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Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | $10,000 to invest in the house - Pay down principal or spruce up to increase appraisal? | "There is no guarantee improvements will raise the appraised value. You also don't want your property tax appraisal to go up if you can avoid it. Since you are talking on the order of $10k I'll assume you're only a few thousand dollars more from getting to 20%. That said, any schemes you might come up with like refinancing or second line of credit will probably cost more in fees than they are worth, unless you can get a much nicer interest rate. Figure out how long you plan to stay there, Evaluate your options (do nothing, principal reduction, refinance for 30, 15, or even an ARM) and figure out your bottom line by comparing everything in a spreadsheet One more thing: if you do pay a substantial amount of extra principal, you can ask the lender to ""rebalance"" which will correct the minimum monthly payment to your remaining term. This will likely incur a fee, but could be helpful in an emergency" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Repaying Debt and Saving - Difficult Situation | She seems to be paying an inordinate amount of money for car payments. $850/month is just too high. She may be able to get by on public transit, depending on where she lives, but if not, she needs to look at selling her car and picking up a cheap second-hand vehicle. Public transit would probably save her $750/month. Going to a cheaper car should still save her $300 - $400/month. Next, phone and cable. These are certainly nice, but they are rarely necessities. I do not have cable t.v., for example. I do have a cell phone, and I do have Internet (a requirement of my job), but no cable t.v. She may be able to save some money there. My guess is that she could save $125/month here, though I may be biased on how much it costs to heat a Canadian home in our cold, cold winters. And, of course, the college payment. $900 - $1000 a month? I understand that she is paying this so that your sister can attend college. That's very nice, but it certainly sounds like your mother cannot afford that. On the other hand, if this is repayment of college expenses already incurred, there may be no choice here. Rent, at $1625/month. I have no idea what that gets you in NJ, but perhaps she could rent out a room. It's not inconceivable that she could bring in $1000/month from doing so, though obviously that's going to very much depend on the real estate/rental market where you live. Alternatively, she could move out and move in with someone else and that should certainly get her share of the rent down to $800 - $1000/month or thereabouts, and most likely cut her utility bills, also. I've identified a number of places where she can save money. No doubt, the budget is tight, but I think she's spending on far more than just bare essentials. One thing that concerns me here is that she appears to have no emergency funds and very little for entertainment, other than cable t.v. If at all possible, she needs to cut her budget down so that she is not living paycheque to paycheque and has money to cover, for example, emergency car repairs. And I'd really like to see her have more than $50/month for expenses (which I'm guessing is entertainment). It may not be possible, of course, but I would most definitely say she should not be paying for your sister's college if this places her in such dire financial risk. Easier said than done, of course. Most certainly, I would not even consider cutting the health insurance, by the way. Another approach would be to look at how her expenses will go down when your sister is done school and perhaps cleared up other expenses. It may be worth borrowing from family and friends, knowing that in a year, her expenses will go down $500/month. That makes her budget manageable. Additionally, the debt repayment presumably will finish at some point. The point I'm trying to make is that, in a year, her budget will be just about manageable, and she may be able to get there with smaller trims in the immediate future. |
Share your insights or perspective on the financial matter presented in the input. | Are variable rate loans ever a good idea? | First, let me fill in the gaps on your situation, based on the numbers you've given so far. I estimate that your student loan balance (principal) is $21,600. With the variable rate loan option that you've presented, the maximum interest rate you could be charged would be 11.5%, which would bring your monthly payment up to that $382 number you gave in the comments. Your thoughts are correct about the advantage to paying this loan off sooner. If you are planning on paying off this loan sooner, the interest rate on the variable rate loan has less opportunity to climb. One thing to be cautious of with the comparison, though: The $1200 difference between the two options is only valid if your rate does not increase. If the rate does increase, of course, the difference would be less, or it could even go the other way. So keep in mind that the $1200 savings is only a theoretical maximum; you won't actually see that much savings with the variable rate option. Before making a decision, you need to find out more about the terms of this variable rate loan: How often can your rate go up? What is the loan rate based on? I'm not as familiar with student loan variable rate loans, but there are other variable rate loans I am familiar with: With a typical adjustable rate home mortgage, the rate is locked for a certain number of years (perhaps 5 years). After that, the bank might be allowed to raise the rate once every period of months (perhaps once every year). There will be a limit to how much the rate can rise on each increase (perhaps 1.0%), and there will be a maximum rate that could be charged over the life of the loan (perhaps 12%). The interest rate on your mortgage can adjust up, inside of those parameters. (The actual formula used to adjust will be found in the fine print of your mortgage contract.) However, the bank knows that if they let your rate get too high above the current market rates, you will refinance to a different bank. So the mortgage is typically structured so that it will raise your rate somewhat, but it won't usually get too far above the market rate. If you knew ahead of time that you would have the house paid off in 5 years, or that you would be selling the house before the 5 years is over, you could confidently take the adjustable rate mortgage. Credit cards, on the other hand, also typically have variable rates. These rates can change every month, but they are usually calculated on some formula determined ahead of time. For example, on my credit card, the interest rate is the published Prime Rate plus 13.65%. On my last statement, it said the rate was 17.15%. (Of course, because I pay my balance in full each month, I don't pay any interest. The rate could go up to 50%, for all I care.) As I said, I don't know what determines the rate on your variable rate student loan option, and I don't know what the limits are. If it climbs up to 11.5%, that is obviously ridiculously high. I recommend that you try to pay off this student loan as soon as you possibly can; however, if you are not planning on paying off this student loan early, you need to try to determine how likely the rate is to climb if you want to pick the variable rate option. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Adjusting a value for inflation each month using rolling 12-monthly inflation figures | In the style of the Bank of England's Inflation Calculator, you can do the calculation like so. The third column is an index made from the inflation figures and the forth column shows the inflation-adjusted values. Using the index to calculate the difference in costs, for example: The formulas used to produce the table above are shown below. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Investing in USD from the Eurozone (Jan 2015) | "No, this is not solid advice. It's a prediction with very little factual basis, since US interest rates are kept just as low and debt levels are just as high as in the Eurozone. The USD may rise or fall against the EUR, stay the same or move back and forth. Nobody can say with any certainty. However, it is not nearly as risky as ""normal forex speculation"", since that is usually very short term and highly leveraged. You're unlikely to lose more than 20-30% of your capital by just buying and holding USD. Of course, the potential gains are also limited." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Are there special exceptions to the rule that (US) capital gains taxes are owed only when the gain materializes? | Normally, you don't pay capital gains tax until you actually realize a capital gain. However, there are some exceptions. The exception that affected Eduardo Saverin is the expatriation tax, or exit tax. If you leave a country and are no longer a tax resident, your former country taxes you on your unrealized capital gains from the period that you were a tax resident of that country. There are several countries that have an expatriation tax, including the United States. Saverin left the U.S. before the Facebook IPO. Saverin was perhaps already planning on leaving the U.S. (he is originally from Brazil and has investments in Asia), so leaving before the IPO limited the amount of capital gains tax he had to pay upon his exit. (Source: Wall Street Journal: So How Much Did He Really Save?) Another situation that might be considered an exception and affects a lot of us is capital gain distributions inside a mutual fund. When mutual fund managers sell investments inside the fund and realize gains, they have to distribute those gains among all the mutual fund investors. This often takes the form of additional shares of the mutual fund that you are given, and you have to pay capital gains tax on these distributions. As a result, you can invest in a mutual fund, leave your money there and not sell, but have to pay capital gains tax anyway. In fact, you could owe capital gains tax on the distributions even if the value of your mutual fund investment has gone down. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What should I reserve “emergency savings” for? | Emergency funds are good to keep yourself out of debt, for whatever reason. Job loss is a big place where an emergency fund can help you out. It buys you time to find another job before hauling out the credit cards for your groceries, falling behind on your mortgage and car payments, etc. But it can just as easily be used for major car repairs, serious medical issues, home repairs, etc. ... anything that needs to be done quickly, and isn't a discretionary item. The bigger your cash reserves, the better, especially now that the economy is bad. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What are investment options for young married couple with no debt that have maxed out retirement savings? | 4.7 is a pretty low rate, especially if you are deducting that from your taxes. If you reduce the number by your marginal tax rate to get the real cost of the money you end up with a number that isn't far off from inflation, and also represents a pretty low 'yield' in terms of paying off the loan early. (e.g. if your marginal tax rate is 28%, then the net you are paying in interest after the tax deduction is 4.7 * .72 = 3.384) While I'm all for paying off loans with higher rates (since it's in effect the same as making that much risk free on the money) it doesn't make a lot of sense when you are down at 3.4 unless there is a strong 'security factor' (which really makes a difference to some folks) to be had that really helps you sleep at night. (to be realistic, for some folks close to retirement, there can be a lot to be said for the security of not having to worry about house payments, although you don't seem to be in that situation yet) As others have said, first make sure you have enough liquid 'emergency money' in something like a money market account, or a ladder of short term CD's If you are sure that the sprouts will be going to college, then there's a lot to be said for kicking a decent amount into a 529, Coverdell ESA (Educational Savings Account), uniform gift to minors account, or some combination of those. I'm not sure if any of those plans can be used for a kid that has not been born yet however. I'd recommend http://www.savingforcollege.com as a good starting point to get more information on your various options. As with retirement savings, money put in earlier has a lot more 'power' over the final balance due to compounding interest, so there's a lot to be said for starting early, although depending on what it takes to qualify for the plans there could be such a thing as too early ;-) ). There's nothing wrong with Managed mutual funds as long as the fund objective and investing style is in alignment with your objectives and risk tolerance; The fund is giving you a good return relative to the market as a whole; You are not paying high fees or load charges; You are not losing a lot to taxes. I would always look at the return after expenses when comparing to other options, and if the money is not in a tax deferred account, also look at what sort of tax burden you will be faced with. A fund that trades a lot will generate more short term gains which means more taxes than compared to a more passive fund. Anything lost to taxes is money lost to you so needs to come out of the total return when you calculate that. Sometimes such funds are better off as a choice inside an IRA or 401K, and you can instead use more tax efficient vehicles for money where you have to pay the taxes every year on the gains. The reason a lot of folks like index funds better is that: Given your described age, it's not appropriate now, but in the long run as you get closer to retirement, you may want to start looking at building up some investments that are geared more towards generating income, such as bonds, or depending on taxes where you live, Municipal bonds. In any case, the more money you can set aside for retirement now, both inside and outside of tax deferred accounts, the sooner you will get to the point of the 'critical mass' you need to retire, at that point you can work because you want to, not because you have to. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Was this a good deal on a mortgage? | That seems a very bad offer, it borders on fraud. In the current US economy, you should be able to get between 3 and 4 % APR (and that number is what you should look at). That means that for $300,000 over 30 years, you'd pay $1,265 to $1,432 per month. If you are able to pay more than that monthly rate, you should go for less than 30 years - 20, 15, 10, whatever you can afford - but don't overextend yourself. Google 'mortgage calculator' to do your own calculations. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Why would a bank take a lower all cash offer versus a higher offer via conventional lending? | It's because financing can fall through, and then the time between offer and closing is wasted. Often buyers will include preapprovals and other evidence of financing eligibility with their offer for this reason. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Upward Spike in US Treasuries despite S&P Downgrade in August 2011 | The only resources or references you need are a chart showing you what happened in those months. The exuberance for US treasuries comes from the fact that there are no better options than them for putting cash. There are better sovereign debt instruments around the world depending on your goals, but they do not offer the same liquidity. US dollars and US Treasuries are equivalents in this context, so no matter if the wealthy speculator removed their cash from the stock market and put it in a bank or directly bought US treasuries (or their futures), this would increase the demand for treasuries. S&P Downgraded US treasures due to political instability in the United States, since inefficiencies in the country's political structure can prevent the Treasury from paying treasury holders (aka a default). Speculators know that this doesn't effect the United States resources and revenue collection schemes, as there is ample wealth public and private available to back the treasury bonds. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What are the top “market conditions” to follow? | "If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following ""market conditions"" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about." |
