of the day, the concept of simplifying the tax law isn't without merit, but realize that the complexities of tax law are there due to the complexities of life. The vast majority of tax laws were written for a reason other than to benefit special interests, and for that reason they cannot easily be ignored. |
Multi-year profit/tax question | This is called "Net Operating Loss", and it is in fact applicable for individuals as well. You can, under certain circumstances, have NOL even as an individual. But it is far more common in the corporate world. What happens is that you can carry it back or forward, and get refund on taxes paid or adjust income for taxes to pay. In your example, you could carry the $75 NOL back and deduct it from the prior year earnings, reducing the taxable income from $100 to $25, getting $18.75 of the $25 paid as taxes - back. The link is for individual NOL, corporate rules are different, but the principle is the same. |
What do I need to do to form an LLC? | I know that there are a lot service on the internet helping to form an LLC online with a fee around $49. Is it neccessarry to pay them to have an LLC or I can do that myself? No, you can do it yourself. The $49 is for your convenience, but there's nothing they can do that you wouldn't be able to do on your own. What I need to know and what I need to do before forming an LLC? You need to know that LLC is a legal structure that is designed to provide legal protections. As such, it is prudent to talk to a legal adviser, i.e.: a Virginia-licensed attorney. Is it possible if I hire some employees who living in India? Is the salary for my employees a expense? Do I need to claim this expense? This, I guess, is entirely unrelated to your questions about LLC. Yes, it is possible. The salary you pay your employees is your expense. You need to claim it, otherwise you'd be inflating your earnings which in certain circumstances may constitute fraud. What I need to do to protect my company? For physical protection, you'd probably hire a security guard. If you're talking about legal protections, then again - talk to a lawyer. What can I do to reduce taxes? Vote for a politician that promises to reduce taxes. Most of them never deliver though. Otherwise you can do what everyone else is doing - tax planning. That is - plan ahead your expenses, time your invoices and utilize tax deferral programs etc. Talk to your tax adviser, who should be a EA or a CPA licensed in Virginia. What I need to know after forming an LLC? You'll need to learn what are the filing requirements in your State (annual reports, tax reports, business taxes, sales taxes, payroll taxes, etc). Most are the same for same proprietors and LLCs, so you probably will not be adding to much extra red-tape. Your attorney and tax adviser will help you with this, but you can also research yourself on the Virginia department of corporations/State department (whichever deals with LLCs). |
Td Ameritrade Roth IRA question | Failing some answers to my comment, I am going to make some assumptions: Based upon a quick review of this article I'd probably be in the Russell 2000 Value Index Fund (IWN). Quite simply it gives you broad market exposure so you can be diversified by purchasing one fund. One of the key success factors is starting, not if you pick the best fund at the onset. I can recall, 20 years ago being amazed (and it was quite a feat) at someone who was able to invest $400 per month. These days that won't get you to the ROTH maximum and smart 20 somethings are doing just that. |
Why do shareholders participate in shorting stocks? | There are two primary reasons shares are sold short: (1) to speculate that a stock's price will decline and (2) to hedge some other related financial exposure. The first is acknowledged by the question. The second reason may be done for taxes (shorting "against the box" was once permitted for tax purposes), for arbitrage positions such as merger arbitrage and situations when an outright sale of stock is not permitted, such as owning restricted stock such as employer-granted shares. Why would a shareholder lend the investor the shares? The investor loaning his stock out to short-sellers earns interest on those shares that the borrower pays. It is not unusual for the annualized cost of borrowing stock to be double digits when there is high demand for heavily shorted shares. This benefit is however not available to all investors. |
Confused about employee stock options: How do I afford these? | I've been offered a package that includes 100k stock options at 5 dollars a share. They vest over 4 years at 25% a year. Does this mean that at the end of the first year, I'm supposed to pay for 25,000 shares? Wouldn't this cost me 125,000 dollars? I don't have this kind of money. At the end of the first year, you will generally have the option to pay for the shares. Yes, this means you have to use your own money. You generally dont have to buy ANY until the whole option vests, after 4 years in your case, at which point you either buy, or you are considered 'vested' (you have equity in the company without buying) or the option expires worthless, with you losing your window to buy into the company. This gives you plenty of opportunity to evaluate the company's growth prospects and viability over this time. Regarding options expiration the contract can have an arbitrarily long expiration date, like 17 years. You not having the money or not isn't a consideration in this matter. Negotiate a higher salary instead. I've told several companies that I don't want their equity despite my interest in their business model and product. YMMV. Also, options can come with tax consequences, or none at all. its not a raw deal but you need to be able to look at it objectively. |
How Should I Start my Finance Life and Invest? | nan |
What happens when a company stops trading? (pink sheets) | What will happen if the stock price just continues to decline? Nothing. What would happen if folks just stop trading it? Nothing. What if the company goes private? Then they will have to buy you out based on some agreed upon price, as voted by the board and (potentially) approved by the shareholders. Depending on the corporation charter, the board may not be required to seek the shareholders' approval, but if the price the board agreed upon is unreasonable you can sue and prevent the transaction. How do they decide the fair value of the outstanding stocks? Through a process called "valuation", there are accounting firms which specialize in this area of public accounting. |
After consulting HR Block, are you actually obligated to file your taxes with them, if they've found ways to save you money? | The obligation is contractual, so you need to read the contract to answer your question. However, since you paid for the service provided, I see no way they can force you buy any other service from them. They cannot file your tax returns without your explicit consent (on a form dedicated to that, dated and having the numbers matching the return filed - not something you can sign before the actual return is ready). Worst case they can claim you owe them more money, but since you paid for the services provided, I can't see how they can have that stand in court as well. Bottom line - even if the contract has such an obligation, I cannot see how it can be enforced. As to the mistake they noted... I wouldn't rely on H&R Block advice in any matter. Very likely, the person you were talking to was not even licensed to provide tax advice. You're lucky if the person has passed CRTP exams (in California they're legally required), but I seriously doubt their clerks are EAs or CPAs (the only designations other than a lawyer legally allowed to provide tax advice). Tax preparers (CRTPs included) are only allowed to provide advice pertaining to the preparation of the tax return they're currently engaged to prepare. Claiming income is sourced or not sourced in NY is borderline, IMHO. If they got it wrong (and to me it sounds as they did) you can sue them for damages. If your situation is tricky and it is too late to get an appointment with a proper adviser - file an extension (form 4868) and deal with it after the April busy season. |
Should I buy or lease a car given that its not a super luxury car and I only drive 15 miles/d on avg? | Leasing is not exactly a scam, but it doesn't seem to be the right product for you. The point of leasing over buying is that it turns the capital purchase of a car which needs to be depreciated for tax purposes into what is effectively a rental expense. Rent is an expense that can be deducted directly without depreciation. If you are not operating a business where you can take advantage of leasing's tax advantages, leasing is probably not for you. Because of the tax advantages, a lease can be more profitable for the car dealer. They can get a commission or finder's fee on the lease as well as the commission on the car sale. That extra profit comes from somewhere, presumably from you. If a business, you can then pass part of that to the government. As an individual, you lose that advantage. At this point, the best financial decision that you could make would be to buy out the lease on your current car. Lease prices are set based on the assumption that the car will have been abused during the course of the lease. If you are driving the car less than expected, its value is probably higher than the cost of buying out the lease. If you buy that car, you can drive it for years. Save up some money and buy your next car for cash rather than using financing. Of course, if you really want a new car and can afford it, you may not want to buy out the lease. That is of course your decision. You don't have to maximize your current financial position if buying a new car would return more satisfaction for the money in the long run. I would try to avoid financing for what is essentially a pleasure purchase though. |
