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d4d0e5282c650ae01d56e15fcd6b8fbb	Is it sensible to keep savings in a foreign currency?	[ { "docid": "c22ddc6666d604975f4b2b01bdbd3979", "text": "Given that we live in a world rife with geopolitical risks such as Brexit and potential EU breakup, would you say it's advisable to keep some of cash savings in a foreign currency? Probably not. Primarily because you don't know what will happen in the fallout of these sorts of political shifts. You don't know what will happen to banking treaties between the various countries involved. If you can manage to place funds on deposit in a foreign bank/country in a currency other than your home currency and maintain the deposit insurance in that country and not spend too much exchanging your currency then there probably isn't a downside other than liquidity loss. If you're thinking I'll just wire some whatever currency to some bank in some foreign country in which you have no residency or citizenship consideration without considering deposit insurance just so you might protect some of your money from a possible future event I think you should stay away.", "title": "" }, { "docid": "c5e0d911af62091f18a6573283d3b230", "text": "would you say it's advisable to keep some of cash savings in a foreign currency? This is primarily opinion based. Given that we live in a world rife with geopolitical risks such as Brexit and potential EU breakup There is no way to predict what will happen in such large events. For example if one keeps funds outside on UK in say Germany in Euro's. The UK may bring in a regulation and clamp down all funds held outside of UK as belonging to Government or tax these at 90% or anything absurd that negates the purpose of keeping funds outside. There are example of developing / under developed economics putting absurd capital controls. Whether UK will do or not is a speculation. If you are going to spend your live in a country, it is best to invest in country. As normal diversification, you can look at keep a small amount invested outside of country.", "title": "" }, { "docid": "bce16a459992b5cfe97275296a8ea3e4", "text": "I don't think that it's a good idea to have cash savings in different currencies, unless you know which will be the direction of the wind for that currency. You can suffer a lot of volatility and losses if you just convert your savings to another currency without knowing anything about which direction that pair will take. Today we can see Brexit, but this is a fact that has been discounted by the market, so the currencies are already adjusted to that fact, but we don't know what will happen in the future, maybe Trump will collapse the US economy, or some other economies in Asia will raise to gain more leadership. If you want to invest in an economy, I think that it's a best idea to invest on companies that are working in that country. This is a way of moving your money to other currencies, and at least you can see how is the company performing.", "title": "" }, { "docid": "c5be96ed7dcb380a9559e44f5d69c2bf", "text": "Is it sensible to keep savings in a foreign currency? The answer varies from one country to the next, but in the UK (or any other mature economy), I would advise against it. There are better ways to hedge against currency risks with the funds readily available to you through your ISA. You can keep your money relatively safe and liquid without ever paying a currency exchange fee.", "title": "" } ]	[ { "docid": "233fefaa0be88b6404682ad147c28974", "text": "If you want to use that money and maybe don't have the time to wait a few years if things should go bad, than you will definitely want to hold a good bunch of your money in the currency you buy most stuff with (so in most cases the currency of the country you live in) even if it is more volatile.", "title": "" }, { "docid": "bc6e266b59ecc292bde5266b4226db53", "text": "\"The solution I've come up with is to keep income in CAD, and Accounts Receivable in USD. Every time I post an invoice it prompts for the exchange rate. I don't know if this is \"\"correct\"\" but it seems to be preserving all of the information about the transactions and it makes sense to me. I'm a programmer, not an accountant though so I'd still appreciate an answer from someone more familiar with this topic.\"", "title": "" }, { "docid": "ec199cf207762c464059adad4d27fd60", "text": "Withdraw your savings as cash and stuff them into your mattress? Less flippantly, would the fees for a safe deposit box at a bank big enough to hold CHF 250'000 be less than the negative interest rate that you'd be penalized with if you kept your money in a normal account?", "title": "" }, { "docid": "df91c47eafc6397732ede7d8f2fe2602", "text": "\"You are mixing issues here. And it's tough for members to answer without more detail, the current mortgage rate in your country, for one. It's also interesting to parse out your question. \"\"I wish to safely invest money. Should I invest in real estate.\"\" But then the text offers that it's not an investment, it's a home to live in. This is where the trouble is. And it effectively creates 2 questions to address. The real question - Buy vs Rent. I know you mentioned Euros. Fortunately, mortgages aren't going to be too different, lower/higher, and tax consequence, but all can be adjusted. The New York Times offered a beautiful infographing calculator Is It Better to Rent or Buy? For those not interested in viewing it, they run the math, and the simple punchline is this - The home/rent ratio can have an incredibly wide range. I've read real estate blogs that say the rent should be 2% of the home value. That's a 4 to 1 home/rent (per year). A neighbor rented his higher end home, and the ratio was over 25 to 1. i.e. the rent for the year was about 4% the value of the home. It's this range that makes the choice less than obvious. The second part of your question is how to stay safely invested if you fear your own currency will collapse. That quickly morphs into too speculative a question. Some will quickly say \"\"gold\"\" and others would point out that a stockpile of weapons, ammo, and food would be the best choice to survive that.\"", "title": "" }, { "docid": "6e6eb756cc10517e78138928fe576fa8", "text": "\"Depositum irregulare is a Latin phrase that simply means \"\"irregular deposit.