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Offer your insights or judgment on the input financial query or topic using your financial expertise. | Do the gain and loss during futures rollover each month will be even out in long run? | There are 2 schools of thought in determining the price of a future contract in a day prior to expiration. The cost of carry model, states that the price of a future contract today is the spot price plus the cost of carrying the underlying asset until expiration minus the return that can be obtained from carrying the underlying asset. FuturePrice = SpotPrice + (CarryCost - CarryReturn) The expectancy model, states that the price of the futures contract depends on the expectation about the spot market's price in the future. In this case, the price of the future contract will diverge from the spot price depending on how much the price is expected to rise or fall before expiration. A few glossary terms: cost of carry For physical commodities such as grains and metals, the cost of storage space, insurance, and finance charges incurred by holding a physical commodity. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of funds necessary to buy the instrument. Also referred to as carrying charge. spot price The price at which a physical commodity for immediate delivery is selling at a given time and place. The cash price. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Where can I find company filing information in Singapore? | If you are refering to company's financial reports and offerings, the required source for companies to disclose the information is the SGX website (www.sgx.com) under the Company Disclosure tab. This includes annual statements for the last 5 years, prospectus for any shares/debentures/buy back/etc which is being offered, IPO offers and shareholders meetings. You may also find it useful to check the Research section of the SGX website where some of the public listed companies have voluntarily allowed independent research firms to monitor their company for a couple of years and produce a research report. If you are referring to filings under the Companies Act, these can be found at the Accounting and Regulatory Authority (ACRA) website (www.acra.gov.sg) and you can also purchase extracts of specific filings under the ACRA iShop. To understand the Singapore public listing system and the steps to public listing, you may find it useful to purchase one of the resource documents available for Singapore law, finance, tax and corporate secretaryship which are sold by CCH (www.cch.com.sg). Specifically for public listing the Singapore Annotated Listing Manual may help. It is common practice for companies here to employ law firms and research firms to do the majority of this research instead of doing it themselves which I one of the reasons this information is online but perhaps not so visible. I hope I have understood your question correctly! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Will having a secondary signee with bad credit on a mortgage raise or lower interest? | between two people purchasing a house together, one with good and one with bad credit, will having both persons on the loan raise the interest rates. If the house deed is on both names, generally the Bank would insist the loan should also be on both of your names. This to ensure that Bank has enough leverage to recover the house in case of default. If one of you has bad credit, bank would raise the interest rate, assumption that bad credit would drag the good credit and force him to some activities / actions that could stretch the finance of one with good credit. If timely payments are not made, it would make your good credit to bad. If the house deed is on only on your name and you can get the loan on your own, this would be a better position. If the house deed is on only on your name and you would like to loan to be on both names, then the positive side is credit score of the person with bad credit would start showing improvement over period, provided both of you make timely payments. As pointed out by keshlam, there are enough question where people have entered into agreement without deciding what would happen if they separate. There is no right / wrong answer. It would be best you decide how it would be with respect to the ownership in the house and with respect to payments and if in worst case you part ways, how the settlement should look like. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Responsible investing - just a marketing trick? | "You are correct that, barring an equity capital raise, your money doesn't actually end up in the company. However, interest in their stock can help a company in other ways; Management/board members hopefully own shares or options themselves, thus knowing that ""green"" policies are favorable for the stock price (as your fund might buy shares) can be quite an incentive for them to go green(er). Companies with above average company share performance are also often viewed as financially healthy and so creditors tend to charge lower interest for companies with good share performance. Lastly, a high share price makes a company difficult to take over (as all those shares have to be acquired) and at the same time makes it easier for the company to perform takeovers themselves as they can finance such acquisitions by issuing more of their own shares. There is also the implication that money flowing towards such green companies is money flowing out of/away from polluting companies, for these ""dirty"" companies the inverse of the previous points can hold true. Of course on the other hand there is quite an argument to be made that large enough ""green"" funds should actually buy substantial positions in companies with poor environmental records and steer the company towards greener policies but that might be a hard sell to investors." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Should I participate in a 401k if there is no company match? | With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain. Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost. My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can. (The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA) |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Most common types of financial scams an individual investor should beware of? | "Affinity fraud. You see, Madoff really didn't have to sell himself, people recommended him to their friends. In a similar way, it's easy once a scammer reels in one sucker to keep him on the hook long enough to get 10 friends to invest as well. I've written about Mortgage Acceleration scams, and the common thread is that they are first sold to friends, relatives, neighbors. People tell their fellow church goer about it and pretty soon people's belief just takes over as they want it to work. Edit - the scam I referenced above was the ""Money Merge Account"" and its reincarnated ""Wealth Unlimited."" It claimed to use sophisticated software to enable one to pay their mortgage in less than half the time while not changing their budget. The sellers of the product weren't able to explain how it was supposed to work, since it was nonsense anyway. You were supposed to be able to borrow against a HELOC at a rate higher than your mortgage, yet come out ahead, enough to cut the time in half or less. The link I posted above leads to a spreadsheet I wrote in a weekend, which was better at the math than their software and free. It also linked to 66 pages of accumulated writing I did over a number of months starting in 2008. In the end, I never saw any prosecution over this scam, I suppose people were too embarrassed once they realized they wasted $3500. How can I get scammed buying S&P ETFs through Schwab? Easy, I can't." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Which student loans to pay off first: Stafford or private? | At the current rates, stated in the question, I would push additional funds towards your Stafford loans as their higher interest rates will incur interest charges almost 3 times faster than your private loans. With my loans I have not seen much information regarding private loans jumping the interest rate close to the 6.8% any time in the coming years (if others have insight to this I look forward to the comments). Due to the private loans being variable there is an element of risk to their rates increasing. Another way to look at it may be to prorate your amount of extra payments according to their interest rate. $1,000 x 0.068 /(0.068 + 0.025) = $731.18 Toward your Stafford Loans $1,000 x 0.025 /(0.068 + 0.025) = $268.82 Toward your Private Loans |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Impact of RMD on credit worthiness | I feel like this has nothing to do with income, and as such RMDs will not really help or harm you. After a person passes, credit card companies are unlikely to collect any outstanding balance. Debts cannot be inherited, however, assets can be made to stand for debts. Many assets pass to heirs without the probate process and in some cases all of them pass this way. This leaves creditors with nothing and having to write off the balance. Even if assets do pass through probate heirs may dispute the creditors. In that case credit card balances may not be high enough justify hiring a lawyer to fight for payment; or, if they do the judge may be unsympathetic and offer nothing or pennies on the dollar. The bottom line is that they probably see you, or your demographic, as a poor credit risk and reduced their exposure by lowering your limit. While that is not what they told you, they probably have to carefully structure what they say to avoid any discrimination claims. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why do so many NFL (pro football) players have charities? | "In addition to tax-related benefits, one answer may be that it helps them avoid being inundated with requests to support other foundations. Most charities have access to public records that indicate potential donors based on income and demographic. They can use that info to solicit for donations. ""Hey NFL Player, you have lots of money, and we have cute starving emus that really need your help!"" Here's a blurb from Foundation Source about some of the benefits to starting your own foundation. Get an Immediate Tax Deduction, but Give Later: You get the tax deduction when the foundation is funded, then make your charitable gifts over time. Leave a Lasting Legacy: Foundations set up in perpetuity can burnish your name far beyond your lifetime. Because gifts are made from an endowment that generates investment revenue, the total gifts made by the foundation can far surpass the actual funding. Be Taken More Seriously as a Philanthropist: A foundation imparts a gravitas that causes people to take your philanthropy more seriously, due to the structured, organized approach you employ for your giving. Sidestep Unsolicited Requests: When you focus your foundation on specific giving areas, your mission statement can be used to politely turn down off-target funding requests. Deepen and Focus Your Philanthropy: Whereas individual donors often spread their giving among as many causes as possible, the formalized structure of a foundation often encourages donors to narrow their focus to specific causes. Build a Better Family: As family members take on philanthropic research, present their findings to the board, participate in the decision-making process, and track results, they hone skills that will serve them for years to come. Tax-Deductible Grants to Individuals in Need: A private foundation allows you to provide emergency assistance directly to individuals using dollars for which you’ve already received a tax deduction. Run Charitable Programs Without Setting Up a Separate Nonprofit: Direct charitable activities are IRS-approved programs that permit foundations to directly fund and carry out their own projects. Pay Charitable Expenses: All legitimate and reasonable expenses incurred in carrying out the foundation’s charitable mission can be paid by the foundation and will count toward the annual minimum distribution requirement. Provide Loans Instead of Grants: When used to support a charitable purpose, private foundations can employ loans, loan guarantees, and even equity investments, which are paid back (potentially with interest), so you can recycle your philanthropic capital for other charitable causes. https://www.foundationsource.com/resources/library/top-10-advantages-of-a-private-foundation/ There's a similar list here on the website for an attorney that specializes in philanthropy and non-profits. I won't copy/paste that list as it's similar, but I wanted to provide an additional source confirming the above benefits. This link contains some disadvantages as well. http://www.hurwitassociates.com/l_start_pros.php" |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How should I be contributing to my 401(k), traditional or Roth? | "I wrote a brilliant guest post at Don't Mess With Taxes, titled Roth IRAs and Your Retirement Income. (Note - this article now reflects 2012 rates. Just updated) Simply put, it's an ongoing question of whether your taxes will be higher now than at any point in the future. If you are in the 25% bracket now, it would take quite of bit of money for your withdrawals to put you in that bracket at retirement. In the case of the IRA, you have the opportunity to convert in any year between now and retirement if your rate that year drops for whatever reason. The simplest case is if you are now in the 25% bracket. I say go pre-tax, and track, year by year what your withdrawal would be if you retired today. At 15%, but with a good chance for promotion to the 25% bracket, start with Roth flavor and then as you hit 25%, use a combination. This approach would smooth your marginal rate to stay at 15%. To give you a start to this puzzle, in 2012, a couple has a $11,900 standard deduction along with 2 exemptions of $3800 each. This means the first $19,500 in an IRA comes out tax free at retirement. If you believe in a 4% withdrawal rate, you need a retirement account containing $500K pretax to generate this much money. This tick up with inflation, 2 years ago, it was $18,700 and $467K respectively. This is why those who scream ""taxes will go up"" may be correct, but do you really believe the standard deduction and exemptions will go away? Edit - and as time passes, and I learn more, new info comes to my attention. The above thoughts not withstanding, there's an issue of taxation of Social Security benefits. This creates a The Phantom Tax Rate Zone which I recently wrote about. A single person with not really too high an income gets thrust into the 46% bracket. Not a typo, 46.25% to be exact." |
Share your insights or perspective on the financial matter presented in the input. | 23 and on my own, what should I be doing? | "Congratulations on earning a great income. However, you have a lot of debt and very high living expenses. This will eat all of your income if you don't get a hold of it now. I have a few recommendations for you. At the beginning of each month, write down your income, and write down all your expenses for the month. Include everything: rent, food, utilities, entertainment, transportation, loan payments, etc. After you've made this plan for the month, don't spend any money that's not in the plan. You are allowed to change the plan, but you can't spend more than your income. Budgeting software, such as YNAB, will make this easier. You are $51,000 in debt. That is a lot. A large portion of your monthly budget is loan payments. I recommend that you knock those out as fast as possible. The interest on these loans makes the debt continue to grow the longer you hold them, which means that if you take your time paying these off, you'll be spending much more than $51k on your debt. Minimize that number and get rid of them as fast as possible. Because you want to get rid of the debt emergency as fast as possible, you should reduce your spending as much as you can and pay as much as you can toward the debt. Pay off that furniture first (the interest rate on that ""free money"" is going to skyrocket the first time you are late with a payment), then attack the student loans. Stay home and cook your own meals as much as possible. You may want to consider moving someplace cheaper. The rent you are paying is not out of line with your income, but New York is a very expensive place to live in general. Moving might help you reduce your expenses. I hope you realize at this point that it was pretty silly of you to borrow $4k for a new bedroom set while you were $47k in debt. You referred to your low-interest loans as ""free money,"" but they really aren't. They all need to be paid back. Ask yourself: If you had forced yourself to save up $4k before buying the furniture, would you still have purchased the furniture, or would you have instead bought a used set on Craigslist for $200? This is the reason that furniture stores offer 0% interest loans. They got you to buy something that you couldn't afford. Don't take the bait again. You didn't mention credit cards, so I hope that means that you don't owe any money on credit cards. If you do, then you need to start thinking of that as debt, and add that to your debt emergency. If you do use a credit card, commit to only charging what you already have in the bank and paying off the card in full every month. YNAB can make this easier. $50/hr and $90k per year are fairly close to each other when you factor in vacation and holidays. That is not including other benefits, so any other benefits put the salaried position ahead. You said that you have a few more years on your parents' health coverage, but there is no need to wait until the last minute to get your own coverage. Health insurance is a huge benefit. Also, in general, I would say that salaried positions have better job security. (This is no guarantee, of course. Anyone can get laid off. But, as a contractor, they could tell you not to come in tomorrow, and you'd be done. Salaried employees are usually given notice, severance pay, etc.) if I were you, I would take the salaried position. Investing is important, but so is eliminating this debt emergency. If you take the salaried position, one of your new benefits will be a retirement program. You can take advantage of that, especially if the company is kicking in some money. (This actually is ""free money."") But in my opinion, if you treat the debt as an emergency and commit to eliminating it as fast as possible, you should minimize your investing at this point, if it helps you get out of debt faster. After you get out of debt, investing should be one of your major goals. Now, while you are young and have few commitments, is the best time to learn to live on a budget and eliminate your debt. This will set you up for success in the future." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Advantages of paying more of your mortgage while you know you won't continue to live there your whole life | "In the Netherlands specifically, there are several reasons to pay extra off on your mortgage. First, house prices have dropped significantly in the last several years. They are rising slowly now, but it's region specific and you can still borrow more than 100% of the price of the house. Under these conditions, if you choose to sell your house and the outstanding mortgage amount is greater than the value of your house, you are left with a gap (restschuld) to finance. I think the rules have changed recently around this, allowing you to finance this gap with a new mortgage, but this is not a good idea. The tax implications of this are likely to be complicated in the long run and your new house may not cover this gap for some time. Second, the less you owe on your house, the lower mortgage rates you can get. Mortgages in the Netherlands usually fall into categories based on percentage of the auction price at a foreclosure sale (executiewaarde). If you pay more of your mortgage off, you may qualify for a lower interest rate, possibly making refinancing interesting. This is especially important if interest rates continue to drop but the value of your house does not increase or even decreases. Third, if you choose to keep your house and rent it out, the banks in the Netherlands have very strict rules on this if you want to do it above board. I've read that some banks require the mortgage amount (NB not the value you may have built up in a linked savings or insurance account) to be less than 50% of the foreclosure auction price (executiewaarde). Also, related to point 2, if you have something other than a linear or annuity mortgage, you will need to refinance to do this as the tax advantages around savings mortgages ([bank]spaarhypotheken) do not apply if it is not used as your own residence. Finally, if you choose to sell and you are in the happy position of having the value of your house be greater than the value of your mortgage (you have an overwaarde), there may still be some obstacles. Any value you have accumulated in a linked savings or life insurance account is not available until after you sell your house. Extra value derived purely from the difference between mortgage value and sale price may be easier to deal with. EDIT: As a final note, I've made extra payments on both a ""Spaarhypotheek"" (linked life insurance) and a ""Bankspaarhypotheek"" (linked savings account). In one, the principal paid each month reduced and the mortgage lifetime stayed the same. In the other, the principal paid each month stayed the same and the lifetime reduced. In both cases, interest payments were less each month. I would contact your mortgage provider to understand what the expected impact of extra payments will be." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How to prepare to purchase a house? (Germany) | "Figure out how much money you earn, what you spend it on, and how that will change when you have kids (will one of you stay at home? if not, how much will daycare cost and how do you finance the first few month when your child is still too young for daycare?) You will usually plan to spend your current Kaltmiete (rent without utilities) on your mortgage (the Darlehen that is secured by your house) - keep in mind though that a house usually has a higher utility cost than an appartment. When you've figured out what you can save/pay towards a house now and how that will change when you have kids, you can go on to the next step. If you don't want to buy now but want to commit to saving up for a house and also want to secure today's really low interest rates, consider getting a ""Bausparvertrag"". I didn't find a good translation for Bausparvertrag, so here is a short example of how it works: You take a building saving sum (Bausparsumme) of 150000€ with a savings goal (Sparziel) of 50000€ (the savings goal is usually between 20% and 50% of the sum) and then you make monthly payments into the Bausparvertrag until you reach the savings goal at which point you can take out your savings and a loan of 100000 € (or whatever your difference between the Bausparsumme and Sparziel is). If you're living in an expenisve area, you're likely to need more than 150000 but this is just an example. Upsides: Downsides: If you decide to buy sooner, you can also use your Bausparvertrag to refinance later. If you have a decent income and a permanent job, then ask your bank if they would consider financing your house now. To get a sense of what you'll be able to afford, google ""wie viel Haus kann ich mir leisten"" and use a few of the many online calculators. Remember that these websites want to sell you on the idea of buying a house instead of paying rent, so they'll usually overestimate the raise in rents - repeat the calculation with rent raise set to 0% to get a feeling for how much you'll be able to afford in today's money. Also, don't forget that you're planning to get children, so do the calculation with only one income, not two, and add the cost of raising the kids to your calculation. Once you've decided on a property, shop around a bit at different banks to get the best financing. If you decide to buy now (or soon), start looking at houses now - go to model homes (Musterhäuser) to find out what style of house you like - this is useful whether you want to buy an existing house or build a new one. If buying an existing house is an option for you, start visiting houses that are on sale in your area in order to practice what to ask and what to look for. You should have a couple of visits under your belt before you really start looking for the one you want to buy. Once you're getting closer to buying or making a contract with a construction company, consider getting an expert ""Bausachverständiger"". When buying an existing house they can help you estimate the price and also estimate the renovation cost you'll have to factor in for a certain house (new heating, better insulation, ...). When building a new house they can advise you on the contract with the construction company and also examine the construction company's work at each major step (Zwischenabnahme). Source: Own experience." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Car Loan upside down--refinance before selling? | Carmax will be interested in setting a price that allows them to make money on the reselling of the vehicle. They won't offer you more than that. The determination of the value compared to the BlueBook value is based on condition and miles. The refinancing of the auto loan could lower your monthly payment, but may not save you any money in the short term. The new lender will also want an evaluation of the vehicle, and if it is less than the payoff amount of the current loan they will ask you to make a lump sum payment. This is addition to the cost of getting the new loan setup. If you can pay the delta between the value of the car and loan then do so, when you sell the car. Don't refinance unless you plan on keeping the car for many months, or you are just adding paperwork to the transaction. |
Share your insights or perspective on the financial matter presented in the input. | How do you quantify investment risk? | "The question is: how do you quantify investment risk? As Michael S says, one approach is to treat investment returns as a random variable. Bill Goetzmann (Yale finance professor) told me that if you accept that markets are efficient or that the price of an asset reflects it's underlying value, then changes in price represent changes in value, so standard deviation naturally becomes the appropriate measure for riskiness of an asset. Essentially, the more volatile an asset, the riskier it is. There is another school of thought that comes from Ben Graham and Warren Buffett, which says that volatility is not inherently risky. Rather, risk should be defined as the permanent loss of capital, so the riskiness of an asset is the probability of a permanent loss of capital invested. This is easy to do in casino games, based on basic probability such as roulette or slots. But what has been done with the various kinds of investment risks? My point is saying that certain bonds are ""low risk"" isn't good enough; I'd like some numbers--or at least a range of numbers--and therefore one could calculate expected payoff (in the statistics sense). Or can it not be done--and if not, why not? Investing is more art than science. In theory, a Triple-A bond rating means the asset is riskless or nearly riskless, but we saw that this was obviously wrong since several of the AAA mortgage backed securities (MBS) went under prior to the recent US recession. More recently, the current threat of default suggests that bond ratings are not entirely accurate, since US Treasuries are considered riskless assets. Investors often use bond ratings to evaluate investments - a bond is considered investment grade if it's BBB- or higher. To adequately price bonds and evaluate risk, there are too many factors to simply refer to a chart because things like the issuer, credit quality, liquidity risk, systematic risk, and unsystematic risk all play a factor. Another factor you have to consider is the overall portfolio. Markowitz showed that adding a riskier asset can actually lower the overall risk of a portfolio because of diversification. This is all under the assumption that risk = variance, which I think is bunk. I'm aware that Wall Street is nothing like roulette, but then again there must be some math and heavy economics behind calculating risk for individual investors. This is, after all, what ""quants"" are paid to do, in part. Is it all voodoo? I suspect some of it is, but not all of it. Quants are often involved in high frequency trading as well, but that's another note. There are complicated risk management products, such as the Aladdin system by BlackRock, which incorporate modern portfolio theory (Markowitz, Fama, Sharpe, Samuelson, etc) and financial formulas to manage risk. Crouhy's Risk Management covers some of the concepts applied. I also tend to think that when people point to the last x number of years of stock market performance, that is of less value than they expect. Even going back to 1900 provides ""only"" 110 years of data, and in my view, complex systems need more data than those 40,500 data points. 10,000 years' worth of data, ok, but not 110. Any books or articles that address these issues, or your own informed views, would be helfpul. I fully agree with you here. A lot of work is done in the Santa Fe Institute to study ""complex adaptive systems,"" and we don't have any big, clear theory as of yet. Conventional risk management is based on the ideas of modern portfolio theory, but a lot of that is seen to be wrong. Behavioral finance is introducing new ideas on how investors behave and why the old models are wrong, which is why I cannot suggest you study risk management and risk models because I and many skilled investors consider them to be largely wrong. There are many good books on investing, the best of which is Benjamin Graham's The Intelligent Investor. Although not a book on risk solely, it provides a different viewpoint on how to invest and covers how to protect investments via a ""Margin of Safety."" Lastly, I'd recommend Against the Gods by Peter Bernstein, which covers the history of risk and risk analysis. It's not solely a finance book but rather a fascinating historical view of risk, and it helps but many things in context. Hope it helps!" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Are there Cashflow Positive Investment Properties in the USA? | "Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing. However, these are not something ""everyone"" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand. Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment. Many times ""advertised"" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told ""hey, buy it and you'll be able to rent it out at $900"" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent. But all that said - yes, those who can - are snapping." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How to get the lowest mortgage rate on a new purchase? | Purchase loans tend to be more challenging to get the best possible rate, because you have to balance closing the loan and getting the contract. So there isn't as much time to shop around as when you do a refinance. I disagree with the sentiment to go with your local bank. Nothing wrong with asking at your local bank and using their numbers as a baseline, but chances are they won't be competitive. There are many reputable online mortgage originators that will show accurate fees and rates upfront assuming you provide accurate information. In the past there were a lot of issue with Good Faith Estimates being pretty much worthless. There were a fair number of horror stories about people showing up to closing and finding out fee or rates had increased dramatically. There was a law passed after the housing debacle that severely limits the shenanigans that lenders can do at closing and so there is less risk when going with a lesser known lender. In fact I would say the only real risk with a lender now days is choosing one that happens to be overloaded and or just has poor customer service in general. Personally I have found the most competitive rates from Zillow's mortgage service and the now defunct Google mortgage. The lenders tend to be smaller, but highly efficient. They are very much dependent on their online reputations. I have heard good things about a number of larger online lenders, but I don't have personal experience so I will leave them off. I personally wouldn't worry much about whether the loan is sold or not. Outside of refinancing I don't think I have ever talked to the bank servicing my mortgage about my mortgage. There just isn't much need to talk to them. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How should I distribute my savings? | "You need to track all of your expenses first, inventarize all of your assets and liabilities, and set financial goals. For example, you need to know your average monthly expenses and exactly what percentages interest each loan charges, and you need to know what to save for (your children, retirement, large purchases, etc). Then you create an emergency fund: keep between 4 to 6 months worth of your monthly expenses in a savings account that you can readily access. Base the size of your emergency fund on your expenses rather than your salary. This also means its size changes over time, for example, it must increase once you have children. You then pay off your loans, starting with the loan charging the highest interest. You do this because e.g. paying off $X of a 7% loan is equivalent to investing $X and getting a guaranteed 7% return. The stock market does generally does not provide guarantees. Starting with the highest interest first is mathematically the most rewarding strategy in the long run. It is not a priori clear whether you should pay off all loans as fast as possible, particularly those with low interest rates, and the mortgage. You need to read up on the subject in order to make an informed decision, this would be too personal advice for us to give. After you've created that emergency fund, and paid of all high interest loans, you can consider investing in vessels that achieve your set financial goals. For example, since you are thinking of having children within five years, you might wish to save for college education. That implies immediately that you should pick an investment vessels that is available after 20 year or so and does not carry too much risk (e.g. perhaps bonds or deposits). These are a few basic advices, and I would recommend to look further on the internet and perhaps read a book on the topic of ""personal finance""." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How do I refinance a car loan into someone else's name so it can be their car? | Your first step is to talk to the current lender and ask about refinancing in the other person's name. The lender is free to say no, and if they think the other person is unlikely to pay it back, they won't refinance. If you're in this situation because the other person didn't qualify for a loan in the first place, the lender probably won't change their mind, but it's still worth asking. From the lender's point of view, you'll be selling the other person the car. If they qualify for a loan, it's as simple as getting the loan from a bank, then doing whatever is required by your state to sell a car between either private parties or between relatives (depending on who the other person is). The bank might help you with this, or your state's DMV website. Here are a few options that don't involve changing who is on the loan: Taking out a loan for another person is always a big risk. Banks have entire departments devoted to determining who is a good credit risk, and who isn't, so if a person can't get a loan from a bank, it's usually for a good reason. One good thing about your situation: you actually bought the car, and are the listed owner. Had you co-signed on a loan in the other person's name, you'd owe the money, but wouldn't even have the car's value to fall back on when they stopped paying. |
Share your insights or perspective on the financial matter presented in the input. | Why ADP does not accurately withhold state and federal income tax (even if W4 is correct)? | ADP does not know your full tax situation and while the standard exemption system (actually designed by the IRS not ADP) works fairly well for most people it is an approximation. This system is designed so most people will end up with a small refund while some people will end up owing small amounts. So, while it is possible that ADP has messed up the calculations it is unlikely this is the cause. The most likely cause is that approximation ends ups making you pay less tax during the year than you actually owe. A few people like your friend may end up owing large amounts due to various circumstances. It is always your responsibility to make sure you pay enough tax throughout the year. While this technically means that you need to do your taxes every quarter during the year to make sure you pay the correct tax during the year, for most people this ends up being unnecessary as the approximation works fine. It is possible the exemption system failed your friend, but much more commonly people owe penalties because they put the wrong number of exemptions or had other side income. On a related note, most people in finance would argue that your situation where you owe some money at tax time, but not so much that you have to pay a penalty, is actually the best way to go. Getting a tax refund actually means you paid more tax than you needed to. This is similar to giving an interest-free loan to the government. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Comparison between buying a stock and selling a naked put | I sell a put for a strike price at the market. The stock rises $50 over the next couple months. I've gotten the premium, but lost the rest of the potential gain, yet had the downside risk the whole time. There's no free lunch. Edit - you can use a BS (Black-Scholes) calculator to create your own back testing. The calculator shows a 1% interest rate, 2% yield, and 15% volatility produce a put price almost identical to the pricing I see for S&P (the SPY ETF, specifically) $205 put. No answer here, including mine, gave any reference to a study. If one exists, it will almost certainly be on an index, not individual stocks. Note that Jack's answer referencing PUTX does exactly that. The SPY ETF and it put options. My suggestion here would, in theory, let you analyze this strategy for individual stock options as well. For SPY - With SPY at 204.40, this is the Put you'd look at - 12 times the premium is $33.36 or 16% the current price. The next part of the exercise is to see how the monthly ups and downs impact this return. A drop to $201 wipes out that month's premium. It happens that it now March 18th, and despite a bad start to the year, we are at break-even YTD. A peek back shows In Dec you picked up $2.87 premium, (1.4% the current price then) but in Jan, it closed for a loss of $12. Ouch. Now, if you started in January, you'd have picked up 2 month's premiums and today or Monday sell the 3rd. You'd have 2.8% profit so far, vs the S&P break even. Last, for now, when selling a naked put, you have to put up margin money. Not sure how much, but I use percent of the value of underlying stock to calculate returns. That choice is debatable, it just keeps percents clean. Else you put up no money and have infinite return. |