What risks are there acting as a broker between PayPal and electronic bank transfers? | There are several red flags here. can they get my bank account info in any way from me transferring money to them? Probably yes. Almost all bank transactions are auditable, and intentionally cause a money track. This track can be followed from both sides. If they can use your bank account as if they were you, that is a bit deeper than what you are asking, but yes they (and the polish cops) can find you through that transfer. I did look up the company and didn't find any scam or complaints concerning them. Not finding scams or complains is good, but what did you find? Did you find good reviews, the company website, its register, etc, etc? How far back does the website goes (try the wayback machine) Making a cardboard front company is very easy, and if they are into identity theft the company is under some guy in guam that never heard of poland or paypal. As @Andrew said above, it is probably a scam. I'd add that this scam leverages on the how easier is to get a PayPal refund compared to a regular bank transfer. It is almost impossible to get the money back on an international transaction. Usually reverting a bank transfer requires the agreement in writing of the receiver and of both banks. As for paypal, just a dispute from the other user: You are responsible for all Reversals, Chargebacks, fees, fines, penalties and other liability incurred by PayPal, a PayPal User, or a third party caused by your use of the Services and/or arising from your breach of this Agreement. You agree to reimburse PayPal, a User, or a third party for any and all such liability. (source) Also, you might be violating the TOS: Allow your use of the Service to present to PayPal a risk of non-compliance with PayPal’s anti-money laundering, counter terrorist financing and similar regulatory obligations (including, without limitation, where we cannot verify your identity or you fail to complete the steps to lift your sending, receiving or withdrawal limit in accordance with sections 3.3, 4.1 and 6.3 or where you expose PayPal to the risk of any regulatory fines by European, US or other authorities for processing your transactions); (emphasis mine, source) So even if the PayPal transfer is not disputed, how can you be sure you are not laundering money? Are you being paid well enough to assume that risk? |
Any problem if I continuously spend my credit card more than normal people? | Sometimes when you are trying to qualify for a loan, the lender will ask for proof of your account balances and costs. Your scheme here could be cause for some questions: "why are you paying $20-30k to your credit card each month, is there a large debt you haven't disclosed?". Or perhaps "if you lost your job, would you be able to afford to continue to pay $20-30k". Of course this isn't a real expense and you can stop whenever you want, but still as a lender I would want to understand this fully before loaning to someone who really does need to pay $20-30k per month. Who knows this might hiding some troublesome issues, like perhaps a side business is failing and you're trying to keep it afloat. |
Started new job. Rollover previous employer 401k to new 401k, IRA or Roth IRA? | I agree with harmanjd – best to roll it over to an IRA. Not only does that afford you better control of your money as pointed out already, but: If you choose your IRA provider wisely, you can get an account that provides you with a much wider array of investing choices, including funds and ETFs that charge much lower fees than what you would have had access to in an employer 401(k) plan. But here's one thing to consider first: Do you hold any of your previous employer's stock in your old 401(k)? There are special rules you might want to be aware of. See this article at Marketwatch: If your 401(k) includes your company's stock, a rollover may be a bad move. Additional Resource: |
Can't the account information on my checks be easily used for fraud? | Yes, and there are almost no checks (no pun intended) on people pulling money from your account using a routing number. It is an EXTREMELY insecure system. If you want a real Halloween scare, read this article: Easy Check Fraud Technique Draws Scrutiny. Unfortunately you just have to live with it. If you are curious why this loophole is allowed to continue, consider how hard it is to close it without undermining the convenience of checks. Short of you going to the bank with each person you write a check to and showing ID to validate the transaction, I don't see how you could continue to use a negotiable instrument like this without such a security hole. The ultimate answer is going to have to be replacing checks with other means of payment. |
Credit Card Approval | Three big ones that are common in almost all banks (though, individually, they may have other criteria): Other criteria I've seen (while working in the banking industry - varying by bank): the average balance you keep on deposit accounts (checking/savings/CDs/etc), number of overdraft fees in the past 12 months (one bank I worked for wouldn't approve a credit card if a customer had more than 5 overdrafts in the past year), the length of time a customer had been with the bank. Note that a credit card only company, like AmEx, may have different criteria in that they don't offer all the other type of accounts that other other banks do. |
How can I diversify investments across currencies in ISA? | Just buy a FTSE-100 tracker. It's cheap and easy, and will hedge you pretty well, as the FTSE-100 is dominated by big mining and oil companies who do most of their business in currencies other than sterling. |
Can two or more people own 1 stock in the US? | A share of stock is an asset not much different than any other asset. If the share is being held in a joint account, it's being jointly owned. If the share is being held by a company with multiple owners then the share is owned by the various owners. If you're married and in a community property state, then it's technically owned by both parties. |
Why should we expect stocks to go up in the long term? | Companies are expected to make a profit, otherwise there is no point to their existence and no motivation for investment. That profit comes back to shareholders as growth and/or dividend. If a company is doing well and has a healthy profit to turn back into investment to facilitate increased future earnings, it increases shareholder equity and share price. If a company is doing well and has a healthy profit to pay out in dividend, it makes the shares more attractive to investors which pushes the price up. Either way, shares go up. Share prices drop when companies lose money, or there are market disturbances affecting all companies (recessions), or when individual companies fail. Averaged over all companies over the long term (decades), stocks can be reasonably expected to go up. |
Should I continue to invest in an S&P 500 index fund? | You shouldn't. The Dow has gained 7% annually on average since October 1915(inflation-adjusted). It has also lost 73% of its inflation-adjusted value from 1966 to 1982 meaning that it would have lost you 4.5% annually for 16 years. Furthermore, past performance is not indicative of future results. If stock markets keep performing like they have for the past 100 years, you can expect there will be a point within the next 60-or-so years your stocks will be higher in value than they were when you bought them. With funds you are paying the people managing them which means you are guaranteed to have pyramiding losses that your gains will have to offset. In your case, you are betting with no fundamental knowledge that S&P will be higher than now whenever you need the money which is not even supported by the above assumption. Dollar averaging just means you will be placing many bets which will reduce your expected losses(and your expected gains) when compared to just buying $100K worth of S&P right now. Whatever you invest in, and whatever your time-frame, don't gamble. If you can't say this company(ies) will be $X more valuable than now in X months with probability > Y, then you shouldn't be investing in it. Nobody ever made money by losing money. There are also safer investments than the stock market, like treasury bonds, even if the returns are lousy. |
Do market shares exhaust? | Let's clarify some things. Companies allow for the public to purchase their shares through Initial Public Offering (IPO) (first-time) and Seasoned Public Offering (SPO) (all other times). They choose however many shares they want to issue depending on the amount of capital they want to raise. What this means is that the current owners give up some ownership % in exchange for cash (usually). In the course of IPOs and SPOs, it can happen that the public will not buy all shares if there is very little interest, but I would assume that the more probable scenario if very little interest is present is that the shares' value would take a big drop on their issuance date from the proposed IPO/SPO price. After those shares are bought by the public, they are traded on Exchanges which are a secondary and (mostly) do not affect the underlying company. The shares are exchanged from John Doe to Jane Doe as John Doe believes the market value for those shares will take a direction that Jane Doe believes in the opposite. Generally speaking, markets will find an equilibrium price where you can reasonably easily buy-sell securities as the price is not too far from what most participants in the market believe it should be. In cases where all participants agree on the direction (most often in case of a crash) it can be hard to find a party to make a trade with. Say a company just announced negative news with long-lasting effects on the business there will be a surge in sell orders with very few buyers. If you are willing to buy, you will likely very easily find a trading partner but if you are trying to sell instead then you will have to compete for the lowest price against all other sellers. All that to say that in such cases, while shares are technically sellable / purchasable, the end result can be that no shares are purchasable. |
