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Why buy insurance? | First of all, insurance never covers the cost of the item, it is almost always a partial payout at best. For example, a typical house in the Northeast US where I live that costs $300,000 will have the actual house valued at maybe $100,00 and rest of the value will be in the land. Therefore, the insured value will typically be $100,000. The only problem is that to actually rebuild the house might easily cost $250,000. So, your idea that some kinds of insurance allows the beneficiary to recoup their loss is usually never true. As you say, from an actuarial point of view insurance is a sheer waste of money. For example, a typical house has maybe a 0.5% chance of burning down every year. In other words out of 2000 houses, maybe 1 will burn down every year. So, lets say you got $100,000 of insurance on your house. Then the value of that policy would be $100,000 / 2000 = $50 per year. An insurance company will charge around $700 per year for the policy. That means you are basically flushing $650 down the toilet every year to maintain that policy. The reason why they do this is what blankip says above, they are buying "peace of mind", a psychological product. In other they imagine they are somehow safe. So, even though they are losing money, paying it makes them feel as though they are not losing money. It's delusional, but then again most people have a lot of delusions of which insurance is just one of many. |
Buy US ETF as foreigner — a bad idea? | Here're some findings upon researches: Two main things to watch out for: Estate tax and the 30% tax withholding. These 2 could be get around by investing in Luxembourg or Ireland domiciled ETF. For instance there's no tax withholding on Ireland domiciled ETF dividend, and the estate tax is not as high. (source: BogleHead forums) Some Vanguard ETF offered in UK stock market: https://www.vanguard.co.uk/uk/mvc/investments/etf#docstab. Do note that the returns of S&P 500 ETF (VUSA) are adjusted after the 30% tax withholding! Due to VUSA's higher TER (0.09%), VOO should remain a superior choice. The FTSE Emerging Markets and All-World ETFs though, are better than their US-counterparts, for non-US residents. Non-US residents are able to claim back partials of the withhold tax, by filing the US tax form 1040NR. In 2013, non-US resident can claim back at least $3,900. Kindly correct me if anything is inaccurate. |
On a debt collection agency's letter, what does “balance” refer to? | The balance is the amount due. |
Paying taxes on dividends even though your capital gains were $0? | I'd agree that this can seem a little unfair, but it's an unavoidable consequence of the necessary practicality of paying out dividends periodically (rather than continuously), and differential taxation of income and capital gains. To see more clearly what's going on here, consider buying stock in a company with extremely simple economics: it generates a certain, constant earnings stream equivalent to $10 per share per annum, and redistributes all of that profit as periodic dividends (let's say once annually). Assume there's no intrinsic growth, and that the firm's instrinsic value (which we'll say is $90 per share) is completely neutral to any other market factors. Under these economics, this stock price will show a "sawtooth" evolution, accruing from $90 to $100 over the course of a year, and resetting back down to $90 after each dividend payment. Now, if I am invested in this stock for some period of time, the fair outcome would be that I receive an appropriately time-weighted share of the $10 annual earnings per share, less my tax. If I am invested for an exact calendar year, this works as I'd expect: the stock price on any given day in the year will be the same as it was exactly one year earlier, so I'll realise zero capital gain, but I'll have collected a $10 taxed dividend along the way. On the other hand, what if I am invested for exactly half a year, spanning a dividend payment? I receive a dividend payment of $10 less tax, but I make a capital loss of -$5. Overall, pre-tax, I'm up $5 per share as expected. However, the respective tax treatment of the dividend payment (which is classed as income) and the capital gains is likely to be different. In particular, to benefit from the "negative" taxation of the capital loss I need to have some positive capital gain elsewhere to offset it - if I can't do that, I'm much worse off compared to half the full-year return. Further, even if I can offset against a gain elsewhere the effective taxation rates are likely to be different - but note that this could work for or against me (if my capital gains rate is greater than my income tax rate I'd actually benefit). And if I'm invested for half a year, but not spanning a dividend, I make $5 of pure capital gains, and realise a different effective taxation rate again. In an ideal world I'd agree that the effective taxation rate wouldn't depend on the exact timing of my transactions like this, but in reality it's unavoidable in the interests of practicality. And so long as the rules are clear, I wouldn't say it's unfair per se, it just adds a bit of complexity. |
How do I figure out if I will owe taxes | The short answer is - "Your employer should typically deduct enough every paycheck so you don't owe anything on April 15th, and no more." The long answer is "Your employer may make an error in how much to deduct, particularly if you have more than 1 job, or have any special deductions/income. Calculate your estimated total taxes for the year by estimating all your income and deductions on a paper copy of a tax return [I say paper copy so that you become familiar with what the income and deductions actually are, whereas plugging into an online spreadsheet makes you blind to what's actually going on]. Compare that with what your employer deducts every paycheck, * the number of paychecks in the year. This tells you how much extra you will pay / be refunded on April 15th, as accurately as you can estimate your income and deductions." |
Why would preferred shares have less potential for capital gain compared to common stock? | I once bought both preferred and common shares in a bankrupt company. It is true that those preferred shares had less potential for appreciation than the common shares. The reason is because the preferred shares were trading around $50 and had a face value of $1000. This means that if the bankruptcy proceedings ended up finding enough assets to make the preferred shares whole, then the preferred shareholders would be paid $1000 per share and no more than that. So if you bought the preferred shares at $50 and received $1000 per share for them, then you made a 1900% gain. But if the bankruptcy proceedings found enough assets to pay not just the preferred shareholders but also the common shareholders, then the common shareholders had the potential for a greater gain than the preferred shareholders. The common stock was trading around 20 cents at the time, and if enough assets were found to pay $10 per share to the common shareholders, then that would have been a 4900% gain. The preferred shares were capped by their face value, but the common shares had no limit on how high they could go. |
How to move (or not move) an LLC from Illinois to New Mexico? | Why not just leave it as is and register as foreign entity in New Mexico? You won't avoid the gross receipts tax, but other than that - everything stays as is. Unless Illinois has some taxes that you would otherwise not pay - just leave it there. |
How do you declare revenues from YouTube earnings in the USA if you are a minor? | In the USA, you probably owe Self Employment Tax. The cutoff for tax on this is 400$. You will need to file a tax return and cover the medicaid expenses as if you were both the employer and employee. In addition, if he earns income from self-employment, he may owe Self-Employment Tax, which means paying both the employee’s and employer's share of Social Security and Medicaid taxes. The trigger for Self Employment Tax has been $400 since 1990, but the IRS may change that in the future. Also see the IRS website. So yes, you need to file your taxes. How much you will pay is determined by exactly how much your income is. If you don't file, you probably won't be audited, however you are breaking the law and should be aware of the consequences. |
Buying shares- Stocks & Shares ISA, or Fund & Share account? | The main difference is that the ISA account like a Cash ISA shelters you from TAX - you don't have to worry about Capital Gains TAX. The other account is normal taxable account. With only £500 to invest you will be paying a high % in charges so... To start out I would look at some of the Investment Trust savings schemes where you can save a small amount monthly very cost-effectively - save £50 a month for a year to see how you get on. Some Trusts to look at include Wittan, City Of London and Lowland |
Might I need a credit score to rent, or for any other non-borrowing finances? | Credit scores are not such a big deal in Canada as they are in the US and even some European countries. One reason for this: the Social Insurance Number (SIN number) isn't used for so many purposes like the Social Security Number (SSN) in the US. The SIN number isn't even required to get credit (but with some exceptions it is needed to open an interest-bearing savings account, so that the interest income can be reported). You can refuse to provide the SIN number to most private companies. Canada also has one of the highest per-capita immigration rates of any large country, so new arrivals are expected, and services are geared up for them. Most of the banks offer special deals for "New Canadians". You should get a credit card (even if just a secured credit card) through them with one of these offers to start a credit file anyway, but there's no need to actually use it much. Auto-paying a utility bill through the card, and paying it off in full each month, is one way to keep it active. No need to ever pay any interest. Most major apartment rental firms will expect a good proportion of their renters to be new to Canada, so should have procedures in place to deal with it (such as a higher deposit). You should not give them your SIN for a credit check, even when you're more established. Same for utilities, they can just charge a higher deposit if they can't credit check you. For private landlords, everything is negotiable (but see the laws link at the end of this answer). You will later need a credit rating for a mortgage on a house (if not paying cash), so it's worth getting that one token credit card. Useful for car rental also. Here's a fairly complete summary of the laws on renting in Canada, which includes the maximum deposits that can be asked for, and notice periods. |
I spend too much money. How can I get on the path to a frugal lifestyle? | Get on a written budget at the BEGINNING of the month. If you dont write down where your money goes BEFORE you spend it, you have no way of keeping track of it. I couldn't do a thing until I got on a written budget but now that I am, I've paid off $10,000 in 7 months. |
Where should I invest my savings? | Since you mention the religion restriction, you should probably look into the stock market or funds investing in it. Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit. If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run. As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path. |
How is not paying off mortgage better in normal circumstances? | There are several reasons: |
How can I get a mortgage I can't afford? | Save up a bigger downpayment. The lender's requirement is going to be based on how much you finance, not the price of the house. |
If a employers supposed to calulate drive time pay with your weekly gross pay | Reimbursements for business expenses are generally not taxable, but the commute from home to the job and back is not considered business travel and if they're paying for that it is taxable income. I don't think carpooling changes that, but I am not a tax lawyer or accountant. The rest of your questions seem to be company policy issues. There is no "should" here. You aren't required to pick up the other guys, but he isn't required to reimburse those miles (or employ you) so think carefully about your priorities before pushing back. Never invoke what thou canst not banish. |