Share your insights or perspective on the financial matter presented in the input. | How to improve credit score and borrow money | "No you should not borrow money at 44.9%. I would recommend not borrowing money except for a home with a healthy deposit (called down payment outside UK). in December 2016, i had financial crisis So that was like 12 days ago. You make it sound like the crisis was a total random event, that you did nothing to cause it. Financial crises are rarely without fault. Common causes are failure to understand risk, borrowing too much, insuring too little, improper maintenance, improper reserves, improper planning, etc... Taking a good step or two back and really understanding the cause of your financial crisis and how it could be avoided in the future is very useful. Talk to someone who is actually wealthy about how you could have behaved differently to avoid the ""crisis"". There are some small set of crises that are no fault of your own. However in those cases the recipe to recovery is patience. Attempting to recover in 12 days is a recipe for further disaster. Your willingness to consider borrowing at 44% suggests this crisis was self-inflicted. It also indicates you need a whole lot more education in personal finance. This is reinforced by your insatiable desire for a high credit score. Credit score is no indication of wealth, and is meaningless until you desire to borrow money. From what I read, you should not be borrowing money. When the time comes for you to buy a home with a mortgage, its fairly easy to have a high enough credit score to borrow at a good rate. You get there by paying your bills on time and having a sufficient deposit. Don't chase a high credit score at the expense of building real wealth." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | hardship withdrawal | Gaining traction is your first priority. WARNING: as @JosephZambrano explains in his answer the tax penalty for withdrawing from a 401(k) can easily exceed the APR of the credit card making it a very bad strategy. Consult in-depth with a financial advisor to see before taking that path. As @JoeTaxpayer has noted a loan is another alternative. The 401k is no good to you if you can't have shelter or comfort in the mean time. The idea is to look at all the money as a single thing and balance it together. There is no credit and retirement, just a single target that you can hit by moving the good money to clear the bad. Consolidating the credit card debt somehow would be very wise if you can. Assuming it is 30% APR shrinking that quickly is the first priority. You may be able to justify a hardship withdrawal to finance the reduction/consolidation of the credit card. It may be worth considering negotiating a closure arrangement with a reduced principal. Credit card companies can be quite open to this as it gets their money back. You may also be able to negotiate a lower interest rate. You may be able to negotiate a non-credit-affecting debt consolidation with a debt consolidator. They want to make money and a 25K loan to a person with sound credit is a pretty good bet. Moving, buying a house, or any of that may just relocate the problem. You may be able to withdraw $25K from your 401k under hardship, pay the credit card, and come up with a payment plan for the medical debt. It's a retirement setback for sure, but retirement is an illusion with that credit card shark eating all of your hard-earned money. You gotta slay that beast quick. Again, be sure to fully analyze whether the penalty on the 401(k) withdrawal exceeds the APR of the credit card. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How is the price of VXX determined? | "Generally, ETFs work on the basis that there exists a pair of values that can be taken at any moment in time: A Net Asset Value of each share in the fund and a trading market price of each share in the fund. It may help to picture these in baskets of about 50,000 shares for the creation/redemption process. If the NAV is greater than the market price, then arbitrageurs will buy up shares at the market price and do an ""in-kind"" transaction that will be worth the NAV value that the arbitrageurs could turn around and sell for an immediate profit. If the market price is greater than the NAV, then the arbitrageurs will buy up the underlying securities that can be exchanged ""in-kind"" for shares in the fund that can then be sold on the market for an immediate profit. What is the ETF Creation/Redemption Mechanism? would be a source on this though I imagine there are others. Now, in the case of VXX, there is something to be said for how much trading is being done and what impact this can have. From a July 8, 2013 Yahoo Finance article: At big option trade in the iPath S&P 500 VIX Short-Term Futures Note is looking for another jump in volatility. More than 250,000 VXX options have already traded, twice its daily average over the last month. optionMONSTER systems show that a trader bought 13,298 August 26 calls for the ask price of $0.24 in volume that was 6 times the strike's previous open interest, clearly indicating new activity. Now the total returns of the ETF are a combination of changes in share price plus what happens with the distributions which could be held as cash or reinvested to purchase more shares." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Should I get a car loan before shopping for a car? | You have a good start (estimated max amount you will pay, estimated max down payment, and term) Now go to your bank/credit union and apply for the loan. Get a commitment. They will give you a letter, you may have to ask for it. The letter will say the maximum amount you can pay for the car. This max includes their money and your down payment. The dealer doesn't have to know how much is loan. You also know from the loan commitment exactly how much your monthly payment will be in the worst case. If you have a car you want to trade in, get an written estimate that is good for a week or so. This lets you know how much you can get from selling the car. Now visit the dealer and tell them you don't need a loan, and won't be trading in a car. Don't show them the letter. After all the details of the purchase are concluded, including any rebates and specials, then bring up financing and trade-in. If they can't beat the deal from your bank and the written estimate for the car you are selling, then the deal is done. Now show them the letter and discuss how much down they need today. Then go to the bank for the rest of the money. If they do have a better loan deal or trade in then go with the dealer offer, and keep the letter in your pocket. If you go to the dealer first they will confuse you because they will see the price, interest rate, length of loan, and trade in as one big ball of mud. They will pick the settings that make you happy enough, yet still make them the most money. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Are stock prices purely (or mostly) only based on human action? | Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Relocating for first real job out of college? | Source: I'm recently (2 years) out of college (Info Sciences + Technology degree) Disclaimer: Speaking from limited personal experience (see above) A lot of corporate recruiters like the prospect of hiring recent college grads of because of the location flexibility they have (typically own no real estate, are not married, and have no children). If you get a job with Amazon and relocate, take a year to settle your finances, then determine if purchasing a house is something you can manage. If you don't have a savings set aside for a reasonable down payment on a house, you'll get hit with a mortgage insurance payment each month =\, and that's not fun. Don't try to do too much at once, and make sure you have a full assessment of your finances before making any major purchases. I follow this general rule: Every few months, I fully re-assess our expenditures, and see what we can cut out or cut back on, put a bit into savings, and put the rest against outstanding student loans. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How do I Fundamentally Analyze this Stock so I may see if the Company is Running Well? | a) Nothing would support this company going back to $.50 per share b) Fundamentally the market for this sectors has been obliterated and the fundamentals don't look like they will improve. Similar companies experience what this one is and will be going through, they borrow the hilt and hope they can pump enough oil and sell the oil at a high price. Oil goes below, WAYYY below the price they can sell it at and even break even, so they are burning cash until they declare bankruptcy. This company is not an exception. So here is what to look at on their balance sheet: assets and liabilities. Liabilities are debt. Their debt is over 50% of their assets, that debt has interest and there is NO WAY they are making a profit. Their website's last financial statement is from September 30th.. LOL, so they haven't even released a quarterly financial statement in two quarters straight, so have they released anything? Given what we know about the dire state of the entire oil drilling industry, lets see if these guys are the exception to the rule (spoiler; they aren't) February 15th, 2015 http://www.marketwatch.com/story/strategic-oil-gas-ltd-provides-operations-update-2015-02-19-16173591 The Company prudently elected to stop the winter Muskeg drilling program in order to preserve capital. So now they aren't even getting new assets to resale, they aren't making any money from that operation, their debt still has interest payments though. Approximately 700 Boe/d of production has been shut-in by suspending operations at Bistcho, Cameron Hills and Larne, which are not economic at current commodity prices. Predictable. Also, you should notice from their actual financial statements (from 6 months ago, lol) (when the price of oil was over 100% higher than it is today, lol), this company already wasn't a good performer. They have been financing themselves by doing private placements, by issuing shares to investors that are not you, and diluting the share value of ALL OTHER SHAREHOLDERS. Dead in the water. I got this from skimming their financial report, without even being familiar with how canadian companies report. Its just bad news. You shouldn't be married to this investment. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Should I pay off my mortgage, begin retirement savings, or build my emergency fund? | "Welcome to Money.SE. I will say upfront, Personal Finance is just that, personal, and you are likely to get multiple, perhaps conflicting, answers. Are you sure the PMI will drop off after 2 years? The rules are specific, and for PMI, when prepayments put you at that 78/80% LTV, your bank can require an appraisal, not automatically drop it. Talk to the banks, get confirmation, and depending what they say, keep hacking away at the mortgage. After this, I suggest jumping on Roth IRAs. You are in the 15% bracket, and the Roth will let you deposit $5500 for each you and your wife. A great way to kickstart a higher level of retirement savings. After this, I'm not comfortable with the emergency savings level. If you lose your job tomorrow (Funny story, my wife and I lost our's on the same day 3 years ago) and don't have enough savings (Our retirement accounts were good to just retire that day) you can easily run out of money and be late on the mortgage. It's great to prepay the mortgage to get rid of that PMI, but once there, I'd do the Roth and then focus on savings. 6 months expenses minimum. We have a great Q&A here titled Oversimplify it for me: the correct order of investing in which I go in to more detail, as do 4 other members. I am not getting on the ""investments will return more than your mortgage cost"" soapbox. A well-funded emergency fund is a very conservative bit of advice. With no matched 401(k), I suggest a balance of the Roth savings and prepayments. From another great post, Ideal net worth by age X? Need comparison references you should have nearly 1 year's salary (90K) saved toward retirement. Any question on my advice, add a comment and I will edit in more details." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Is it legal if I'm managing my family's entire wealth? | I am not going to discuss legality, because with family members you are able to give a lot of guidance and assistance without running into legal issues. The biggest problem is that when they transfer the funds to you and you invest the money, all the tax rates and tax limits are determined by your situation; plus you have more investments than you should have so you hit those limits and brackets quicker. For example: In the United states a person can put $5,500 or $6,500 into a IRA or Roth IRA each year. If you combine the funds for three with your funds then you are giving up three quarters of the amount that you can invest in that type of account. The decision regarding Roth or not depends on age and income level. But now their decision is related to what is best based on your situation. The ability to even deduct IRA deposits would be based on your situation. Of course for taxable accounts the tax rate is determined by your income, not theirs. If they want you to have the ability to make investment decisions for them, then power of attorney is the way to go. The money is deposited in their name, and all the rules and tax rates are determined by their situation. You make sure they have all the information they need to login and review the accounts, but you make the all the moves within and between accounts. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Shared groceries expenses between roommates to be divided as per specific consumption ratio and attendance | The solution to this problem is somewhat like grading on a curve. Use the consumption ratio multiplied by the attendance (which is also a ratio, out of 100 days) to calculate how much each person owes. This will leave you short. Then add together all of the shares in a category, determine the % increase required to get to the actual cost of that category, and increase all the shares by that %. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What exactly is a “derivative”? | The basic idea behind a derivative is very simple actually. It is a contract where the final value depends on (is derived from) the value of something else. Stock, for instance, is not a derivative because the contract itself is actually ownership of part of a company. Whereas car insurance is a derivative because the payout depends on the value of something else namely your (and other peoples') cars. The problem with such a simple definition is that it covers such a broad class. It covers simple contracts like Futures where the end value just depends on the price of something on a future date. But it extends to contracts complicated enough that people in finance call them Exotics. Derivatives are broadly used for two things reducing risk (sometimes called insurance) and speculation. A farmer can use derivatives to make sure she gets paid a certain amount for her corn. A banker can group a bunch of loans together and sell slices to reduce the pain of a particular loan failing. At the same time people can use the same instruments to speculate on the price of (for example) that corn or those loans and the main advantage is that they don't have to buy the corn or loans directly. Any farmer will tell you corn can be very expensive to store. Derivatives generally cause problems both individually and sometimes world wide when people don't properly understand the risks involved. The most famous example being Mortgage-backed Securities and the recent Great Recession. You can start understand the instruments and their risks by this wonderful Wikipedia article and later perhaps a used collection of CFA books which cover derivatives in great detail. Edit: Michael Grünewald mentioned Hull's text on derivatives a wonderful middle ground between Wikipedia and the CFA books that I can't believe I didn't think about myself. |
Share your insights or perspective on the financial matter presented in the input. | What is the difference between a bad/bounced check and insufficient funds? | "This may vary some by the state, but the general facts are consistent broadly. The elements of check fraud typically are: This means that not only do you have to have presented a check that is returned for insufficient funds, but you must have known at the time that it wouldn't be honored. It must typically also be given for present consideration, which is why the comments to the other answer correctly note that the post-dated check ""scam"" cooked up by the payday loan folks shouldn't generally be relevant under these laws; on the same site, they note the cases that are clearly not present consideration: So if I give you a check for $50 and it's returned for NSF because I screwed up my bank accounts and had all my money in savings, that's probably not fraud. But if I decide I really want a Tesla X and give Tesla Motors a check for $95,000, knowing I don't have $95,000, that's fraud. How the prosecutor proves knowledge is probably beyond the scope of Personal Finance and Money Stack Exchange, though I imagine it tends to commonly be done so by showing the person doesn't normally have that much money in their account." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Possible to use balance transfers to avoid interest with major credit cards? | In theory, yes. In practice: So it can be gamed, but the odds are not on your side :) |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Is it possible to make quarterly returns in hedge funds? | Your edit indicates that you may not yet be ready to get heavily involved in investing. I say this because it seems you are not very familiar with foundational finance/investing concepts. The returns that you are seeing as 'yearly' are just the reported earnings every 12 months, which all public companies must publish. Those 'returns' are not the same as the earnings of individual investors (which will be on the basis of dividends paid by the company [which are often annual, sometimes semi-annual, and sometimes quarterly], and by selling shares purchased previously. Note that over 3 months time, investing in interest-earning investments [like bank deposits] will earn you something like 0.5%. Investing in the stock market will earn you something like 2% (but with generally higher risk than investing in something earning interest). If you expect to earn significant amounts of money in only 3 months, you will not be able to without taking on extreme levels of risk [risk as high as going to a casino]. Safe investing takes time - years. In the short term, the best thing you can do to earn money is by earning more [through a better job, or a second part-time job], or spending less [budget, pay down high interest debt, and spend less than you earn]. I highly recommend you look through this site for more budgeting questions on how to get control of your finances. If you feel that doesn't apply to you, I encourage you to do a lot more research on investing before you send your money somewhere - you could be taking on more risk than you realize, if you are not properly informed. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | My company didn't pay taxes on my behalf | Many a time even if the tax is deducted and paid by the company it does not reflect as a credit against your PAN for various reasons like, you not submitting it to your employer in time, errors of reconciliation, etc. Its advisable that you inform your company finance officer that you have received such a letter. Q1. The sure shot way of knowing that your company is depositing tax with government is to view your tax credit report. This was set-up in 2004 and gives the details of all credits against your PAN and the tax deducted against your PAN. It shows if the tax was TDS and which employer paid it, or if this was a self assessment, or TCS, etc. To view this report there are 2 options: Register directly at http://www.tin-nsdl.com/panregistration.asp. Follow the one time registration process and keep viewing the tax credits. Note it normally takes 2-3 months to reflect the data. The other alternative is that quite a few leading banks [Citi, SBI, etc] provide a direct access to this report from their internet banking frontend, provided your PAN is associated to your account. Q2. The only details you need to submit are the Form 16. This would have all the details of when the tax was paid and the BSR number required for reconciling. Q3. TDS is the liability of the employer. However if this has not been deducted or too little was deducted based on incorrect/incomplete information give by you, then its your liability. For example if you change jobs in a year, the tax deducted is always less and you have to pay the difference. Q4. If its established that the company was at fault for not deducting the tax or deducting and not paying it to government on time, there are enough provisions to penalize the company including putting the top management team behind bars. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How should we prioritize retirement savings, paying down debt, and saving for a house? | It all depends on your priorities, but if it were me I'd work to get rid of that debt as your first priority based on a few factors: I might shift towards the house if you think you can save enough to avoid PMI, as the total savings would probably be more in aggregate if you plan on buying a house anyway with less than 20% down. Of course, all this is lower priority than funding your retirement at least up to the tax advantaged and/or employer matched maximums, but it sounds like you have that covered. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Did basically all mutual funds have a significant crash in 2008? | In 2008, the S&P was down 37%. I love charts that show sector performance by year, as it helps show that 2008 wasn't like the crash of 2000-01 which was more tech-centric. Funds that were more geared towards bonds would have been up as the 10 year Treasury was up 20%. I understand you have a low risk tolerance. Over the long term, this will cost you. The CAGR for the S&P from 1928-2011 was 9.23%, for treasuries, 5.14%. This difference adds up dramatically over time. These rates double your stock investments every 8 years on average vs nearly 14 years for bonds. See the MoneyChimp site to tinker with start/finish years to understand long term returns. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How do you go about buying a house directly from an owner? I.e. no broker involved? | You don't have to use an agent (broker, as you call it), but it is strongly advised. In some counties lawyers are required, in some not. Check your local requirements. Similarly the escrow companies that usually deal with recording and disbursing of money. You will probably not be able to get a title insurance without using an escrow service (I'm guessing here, but it makes sense to me). You will not be able to secure financing through a bank or a mortgage broker without an escrow company, and it might be hard without an agent. Agents required by law to know all the details of the process, and they can guide you through what to do and what to look into. They have experience reading and understanding the inspection reports, they know what to demand from the seller (disclosures, information, etc), they know how and from where to get the HOA docs and disclosures, and can help you negotiate the price knowing the market information (comparable sales, comparable listings, list vs sales statistics, etc). It is hard to do all that alone, but if you do - you should definitely get a discount over the market price of the property of about 5% (the agents' fees are up to 5% mostly). I bought several properties in California and in other states, and I wouldn't do it without an agent on my side. But if you trust the other side entirely and willing to take the risk of missing a step and having problems later with title, mortgage, insurance or resale, then you can definitely save some money and do it without an agent, and there are people doing that. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What are the disadvantages to borrowing money for energy conservation measures / solar panels? | "If you sell the property before the ten years are up, the panels might have declined in value more than the amount you owe declined. In the original post's situation, this is a negligible risk. Suppose (for the sake of argument) that each year's panels are 10% better than the previous year's panels. Even if the panels lasted forever, and even if the price you could sell the power for stayed the same, then the value of your panels should decline 9% per year. If the panels are financed at a 4.5% APR for 10 years, your principal should decline by 8.1% in the first year. A second risk is that the solar panels might be ugly, or might go out of fashion. When selling a home, ""curb appeal"" matters. If potential buyers do not like how your home looks with the solar panels, you might not be able to get as much money for the house if you have to sell it. A third risk is that the loan might harm your credit rating, or otherwise restrict your ability to borrow. Even though this deal does not impinge on your disposable income, a bank might think that it raises your debt-service-to-income (DTI) ratio. This could theoretically prevent you from refinancing your home, or raise the interest rates on potential loans you might want to take out. A fourth risk is that the installation process might damage your home in a way that causes expensive damage. Water leakage and electrical fires can potentially destroy homes. You need to have the solar system competently installed. A fifth risk is that the solar power system might make it harder to maintain or replace your roof. Will your roof need to be replaced during the life of the solar power system? If so, consider options that do not force you to throw away the solar power system prematurely." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Optimize return of dividends based on payout per share | What you're referring to is the yield. The issue with these sorts of calculations is that the dividend isn't guaranteed until it's declared. It may have paid the quarterly dividend like clockwork for the last decade, that does not guarantee it will pay this quarter. Regarding question number 2. Yield is generally an after the fact calculation. Dividends are paid out of current or retained earnings. If the company becomes hot and the stock price doubles, but earnings are relatively similar, the dividend will not be doubled to maintain the prior yield; the yield will instead be halved because the dividend per share was made more expensive to attain due to the increased share price. As for the calculation, obviously your yield will likely vary from the yield published on services like Google and Yahoo finance. The variation is strictly based on the price you paid for the share. Dividend per share is a declared amount. Assuming a $10 share paying a quarterly dividend of $0.25 your yield is: Now figure that you paid $8.75 for the share. Now the way dividends are allocated to shareholders depends on dates published when the dividend is declared. The day you purchase the share, the day your transaction clears etc are all vital to being paid a particular dividend. Here's a link to the SEC with related information: https://www.sec.gov/answers/dividen.htm I suppose it goes without saying but, historical dividend payments should not be your sole evaluation criteria. Personally, I would be extremely wary of a company paying a 40% dividend ($1 quarterly dividend on a $10 stock), it's very possible that in your example bar corp is a more sound investment. Additionally, this has really nothing to do with P/E (price/earnings) ratios. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How can I figure out how a stock's price would change after I buy shares? | It is unlikely that buying 100 shares will have any effect on a stock's price, unless the stock's average trading volume is incredibly low. That being said, no matter how many share you buy, there's no way to know what the impact on the price will be, because that's only one factor in how shares are priced. If anyone could figure out the answer to your question then they'd be extremely rich, because they'd simply watch for big share trades and then buy those stocks on the way up. The market makers who actually execute the trades are the ones who set the prices, and most stocks have multiple market makers trading the stock, so the bid/ask you see is the highest bid and lowest ask. The market makers set the price based on what the trend of the stock is. If, for instance, there's a large number of sell orders against a stock, the market makers will start dropping the bid prices as they fill execution orders, and as they see buy orders increase, they'll raise ask prices as they fill execution orders. The market makers earn the difference between what they paid to buy someone's stock who was selling and what they get from someone else who buys it. This is a simplified explanation, so pro traders, don't beat me up! (grin) So, basically, it takes quite a bit of share volume in one direction or another to affect a stock's price. I can guarantee a 100-share trade wouldn't even be noticed by market makers. I hope this helps. Good luck! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Who gets the periodic payments when an equity is sold on an repurchase agreement? | "The Wikipedia page for Repurchase Agreement has two relevant pointers on this topic: The legal title for any securities used in a repo actually pass from seller to buyer during the term of the agreement. In basic terms this means that if one sells a bond on repo with a promise to buy it back, then the ownership actually transfers to the buyer for that period of time. If a coupon is paid during this time period, it can either go to the buyer or the seller. Usually, the coupon payment goes to the initial owner of the security pre-repo (our ""seller""). But sometimes the repurchase agreement will specify otherwise. So, again in basic terms, usually the repo seller/initial security owner receives any payments made during the term of the repurchase agreement. (Both points are in the first paragraph of the section ""Structure and Terminology"".)" |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Do dividend quotes for U.S. stocks include witheld taxes? | No. As a rule, the dividends you see in the distribution table are what you'll receive before paying any taxes. Tax rates differ between qualified and unqualified/ordinary dividends, so the distribution can't include taxes because tax rates may differ between investors. In my case I hold it in an Israeli account but the tax treaty between our countries still specifies 25% withheld tax This is another example of why tax rates differ between investors. If I hold SPY too, my tax rate will be very different because I don't hold it in an account like yours, so the listed dividend couldn't include taxes. |
Share your insights or perspective on the financial matter presented in the input. | How is your credit score related to credit utilization? | "1 - yes, it's fine to pay in full and it helps your score. 2 - see chart above, it's calculated based on what the bill shows each month. 3 - answered by chart. 1-19% utilization is ideal. 0% is actually worse than 41-60% Note: The above image was from Credit Karma. A slightly different image appears at the article The Relationship Between Your Credit Score and Credit Card Utilization Rate. I don't know how true this really is. Since writing this answer, I've seen offers of a true ""FICO score"" from multiple credit cards, and have tinkered with my utilization. I paid my active cards before the reporting date, and saw 845-850 once my utilization hit 0. Credit Karma still has me at 800." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Optimal down payment amount | "The optimal down payment is 100%. The only way you would do anything else when you have the cash to buy it outright is to invest the remaining money to get a better return. When you compare investments, you need to take risk into account as well. When you make loan payments, you are getting a risk free return. You can't find a risk-free investment that pays as much as your car loan will be. If you think you can ""game the system"" by taking a 0% loan, then you will end up paying more for the car, since the financing is baked into the sales [price in those cases (there is no such thing as free money). If you pay cash, you have much more bargaining power. Buy the car outright (negotiating as hard as you can), start saving what you would have been making as a car payment as an emergency fund, and you'll be ahead of the game. For the inflation hedge - you need to find investments that act as an inflation hedge - taking a loan does not ""hedge"" against inflation since you'll still be paying interest regardless of the inflation rate. The fact that you'll be paying slightly less interest (in ""real"" terms) does not make it a hedge. To answer the actual question, if your ""reinvestment rate"" (the return you can get from investing the ""borrowed"" cash) is less than the interest rate, then the more you put down, the greater your present value (PV). If your reinvestment rate is less than the interest rate, then the less you put down the better (not including risk). When you incorporate risk, though, the additional return is probably not worth the risk. So there is no ""optimal"" down payment in between those mathematically - it will depend on how much liquid cash you need (knowing that every dollar that you borrow is costing you interest)." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Disputing Items to Improve Credit Report | Disputing the remark seems unlikely to move your score, since it is just that -- a remark. It's hard to say whether the scoring models can/do read the remarks and incorporate them (somehow) into the scoring metric itself. Disputing the revolving account that should be reported as closed is a different matter. The question there would be what the status of that account is/was. In other words, is it showing as an open collection or some other status which would indicate the creditor still has a pending claim? If so, disputing it might have some effect, although nobody would be able to tell you for certain or even how much your score might be affected. If, as you say, that account should have been part of the bankruptcy package then getting that corrected could be important enough to achieve what you're looking for. You can try it and see, but even if the effect is minor, you still want your credit report to be a true reflection of the facts. I hope this helps. Good luck! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Wash Sales and Day Trading | Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/ |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What are the advantages of doing accounting on your personal finances? | In my opinion, every person, regardless of his or her situation, should be keeping track of their personal finances. In addition, I believe that everyone, regardless of their situation, should have some sort of budget/spending plan. For many people, it is tempting to ignore the details of their finances and not worry about it. After all, the bank knows how much money I have, right? I get a statement from them each month that shows what I have spent, and I can always go to the bank's website and find out how much money I have, right? Unfortunately, this type of thinking can lead to several different problems. Overspending. In olden days, it was difficult to spend more money than you had. Most purchases were made in cash, so if your wallet had cash in it, you could spend it, and when your wallet was empty, you were required to stop spending. In this age of credit and electronic transactions, this is no longer the case. It is extremely easy to spend money that you don't yet have, and find yourself in debt. Debt, of course, leads to interest charges and future burdens. Unpreparedness for the future. Without a plan, it is difficult to know if you have saved up enough for large future expenses. Will you have enough money to pay the water bill that only shows up once every three months or the property tax bill that only shows up once a year? Will you have enough money to pay to fix your car when it breaks? Will you have enough money to replace your car when it is time? How about helping out your kids with college tuition, or funding your retirement? Without a plan, all of these are very difficult to manage without proper accounting. Anxiety. Not having a clear picture of your finances can lead to anxiety. This can happen whether or not you are actually overspending, and whether or not you have enough saved up to cover future expenses, because you simply don't know if you have adequately covered your situation or not. Making a plan and doing the accounting necessary to ensure you are following your plan can take the worry out of your finances. Fear of spending. There was an interesting question from a user last year who was not at all in trouble with his finances, yet was always afraid to spend any money, because he didn't have a budget/spending plan in place. If you spend money on a vacation, are you putting your property tax bill in jeopardy? With a good budget in place, you can know for sure whether or not you will have enough money to pay your future expenses and can spend on something else today. This can all be done with or without the aid of software, but like many things, a computer makes the job easier. A good personal finance program will do two things: Keeps track of your spending and balances, apart from your bank. The bank can only show you things that have cleared the bank. If you set up future payments (outside of the bank), or you write a check that has not been cashed yet, or you spend money on a credit card and have not paid the bill yet, these will not be reflected in your bank balance online. However, if you manually enter these things into your own personal finance program, you can see how much money you actually have available to spend. Lets you plan for future spending. The spending plan, or budget, lets you assign a job to every dollar that you own. By doing this, you won't spend rent money at the bar, and you won't spend the car insurance money on a vacation. I've written before about the details on how some of these software packages work. To answer your question about double-entry accounting: Some software packages do use true double-entry accounting (GnuCash, Ledger) and some do not (YNAB, EveryDollar, Mvelopes). In my opinion, double-entry accounting is an unnecessary complication for personal finances. If you don't already know what double-entry accounting is, stick with one of the simpler solutions. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Should I pay off my credit card online immediately or wait for the bill? | It does not matter. Your credit score is affected by late payments, by credit usage and by age of credit. DO NOT PAY LATE. Paying early is only good in that it means you don't pay late. Your credit usage is calculated by percentage of the credit you have that you actually use. Keep your usage to under 20% of your limit and you look great as a credit risk as you have lots of buffer. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why bid and ask do not match the price at which the stock is being traded [duplicate] | "Assuming that no one else has hit the ask, and the asks are still there, yes, you will fill $54.55 as long as you didn't exhaust that ask. Actually, there is no ""current price at which the stock is exchanging hands""; in reality, it is ""the last price traded"". The somebody who negotiated prices between buyers & sellers is the exchange through their handling of bids & asks. The real negotiation comes between bids & asks, and if they meet or cross, a trade occurs. It's not that both bid & ask should be $54.55, it's that they were. To answer the title, the reasons why the bid and ask (even their midpoint) move away from the last price are largely unknown, but at least for the market makers, if their sell inventory is going away (people are buying heavily and they're running out of inventory) they will start to hike up their asks a lot and their bids a little because market makers try to stay market neutral, having no opinion on whether an asset will rise or fall, so with stocks, that means having a balanced inventory of longs & shorts. They want to (sometimes have to depending on the exchange) accommodate the buying pressure, but they don't want to lose money, so they simply raise the ask and then raise the bid as people hit their asks since their average cost basis has risen. In fact (yahoo finance is great about showing this), there's rarely 1 bid and 1 ask. Take a look at BAC's limit book: http://finance.yahoo.com/q/ecn?s=BAC+Order+Book You can see that there are many bids and many asks. If one ask is exhausted, the next in line is now the highest. The market maker who just sold at X will certainly step over the highest bid to bid at X*0.9 to get an 11% return on investment." |
Share your insights or perspective on the financial matter presented in the input. | In the stock market, why is the “open” price value never the same as previous day's “close”? | "What most of these answers here seem to be missing is that a stock ""price"" is not exactly what we typically expect a price to be--for example, when we go in to the supermarket and see that the price of a gallon of milk is $2.00, we know that when we go to the cash register that is exactly how much we will pay. This is not, however, the case for stocks. For stocks, when most people talk about the price or quote, they are really referring to the last price at which that stock traded--which unlike for a gallon of milk at the supermarket, is no guarantee of what the next stock price will be. Relatively speaking, most stocks are extremely liquid, so they will react to any information which the ""market"" believes has a bearing on the value of their underlying asset almost (if not) immediately. As an extreme example, if allegations of accounting fraud for a particular company whose stock is trading at $40 come out mid-session, there will not be a gradual decline in the price ($40 -> $39.99 -> $39.97, etc.)-- instead, the price will jump from $40 to say, $20. In the time between the the $40 trade and the $20 trade, even though we may say the price of the stock was $40, that quote was actually a terrible estimate of the stock's current (post-fraud announcement) price. Considering that the ""price"" of a stock typically does not remain constant even in the span of a few seconds to a few minutes, it should not be hard to believe that this price will not remain constant over the 17.5 hour period from the previous day's close to the current day's open. Don't forget that as Americans go to bed, the Asian markets are just opening, and by the time US markets have opened, it is already past 2PM in London. In addition to the information (and therefore new knowledge) gained from these foreign markets' movements, macro factors can also play an important part in a security's price-- perhaps the ECB makes a morning statement that is interpreted as negative news for the markets or a foreign government before the US markets open. Stock prices on the NYSE, NASDAQ, etc. won't be able to react until 9:30, but the $40 price of the last trade of a broad market ETF at 4PM yesterday probably isn't looking so hot at 6:30 this morning... don't forget either that most individual stocks are correlated with the movement of the broader market, so even news that is not specific to a given security will in all likelihood still have an impact on that security's price. The above are only a few of many examples of things that can impact a stock's valuation between close and open: all sorts of geopolitical events, announcements from large, multi-national companies, macroeconomic stats such as unemployment rates, etc. announced in foreign countries can all play a role in affecting a security's price overnight. As an aside, one of the answers mentioned after hours trading as a reason--in actuality this typically has very little (if any) impact on the next day's prices and is often referred to as ""amateur hour"", due to the fact that trading during this time typically consists of small-time investors. Prices in AH are very poor predictors of a stock's price at open." |