One of my stocks dropped 40% in 2 days, how should I mentally approach this? | From some of your previous questions it seems like you trade quite often, so I am assuming you are not a "Buy and Hold" person. If that is the case, then have you got a written Trading Plan? Considering you don't know what to do after a 40% drop, I assume the answer to this is that you don't have a Trading Plan. Before you enter any trade you should have your exit point for that trade pre-determined, and this should be included in your Trading Plan. You should also include how you pick the shares you buy, do you use fundamental analysis, technical analysis, a combination of the two, a dart board or some kind of advisory service? Then finally and most importantly you should have your position sizing and risk management incorporated into your Plan. If you are doing all this, and had automatic stop loss orders placed when you entered your buy orders, then you would have been out of the stock well before your loss got to 40%. If you are looking to hang on and hoping for the stock to recover, remember with a 40% drop, the stock will now need to rise by 67% just for you to break even on the trade. Even if the stock did recover, how long would it take? There is the potential for opportunity loss waiting for this stock to recover, and that might take years. If the stock has fallen by 40% in a short time it is most likely that it will continue to fall in the short term, and if it falls to 50%, then the recovery would need to be 100% just for you to break even. Leave your emotions out of your trading as much as possible, have a written Trading Plan which incorporates your risk management. A good book to read on the psychology of the markets, position sizing and risk management is "Trade your way to Financial Freedom" by Van Tharp (I actually went to see him talk tonight in Sydney, all the way over from the USA). |
How to make use of EUR/USD fluctuations in my specific case? | Remember that converting from EU to USD and the other way around always costs you money, at least 0.5% per conversion. Additionally, savings accounts in EU and USA have different yields, you may want to compare which country offers you the best yields and move your money to the highest yielding account. |
How is the opening-day price of a stock decided? | When a stock is going to become public there's a level of analysis required to figure out the range of IPO price that makes sense. For a company that's somewhat mature, and has a sector to compare it to, you can come up with a range that would be pretty close. For the recent linkedin, it's tougher to price a somewhat unique company, running at a loss, in a market rich with cash looking for the next great deal. If one gives this any thought, an opening price that's so far above the IPO price represents a failure of the underwriters to price it correctly. It means the original owners just sold theirvshares for far less than the market thought they were worth on day one. The day of IPO the stock opens similar to how any stock would open at 9:30, there are bids and asks and a price at which supply (the ask) and demand (bid) balance. For this IPO, it would appear that there were enough buyers to push the price to twice the anticipated open and it's maintained that level since. It's possible to have a different system in which a Dutch auction is used to make the shares public, in theory this can work, it's just not used commonly. |
How does refinancing work? | Since there was no sale, where does the money actually come from? From the refinancing bank. It's a new loan. How does a bank profit from this, i.e. why would they willingly help someone lower their mortgage payments? Because they sell a new loan. Big banks usually sell the mortgage loans to the institutional investors and only service them. So by creating a new loan - they create another product they can sell. The one they previously sold already brought them profits, and they don't care about it. The investors won't get the interest they could have gotten had the loan been held the whole term, but they spread the investments so that each refi doesn't affect them significantly. Credit unions usually don't sell their mortgages, but they actually do have the interest to help you reduce your payments - you're their shareholder. In any case, the bank that doesn't sell the mortgages can continue making profits, because with the money released (the paid-off loan) they can service another borrower. |
Put idle savings to use while keeping them liquid | Provide you are willing to do a bit of work each month, you should apply for a "rewards checking" account. Basically these accounts require you to set up direct deposit (can be any amount and your employer can easily deposit $25 into one account and the rest into another if you like). They also require you to use your debit card attached to the account (probably about 10 times per month). Check out the list on the fatwallet finance forum. Right now the best accounts are earning over 4%. |
Can you explain the mechanism of money inflation? | I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies. |
Buying a home with down payment from family as a “loan” | Keep in mind that lenders will consider the terms of any loans you have when determining your ability to pay back the mortgage. They'll want to see paperwork, or if you claim it is a gift they will require a letter to that effect from your relative. Obviously, this could effect your ability to qualify for a loan. |
First concrete steps for retirement planning when one partner is resistant | I can understand your nervousness being 40 and no retirement savings. Its understandable especially given your parents. Before going further, I would really recommend the books and seminars on Love and Respect. The subject matter is Christian based, but it based upon a lot of secular research from the University of Washington and some other colleges. It sounds like to me, this is more of a relationship issue than a money issue. For the first step I would focus on the positive. The biggest benefit you have is: Your husband is willing to work! Was he lazy, there would be a whole different set of issues. You should thank him for this. More positives are that you don't have any credit card debt, you only have one car payment (not two), and that you are paying additional payments on each. I'd prefer that you had no car payment. But your situation is not horrible. So how do you improve your situation? In my opinion getting your husband on board would be the first priority. Ask him if he would like to get the car paid off as fast as possible, or, building an emergency fund? Pick one of those to focus on, and do it together. Having an emergency fund of 3 to 6 months of expense is a necessary precursor to investing, anyway so you from the limited info in your post you are not ready to pour money into your 401K. Have you ever asked what his vision is for his family financially? Something like: "Honey you care for us so wonderfully, what is your vision for me and our children? Where do you see us in 5, 10 and 20 years?" I cannot stress enough how this is a relationship issue, not a math issue. While the problems manifests themselves in your balance sheet they are only a symptom. Attempting to cure the symptom will likely result in resentment for both of you. There is only one financial author that focuses on relationships and their effect on finances: Dave Ramsey. Pick up a copy of The Total Money Makeover, do something nice for him, and then ask him to read it. If he does, do something else nice for him and then ask him what he thinks. |
Why is the stock market price for a share always higher than the earnings per share? | When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as "earnings" (for one year), it would mean that you would get all future earnings for "free." That's not likely to happen unless 1) the company is in liquidation," meaning "no future" and 2) it earned ALL of the money it ever earned in the past year, meaning "no past." If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year. |
First time investing advice (Canada) | Two to three years? That is one long gestation period! :^) Welcome. Congratulations on taking savings into your own hands, you are a winner for taking responsibility for your, and your family's life. If I was you my first priority would be to pay off your car and never buy one on time again. Or you could sell it and buy something with cash if that would be easier. It is tremendous that you are thinking and planning. You are already ahead of most people. Are you working on your basement as you have time/money like when work might be slow? If so great idea. |