What emergencies could justify a highly liquid emergency fund? | I suppose this could really depend on the part of the world you're in, but there are still many instances of "emergencies" that need "cash". You have to decide how much cash is the right amount, but I still recommend having $1,000 or so in liquid cash. It can really make a huge difference. Let me give a few examples. Bad weather. I live in Florida and after a hurricane if you want gas, food, or water, you're going to need cash. ATM networks are the last to get repaired. Same for internet. Cell services are not at the top of the list. You could be 4-5 days without access to your accounts. If you need anything in that time frame it's cash or the Red Cross. Children. As a foster parent we keep some cash on hand because as kids come in to our care we want to get them in school right away. How are they going to eat? You can't give them your plastic, you haven't had time to setup "lunch accounts" or the like. Cash always works. Along those same lines are bus tickets, clothes, supplies and what not. Not everywhere will take an ATM card, and if your money is tied up in a stock then what are you supposed to do for 3 days? Tell your new kid that he can't eat? Big Emergency problems. Like your car breaks down on the interstate. Sure it can get towed to the dealership, and yes they will add the tow to your bill, and sure you have a few days to pay it (while your car gets fixed), but how are you going to get around? Not all taxis take plastic around here. Almost none of the busses take plastic even though they are supposed to. Lost Wallet or ID theft. Lose your wallet, good luck getting into your bank accounts. It can take weeks to establish your ID after you lose it in some cases. You want your ID, but you need your birth certificate. You have to GO to the state of birth and request it. Oh but wait, to travel you need an ID. No problem send away for it, but wait, you need to send them money to mail it. To bad all your money is tied up. Running or Evacuating - So you need to evacuate for some reason. No big deal. But all your money is in a place you can't get to it. How do you put gas in your car. Lets stick with it and say you get to "cash out" an account of some kind. Guess what, they're not going to mail it to some random address. Now you're stuck fighting support centers to get them to understand that you need your funds delivered to New York even though you live in Florida. In short, you don't need $100,000 in liquid funds, but there are a few cases that you need something liquid. You also make a lot of assumptions. For example, not every one will have health insurance, or a heath problem that is covered by their insurance. Some serious home repairs are "down payment" upfront. Car problems like an accident that means you need a rental can totally be up front. Especially if credit cards can't be used. |
Why is a stock that pays a dividend preferrable to one that doesn't? | Dividend paying stocks are not "better" In particular shareholders will get taxed on the distribution while the company can most likely invest the money tax free in their operations. The shareholder then has the opportunity to decide when to pay the taxes when they sell their shares. Companies pay dividends for a couple of reasons.... 1.) To signal the strength of the company. 2.) To reward the shareholders (oftentimes the executives of the firm get rather large rewards without having to sell shares they control.) 3.) If they don't have suitable investment opportunities in their field. IE they don't have anything useful to do with the money. |
Why are capital gains taxed at a lower rate than normal income? | There are two alternative explanations: Choose the explanation you prefer based on your level of cynicism. |
Scam or Real: A woman from Facebook apparently needs my bank account to send money | 100% scam. Run away. If you have already given the bank account, inform the bank and close the account. Else just close the new account opened. Do not contact the scammer or reply back.... Just ignore ... Don't read any of scammer email, they are very convincing in why it's right and why it's not a scam. |
Finance, Cash or Lease? | Now, to buy in full (and essentially have zero savings), buy in part (£10000 deposit, followed by a loan of £4000) or PCP/HP more of the value? So, you are assessing if the car is worth having with either none or only 4,000 in savings. This is the most critical information you have provided. My outright opinion is to always buy a mildly used car as I hate the idea of loans and interest. With the amount of money that you currently possess, I believe the "Buy-in-part" option is best as it reduces your interest liability; but, I don't believe you should do it currently. 4,000 is a rather small cash fund for if something were to go boom in the night. As for your question of interest: This is completely dependent on the amount you are able to pay per period and the total interest you are willing to spend, rows four and seven respectively. This is your money, and no one can tell you what's best to do with it than yourself. Keep looking for good leasing deals or if you think you can survive financial strife with 4,000 then follow your heart. "Depreciation" fluctuates to the buyer, so never assume what the car may lose in the next 2-3 years. Hope it all goes well my friend. |
How late is Roth (rather than pretax) still likely to help? | My simplest approach is to suggest that people go Roth when in the 15% bracket, and use pre-tax to avoid 25%. I outlined that strategy in my article The 15% solution. The monkey wrench that gets thrown in to this is the distortion of the other smooth marginal tax curve caused by the taxation of social security. For those who can afford to, it makes the case to lean toward Roth as much as possible. I'd suggest always depositing pretax, and using conversions to better control the process. Two major benefits to this. It's less a question of too late than of what strategy to use. |
How smart is it really to take out a loan right now? | but I can't help but feel that these low rates are somehow a gimmick to trick people into taking out loans Let me help you: it's not a feeling. That's exactly what it is. Since the economy is down, people don't want to jeopardize what they have, and keep the cash in their wallets. But, while keeping the money safe in the pocket, it makes the economy even worse. So in order to make people spend some money, the rates go down so that the cost of money is lower. It also means that the inflation will be on the rise, which is again a reason not to keep money uninvested. So yes, the rates are now very low, and the housing market is a buyers' market, so it does make sense to take out a loan at this time (provided of course that you can actually repay it over time, and don't take loans you can't handle). Of course, you shouldn't be taking loans just because the rates are low. But if you were already planning on purchasing a house - now would be a good time to go on with that. |
What are the disadvantages of using a small leverage? | The major drawback to borrowing to invest (i.e. using leverage) is that your return on investment must be high enough to overcome the cost of finance. The average return on the S&P 500 is about 9.8% (from CNBC) a typical unsecured personal loan will have an interest rate of around 18-36% APR (from NerdWallet). This means that on average you will be paying more interest than you are receiving in returns so are losing money on the margin investment. Sometimes the S&P falls and over those periods you would be paying out interest having lost money so will have a negative return! You may have better credit and so be able to get a lower rate but I don't know your loan terms currently. Secured loans, such as remortgaging your house, will have lower costs but come with more life changing risks. The above assumes that you are getting financing by directly borrowing money, however, it is also possible to trade on margin. This is where you post a proportion of the value that you wish to trade with as collateral against a loan to buy the security. This form of finance is normally used by day traders and other short term holders of stocks. Although the financing costs here are low (I am not charged an interest rate on intraday margin trading) there are very high costs if you exceed the term of the loan. An example is that I am charged a fee if I hold a position overnight and my profits and losses are crystallised at that time. If I am in a losing position at that time the crystallisation process and fee can result in not having enough margin to recover the position and the loss of a potentially profit making position. Additionally if the amount of collateral cash (margin) posted is insufficient to cover the expected losses as calculated by your broker they will initiate a margin call asking for more collateral money. If you do not (or cannot) post this extra margin your losing position will be cashed out and you will take as a loss the total loss at that time. Since the market can change very rapidly, such as in a flash crash, this can result in your losing more money than you had in the first place. As this is essentially a loan you can be bankrupted by this. Overall using leverage to invest magnifies your potential profits but it also magnifies your potential losses. In many cases this magnification could be sufficient to lose you more money than you had originally invested. In addition to magnification you need to consider the cost of finance and that your return over the course of the loan needs to be higher than your cost of finance as well as inflation and other opportunity costs of capital. The S&P 500 is a relatively low volatility market in general so is unlikely to return losses in any given period that will mean that leverage of 1.25 times will take you into losses beyond your own capital investment but it is not impossible. The low level of risk automatically means that your returns are lower and so your cost of capital is likely to be a large proportion of your returns and your returns may not completely cover the cost of capital even when you are making money. The key thing if you are going to trade or invest on leverage is to understand the terms and costs of your leverage and discount them from any returns that you receive before declaring to yourself that you are profitable. It is even more important than usual to know how your positions are doing and whether you are covering your cost of capital when using leverage. It is also very important to know the terms of your leverage in detail, especially what will happen when and if your credit runs out for whatever reason be it the end of the financing period (the length of the loan) or your leverage ratio gets too high. You should also be aware of the costs of closing out the loan early should you need to do so and how to factor that into your investing decisions. |
How can banks afford to offer credit card rewards? | The banks don't have to pay for credit card rewards. The merchants end up footing the bill. The merchants that accept credit cards pay from 2-4% in fees on the credit card purchase. Those fees go to support the rewards programs. The merchants also take on most of the risk during a credit card transaction (although the credit card companies would have you believe otherwise). If a thief uses a stolen card to purchase a camera from Mike's Camera Shop for instance, any funds the merchant received will be taken away from the merchant. In addition, the merchant will be hit with a chargeback fee (usually around $20-$60). Finally, since the card was stolen, the merchant will never get their merchandise returned, so Mike's Camera is out the camera as well. No camera, no funds, and a $60 fee to boot. The credit card issuers make $60 on the chargeback fees and have no liability. |
Should I sell and rebuy stocks before the end of the year to trigger a gain and offset capital losses? | You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule "Don't let the tax tail wag the investing dog." For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense. |
Should I exclude bonds from our retirement investment portfolio if our time horizon is still long enough? | Having cash and bonds in your portfolio isn't just about balancing out the risk and volatility inherent in equities. Consider: If you are 100% invested in equities and the market declines by 30%, you'll be hard pressed to come up with additional money to "buy low". You'll miss out on the rebalancing bonus. But, if you make a point of keeping some portion of your portfolio in cash and bonds, then when the market has such a decline (and it will), you'll be able to rebalance your portfolio back to target weights — i.e. redeploy some of your cash and bonds into equities to take advantage of the lower prices. |