\"\" It's a concept from ancient Roman contract law that has a very narrow scope and doesn't actually apply to your example. There are two distinct parts to this concept, one dealing with the notion of a deposit and the other with the notion of irregularity. I'll address them both in turn since they're both relevant to the tax issue. I also think that this is an example of the XY problem, since your proposed solution (\"\"give my money to a friend for safekeeping\"\") isn't the right solution to your actual problem (\"\"how can I keep my money safe\"\"). The currency issue is a complication, but it doesn't change the fact that what you're proposing probably isn't a good solution. The key word in my definition of depositum irregulare is \"\"contract\"\". You don't mention a legally binding contract between you and your friend; an oral contract doesn't qualify because in the event of a breach, it's difficult to enforce the agreement. Legally, there isn't any proof of an oral agreement, and emotionally, taking your friend to court might cost you your friendship. I'm not a lawyer, but I would guess that the absence of a contract implies that even though in the eyes of you and your friend, you're giving him the money for \"\"safekeeping,\"\" in the eyes of the law, you're simply giving it to him. In the US, you would owe gift taxes on these funds if they're higher than a certain amount. In other words, this isn't really a deposit. It's not like a security deposit, in which the money may be held as collateral in exchange for a service, e.g. not trashing your apartment, or a financial deposit, where the money is held in a regulated financial institution like a bank. This isn't a solution to the problem of keeping your money safe because the lack of a contract means you incur additional risk in the form of legal risk that isn't present in the context of actual deposits. Also, if you don't have an account in the right currency, but your friend does, how are you planning for him to store the money anyway? If you convert your money into his currency, you take on exchange rate risk (unless you hedge, which is another complication). If you don't convert it and simply leave it in his safe, house, car boot, etc. you're still taking on risk because the funds aren't insured in the event of loss. Furthermore, the money isn't necessarily \"\"safe\"\" with your friend even if you ignore all the risks above. Without a written contract, you have little recourse if a) your friend decides to spend the money and not return it, b) your friend runs into financial trouble and creditors make claim to his assets, or c) you get into financial trouble and creditors make claims to your assets. The idea of giving money to another individual for safekeeping during bankruptcy has been tested in US courts and ruled invalid. If you do decide to go ahead with a contract and you do want your money back from your friend eventually, you're in essence loaning him money, and this is a different situation with its own complications. Look at this question and this question before loaning money to a friend. Although this does apply to your situation, it's mostly irrelevant because the \"\"irregular\"\" part of the concept of \"\"irregular deposit\"\" is a standard feature of currencies and other legal tender. It's part of the fungibility of modern currencies and doesn't have anything to do with taxes if you're only giving your friend physical currency. If you're giving him property, other assets, etc. for \"\"safekeeping\"\" it's a different issue entirely, but it's still probably going to be considered a gift or a loan. You're basically correct about what depositum irregulare means, but I think you're overestimating its reach in modern law. In Roman times, it simply refers to a contract in which two parties made an agreement for the depositor to deposit money or goods with the depositee and \"\"withdraw\"\" equivalent money or goods sometime in the future. Although this is a feature of the modern deposit banking system, it's one small part alongside contract law, deposit insurance, etc. These other parts add complexity, but they also add security and risk mitigation. Your arrangement with your friend is much simpler, but also much riskier. And yes, there probably are taxes on what you're proposing because you're basically giving or loaning the money to your friend. Even if you say it's not a loan or a gift, the law may still see it that way. The absence of a contract makes this especially important, because you don't have anything speaking in your favor in the event of a legal dispute besides \"\"what you meant the money to be.\"\" Furthermore, the money isn't necessarily safe with your friend, and the absence of a contract exacerbates this issue. If you want to keep your money safe, keep it in an account that's covered by deposit insurance. If you don't have an account in that currency, either a) talk to a lawyer who specializes in situation like this and work out a contract, or b) open an account with that currency. As I've stated, I'm not a lawyer, so none of the above should be interpreted as legal advice. That being said, I'll reiterate again that the concept of depositum irregulare is a concept from ancient Roman law. Trying to apply it within a modern legal system without a contract is a potential recipe for disaster. If you need a legal solution to this problem (not that you do; I think what you're looking for is a bank), talk to a lawyer who understands modern law, since ancient Roman law isn't applicable to and won't pass muster in a modern-day court.\"", "title": "" }, { "docid": "f321b5f5dcf5df983195cc9e9609e344", "text": "Firstly, I think you need to separate your question into two parts: If you are Chinese, live in China and intend to stay in China for most of your life then the default answer to question 1 should be Renminbi. Question 2 is not as important, you can hold USD in almost any country in the world. Any investment you hold has risk, which may include market risk, credit risk, liquidity risk, inflation risk etc. Holding USD will expose you to exchange rate fluctuations as well. If the Renminbi rises in value against the dollar your returns in USD will be reduced by the same amount (remember that for currency fluctuations you have to multiply the percentages, see here for a good explanation). The first thing you probably want to do is find out exactly what the assets are in the 理财 you have invested in. The fact that there is a 'risk level' (even if it is only 2) would suggest to me that the fund is investing in some combination of bonds and stocks which means that your returns are not guaranteed and could make a loss. Interest rates on deposit accounts are mandated by the government in China, and the current 12 month deposit rate on RMB is 3%. To earn over 3%, GEB must be investing your assets in something else (I'm guessing bonds). Bear in mind that 1.5 years is a very short amount of time in investments, so don't assume this return will continue! I'm afraid I've only been studying Chinese for a year, so I can't really help you much with the link you've sent through - you may want to check if there is any guaranteed minimum return, which can be the case in more complex structured products. Ultimately you will need to pick an investment which you feel gives you the best combination of risk and return for your situation, there are a huge amount of options to choose between. The 4-5% you are earning right now is not a huge risk premium on the 3% you could earn in China from a time deposit, but in the current environment you may struggle to beat it without taking on more risk. Before considering that though - understand how much risk you already have with GEB.", "title": "" }, { "docid": "59b7de70d9d48f378b7a777c2b5420ae", "text": "\"I would keep some money in the U.S. and some money in India. That way, in case \"\"something bad\"\" happens in one country, you will still have money in the other.