What drives the value of a stock? [duplicate] | For XOM if you were lucky enough to purchase on 20 Jan 16, at 73.18/share and sold on 15 July at 94.95 you would achieve a 29% return in six months. Awesome. You'd also get a dividend payment or two adding another percentage point per to your returns. The one year chart for FB shows it increasing from ~95/share to ~129. Yet no dividend was paid. However, the 35.7% YTD for 2016 should make anyone happy. Both of these require excellent timing, and those kind of returns are unsustainable over the long haul. Many people simply hold stocks. Having the dividend is a nice bonus to some growth. Why to people buy stocks? For profit. Sometimes dividend payers offer the best option, sometimes not. |
Should I open a credit card when I turn 18 just to start a credit score? | I also feel it's important to NOT get a credit card. I'm in my mid 30's and have had credit cards since I was 20, as has everyone I know. Every single one of those people, with the exception of my dad, is currently carrying some amount of credit card debt - almost always in the thousands of dollars. Here is the essential problem with credit cards. Everyone sets out with good intentions, to use the credit card like a debit card, and pay charges off before interest accrues. However, almost no-one has the discipline to remember to do this, and a balance quickly builds up on the card. Also, it's extremely easy to prioritize other bill payments before credit card payments, resulting in a balance building up on the card. It's almost magical how quickly a balance will build up on a credit card. Ultimately, they are simply too convenient, too tempting for most human beings. The world, and especially the North American world, is in a massive debt crisis. It is very easy to borrow money these days, and our culture is at the point where "buy now pay later" is an accepted practice. Now that I have young children, I will be teaching them the golden rule of "don't buy something until you have cash to pay for it in full!" It sounds like an over simplification but this one rule will save you an incredible amount of financial grief over time. |
Is there a good rule of thumb for how much I should have set aside as emergency cash? | If you are still paying off debt, then you should have about $1000 in savings and put all you can towards non-mortgage debt. If you don't have any debt besides your mortgage, then add up all of your monthly expenses including food, gas, utilities and keep 3-6 months in liquid savings. Whether you keep 3 or 6 months depends on how safe your income is. If you have a steady safe job, you might be safe with 3 months. But, if your employer is cutting back or you are in a commission based job or self employed - then lean more towards 6 months expenses. Congrats on your new home! |
Why buying an inverse ETF does not give same results as shorting the ETF | Suppose that the ETF is currently at a price of $100. Suppose that the next day it moves up 10% (to a price of $110) and the following day it moves down 5% (to a price of $104.5). Over these two days the ETF has had a net gain of 4.5% from its original price. The inverse ETF reverses the daily gains/losses of the base ETF. Suppose for simplicity that the inverse ETF also starts out at a price of $100. So on the first day it goes down 10% (to $90) and on the second day it goes up 5% (to $94.5). Thus over the two days the inverse ETF has had a net loss of 5.5%. The specific dollar amounts do not matter here. The result is that the ETF winds up at 110%*95% = 104.5% of its original price and the inverse ETF is at 90%*105% = 94.5% of its original price. A similar example is given here. As suggested by your quote, this is due to compounding. A gain of X% followed by a loss of Y% (compounded on the gain) is not in general the same as a loss of X% followed by a gain of Y% (compounded on the loss). Or, more simply put, if something loses 10% of its value and then gains 10% of its new value, it will not return to its original value, because the 10% it gained was 10% of its decreased value, so it's not enough to bring it all the way back up. Likewise if it gains 10% and then loses 10%, it will go slightly below its original value (since it lost 10% of its newly increased value). |
What kind of trade is this? | A limit order is simply an order to buy at a maximum price or sell at a minimum price. For example, if the price is $100 and you want to sell if the price rises to $110, then you can simply put a limit order to sell at $110. The order will be placed in the market and when the price reaches $110 your order will be executed. If the price gaps at the open to $111, then you would end up selling for $111. In other words you will get a minimum of $110 per share. A stop limit order is where you put a stop loss order, which when it gets triggered, will place a limit order in the market for you. For example, you want to limit your losses by placing a stop loss order if the price drops to $90. If you chose a market order with your stop loss as soon as the price hits $90 your stop loss would be triggered and the shares would sell at the next available price, usually at $90, but could be less if the market gaps down past $90. If on the other hand you placed a limit order at $89.50 with your stop loss, when the stop loss order gets triggered at $90 your limit order will be placed into the market to sell at $89.50. So you would get a minimum of $89.50 per share, however, if the market gaps down below $89.50 your order will be placed onto the market but it won't sell, unless the price goes back to or above $89.50. Hope this helps. |
How to transfer money to yourself internationally? | Transferwise is a new peer-to-peer service that's setup to lower fees for international money transfers: https://transferwise.com |
How do share buybacks work? | The short version of JB King's excellent answer is that the company will typically buy back shares from the open market at market price. Sometimes, it will specifically target larger stakeholders, even controlling interests, who are making noise that they want to divest; if such an investor were to just dump their stock on the open market, neither the investor nor the company would be very happy with the resulting price collapse. In those cases, the company may offer an incentive price above market rates. In recent times, the investor looking to divest has often been the U.S. Government, who received stock in return for bailouts, and (with notable exceptions) turned a modest profit on many of them. Not enough to break even on the entire bailout, but the Government didn't just throw $700 billion in taxpayer money down a hole as conservative pundits would have you believe. In the '80s, a specific type of buy-back was made famous, called the "leveraged buyout". Basically, the company took out a huge loan against itself, and used that money to buy up all the company's publicly-traded shares, essentially becoming a private company. This became a popular tool among private equity groups, for better and worse. |
How can I get a mortgage I can't afford? | If you can't afford it don't buy it, the next perfect house is just around the corner. The more time you spend researching and looking at houses, the increased chance you will find the perfect house you can afford. Also, here in Australia, we (the banks as well) factor in an interest rate rise of 2% above current rates to see if repayments can still be afforded at this increased rate. |
Clarification on 529 fund | Yes, maybe. The 529 is pretty cool in that you can open an account for yourself, and change the beneficiary as you wish, or not. In theory, one can start a 529 for children or grandchildren yet unborn. Back to you - a 529 is not deductible on your federal return. It grows tax deferred, and tax free if used for approved education. Some states offer deductions depending on the state. There is a list of states that offer such a deduction. |
How to estimate federal and state taxes likely to be due on my side income? | Most states that have income tax base their taxes on the income reported on your federal return, with some state-specific adjustments. So answering your last question first: Yes, if it matters for federal, it will matter for state (in most cases). For estimating the tax liability, I would not use the effective rate but rather use the rate for your highest tax bracket and apply that to your estimated hobby income, assuming that you primary job income won't be wildly higher or lower than last year. As @keshlam noted in a comment, this income is coming on top of whatever else you earn, so it will be taxed at your top rate. Finally, I'd check again whether this is really "hobby" income or if it is "self-employment" income. Self-employment income will be subject to self-employment tax, which comes on top of the regular income tax. |
Got a “personal” bonus from my boss. Do I have to pay taxes and if so, how do I go about that? | Yes, it's taxable. If anyone suggests it's a gift, they are mistaken. There's a line on the 1040 for "other" and as long as you claim it, you're fine with the IRS. It's 2012 income as you already got it. Edit - mhoran makes two good points I'm not really able to address. (a) does a late bonus such as this effect one's penalty? (b) since it skipped payroll, will there be an issue by not having FICA withheld? |
What are “headwinds” and “tailwinds” in financial investments? | Headwinds in an economic situation represent events or conditions e.g. a credit crisis, rising costs, natural disasters, etc, that slow down the growth of an economy. So headwinds are negative. Tailwinds are the opposite and help to increase growth of an economy. |