Is it possible to make money off of a private company? | Yes, but only if they're looking for investors. You would need to contact them directly. Unless you're looking to invest a significant sum, they may not be interested in speaking with you. (Think at least 6 figures, maybe 7 depending on their size and needs). This is otherwise known as being a Venture Capitalist. Some companies don't want additional investors because the capital isn't yet needed and they don't want to give up shares in the profit/control. Alternatively, you could try and figure out which investment groups already have a stake in the company you're interested in. If those companies are publicly traded, you could buy stocks for their company with the expectation that their stock price will increase if the company you know of does well in the long run. |
What's the least risky investment for people in Europe? | First of all, congratulations on saving some money. So many people these days do not even get that far. As far as investments, what is best for you depends heavily on your: Here is a quick summary of types of assets that are likely available to you, and my thoughts on why they may or may not be a good fit for your situation. Cash Equivalents Cash Equivalents are highly liquid, meaning you can get cash for them on fairly short notice. In particular, Money Markets and Certificates of Deposit (CDs) are also considered very safe when issued by a bank, as they are often insured against loss by the government up to a certain amount (this varies quite a lot by country within Europe, see the Wikipedia article here for additional detail. Please note that in the case of a CD, you are usually unable to get access to your money for the length of the investment period, which is usually a short period of time such as 3 months, 6 months, or 1 year. This is a good choice if you may need your money back on short notice, and your main goal is to preserve your principal. However, the returns tend to be very low and often do not keep pace with inflation, meaning that over several years, you may lose "real" purchasing power, even if you don't lose nominal value in your account. Special Note on Cash Equivalents If the money you want to invest is also your Emergency Fund, or you do not have an Emergency Fund, I would highly recommend Cash Equivalents. They will provide the highest level of Liquidity along with a short Time Horizon so that you can get your money as needed in the case of unforeseen expenses such as if your car breaks down. Debt Debt investments include government and corporate bonds. They are still considered relatively safe, as the issuer would need to default (usually this means they are in bankruptcy) in order for you not to be paid back. For example, German bonds have been considered safer than Greek bonds recently based on the underlying strength of the government. Unlike Cash Equivalents, these are not guaranteed against loss, which means that if the issuer defaults, you could lose up to 100% of your investment. Bonds have several new features you will need to consider. One is interest rate risk. One reason bonds perform better than cash equivalents is that you are taking on the risk that if interest rates rise, the fixed payments the bond promises will be worth less, and the face value of your bond will fall. While most bonds are still very Liquid, this means that if you need to sell the bond before it matures, you could lose money. As mentioned earlier, some bonds are riskier than others. Given that you are looking for a low-risk investment, you would want to select a bond that is considered "invesment grade" rather than a riskier "junk" bond. Debt investments are a good choice if you can afford to do without this money for a few years, and you want to balance safety with somewhat better returns than Cash Equivalents. Again though, I would not recommend investing in Debt until you have also built up a separate Emergency Fund. If you do choose to invest in bonds, I recommend that you diversify your risks by investing in a bond fund, rather than in just one company's or government's debt. This will reduce the likelihood that you will experience a catastrophic loss. Ownership Ownership assets includes stocks and other assets such as real estate and precious metals such as gold. While these investments can have high returns, in your situation I would strongly recommend that you not invest in these types of investments, for the following reasons: For these reasons, debt is considered a safer investment than equity for any particular company, government, or the market as a whole. Ownership assets are a good choice for people who have a high Risk Tolerance, long Time Horizon, low Liquidity needs, and will not be bothered by larger potential changes in the value of the investment at any given time. Special Note on Gold I would consider Gold a very risky investment and not a good fit for you at the moment based on what you've shared in your question. Gold is considered "safe" in the sense that people believe that if the economy goes into recession, depression, or collapses entirely, gold will continue to be valuable. In a post-apocalyptic world where paper money became worthless, it is still a good bet that gold will always be considered valuable within human society as a store of value. That being said, the price of gold fluctuates almost entirely based on how bad people think things are going to get. Think about the difference between gold and a company like Coca-Cola. Would you like to own 100% of Coca-Cola? Of course, because you know there is a very good chance that people will continue to spend money all over the world on their products. On the other hand, gold itself produces no products, no sales, no profits, and no cash flow. As such, if you buy gold, you are really making a speculative bet that gold will be in higher demand tomorrow than it is today. You are buying an asset (the gold) rather than part of a company's equity or debt that is designed to throw off payments to its investors in the form of bond payments or dividends. So, if people decide next year that things are improving, it is possible that gold could lose value, given that gold prices are at historically high levels. Gold could be a good choice for someone who has a large, well-diversified investment portfolio, and who is looking for a hedge to protect against inflation and other risks that they have taken on via their other investments. I hope that is helpful - best of luck in your choices. Let us know what you decide! |
What should I do with my money? | I don't think blanket answers are very helpful. You are asking the right question when you are young! You have a large number of investment options and Australia has the Superannuation system that you can extract significant tax value from. I've not attempted to grade these with regard to "risk", as different people will rate various things with different levels, depending on their experience and knowledge. Consider the following factors for you:- |
Where to find turnover / average amount of time investors & mutual funds held stocks they purchased? | You can make a rough calculation of the annual turnover rate of stocks by calculating the institutional investors holding of that stock. Institutional investors are the only firms that are required to provide such data. The good this is they usually make the lion share of trading activity. On the other hand, this task might proof arduous A different ratio that could be used as a substitute Share Turnover which is calculated as: Share Turnover gives the number of shares traded as a fraction of the number of shares outstanding. For example, if you compare the results of stock turnover for three companies and the results came as follows: Company A-share turnover: 1.5 Times Company B share turnover: 3 times Company C share turnover: 0.3 times From the results, we can conclude that for a particular period, company C had the least activity and the number of shares traded for that period was only a small fraction of the shares outstanding while other traders of company C hold most shares and never trade them. If you make a cross sectional analysis of a list of businesses you intend to invest in, you could figure which one has the least number of rapidity in the shares traded. |
Should I replace bonds in a passive investment strategy | Bonds still definitely have a place in many passive portfolios. While it is true that interest rates have been unusually low, yields on reasonable passive bond exposures are still around 2-4%. This is significantly better than both recent past inflation and expected inflation both of which are near zero. This is reasonable if not great return, but Bonds continue to have other nice properties like relatively low risk and diversification of stock portfolios (the "offset[ing] losses" you mention in the OP). So to say that bonds are "no longer a good idea" is certainly not correct. One could say bonds may no longer be a good idea for some people that have a particularly high risk tolerance and very high return requirements. However, to some extent, that has always been true. It is worth remembering also that there is some compelling evidence that global growth is starting to broadly slow down and many people believe that future stock returns and, in general, returns on all investments will be lower. This is much much harder to estimate than bond returns though. Depending on who you believe, bond returns may actually look relatively better than the have in the past. Edit in response to comment: Corporate bond correlation with stocks is positive but generally not very strong (except for high-yield junk bonds) so while they don't offset stock volatility (negative correlation) they do help diversify a stock portfolio. Government bonds have essentially zero correlation so they don't really offset volatility as much as just not add any. Negative correlation assets are generally called insurance and you tend to have to pay for them. So there is no free lunch here. Assets that reduce risk cost money, assets that add little risk give less return and assets that are more risky tend to give more return in the long run but you can feel the pain. The mix that is right for you depends on a lot of things, but for many people that mix involves some corporate and government bonds. |
What to do if a state and federal refund is denied direct deposit? | Publication 17 Your Income Tax top of page 14 If the direct deposit cannot be done, the IRS will send a check instead. When your girlfriend gets the check, she can endorse it over to you for deposit into your account. |
Value investing | The June 2014 issue of Barclays Wealth's Compass magazine had a very nice succinct article on this topic: "Value investing – does a rules-based approach work?". It examines the performance of value and growth styles of investment in the MSCI World and S&P500 arenas for a few decades back, and reveals a surprisingly complicated picture, depending on sector, region and time-period. Their summary is basically: A closer look however shows that the overall success of value strategies derives mainly from the 1970s and 1980s. ... in the US, value has underperformed growth for over 25 years since peaking in July 1988. Globally, value experienced a 30% setback in the late 1990s so that there are now periods with a length of nearly 13 years over which growth has outperformed. So the answer to "does it beat the market?" is "it depends...". Update in response to comment below: the question of risk adjusted returns is interesting. To quote another couple of fragments from the piece: Since December 1974, [MSCI world] value has outperformed growth by 2.6% annually, with lower risk. This outperformance on a risk-adjusted basis is the so-called value premium that Eugene Fama and Kenneth French first identified in 1992... and That outperformance has, however, come with more risk. Historical volatility of the pure style indices has been 21-22% compared to 16% for the market. ... From a maximum drawdown perspective, the 69% drop of pure value during the financial crisis exceeded the 51% drop of the overall market. |
Is there a benefit, long term, to life insurance for a youngish, debt, and dependent free person? | As Mhoran stated, no dependents, no need. Even with dependants, insurance is to cover those who would otherwise have a hardship. Once the kids are off to college and house paid for, the need drops dramatically. There are some rather complex uses for insurance when estates are large but potentially illiquid. Clearly this doesn't apply to you. |
Job Offer - Explain Stock Options [US] | Its important that you carefully read the agreement, if you accept the job. The options agreement will usually specify the vesting schedule, the strike price, and the number of options you will have. When you start vesting options, you can choose to buy stock at the strike price. When you do exercise the options, your employer will likely withhold state and federal income tax. The strike price will hopefully be well below the market price. Unlike stock, when your employment ends, you usually are not able to hold on to your options. There's typically a small window of time in which you can exercise your options. You should read this part of the agreement carefully and plan accordingly. |