\"", "title": "" }, { "docid": "72b452624646db70ff1533aa27000710", "text": "I haven't seen this answer, and I do not know the legality of it, as it could raise red flags as to money laundering, but about the only way to get around the exchange rate spreads and fees is to enter into transactions with a private acquaintance who has Euros and needs Dollars. The problem here is that you are taking on the settlement risk in the sense that you have to trust that they will deposit the euros into your French account when you deposit dollars into their US account. If you work this out with a relative or very close friend, then the risk should be minimal, however a more casual acquaintance may be more apt to walk away from the transaction and disappear with your Euros and your Dollars. Really the only other option would be to be compensated for services rendered in Euros, but that would have tax implications and the fees of an international tax attorney would probably outstrip any savings from Forex spreads and fees not paid.", "title": "" }, { "docid": "81736205bbbb2bef19b6b96f71dcb2db", "text": "\"You might convert all your money in local currency but you need take care of following tips while studying abroad.Here are some money tips that can be useful during a trip abroad. Know about fees :- When you use a debit card or credit card in a foreign country, there are generally two types of transaction fees that may apply: Understand exchange rates :- The exchange rate lets you know the amount of nearby money you can get for each U.S. dollar, missing any expenses. There are \"\"sell\"\" rates for individuals who are trading U.S. dollars for foreign currency, and, the other way around, \"\"purchase\"\" rates. It's a smart thought to recognize what the neighborhood money is worth in dollars so you can comprehend the estimation of your buys abroad. Sites like X-Rates offer a currency converter that gives the current exchange rate, so you can make speedy comparisons. You can utilize it to get a feel for how much certain amount (say $1, $10, $25, $50, $100) are worth in local currency. Remember that rates fluctuate, so you will be unable to suspect precisely the amount of a buy made in a foreign currency will cost you in U.S. dollars. To get cash, check for buddy banks abroad:- If you already have an account with a large bank or credit union in the U.S., you may have an advantage. Being a client of a big financial institution with a large ATM system may make it easier to find a subsidiary cash machine and stay away from an out-of-system charge. Bank of America, for example, is a part of the Global ATM Alliance, which lets clients of taking an interest banks use their debit cards to withdraw money at any Alliance ATM without paying the machine's operator an access fee, in spite of the fact that you may at present be charged for converting dollars into local currency used for purchases. Citibank is another well known bank for travelers because it has 45,000 ATMs in more than 30 countries, including popular study-abroad destinations such as the U.K., Italy and Spain. ATMs in a foreign country may allow withdrawals just from a financial records, and not from savings so make sure to keep an adequate checking balance. Also, ATM withdrawal limits will apply just as they do in the U.S., but the amount may vary based on the local currency and exchange rates. Weigh the benefits of other banks :- For general needs, online banks and even foreign banks can also be good options. With online banks, you don’t have to visit physical branches, and these institutions typically have lower fees. Use our checking account tool to find one that’s a good fit. Foreign banks:- Many American debit cards may not work in Europe, Asia and Latin America, especially those that don’t have an EMV chip that help prevent fraud. Or some cards may work at one ATM, but not another. One option for students who expect a more extended stay in a foreign country is to open a new account at a local bank. This will let you have better access to ATMs, and to make purchases more easily and without as many fees. See our chart below for the names of the largest banks in several countries. Guard against fraud and identity theft:- One of the most important things you can do as you plan your trip is to let your bank know that you’ll be abroad. Include exact countries and dates, when possible, to avoid having your card flagged for fraud. Unfortunately, incidents may still arise despite providing ample warning to your bank. Bring a backup credit card or debit card so you can still access some sort of money in case one is canceled. Passports are also critical — not just for traveling from place to place, but also as identification to open a bank account and for everyday purposes. You’ll want to make two photocopies and give one to a friend or family member to keep at home and put the other in a separate, secure location, just in case your actual passport is lost or stolen.\"", "title": "" }, { "docid": "e92a5e3cfe7db5a782b9931710ff389d", "text": "\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \"\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\"\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\"", "title": "" }, { "docid": "aaf385e8e4cec04116c0701d991180b7", "text": "I think your approach of looking exclusively at USD deposits is a prudent one. Here are my responses to your questions. 1) It is highly unlikely that a USD deposit abroad be converted to local currency upon withdrawal. The reason for offering a deposit in a particular currency in the first place is that the bank wants to attract funds in this currency. 2) Interest rate is a function of various risks mostly supply and demand, central bank policy, perceived risk etc. In recent years low-interest rate policy as led by U.S., European and Japanese central banks has led particularly low yields in certain countries disregarding their level of risk, which can vary substantially (thus e.g. Eastern Europe has very low yields at the moment in spite of its perceived higher risk). Some countries offer depository insurance. 