P/E (or similar) for index funds? | ycharts.com has "Weighted Average PE Ratio" and a bunch of other metrics that are meant to correspond to well known stock metrics. Other websites will have similar ratios. |
I carelessly invested in a stock on a spike near the peak price. How can I salvage my investment? | If the company is stable. I like to recoup losses by buying in the valley and selling it all at the plateau and then learning as all beginners do, don't buy stocks because there's a feeding frenzy...or because Joe told me too. Pick your strategy in stocks and learn to stick with that. If you have no strategy, buy land. |
Is giving my girlfriend money for her mortgage closing costs and down payment considered fraud? | Sheesh, are people kidding here? It's a gift. It's not fraud. Just keep in mind that, because it's a gift, you cannot get it "back" if you break up--you are giving it to her. If you happen to get married at some point in the future, you will then own part of the apartment, but that is a completely separate matter. Give her the money, don't expect it back. Ever. |
Trying to understand Return on Capital (Joel Greenblatt's Magic Formula version) | I've spent enough time researching this question where I feel comfortable enough providing an answer. I'll start with the high level fundamentals and work my way down to the specific question that I had. So point #5 is really the starting point for my answer. We want to find companies that are investing their money. A good company should be reinvesting most of its excess assets so that it can make more money off of them. If a company has too much working capital, then it is not being efficiently reinvested. That explains why excess working capital can have a negative impact on Return on Capital. But what about the fact that current liabilities in excess of current assets has a positive impact on the Return on Capital calculation? That is a problem, period. If current liabilities exceed current assets then the company may have a hard time meeting their short term financial obligations. This could mean borrowing more money, or it could mean something worse - like bankruptcy. If the company borrows money, then it will have to repay it in the future at higher costs. This approach could be fine if the company can invest money at a rate of return exceeding the cost of their debt, but to favor debt in the Return on Capital calculation is wrong. That scenario would skew the metric. The company has to overcome this debt. Anyways, this is my understanding, as the amateur investor. My credibility is not even comparable to Greenblatt's credibility, so I have no business calling any part of his calculation wrong. But, in defense of my explanation, Greenblatt doesn't get into these gritty details so I don't know that he allowed current liabilities in excess of current assets to have a positive impact on his Return on Capital calculation. |
Personal Loan issuer online service | http://www.calcamo.net/loancalculator/simulation/fixed-rate-loan.php5 This website is a calculator only and has some extra features that take into account late payments, paying extra to reduce principal, and has the ability to export amortization table to excel that you could use to keep track of the loan. If you are looking for a web site to manage and keep track of the whole process, reminder emails, accepting credit card payments, etc.. paybaq.com may be right for you. |
Why is the stock market price for a share always higher than the earnings per share? | Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment. |
Does exposure to financials in corporate bond funds make sense? | One reason a lot of bond ETFs like Financials are because of how financial companies work. They usually have amazing cash flows due to deposits and fees and therefore have little risk associated with paying their debts in the short term. The rest of VCSH contains companies with low default risk and good cash flow generation as well: This is of course the objective of VCSH: Banks themselves issue a lot of bonds to raise cash to lend for other purposes. Banks are intermediary and help make funds liquid for investors and spenders. Hope that helped answer your question. If not comment below and I'll try to adjust the answer to be more complete. |
Paypal website donations without being a charity | Yes, Paypal has such a button you can use, but to be clear, the money you receive is taxable income. Your website is providing 'value' to the readers, and while they may feel they are making a gift to you, it's earned income as far as the IRS is concerned. (This assumes you are in the US, you may wish to add a tag to indicate your country) |
Just getting started and not sure where to go from here | There's a lot going on here. I'd be making the maximum ($5500 for a single person under 50) contribution to the Roth IRA each year. Not too late to put in for 2014 before Wednesday, 4/15. Not out of your income, but from the T Rowe Price account. As long as you have earned income, you can make an IRA deposit up to the limit, 5500, or up to that income. The money itself can come from other funds. Just explain to Dad, you're turning the money into a long term retirement account. I doubt that will trouble him. Aside from that, too much will change when you are out of school. At 18, it's a matter of learning to budget, save what you can, don't get into debt for stupid things. (Stupid, not as I would judge, but as the 25 year old you will judge.) |
First time investing advice (Canada) | Question One: Question Two: Your best reference for this would be a brokerage account with data privileges in the markets you wish to trade. Failing that, I would reference the Chicago Mercantile Exchange Group (CME Group) website. Question Three: Considering future tuition costs and being Canadian, you are eligible to open a Registered Education Savings Plan (RESP). While contributions to this plan are not tax deductible, any taxes on income earned through investments within the fund are deferred until the beneficiary withdraws the funds. Since the beneficiary will likely be in a lower tax bracket at such a time, the sum will likely be taxed at a lower rate, assuming that the beneficiary enrolls in a qualifying post secondary institution. The Canadian government also offers the Canada Education Savings Grant (CESG) in which the federal government will match 20% of the first $2500 of your annual RESP contribution up to a maximum of $500. |
Why would a bank need to accept deposits from private clients if it can just borrow from the Federal Reserve? | Let's just focus on the "why would a bank need to accept deposits from private clients part" and forget the central bank for a moment. I'm a guy. I have a wife and two kids. They have this pesky habit of wanting to buy stuff. When I get paid, I could just get a check, cash it, stuff it under a mattress, and pull it out when I need it. Hey that worked for a long time didn't it? But sometimes it's nice to write checks. (Just kidding, that's so gauche...) I use my debit card. I use my credit cards, but they need to be paid somehow. My light and phone bills need to be paid too. If only there were someone out there who could facilitate this transfer of money between me, the private client and the merchants I'm forced to spend my money at. Now some of those merchants have plans. Light bills I can pay at my grocer if I choose. But most of the other's don't. Luckily I have a bank that's willing to do this, for a fee. So basically they do it because there's a void in the market if they don't. I don't know if it's true what they say about supply creating its own demand, but it certainly is true that demand creates supply! |
Creating a Limited company while still fully employed | You can register a limited company and leave it dormant, that's no problem. You just need to make sure that later on you notify HMRC within 3 months of any trading activity. As pointed out, you can register a company in a few hours now so I wouldn't worry about that. Your confusion about Private Limited Companies is understandable, it's often not made clear but UK formation services standard packages are always Private Limited by Shares companies. Limited by Guarantee is something else, and normally used by charities or non-profits only. See explanations here. Registering for VAT is optional until you reach the £81,000 turnover threshold but it can make your services more attractive to large companies - especially in your field of business. You should really seek professional advice on whether or not this is the best option for you. |
What evidence is there that rising interest rates causes Canadian condo prices to go down? | In the US market at least, there is long-term evidence that there's no strong correlation between interest rates and house prices. A less detailed Canadian study found that house prices tended to increase when rates increase. One possible reason: interest rates can increase when the economy is doing well (needs less help), which is also the time when people feel more confident about buying. The are many reasons why Toronto condo prices may come down (such as oversupply), or may increase (empty nesters downsizing). But, by itself, a small increase in interest rates appears, based on history, to be unlikely to lead to a substantial drop in prices over a short timescale. |
Is it worth it to buy TurboTax Premier over Deluxe if I sold investments in a taxable account? | I have used turbo tax for years. Apart from the snafu in 2014, I have had no problem using deluxe, and I have lots of asset sales to report. I prefer form mode anyway. I can import the data from my broker, and I can e-file with no problem. So the only thing I'm missing is the support. I can usually find answers to questions on the web, anyway. |