Why do 10 year-old luxury cars lose so much value? | There is usually a bunch of reasons for this, some psychological and some entirely practical. Let's start with the latter: If I wanted an older luxobarge, I'd buy something from the early to mid 1990s in good condition. These cars tend to be a little less complex and thus a little easier to repair, plus you can find them for prices that makes them to 'disposable'. |
What does “100% stock dividend” mean? | A 100% stock dividend means that you get one share of the "stock dividend" for every share you own. For example, Google did this in 2014 when they gave all of their Class A shareholders one class C share for every Class A that they owned. If the 100% stock dividend is for the exactly the same stock, it is basically the same as a 2-for-1 stock split. If, however, the 100% stock dividend is to give you a different stock, then this is typically due to a corporate reorganization or demerger/spinoff event. Some countries have different tax treatments for the events - for example, with demergers in Australia, Class Rulings need to be obtained from the Australian Taxation Office to declare demergers as tax free. A recent demerger was in Australia as South32, demerged from BHP Billiton. References: http://economix.blogs.nytimes.com/2014/04/02/the-many-classes-of-google-stock/ http://www.bhpbilliton.com/investors/shareholderinfo/demerger-taxation-information |
Are investor's preference for dividends justified? | Some investors (pension funds or insurance companies) need to pay out a certain amount of money to their clients. They need cash on a periodical basis, and thus prefer dividend paying stock more. |
Why would a company care about the price of its own shares in the stock market? | Why do companies exist? Well, the corporate charter describes why the company exists. Usually the purpose is to enrich the shareholders. The owners of a company want to make money, in other words. There are a number of ways that a shareholder can make money off a stock: As such, maintaining the stock price and dividend payouts are generally the number one concern for any company in the long term. Most of the company's business is going to be directed towards making the company more valuable for a future buyout, or more valuable in terms of what it can pay its shareholders directly. Note that the company doesn't always need to be worried about the specifics of the day-to-day moves of the stock. If it keeps the finances in line - solid profits, margins, earnings growth and the like - and can credibly tell people that it's generally a valuable business, it can usually shrug off any medium-term blips as market craziness. Some companies are more explicitly long-term about things than others (e.g. Berkshire Hathaway basically tells people that it doesn't care all that much about what happens in the short term). Of course, companies are abstractions, and they're run by people. To make the people running the company worry about the stock price, you give them stock. Or stock options, or something like that. A major executive at a big company is likely to have a significant amount of stock. If the company does well, he does well; if it does poorly, he does poorly. Despite a few limitations, this is really a powerful incentive. If a company is losing a lot of money, or if its profits are falling so it's just losing a lot of its value as a business, the owners (stockholders) tend to get upset, and may vote in new management, or launch some sort of shareholder lawsuit. And, as previously noted, to raise funds, a company can also issue new shares to the market as a secondary offering as well (and they can issue fewer shares if the price is high - meaning that whatever the company is worth afterward, the existing owners own proportionally more of it). |
When to buy and sell bonds | Why does selling a bond drive up the yield? The bond will pay back a fixed amount when it comes due. The yield is a comparison of what you pay for the bond and what will be repaid when it matures (assuming no default). Why does the yield go up if the country is economically unstable? If the country's economy is unstable, that increases the chance that they will default and not pay the full value of the bonds when they mature. People are selling them now at a loss instead of waiting for a default later for a greater loss. So if you think Greece is not going to default as it's highly likely a country would completely default, wouldn't it make sense to hold onto the bonds? Only if you also think that they will pay back the full value at maturity. It's possible that they pay some, but not all. It's also possible that they will default. It's also possible that they will get kicked out of the Euro and start printing Drachmas again, and try to pay the bonds back with those which could devalue the bonds through inflation. The market is made of lots of smart people. If they think there are reasons to worry, there probably are. That doesn't mean they can predict the future, it just means that they are pricing the risk with good information. If you are smarter than the herd, by all means, bet against them and buy the bonds now. It can indeed be lucrative if you are right, and they are wrong. |
Higher mortgage to increase savings to invest? | I don't follow the numbers in your example, but the fundamental question you're asking is, "If I can borrow money for a low cost, and if I think I can invest it and receive returns greater than that cost, should I do it?" It doesn't matter where that money comes from, a mortgage that's bigger than it needs to be, a credit card teaser rate, or a margin line from your stock broker. The answer is "maybe" - depending on the certainty you have about the returns you'd receive on your investments and your tolerance for risk. Only you can answer that question for yourself. If you make less than your mortgage rates on the investments, you'll wish you hadn't! As an aside, I don't know anything about Belgian tax law, but in US tax law, your deductions can be limited to the actual value of the home. Your law may be similar and thus increase the effective mortgage interest rate. |
Why invest for the long-term rather than buy and sell for quick, big gains? | Someone entering a casino with $15 could employ a very simple strategy and have a better-than-90% chance of walking out with $16. Unfortunately, the person would have a non-trivial chance (about one in 14) of walking out with $0. If after losing $15 the person withdrew $240 from the bank and tried to win $16, the person would have a better-than-90% chance of succeeding and ending up ahead (holding the original $15, plus the additional $240, plus $1) but would have at that point about a one in 14 chance from that point of losing the $240 along with the original $15. Measured from the starting point, you'd have about a 199 out of 200 chance of gaining $1, and a one out of 200 chance of losing $240. Market-timing bets are like that. You can arrange things so you have a significant chance of making a small profit, but at the risk of a large downside. If you haven't firmly decided exactly how much downside you are willing to accept, it's very easy to simultaneously believe you don't have much money at risk, but that you'll be able to win back anything you lose. The only way you can hope to win back anything you lose is by bringing a lot more money to the table, which will of course greatly increase your downside risk. The probability of making money for the person willing to accept $15 of downside risk to earn $1 is about 93%. The probability of making money for the person willing to accept $255 worth of risk is about 99.5%. It's easy to see that there are ways of playing which have a 99.5% chance of winning, and that there are ways of playing that only have a 15:1 downside risk. Unfortunately, the ways of playing that have the smaller risk don't have anything near a 99.9% chance of winning, and those that have a better chance of winning have a much larger downside risk. |
In a competitive market, why is movie theater popcorn expensive? | It's because true competition does not exist in the movie theater business. If you wanted to open up a competing theater whose competitive advantage was cheaper popcorn, you couldn't do it - the studios would never give you rights to screen popular new release movies. I know this because there are indie movie theaters that constantly struggle to acquire screening rights, because the Regals and AMCs of the world work hard to maintain their monopoly by having exclusive licensing deals with studios. Effectively, studios and a couple major theater chains have gotten together and agreed to fix the price of popcorn. So if you want cheaper popcorn, there are theaters where you'll find it - you just won't be watching Hollywood blockbuster new releases while you're eating it. |
Why don't banks give access to all your transaction activity? | All the other answers here are correct, but I'll add one more perspective. I am a business architect at one of the world's largest retail banks. Every day I experience the frustration of trying to get large-scale corporate IT to do anything, so I feel that your question is just one facet of the wider question: "why are banks so old and busted?" While it's true that the cost of online, redundant, performant, secure data storage is significantly higher than you anticipate in the question, it should still be well within the capacity of a large enterprise. The true cost is the cost of change. Nothing at a bank is a green field development. Everything is a bolt-on to existing systems. Any change brings the risk that existing functionality will be affected, therefore vast schemes of regression testing (largely manually executed) spring up around even the most trivial developments. Costs scale exponentially with the number of platforms affected (often utterly distinct, decades-old, incompatible platforms that have arisen out of historical mergers and acquisitions). Only statutory, revenue-generating and critical maintenance change is approved. Any form of cost-cutting that increases risk is quickly extinguished. This is because when things go wrong, IT get blamed by their business colleagues. This is because the business colleagues in turn get blamed by the regulators, the media, the customers, and the public at large. Who doesn't cuss their bank when the ATM is unavailable? The bank's IT organization develops a kind of management sclerosis, risk averse in the extreme. Banks can't ship a beta version and patch it later. This ultra-low-innovation approach is a direct result of market and regulatory forces. If you were happy with a bank account that played fast and loose with your money the way Facebook plays with your data, then banking would be much cheaper, much more innovative, and much riskier. To get back to your specific question, some banks actually do offer a much longer back catalog of transactions for download (usually only a few key fields of each transaction though), and the ones that don't most likely don't see it as a revenue generating selling point, and it therefore falls above their innovation appetite. |
When trading put options, is your total risk decreased if you are in a position to exercise the option? | The risk situation of the put option is the same whether you own the stock or not. You risk $5 and stand to gain 0 to $250 in the period before expiration (say $50 if the stock reaches $200 and you sell). Holding the stock or not changes nothing about that. What is different is the consideration as to whether or not to buy a put when you own the stock. Without an option, you are holding a $250 asset (the stock), and risking that money. Should you sell and miss opportunity for say $300? Or hold and risk loss of say $50 of your $250? So you have $250 at risk, but can lock in a sale price of $245 for say a month by buying a put, giving you opportunity for the $300 price in that month. You're turning a risk of losing $250 (or maybe only $50 more realistically) into a risk of losing only $5 (versus the price your stock would get today). |
Why would a person not want to purchase a Personal Liability (Umbrella) insurance policy? | You only need umbrella policy for large amounts of liability protection (I think they usually start with $1M). So if you don't have and don't expect to have assets at such a high value - why would you need the insurance? Your homeowners/renters/car/travel insurance should be enough, and you still need to have those for umbrella since its on top of the existing coverage, not instead. Many people just don't have enough assets to justify such a high coverage. |