3) I would focus on banks which are among the largest in the country and boast good corporate governance i.e. their ownership is clean and transparent and they are true to their business purpose. Thus, ownership is key, then come financials. Country depository insurance, low external threat (low war risk) is also important. Most banks require a personal visit in order to open the account, thus I wouldn't split much further than 2-3 banks, assuming these are good quality.", "title": "" }, { "docid": "041245ddb1f9ce5576e6d63afde087e8", "text": "\"The danger to your savings depends on how much sovereign debt your bank is holding. If the government defaults then the bank - if it is holding a lot of sovereign debt - could be short funds and not able to meet its obligations. I believe default is the best option for the Euro long term but it will be painful in the short term. Yes, historically governments have shut down banks to prevent people from withdrawing their money in times of crisis. See Argentina circa 2001 or US during Great Depression. The government prevented people from withdrawing their money and people could do nothing while their money rapidly lost value. (See the emergency banking act where Title I, Section 4 authorizes the US president:\"\"To make it illegal for a bank to do business during a national emergency (per section 2) without the approval of the President.\"\" FDR declared a banking holiday four days before the act was approved by Congress. This documentary on the crisis in Argentina follows a woman as she tries to withdraw her savings from her bank but the government has prevented her from withdrawing her money.) If the printing press is chosen to avoid default then this will allow banks and governments to meet their obligations. This, however, comes at the cost of a seriously debased euro (i.e. higher prices). The euro could then soon become a hot potato as everyone tries to get rid of them before the ECB prints more. The US dollar could meet the same fate. What can you do to avert these risks? Yes, you could exchange into another currency. Unfortunately the printing presses of most of the major central banks today are in overdrive. This may preserve your savings temporarily. I would purchase some gold or silver coins and keep them in your possession. This isolates you from the banking system and gold and silver have value anywhere you go. The coins are also portable in case things really start to get interesting. Attempt to purchase the coins with cash so there is no record of the purchase. This may not be possible.\"", "title": "" }, { "docid": "332c7311f705acec1dd28a25e372bdce", "text": "I'd have anything you would need for maybe 3-6 months stored up: food, fuel, toiletries, other incidentals. What might replace the currency after the Euro collapses will be the least of your concerns when it does collapse.", "title": "" }, { "docid": "b0c5d572daf63971196fc6cffc133484", "text": "If your savings are in USD and will be making purchases using USD, then it will no longer go as far as it used to. I assume most Americans currently have their savings accounts in USD, so the value of those accounts will decrease. If you have investments in stocks or foreign currencies, your exposure may be less, but it depends. For example, stocks in companies that hold a lot of USD will also be hit hard, as will be currencies of nations that are still holding a lot of USD if the value of the USD is crashing. If you have a lot of debt measured in USD, while have a lot of assets that have nothing to do with USD, then you might make out like a bandit, since if you assume the value of the USD is falling, then it would become easier to sell off your other assets to pay off the debt.", "title": "" }, { "docid": "13ee4ee6cbf862faced136bfe3156ba8", "text": "\"Hi I'm the writer thanks for the read and the comment. With the statement you quoted, I'm trying to dispute the claim that \"\"people these days can't afford a house because they would have to pay their entire salary just to afford the mortgage,\"\" which I think is quite common in some circles. The data makes no statement as to whether home ownership is more affordable or not, but simply shows that those buying property are using around the same percentage of their income to pay for it, which the data clearly shows to be true. https://fred.stlouisfed.org/series/RHORUSQ156N As it turns out, home ownership levels have remained within ~5% of their 1980 levels based on percentage of the total population. I think there is an major classification flaw when comparing only sales because a great deal of people inherit property with no sale ever being made.\"", "title": "" } ]	fiqa
807829a46107690d8a1c1ced48962284	What expenses do most people not prepare for that turn into “emergencies” but are not covered by an Emergency Fund?	[ { "docid": "0f07ea9fafa6a5e1b73d05b2c180926f", "text": "Here's a few. Is this what you're looking for? Also this should probably be a community wiki.", "title": "" }, { "docid": "bbe2c6e26e76716c03bd47bd0569e344", "text": "\"Some things are nearly universal, and have been mentioned already. My \"\"favorite\"\" forseeable expenses in this category are: However, I also advocate saving for expenses that are specific to you. Look back on your expenses for the last 12 months, minimum (18 or 24 may be better). Ask yourself these questions: I ask about large expenditures because you may make enough that you can \"\"eat\"\" these lapses in budgeting, as I did for many years. It is not an emergency now, but it turned into an emergency down the road as my spending went out of control. Look at all expenditures over a certain level, say $100 or $200. Some personal examples of expenses that aren't quite so universal, but turned into small emergencies: This last one was rather unexpected. It is the reason why I ask the question \"\"why didn't I budget for it?\"\" These fees and dues are for my professional-level certifications. In my industry, they are \"\"always\"\" paid for by the company. A year ago, they weren't paid by my former employer because they planned to lay me off. This year, they weren't paid by my present employer because I am technically a temporary worker (4 years is temporary?). So, from now on, I plan to save for this expense. If my employer pays my dues, then I stop saving for the expense, but keep the money I've saved.\"", "title": "" }, { "docid": "7749ecf6124f78a622a98723b96f1a0b", "text": "\"Annual property tax and home insurance come to mind as things that are easily forgotten, but surely the biggest true, \"\"I didn't see that coming,\"\" is a major car repair. There are a number of things that can go wrong with a car with little warning and end up costing a thousand dollars or more. Since most people are dependent upon their car for getting to work, doing anything but fixing or replacing the car is not an option. If you fix it, that's an out of pocket expense that most aren't prepared for. If the car has some age, you might be inclined to replace it, but doing so in a rush costs a lot more than taking your time in such a decision.