0% APR first 12 months on new credit card. Can I exceed that 30% rule of thumb and not hurt my credit score? | Your utilization ratio history is irrelevant to its impact on your credit score. If you run up 80% of your utilization In January, then pay it back to 10% in March, your score in March will reflect the new reduced ratio with no memory of the 80% utilization last month. With that said, don't go around overspending just because you have 0% apr for a little bit. Spend what you would spend with cash. |
How best to grow my small amount of money starting at a young age? [duplicate] | I would like to add my accolades in saving $3000, it is an accomplishment that the majority of US households are unable to achieve. source While it is something, in some ways it is hardly anything. Working part time at a entry level job will earn you almost three times this amount per year, and with the same job you can earn about as much in two weeks as this investment is likely to earn, in the market in one year. All this leads to one thing: At your age you should be looking to increase your income. No matter if it is college or a high paying trade, whatever you can do to increase your life time earning potential would be the best investment for this money. I would advocate a more patient approach. Stick the money in the bank until you complete your education enough for an "adult job". Use it, if needed, for training to get that adult job. Get a car, a place of your own, and a sufficient enough wardrobe. Save an emergency fund. Then invest with impunity. Imagine two versions of yourself. One with basic education, a average to below average salary, that uses this money to invest in the stock market. Eventually that money will be needed and it will probably be pulled out of the market at an in opportune time. It might worth less than the original 3K! Now imagine a second version of yourself that has an above average salary due to some good education or training. Perhaps that 3K was used to help provide that education. However, this second version will probably earn 25,000 to 75,000 per year then the first version. Which one do you want to be? Which one do you think will be wealthier? Better educated people not only earn more, they are out of work less. You may want to look at this chart. |
Who determines, and how, the composition of the S&P 500 index? | S & P's site has a methodology link that contains the following which may be of use: Market Capitalization. Unadjusted market capitalization of US$ 4.6 billion or more for the S&P 500, US$ 1.2 billion to US$ 5.1 billion for the S&P MidCap 400, and US$ 350 million to US$ 1.6 billion for the S&P SmallCap 600. The market cap of a potential addition to an index is looked at in the context of its short- and medium-term historical trends, as well as those of its industry. These ranges are reviewed from time to time to assure consistency with market conditions. Liquidity. Adequate liquidity and reasonable price – the ratio of annual dollar value traded to float adjusted market capitalization should be 1.00 or greater, and the company should trade a minimum of 250,000 shares in each of the six months leading up to the evaluation date. Domicile. U.S. companies. For index purposes, a U.S. company has the following characteristics: The final determination of domicile eligibility is made by the U.S. Index Committee. |
Why doesn’t every company and individual use tax-havens to pay less taxes? | There are tax free bonds in the United States. They are for things like public housing and other urban projects. They are tax free for everyone but only rich people buy them. Why? The issue is that the tax free nature of the bond is included in its yield. So rather than yielding say a 5% return, they figure that the owner is getting 20% off due to not paying taxes. As a result, they only give a 4% return but are as risky as a 5% return investment. Net result, only rich people invest in tax free bonds. "Rich" is defined here to mean people paying a 20% tax on long term investment returns. Or take the State and Local Tax (SALT) deduction, which has been in the news recently. Again, it is technically open to everyone. But there is also a standard deduction that is open to everyone. For the typical family, state and local taxes might be 5% of income. So for a family making $100k a year, that's $5k. The same family can take a $13k or so standard deduction instead of itemizing. So why would they take the smaller deduction? As a practical matter, two groups take the SALT deduction. People rich enough to pay more than $13k in state and local taxes and people who also take the mortgage interest deduction. So it helps a lot of people who are rich quite a bit. And it helps a few middle class people some. But if you are lower middle class with a $30k mortgage on a tiny house and paying 4% interest, then that's only $1200 a year. Add in property taxes of $3000 and SALT of $2.8k and that's only $7k. Even if the person gives $3k to charity, the $13k deduction is a lot better and requires less paperwork. Contrast that with someone who has $500k mortgage at 3.6% interest. That's $18k in interest alone. Add in a SALT of $7k and property taxes of $50k, and there's $75k of itemized deductions, much better than $13k. Now a $7k donation to charity is entirely deductible. And even after the mortgage interest deduction goes away, the other $64k remains. |
How can small children contribute to the “family economy”? | Another suggestion I heard on the radio was to give the child the difference between the name brand they want, and the store brand they settle on. Then that money can be accumulated as savings. Saving money is as important a feature of the family economy as earning money. Be careful with what you have a child do for reward vs what you have them do as a responsibility. Don't set a dangerous precedent that certain work does not need to be done unless compensation is on the table. You might have a child who relies on external motivations only to do things, which can make school work and future employment hard. I would instead have my child do yard work, but while doing it explain opportunity costs of doing the work yourself vs hiring out. I would show my kid how saving money earns interest, and how that is essentially free money. |
For a major expensive home renovation (e.g. addition, finished basement, or new kitchen) should one pay cash or finance with a loan? Would such a loan be “good” debt? | Good debt is very close to an oxymoron. People say student loans are "good debt," but I beg to differ. The very same "good debt" that allowed me to get an education is the very same "bad debt" that doesn't allow me to take chances in my career - meaning, I would prefer to have a 'steady' job over starting a business. (That's my perogative, of course, but I am not willing to take that 'risk.' /endtangent @Harmanjd provided the two really good reason for using cash over borrowing. We have a tendency in this culture to find reasons to borrow. It is better for you to make a budget, based on what you want, and save up for it. Make a "dream list" for what you want, then add up the costs for everything. If that number makes your head hurt, start paring down on things you 'want.' Maybe you install just a wine cooler instead of a wine cooler and a beer tap, or vice-versa. And besides, if something comes up - you can always stop saving money for this project and deal with whatever came up and then resume saving when you're done. Or in the case of the kitchen, maybe you do it in stages: cabinets one year, countertops the next, flooring the year after that, and then the appliances last. You don't have to do it all at once. As someone who is working toward debt freedom, it feels nice whenever we have one less payment to budget for every month. Don't burden yourself to impress other people. Take your time, get bids for the things you can't (or won't) do yourself, and then make a decision that's best for your money. |
How does a bank make money on an interest free secured loan? | Other answers didn't seem to cover it, but most "0%" bank loans (often offered to credit card holders in the form of balance transfer checks), aside from less-obvious fees like already-mentioned late fees, also charge an actual loan fee, typically 2-3% (or a minimum floor amount) - that was the deal with every single transfer 0% offer I ever saw from a bank. So, effectively, even if you pay off the loan perfectly, on time, and within 0% period, you STILL got a 3% loan and not 0% (assuming 0% period lasts 12 months which is often the case). |
Pros/Cons of Buying Discounted Company Stock | I see another way of looking at this that hasn't been addressed yet. By offering the discount, the company is attempting to change your behavior into doing something irrational, that benefits them at your expense. The company hopes for one (or more) of the following psychological effects to happen to you: The proper thing to do, if you have enough capital to prevent margin calls, it to short-sell the stock at the same instant the price is set, thus locking in the profit. Eventually you can take possession of the shares and deliver them to offset the short -- hopefully before you get a margin call from the stock dropping. |
Deducting Hobby Expenses on my Federal Income Taxes? | I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...). |
What can I do when the trading price of a stock or ETF I want to buy is too high? | For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. "Pay yourself first" |