First 401K portfolio with high expense ratios - which funds to pick? (24yo) | If you're willing to do a little more work and bookkeeping than just putting money into the 401(k) I would recommend the following. I note that you said you chose some funds based on performance since the expense ratios are all high. I would recommend against chasing performance because active funds will almost always falter; honor the old saw: "past performance is no guarantee of future returns". Assuming the cash in your Ally account is an emergency fund, I would use it to pay off your credit card debt to avoid the interest payments. Use free cash flow in the coming months to bring the emergency fund balance back up to an acceptable level. If the Ally account is not an emergency fund, I would make it one! With no debt and an emergency fund for 3-12 months of living expenses (pick your risk tolerance), then you can concentrate on investing. Your 401(k) options are unfortunately pretty poor. With those choices I would invest this way: Once you fill up your choice of IRA, then you have the tougher decision of where to put any extra money you have to invest (if any). A brokerage account gives you the freedom of investment choices and the ability to easily pull out money in the case of a dire emergency. The 401(k) will give you tax benefits, but high fund expenses. The tax benefits are considerable, so if I were at a job where I plan on moving on in a few years, I'd fund the 401(k) up to the max with the knowledge that I'd roll the 401(k) into a rollover IRA in the (relatively) short term. If I saw myself staying at the employer for a long time (5+ years), I'd probably take the taxable account route since those high fund fees will add up over time. One you start building up a solid base, then I might look into having a small allocation in one of my accounts for "play money" to pick individual stocks, or start making sector bets. |
Is being a landlord a good idea? Is there a lot of risk? | Based on what you've said I think buying a rental is risky for you. It looks like you heard that renting a house is profitable and Zillow supported that idea. Vague advice + a website designed for selling + large amounts of money = risky at the very least. That doesn't mean that rental property is super risky it just means that you haven't invested any time into learning the risks and how you can manage them. Once you learn that your risk reduces dramatically. In general though I feel that rental property has a good risk/reward ratio. If you're willing to put in the time and energy to learn the business then I'd encourage you to buy property. If you're not willing to do that then rentals will always be a crap shoot. One thing about investing in rental property is you have the ability to have more impact on your investment than you do dropping money in the stock market which is good and bad. |
Is issuer's bank allowed to charge fee when cashing check? | Some banks charge their own customers if they make use of a teller. That is what you are doing. You are going to a bank where you are not a customer and requesting a transaction that requires a teller. If you cash the check by going though your bank, the issuer's bank only handles it as a non-teller transaction. |
If stock price drops by the amount of dividend paid, what is the use of a dividend | Victor, Yes the drop in price does completely cancel the dividend at first. However, as others have noted, there are other forces working on the price as well. If dividends were pointless then the following scenario would be true: Let's assume, hypothetically, two identical stocks, only one of which pays a 2% annual dividend quarterly. At the end of the year we would expect the share price of the dividend stock to be 2% lower than the non-dividend stock. And an equal investment in both stocks would yield exactly the same amount of money. So that is a hypothetical, and here is real market example: I compared, i.e. took the ratio of Vanguard's S&P 500 ETF (VOO) closing price to the S&P 500 Index closing price from sep 9, (2010-2014), after accounting for the VOO 2013 split. The VOO pays a quarterly dividend(about 2%/year), the S&P is an index, hence no dividend. The VOO share price, reduced each quarter by the dividend, still grew more than the S&P each year except 2012 to 2013, but looking at the entire 4yr period the VOO share price grew 80.3987% while S&P grew 80.083% (1/3 of 1% more for VOO). VOO does drop about 1/2% relative to S&P on every ex date, but obviously it makes it up. There are other forces working on VOO. VOO is trade-able, therefore subject to supply/demand pressures, while the S&P 500 is not. So for the VOO ETF the data does not indicate pointless dividends but instead implies dividends are free money. StockCharts.com supports this. S&P500 for last 1244 days (9/8/2010) shows 90% growth http://stockcharts.com/freecharts/perf.php?%24SPX while VOO for last 1244 days shows 105% growth http://stockcharts.com/freecharts/perf.php?VOO |
Is it a good investment for a foreigner to purchase a flat/apartment in China? | I think a greater problem would be the protection of your property right. China hasn't shown much respect for the property rights of its own citizens - moving people off subsistence farms in order to build high-rise apartments - so I'm not certain that a foreigner could expect much protection. A first consideration in any asset purchase should always be consideration of the strength of local property law. By all accounts, China fails. |
More money towards down payment versus long-term investments | Every payment you make on your house will already be increasing your equity in it. For that reason alone, I'd recommend moving additional savings into other long-term funds. |
Is there a standard or best practice way to handle money from an expiring UTMA account? | I'd first put it in CDs or other short term account. Get through school first, then see where you land. If you have income that allows you to start a Roth IRA, I'd go for that, but keep it safe in case you actually need it back soon. After school, if you don't land a decent job fast, this money might be needed to live on. How long will it last if you take a few months to find work? If you do find a good job, moving, and setting up an apartment has a cost. Once you're there, I'd refer you to the many "getting started" Q&As on this site. |
Is it preferable to move emergency savings/retirement into offset mortgage? | I think the key thing is flexibility - the money is not tied in with the offset mortgage. If you find a better investment, you can always take some of it out and put it towards that instead. Once it matures, if there is nothing good to reinvest in, then it can go back into the offset mortgage. Once you have had money in the offset account, even if you take it out, you have already (irreversibly) saved money on your mortgage. Right now you would be pressed to find an instant access ISA with a rate higher than 1.5%, so if you need immediate access, then the offset account seems good. On the other hand, for retirement, you might be saving longer term, and then you can get an ISA rate of 3%, currently, which may be better for a part of the money (or perhaps the upcoming Lifetime ISA with 25% yearly bonus may make sense for part of the money), if you do not need easy access to all of it. As Dilip says, this assumes you want safe investments. |
Estate taxes and the top 1 percent by net worth | Data is a funny thing. There are many different ways of constructing data sets. Keep in mind, the cite you linked is fine, I follow this kind of site when I am data mining. They got their data from the Government, and there's no reason to doubt its validity. Keep in mind, it's a survey. They extrapolate from a survey of a small population - In the 2016 survey, 6,254 families were interviewed, and in the 2013 survey, 6,026 were interviewed. 1) Let's set that aside, and look at the numbers as if they were gospel. $10.37M net worth to be top 1%. That's people at all different ages, and not the wealth cutoff for those dying, else the estate tax would hit closer to the 1%. Given the limited data set, I'd only hypothesize, if we graphed the age (along the bottom, X axis) vs number of people, the curve would peek in mid to late 60's, as people retire. With 20 years for the couple to spend and gift, it's not tough to imagine that by the time they pass away, the taxable estate $11M couple falls to just .2%. 2) When the estate tax impacted estates over just $600K, and my daughter was born, we set up a trust. Out net worth was barely positive, but insurance alone would have created enough wealth to have our orphaned child be subject to the tax of our estate before she received a dime. We also used the trust to fund her college. As a completed gift, had we made some bad decisions and lost it all, at least that money would be protected. Keep in mind, there are different flavors of trusts, but it's safe to say that in a survey to collect data, the million dollar+ trusts are considered family wealth. Not tough to imagine a good fraction of those families over $10M have a nice chunk already protected this way. 3) Last - For any illiquid assets, there's a discount that gets applied, typically 30%. I own a ranch, and want to start gifting it to the kids, the process involves creating stock, with restrictions, as a way to transfer the fractions required to gift the $14K/yr per person combination. (That is, a couple can gift 14x4 = $56K to a child with a spouse. 4 kids, all married, and the gifting is $224K/yr, $320K at full valuation. Again, these gifts may be to irrevocable trusts, and still thought of as their wealth. |
What are “upstream investments” and “downstream investments” in this context? | Upstream is into businesses that supply the original business; downstream is into businesses that make use of the original product. So in that description, what they are saying is that the original business received products from plantations and sent products to manufacturing. This is also called vertical integration. Meaning that they are diversifying along their supply chain so that they control more of it. This is in contrast with horizontal integration, where they move into new products that either compete with the existing products or which are entirely separate. In general, the upside of vertical integration is that a company is less reliant on suppliers (and intermediate consumers) and has more control over its supply chain. The downside is that they have less opportunity to partner with other companies in the same supply chain, as they compete with them. Some companies are better at managing to do both. For example, Amazon.com has integrated fulfillment and sales. But partners can still do their own fulfillment and/or sales, choosing how much to send out to Amazon. If you are investing in individual stocks, integrated companies can be problematic in that they cut across diversification areas. So they can be harder to balance with other stocks. You can either buy plantations, transport, and manufacturing together or not buy at all. If your investment strategy says to increase plantations and reduce manufacturing, this can be difficult to implement with an integrated company. Of course, everyone else has the same problem, which can lead to integrated companies being undervalued. So they may be an opportunity as a value stock. |
Starting with Stocks or Forex? | I would advise against both, at least in the way you are discussing it. You seem to be talking about day-trading (speculating) in either stock or currency markets. This seems ill-advised. In each trade, one of three things will happen. You will end up ahead and the person you buy from/sell to will end up behind. You will lose and the counterparty will win. Or you both will lose due to trading fees. That said, if you must do one, stick with stocks. They have a reason to have positive returns overall, while currency trade is net-zero. Additionally, as you said, if it sounds like you can gain more with less money, that means that there are many more losers than winners. How do you know you will be a winner? A lot of the reason for this idea that you can gain a lot with less is leverage; make sure you understand it well. On the other hand, it may make sense to learn this lesson now while you have little to lose. |
Does setting up a company for your own improves credibility? | The key here is that you are defacto running your own company no matter if you acknowledge it or not. In the end these questions have the goal of deciding if you can and will repay the loan. Presumably you filed taxes on your income. These can be shown to the loan officer as proof you have the ability to repay your loan. Running your freelancing as a business has advantages of being able to deduct normal expenses for running the business from your revenue. I am not sure how business cards improves your credit worthiness as they can be had for $10 in about an hour. |