\"", "title": "" }, { "docid": "83634132effd6fa98942c23cc8c36e2d", "text": "The way you ask this is interesting, it implies (quite correctly) that for many, an annual bill for house insurance, property tax, etc, can turn into an emergency. My answer to the true emergency is a breakage that can't be foreseen (although you have to know the furnace isn't going to last forever) or a medical bill that's not covered (our dental is limited and the Mrs root canal can be $1000 out of pocket)", "title": "" }, { "docid": "6c8a6c05c6d1e543cb0dedd72e683077", "text": "insurance premiums My annual car premium always caught me off guard until I set up a dedicated savings account for it.", "title": "" }, { "docid": "078cc3cc8852b7a1d203547ef846b2d9", "text": "Extended illness/disability that prevents you from being able to work. Edit: Leigh Riffel: So, why should this be expected, and how should it be planned for? Some of us may be fortunate enough that this never happens, but I've known enough unlucky people to have seen that it can and does happen. Prepare for it with:", "title": "" }, { "docid": "9e3180532398079ab7347abec6b8f857", "text": "While it is true that homeowners insurance will cover emergencies, it is very important to check and make sure that your policy is covering everything that it needs to. A great example is what happened to all of those without flood insurance in Tennessee last year. You may opt not to get additional coverage, but then you should make sure that you are setting aside funds for such a catastrophe.", "title": "" }, { "docid": "4d82c8a19d273ab96095497d48042869", "text": "The most obvious one these days is unexpected and extended unemployment. If you are living paycheck to paycheck, you are asking for trouble in this economy.", "title": "" } ]	[ { "docid": "cda8732e8212e65f3d20e97eca5a2eac", "text": "First you should maintain a monthly expense and find out the burn rate. There would be certain expenses that are annual but mandatory [School fees, Insurance Premium, Property Taxes, etc]. So the ideal emergency fund depending on your industry should be 3 month to 6 months plus your mandatory yearly payments, more so if they come together. For example Most of my annual payments come out in May and I bank on the Bonus payout in April to cater to this spike in expense. So if I were to lose a job in March, my emergency funds would be sufficient for routine expenses, if i don't provision for additional funds Second you need to also figure out the reduced rate of monthly burn and ideally the emergency funds should be for 3 months of normal burn and 6 months of reduced burn.", "title": "" }, { "docid": "552c97f6a717f65fe5560ea03fd90c76", "text": "\"I think we'd need to look at actual numbers to see where you're running into trouble. I'm also a little confused by your use of the term \"\"unexpected expenses\"\". You seem to be using that to describe expenses that are quite regular, that occur every X months, and so are totally expected. But assuming this is just some clumsy wording ... Here's the thing: Start out by taking the amount of each expense, divided by the number of months between occurrences. This is the monthly cost of each expense. Add all these up. This is the amount that you should be setting aside every month for these expenses, once you get a \"\"base amount\"\" set up. So to take a simple example: Say you have to pay property taxes of $1200 twice a year. So that's $1200 every 6 months = $200 per month. Also say you have to pay a water bill once every 3 months that's typically $90. So $90 divided by 3 = $30. Assuming that was it, in the long term you'd need to put aside $230 per month to stay even. I say \"\"in the long term\"\" because when you're just starting, you need to put aside an amount sufficient that your balance won't fall below zero. The easiest way to do this is to just set up a chart where you start from zero and add (in this example) $230 each month, and then subtract the amount of the bills when they will hit. Do this for some reasonable time in the future, say one year. Find the biggest negative balance. If you can add this amount to get started, you'll be safe. If not, add this amount divided by the number of months from now until it occurs and make that a temporary addition to your deposits. Check if you now are safely always positive. If not, repeat the process for the next biggest negative. For example, let's say the property tax bills are April and October and the water bills are February, May, August, and November. Then your chart would look like this: The biggest negative is -370 in April. So you have to add $370 in the first 4 months, or $92.50 per month. Let's say $93. That would give: Now you stay at least barely above water for the whole year. You could extend the chart our further, but odds are the exact numbers will change next year and you'll have to recalculate anyway. The more irregular the expenses, the more you will build up just before the big expense hits. But that's the whole point of saving for these, right? If a $1200 bill is coming next week and you don't have close to $1200 saved up in the account, where is the money coming from? If you have enough spare cash that you can just take the $1200 out of what you would have spent on lunch tomorrow, then you don't need this sort of account.\"", "title": "" }, { "docid": "3a2d0cb962219105b787335a74806013", "text": "\"Discussions around expected values and risk premiums are very useful, but there's another thing to consider: cash flow. Some individuals have high value assets that are vital to them, such as transportation or housing. The cost of replacing these assets is prohibitive to them: their cashflow means that their rate of saving is too low to accrue a fund large enough to cover the asset's loss. However, their cashflow is such that they can afford insurance. While it may be true that, over time, they would be \"\"better off\"\" saving that money in an asset replacement fund, until that fund reaches a certain level, they are unprotected. Thus, it's not just about being risk averse; there are some very pragmatic reasons why individuals with low disposable income might elect to pay for insurance when they would be financially better off without it.\"", "title": "" }, { "docid": "07f8aff45a0dacdefd335463a736d6a4", "text": "I agree. Those people should have saved up money before they bought that car to get to work, before they went to school to learn how to do that job. And they definitely shouldn't have gotten hurt and went to the hospital. These people living [beyond there means] are clearly spending money on things they shouldn't thought to buy. /s", "title": "" }, { "docid": "a4cedf44f71c72962014b2cb1989d870", "text": "This might vary from other answers but I generally prefer to use debt before touching an emergency fund. But one of the reasons I have an emergency fund is to that I can make sure I can cover any debt payments. Essentially, this give you leverage. You might start off with a small emergency such as needing a new refrigerator. If you pull the cash out of the fund to pay this off immediately, you've depleted your account and if something major comes along, you might be short. By using debt, you can often cover the costs with cash-flow and leave your risk buffer in place. Often, retailers will offer really sweet financing deals. 