Share your insights or perspective on the financial matter presented in the input. | Why does quantitative easing negatively affect stocks? | Can you isolate the market impact to just the Fed's quantitative easing? Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy? Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly. Some stocks may be down and others may be up so it isn't necessarily bad for all equally. |
Share your insights or perspective on the financial matter presented in the input. | Why would I buy a bond with a negative yield? | It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a mutually exclusive event. An individual may have personal reasons or a desire to contribute to the activity the bond is financing. To an entity, the negative yield bond may be part of a cost averaging plan, diversification strategy, a single leg of a multi-leg transaction, or possibly to aid certainty as a hedge in a pairs trade. And of course there may be other unique situations specific to the entity. Said another way, is the Queen of Spades a good card? It depends on the game being played and what is in your hand. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Should I pay off my student loan before buying a house? | Paying off your student loan before buying a house is certainly a great risk reduction move for you. It will lower your debt to income ratio allowing your mortgage approval to go easier and it will free up more of your dollars to pay for the many miscellaneous projects that come with buying a house. I think that if you are considering paying off your student loan before buying a house that means that your student loans are an amount you can fathom paying off and that you are motivated to be rid of your student loan debt. Go for it and pay off your student loan. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Advice on preserving wealth in a volatile economic/political country | "I suggest that you're really asking questions surrounding three topics: (1) what allocation hedges your risks but also allows for upside? (2) How do you time your purchases so you're not getting hammered by exchange rates? (3) How do you know if you're doing ok? Allocations Your questions concerning allocation are really ""what if"" questions, as DoubleVu points out. Only you can really answer those. I would suggest building an excel sheet and thinking through the scenarios of at least 3 what-ifs. A) What if you keep your current allocations and anything in local currency gets cut in half in value? Could you live with that? B) What if you allocate more to ""stable economies"" and your economy recovers... so stable items grow at 5% per year, but your local investments grow 50% for the next 3 years? Could you live with that missed opportunity? C) What if you allocate more to ""stable economies"" and they grow at 5%... while SA continues a gradual slide? Remember that slow or flat growth in a stable currency is the same as higher returns in a declining currency. I would trust your own insights as a local, but I would recommend thinking more about how this plays out for your current investments. Timing You bring up concerns about ""timing"" of buying expensive foreign currencies... you can't time the market. If you knew how to do this with forex trading, you wouldn't be here :). Read up on dollar cost averaging. For most people, and most companies with international exposure, it may not beat the market in the short term, but it nets out positive in the long term. Rebalancing For you there will be two questions to ask regularly: is the allocation still correct as political and international issues play out? Have any returns or losses thrown your planned allocation out of alignment? Put your investment goals in writing, and revisit it at least once a year to evaluate whether any adjustments would be wise to make. And of course, I am not a registered financial professional, especially not in SA, so I obviously recommend taking what I say with a large dose of salt." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How to invest in the Russian oil market? | The Russian ETFs may be broad, but a quick glance at ERUS and RBL's sector breakdown shows they're 45% and 47% energy sector, and their top holding is Gazprom comprising 9% and 14% of each ETF respectively, with plenty more oil and gas companies in their top 10 too. A harder question would be how to invest in Russia and avoid oil I think (and even then, the economy is thoroughly bound up in it). To rework a meme... In Soviet Russia, oil invest YOU! |
Share your insights or perspective on the financial matter presented in the input. | Are you preparing for a possible dollar (USD) collapse? (How?) | There are two basic ways you can separate your investments from the dollar (or any other currency). |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What should a 21 year old do with £60,000 ($91,356 USD) inheritance? | "What a lovely position to find yourself in! There's a lot of doors open to you now that may not have opened naturally for another decade. If I were in your shoes (benefiting from the hindsight of being 35 now) at 21 I'd look to do the following two things before doing anything else: 1- Put 6 months worth of living expenses in to a savings account - a rainy day fund. 2- If you have a pension, I'd be contributing enough of my salary to get the company match. Then I'd top up that figure to 15% of gross salary into Stocks & Shares ISAs - with a view to them also being retirement funds. Now for what to do with the rest... Some thoughts first... House: - If you don't want to live in it just yet, I'd think twice about buying. You wouldn't want a house to limit your career mobility. Or prove to not fit your lifestyle within 2 years, costing you money to move on. Travel: - Spending it all on travel would be excessive. Impromptu travel tends to be more interesting on a lower budget. That is, meeting people backpacking and riding trains and buses. Putting a resonable amount in an account to act as a natural budget for this might be wise. Wealth Managers: ""approx. 12% gain over 6 years so far"" equates to about 1.9% annual return. Not even beat inflation over that period - so guessing they had it in ultra-safe ""cash"" (a guaranteed way to lose money over the long term). Give them the money to 'look after' again? I'd sooner do it myself with a selection of low-cost vehicles and equal or beat their return with far lower costs. DECISIONS: A) If you decided not to use the money for big purchases for at least 4-5 years, then you could look to invest it in equities. As you mentioned, a broad basket of high-yielding shares would allow you to get an income and give opportunity for capital growth. -- The yield income could be used for your travel costs. -- Over a few years, you could fill your ISA allowance and realise any capital gains to stay under the annual exemption. Over 4 years or so, it'd all be tax-free. B) If you do want to get a property sooner, then the best bet would to seek out the best interest rates. Current accounts, fixed rate accounts, etc are offering the best interest rates at the moment. Usual places like MoneySavingExpert and SavingsChampion would help you identify them. -- There's nothing wrong with sitting on this money for a couple of years whilst you fid your way with it. It mightn't earn much but you'd likely keep pace with inflation. And you definitely wouldn't lose it or risk it unnecessarily. C) If you wanted to diversify your investment, you could look to buy-to-let (as the other post suggested). This would require a 25% deposit and likely would cost 10% of rental income to have it managed for you. There's room for the property to rise in value and the rent should cover a mortgage. But it may come with the headache of poor tenants or periods of emptiness - so it's not the buy-and-forget that many people assume. With some effort though, it may provide the best route to making the most of the money. D) Some mixture of all of the above at different stages... Your money, your choices. And a valid choice would be to sit on the cash until you learn more about your options and feel the direction your heart is pointing you. Hope that helps. I'm happy to elaborate if you wish. Chris." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Should I get a personal loan to pay on my mortgage to go “above water” to qualify for a refinance? | It depends on how long it will take you to pay off the personal loan, the rate for the personal loan, the refi rate you think you can get, how much principal you will have to add to get the refi (may have gone up since then). Since you did not provide all the necessary details, the general answer is to sketch out your total payments (mortgage + personal loan) with and without the refi over the life of the mortgage and see if you end up with more money in your pocket with the refi. My overall impression based on the details you did provide is that you will probably find it worthwhile to do the refi. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How to invest in a currency increasing in value relative to another? | "What you're looking for are either FX Forwards or FX Futures. These products are traded differently but they are basically the same thing -- agreements to deliver currency at a defined exchange rate at a future time. Almost every large venue or bank will transact forwards, when the counterparty (you or your broker) has sufficient trust and credit for the settlement risk, but the typical duration is less than a year though some will do a single-digit multi-year forward on a custom basis. Then again, all forwards are considered custom contracts. You'll also need to know that forwards are done on currency pairs, so you'll need to pick the currency to pair your NOK against. Most likely you'll want EUR/NOK simply for the larger liquidity of that pair over other possible pairs. A quote on a forward will usually just be known by the standard currency pair ticker with a settlement date different from spot. E.g. ""EUR/NOK 12M"" for the 12 month settlement. Futures, on the other hand, are exchange traded and more standardized. The vast majority through the CME (Chicago Mercantile Exchange). Your broker will need access to one of these exchanges and you simply need to ""qualify"" for futures trading (process depends on your broker). Futures generally have highest liquidity for the next ""IMM"" expiration (quarterly expiration on well known standard dates), but I believe they're defined for more years out than forwards. At one FX desk I've knowledge of, they had 6 years worth of quarterly expirations in their system at any one time. Futures are generally known by a ticker composed of a ""globex"" or ""cme"" code for the currency concatenated with another code representing the expiration. For example, ""NOKH6"" is 'NOK' for Norwegian Krone, 'H' for March, and '6' for the nearest future date's year that ends in '6' (i.e. 2016). Note that you'll be legally liable to deliver the contracted size of Krone if you hold through expiration! So the common trade is to hold the future, and net out just before expiration when the price more accurately reflects the current spot market." |
Share your insights or perspective on the financial matter presented in the input. | Why does a stock's price fluctuate so often, even when fresh news isn't available? | News about a company is not the only thing that affects its stock's price. There is also supply and demand. That, of course, is influenced by news, but it is not the only actor. An insider, with a large position in their company's stock, may want to diversify his overall portfolio and thus need to sell a large amount of stock. That may be significant enough to increase supply and likely reduce the stock's price somewhat. That brings me to another influence on stock price: perception. Executives, and other insiders with large positions in their company's stock, have to be careful about how and when they sell some of that stock as to not worry the markets. Many investors watch insider selling to gauge the health of the company. Which brings me to another important point. There are many things that may be considered news which is material to a certain company and its stock. It is not just quarterly filings, earnings reports and such. There is also news related to competitors, news about the economy or a certain sector, news about some weather event that affects a major supplier, news about a major earthquake that will impact the economy of a nation which can then have knock-on effects to other economies, etc... There are also a lot of investors with varying needs which will influence supply and demand. An institutional investor, needing to diversify, may reduce their position in a stock and thus increase supply enough that it impacts the stock's price. Meanwhile, individual investors will make their transactions at varying times during the day. In the aggregate, that may have significant impacts on supply and demand. The overall point being that there are a lot of inputs and a lot of actors in a complicated system. Even if you focus just on news, there are many things that fall into that category. News does not come out at regular intervals and it does not necessarily spread evenly. That alone could make for a highly variable environment. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | If USA defaults on its debt, will the T bond holder get back his money | "The only party that can pay back a government bond is the government that issued it itself. In the case of Argentina, US vulture funds have won cases against it, but it has yet to pay. The best one can do to collect is to sue in a jurisdiction that permits and hope to seize the defaulted government's assets held in such jurisdiction. One could encourage another state to go to war to collect, but this is highly unlikely since a state that doesn't repay is probably a poor state with nothing much to loot; besides, most modern governments do not loot the conquered anymore. Such a specific eventuality hasn't happened in at least a lifetime, anyways. It is highly unlikely that any nation would be foolish enough to challenge the United States considering its present military dominance. It is rare for nations with medium to large economies to spurn their government obligations for long with Argentina as the notable exception. Even Russia became current when they spontaneously disavowed their government debt during the oil collapse of 1998. Countries with very small economies such as Zimbabwe are the only remaining nations that try to use their central banks to fund debt repayments if they even repay at all, but they quickly see that the destruction caused by hyperinflation neither helps with government debt nor excessive government expenditure. Nevertheless, it could be dangerous to assume that no nation would default on its debt for any period of time, and the effects upon countries with defaulted government debt show that it has far reaching negative consequences. If the US were to use its central bank to repay its government obligations, the law governing the Federal Reserve would have to be changed since it is currently mandated to ""maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."" The United States Treasury has no power over the Federal Reserve thus cannot force the Federal Reserve to betray its mandate by purchasing government debt. It should be noted that while Japan has a government debt twice its GDP, it also has a persistent slight deflation which has produced incredibly low interest rates, allowing it to finance government debt more easily, a situation the US does not enjoy. For now, the United States seems to be able to pay expenditures and finance at low interest rates. At what ratio of government debt to GDP that would cause interest rates to climb thus put pressure on the US's ability to repay does not seem to be well known." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How can I predict which way mortgage rates are moving? | Obviously you can't predict the future too much, but it's not too hard to figure out what is going to happen to mortgage rates in the short term. Mortgage rates are heavily influenced by 10 year treasury yields. You can find the daily 10 year rates here. It's easy to see the direction they've been moving recently. It usually takes a few days for mortgage rates to follow if the 10 year treasury yield is dropping (although if it's going up, mortgage rates will go up faster than they will fall). Here's a sample of all the 10 year treasury yields for the past 10 years. Looks like a good time to get a mortgage or refinance! You can also take a look at movements in mortgage backed securities. Here you can find a chart for Fannie Mae 3.0% mortgages. As the price goes up, mortgage rates go down. Think of it this way. Right now people are will to pay $103 for $100 worth of 3.0% mortgages. That doesn't really make sense because I could just loan you $100 at 3.0% and turn around and sell it for $103 immediately, pocketing the $3 profit. The reason is because right now, no one would willingly borrow money at 3.0%. Rates have fallen so much that if a bank has a customer paying them 3.0% on a mortgage, other people are willing to pay a premium on that mortgage. New mortgages are probably being written for 2.0%. (There is no current mortgage backed security for 2.0% fannie maes because rates have never been this low before). |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is the cause of sudden price spikes in the FOREX market? | If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are]. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What is a good way to save money on car expenses? | Apparently, if you keep your tires' air filled to the recommended level, your car will burn less gas. I loved this article at WikiHow, which confirmed what I had heard about air in tires, and had others to suggest, such as removing unnecessary items from inside and on your car (such as bike racks, trailer balls) as they can add to your car's overall weight, causing more drag and using more gas. |
Share your insights or perspective on the financial matter presented in the input. | Fractional Reserve Banking and Insolvency | You bet if it was so simple. This is when financial acumen comes into its true form. The bank would never ever want to go insolvent. What it does is, take insurance against the borrower defaulting. Remember the financial crisis of 2008 which was the outcome of borrowers defaulting. The banks had created derivatives based on the loans distributed. CDO, CDS are some of the simple derivatives banks sell to cover their backs in case of defaults. There are derivatives using these derivatives as underlyings which they then sold it across to other buyers including other banks. Google for Fabrice Tourre and you would realise how much deep the banks go to save themselves from defaulters. If everything fails then go to the government for help. That was what happened when the US government doled out $600 billion to save the financial sector. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | When is it better to rent and when is better buy in a certain property market? | Besides the long-term concern about which is cheaper, which has already been addressed by other answers, consider your risk exposure. Owning property has financial risks associated with it, just like owning stocks or bonds. The risk-related downsides of owning a home as an asset include: The risk-related upsides of owning a home as an asset include: Taking on some risk can save you (or earn you) money in the long run (that's why people buy risky stocks, after all) but consider how well you're equipped to handle that risk before you rush out to buy on a naive analysis of what's cheaper. |
Share your insights or perspective on the financial matter presented in the input. | What traditionally happens to bonds when the stock market crashes? | The short answer is if you own a representative index of global bonds (say AGG) and global stocks (say ACWI) the bonds will generally only suffer minimally in even the medium large market crashes you describe. However, there are some caveats. Not all bonds will tend to react the same way. Bonds that are considered higher-yield (say BBB rated and below) tend to drop significantly in stock market crashes though not as much as stock markets themselves. Emerging market bonds can drop even more as weaker foreign currencies can drop in global crashes as well. Also, if a local market crash is caused by rampant inflation as in the US during the 70s-80s, bonds can crash at the same time as markets. There hasn't been a global crash caused by inflation after countries left the gold standard, but that doesn't mean it can't happen. Still, I don't mean to scare you away from adding bond exposure to a stock portfolio as bonds tend to have low correlations with stocks and significant returns. Just be aware that these correlations can change over time (sometimes quickly) and depend on which stocks/bonds you invest in. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is there any way to know how much new money the US is printing? | "The Fed doesn't exactly have a specific schedule when they decide to create a new dollar. Instead, they engage in open market operations, creating and destroying money as is necessary to preserve a certain interest rate for lending and borrowing. It's an ongoing process. When the Fed meets periodically and they see that inflation is getting out of hand, they will raise that rate; when they see that the economy is weak, they will lower it. They change the target rate from time to time, but they seldom tell people exactly what they'll do in advance, aside from them recently saying that rates will remain incredibly low ""for an extended period of time"". There are people who trade futures contracts based on what they think these rates will be, and the Fed does publish information on what the market thinks the probabilities are. That's probably the closest thing to telling you ""how much and when"". If you want to know about the size of the money supply, ask the Federal Reserve; you probably want series H.6, Money Stock Measures. For an explanation of what the data series there means, ask Wikipedia: you're probably interested in M2, because that's what actually affects the economy, though M0 is closer to what they actually ""print"" (currency, bills and coins, and deposits at the central bank). If you're concerned about the actual real value of your dollar dropping, the actual value drop is better understood by looking at either the inflation rate, or an exchange rate against a foreign currency (and depending on what you were hoping to use that dollar for, there are a couple of different inflation rates). The standard inflation rate which measures what happens in your day to day life is the consumer price index, published by the BLS. There are a variety of forecasts of this, but I'm not aware of any official government-agency forecasts." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is there a general guideline for what percentage of a portfolio should be in gold? | I think most financial planners or advisors would allocate zero to a gold-only fund. That's probably the mainstream view. Metals investments have a lot of issues, more elaboration here: What would be the signs of a bubble in silver? Also consider that metals (and commodities, despite a recent drop) are on a big run-up and lots of random people are saying they're the thing to get in on. Usually this is a sign that you might want to wait a bit or at least buy gradually. The more mainstream way to go might be a commodities fund or all-asset fund. Some funds you could look at (just examples, not recommendations) might include several PIMCO funds including their commodity real return and all-asset; Hussman Strategic Total Return; diversified commodities index ETFs; stuff like that has a lot of the theoretical benefits of gold but isn't as dependent on gold specifically. Another idea for you might be international bonds (or stocks), if you feel US currency in particular is at risk. Oh, and REITs often come up as an inflation-resistant asset class. I personally use diversified funds rather than gold specifically, fwiw, mostly for the same reason I'd buy a fund instead of individual stocks. 10%-ish is probably about right to put into this kind of stuff, depending on your overall portfolio and goals. Pure commodities should probably be less than funds with some bonds, stocks, or REITs, because in principle commodities only track inflation over time, they don't make money. The only way you make money on them is rebalancing out of them some when there's a run up and back in when they're down. So a portfolio with mostly commodities would suck long term. Some people feel gold's virtue is tangibility rather than being a piece of paper, in an apocalypse-ish scenario, but if making that argument I think you need physical gold in your basement, not an ETF. Plus I'd argue for guns, ammo, and food over gold in that scenario. :-) |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Does the common advice about diversification still hold in times of distress | The common advice you mentioned is just a guideline and has little to do with how your portfolio would look like when you construct it. In order to diversify you would be using correlations and some common sense. Recall the recent global financial crisis, ones of the first to crash were AAA-rated CDO's, stocks and so on. Because correlation is a statistical measure this can work fine when the economy is stable, but it doesn't account for real-life interrelations, especially when population is affected. Once consumers are affected this spans to the entire economy so that sectors that previously seemed unrelated have now been tied together by the fall in demand or reduced ability to pay-off. I always find it funny how US advisers tell you to hold 80% of US stocks and bonds, while UK ones tell you to stick to the UK securities. The same happens all over the world, I would assume. The safest portfolio is a Global Market portfolio, obviously I wouldn't be getting, say, Somalian bonds (if such exist at all), but there are plenty of markets to choose from. A chance of all of them crashing simultaneously is significantly lower. Why don't people include derivatives in their portfolios? Could be because these are mainly short-term, while most of the portfolios are being held for a significant amount of time thus capital and money markets are the key components. Derivatives are used to hedge these portfolios. As for the currencies - by having foreign stocks and bonds you are already exposed to FX risk so you, again, could be using it as a hedging instrument. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Is keeping old credit cards and opening new credit cards with high limits and never using an ideal way to boost credit scores? | Problems with your plan (in no particular order) there is a limit, once they have decided that you have enough credit they won't offer any more. If the economy changes (like it did in 2008) they can reduce the limit on existing accounts. If you don't use them, they may decide to close them. Using existing cards will encourage the bank to increase the limit on that card. opening cards can make some lenders nervous. Having a new card close to when you are applying for a mortgage or a car loan can make them less likely to lend you the max. You have to decide: Are you trying to buildup your credit limit? or your credit score? |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | I'm 20 and starting to build up for my mortgage downpayment, where should I put my money for optimal growth? | Good job. Assuming that you are also contributing to retirement, you are bound to be a wealthy person. I'm not really sure how Australia works as far as retirement, but I am pretty sure you are taking care of that too. Given your time frame (more than 5 years) I would consider investing at least a portion of the money. If I was you, I would tend to make that amount significant, say 75% in mutual funds, 25% in your high interest savings. The ratio you choose is up to you, but I would be heavier in the investment than savings side. As the time for home purchase approaches, you may want more in savings and less in investments. You may want to look at a mutual fund with a low beta. Beta is a measure of the price volatility. I did a google search on low beta funds, and came up with a number of good articles that explains this further. Having a fund with a low beta insulates you, a bit, from radical swings in the market allowing you to count more on the money being there when needed. One way to get to the proper ratio, is to contribute all new money to the mutual fund until it is in proper balance. This way you don't lower your interest rate for a month. Given your time frame, salary, and sense of responsibility you may be able to do the 100% down plan. Again, good work! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why do stock prices of retailers not surge during the holidays? | "Systemic and well know patterns in sales are priced in to the security. Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range. These expected earnings are priced in before the earnings are actually booked. If a company meets these expectations the stock will likely stay relatively flat. If the company misses this expectation, the stock, generally, will get slammed. This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric. The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been ""priced in."" If the well known expected event doesn't occur, maybe it's a new normal." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How could the 14th amendment relate to the US gov't debt ceiling crisis? | It's a disturbing development -- someone is floating the idea that the executive has the ability to issue debt without the consent of congress to measure the public's reaction. Why disturbing? Because people are using language like this: The president, moreover, can move quickly, but court cases take time. “At the point at which the economy is melting down, who cares what the Supreme Court is going to say?” Professor Balkin said. “It’s the president’s duty to save the Republic.” The implication to your personal finances is that we continue to live in interesting times, and you need to be aware of the downside risks that your investments are exposed to. If your portfolio is built around the idea that US government obligations are risk-free, you need to rethink that. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | I have an extra 1000€ per month, what should I do with it? | I'm almost in the same situation as you. Here is what I'm doing. Buy ETFs each time you have above 3000€ saved up. I buy these: HSBC S+P 500 C.S.-MSCI PACIFIC UBS-ETF-MSCI EMERGING MARKETS ISH.STOX.EUROPE 600 They are taxable under Abgeltungssteuer, so no hassle with that, are cheap and cover almost the entire world economy. Don't worry what everyone else is doing. My friends all started buying stuff when they started earning real money. Now everyone has shitloads of stuff piled up somewhere, which never gets used. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What does bank do with “Repaid Principal”? | Does it add to their lending reserves or is it utilized in other ways? It depends on how the economy and the bank in particular are doing. To simplify things greatly, banks get deposits and lend (or otherwise invest) the majority of those deposits. They must keep some percentage in reserve in case depositors want to make withdrawals, and if they get a high percentage of withdrawals (pushing them to be undercapitalized) then they may sell their loans to other banks. Whether they lend the money to someone else or use the money for something else will depend completely on how many reserves they have from depositors and whether they have people lined up to take profitable loans from them. I wrote this answer for the benefit of CQM, I'd vote to close this question if I had 49 more reputation points, since it's not really about personal finance. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is a good size distribution for buying gold? | Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways: |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Trading large volumes with penny profits per share | How do you know the shares will go up after you buy? The ultimate risk in your scenario is that you buy at a peak, and then that peak is never reached again. Over time, stock markets go up [more or less because there is a net increase in the overall production of the economy as time goes on]. However, you won't experience much of that gain, because you will be selling only after tiny amounts of profit have been achieved. So your upside is low, your plan is capital-expensive [because it requires you to have significant amount of cash available to make the initial purchase], and your downside [though unlikely] has massive risk. |
Share your insights or perspective on the financial matter presented in the input. | Is the stock market a zero-sum game? | No, the stock market and investing in general is not a zero sum game. Some types of trades are zero sum because of the nature of the trade. But someone isn't necessarily losing when you gain in the sale of a stock or other security. I'm not going to type out a technical thesis for your question. But the main failure of the idea that investing is zero sum is the fact the a company does not participate in the transacting of its stock in the secondary market nor does it set the price. This is materially different from the trading of options contracts. Options contracts are the trading of risk, one side of the contract wins and one side of the contract loses. If you want to run down the economic theory that if Jenny bought her shares from Bob someone else is missing out on Jenny's money you're free to do that. But that would mean that literally every transaction in the entire economy is part of a zero sum game (and really misses the definition of zero sum game). Poker is a zero sum game. All players bet in to the game in equal amounts, one player takes all the money. And hell, I've played poker and lost but still sometimes feel that received value in the form of entertainment. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What is inflation? | Inflation is basically this: Over time, prices go up! I will now address the 3 points you have listed. Suppose over a period of 10 years, prices have doubled. Now suppose 10 years ago I earned $100 and bought a nice pair of shoes. Now today because prices have doubled I would have to earn $200 in order to afford the same pair of shoes. Thus if I want to compare my earnings this year to 10 years ago, I will need to adjust for the price of goods going up. That is, I could say that my $100 earnings 10 years ago is the same as having earned $200 today, or alternatively I could say that my earnings of $200 today is equivalent to having earned $100 10 years ago. This is a difficult question because a car is a depreciating asset, which means the real value of the car will go down in value over time. Let us suppose that inflation doesn't exist and the car you bought for $100 today will depreciate to $90 after 1 year (a 10% depreciation). But because inflation does exist, and all prices will be 0.5% higher in 1 years time, we can calculate the true selling price of the car 1 in year as follows: 0.5% of $90 = 0.005*90 = $0.45 Therefore the car will be $90 + $0.45 = $90.45 in 1 years time. If inflation is low, then the repayments do not get much easier to pay back over time because wages have not risen by as much. Similarly the value of your underlying asset will not increase in value by as much. However as compensation, the interest rates on loans are usually lower when inflation is lower. Therefore generally it is better to get a loan in times of high inflation rather than low inflation, however it really depends on how the much the interest rates are relative to the inflation rate. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | 5/1 ARM: Lifetime cap, First Adjustment Cap, Margin, and Annual Cap? | "I hope this image is clear. A spreadsheet is how I look at these things. Unfortunately, you didn't offer the starting balance so I use $100K which makes it easy to scale. You build a simple spreadsheet and enter the ""what if"" scenario, this tells me that worse case, an increase of 1% on the rate each year results in a near 60% increase in payments over the 10 years. Of course, this isn't the end of the story, I'd first change the payments to reflect the 5% rate, and see how much that drives the balance down. This would reduce the principal enough that the increase would be much less. On $100K, you'd pay $536.82 based on a 5% rate, regardless of the required payment. At 7.75% the payment is $563.11, not even 5% higher. If you'd like a spreadsheet started for you, I'll put it someplace for you to grab it." |
Share your insights or perspective on the financial matter presented in the input. | Nanny taxes and payroll service | For Federal Return, Schedule H and its Instructions are a great start. You are the nanny's employer, and are responsible for FICA (social security and medicare) withholding, and also paying the employer portion. You will offer her a W4 so she can tell you how much federal and state tax to withhold. You'll use Circular E the employer's tax guide to calculate withholding. In January, you'll give her a W-2, and file the information with your own tax return. For State, some of the above applies, but as I recall, in my state, I had to submit withholding quarterly separate from my return. As compared to Federal, where I adjusted my own withholding so at year end the tax paid was correct. Unemployment insurance also needs to be paid, I believe this is state. This issue is non-political - I told my friends at the IRS that (a) the disparity between state and federal to handle the nanny tax was confusing for those of us trying to comply, and (b) even though we are treated as an employer, a 'guide to the nanny tax' would be helpful, a single IRS doc that doesn't mix non-nanny type issues into the mix. In the end, if a service is cost effective, go for it, your time is valuable, and thi is something that only lasts a few years. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Starting off as an investor | "You've asked eleven different questions here. Therefore, The first thing I'd recommend is this: Don't panic. Seek answers to your questions systematically, one at a time. Search this site (and others) to see if there are answers to some of them. You're in good shape if for no other reason than you're asking these when you're young. Investing and saving are great things to do, but you also have time going for you. I recommend that you use your ""other eight hours per day"" to build up other income streams. That potentially will get you far more than a 2% deposit. Any investment can be risky or safe. It depends on both your personal context and that of the larger economy. The best answers will come from your own research and from your advisors (since they will be able to see where you are financially, and in life)." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What choices should I consider for investing money that I will need in two years? | Never invest money you need in the short term. As already suggested, park your money in CDs. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Does gold's value decrease over time due to the fact that it is being continuously mined? | "does it mean uncontrolled severe deflation/inflation is more likely to occur compared to ""normal"" currencies such as USD, EUR etc? Look at the chart referenced in the link in your question. It took approximately 50 years for annual production of gold to double from 500 tons to 1000 tons. It took approximately 40 years for annual production to double from 1000 tons to 2000 tons. Compare that to the production of US dollars by the Federal Reserve (see chart below obtained from here). US dollar production doubled in DAYS. Which one do you think will lead to uncontrolled inflation/deflation? Update: Why did I include a chart of the FED's balance sheet? Because this is the way newly printed money is introduced - the FED will purchase something from banks (mortgage-backed securities, US treasuries, etc.) with newly printed money. The banks can then loan this money to people who then deposit the money into other banks who loan those deposits to other people and so on. This is how the fractional reserve process expands the money supply. This is why I did not include a chart of the money supply since that is counting the same money multiple times. If I deposited 100 newly minted coins into a bank and that bank proceeded to loan out 80 of my coins where 80 are deposited into another bank who then proceeds to loan out 60 of the coins, and so on....the production of coins only changed by the initial 100 that I minted - not by the fractional reserve multiple. There are historical examples of inflation with gold and silver as duff has pointed out. None of them come close in magnitude to the inflation experienced with government fiat money." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What argument(s) support the claim that long-term housing prices trend upward? | Several people have mentioned the obvious: inflation. But let's assume we are talking about real (inflation adjusted) prices. One argument is that populations keep rising while the land does not change. So the price of homes in desirable places gets pushed up and people move to second-best locations, pushing those prices up, etc. Similar Malthusian argument holds for raw materials (steel, granite, fine wood, etc.). Another argument is that the economy has a long-term upward trajectory (that's the assumption). So each generation, as a whole, has more disposable real income than the previous. As disposable income increases, people tend to put more and more money into their homes, pushing prices up. True for all goods, of course, but it may be more true for real estate than for other types of goods. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is this investment opportunity problematic? | "It would have to be made as a ""gift"", and then the return would be a ""gift"" back to you, because you're not allowed to use a loan for a down payment. This is not to evade taxes. This is to evade a credit check. The problem is that banks don't like people to have too much debt. The bank could void the loan and go after your friends for damages under certain circumstances, as this is a fraud on the bank. Perhaps you might be guilty of conspiracy to commit fraud or similar. I'm willing to assume for the sake of argument that there is zero chance of your friend not paying you back intentionally. But even so, there are still potential problems. What if your friends end up without the money to pay? Worse, what if something happens to them? This is an off-books transaction. You couldn't make a claim against the estate, as there can't be a paper trail. You'd be left out the money in those circumstances. You'd both be safer if your friends saved up for the next opportunity rather than trying to grab this one. An alternative would be to buy a share of their current rental house. That would give them the necessary money and would give you paper showing your money. It's not a gift, it's a purchase. You'd have to pay capital gains tax on the 15% profit that they're promising you. But you'd both be above board and honest." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How do I hedge properly against inflation and other currency risks? | I apply what you term 'money' to the word 'commodity'. And I agree with littleadv, you are just selling us your perspective on (such things as) precious metals. What I want you to think about is these truths: When used as currency gold just has two values: utility value and currency value. I hold it is better to separate the two. There is not enough gold in the earth to represent the value in aggregate economies of the world. Trying to go back to the gold standard would only induce an unimaginable hyperinflation in gold. Recent years shows that gold does not retain value. See the linked chart. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Why does gold have value? | Gold's value starts with the fact that its supply is steady and by nature it's durable. In other words, the amount of gold traded each year (The Supply and Demand) is small relative to the existing total stock. This acting as a bit of a throttle on its value, as does the high cost of mining. Mines will have yields that control whether it's profitable to run them. A mine may have a $600/oz production cost, in which case it's clear they should run full speed now with gold at $1200, but if it were below $650 or so, it may not be worth it. It also has a history that goes back millennia, it's valued because it always was. John Maynard Keynes referred to gold as an archaic relic and I tend to agree. You are right, the topic is controversial. For short periods, gold will provide a decent hedge, but no better than other financial instruments. We are now in an odd time, where the stock market is generally flat to where it was 10 years ago, and both cash or most commodities were a better choice. Look at sufficiently long periods of time, and gold fails. In my history, I graduated college in 1984, and in the summer of 82 played in the commodities market. Gold peaked at $850 or so. Now it's $1200. 50% over 30 years is hardly a storehouse of value now, is it? Yet, I recall Aug 25, 1987 when the Dow peaked at 2750. No, I didn't call the top. But I did talk to a friend advising that I ignore the short term, at 25 with little invested, I only concerned myself with long term plans. The Dow crashed from there, but even today just over 18,000 the return has averaged 7.07% plus dividends. A lengthy tangent, but important to understand. A gold fan will be able to produce his own observation, citing that some percent of one's holding in gold, adjusted to maintain a balanced allocation would create more positive returns than I claim. For a large enough portfolio that's otherwise well diversified, this may be true, just not something I choose to invest in. Last - if you wish to buy gold, avoid the hard metal. GLD trades as 1/10 oz of gold and has a tiny commission as it trades like a stock. The buy/sell on a 1oz gold piece will cost you 4-6%. That's no way to invest. Update - 29 years after that lunch in 1987, the Dow was at 18448, a return of 6.78% CAGR plus dividends. Another 6 years since this question was asked and Gold hasn't moved, $1175, and 6 years' worth of fees, 2.4% if you buy the GLD ETF. From the '82 high of $850 to now (34 years), the return has a CAGR of .96%/yr or .56% after fees. To be fair, I picked a relative high, that $850. But I did the same choosing the pre-crash 2750 high on the Dow. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Are forward curves useful tools for trading decisions and which informations can be gathered from them? | As far as trading is concerned, these forward curves are the price at which you can speculate on the future value of the commodity. Basically, if you want to speculate on gold, you can either buy the physical and store it somewhere (which may have significant costs) or you can buy futures (ETFs typically hold futures or hold physical and store it for you). If you buy futures, you will have to roll your position every month, meaning you sell the current month's futures and buy the next month's. However, these may not be trading at the same price, so each time you roll your position, you face a risk. If you know you want to hold gold for exactly 1 year, then you can buy a 1-year future, which in this case according to your graph will cost you about $10 more than buying the front month. The forward curve (or sometimes called the futures term structure) represents the prices at which gold can be bought or sold at various points in the future. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Why does my car loan interest go up despite making payments on-time? | Interest is calculated daily. Doing the math: Between 6-17 and 7-25 are 38 days, 200.29 / 38 = 5.27 interest per day. Between 7-25 and 8-17 are 23 days. 120.02 / 23 = 5.22 interest per day. The minimal difference is because the principal has already gone down a little bit. So you should expect ~5.20 x number of days for the next interest number coming up; slowly decreasing as the remaining principal debt decreases. Note that this is equivalent of an annual interest rate of over 20 %, which is beyond acceptable. In the current economy, this is ridiculously high. I recommend trying to get a refinancing with another provider; you should be able to get it for a third of that. |
Share your insights or perspective on the financial matter presented in the input. | How do I figure out the market value of used books? | Half of original MSRP at Amazon is a good option for books that are in good condition. Another option would be to use eBay, specifically Half.com. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Are precious metals/collectibles a viable emergency fund? | "If it were me, I would convert it to cash and keep it in a liquid account. The assumption that silver will increase in value is misguided. From 1985 to 2002, it was flat. It's gone up and been far more volatile since then, and there has been significant declines which could eat at the stability of an emergency fund. Precious metals are speculation, not investing. They do not create wealth. Investing is typically considered too volatile for an emergency fund, more so keeping the money in metals. Making it more difficult to get to, like keeping it in a separate account might also fight against frivolous or accidental spending. Also there tends to be high transaction costs when liquidating metals. I found the best way is to use eBay. After some further comments and clarification here I suspect you are dealing with something else. Namely, the ""white picket fence"". Again, this is supposition, but perhaps she envisions the two of you married and hosting a dinner party using the passed down silver. This could be a strong emotional bond, and as such it could trump the logical arguments. Keeping it as an emergency fund: foolish. You helping her keep it because you are planning a life together: smart." |
Share your insights or perspective on the financial matter presented in the input. | Will a small investment in a company net a worthwhile gain? | If the shares rise in value 50% over the next few years, you will have the same return that I would see if I bought 100 or 1000 shares. The only issue with a small purchase is that even a $5 commission is a high percent. But the rest of the math is the same. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why are wire transfers and other financial services in Canada so much more expensive than in Europe? | I don't believe there is any particular structural or financial reason that outgoing wire transfers cost so much in Canada, their costs are no higher than other countries (and lower than many). Wires seem to be an area where the Canadian banks have decided people don't comparison shop, so it's not a competitive advantage to offer a better price. The rates you quoted are on the low side: $80 for a largish international wire is not unusual, and HSBC charges up to $150! There are several alternative ways to transfer money domestically in Canada. If the recipient banks at the same bank, it's possible to go into a branch and transfer money directly from your own account to their account (I've never been charged for this). The transfer is immediate. But it couldn't be done online, last time I checked. For transfers where you don't know the recipients bank account, you can pay online with Interac E-Transfers, offered by most Canadian banks. It's basically e-mailing money. It usually costs $1 to $1.50 per transfer, and has limits on how much you can send per day/week. Each of the banks also have a bill-pay service, but unlike similar services in the US (where they mail a paper check if the recipient isn't on their system), each Canadian bank has a limited number of possible payees (mostly utilities, governments, major stores). |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is it safe to take a new mortgage loan in Greece? | The safest financial decisions that you can make in Greece involve getting your money out of Greece. That said, it depends. If the economy is going to implode and you'll be out of the job with devalued savings -- you'll be bankrupt anyway. You didn't mention enough about your situation for anyone to really answer the question. In a high-inflation environment, *if*you have the assets to weather the storm, holding debt on real property and durable goods is a good thing. The key considerations are: If you have the means, times of crisis are great opportunities. |
Share your insights or perspective on the financial matter presented in the input. | How should I interpret this industry research? | As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Does the USA have a Gold reserve? | The US does have a gold reserve. The main reserves are held at Fort Knox but there is even more gold, mostly owned by other countries, stored in the basement of the New York Federal Reserve Bank (Think Die Hard 3). The United States Bullion Depository, often known as Fort Knox, is a fortified vault building located adjacent to Fort Knox, Kentucky, used to store a large portion of United States official gold reserves and occasionally other precious items belonging or entrusted to the federal government. The United States Bullion Depository holds 4,578 metric tons (5046 tons) of gold bullion (147.2 million oz. troy). This is roughly 2.5% of all the gold ever refined throughout human history. Even so, the depository is second in the United States to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds 7,000 metric tons (7716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations. Source: Wikipedia |
Share your insights or perspective on the financial matter presented in the input. | 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. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Stocks vs. High-yield Bonds: Risk-Reward, Taxes? | |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What's behind the long secular bull market in U.S. Treasuries? | I believe that it's largely irrational, fueled largely by foreign investors that are afraid to invest anywhere else. There are a few people out there right now who are writing about this: http://www.marketwatch.com/story/us-treasuries-largest-bubble-in-world-history-says-nia-2011-08-30 http://articles.businessinsider.com/2010-08-25/markets/30080511_1_fed-first-yields-mbs As to why would you invest in long-dated versus short? Probably to chase yield. The 30 year yields 30x more than the 1 year. It's also easier to buy on the long end if you believe that the economy will remain slow for another decade or two and therefore the central banks will keep rates low for a very long time. Of course, at the moment, long-dated treasury prices are artificially high because of operation twist. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Pros & cons of buying gold directly vs. investing in a gold ETF like GLD, IAU, SGOL? | Owning physical gold (assuming coins): Owning gold through a fund: |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Can a non dividend-paying product (say ETF) suddenly start paying dividends? | Yes, absolutely. Consider Microsoft, Updated Jan. 17, 2003 11:59 p.m. ET Software giant Microsoft Corp., finally bowing to mounting pressure to return some of its huge cash hoard to investors, said it will begin paying a regular annual dividend to shareholders. From Wall Street Journal. Thus, for the years prior to 2003, the company didn't pay dividends but changed that. There can also be some special one-time dividends as Microsoft did the following year according to the Wall Street Journal: The $32 billion one-time dividend payment, which comes to $3 for each share of Microsoft stock, could be a measurable stimulus to the U.S. economy -- and is expected to arrive just in time for holiday shopping. Course companies can also reduce to stop dividends as well. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How do I go about finding an honest & ethical financial advisor? | "You want a fee-only advisor. He charges like an architect or plumber: by the hour or some other ""flat fee"". That is his only compensation. He is not paid on commission at all. He is not affiliated with any financial services company of any kind. His office is Starbucks. He does not have a well lit office like the commission broker down the street. He does not want you to hand him your money - it stays in the brokerage account of your choice (within reason - some brokerage accounts are terrible and he'll tell you to get out of those). He never asks for the password to your brokerage account. Edit: The UK recently outlawed commission brokers. These guys were competitive ""sales types"" who thrive on commissions, and probably went into other sales jobs. So right now, everyone is clamoring for the few proper financial advisors available. High demand is making them expensive. It may not be cost-effective to hire an advisor; you may need to learn it yourself. It's not that hard. Ever hear of a plumber who works totally for free, and makes his money selling you wildly overpriced pipe? That's what regular ""financial advisors"" are. They sell products that are deliberately made unnecessarily complex. The purpose is first, to conceal sales commissions and high internal fees; and second to confuse you, so the financial world feels so daunting that you feel like you need their help just to navigate it. They're trying to fry your brain so you'l just give up and trust them. Products like whole life and variable annuities are only the poster children for how awful all of their financial products are. These products exist to fleece the consumer without quite breaking the law. Of course, everyone goes to see them because they have well lit offices in every town, and they're free and easy to deal with. Don't feel like you need to know everything about finance to invest. You don't need to understand every complex financial product that the brokerage houses bave dreamed up: they are designed to conceal and confuse, as I discuss above, and you don't want them. The core of it is fairly simple, and that's all you really need to know. Look at any smaller university and how they manage their endowments. If whole life, annuities and those complex financial ""products"" actually worked, university endowments would be full of them. But they're not! Endowments are generally made of investments you can understand. Partly because university boards are made of investment bankers who invented those products, and know what a ripoff they are. Some people refuse to learn anything. They are done with college and refuse to learn anything more. I hope that's not you. Because you should learn the workings of everything you're investing in. If you don't understand it, don't buy itl And a fee-only financial advisor won't ask you to. 1000 well-heeled, well-advised university endowments seek the most successful products on the market... And end up choosing products you can understand. That's good news for you." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why do people use mortgages, when they could just pay for the house in full? | Good question. If a person has a choice, it is probably better to pay cash. But not always. If your large pile of cash can earn more being invested than cost of the interest to borrow a similar large pile of cash, it is beneficial to get a mortgage. Otherwise pay cash. EXAMPLE: A house costs $100,000. I have $100,000 in extra money. I can invest that at 5% per year, and I can borrow an additional $100,000 at 2% per year. Since I can make more on my pile of cash than it costs to borrow another pile of cash, borrowing is better. Compound interest is the most powerful force on the planet according to Albert Einstein (maybe). That isn't likely for most people though. Here is the results from some online financial calculators. http://www.calcxml.com/do/hom03 Borrowing $100,000 with 2% interest for 30 years will cost a total of $148.662. You get $100,000, but it cost you $48,662 to do it. http://www.calcxml.com/do/sav07 Saving $100,000 in a bank account with an interest rate of %5 will be worth $432,194 in 30 years. By not spending the money you will earn $332,194 over the course of 30 years. So if you can invest at 5% and borrow at 2% you will end up with $283,532 more than if you didn't. It is a pretty extreme example, and financial advisers make a lot of money figuring out the complex nature of money to make situations like that possible. |