How can I generate $250/month every month from $4000 that I have? | If you are looking to begin living off the money now, then Dheer's answer is correct - it is not possible. However, if you are looking to grow that money (and potentially additional money added at later dates), then you could make this work. 250 a month corresponds to 3000 per year. A first approximation is that you will need a diversified portfolio of 20-25x that amount (60k-75k) to get the required return. This approximation is based on the rule of thumb for how much life insurance to buy. Therefore you need to determine how to grow the 4k you currently have into 60-75k. These numbers, however, are not adjusted for inflation. In the US I would like put the long term inflation adjust diversified market return at 4% per year (your money doubles about every 18 years). So your best approach if you have time is a diversified portfolio with rebalancing and adding additional money each year. |
What's the smartest way to invest money gifted to a child? | American Century has their Heritage Fund: https://www.americancentury.com/sd/mobile/fund_facts_jstl?fund=30 It has a good track record. Here are all the mutual funds from American Century: https://www.americancentury.com/content/americancentury/direct/en/fund-performance/performance.html A mutual fund is a good wayway to go as it is not subject to fluctuations throughout the day whereas an ETF is. |
Issuing bonds at discount - computing effective interest rate | Yes, the "effective" and "market" rates are interchangeable. The present value formula will help make it possible to determine the effective interest rate. Since the bond's par value, duration, and par interest rate is known, the coupon payment can be extracted. Now, knowing the price the bond sold in the market, the duration, and the coupon payment, the effective market interest rate can be extracted. This involves solving large polynomials. A less accurate way of determining the interest rate is using a yield shorthand. To extract the market interest rate with good precision and acceptable accuracy, the annual coupon derived can be divided by the market price of the bond. |
Why is stock dilution legal? | Stock issuing and dilution is legal because there must be some mechanism for small companies to grow into big companies. A company sees a great investment opportunity. It would be a perfect extension of their activities ... but they cannot afford it. To get the necessary money they can either take out a loan or issue shares. Taking a loan basically means that this is temporary, but the company will go back to being small when the loan is paid back. Issuing new shares basically means that the Board means that this growth is permanent and the company will be big for the foreseeable future. It is utterly necessary that companies have this option for raising cash, and therefore it is legal. As detailed in the other answers, you end up with a smaller percentage of a larger company, usually ending up with more or less the same value. |
Tax implications of exercising ISOs and using proceeds to exercise more ISOs | That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees |
Does U.S. tax code call for small business owners to count business purchases as personal income? | Expenses are where the catch is found. Not all expenditures are considered expenses for tax purposes. Good CPAs make a comfortable living untangling this sort of thing. Advice for both of your family members' businesses...consult with a CPA before making big purchases. They may need to adjust the way they buy, or the timing of it, or simply to set aside capital to pay the taxes for the profit used to purchase those items. CPA can help find the best path. That 10k in unallocated income can be used to redecorate your office, but there's still 3k in taxes due on it. Bottom Line: Can't label business income as profit until the taxes have been paid. |
The life cycle of money | I'll answer but avoiding discussion of M1, M2 etc, too pedantic. I don't believe you are asking about the lifetime of either coins or paper money. I think you are referencing the fractional reserve system, and how a good portion of the total money supply is created by the banks lending out their deposits in effect 'creating' money. My answer to you is that if all loans were simply paid off, no mortgages, no car loans, etc, the total money in the system would collapse to some reasonable fraction of what it is today, 10% or a bit less. This comes from the fact that the reserve requirement for most large banks is 10%. I'm referencing money, but not bills or coins. Think about what you make in a year. How much do you touch as paper money? For my wife and me, it's no more than a few percent. Most goes from a direct deposit to online payments. So this would be the subject of a different question altogether. Let me know if this addresses your question. |
Clothing Store Credit Card Account closed but not deleted | There are three parties involved here: there's the store that issued you the card, then they have some bank that's actually handling the account, and there is some network (VISA, MasterCard, etc.) that the transactions go through. So one avenue to consider is seeing whether all three are aware of you canceling the card. |
Are there any banks in Europe that I can have an account without being in that country? | It can be done, but I believe it would be impractical for most people - i.e., it would likely be cheaper to fly to Europe from other side of the world to handle it in person if you can. It also depends on where you live. You should take a look if there are any branches or subsidiaries of foreign banks in your country - the large multinational banks most likely can open you an account in their sister-bank in another country for, say, a couple hundred euro in fees. |
Is there a free, online stock screener for UK stocks? | Although this is an old question, it's worth pointing out that the Google Stock Screener now supports stocks traded on the London Stock Exchange. From the country dropdown on the left, select "United Kingdom" and use the screener as before. |
Common Stock Options Value | Par value of common stock is essentially a historical artifact; it is a price at which the company will redeem shares directly. If common stock has any par value at all, it is always so low that no one would ever redeem, preferring to sell in the market at a better price. Par is obviously much more relevant to debt securities than equities. So you do need a strike price. ljwobker's letter is a typical one, in that companies often make the strike price for granted options a formula based on the market price of the stock at the time of the grant, say 100% of market or 110% of market. But you will obviously need to find out what strike your company is offering. |
What's an economic explanation for why greeting cards are so expensive? | As one answer points out, people buying greeting cards care little about whether they cost 25 cents or $5. Those are both small amounts of money and it's not something you buy often---also people feel the need to spend money because it's a gift. On the supplier side, it should be noted that the cost of cards has little to do with the paper they are printed on. There is an expectation that cards are new and unique...something the buyer and recipient have never seen. So they have writers and graphic designers constantly cranking out a large variety of cards and replacing existing cards with new ones, of which only a small number get sold before they move to the next model. Relatively speaking, there is a lot of human effort per thousand cards sold. Then of course there is the real estate they occupy in the store (disproportionate to a bunch of pieces of paper) and other retail, marketing, and distribution costs. I'm not saying margins are particularly thin, but if they were crazy high we probably would see more entry as you suggest. |
What is a good investment vehicle for introducing kids to investing? | I'd also look into index funds (eg Vanguard) as they have low management fees. you can buy these as ETFs as well - so you can buy in at a very low starting amount. An index fund can also be a talking point for your kids about what an industry index is and how it relates to the companies that fall into it. Also about how mutual funds try to "beat the market" - and often fail. |
Approach to share options in the UK | When your options vest, you will have the option to buy your company's stock at a particular price (the strike price). A big part of the value of the option is the difference between the price that your company's stock is trading at, and the strike price of the option. If the price of the company stock in the market is lower than the strike price of the option, they are almost worthless. I say 'almost' because there is still the possibility that the stock price could go up before the options expire. If your company is big enough that their stock is not only listed on an exchange, but there is an active options market in your company's stock, you could get a feel for what they are worth by seeing what the market is willing to buy or sell similar exchange listed options. Once the options have vested, you now have the right to purchase your company's stock at the specified strike price until the options expire. When you use that right, you are exercising the option. You don't have to do that until you think it is worthwhile buying company stock at that price. If the company pays a dividend, it would probably be worth exercising the options sooner, (options don't receive a dividend). Ultimately you are buying your company's stock (albeit at a discount). You need to see if your company's stock is still a good investment. If you think your company has growth prospects, you might want to hold onto the stock. If you think you'd be better off putting your money elsewhere in the market, sell the stock you acquired at a discount and use the money to invest in something else. If there are any additional benefits to holding on to the stock for a period of time (e.g. selling part to fit within your capital gain allowance for that year) you should factor that into your investment decision, but it shouldn't force you to invest in, or remain invested in something you would otherwise view as too risky to invest in. A reminder of that fact is that some employees of Enron invested their entire retirement plans into Enron stock, so when Enron went bankrupt, these employees not only lost their job but their savings for retirement as well... |
Get the maximum interest rate from a bank on short term holdings | You can open Savings Bank Account with some Banks that offer better interest rate. Note there would be restriction on number of withdrawals in quarter. There are better interest rates if you lock in for 90+ days. The other option to explore is to open a Demat / Brokrage account and invest in liquid funds. Note depending on various factors it may or may not suite your requirements. |
Is leveraging notoriety to raise stock prices illegal in the US? | There are obviously lots of complexities here, and there are rules against price or market manipulation that are somewhat interpretive due to the rules' inclusion of the manipulator's intent, but: Generally speaking, you can publicly promote the value of a company whose stock you own provided that you: Now, if you extol the value of a company publicly, and sell it immediately thereafter, "pump and dump," the regulators might suggest that your actions imply that you didn't believe it was so wonderful, and were misleading the public to move the price. That said, a fair retort might be that you loved it for all the reasons you said at [lower price], but thought it had run its course once it got to [higher price]. Again, if it can be demonstrated that your reason for praising it was to push the price higher, your intent may land you in hot water. This isn't legal advice or a full analysis, but if Fitty essentially declared his honest reasons for loving a stock in which he is invested, and discloses that investment, letting others know he is biased, he's probably ok, especially if he intends to hold it long term. |