0% for 12 months or whatever. Often, though, if you don't pay it off in time, they can be costly. I'm not sure if this is legal (in the US) anymore but if it wasn't fully paid off in time, you'd be retroactively charged interest on the whole amount. But if you have an emergency fund, you pretty much guarantee that won't happen. The only time it will is if something else happens that requires the emergency fund to be cashed in. But if things are that dire, the debt is unsecured. You're credit may suffer but they can't come after your assets. It's not an either-or situation. You give yourself options by having the cash available. It allows you to take advantage of opportunities that might be too risky otherwise. Ultimately what you want to be able to weather the storm in a situation where you have, say, a mortgage on a house that is underwater, the stock market is down, and you have no income. In that situation, you don't want to liquidate your stock when it's down and you (probably) don't want to lose your home equity in a foreclosure.", "title": "" }, { "docid": "7a3779a096b650123dcf697d0cb11ef3", "text": "Yes, it should be. As, where one has insurance, its an expense one would expect one to continue to incur in a normal budgetary emergency, even drop in the extreme.", "title": "" }, { "docid": "dc9beba134af860f63df40315c9b5caa", "text": "\"Two typical responses to articles/surveys making such claims: 1. People use other forms of asset for emergency savings because interest rates are low - clearly false. 2. People use other forms of saving than a saving account therefore such surveys as the X% can't handle a $500 emergency are wrong on their face - this is false the vast majority use a savings account. I've chosen a topic that absolutely annoys the shit out of me every time it comes up, how people save their money. Every time this topic comes up about X% of americans can't come up with $Y dollars in an emergency or have less than $Z in savings someone inevitably chimes in with the linked response. I have never seen anyone attempt to source their hand waving response beyond their own anecdote, which is usually a thinly veiled brag about how financially savvy they are with their wealth. Perhaps people who have no assets, or crippling debt don't go out of their way to brag about it... I could link multiple reddit posts making a similar response, which I address with my own stock response about once every 1-2 months. Instead I've decided to expand with data from several other sources. This is the prototypical good/bad research problem. If you're asserting something, but qualify your statement with, \"\"I\"\"m sure we'd find...if we looked into...\"\" then you're doing it wrong. A good researcher or journalist doesn't put bullshit like that in their work because it's their job to actually look for sources of data; data which should exist with multiple government and independent groups. So let's get started (all data as recent as I could find, oldest source is for 2010): * [Most americans don't invest in the stock market](https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf) About 48.8% of americans owned publicly traded stock directly or indirectly, with a much smaller percent (13.8%) owning stock directly - pages 18 and 16 respectively. It's important to note the predominance of indirect ownership which suggests this is mostly retirement accounts. It's entirely possible people are irresponsible with their emergency savings, but I think it safe to say we should not expect people to dip into their retirement accounts for relatively minor emergency expenses. The reason is obvious, even if it covers the expense they now have to make up the shortfall for their retirement savings. This is further supported by the same source: >\"\"The value of assets held within IRAs and DC plans are among the most significant compo-nents of many families’ balance sheets and are a significant determinant of their future retirement security.\"\" Ibid (page 20, PDF page 20 of 41) There is also a break down of holdings by asset type on page 16, PDF page 16 of 41. * [This data is skewed by the top 10% who keep more of their wealth in different asset types.](http://www2.ucsc.edu/whorulesamerica/power/wealth.html) For a breakdown between the 1st, 10th, and 90th percentiles see table 3. So far it seems pretty hard to maintain a large percent of americans have their wealth stored outside of savings accounts, mattresses aside. * [Here's my original reply as to the breakdown of americans assets by type and percent holding.](https://imgur.com/a/DsLxB) Note this assumes people have assets. [Source for images/data.](https://www.census.gov/people/wealth/data/dtables.html) Most people use savings accounts, with runner up falling to checking accounts. This will segue into our next topic which is the problem of unbanked/underbanked households. * [A large number of individuals have no assets; breaking down by asset types assumes people have assets in the first place.](https://www.fdic.gov/householdsurvey/) To quote the FDIC: >\"\"Estimates from the 2015 survey indicate that 7.0 percent of households in the United States were unbanked in 2015. This proportion represents approximately 9.0 million households. An additional 19.9 percent of U.S. households (24.5 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system.\"\" That's right there are millions of households so finance savvy they don't even have banks accounts! Obviously it's because of low interest rates. Also, most people have a checking account as well as savings account, the percent with \"\"checking and savings\"\" was 75.8% while those with \"\"checking only\"\" were 22.2% (page 25, PDF page 31 of 88). It's possible in some surveys people keep all their money in checking, but given other data sources, and the original claim this fails to hold up. If the concern was interest rates it makes no sense to keep money in checking which seldom pays interest. This survey also directly addresses the issue of \"\"emergency savings\"\": > \"\"Overall, 56.3 percent of households saved for unexpected expenses or emergencies in the past 12 months.\"\" (page 37, PDF page 43 of 88) Furthermore: >\"\"Figure 7.2 shows that among all households that saved for unexpected expenses or emergencies, savings accounts were the most used savings method followed by checking accounts: more than four in five (84.9 percent) kept savings in one of these accounts. About one in ten (10.5 percent) households that saved maintained savings in the home, or with family or friends.