Share your insights or perspective on the financial matter presented in the input. | Homeowners: How can you protect yourself from a financial worst-case scenario? | Think about your priorities in life. Everybody is a little different. In my case I have a wife and child, so these are priorities for me, and you might have your own depending on your story. So if I lost my job, and I have no more money coming in (unemployment insurance runs out, savings depleted) then the bank can have the house. I personally would probably drop the house long before it came to that point. The first thing you do is talk to your creditors and work out a deal. At the same time I would stop paying for ALL unnecessary things (cable TV, extra cell phones, automobiles, leaving light bulbs on and turning the heat up over putting on a sweater). If I can't get a good deal from the creditors, I would stop paying the mortgage, find a place to live (family, friends, cheap apartment) while the credit is still good. My advice is to get yourself setup while your credit is good and you have SOME money in the bank. Waiting until the bank decides to foreclose is probably going to make your harder. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | When a Company was expected and then made a profit of X $ then that X$ increased it's share price. or those the Sellers and Buyers [duplicate] | There are a few reason why share prices increase or decrease, the foremost is expectation of the investors that the company/economy will do well/not well, that is expectation of profit/intrinsic value growth over some time frame (1-4 qtrs.)there is also demand & supply mismatch over (usually) short time. If you really see, the actual 'value' of a company is it's net-worth (cash+asset+stock in trade+brand value+other intangibles+other incomes)/no of shares outstanding, which (in a way) is the book value, then all shares should trade at their book value, the actual number but it does not, the expectation of investors that a share would be purchased by another investor at a higher price because the outlook of the company over a long time is good. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Investments beyond RRSP and TFSA, in non-registered accounts? | I quite like the Canadian Couch Potato which provides useful information targeted at investors in Canada. They specifically provide some model portfolios. Canadian Couch Potato generally suggests investing in indexed ETFs or mutual funds made up of four components. One ETF or mutual fund tracking Canadian bonds, another tracking Canadian stocks, a third tracking US stocks, and a fourth tracking international stocks. I personally add a REIT ETF (BMO Equal Weight REITs Index ETF, ZRE), but that may complicate things too much for your liking. Canadian Couch Potato specifically recommends the Tangerine Streetwise Portfolio if you are looking for something particularly easy, though the Management Expense Ratio is rather high for my liking. Anyway, the website provides specific suggestions, whether you are looking for a single mutual fund, multiple mutual funds, or prefer ETFs. From personal experience, Tangerine's offerings are very, very simple and far cheaper than the 2.5% you are quoting. I currently use TD's e-series funds and spend only a few minutes a year rebalancing. There are a number of good ETFs available if you want to lower your overhead further, though Canadians don't get quite the deals available in the U.S. Still, you shouldn't be paying anything remotely close to 2.5%. Also, beware of tax implications; the website has several articles that cover these in detail. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What investment strategy would you deduce from the latest article from Charles Munger? | "So, I've read the article in question, ""Basically, It's Over"". Here's my opinion: I respect Charlie Munger but I think his parable misses the mark. If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better. I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear ""aha"" I was hoping for. Nevertheless, I agree with his point of view, which I see as: In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts. These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt. Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt. This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies. U.S. cash and short-term treasuries might not be a great place to be invested today. Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies. (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected. Clearly, ""diversification"" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut. U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges. I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the ""financial""-innovation variety – and with global reach." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What low-fee & liquid exchange-traded index funds / ETFs should I consider holding in a retirement portfolio? | "Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. ""US-LC"" is large cap, MC is mid cap, SC is small cap. ""Intl-Dev"" is international stocks from developed economies, ""Emer"" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Can I make my savings keep in check with or beat inflation over a long time period via index funds? | "Question 2 Some financial institutions can provide a way to invest small amounts with low or no cost fees over a period of time (like monthly, weekly, etc). For instance, a few brokerages have a way to buy specific ETFs for no cost (outside of the total expense ratio). Question 3 When someone says that investing is like buying a lottery ticket, they are comparing an event that almost always has at least a 99.9% of no return (large winnings) to an event that has much better odds. Even if I randomly pick a stock in the S&P 500 and solely invest in it, over the course of a given year, I do not face a 99.9% chance of losing everything. So comparing the stock market to a lottery, unless a specific lottery has much better odds (keep in mind that some of these jackpots have a 99.9999999% of no return) is not the same. Unfortunately, nothing truly safe exists - risk may mutate, but it's always present; instead, the probability of something being safe and (or) generating a return may be true for a given period of time, while in another given period of time, may become untrue. One may argue that holding cash is safer than buying an index fund (or stock, ETF, mutual fund, etc), and financially that may be true over a given period of time (for instance, the USD beat the SPY for the year of 2008). Benjamin Franklin, per a biography I'm reading, argued that the stock market was superior to gold (from the context, it sounds like the cash of his day) because of what the stock market represents: essentially you're betting on the economic output of workers. It's like saying, in an example using oil, that I believe that even though oil becomes a rare resource in the long run, human workers will find an alternative to oil and will lead to better living standards for all of us. Do civilizations like the Mongolian, Roman, and Ottoman empires collapse? Yes, and would holding the market in those days fail? Yes. But cash and gold might be useless too because we would still need someone to exchange goods with and we would need to have the correct resources to do so (if everyone in a city owns gold, gold has little value). The only ""safe bet"" in those days would be farming skill, land, crops and (or) livestock because even without trading, one could still provide some basic necessities." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What's the difference between buying bonds and buying bond funds for the long-term? | "A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what ""people"" are willing to pay for them. Those ""people"" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka ""Don't fight the Fed""). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why do volatility stocks/ETFs (TVIX, VXX, UVXY) trend down in the long-term? | "In an attempt to express this complicated fact in lay terms I shall focus exclusively on the most influential factor effecting the seemingly bizarre outcome you have noted, where the price chart of VIX ETFs indicates upwards of a 99% decrease since inception. Other factors include transaction costs and management fees. Some VIX ETFs also provide leveraged returns, describing themselves as ""two times VIX"" or ""three times VIX"", etc. Regarding the claim that volatility averages out over time, this is supported by your own chart of the spot VIX index. EDIT It should be noted that (almost) nobody holds VIX ETFs for anything more than a day or two. This will miminise the effects described above. Typical daily volumes of VIX ETFs are in excess of 100% of shares outstanding. In very volatile markets, daily volumes will often exceed 400% of shares outstanding indicating an overwhelming amount of day trading." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why aren't bond mutual funds seeing huge selloffs now? | The Fed sets the overnight borrowing costs by setting its overnight target rate. The markets determine the rates at which the treasury can borrow through the issuance of bonds. The Fed's actions will certainly influence the price of very short term bonds, but the Fed's influence on anything other than very short term bonds in the current environment is very muted. Currently, the most influential factor keeping bond prices high and yields low is the high demand for US treasuries coming from overseas governments and institutions. This is being caused by two factors : sluggish growth in overseas economies and the ongoing strength of the US dollar. With many European government bonds offering negative redemption yields, income investors see US yields as relatively attractive. Those non-US economies which do not have negative bond yields either have near zero yields or large currency risks or both. Political issues such as the survival of the Euro also weigh heavily on market perceptions of the current attractiveness of the US dollar. Italian banks may be about to deliver a shock to the Eurozone, and the Spanish and French banks may not be far behind. Another factor is the continued threat of deflation. Growth is slowing around the world which negatively effects demand. Commodity prices remain depressed. Low growth and recession outside of the US translate into a prolonged period of near zero interest rates elsewhere together with renewed QE programmes in Europe, Japan, and possibly elsewhere. This makes the US look relatively attractive and so there is huge demand for US dollars and bonds. Any significant move in US interest rates risks driving to dollar ever higher which would be very negative for the future earning of US companies which rely on exports and foreign income. All of this makes the market believe that the Fed's hands are tied and low bond yields are here for the foreseeable future. Of course, even in the US growth is relatively slow and vulnerable to a loss of steam following a move in interest rates. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Must ETF companies match an investor's amount invested in an ETF? | "First, it's an exaggeration to say ""every"" dollar. Traditional mutual funds, including money-market funds, keep a small fraction of their assets in cash for day-to-day transactions, maybe 1%. If you invest $1, they put that in the cash bucket and issue you a share. If you and 999 other people invest $100 each, not offset by people redeeming, they take the aggregated $100,000 and buy a bond or two. Conversely, if you redeem one share it comes out of cash, but if lots of people redeem they sell some bond(s) to cover those redemptions -- which works as long as the bond(s) can in fact be sold for close enough to their recorded value. And this doesn't mean they ""can't fail"". Even though they are (almost totally) invested in securities that are thought to be among the safest and most liquid available, in sufficiently extreme circumstances those investments can fall in market value, or they can become illiquid and unavailable to cover ""withdrawals"" (redemptions). ETFs are also fully invested, but the process is less direct. You don't just send money to the fund company. Instead: Thus as long as the underlyings for your ETF hold their value, which for a money market they are designed to, and the markets are open and the market maker firms are operating, your ETF shares are well backed. See https://en.wikipedia.org/wiki/Exchange-traded_fund for more." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What does inflation mean to me? | "Inflation as defined in the general, has many impacts at a personal level. For example, you say that the reduction in the price of oil has no impact on you. That's absolutely not true, unless you're a hermit living off of the land. Every box or can or jar of food you buy off the shelf of the grocery store has the price of oil baked into it, because it had to get there somehow. High fuel costs for trucks mean increased costs to put food on shelves, which mean increased prices for that food. Even tobacco prices can affect you, because they affect what other people are spending. Demand is always a significant factor in prices, particularly retail prices, and if people are spending more money on tobacco, they're probably spending less on other things - either buying less snacks, for example, or buying cheaper brands of those snacks. So the price of Doritos may drop a bit (or not rise), for example. General inflation also tends to drive raises, particularly in industries with relatively small performance ties to raises. If inflation is 3%, wages need to raise 3% or so in order to keep up, on average; even if your personal cost-of-living went up 0%, or 5%, or 10%, the default wage inflation will be closer to that of the national average. Any raise less than national average is effectively a pay cut (which is one reason why inflation is needed in a healthy economy). So your company probably has a cost-of-living raise everyone gets that's a bit less than inflation, and then good performers get a bump up to a bit more than inflation. You can read more on this topic for a more in-depth explanation. Finally, inflation rates tend to be major factors in stock market movement. Inflation that is too high, or too low, can lead to higher volatility; inflation that is ""right"" can lead to higher stability. An economy that has consistently ""right"" inflation (around 2-3% typically) will tend to have more stable stock market in general, and thus more reliable returns from that market. There are many other factors that lead to stock markets rising and falling, but inflation is one very relevant one, particularly if it's not in the ""right"" zone." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Does a falling dollar mean doom for real estate? | A falling $AUD would be beneficial to exporters, and thus overall good for the economy. If the economy improves and exporters start growing profits, that means they will start to employ more people and employment will increase - and with higher employment, employees will become more confident to make purchases, including purchasing property. I feel the falling $AUD will be beneficial for the economy and the housing market. However, what you should consider is that with an improving economy and a rising property market, it will only be a matter of time before interest rates start rising. With a lower $AUD the RBA will be more confident in starting to increase interest rates. And increasing interest rates will have a dampening effect on the housing market. You are looking to buy a property to live in - so how long do you intend to live in and hold the property? I would assume at least for the medium to long term. If this is your intention then why are you getting cold feet? What you should be concerned about is that you do not overstretch on your borrowings! Make sure you allow a buffer of 2% to 3% above current interest rates so that if rates do go up you can still afford the repayments. And if you get a fixed rate - then you should allow the buffer in case variable rates are higher when your fixed period is over. Regarding the doomsayers telling you that property prices are going to crash - well they were saying that in 2008, then again in 2010, then again in 2012. I don't know about you but I have seen no crash. Sure when interest rates have gone up property prices have levelled off and maybe gone down by 10% to 15% in some areas, but as soon as interest rates start falling again property prices start increasing again. It's all part of the property cycle. I actually find it is a better time to buy when interest rates are higher and you can negotiate a better bargain and lower price. Then when interest rates start falling you benefit from lower repayments and increasing property prices. The only way there will be a property crash in Australia is if there was a dramatic economic downturn and unemployment rates rose to 10% or higher. But with good economic conditions, an increasing population and low supplies of newly build housing in Australia, I see no dramatic crashes in the foreseeable future. Yes we may get periods of weakness when interest rates increase, with falls up to 15% in some areas, but no crash of 40% plus. As I said above, these periods of weakness actually provide opportunities to buy properties at a bit of a discount. EDIT In your comments you say you intend to buy with a monthly mortgage repayment of $2500 in place of your current monthly rent of $1800. That means your loan amount would be somewhere around $550k to $600K. You also mention you would be taking on a 5 year fixed rate, and look to sell in about 2 years time if you can break even (I assume that is break even on the price you bought at). In 2 years you would have paid $16,800 more on your mortgage than you would have in rent. So here are the facts: A better strategy: |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What is the economic explanation for the high cost of weddings? | "There is the price they want and the price you pay. Everything is negotiable when its a service (always possible, but usually harder with actual ""goods""). You should always haggle and price match your vendors. You can also try going to different vendors and not telling them its for a wedding and see if there really is a price difference. For example, call up a florist and say you need X, Y, and Z for a corporate banquet or for a special event for which you cannot give the details. If you then tell them its actually a wedding, and they blindly raise it without a good justification, move on. That said, they jack up the price because they know most people will says ""it's my wedding"", ""it's once in a lifetime"", ""it's MY special day"", etc.... The same is true about diamonds, their price does not reflect the actual supply and demand ratio, just the perception that has been created. However, as mentioned in some of the comments above, the service provided at a wedding may be different or more involved than just a normal dinner The more important issue is ensuring there are no back fees, no hidden fees, and you have well written, well reviewed contracts. For example, we know a couple whose caterer added a mandatory 20% gratuity, regardless of the service which was provided. Most venues or restaurants will not be making the bar a lose-leader, but they will charge for other things. You can also save money by buying used or looking on ebay for prices closer to wholesale for the product. I think a good analogy to this is the Recent Time Magazine article on the price of healthcare - it costs a lot because its a small market and its harder to navigate, and most are not experienced shoppers in the area or don't have control over the individual item costs." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What is the “point” (purpose) of the S&P 500? | I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for... The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. The components of the S&P 500 are selected by committee... The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. The S&P is a capitalization weighted index. If a stock price goes up, then it comprises more of the total index. If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it. So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Why did gold dip in 2011 | "The cause of the increase in 2006-2011 was the financial crisis, where, if you recall, the global banking system came close to collapse for reasons that are well documented. Rightly or wrongly, gold is seen as a safe haven asset in times of crisis. The price of gold began to decline in 2011 when the markets decided that the risk of a global banking system collapse had passed without further incident. In the period leading up to 2006, the price of gold was in a flat-to-down trend because there was little net buying interest in gold and large gold sales had been executed by various central banks around the world who felt that gold no longer had a place in central bank reserves. In modern economies gold is seen as a ""fringe"" asset. It has no role to play. The recent financial crisis may have dented that perception, but those dents are now being forgotten and the price of gold is returning to its long-term downward trend. When the next financial/banking crisis is upon us, the price of gold will again (probably) rally. The extent of the rally will depend on the extent of the crisis." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How to motivate young people to save money | Talk freely about what you can now do because of saving. If you plan to retire sooner than most, or more comfortably than most, and can tie that to something you want them to do, show them that. If you buy a very nice car, or install a pool, and they wish they could afford that, tell them it took 5 or 10 or 20 years to save up for it, at x a week, and now you have it with no loan. Or be a cautionary tale: wish you had something, and regret not having saved for it. Young adults are generally well served by knowing more of parental finances than they did while they were dependents. Ask them if they will want or need to fund parental leaves, make a down payment for a house, own vacation property, put a child through post secondary education (share the cost of theirs including living expenses if you paid them), or go on amazing vacations fairly regularly. Tell them what those things cost in round figures. Explain how such a huge sum of money can accumulate over 2, 5, 10 years of saving X a month. for example $10 a week is $500 a year and so on. While they may not want to save 20 years for their downpayment, doing this simple math should let them map their savings amounts to concrete wishes and timeframes. Finally, if this is your own child and they live with you, charge them rent. This will save them from developing the habit of spending everything they earn, along with the expensive tastes and selfish speaking habits that come with it. Some parents set the rent aside and give it back as a wedding or graduation present, or to help with a downpayment later, but even if you don't, making them live within their true means, not the inflated means you have when you're living rent-free, is truly a gift. |
Share your insights or perspective on the financial matter presented in the input. | Buying Fixed Deposit in India from Europe | If the intention is after maturing to convert back the Rupees into Euro, its not a good idea. Generally the interest rate in Euro and the interest rate in Rupee are offset by the predicted exchange rate. i.e. the Rupee will fall compared to Euro by similar rate. The point at Step 5 is generally what is expected to happen. At times this can be less or more depending on the local / global factors. So on average you will not make money, some times you will loose and sometimes you will gain. Plus I have shown flat conversion rates, typically there is a Buy Rate and a Sell Rate for a pair of currencies. There is a difference / spread that is the margins of Bank. Typically in the range of 2 to 4% depending on the currency pairs. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is the “Bernanke Twist” and “Operation Twist”? What exactly does it do? | "So ""Operation Twist"" is actually a pretty simple concept. Here's the break down: The Fed sells short-term treasury bonds that it already holds on its books. Short-term treasury bonds refer to - bonds that mature in less than three years. Then: Uses that money to buy long term treasury bonds. Long-term treasury bonds refer to - bonds that mature in six to 30 years The reason: The fed buys these longer-term treasuries to lower longer-term interest rates and encourage more borrowing and spending. Diving deeper into how it works: So the Fed can easily determine short-term rates by using the Federal funds rate this rate has a direct effect on the following: However this does not play a direct role in influencing the rate of long-term loans (what you might pay on a 30-year fixed mortgage). Instead, long-term rates are determined by investors who buy and sell bonds in the bond market, which changes daily. These bond yields fluctuate depending on the health of the economy and inflation. However, the Fed funds rate does play an indirect role in these rates. So now that we know a little more about what effects what rate, why does lower long-term rates in treasuries influence my 30yr fixed mortgage? Well when you are looking for a loan you are entering a market and competing against other people, by people I mean anyone looking for money (e.g: my grandmother, companies, or the US government). The bank that lends you money has to decide weather the deal you are offering them is better then another deal on the market. If the risk of lending to one person is the same as the risk of lending to another, the bank will make whichever loan yields the higher interest rate. The U.S. government is considered a very safe borrower, so much so that government bonds are considered almost “risk free”, but because of the lower risk the rate of return is lower. So now the bank has to factor in this risk and make its decision weather to lend you money, or the government. So, if the government were to go to the market and buy its own long-term bonds it is adding demand in the market causing the price of the bond to rise in effect lowering the interest rate (when price goes up, yield goes down). So when you go back and ask for a loan it has to re-evaluate and decide ""Is it worth giving this money to Joe McFreeBeer instead and collecting a higher yield?"" (After all, Joe McFreeBeer is a nice guy). Here's an example: Lets say the US has a rating of 10 out of 10 and its bonds pay a 2% yield. Now lets say for each lower mark in rating the bank will lend at a minimum of 1% higher and your rating is 8 of 10. So if you go to market, the lowest rate you can get will be 4%. Now lets say price rises on the US treasury and causes the rate to go down by 1%. In this scenario you will now be able to get a loan for 3% and someone with a rating of 7 of 10 would be able to get that 4% loan. Here's some more info and explinations: Why is the Government Buying Long-Term Bonds? What Is 'Operation Twist'? A Q&A on US Fed Program Federal Reserve for Beginners Federal Open Market Committee" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Is it ever logical to not deposit to a matched 401(k) account? | "The original question was aimed at early payment on a student loan at 6%. Let's look at some numbers. Note, the actual numbers were much lower, I've increased the debt to a level that's more typical, as well as more likely to keep the borrower worried, and ""up at night."" On a $50K loan, we see 2 potential payoffs. A 6 year accelerated payoff which requires $273.54 extra per month, and the original payoff, with a payment of $555.10. Next, I show the 6 year balance on the original loan terms, $23,636.44 which we would need to exceed in the 401(k) to consider we made the right choice. The last section reflects the 401(k) balance with different rates of return. I purposely offer a wide range of returns. Even if we had another 'lost decade' averaging -1%/yr, the 401(k) balance is more than 50% higher than the current loan debt. At a more reasonable 6% average, it's double. (Note: The $273.54 deposit should really be adjusted, adding 33% if one is in the 25% bracket, or 17.6% if 15% bracket. That opens the can of worms at withdrawal. But let me add, I coerced my sister to deposit to the match, while married and a 25%er. Divorced, and disabled, her withdrawals are penalty free, and $10K is tax free due to STD deduction and exemption.) Note: The chart and text above have been edited at the request of a member comment. What about an 18% credit card? Glad you asked - The same $50K debt. It's tough to imagine a worse situation. You budgeted and can afford $901, because that's the number for a 10 year payoff. Your spouse says she can grab a extra shift and add $239/mo to the plan, because that' the number to get to a 6 year payoff. The balance after 6 years if we stick to the 10 year plan? $30,669.82. The 401(k) balances at varying rates of return again appear above. A bit less dramatic, as that 18% is tough, but even at a negative return the 401(k) is still ahead. You are welcome to run the numbers, adjust deposits for your tax rate and same for withdrawals. You'll see -1% is still about break-even. To be fair, there are a number of variables, debt owed, original time for loan to be paid, rate of loan, rate of return assumed on the 401(k), amount of potential extra payment, and the 2 tax rates, going in, coming out. Combine a horrific loan rate (the 18%) with a longer payback (15+ years) and you can contrive a scenario where, in fact, even the matched funds have trouble keeping up. I'm not judging, but I believe it's fair to say that if one can't find a budget that allows them to pay their 18% debt over a 10 year period, they need more help that we can offer here. I'm only offering the math that shows the power of the matched deposit. From a comment below, the one warning I'd offer is regarding vesting. The matched funds may not be yours immediately. Companies are allowed to have a vesting schedule which means your right to this money may be tiered, at say, 20%/year from year 2-6, for example. It's a good idea to check how your plan handles this. On further reflection, the comments of David Wallace need to be understood. At zero return, the matched money will lag the 18% payment after 4 years. The reason my chart doesn't reflect that is the match from the deposits younger than 4 years is still making up for that potential loss. I'd maintain my advice, to grab the match regardless, as there are other factors involved, the more likely return of ~8%, the tax differential should one lose their job, and the hope that one would get their act together and pay the debt off faster." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Should I buy a house or am I making silly assumptions that I can afford it? | "The (interest bearing) mortgage of £300,000 would be SIX times your salary. That's a ratio that was found in Japan, and (I believe) was a main reason for their depressed economy of the past two decades. Even with an interest free loan of nearly £150,000, it would be a huge gamble for someone of your income. Essentially, you are gambling that 1) your income will ""grow"" into your mortgage, (and that's counting income from renting part of the property) or 2) the house will rise in value, thereby bailing you out. That was a gamble that many Americans took, and lost, in the past ten years. If you do this, you may be one of the ""lucky"" ones, you may not, but you are really taking your future in your hands. The American rule of thumb is that your mortgage should be no more than 2.5-3 times income, that is maybe up to £150,000. Perhaps £200,000 if £50,000 or so of that is interest free. But not to the numbers you're talking about." |
Share your insights or perspective on the financial matter presented in the input. | What is a subsidy? | Subsidy usually means gratuitous financial support. For example, if for whatever reason you live much below the living average paying utility services in full might be too expensive - you'll be out of money before you even think of buying food and basic clothes. Yet it's clear that once can't live in a city without utility services. So the government might have a program for subsidizing utility services for people with very low income - a person brings in proof of low income and once it is low enough government will step in and pay that person utility services in full or in part depending on actual income he proves. The same can be organized for anything government or some organization wishes to support for whatever reason. The key idea is someone gives you free money for spending on some specific purpose. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Who sets the prices on government bonds? | "Who sets the prices? Effectively the market does, like basically all openly traded things. The Greek government could well have said ""5% is as high as we will go"". As a result, investors may not have chosen to buy the securities. The global bond market is highly liquid, and investors who have a choice could well then choose to go elsewhere. The reasons could well be varied, but primary among them would be that investors view Greek investments as more than 5% risky. If I can get 5% from a country that I deem less risky than from Greece, my choice is clear. Therefore to be compensated for loaning them my money, I am expecting a return of 7% because there is the possibility that they will default. As for not selling them at all, if they could avoid issuing bonds, most governments would. They may not have had much of a choice. If they just print more money, that does other potentially bad things to the economy. The government needs funds to operate, if they are not collecting enough in taxes, for example, and do not want to print money as I mentioned, then bonds are one other common way to raise cash. Notwithstanding that in your example you are referring to the interest rate, not the price, the principal is the same." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What does quantitative easing 2 mean for my bank account? | QE2 will mean that there are about $500 billion dollars in existence which weren't there before. These dollars will all be competing with the existing dollars for real goods and services, so each dollar will be worth a little less, and prices will rise a little. This is inflation. You can probably expect 1.5%-2% annual inflation for the US dollar over the next several years (the market certainly does in the aggregate, anyway). This is in terms of US-based goods and services. QE2 will also reduce the amount of other currencies you can get for the same dollar amount. The extent to which this will occur is less clear, in part because other currencies are also considering quantitative easing. Your long-term savings should probably not be in cash anyway, because of the low returns; this will probably affect you far more than the impact of quantitative easing. As for your savings which do remain in cash, what you should do with them depends on how you plan to dispose of them. The value of a currency is usually pretty stable in terms of the local economy's output of goods and services - it's the value in international trade which tends to fluctuate wildly. If you keep your savings in the same currency you plan to spend them in, they should be able to maintain their value decently well in the intermediate term. |
Share your insights or perspective on the financial matter presented in the input. | What is the best credit card for someone with no credit history | If you've never had a credit card before a likely reason can be due to lack of credit history. You can apply for a department store card. Nordstroms, Macy's, Target will often grant a small line of credit even with no history. Target would be my first attempt as they have a wide selection of every day items, improving your usage on the card. If you've been denied due to too many applications, then you need to wait 18-24 months for the hard pulls to drop off your credit report before you apply again. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why are “random” deposits bad? | "Random deposits are a bit like playing the lotery - especially if one is frequently chasing ""hot tips"". You might make it big, but the odds are vastly against you. ""Random"" deposits into various investments won't be optimal, because such ""random"" decisions will not be properly diversified and balanced. Various investments have different rates of risk and return. ""Random"" deposits will not take this into account for an individual's personal situation. In addition to needing to research individual investments as they are made, investments also need to be considered as part of a whole financial picture. A few considerations for example: Simply put, random isn't a financial strategy." |
Share your insights or perspective on the financial matter presented in the input. | Is it worth trying to find a better minimum down payment for a first time home buyer? | It's worthwhile to try and find a better minimum down-payment. When I bought my home, I got an FHA loan, which drastically reduced the minimum down-payment required (I think the minimum is 3% under FHA). Be aware that any down-payment percentage under 20% means that you'll have to pay for private mortgage insurance (PMI) as part of your monthly mortgage. Here's a good definition of it. Part of the challenge you're experiencing may be that banks are only now exercising the due diligence with borrowers for mortgages that they should have been all along. I hope you're successful in finding the right payment. Getting a mortgage to reduce your spending on housing relative to rent is a wise move. In addition to fixing your monthly costs at a consistent level (unlike rent, which can rise for reasons you don't control), the mortgage interest deduction makes for a rather helpful tax benefit. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | classify investments in to different asset types | REITs can be classified as equity, mortgage, or hybrid. A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. Trades like equity but the underlying is a property ot mortgage. So you are investing in real estate but without directly dealing with it. So you wouldn't classify it as real estate. CD looks more like a bond.If you look at the terms and conditions they have many conditions as a bond i.e. callable, that is a very precious option for both the buyer and seller. Self occupied house - Yes an asset because it comes with liabilities. When you need to sell it you have to move out. You have to perform repairs to keep it in good condition. Foreign stock mutual fund - Classify it as Foreign stocks, for your own good. Investments in a foreign country aren't the same as in your own country. The foreign economy can go bust, the company may go bust and you would have limited options of recovering your money sitting at home and so on and so forth. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What is the big deal about the chinese remnibi trading hub that opened in toronto | Chinese suppliers can quote their price in CNY rather than USD (as has been typical), and thus avoid the exchange risk from US dollar volatility- the CNY has been generally appreciating so committing to receive payments in US dollars when their costs are in CNY means they are typically on the losing end of the equation and they have to pad their prices a bit. Canadian importers will have to buy RMB (typically with CAD) to pay for their orders and Canadian exporters can take payment in RMB if they wish, or set prices in CAD. By avoiding the US dollar middleman the transactions are made less risky and incur less costs. Japan did this many decades ago (they, too, used to price their products in USD). This is important in transactions of large amounts, not so much for the tiny amounts associated with tourism. Two-way annual trade between China and Canada is in excess of $70bn. Of course Forex trading may greatly exceed the actual amounts required for trade- the world Forex market is at least an order of magnitude greater than size of real international trade. All that trading in currency and financial instruments means more jobs on Bay Street and more money flowing into a very vital part of the Canadian economy. Recent article from the (liberal) Toronto Star here. |
Share your insights or perspective on the financial matter presented in the input. | How frequently should I request additional credit? | "I don't know of a guideline to how often you can ask for an increase. You can ask as often as you like. As for consequences, refer to Is there a downside to asking for a credit increase?, where the consensus is that, aside from a possible (temporary) hard pull on your credit report, there's probably no risk to asking. Depending on your credit score/history, and especially in the current economy, you may get ""no"" as an answer most often. You can try talking to your card's Credit Department or even Customer Retention Department as they may have more leverage. They may say yes or no or that they need to review your account. When you do ask for an increase, I would make sure to ask if there will be a hard pull on your report, if there is any cost or downside to applying, and to make sure that this would be an increase to your current credit line, not a new account." |
Share your insights or perspective on the financial matter presented in the input. | What is the best way to stay risk neutral when buying a house with a mortgage? | To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Relation between interest rates and currency for a nation | What you are asking about is called Interest Rate Parity. Or for a longer explanation the article Interest Rate Parity at Wikipedia. If the US has a rate of say zero, and the rate in Elbonia is 10%, one believes that in a year the exchange rate will be shifted by 10%, i.e. it will take 1.1 unit of their currency to get the dollars one unit did prior. Else, you'd always profit from such FOREX trades. (Disclaimer - I am not claiming this to be true or false, just offering one theory that explains the rate difference effect on future exchange rates. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Opportunity to buy Illinois bonds that can never default? | "Can't declare bankruptcy isn't the same as ""can't default"". Bankruptcy is a specific legal process for discharging or restructuring debts. If Illinois can't declare bankruptcy, that means it will still owe you the money for the bonds no matter what, but it doesn't guarantee that it will actually pay you what it owes. If Illinois should run out of money to pay what's due on its bonds, then it will default. Unlike the federal government, Illinois can't print money to make the payments." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How foreign cash is beneficial for a country? | Let me ask you another question: if that person stayed at home and made a widget instead, would exporting that widget benefit his home country? There is no difference, economically, between the two situations. A foreign worker sending home remittances is no different from a local manufacturer exporting their products. Both are earning export dollars for themselves and their home countries. Is this a good thing or a bad thing? Clearly, the answer is yes - this is a good thing or a bad thing but we cannot know which in isolation. However, in general, foreign worker remittances are overwhelmingly beneficial for the host (which gets work done that otherwise would not be done) and the source (which gets export income. With reference to your particular question about local inflation, a rise in exports causes appreciation in the exchange rate i.e. local currency becomes more expensive with respect to (in this case) the Euro. Appreciation in the exchange rate actually puts downward pressure on inflation. However, the absence of our worker from the local economy puts upward pressure on local wages and and hence inflation. Both of these effects are small and other factors will dominate them. |
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