Why do sole proprietors in India generally use a current account? | No. Current account is not a requirement. You can use savings account. You would need to pay taxes on interest. Savings account have limitation on number of withdrawal in a quarter, hence most sole proprietorship have current account. |
Should I buy a house because Mortgage rates are low | There is a significant tie between housing prices and mortgage rates. As such, don't assume low mortgage rates mean you will be financially better off if you buy now, since housing prices are inversely correlated with mortgage rates. This isn't a huge correlation - it's R-squared is a bit under 20%, at a 1.5-2 year lag - but there is a significant connection there. Particularly in that 10%+ era (see chart at end of post for details) in 1979-1982, there was a dramatic drop in housing price growth that corresponded with high interest rates. There is a second major factor here, though, one that is likely much more important: why the interest rates are at 10%. Interest rates are largely set to follow the Federal Funds rate (the rate at which the Federal Reserve loans to banks). That rate is set higher for essentially one purpose: to combat inflation. Higher interest rates means less borrowing, slower economic growth, and most importantly, a slower increase in the money supply - all of which come together to prevent inflation. Those 10% (and higher!) rates you heard about? Those were in the 70's and early 80's. Anyone remember the Jimmy Carter years? Inflation in the period from 1979 to 1981 averaged over 10%. Inflation in the 70s from 1973 to 1982 averaged nearly 9% annually. That meant your dollar this year was worth only $0.90 next year - which means inevitably a higher cost of borrowing. In addition to simply keeping pace with inflation, the Fed also uses the rate as a carrot/stick to control US inflation. They weren't as good at that in the 70s - they misread economic indicators in the late 1970s significantly, lowering rates dramatically in 1975-1977 (from ~12% to ~5%). This led to the dramatic double-digit inflation of the 1979-1981 period, requiring them to raise rates to astronomic levels - nearly 20% at one point. Yeah, I hope nobody bought a house on a fixed-rate mortgage from 1979-1981. The Fed has gotten a lot more careful over the years - Alan Greenspan largely was responsible for the shift in policy which seems to have been quite effective from the mid 1980s to the present (though he's long gone from his spot on the Fed board). Despite significant economic changes in both directions, inflation has been kept largely under control since then, and since 1991 have been keeping pretty steady around 6% or less. The current rate (around 0%) is unlikely to stay around forever - that would lead to massive inflation, eventually - but it's reasonable to say that prolonged periods over 10% are unlikely in the medium term. Further, if inflation did spike (and with it, your interest rates), salaries tend to spike also. Not quite as fast as inflation - in fact, that's a major reason a small positive inflation around 2-3% is important, to allow for wages to grow more slowly for poorer performers - but still, at 10% inflation the average wage will climb at a fairly similar pace. Thus, you'd be able to buy more house - or, perhaps a better idea, save more money for a house that you can then buy a few years down the road when rates drop. Ultimately, the advice here is to not worry too much about interest rates. Buy a house when you're ready, and buy the house you're ready for. Interest rates may rise, but if so it's likely due to an increase in inflation and thus wage growth; and it would take a major shift in the economy for rates to rise to the 10-11% level. If that did happen, housing prices (or at least growth in prices) would likely drop significantly. Some further references: |
Why do consultants or contractors make more money than employees? | The benefits and taxes thing, in my opinion is the biggie. Most people don't realize that the cost to the company for a full-time employee with benefits can be 2x or even 3x the amount they see in their paycheck. Health plans are extremely expensive. Even if you are having money taken from your check for health insurance, it is often just a fraction of the total cost, and the employer is subsidizing the rest. More expensive benefits that contractors don't typically get are 401K matches and paid vacation days. When contractors call in sick or don't work because it is a national holiday, they don't get paid for that day. Also, see that line on your paycheck deducting for Social security and Medicare? That is only half of the tax. The employer pays an equal amount that is not shown on that statement. Also, they pay taxes that go towards unemployment benefits , and may be required to pay higher taxes if they churn through a lot of full-time employees. You can usually let contractors go with relative impunity . For the unemployment tax reasons, not paying for people's days off or benefits, a lot less paperwork, and less risk to the business associated with committing to full-time employees all provide value to the company. Thus companies are willing to pay more because they are getting more. Think of it like a cell phone-contract. If you commit to a three year contract it can be a pain/expensive to get out of the deal early, but you will probably get a better rate in exchange for the risk being shifted to your end of the deal. |
Negatives to increased credit card spending limit? [duplicate] | The one big drawback I know is when you take the mortgage credit, your credit ability is calculated, and from that sum all of your credits are subtracted, and credit limit on credit card counts as credit... I don't know if it is worldwide praxis, but at least it is the case in Poland. |
Why do put option prices go higher when the underlying stock tanks (drops)? | When you buy a put on a stock, you buy the right to sell the stock at fixed price, F, that his usually different from the market price, M. You paid a price, P, for the put. Your potential profit, going forward, is represented by the DIFFERENCE you get to collect between your fixed price F, and that market price M, plus the price you paid for the put, or F-(M+P). (This assumes that F>(M+P). P is fixed, but the smaller M gets, the larger the term F-(M+P), and therefore the higher your potential profit from owning the put. So when M "tanks," the put goes higher. The $395 put is already in the money. If it were settled today, the value would be $395-$376 or $19. This, minus the cost of the put itself, represents your profit. The $365 put is "out of the money." The stock has to fall $11 more before the put is exercised. But if the stock went down 8 points today, that is less than the $19 difference at the start of the day. Because there is time between now and October, there is a chance for the stock to go down further, thereby going into the money. The current value of the put is represented by this "chance." Obviously, the chances of the stock going down $11 more (from today) is greater than the chance of it going down $19 more. On the other hand, the closer it gets to the expiration date, the less an out of the money put is worth. It's a race between the stock's fall, and the time to expiration. |
Is foreign stock considered more risky than local stock and why? | In addition to @MD-tech's answer: I'd distinguish between stock of a foreign company traded in local currency at a local exchange from the same stock traded in the foreign currency at a foreign exchange (and maybe with a foreign bank holding your accounts). The latter option will typically have higher variation because of exchange rate, and (usually) higher risks associated with possibility of recovery, (double) taxation and the possible legal difficulties @MD-tech mentions. Trading the foreign stock at a local exchange may mean that the transaction volume is far lower than at their "home" exchange. Holding stock of companies working in foreign markets OTOH can be seen as diversification and may lower your risk. If you only invest in the local market, your investments may be subject to the same economic fluctuations that your wage/employment/pension situation is subject to - it may be good to try de-correlating this a bit. Of course, depending on political circumstances in your home country, foreign investments may be less risky (though I'd suspect these home countries also come with a high risk of seizing foreign investments...) |
Are real estate prices memory-less? | I would argue no. It's easy to correlate home prices based on size, neighborhood, school district, condition and other factors, such as property taxes. In fact, real estate people and government assessors use those characteristics to assess property value. The demographics of a home will drive desirability/demand for the property. Combine that with the cost and availability of capital, and house prices are relatively predictable. |
Are stock prices purely (or mostly) only based on human action? | Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals. |