\"\" Emphasis added. * [Why don't people have wealth in different asset classes? Well they don't save money.](http://cdn.financialsamurai.com/wp-content/uploads/2014/06/savings-rates-by-wealth-class.png) This is further supported by the OECD data: * [Americans \"\"currency and deposits\"\" are 13% vs 5.8% for \"\"securities and other shares\"\" as % of total financial assets.](https://data.oecd.org/hha/household-financial-assets.htm) Additionally: * [Interest earning checking accounts: 44.6% of american households (second image)](https://imgur.com/a/DsLxB) * [\"\"Among all households that saved for unexpected expenses or emergencies, savings accounts were the most used savings method followed by checking accounts...\"\" (page 7, PDF page 13 of 88)](https://www.fdic.gov/householdsurvey/2015/2015report.pdf) * ~70% saved for an emergency with a savings account vs ~24% who used checking. Ibid. In fairness the FDIC link does state banked americans were more likely to hold checking accounts than savings accounts (98% vs ~77% respectively) but that doesn't mean they're earning interest in their checking account. It's also worth noting median transaction account value was for 2013 (this is the federal reserve data) $4100.\"", "title": "" }, { "docid": "a555953991de6062f18e7d3f0931bd4d", "text": "Regarding Medical insurance premiums - The premiums are only part of the cost. You need to know if you have a deductible, your out of pocket maximum and what co-pays you have. If you take medications on a daily basis you need to account for those costs. Some programs allow you to put money aside pre-tax to pay for these known expenses. I would split Emergency fund / general savings into two lines. You can set a goal to save X months worth of expenses as an emergency fund, but the general savings will be whatever is left over from the rest of your budget. Unless you have a goal for the savings: car, home...", "title": "" }, { "docid": "fe39f604ea42df974c6c353a8578884f", "text": "I don't see why it would be any harder to sell stocks or bonds than it is to sell a CD you may have. Not to mention for large one time expenditures you can usually cover these with a credit card. This gives you about a month to move money around to pay your credit card off in a timely manner without incurring a charge. I have had no problem getting a credit limit beyond 4-5 months of expenses for myself on a single card. I can't even think of a household emergency that you can't pay for with a credit card. Job loss situations are not going to require large amounts of money immediately. True catastrophic emergencies (natural disasters, ransoms) however will need fast cash potentially. However in this case the only thing that is good is having cash on hand. As you can't count on ATMs or Bank systems to be functional. Even more serious emergencies such as zombies, the end of world, or anything that involves total economic collapse would require things that are not cash. You would need to invest in things like supplies, shelter, guns and maybe shiny metals that may have value.", "title": "" }, { "docid": "8b3f1db667f6fef6484590e164986c9e", "text": "\"I'm afraid you have missed a few of the outcomes commonly faced by millions of Americans, so I would like to take a moment to discuss a wider range of outcomes that are common in the United States today. Most importantly, some of these happen before retirement is ever reached, and have grave consequences - yet are often very closely linked to financial health and savings. Not planning ahead long-term - 10-20+ years - is generally associated with not planning ahead even for the next few months, so I'll start there. The most common thing that happens is the loss of a job, or illness/injury that put someone out of work. 6 in 10 adults in the US have less than $500 in savings, so desperation can set in very quickly, as the very next paycheck will be short or missing. Many of these Americans have no other source of saved money, either, so it's not like they can draw on retirement savings, as they don't have that either. Even if they are able to get another job or recover enough to get back to work in a few weeks, this can set off a desperate cycle. Those who have lost their jobs to technical obsolescence, major economic downturns, or large economic changes are often more severely affected. People once making excellent, middle-class (or above) wages with full benefits find they cannot find work that pays even vaguely similarly. In the past this was especially common in heavy labor jobs like manufacturing, meat-packing, and so on, but more recently this has happened in financial sectors and real estate/construction during the 2008 economic events. The more resilient people had padding, switched careers, and found other options - the less resilient, didn't. Especially during the 1970s and 1980s, many people affected by large losses of earning potential became sufficiently desperate that they fell heavily (or lost their functioning status) into substance abuse, including alcohol and drugs (cocaine and heroine being especially popular in this segment of the population). Life disruption - made even more major by a lack of savings - is a key trigger to many people who are already at risk of issues like substance addiction, mental health, or any ongoing legal issues. Another common issue is something more simple, like loss of transportation that threatens their ability to hold their job, and a lack of alternatives available through support networks, savings, family, and public transit. If their credit is bad, or their income is new, they may find even disreputable companies turn them away, or even worse - the most disreputable companies welcome them in with high interest and hair-trigger repossession policies. The most common cycle of desperation I have seen usually starts with banking over-drafts, and its associated fees. People who are afraid and desperate start to make increasingly desperate, short-sighted choices, as tunnel-vision sets in and they are unable to consider longer-term strategy as they focus on holding on to what they have and survival. Many industries have found this set of people quite profitable, including high-interest \"\"check cashing\"\", payday loans, and title loans (aka legal loan sharks), and it is not rare that desperate people are encouraged to get on increasing cycles of loan amounts and fees that worsen their financial situation in exchange for short-term relief. As fees, penalties, and interest add up, they lose more and more of their already strained income to stay afloat. Banks that are otherwise reputable and fair may soon blacklist them and turn them away, and suddenly only the least reputable and most predatory places offer to help at all - usually with a big smile at first, and almost always with awful strings attached. Drugs and alcohol are often readily available nearby and their use can easily turn from recreational to addictive given the allure of the escapism it offers, especially for those made vulnerable by increasing stress, desperation, loss of