Should Emergency Funds be Used for Infrequent, but Likely, Expenses? | For me, the emergency fund is meant to cover unexpected, but necessary expenses that I didn't budget for. The emergency fund allows me to pay for these things without going into debt. Let's say that my car breaks down, and I don't have any money in my budget for fixing it. I really need to get my car fixed, so I spend the money from my emergency fund. However, cars break down periodically. If I was doing a better job with my budget, I would allocate some money each month into a "car repair/maintenance" category. (In fact, I actually do this.) With my budgeting software, I can look at how much I've spent on car repairs over the last year, and budget a monthly amount for car repair expenses. Even if I do this, I might end up short if I am unlucky. Emergency fund to the rescue! If I'm budgeting correctly, I don't pay any regular bills out of this fund, as those are expected expenses. Car insurance, life insurance, and property tax are all bills that come on a regular basis, and I set aside money for each of these each month so that when the bill comes, I have the money ready to go. The recommended size of an emergency fund is usually listed as "3 to 6 months of expenses." However, that is just a rough guideline. As you get better with your budget, you might find that you have a lower probability of needing it, and you can let your emergency fund fall to the lower end of the guideline range. The size of my own emergency fund is on the lower end of this scale. And if I have a true crisis (i.e. extended unemployment, severe family medical event), I can "rob" one of my other savings funds, such as my car replacement fund, vacation fund, etc. Don't be afraid to spend your emergency fund money if you need it. If you have an unexpected, necessary expense that you have not budgeted for, use the emergency fund money. However, your goal should be to get to the point where you never have to use it, because you have adequately accounted for all of the expenses that you can reasonably expect to have in the future. |
Is it common in the US not to pay medical bills? | Is it common in the US not to pay medical bills? Or do I misunderstood what had been said? I would feel comfortable saying that most people who face medical bills don't pay them. They are unable. If they were able, they would have gotten medical insurance. In America, something like 55% of individuals do not have even $500 of savings, so when a big medical bill rolls in especially on top of lost work hours, they don't have a lot of options. Hospitals charge reasonable prices to insurance companies and Medicare. These fees are negotiated in advance and reflect the hospital's actual costs. This is called "usual, reasonable and customary". Hospitals charge a wildly inflated, criminally outrageous "cash price" to the uninsured. For instance back when Medicare paid about $175 for an ambulance ride, a friend was billed $1100 for the exact same thing. The hospital aims to scare the living daylights out of the patient (caring nothing about what that does to their health!) Perfect world, the patient pays them the $1100 instead of paying their rent. If the patient puts up a fight, they hope to haggle them down to something like $400, remember it really costs $175. This tactic is a huge profit-center for hospitals, even the "charity" hospitals, and they feel justified because so many uninsured don't pay at all (the hospital considers them "deadbeats".) Well, patients don't pay because cash prices are unreachable, so they just give up. Anyway, your friends are correct, don't even think of paying those cash billing amounts. Research and find out what Medicare pays, offer 60% of that, and haggle it to 100%. And sleep well knowing you paid what is fair. Not all services are as overpriced as my example, but most are at least 50% too high. The hospital does send you all the bills as a formality, even while they submit them to your insurance company. And then the insurance company usually pays them, so it is correct to "not pay that bill". A lot of medical offices will check with your insurance company even before you leave the office, and ask you to immediately pay anything the insurance won't cover. For instance they often have "co-pays" where you pay $20 and they pay the rest. To be clear: if your insurance company negotiates a rate with the hospital, say $185 for the ambulance ride, that is your price, which you are entitled to as a member of that insurance system. A lot of people get their livelihood from the inefficiency in medical insurance and billing. Their political power is why it's so hard for America to install a simpler system (or even replace Obamacare in an ideal political environment). It is also a big part of why America spends 18% of GDP on healthcare instead of 7-11% like our European peers who do not have to account for every gauze or rebill multiple insurers. Sorting out "who pays" would be expensive even if everyone did pay. |
Buying insurance (extended warranty or guarantee) on everyday goods / appliances? | One important issue that has yet to be covered is the cost (to you) in terms of paperwork, lost time, and phone calls that you have to make to claim the insurance. Such insurance claims often are very low priority on their customer service queues (for obvious reasons, since they have already made the sale). Therefore, you might have to spend up to a few hours of your time calling or writing emails to claim the warranty, which may often not be much ( Therefore, many people end up not claiming the warranty during the hassle. Much like non-scam mail-in rebates, more often than not you would either forget to or decide it is not worth your time to claim the warranty. Before buying such policies, other than the obvious cost-benefit calculations, you should also take this additional factor into account. Therefore, many people end up not claiming the warranty during the hassle. Much like non-scam mail-in rebates, more often than not you would either forget to or decide it is not worth your time to claim the warranty. Before buying such policies, other than the obvious cost-benefit calculations, you should also take this additional factor into account. |
What scrutiny to expect if making large purchase with physical cash? [duplicate] | http://www.consumerismcommentary.com/buying-house-with-cash/ It looks like you can, but it's a bad idea because you lack protection of a receipt, there's no record of you actually giving the money over, and the money would need to be counted - bill by bill - which increases time and likelihood of error. In general, paying large amounts in cash won't bring up any scrutiny because there's no record. How can the IRS scrutinize something that it can't know about? Of course, if you withdraw 200k from your bank account, or deposit 200k into it then the government would know and it would certainly be flagged as suspicious. |
I'm thinking of getting a new car … why shouldn't I LEASE one? | You SHOULDN'T lease one if you are going to get an economy car, if you don't drive too much (<15K / year), and you want to hang on to the car for a long time. Otherwise, if you are a regular driver, driving a leased new quality car can be cost effective. Many cars now have bumper-to-bumper warranties that last as long as the lease (say 80K). So there is rarely any extra costs apart from regular maintenance. The sweet spot for most new cars is in the 5th, 6th, or 7th years, after they are paid off. But at that point, you may find you have maintenance bills that are approaching an average of $200 - $300 per month. In which case, a lease starts to look pretty good. I owned a 7 year old Honda Accord that cost only $80 less per month in maintenance than the new leased VW that replaced it. Haven't looked back after that. Into my 3rd car and 9th year of leasing. |
Are you preparing for a possible dollar (USD) collapse? (How?) | Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US. |
Relationship between liquidity and an efficient market | Liquidity is highly correlated to efficiency primarily because if an asset's price is not sampled during the time of a trade, it's price is unknown therefore inefficient. Past prices can be referenced, but they are not the price of the present. Prices of substitutes are even worse. SPY is extremely efficient for an equity. If permitted, it could easily trade with much lower ticks and still have potential for a locked market. Ideal exchange An ideal exchange has no public restrictions on trade. This is not to say that private restrictions would need to be put in place for various reasons, but one would only do that if it were responsible for its own survival instead of being too big to fail. In this market, trades would be approximately continuous for the largest securities and almost always locked because of continuous exchange fee competition with ever dropping minimum ticks. A market that can provide continuous locked orders with infinite precision is perfectly efficient from the point of view of the investor because the value of one's holdings are always known. EMH In terms of the theory the Efficient Market Hypothesis this is irrelevant to the rational investor. The rational investor will invest in the market at large of a given asset class, only increasing risk as wealth increases thus moving to more volatile asset classes when the volatility can be absorbed by excess wealth. Here, liquidity is also helpful, the "two heads are better than one" way of thinking. The more invested in an asset class, the lower the class's variance and vice versa. Bonds, the least variant, dwarf equities which dwarf options, all in order of the least variance. Believe it or not, there was a day when bonds were almost as risky as equities. For those concerned with EMH, liquidity is also believed to increase efficiency in some forms because liquidity is proportional to the number of individuals invested thus reducing the likelihood of an insufficient number of participants. External inefficiency In the case of ETFs that do not perfectly track their underlying index less costs at all times between index changes, this is because they are forbidden from directly trading in the market on their own behalf. If they were allowed and honest, the price would always be perfect and much more liquid than it otherwise should be since the combined frequency of all index members is much higher than any one alone. If one was dishonest, it would try to defraud with higher or lower numbers; however, if insider trading were permitted, both would fail due to the prisoner's dilemma that there is no honor among thieves. Here, the market would detect the problem much sooner because the insiders would arbitrage the false price away. Indirect internal efficiency Taking emerging market ETFs as an example, the markets that those are invested into are heavily restricted, so their ETF to underlying price inefficiencies are more pronounced even though the ETFs are actually working to make those underlying markets more efficient because a price for them altogether is known. |
What is the compound annual growth rate of the major markets? | Center for Research in Security Prices would be my suggestion for where to go for US stock price history. Major Asset Classes 1926 - 2011 - JVL Associates, LLC has a PDF with some of the classes you list from the data dating back as far as 1926. There is also the averages stated on a Bogleheads article that has some reference links that may also be useful. Four Pillars of Investing's Chapter 1 also has some historical return information in it that may be of help. |
My tenant wants to pay rent through their company: Should this raise a red flag? | The company that's apparently going to pay this rent wants to treat it as a business expense. They are asking for your SSN because they expect to issue a 1099-MISC. (They probably gave you a Form W-9? It's not mandatory but it's common to request a taxpayer ID on this form.) There are a couple of issues at play here: |
Where should I park my money if I'm pessimistic about the economy and I think there will be high inflation? | Typically in a developed / developing economy if there is high overall inflation, then it means everything will rise including property/real estate. The cost of funds is low [too much money chasing too few goods causes inflation] which means more companies borrow money cheaply and more business florish and hence the stock market should also go up. So if you are looking at a situation where industry is doing badly and the inflation is high, then it means there are larger issues. The best bet would be Gold and parking the funds into other currency. |
Are there online brokers in the UK which don't require margin account? | Most UK stock brokers don't require or allow margin trading. A quick web search for 'UK share dealing comparison' shows entries from money.co.uk and moneysupermarket.com who both provide lists of different brokers, e.g. Barclays, Hargraves Lansdown, IG Share Dealing, The Share Centre, TD Direct, Interactive Investor, YouInvest, etc. Some of the UK banks also provide a share dealing service, from quickly looking at their websites, Barclays, HSBC and Halifax all appear to provide share dealing services. |