Will I be able to purchase land? | Here are some important things to think about. Alan and Denise Fields discuss them in more detail in Your New House. Permanent work. Where do you want to live? Are there suitable jobs nearby? How much do they pay? Emergency fund. Banks care that you have "reserves" (and/or an unsecured line of credit) in case you have a run of bad luck. This also helps with float the large expenses when closing a loan. Personal line of credit. Who are you building for? If you are not married, then you should consider whether building a home makes that easier, or harder. If you hope to have kids, you should consider whether your home will make it easier to have kids, or harder. If you are married (or seriously considering it), make sure that your spouse helps with the shopping, and is in agreement on the priorities and choices. If you are not married, then what will you do if/when you get married? Will you sell? expand? build another house on the same lot? rent the home out? Total budget. How much can the lot, utilities, permits, taxes, financing charges, building costs, and contingency allowance come to? Talk with a banker about how much you can afford. Talk with a build-on-your-lot builder about how much house you can get for that budget. Consider a new mobile or manufactured home. But if you do choose one, ask your banker how that affects what you can borrow, and how it affects your rates and terms. Talk with a good real estate agent about how much the resale value might be. Finished lot budget. How much can you budget for the lot, utilities, permits required to get zoning approval, fees, interest, and taxes before you start construction? Down payment. It sounds like you have a plan for this. Loan underwriting. Talk with a good bank loan officer about what their expectations are. Ask about the "front-end" and "back-end" Debt-To-Income ratios. In Oregon, I recommend Washington Federal for lot loans and construction loans. They keep all of their loans, and service the loans themselves. They use appraisers who are specially trained in evaluating new home construction. Their appraisers tend to appraise a bit low, but not ridiculously low like the incompetent appraisers used by some other banks in the area. (I know two banks with lots of Oregon branches that use an appraiser who ignores 40% of the finished, heated area of some to-be-built homes.) Avoid any institution (including USAA and NavyFed) that outsources their lending to PHH. Lot loan. In Oregon, Washington Federal offers lot loans with 30% down payments, 20-year amortization, and one point, on approved credit. The interest rate can be a fixed rate, but is typically a few percentage points per year higher than for a mortgage secured by a permanent house. If you have the financial wherewithal to start building within two years, Washington Federal also offers short-term lot loans. Ask about the costs of appraisals, points, and recording fees. Rent. How much will it cost to rent a place to live, between when you move back to Oregon, and when your new home is ready to move into? Commute. How much time will it take to get from your new home to work? How much will it cost? (E.g., car ownership, depreciation, maintenance, insurance, taxes, fuel? If public transportation is an option, how much will it cost?) Lot availability. How many are there to choose from? Can you talk a farmer into selling off a chunk of land? Can you homestead government land? How much does a lot cost? Is it worth getting a double lot (or an extra large lot)? Utilities. Do you want to live off the grid? Are you willing to make the choices needed to do that? (E.g., well, generator, septic system, satellite TV and telephony, fuel storage) If not, how much will it cost to connect to such systems? (For practical purposes, subtract twice the value of these installation costs from the cost of a finished lot, when comparing lot deals.) Easements. These provide access to your property, access for others through your property, and affect your rights. Utility companies often ask for far more rights than they need. Until you sign on the dotted line, you can negotiate them down to just what they need. Talk to a good real estate attorney. Zoning. How much will you be allowed to build? (In terms of home square footage, garage square footage, roof area, and impermeable surfaces.) How can the home be used? (As a business, as a farm, how many unrelated people can live there, etc.) What setbacks are required? How tall can the building(s) be? Are there setbacks from streams, swamps, ponds, wetlands, or steep slopes? Choosing a builder. For construction loans, banks want builders who will build what is agreed upon, in a timely fashion. If you want to build your own house, talk to your loan officer about what the bank expects in a builder. Plansets and permits. The construction loan process. If you hire a general contractor, and if you have difficulties with the contractor, you might be forced to refuse to accept some work as being complete. A good bank will back you up. Ask about points, appraisal charges, and inspection fees. Insurance during construction. Some companies have good plans -- if the construction takes 12 months or less. Some (but not all) auto insurance companies also offer good homeowners' insurance for homes under construction. Choose your auto insurance company accordingly. Property taxes. Don't forget to include them in your post-construction budget. Homeowners' insurance. Avoid properties that need flood insurance. Apply a sanity check to flood maps -- some of them are unrealistic. Strongly consider earthquake insurance. Don't forget to include these costs in your post-construction budget. Energy costs. Some jurisdictions require you to calculate how large a heating system you need. Do not trust their design temperatures -- they may not allow for enough heating during a cold snap, especially if you have a heat pump. (Some heat pumps work at -10°F -- but most lose their effectiveness between 10°F and 25°F.) You can use these calculations, in combination with the number of "heating degree days" and "cooling degree days" at your site, to accurately estimate your energy bills. If you choose a mobile or manufactured home, calculate how much extra its energy bills will be. Home design. Here are some good sources of ideas: A Pattern Language, by Christopher Alexander. Alexander emphasizes building homes and neighborhoods that can grow, and that have niches within niches within niches. The Not-So-Big House, by Sarah Susanka. This book applies many Alexander's design patterns to medium and large new houses. Before the Architect. The late Ralph Pressel emphasized the importance of plywood sheathing, flashing, pocket doors, wide hallways, wide stairways, attic trusses, and open-truss or I-joist floor systems. Lots of outlets and incandescent lighting are good too. (It is possible to have too much detail in a house plan, and too much room in a house. For examples, see any of his plans.) Tim Garrison, "the builder's engineer". Since Oregon is in earthquake country -- and the building codes do not fully reflect that risk -- emphasize that you want a building that would meet San Jose, California's earthquake code. |
Debit cards as bad as credit cards? | This sounds more like a behavioral than a debit card issue to me TBH. Did you put the money you're putting away into a separate savings account that you (mentally) labelled 'for investment'? That's pretty much what I do (and I have a couple of savings accounts for exactly that reason) and even though I know I've got $x in the savings accounts, the debit card I carry only lets me spend money from my main bank account. By the time I've transferred the money, the urge to spend has usually gone away, even though it often only takes seconds to make the transfer. |
What is the meaning of realization in finance? | Realization is when you actually have something in hand, it isn't just theoretical anymore. For instance, you may win the lottery, but until they hand you a check, you haven't realized the windfall. Another example is that you may be paid a particular hourly wage, but until you cash the paycheck, you haven't realized the pay. |
Setting up general ledger/tax reporting for a Real Estate Rental LLC in GnuCash | You will need to set up accounts in your chart of accounts for each of the partners. These are equity accounts where you can track your contributions, share of the profits and losses, and distributions. You're going to have to go back into the beginning years to get this right. I'm not sure what you mean by a "Built-in function". All the accounting software I'm familiar with requires data entry of some kind. You need to post your contributions and distributions to the correct accounts, and close properly at year end. You were indeed legally considered a partnership as soon as you started a for-profit business venture together. It's a bug in the legal system that a written partnership agreement is not necessarily required - you can form a partnership unknowingly. (BTW, a partnership actually is pretty far off from a sole proprietorship, legally and taxwise - the change from one person to two is major. It's the change from two to three or four or more that's incremental ;) I know you said you didn't want to consult a professional, but I have to say that I think it's worth the money to get your books set up by someone who has experience and can show you how to do it. And get a separate bank account for the partnership, if you haven't done so already. And check with your state to see if there are any requirements regarding partnerships. Hope this helps, Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law. |
What do “cake and underwear” stocks refer to? | I interpret that to mean "vice" stocks and necessities. "Cake" may just be a nicer way of saying "sin" (see The Virtues of Vice Stocks) and includes "lesser sins" like sweets and soda in the group. "Underwear" likely means things that people are going to buy regardless of the economy - daily staples, which are generally safer stocks. |
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