Share your insights or perspective on the financial matter presented in the input. | How should I pay off my private student loans that have a lot of restrictions? | It's definitely NOT a good idea to pay off one of the smaller loans in your case - a $4k payment split across all the loans would be better than repaying the 5% / $4k loan completely, as it's the most beneficial of your loans and thus is last priority for repayment. A payment that splits across all the loans equally is, in effect, a partial repayment on a loan with an interest rate of 6.82% (weighed average rate of all your loans). It's not as good as repaying a 7% loan, but almost as good. It might be an option to save up until you can repay one of your 7% loans, but it depends - if it takes a lot of time, then you would've paid unneccessary interest during that time. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Lease vs buy car with cash? | If you are talking straight dollars then leasing is always a losing proposition when compared with purchasing. The financial workings of leasing are so confusing that people don’t realize that leasing invariably costs more than an equivalent loan. And even if they did, the extra cost is difficult to calculate. Still, many people can’t afford the higher payments of a typical loan, at least not without putting a substantial amount down. If payments are an issue, consider buying a lower-cost vehicle or a reliable used car. http://www.consumerreports.org/cro/2012/12/buying-vs-leasing-basics/index.htm If you are talking about convenience, lifestyle, ability to purchase a car you could not pay for outright, then you will have to evaluate that. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | P/E multiples for privately held companies? | You're indeed right, this cannot be answered affirmatively. I will try, without going too deep in details, to brush a shallow portrait In its simplest form, a going concern company could be valued by the present value of a growing perpetuity (Cash Flow/(Required return - growth)), assuming compounding perpetual growth. That's a massive assumption for a yet to turn a dime company. That's why comparable transactions are usually used as benchmark. In this case, your PE can be thought as the inverse of a growing perpetuity, and it's size will be determined by the difference between return and growth. So when you're pre-revenue, you're basically trying to value a moonshot with everything to prove, no matter how genius the idea. Considering the high levels of financial risks due to failure, VCs will require biblical levels of returns (50% to 90% is not unheard of). Hence why they usually leave with a good chunk of the company in seed rounds. When you've had a few sales, you got to know your customer and you've tested the markets, your direction gets clearer and your prospects improve. Risks moves down a notch and the next round of financing will be at much lower rates. Your growth rate, still high but nowhere as crazy as before, can be estimated with relatively more precision. Companies turning a recurrent level of profits are the easiest to value (all else being equal). The financial mathematics are more appropriate now, and their value will be derived by current market conditions as well as comparable transactions. With unlimited resources and perfect markets, the value of the company will be the same wether the founder is at the helm or the VCs are in the place. But considering many founders need the VCs' resources to extract the value of their company and markets are imperfect, the value of the company can change significantly depending on the decisions. Hope that helps! |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How do brokers make money from margin accounts? | They will make money from brokerage as usual and also from the interest they charge you for lending you the money for you to buy your shares on margin. In other words you will be paying interest on the $30,000 you borrowed from your broker. Also, as per Chris's comment, if you are shorting securities through your margin account, your broker would charge you a fee for lending you the securities to short. |
Share your insights or perspective on the financial matter presented in the input. | Legal right to ask for someone bank records UK | You might want to head on over to https://law.stackexchange.com/ and ask the same question. However from a personal finance perspective this kind of drama is somewhat common when someone is deceased and financial expectations are not met by the heirs. It sounds like the daughter was expecting a lot more in inheritance than was actually received. There was probably an overestimation of dad's net worth and an underestimation of the cost of his care toward the end of his life. Its best not to participate in this drama, and I feel that you are correct that the daughter does not have a right to see the bank account statements prior to dad's passage. The question is also if she has a right to see it now. Here in the US a joint account can be setup so the ownership transfers to other account holder(s) up death of an owner. So in this case your mother would own the account. If the account is setup as such, then the estate has no right to that money. You may want to check with the bank for some free advice. What is the classification of the account now that dad has passed? When a person grants someone else the power of attorney they have the ability to act as if they were that person. Most of the time POAs are limited in scope so If I give a person the POA to register a car in my name, they cannot apply for a credit card in my name (legally). In this case, however, the POA was probably general so pretty much your mom could do whatever she pleased. So if your mom took good care of the dad and bought herself some nice jewelry that is perfectly allowable with a general POA. I strongly doubt this daughter has any rights to the past records and may not even have the rights to the joint bank account currently. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Should I use put extra money toward paying off my student loans or investing in an index fund? | "First, I'd like to congratulate you on your financial discipline in paying off your loans and living well within your means. I have friends who make more than twice your salary with similar debt obligations, and they barely scrape by month to month. If we combine your student loan debt and unallocated income each month, we get about $1,350. You say that $378 per month is the minimum payment for your loans, which have an average interest rate of about 3.5%. Thus, you have about $1,350 a month to ""invest."" Making your loan payments is basically the same as investing with the same return as the loan interest rate, when it comes down to it. An interest rate of 3.5% is...not great, all things considered, and barely above inflation. However, that's a guaranteed return of 3.5%, more or less like a bond. As noted previously, the stock market historically averages 10% before inflation over the long run. The US stock market is right around its historic high at this point (DJIA is at 20,700 today, April 6th, 2017 - historic high hit just over 21,000 on March 1, 2017). Obviously, no one can predict the future, but I get the feeling that a market correction may be in order, especially depending on how things go in Washington in the next weeks or months. If that's the case (again, we have no way of knowing if it is), you'd be foolish to invest heavily in any stocks at this point. What I would do, given your situation, is invest the $1,350/month in a ""portfolio"" that's 50/50 stocks and ""bonds,"" where the bonds here are your student loans. Here, you have a guaranteed return of ~3.5% on the bond portion, and you can still hedge the other 50% on stocks continuing their run (and also benefiting from dividends, capital gains, etc. over time). I would apply the extra loan payments to the highest-interest loan first, paying only the minimum to the others. Once the highest-interest loan is paid off, move onto the next one. Once you have all your loans paid off, your portfolio will be pretty much 100% stocks, at which point you may want to add in some actual bonds (say a 90/10 or 80/20 split, depending on what you want). I'm assuming you're pretty young, so you still have plenty of time to let the magic of compounding interest do its work, even if you happen to get into the market right before it drops (well, that, and the fact that you won't really have much invested anyway). Again, let me stress that neither I nor anyone else has any way of knowing what will happen with the market - I'm just stating my opinion and what my course of action would be if I were in your shoes." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Selling a car with a lien | You could have the buyer go to the bank with you so that he can get evidence that the loan will be paid in full and that the lien will be lifted. The bank won't sign over the title (and lift the lien) until the loan is paid back in full. DMV.org has a pretty good section about this. (Note: not affiliated with the actual DMV) Selling to a Private Party Though more effort will be required on your part, selling a car with a lien privately could net you a higher profit. Here are a few things you'll need to consider to make the process easier: Include the details of the lien in your listing. You'll list an advertisement for your car just as you would any other vehicle, with the addition of the lien information that buyers will need so as to avoid confusion. Sell in the location of the lienholder, if possible. If the bank or financial institution holding the lien is located in the area you're trying to sell, this will make the transaction much easier. Once you make an agreement with the buyer, you can go directly to the lender to pay off the existing lien. Ownership can then be transferred in person from the financial institution to the buyer. Consider an escrow service. If the financial institution isn't in your area, an escrow service can help to ensure a secure transaction. An escrow service will assume responsibility for receiving payments from the buyer and will hold the title until the purchase is complete. Advantages of an escrow service include: Payoff services, which will do most of the work with the financing institution for you. Title transfer services, which can help to ensure a safe and legitimate transaction and provide the necessary paperwork once the sale is complete. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is there an online service that provides public company information through a public API? | I don't know of any free API's for these data, but I'll provide what information I can. Compiling all of this information from the EDGAR system and exposing an interface to it requires a fair amount of work and maintenance, so it's usually market data companies that have the motivation and resources to provide such interfaces. I know of a few options that may or may not be close to what you're looking for. The SEC provides FTP access to the EDGAR system. You could download and parse the text files they provide. Yahoo Finance provides summary files of financial statements (e.g., GOOG) as well as links to the full statements in the EDGAR system. Once again, parsing may be your only option for these data. Xignite, a proprietary market data provider, provides a financial statement API. If you need these data for a commercial application, you could contact them and work something out. (Frankly, if you need these data for a commercial application, you're probably better off paying for the data) The Center for Research into Security Prices provides data from financial statements. I believe it's also exposed through several of their API's. As with most financial data, CRSP is sort of a gold standard, although I haven't personally used their API to fetch data from financial statements, so I can't speak for it specifically. This answer on StackOverflow mentions the quantmod R package and mergent. I can't vouch for either of those options personally. Unfortunately, you'll probably have to do some parsing unless you can find a paid data provider that's already compiled this information in a machine-readable format. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | At what point should I go into credit card debt? | Financially, it simply doesn't make sense to go into debt here. It may be that living on credit cards for a while gives you a chance to recover psychologically, but financially, it doesn't make sense. But, let's consider the larger picture here. You are unmotivated and directionless, and may be suffering from depression. That sucks; very many of us have been there. I'd write in great detail, except this site is about finance, so let's limit the scope a little. You've had therapy. It hasn't produced meaningful change. Stop with that therapy; it's not cost-effective. Financially speaking, your goal should be to get back on your feet. You should only be willing to take on credit card debt if it is very, very directly helping you accomplish this. Maybe that means a different therapist. Maybe that means paying for medication, which can often be breathtakingly effective. Heck, maybe that's a suit, something you put on each morning for a couple of hours to focus on getting a job. Maybe that means some other approach. But you should only be willing to take on debt that directly helps you get back on your feet. Should you be willing to continue as you are now, taking on credit card debt for your living expenses? No, definitely not. Credit cards charge obscene amounts of interest, and the evidence is that your current approach is not working. Going into debt in this case makes as much sense as it did for me to continue working for an employer who wasn't paying me. That is, none at all (financially). All that said, I strongly encourage you to get whatever help will work for you. Your finances are important, but they aren't everything. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | In the USA, does the income tax rate on my wages increase with the amount of money in my bank account? | I know that if you make more, you pay more, but do those who have more, not make more, pay higher income tax? In general, no. In most locales, income tax is based on income, not on wealth. I am retired. I have little income but a fair amount of wealth. I play very little income tax. (But I do pay other kinds of taxes.) Here's a scenario. 2 people of average wealth with similar situations have the same job with equal pay. After 5 years, their situations haven't changed and they still earn equal pay, but now one has $40,000 in their account and the other $9,000. Does one now pay higher income tax because he has more in his account or does he pay the same because he makes the same? In most locales, you pay income tax on everything that is counted as income. Your salary is income. In some cases, earned interest is income. But aside from the earned interest from your bank accounts, neither the $40,000 nor the $9,000 is income. Your huge mansion isn't income. Your expensive car isn't income. The huge amount of land you own isn't income. The pricey artwork on your walls isn't income. You don't pay income tax on any of these, but your local may impose other taxes on these (such as property tax, etc.) [Note: consult the tax laws of your specific locale if you want to know details.] |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | To sell or to rent the house? | "So either scenario has about $10K upfront costs (either realtor/selling expenses or fixing up for rental). Furthermore, I'm sure that the buyers would want you to fix all these things anyway, or reduce the price accordingly, but let's ignore this. Let's also ignore the remaining mortgage, since it looks like you can comfortably pay it off. Assuming 10% property management and 10% average vacancy (check your market), and rental price at $1000 - you end up with these numbers: I took very conservative estimates both on the rent (lower than you expect) and the maintenance expense (although on average over the years ,since you need to have some reserves, this is probably quite reasonable). You end up with 2.7% ROI, which is not a lot for a rental. The rule of thumb your wife mentioned (1% of cash equity) is indeed usually for ROI of leveraged rental purchase. However, if rental prices in your area are rising, as it sounds like they are, you may end up there quite soon anyway. The downside is that the money is locked in. If you're confident in your ability to rent and are not loosing the tax benefit of selling since it sounds like you've not appreciated, you may take out some cash through a cash-out refi. To keep cash-flow near-0, you need to cash out so that the payments would be at or less than the $3200/year (i.e.: $266/month). That would make about $50K at 30/yr fixed 5% loan. What's best is up to you to decide, of course. Check whether ""you can always sell"" holds for you. I.e.: how stable is the market, what happens if one or two large employers disappear, etc." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How do I make a small investment in the stock market? What is the minimum investment required? | A rough estimate of the money you'd need to take a position in a single stock would be: In the case of your Walmart example, the current share price is 76.39, so assuming your commission is $7, and you'd like to buy, say, 3 shares, then it would cost approximately (76.39 * 3) + 7 = $236.17. Remember that the quoted price usually refers to 100-share lots, and your broker may charge you a higher commission or other fees to purchase an odd lot (less than 100 shares, usually). I say that the equation above gives an approximate minimum because However, I second the comments of others that if you're looking to invest a small amount in the stock market, a low cost mutual fund or ETF, specifically an index fund, is a safer and potentially cheaper option than purchasing individual stocks. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How are Canada Universal Child Care Benefit (UCCB) & related tax measures changing in 2015? | The Child Care Expense Deduction (line 214) dollar limits will each increase by $1000, to new amounts of $8000 for children under 7 and $5000 for children age 7–16. Notes: As a tax deduction, your tax liability gets reduced at your marginal income tax rate, not the lowest tax rate (as would be the case for a tax credit). Yes, you still need receipts from your child care provider to support any claim. The non-refundable child tax credit a.k.a. amount for children under age 18 (line 367) introduced in 2007 is being eliminated starting in tax year 2015 coincident with the UCCB enhancement above. The credit could previously reduce tax liability by ~$340. The Family Tax Cut is being introduced and will be effective for tax year 2014. That is, when you file your 2014 income tax return in early 2015, you may be able to take advantage of this measure for income already earned in 2014. Provided a couple has at least one child under the age of 18, the Family Tax Cut will permit the transfer of up to $50,000 of taxable income from the higher income spouse's income tax return to the lower income spouse's return. While the potential transfer of $50,000 of taxable income to lower tax brackets sounds like a really big deal, the maximum tax relief is capped at $2000. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | HELOC vs. Parental Student Loans vs. Second Mortgage? | "Thank God you have your child back, it is so awesome that you finally found a medical treatment that worked. It must have been a truly trying time in your lives. That situation is an important template in personal finance. Through no fault of your own, a series of events occurred that caused you to spend far more money then you anticipated. Per your post this was complicated by lost income due to economic situations. What is to say that this does not happen again in the future? While we can all hope that our child does not get sick, there are other events that could also fit into this template. Because of this I hate all options you present. Per your post, you are pretty thin with free cash flow and have high income, and yet you are looking to borrow more. That is a recipe for disaster with it being made worse as you are considering putting your home at risk. The 20K per year per kid sounds like a live at the university state school; or, a close by private school. Your finances do not support either option. There are times when the word ""No"" is in order when answering questions. Doing a live at home community college to university will cost you a total of about 30K per kid rather than the 80K you are proposing. Doing this alone will greatly reduce the risk you are attempting to assume. Doing that and having your child work some, you could cash flow college. That is what I would recommend. Given that you are so thin, you will also have to put constraints on college attendance. No changing major three times, only majors with an employable skills, and studying before partying. It may be worth it to wait a year of two before attending if a decision cannot be made. I was in a similar situation when my son started college. High income, but broke. He worked and went to a community college and was able to pay for the bulk of it himself. From there he obtained a job with a healthy salary and completed his degree at the University. It took him a little longer, but he is debt free and has a fantastic work ethic." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What is the equation for an inflation adjusted annuity held in perpetuity? | Let P denote the amount of the investment, R the rate of return and I the rate of inflation. For simplicity, assume that the payment p is made annually right after the return has been earned. Thus, at the end if the year, the investment P has increased to P*(1+R) and p is returned as the annuity payment. If I = 0, the entire return can be paid out as the payment, and thus p = P*R. That is, at the end of the year, when the dust settles after the return P*R has been collected and paid out as the annuity payment, P is again available at the beginning of the next year to earn return at rate R. We have P*(1+R) - p = P If I > 0, then at the end of the year, after the dust settles, we cannot afford to have only P available as the investment for next year. Next year's payment must be p*(1+I) and so we need a larger investment since the rate of return is fixed. How much larger? Well, if the investment at the beginning of next year is P*(1+I), it will earn exactly enough additional money to pay out the increased payment for next year, and have enough left over to help towards future increases in payments. (Note that we are assuming that R > I. If R < I, a perpetuity cannot be created.) Thus, suppose that we choose p such that P*(1+R) - p = P*(1+I) Multiplying this equation by (1+I), we have [P(1+I)]*(1+R) - [p*(1+I)] = P*(1+I)^2 In words, at the start of next year, the investment is P*(1+I) and the return less the increased payout of p*(1+I) leaves an investment of P*(1+I)^2 for the following year. Each year, the payment and the amount to be invested for the following year increase by a factor of (1+I). Solving P*(1+R) - p = P*(1+I) for p, we get p = P*(R-I) as the initial perpetuity payment and the payment increases by a factor (1+I) each year. The initial investment is P and it also increases by a factor of (1+I) each year. In later years, the investment is P*(1+I)^n at the start of the year, the payment is p*(1+I)^n and the amount invested for the next year is P*(1+I)^{n+1}. This is the same result as obtained by the OP but written in terms that I can understand, that is, without the financial jargon about discount rates, gradients, PV, FV and the like. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What's a reliable way for a non-permanent resident alien in the USA to get an auto loan? | I don't think that they ask you for your citizenship status when you apply in a dealership. At least I don't remember being asked. I know of at least 3 people from my closest circle of friends who are in various immigration statuses (including one on F1) and got an auto loan from a dealership without a problem and with good rates. They have to ask for your immigration status on online applications because of the post-9/11 law changes. Edit to allow Dilip to retract his unjustified downvote: Chase and Wells Fargo have a reliable track of extending auto loans to non-permanent residents. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | To use a line of credit or withdraw from savings | "No one can really answer this for you. It is a matter of personal preference and the details of your situation. There are some really smart people on here, when placed in your exact situation, would do completely different things. Personal finance is overall, personal. If it was me, I'd never borrow money in retirement. If I had the cash, I'd use it to help fund the purchase. If I didn't, I simply wouldn't. For me wealth retention (in your case) is surprisingly more about behavior than math (even though I am a math guy). You are simply creating a great deal of risk at a season in your life with a diminished ability to recover from negative events. In my opinion you are inviting ""tales of woe"" to be part of your future if you borrow. Others would disagree with me. They would point to the math and show how you would be much better off on borrowing instead of pulling out of investments provided a sufficient return on your nest egg. They may even have a case as you might have to pay taxes on money pulled out magnifying the difference in net income on borrowing versus pulling out in a lump sum. Here in the US, the money you pulled out would be taxed at the highest marginal rate. To help with a down payment of 50K, you might have to pull out 66,500 to pay the taxes and have enough for the down payment. The third option is to not help with a down payment or to help them in a different way. Perhaps giving them a few hundred per month for two years to help with their mortgage payment. Maybe watch their kids some to reduce day care costs or help with home improvements so they can buy a lower price home. Those are all viable options. Perhaps the child is not ready to buy a home. Having said all that it really depends on your situation. Say your sitting on 5 million in investments, your pensions is sufficient to have some disposable income, and they are asking for a relatively small amount. Then pull the money out and don't be concerned. You nest egg will quickly recover the money." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Trouble sticking to a budget when using credit cards for day to day transactions? | Discipline. If you have to have a hard limit on your account that prevents you from spending - credit cards are not for you. If you can discipline yourself not to make purchases in excess of your budget even if the plastic technically allows it - then you can go on using the credit card. Make sure to stay on top of your spendings by frequently checking your current activity on the card (on line, don't wait for statements), and making sure you're below the limit you have set for your budget. Mint.com visualizes your spendings and shows where you are with regards to your preset budgets on various types of spendings, you should consider using it as an aid. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Should the poor consider investing as a means to becoming rich? | "Definitions are in order: These definitions are important. Someone making 1,000,000 a year who spends all of it is poor. Someone who makes 500K, spends 450K a year and has three million in stocks and a paid-for million dollar home may be rich but they can't retire. They need another seven to eight million to retire. Someone with a million dollars in assets who makes 40K a year through their job, can be Financially Independent and retire. This last example is important. In The Millionaire Next Door the authors share their discovery that the average millionaire accumulated their wealth with just a working income of around 50K (the book is a bit dated so the number should be elevated if you adjust for inflation). Finance Independent is a strange thing to wrap your head around and people with high incomes often fall victim to misunderstanding it. When figuring out how much a person needs to accumulate for their ""nest egg"", their working income is not a direct variable. Their spending and savings rate are. A doctor making 500K, who spends 450K needs to work for 51 years if they are planning to keep spending 450K/year (adjusted for inflation) forever. Someone making 60K starting at age 21 who saves 18K (30%), could retire at 49. Someone with a truly low income and poor, say 30K and under and living in a old developed nation, investing will help them a bit. Say they save 10% of their income, by the time they reach 65 (the typical age federal retirement pensions begin), they'll have enough money to live off of in perpetuity and in comfort. They'll actually have a higher retirement income than income while they were working. But, it is challenging at those levels to save 10% of your net income. Events like your car randomly deciding to break down one day can destroy an entire year's saving." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is the meaning of “short selling” or “going short” a stock? | This is a gross simplification as there are a few different ways to do this. The principle overall is the same though. To short a stock, you borrow X shares from a third party and sell them at the current price. You now owe the lender X shares but have the proceeds from the sale. If the share price falls you can buy back those shares at the new lower price, return them to the lender and pocket the difference. The risk comes when the share price goes the other way, you now owe the lender the new value of the shares, so have to find some way to cover the difference. This happened a while back when Porsche made a fortune buying shares in Volkswagen from short sellers, and the price unexpectedly rose. |
Share your insights or perspective on the financial matter presented in the input. | stock option grant being cancelled because strike price greater than FMV and replaced with a new grant at a higher strike price | "What could the tax issues with the IRS be? I thought (but not totally certain) that the tax treatment of an ISO option was based on difference between exercise price and FMV at the time of the sale. This is an accounting issue. There were times not so long ago that companies actually did these things on purpose, to boost the stock grant values for their employees (especially senior employees). They would give a grant but date it with an earlier date with a more favorable valuation. This is called ""backdating"", and it brought companies down and CEOs into criminal courts. In addition, only reasonable compensation is allowed as a deduction for the company, and incorrectly set strike price may be deemed unreasonable. Thus, the deduction the company would take for your compensation can be denied, leading to loss of tax benefit (this was also a weapon used by the IRS at the time against companies doing backdating). Last but not least, company that has intentions of going public cannot allow itself such a blatant disregard of the accounting rules. Even if the mistake was not made on purpose (as it sounds), it is a mistake that has to be corrected. What should I take into consideration to determine whether a 27% increase in shares is a fair exchange for an increase in 270% increase in strike price. Did you know the strike price when you signed the contract? Was it a consideration for you? For most people, the strike price is determined at the board approval, since the valuations are not public and are not disclosed before you actually join, which is already after you've agreed to the terms. So basically, you agreed to get 100 sheets of toilet paper, and instead getting 127 sheets. So you're getting 27 sheets more than you initially agreed to. Why are you complaining? In other words, options are essentially random numbers which are quite useless. By the time you get to exercise them, they'll be diluted through a bunch of additional financing rounds, and their value will be determined for real only after the IPO, or at least when your company's stocks are trading OTC with some reasonable volume. Until then - it's just a number with not much of a meaning. The FMV does matter for early exercise and 83(b) election, if that is an option, but even then - I doubt you can actually negotiate anything." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How does compounding of annual interest work? | The general concept is that your money will grow at an accelerating rate because you start getting interest paid on your returns in addition to the original investment. As a simple example, assume you invest $100 and get 10% interest per year paid annually. -At the end of the first year you have your $100 + $10 interest for a total of $110. -So you start the second year with $110 and so 10% would be $11 for a total of $121. -The third year you start with $121 so 10% would be $12.10 for a total of $133.10 See how the amount it goes up each year increases? If we were talking a higher initial amount or a larger number of years that can really add up. That is essence is compound interest. Most of the complicated looking formulas you see out there for compound interest are just shortcuts so you don't have to iteratively go through the above exercise a bunch of times to find out how much you would have after some number of years. This formula tells you how much you would have(A) after a certain number of years(t) at a given interest rate(r) assuming they pay interest n times per year, for example you would use 12 for n if it paid interest monthly instead of yearly. P represents the amount you started out with. If you keep investing monthly (as shown in your example) instead of just depositing it and letting it sit, you have to use a more complicated formula. Finance people refer to this as calculating the future value of an annuity. That formula looks like this: A = PMT [((1 + r)N - 1) / r] x (1+r) A : Is the amount you would have at the end of the time period. N : The number of compounding periods (months if you get interest calculated monthly) PMT : The total amount you are putting in each period (N) r: Just like before, the interest rate you are getting paid. Be sure to adjust this to a monthly number if N represents months (divide APR by 12)* *Most interest rates are quoted as APR, which is the annualized interest rate not counting compounding. Don't confuse this with APY, which has compounding built into it and is not appropriate for use in this formula. Inserting your example: r (monthly interest rate) = 15% APR / 12 = .0125 n = 30 years * 12 months/year = 360 months A = $150 x [((1 + .0125)360 - 1) / .0125] x (1+.0125) A = $1,051,473.09 (rounded) |
Share your insights or perspective on the financial matter presented in the input. | Can zero-coupon bonds go down in price? | "Of course it can. This is a time value of money calculation. If I knew the maturity date, or current yield to maturity I'd be able to calculate the other number and advise how much rates need to rise to cause the value to drop from 18 to 17. For a 10 year bond, a rise today of .1% will cause the bond to drop about 1% in value. This is a back of napkin calculation, finance calculators offer precision. edit - when I calculate present value with 34 years to go, and 5.832% yield to maturity, I get $14.55. At 5.932, the value drops to $14.09, a drop of 3.1%. Edit - Geo asked me to show calculations. Here it goes - A) The simplest way to calculate present value for a zero coupon bond is to take the rate 5.832%, convert it to 1.05832 and divide into the face value, $100. I offer this as the ""four function calculator"" approach, so one enters $100 divided by 1.05832 and repeat for the number of years left. A bit of precision is lost if there's a fractional year involved, but it's close. The bid/ask will be wider than this error introduced. B) Next - If you've never read my open declaration of love for my Texas Instruments BA-35 calculator, here it is, again. One enters N=34 (for the years) FV = 100, Rate = 5.832, and then CPT PV. It will give the result, $14.56. C) Here is how to do it in Excel - The numbers in lines 1-3 are self evident, the equation in cell B4 is =-PV(B3/100,B1,0,B2) - please note there are tiny differences in the way to calculate in excel vs a calculator. Excel wants the rate to be .05832, so I divided by 100 in the equation cell. That's the best 3 ways I know to calculate present value. Geo, if you've not noticed, the time value of money is near and dear to me. It comes into play for bonds, mortgages, and many aspect of investing. The equations get more complex if there are payments each year, but both the BA-35 and excel are up to it." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Opening 5 credit cards at once with no history to ruin, is it a good idea? | "I would not call this a ""good"" idea. But I wouldn't necessarily call it a bad idea either. Before you even consider it, you need to do a little bit of soul searching. If there is ANY chance that having multiple credit cards could entice you to spend more than you otherwise would, then this is definitely a bad idea. Avoiding temptation is the key to preventing regrettable actions (in all aspects of life). Psychoanalysis aside, let's take a mathematical approach to the question. I believe your conclusion is correct if you add some qualifiers to it: A few years from now, then your credit score will probably be higher than if you just had 1 credit card. Here are some other things to consider: And, saving the best for last: As for the hard inquiries, they should only have an effect on your credit score for 1 year (though they can be seen on your report for 2 years). Final thought: if you decide to do this (and I personally don't recommend it), I would keep the number of applications smaller (3-5 instead of 10-15). I also would only choose cards that have no annual fee. Try to choose 1 card that has 1-2% cash back and make that your regular card." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Should I fund a move by borrowing or selling other property assets? | "When you compare the costs of paying your current mortgage with the rental income from the flat, you're not really comparing like with like. Firstly, the mortgage payments are covering both interest and capital repayments, so some of the 8k is money that is adding to your net worth. Secondly, the value of the flat (130k) is much more than the outstanding mortgage (80k) so if you did sell the flat and pay off the mortgage, you'd have 50k left in cash that could be invested to provide an income. The right way to compare the two options is to look at the different costs in each scenario. Let's assume the bigger house will cost 425k as it makes the figures work out nicely. If you buy the bigger house with a bigger mortgage, you will need to borrow 50k more so will end up with a mortgage of 130k, and you will still have the 8k/year from the flat. Depending on your other income, you might have to pay tax on the 8k/year - e.g. at 40% if you're a higher-rate taxpayer, leaving you with 4.8k/year. If you sell the flat, you'll have no mortgage repayments to make and no income from the flat. You'll be able to exactly buy the new house outright with the 50k left over after you repay the mortgage, on top of your old house. You'd also have to pay some costs to sell the flat that you wouldn't have to with the bigger mortgage, but you'd save on the costs of getting a new mortgage. They probably aren't the same, but let's simplify and assume they are. If anything the costs of selling the flat are likely to be higher than the mortgage costs. Viewed like that, you should look at the actual costs to you of having a 130k mortgage, and how much of that would be interest. Given that you'll be remortgaging, at current mortgage rates, I'd expect interest would only be 2-3%, i.e around 2.5k - 4k, so significantly less than the income from the flat even after tax. The total payment would be more because of capital repayment, but you could easily afford the cashflow difference. You can vary the term of the mortgage to control how much the capital repayment is, and you should easily be able to get a 130k mortgage on a 425k house with a very good deal. So if your figure of 8k rent is accurate (considering void periods, costs of upkeep etc), then I think it easily makes sense to get the bigger house with the bigger mortgage. Given the tax impact (which was pointed out in a comment), a third strategy may be even better: keep the flat, but take out a mortgage on it in exchange for a reduced mortgage on your main house. The reason for doing it that way is that you get some tax relief on the mortgage costs on an investment property as long as the income from that property is higher than the costs, whereas you don't on your primary residence. The tax relief used to just be at the same tax rate you were paying on the rental income, i.e. you could subtract the mortgage costs from the rental income when calculating tax. It's gradually being reduced so it's just basic rate tax relief (20%) even if you pay higher-rate tax, but it still could save you some money. You'd need to look at the different mortgage costs carefully, as ""buy-to-let"" mortgages often have higher interest rates." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | First time homeowner and getting a mortgage? | If you have good credit, you already know the rate -- the bank has it posted in the window. If you don't have good credit, tell the loan officer your score. Don't have them run your credit until you know that you're interested in that bank. Running an application or prequal kicks off the sales process, which gets very annoying very quickly if you are dealing with multiple banks. A few pointers: You're looking for a plain vanilla 30 year loan, so avoid mortgage brokers -- they are just another middleman who is tacking on a cost. Brokers are great when you need more exotic loans. Always, always stay away from mortgage brokers (or inspectors or especially lawyers) recommended by realtors. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why don't people generally save more of their income? | "If one takes a slightly more expansive view of the word ""saving"" to include most forms of durable asset accumulation, I think the reason some do and most don't is a matter of a few factors, I will include the three that seem obvious to me: Education Most schools in the US where I live do not offer personal finance courses, and even when they do, there is no opportunity for a student to practice good financial habits in that classroom setting. I think a simple assignment that required students to track every penny that they spend over the period of a few months would help them open their eyes to how much money is spent on trivial things that they don't need. Perhaps this would be more effective in a university setting where the students are usually away from home and therefore more responsible for the spending that occurs on their own behalf. Beyond simple education about personal finances, most people have no clue how the various financial markets work. If they understood, they would not allow inflation to eat away at their savings, but that's a separate topic from why people do not save. Culture Since much of the education above isn't happening, children get their primary financial education from their parents. This means that those who are wealthy teach their children how to be wealthy, and those who are poor pass on their habits to children who often also end up poor. Erroneous ideas about consumption vs. investment and its economic effects also causes some bad policy encouraging people to live beyond their means and use credit unwisely, but if you live in a country where the average person expects to eat out regularly and trade in their automobiles as soon as they experienced their highest rate of depreciation, it can be hard to recognize bad financial behavior for what it is. Collective savings rates reflect a lot of individuals who are emulating each other's bad behavior. Discipline Even when someone is educated about finances, they may not establish good habits of budgeting regularly, tracking spending, and setting financial goals. For me, it helps to be married to someone who has similar financial goals, because we budget monthly and any major purchases (over $100 or so) must be agreed upon at the beginning of the month (with obvious exceptions for emergencies). This eliminates any impulsive spending, which is probably 90% of the battle for me. Some people do not need to account to someone else in order to spend wisely, but everyone should find a system that works for them and helps them to maintain some financial discipline." |
Share your insights or perspective on the financial matter presented in the input. | How to increase my credit score | Get a credit card is NOT the answer. The reason people have a bad (or no) credit score is often because they're new to the country, have just turned 18, have previously fallen into arrears or are just bad with money. Getting a credit card is risky because, if you don't stay on top of your payments, it'll just damage your score even more. Now, it sounds like I hate credit cards - but I don't, and they do have their benefits. But avoid them if possible because they can be more hassle than they're worth (ie, paying the credit back on-time, cancelling accounts when the interest comes in, moving money in and out of accounts). It's risky borrowing money from anywhere whether it's a payday lender, a bank, a credit card, etc., so use them as a last resort. If you've got your own income then that's amazing!, try not to live outside of your means and your credit score will look after (and increase) itself. It takes time to build a good credit score, but always make sure you pay the people you owe on time and the full amount. I'd stick with paying your phone provider (and any other direct debits you have setup) and avoid getting a credit card. I'd recommend Noddle to keep track of your credit score and read their FAQ on how to help build it. Unlike Experian, it's free forever so not quite as detailed... but Noddle are owned by CallCredit - one of the biggest Credit Reference Agencies in the UK so they should have the latest information on yourself. In conclusion, if you already have financial commitments like a mobile phone bill, gym membership, store cards, anything that gets paid monthly by direct debit... your credit score will increase (provided you pay the full-amount on time). I hope this helps. PS. I don't work for any of the companies here, but I've been working in the finance sector (more specifically, short-term loans) for 3+ years now. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Does money made by a company on selling its shares show up in Balance sheet | First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | When filing taxes in Canada, in what cases does box 39 on the T4 get reported as half of box 38? | Here's the best explanation I found relating to why your T4 box 39 might not have an amount filled in, even when box 38 has one: Department of Finance – Explanatory Notes Relating to the Income Tax Act [...]. It's a long document, but here's the part I believe relevant, with my emphasis: Employee Stock Options ITA 110(1) [...] Paragraph 110(1)(d) is amended to include a requirement that the employee [...] exercise the employee’s rights under the stock option agreement and acquire the securities underlying the agreement in order for the deduction in computing taxable income to be available [...] ensures that only one deduction is available in respect of an employment benefit. In other words, if employee stock option rights are surrendered to an employer for cash or an in-kind payment, then (subject to new subsections 110(1.1) and (1.2)) the employer may deduct the payment but the employee cannot claim the stock option deduction. Conversely, where an employer issues securities pursuant to an employee’s exercise of stock options, the employer can not deduct an amount in respect of the issuance, but the employee may be eligible to claim a deduction under paragraph 110(1)(d). Did you receive real shares based on your participation in the ESPP, or did you get a cash payment for the net value of shares you would have been issued under the plan? From what I can tell, if you opted for a cash payment (or if your plan only allows for such), then the part I emphasized comes into play. Essentially, if conditions were such that your employer could claim a deduction on their corporate income tax return for the compensation paid to you as part of the plan, then you are not also able to claim a similar deduction on your personal income tax return. The money received in that manner is effectively taxed in your hands the same as any bonus employment income would be; i.e. it isn't afforded tax treatment equivalent to capital gains income. Your employer and/or ESPP administrator are best able to confirm the conditions which led to no amount in your box 39, but at least based on above you can see there are legitimate cases where box 38 would have an amount while box 39 doesn't. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How do share dilution scams make money? | "For this to work, those who control the dilution must also control their salaries because the only way for them to be paid off when it's the corporation itself selling is to gain access to the proceeds. When a corporation sells newly issued equity, the corporation itself owns the money. To at least have the appearance of propriety, the scammers must be paid those proceeds. Both actions imply that the board is captured by the scammers. There are many corporations that seem to do this even with persistently large market capitalizations. The key difference between this and pump-and-dump is that its a fraudulent group of investors selling in this case instead of the corporation itself. A detailed simple example Corporations are mandated by law to be little oligarchies; although, ""republic"" is now becoming more appropriate with all of the new shareholder rights. A corporation is controlled at root by the board of directors who are elected by the shareholders. The board has no direct operational control, as that is left to the ""king"", the CEO; however, the board does control what everyone wants access to: the money. Board members have all sorts of legal qualitative mandates on how to behave, and they've functioned fairly decently efficiently over the long run, but there are definitely some bad apples. Boards are somewhat intransigent since it's difficult to hold board elections, and usually only specific board members are put up for election by a shareholder vote, so a bad one has the potential to really get stuck in there. Once a bad one is in there, they don't care because they know it will be tough to get them out, so they run roughshod over the company's purse. Only the board can take action on major funding such as the CEO's operating budget, board compensation, financing, investment, etc, some with shareholder approval, some without. The corporation itself owns all of those assets, but the board controls them. In this example, they scheme with most likely the top executive, but a rubber stamp top executive could allow a lower rung to scheme with the board, but the board is always constant until the law is changed. Because there's no honor amongst thieves, the board votes which can require some combination of executive and shareholder approval are taken very close together: sell shares, increase salaries to key executive schemers, increase board compensation. The trusting shareholders believe this is in the best interests of the company at large so go along. So the money flows from existing & new shareholders to the corporation now controlled by a malicious board and then finally to the necessary malicious executive and the vital malicious board." |
Share your insights or perspective on the financial matter presented in the input. | What are the possible metrics for evaluating annual performance of a portfolio? | The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Having trouble with APR calculation | I have answered your question in detail here https://stackoverflow.com/questions/12396422/apr-calculation-formula The annuity formula in FDIC document is at first finding PVIFAD present value annuity due factor and multiplying it with annuity payment and then dividing it by an interest factor of (1+i) to reduce the annuity to an ordinary annuity with end of period payments They could have simply used PVIFA and multiplying it with annuity payment to find the present value of an ordinary annuity In any case, you should not follow the directions in FDIC document to find interest rate at which the present value of annuity equals the loan amount. The method they are employing is commonly used by Finance Professors to teach their students how to find internal rate of return. The method is prone to lengthy trial and error attempts without having any way of knowing what rate to use as an initial guess to kick off the interest rate calculations So this is what I would suggest if you are not short on time and would like to get yourself familiar with numerical methods or iterative techniques to find internal rate of return There are way too many methods at disposal when it comes to finding interest rates some of which include All of the above methods use a seed value as a guess rate to start the iterative calculations and if results from successive calculations tend to converge within a certain absolute Error bound, we assume that one of the rates have been found as there may be as many rates as the order of the polynomial in this case 36 There are however some other methods that help find all rates by making use of Eigenvalues, but for this you would need a lengthy discourse of Linear Algebra One of the methods that I have come across which was published in the US in 1969 (the year I was born :) ) is called the Jenkins Traub method named after the two individuals who worked jointly on finding a solution to all roots of a polynomial discarding any previous work on the same subject I been trying to go over the Jenkins Traub algorithm but am having difficulty understanding the complex nature of the calculations required to find all roots of the polynomial In summary you would be better of reading up on this site about the Newton Raphson method to find IRR |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Strategy for investing large amount of cash | Dollar Cost Averaging would be the likely balanced approach that I'd take. Depending on the size of the sum, I'd likely consider a minimum of 3 and at most 12 points to invest the funds to get them all working. While the sum may be large relative to my net worth, depending on overall scale and risk tolerance I could see doing it in a few rounds of purchasing or I could see taking an entire year to deploy the funds in case of something happening. I'd likely do monthly investments myself though others may go for getting more precise on things. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Should I buy out my brother on a property we will inherit before making improvements? | In the end you, your dad, and your brother should come to an agreement so there's no surprises or unfulfilled expectations, but here's my opinion: If you can afford to make the additions now: I would offer to pay fully for the addition, with the understanding that the additional value that it generates is yours. That keeps everything in your name, and should be fair since you pay for the expense and someday reap the benefit. If you can't afford to make the additions now: I see two options: have your brother buy your father's house, giving you half of the proceeds, and use those proceeds to make the addition as above, or split the cost of the addition and have some sort of contract drawn up promising to reimburse him (with the amount of the reimbursement very clear, like XXX dollars plus accrued interest at Y% annually) as a condition to selling the house. One other part you didn't mention is any compensation you get for keeping your father at your house. What compensation (if any) you get is not as important as making sure that the three of you all agree on what is fair. In any case, clear, honest communication and full agreement is key. There is a very real risk that when your father's estate is settled that there will be disputes over what the agreement was and who it entitled to what. Having everything in writing may sound cold, but it keeps everyone on the same page. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | After consulting HR Block, are you actually obligated to file your taxes with them, if they've found ways to save you money? | The obligation is contractual, so you need to read the contract to answer your question. However, since you paid for the service provided, I see no way they can force you buy any other service from them. They cannot file your tax returns without your explicit consent (on a form dedicated to that, dated and having the numbers matching the return filed - not something you can sign before the actual return is ready). Worst case they can claim you owe them more money, but since you paid for the services provided, I can't see how they can have that stand in court as well. Bottom line - even if the contract has such an obligation, I cannot see how it can be enforced. As to the mistake they noted... I wouldn't rely on H&R Block advice in any matter. Very likely, the person you were talking to was not even licensed to provide tax advice. You're lucky if the person has passed CRTP exams (in California they're legally required), but I seriously doubt their clerks are EAs or CPAs (the only designations other than a lawyer legally allowed to provide tax advice). Tax preparers (CRTPs included) are only allowed to provide advice pertaining to the preparation of the tax return they're currently engaged to prepare. Claiming income is sourced or not sourced in NY is borderline, IMHO. If they got it wrong (and to me it sounds as they did) you can sue them for damages. If your situation is tricky and it is too late to get an appointment with a proper adviser - file an extension (form 4868) and deal with it after the April busy season. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Evidence for/against negative correlation between commodity futures, stocks | "The correlation I heard most about in economics/finance was that stock prices and bond yields were negatively correlated; as the stock market does better, bond yields fall (company's doing well as evidenced by stocks, so it's a good credit risk, so YTM of its bonds on the market goes down). The correlation, if any, between the stock and futures market should be visible in the actual price histories. Index prices may be useful, but what's more likely is that various future prices have correlation with various companies' stocks. Where the future reflects the price of a raw material that is a significant cost of goods sold for a company, you'll see these two move inversely to each other in the short term. I think that if there is a causative relationship here, its that futures prices influence stock prices, not the other way around. The futures market generally represents the cost side of a consumer goods producer's bottom line. The stock market represents its profits. As futures go up, profit expectations go down, putting pressure on stock prices. Industries that deal in services, or in other types of goods, can still be affected because a rise in the cost of something consumers need will cause them to spend less on other things which affects margins in those other areas. So, in the short and medium term, when the futures market goes up the stock market sees a dip, and vice versa. However, companies adapt; they can put upward pressure on prices for their goods to restore their desired margins, usually by slowly increasing them to prevent sticker shock (though elasticity of demand plays a part; the more we need something no matter what it costs, the faster prices can increase). To maintain costs, they can make things cheaper using less expensive materials (more plastic, less steel). They can restructure production processes (translated: move factories offshore, or at least to ""right-to-work"" states with less union strength) to save costs elsewhere. All of these reduce costs and thus increase profits, but take time to implement. Many of these things reduce direct costs, reducing demand for the commodity and causing the futures prices to go back down. So, over the long term, these differences even out, and it's down to the things that affect the entire market (inflation, consumer/investor confidence, monetary policy)." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What does it mean when the broker does not have enough shares to short? | For Canada No distinction is made in the regulation between “naked” or “covered” short sales. However, the practice of “naked” short selling, while not specifically enumerated or proscribed as such, may violate other provisions of securities legislation or self-regulatory organization rules where the transaction fails to settle. Specifically, section 126.1 of the Securities Act prohibits activities that result or contribute “to a misleading appearance of trading activity in, or an artificial price for, a security or derivative of a security” or that perpetrate a fraud on any person or company. Part 3 of National Instrument 23-101 Trading Rules contains similar prohibitions against manipulation and fraud, although a person or company that complies with similar requirements established by a recognized exchange, quotation and trade reporting system or regulation services provider is exempt from their application. Under section 127(1) of the Securities Act, the OSC also has a “public interest jurisdiction” to make a wide range of orders that, in its opinion, are in the public interest in light of the purposes of the Securities Act (notwithstanding that the subject activity is not specifically proscribed by legislation). The TSX Rule Book also imposes certain obligations on its “participating organizations” in connection with trades that fail to settle (see, for example, Rule 5-301 Buy-Ins). In other words, shares must be located by the broker before they can be sold short. A share may not be locatable because there are none available in the broker's inventory, that it cannot lend more than what it has on the books for trade. A share may not be available because the interest rate that brokers are charging to borrow the share is considered too high by that broker, usually if it doesn't pass on borrowing costs to the customer. There could be other reasons as well. If one broker doesn't have inventory, another might. I recommend checking in on IB's list. If they can't get it, my guess would be that no one can since IB passes on the cost to finance short sales. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why are real-term bond yields systematically declining, and what does it mean for investors? | Keep in mind there are a couple of points to ponder here: Rates are really low. With rates being so low, unless there is deflation, it is pretty easy to see even moderate inflation of 1-2% being enough to eat the yield completely which would be why the returns are negative. Inflation is still relatively contained. With inflation low, there is no reason for the central banks to raise rates which would give new bonds a better rate. Thus, this changes in CPI are still in the range where central banks want to be stimulative with their policy which means rates are low which if lower than inflation rates would give a negative real return which would be seen as a way to trigger more spending since putting the money into treasury debt will lose money to inflation in terms of purchasing power. A good question to ponder is has this happened before in the history of the world and what could we learn from that point in time. The idea for investors would be to find alternative holdings for their cash and bonds if they want to beat inflation though there are some inflation-indexed bonds that aren't likely appearing in the chart that could also be something to add to the picture here. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why is the price of my investment only updated once per day? | Mutual funds are collections of investments that other people pay to join. It would be simpler to calculate the value of all these investments at one time each day, and then to deem that any purchases or sales happen at that price. The fund diversifies rather than magnifies risk, looking to hold rather than enjoy a quick turnaround. Nobody really needs hourly updated price information for an investment they intend to hold for decades. They quote their prices on a daily basis and you take the daily price. This makes sense for a vehicle that is a balanced collection of many different assets, most of which will have varying prices over the course a day. That makes pricing complicated. This primer explains mutual fund pricing and the requirements of the Investment Company Act of 1940, which mandates daily price reporting. It also illustrates the complexity: How does the fund pricing process work? Mutual fund pricing is an intensive process that takes place in a short time frame at the end of the day. Generally, a fund’s pricing process begins at the close of the New York Stock Exchange, normally 4 p.m. Eastern time. The fund’s accounting agent, which may be an affiliated entity such as the fund’s adviser, or a third-party servicer such as the fund’s administrator or custodian bank, is usually responsible for calculating the share price. The accounting agent obtains prices for the fund’s securities from pricing services and directly from brokers. Pricing services collect securities prices from exchanges, brokers, and other sources and then transmit them to the fund’s accounting agent. Fund accounting agents internally validate the prices received by subjecting them to various control procedures. For example, depending on the nature and extent of its holdings, a fund may use one or more pricing services to ensure accuracy. Note that under Rule 22c-1 forward pricing, fund shareholders receive the next daily price, not the last daily price. Forward pricing makes sense if you want shareholders to get the most accurate sale or purchase price, but not if you want purchasers and sellers to be able to make precise calculations about gains and losses (how can you be precise if the price won't be known until after you buy or sell?). |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Borrowed shares how are they tracked? | Brokerage firms are required to report the number of shares being shorted. This information is reported to the exchange (NYSE of NASDAQ) and is made public. Most financial sites indicate the number of shares being shorted for a particular stock. The image below from Yahoo finance shows 3.29 million shares of CMG were being shorted at the close of 9-28-2012. This is over 12% of the total outstanding shares of CMG. For naked short selling additional information is tracked. If the brokerage is unable to borrow shares to deliver before the settlement date of a short sale then the transaction is recorded as fails-to-deliver. No money or shares are exchanged since the brokerage is unable to deliver the shares that were agreed upon. A large amount of fails-to-deliver transactions for a stock usually indicates an excessive amount of naked shorting. When investors and brokerage firms start to aggressively short a stock they will do so without having borrowed the shares to sell. This will result in a large amount of naked short selling. When there are a large number of naked short sellers not all the sellers will be able to borrow the necessary shares before the settlement date and many fails-to-deliver transactions will be recorded. The SEC records the number of fails-to-deliver transactions. The table below summarizes the fails-to-deliver transactions from 1-1-2012 through 9-14-2012 (data obtained from here). The “Ext Amount” column shows the total dollar value of the transactions that failed ( i.e. Fail Qty * Share price ). The “Volume” column is the total number of shares traded in the same time period. The “% Volume” shows the percentage of shares that failed to deliver as a percentage of the total market volume. The table orders the data in descending order by the quantity of shares that were not delivered. Most of the companies at the top of the list no longer exist. For many of these companies, the quantity of shares that failed to deliver where many multiples of the number of shares traded during the same time period. This indicates massive naked short selling as many brokerages where unable to find shares to borrow before the settlement date. More information here. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Is it possible to eliminate PMI (Personal/Private Mortgage Insurance) on a mortgage before reaching 20% down on principal? | On a 5% mortgage, after 24 months of payments on a 30 yr amortization, you will have paid 3% of the principal, so all else being equal, you have 15% equity. If the value is up, even a bit, the first step is to call the bank. If you are pretty sure it's up enough, ask them to remove PMI in exchange for you paying the appraisal fee. If they hesitate, ask them if you prepay the remaining missing 5%, if they'll pull the fee. 8% of principal is paid by the end of year 5, at which time they have no choice but to remove it. Doing so any sooner is their call. If they agree to the pre-pay deal, I'd find a way to raise the funds. It will save you over $5000 in a short period. Last, while 5% really is great, especially NPNC, shop around, you may find another no cost deal at the same or lower rate, no harm to look, and they may appraise you at 80% LTV. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Refinance when going to sell? | When evaluating a refinance, it all comes down to the payback. Refinancing costs money in closing costs. There are different reasons for refinancing, and they all have different methods for calculating payback. One reason to finance is to get a lower interest rate. When determining the payback time, you calculate how long it would take to recover your closing costs with the amount you save in interest. For example, if the closing costs are $2,000, your payback time is 2 years if it takes 2 years to save that amount in interest with the new interest rate vs. the old one. The longer you hold the mortgage after you refinance, the more money you save in interest with the new rate. Generally, it doesn't pay to refinance to a lower rate right before you sell, because you aren't holding the mortgage long enough to see the interest savings. You seem to be 3 years away from selling, so you might be able to see some savings here in the next three years. A second reason people refinance is to lower their monthly payment if they are having trouble paying it. I see you are considering switching from a 15 year to a 30 year; is one of your goals to reduce your monthly payment? By refinancing to a 30 year, you'll be paying a lot of interest in your first few years of payments, extending the payback time of your lower interest rate. A third reason people refinance is to pull cash out of their equity. This applies to you as well. Since you are planning on using it to remodel the home you are trying to sell, you have to ask yourself if the renovations you are planning will payoff in the increased sale price of your home. Often, renovations don't increase the value of their home as much as they cost. You do renovations because you will enjoy living in the renovated home, and you get some of your money back when you sell. But sometimes you can increase the value of your home by enough to cover the cost of the renovation. Talk to a real estate agent in your area to get their advice on how much the renovations you are talking about will increase the value of your home. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Advice for college student: Should I hire a financial adviser or just invest in index funds? | "Couple of clarifications to start off: Index funds and ETF's are essentially the same investments. ETF's allow you to trade during the day but also make you reinvest your dividends manually instead of doing it for you. Compare VTI and VTSAX, for example. Basically the same returns with very slight differences in how they are run. Because they are so similar it doesn't matter which you choose. Either index funds and ETF's can be purchased through a regular taxable brokerage account or through an IRA or Roth IRA. The decision of what fund to use and whether to use a brokerage or IRA are separate. Whole market index funds will get you exposure to US equity but consider also diversifying into international equity, bonds, real estate (REITS), and emerging markets. Any broker can give you advice on that score or you can get free advice from, for example, Future Advisor. Now the advice: For most people in your situation, you current tax rate is currently very low. This makes a Roth IRA a very reasonable idea. You can contribute $5,500 for 2015 if you do it before April 15 and you can contribute $5,500 for 2016. Repeat each year. You won't be able to get all your money into a Roth, but anything you can do now will save you money on taxes in the long run. You put after-tax money in a Roth IRA and then you don't pay taxes on it or the gains when you take it out. You can use Roth IRA funds for college, for a first home, or for retirement. A traditional IRA is not recommended in your case. That would save you money on taxes this year, when presumably your taxes are already low. Since you won't be able to put all your money in the IRA, you can put the rest in a regular taxable brokerage account (if you don't just want to put it in a savings account). You can buy the same types of things as you have in your IRA. Note that if your stocks (in your regular brokerage account) go up over the course of a year and your income is low enough to be in the 10 or 15% tax bracket and you have held the stock for at least a year, you should sell before the end of the year to lock in your gains and pay taxes on them at the capital gains rate of 0%. This will prevent you from paying a higher rate on those gains later. Conversely, if you lose money in a year, don't sell. You can sell and lock in losses during years when your taxes are high (presumably, after college) to reduce your tax burden in those years (this is called ""tax loss harvesting""). Sounds like crazy contortions but the name of the game is (legally) avoiding taxes. This is at least as important to your overall wealth as the decision of which funds to buy. Ok now the financial advisor. It's up to you. You can make your own financial decisions and save the money but it requires you putting in the effort to be educated. For many of us, this education is fun. Also consider that if you use a regular broker, like Fidelity, you can call up and they have people who (for free) will give you advice very similar to what you will get from the advisor you referred to. High priced financial advisors make more sense when you have a lot of money and complicated finances. Based on your question, you don't strike me as having those. To me, 1% sounds like a lot to pay for a simple situation like yours." |
Share your insights or perspective on the financial matter presented in the input. | First Time Home Buyers - Down Payment, PMI and Points | 1 - For FHA loans PMI is required for mortages where there is not at least 20% equity. Bank Financed Non-FHA loans may have other standards. If you are getting an FHA loan ,if possible put down 20% so that you do not have to pay PMI. That said your PMI costs should be reduced by the size of your down payment since the PMI covers the difference between your equity value (Based on the appraisal at time of purchase) and 20% equity value of the home. So if you buy a home for 425k(assuming 100% appraisal price) 20% equity would be 85k. So if you put 10% down you would be paying PMI until you accrue an addition 42500 in equity. And you will be paying PMI on that for about 12 years(typical on 30 year mortgage) or until you refinance(having home appraised at higher value than purchase price where you would have 20% equity). There are ways to get out of PMI early but few banks are willing to help you through the hoops unless you refinance(and pay more closing costs). 2 - Different banks offer better rates or other benefits for paying points. We paid $300 for a 1.5% reduction in our interest rate (less than 1%) but it was called a point. We were offered a few other points (.25% for 2500 and an one time on demand interest rate adjustment for ~3k) but declined but they may make more sense on a 425k home than our more modest one. You can talk to a banker about this now, get preapproved(which helps with getting offers accepted sometimes), and find out more details about the mortgage they will offer you. This meeting should be free(I would say will but some bank would charge just to prove me wrong) and help answer your questions more authoritatively than anyone here can. 3 - The costs will come out of your down payment. So if you put down 42.5k down your costs will come out of that. So you will probably end up with 30~35k being applied towards your purchase price with the rest going for costs. You can tell the banker you want to put 10% towards the price and the banker will give you a down payment probably around 50k to cover costs etc. (My figures are hopefully intentionally high better to find out that it will cost less than my guesstimate than get your hopes up just to find out the costs are higher than expected.) |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is a bull put spread? | "Bull means the investor is betting on a rising market. Puts are a type of stock option where the seller of a put option promises to buy 100 shares of stock from the buyer of the put option at a pre-agreed price called the strike price on any day before expiration day. The buyer of the put option does not have to sell (it is optional, thats why it is called buying an option). However, the seller of the put is required to make good on their promise to the buyer. The broker can require the seller of the put option to have a deposit, called margin, to help make sure that they can make good on the promise. Profit... The buyer can profit from the put option if the stock price moves down substantially. The buyer of the put option does not need to own the stock, he can sell the option to someone else. If the buyer of the put option also owns the stock, the put option can be thought of like an insurance policy on the value of the stock. The seller of the put option profits if the stock price stays the same or rises. Basically, the seller comes out best if they can sell put options that no one ends up using by expiration day. A spread is an investment consisting of buying one option and selling another. Let's put bull and put and spread together with an example from Apple. So, if you believed Apple Inc. AAPL (currently 595.32) was going up or staying the same through JAN you could sell the 600 JAN put and buy the 550 put. If the price rises beyond 600, your profit would be the difference in price of the puts. Let's explore this a little deeper (prices from google finance 31 Oct 2012): Worst Case: AAPL drops below 550. The bull put spread investor owes (600-550)x100 shares = $5000 in JAN but received $2,035 for taking this risk. EDIT 2016: The ""worst case"" was the outcome in this example, the AAPL stock price on options expiry Jan 18, 2013 was about $500/share. Net profit = $2,035 - $5,000 = -$2965 = LOSS of $2965 Best Case: AAPL stays above 600 on expiration day in JAN. Net Profit = $2,035 - 0 = $2035 Break Even: If AAPL drops to 579.65, the value of the 600 JAN AAPL put sold will equal the $2,035 collected and the bull put spread investor will break even. Commissions have been ignored in this example." |
Share your insights or perspective on the financial matter presented in the input. | Does an individual share of a stock have some kind of unique identifier? | "I agree with the answer by @Michael that this number doesn't exist. It's hard to see what use it would have and it would be difficult to track. I'm writing a separate answer because I also disagree with the premise of your question: Individual shares of stock have never to my knowledge had such a number. Your comment about numbers on stock certificates identifies the certificate document, which will generally represent multiple shares of stock. That number no more identifies a single share of stock than the serial number on a $10 bill identifies any one of the ten dollars it represents. Even at the ""collective"" unit of $10, when the bill is eventually replaced with a new one, the new bill has a new number. No continuity." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Why is there inconsistent returns difference between direct and regular Mutual Funds? | If this is the case, then shouldn't the difference between their annualized returns be same year on year? In general yes, however there difference has a compounding effect. i.e. if the difference if 5% first year, this money is invested and it would generate more of the said returns. However in reality as the corpus size of direct funds is very small, there difference is not very significant as other factors come into play. |
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