IS it the wrong time to get into the equity market immediately after large gains? | If your gut told you to buy during the depths of '09, your gut might be well-calibrated. The problem is stock market declines during recessions are frequently not that large relative to the average long run return of 9%: A better strategy might be hold a percentage in equities based upon a probability distribution of historical returns. This becomes problematic because of changes in the definition of earnings and the recent inflation stability which has encouraged high valuations: Cash flow has not been as corrupted as earnings now, and might be a better indicator: This obviously isn't perfect either, but returns can be improved. Since there is no formulaic way yet conventionally available, the optimal primary strategy is still buy & hold which has made the most successful investor frequently one of the richest people on the planet for decades, but this could still be used as an auxiliary for cash management reserves during recessions once retired. |
Do Square credit card readers allow for personal use? | What I should have done in the first place was just ask them. From their customer support team: Thanks for writing in and for your interest in Square. It is perfectly acceptable to use Square for personal business, such as a yard sale. You do not need to have a registered business to take advantage of Square and the ability to accept credit cards. Just please note that it is against our Terms of Service to process prepaid cards, gift cards or your own credit card using your own Square account. Additionally, you may not use Square as a money transfer system. For every payment processed through Square, you must provide a legitimate good or service. Please let me know if you have any additional concerns. |
Should I finance a new home theater at 0% even though I have the cash for it? | I think so. I am doing this with our furniture. It doesn't cost me any more money to pay right now than it will to pay over the course of 3 years, and I can earn interest on the money I didn't spend. But know this: they aren't offering 0%, they are deferring interest for 3 years. If you pay it off before then great, if you don't you will owe all the accumulated interest. The key with these is that you always pay it, and on time. Miss a payment and you get hosed. If you don't pay on time you will owe the interest that is being deferred. They will also be financing this through a third party (like a major bank) and that company is now "doing business with you" which means in the US they can call you and solicit new services. I am willing to deal with those trade offs though, plus, as you say, you can always pay it off. WHY THEY DO IT (what is in it for them...) A friend of mine works for a major bank that often finances these deals here is how they work. Basically, banks do this to generate leads for their divisions that do cold calls. If you are a high credit, high income customer you go to a classic bank and request cash, if you are building credit or have bad credit, you go to a "financial services" branch. If you tend to finance things like cars and furniture, you get more cold calls. |
Get free option quotes | A number of sites provide delayed option chains online. Yahoo Finance is one example: I linked to Apple's chain, but to get one yourself, put the ticker you want in the search box, then click the "options" link in the sidebar that I called out in the image. |
Can I do periodic rollovers from my low-perfoming 401k to an IRA? | My two-cents, read your plan document or Summary Plan Description. The availability of in-service withdrawals will vary by document. Moreover, many plans, especially those compliant with 404(c) of ERISA will allow for individual brokerage accounts. This is common for smaller plans. If so, you can request to direct your own investments in your own account. You will likely have to pay any associated fees. Resources: work as actuary at a TPA firm |
Index funds with dividends? | I assume that when you say 'the DOW' that you actually mean the general market. The ticker symbol for the general market is SPY (called a 'Spider'). The ticker symbol for Nasdaq is QQQ. SPY currently pays 2.55% in dividends in a year. QQQ currently pays 1.34% in dividends in a year. |
Alternative means of salary for my employees | You can't Your problem is that no one will value you new currency call it bytecoin. People will ask why is the bytecoin worth anything and you don't have an answer. You employees will have worthless currency and be effectively making under minimum wage. Its the same as if you printed Charles dollars with your face instead of George Washington, no one would take them for real money or be willing to trade them for services or food. Bitcoin's basis of value is that many people will trade real services or other currencies for it, but it took decades for this willingness to use bitcoin to build, and mostly because of the useful features of bitcoin, it can protect anonymity is easy to transfer world wide and many more. Even with those features the value of bitcoin is very volatile and unreliablie because it lacks backing. How many decades are your employees willing to wait, what amazing new features will you nontechnical staff add that bitcoin lacks? |
If I pay someone else's property taxes, can I use it as a deduction on my income tax return? | You cannot deduct. Even if you could, unless you also hold the mortgage, it's unlikely that you would have sufficient deductions to exceed the standard deduction for a married couple. |
What types of careers consistently make the most money entering with no background or social skills? | It sounds like you're massively under-selling yourself. You presumably have a degree to get into the PhD program, and you now have work experience as well. But you're applying for jobs in fast food restaurants. You may struggle to get a job because they will expect you to only be there a few weeks until you find a "proper" job. |
Strategy to pay off car loan before selling the car | As far as ease of sale transaction goes you'll want to pay off the loan and have the title in your name and in your hand at the time of sale. Selling a car private party is difficult enough, the last thing you want is some administrivia clouding your deal. How you go about paying the remaining balance on the car is really up to you. If you can make that happen on a CC without paying an additional fee, that sounds like a good option. |
Where should I invest to hedge against the stock market going down? | Put Options. They're less risky than shorting, and have similar upsides. The major difference is that if the price goes up, you're just out the underwriting price. You'll also need to know when the event will happen, or you risk being outwaited. More traditionally, an investor would pull their money out of the market and move into Treasury bonds. Recall that when the market tanked in 2008, the price of treasuries jumped. Problem is, you can only do that trade once, and it hasn't really unwound yet. And the effect is most pronounced on short term treasuries, so you have to babysit the investment. Because of this, I think some people have moved into commodities like gold, but there's a lot of risk there. Worst case scenario you have a lot of shiny metal you can't eat or use. |
Where I am I liable for taxes? | You will have to pay your taxes in the UK not USA. For tax purposes it is the company's tax residency not where the server is located. You are just hiring a server in USA. Take for example a CDN being used for your same service then would you pay taxes in 300 different countries if you use Akamai? Does not work that way. |
Why not just invest in the market? | Let me start by giving you a snippet of a report that will floor you. Beat the market? Investors lag the market by so much that many call the industry a scam. This is the 2015 year end data from a report titled Quantitive Analysis of Investor Behavior by a firm, Dalbar. It boggles the mind that the disparity could be this bad. A mix of stocks and bonds over 30 years should average 8.5% or so. Take out fees, and even 7.5% would be the result I expect. The average investor return was less than half of this. Jack Bogle, founder of Vanguard, and considered the father of the index fund, was ridiculed. A pamphlet I got from Vanguard decades ago quoted fund managers as saying that "indexing is a path to mediocrity." Fortunately, I was a numbers guy, read all I could that Jack wrote and got most of that 10.35%, less .05, down to .02% over the years. To answer the question: psychology. People are easily scammed as they want to believe they can beat the market. Or that they'll somehow find a fund that does it for them. I'm tempted to say ignorance or some other hint at lack of intelligence, but that would be unfair to the professionals, all of which were scammed by Madoff. Individual funds may not be scams, but investors are partly to blame, buy high, sell low, and you get the results above, I dare say, an investor claiming to use index funds might not fare much better than the 3.66% 30 year return above, if they follow that path, buying high, selling low. Edit - I am adding this line to be clear - My conclusion, if any, is that the huge disparity cannot be attributed to management, a 6.7% lag from the S&P return to what the average investor sees likely comes from bad trading. To the comments by Dave, we have a manager that consistently beats the market over any 2-3 year period. You have been with him 30 years and are clearly smiling about your relationship and investing decision. Yet, he still has flows in and out. People buy at the top when reading how good he is, and selling right after a 30% drop even when he actually beat by dropping just 22%. By getting in and out, he has a set of clients with a 30 year record of 6% returns, while you have just over 11%. This paragraph speaks to the behavior of the investor, not managed vs indexed. |
Benjamin Graham: Minimum Size of the company | If you look at the value as a composite, as Graham seems to, then look at its constituent parts (which you can get off any financials sheet they file with the SEC): For example, if you have a fictitious company with: Compared to the US GDP (~$15T) you have approximately: Now, scale those numbers to a region with a GDP of, say, $500B (like Belgium), the resultant numbers would be: |
How credible is Stansberry's video “End of America”? | If we postulate that there is at least some element of truth to the phrase 'A leopard does not change his spots' and then consider this tidbit He conveniently forgets to mention his 1.5 million dollar fraud fine from the SEC over investment “advice” he sold through a news letter. The SEC claimed and the judge agreed that the report was “replete with lies”. I think that gives you just about all you might need to know regarding the man behind the video, and the nature of it's content. Oh, and it's purpose? To SELL YOU the same said newsletter. I guess it's natural for Stansberry to feel as he does. After all if the US gov had just busted me for conning and lying to folks, and fined ME 1.5Mill, I'd be having some pretty intense lurid fantasies about it going down in flames, and trying to hide any money I had left offshore also. A huge amount of his argument hinges on the US no longer being the world's reserve currency. Firstly, while I'll admit I'm none too happy with the way the national debt has been managed for oh, around 30 years how, (which includes I will note going from a pretty much balanced budget, to around an 80% increase in the debt from 2001 through 2008, when 'times were good' and there was little need to spend money we didn't have), when compared to a lot of other countries, we still don't look that bad. You have to ask yourself this first, if not the US, then WHO? are the governments of the world going to trust China? could the Yen handle the load? Is the Euro any better off especially considering problems in Greece, Ireland, etc. Do countries like Switzerland have enough liquidity and available ways to invest there? In order for the US to STOP being the world's reserve currency, you must have something to replace it with, and really, can we realistically think of one country/currency with the capability to become a new 'world reserve currency'??? Secondly, even then should such a shift actually happen, it doesn't mean people will ALL just magically stop buying US debt. Yes the demand would go down, but it would not go to zero. There are after all a worldfull of other countries who's money is right now NOT the world reserve currency, and yet they are able to sell bonds and people and even other countries invest there. (China for example does not invest exclusively in the US), so yeah we might have to start paying more interest to get people to buy US debt, but it's not like the demand will go away. Save your money, save your time, don't buy into this dung. |
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