hope, isolation, and fear. Those who have not been within the system of poverty and desperation often do not see just how many people actively work to encourage bad decision making, with big budgets, charm, charisma, and talent. The voices of reason, trying to act as beacons to call people to take care of themselves and their future, are all too easily drowned out in the roar of a smooth and enticing operation. I personally think this is one of the greatest contributions of the movement to build personal financial health and awareness, as so many great people find ever more effective ways of pointing out the myriad ways people try to bleed your money out of you with no real concern for your welfare. Looking out for your own well-being and not being taking in by the wide array of cons and bad deals is all too often fighting against a strong societal current - as I'm sure most of our regular contributors are all too aware! With increasing desperation often comes illegal maneuvers, often quite petty in nature. Those with substance abuse issues often start reselling drugs to others to try to cover lost income or \"\"get ahead\"\", with often debilitating results on long-term earning potential if they get caught (which can include cost barriers to higher education, even if they do turn their life around). I think most people are surprised by how little and petty things can quickly cycle out of control. This can include things like not paying minor parking or traffic tickets, which can snowball from the $10-70 range into thousands of dollars (due to non-payment often escalating and adding additional penalties, triggering traffic stops for no other reason, etc.), arrest, and more. The elderly are not exempt from this system, and many of America's elderly spend their latter years in prison. While not all are tied to financial desperation as I've outlined above, a deeper look at poverty, crime, and the elderly will be deeply disturbing. Some of these people enter the system while young, but some only later in life. Rather than homelessness being something that only happens after people hit retirement, it often comes considerably earlier than that. If this occurs, the outcome is generally quite a bit more extreme than living off social security - some just die. The average life expectancy of adults who are living on the street is only about 64 years of age - only 2 years into early retirement age, and before full retirement age (which could of course be increased in the next 10-20 years, even if life expectancy and health of those without savings don't improve). Most have extremely restricted access to healthcare (often being emergency only), and have no comforts of home to rest and recuperate when they become ill or injured. There are many people dedicated to helping, yet the help is far less than the problem generally, and being able to take advantage of most of the help (scheduling where to go for food, who to talk to about other services, etc) heavily depends on the person not already suffering from conditions that limit their ability to care for themselves (mental conditions, mobility impairments, etc). There is also a shockingly higher risk of physical assault, injury, and death, depending on where the person goes - but it is far higher in almost every case, regardless. One of the chief problems in considering only retirement savings, is it assumes that you'll only have need for the savings and good financial health once you reach approximately the age of 62 (if it is not raised before you get there, which it has been multiple times to-date). As noted above, if homelessness occurs and becomes longstanding before that, the result is generally shortened lifespan and premature death. The other major issue of health is that preventative care - from simple dentistry to basic self-care, adequate sleep and rest, a safe place to rejuvenate - is often sacrificed in the scrambling to survive and limited budget. Those who develop chronic conditions which need regular care are more severely affected. Diabetic and injury-related limb loss, as one example, are far more likely for those without regular support resources - homeless, destitute, or otherwise. Other posters have done a great job in pointing out a number of the lesser-known governmental programs, so I won't list them again. I only note the important proviso that this may be quite a bit less in total than you think. Social Security on average pays retired workers $1300 a month. It was designed to avoid an all-too-common occurrence of simple starvation, rampant homelessness, and abject poverty among a large number of elderly. No guarantee is made that you won't have to leave your home, move away from your friends and family if you live in an expensive part of the country, etc. Some people get a bit more, some people get quite a bit less. And the loss of family and friend networks - especially to such at-risk groups - can be incredibly damaging. Note also that those financially desperate will be generally pushed to take retirement at the minimum age, even though benefits would be larger and more livable if they delayed their retirement. This is an additional cost of not having other sources of savings, which is not considered by many. Well, yes, many cannot retire whether they want to or not. I cannot find statistics on this specifically, but many are indeed just unable to financially retire without considerable loss. Social Security and other government plans help avoid the most desperate scenarios, but so many aspects of aging is not covered by insurance or affordable on the limited income that aging can be a cruel and lonely process for those with no other financial means. Those with no savings are not likely to be able to afford to regularly visit children and grandchildren, give gifts on holidays, go on cruises, enjoy the best assistive care, or afford new technological devices to assist their aging (especially those too new and experimental to be covered by the insurance plans they have). What's worse - but most people do not plan for either - is that diminished mental and physical capacity can render many people unable to navigate the system successfully. As we've seen here, many questions are from adult children trying to help their elderly parents in retirement, and include aging parents who do not understand their own access to social security, medicaid/medicare, assistive resources, or community help organizations. What happens to those aging without children or younger friend networks to step in and help? Well, we don't really have a replacement for that. I am not aware of any research that quantifies just how many in the US don't take advantage of the resources they are fully qualified to make use of and enjoy, due to a lack of education, social issues (feeling embarrassed and afraid), or inability to organize and communicate effectively. A resource being available is not very much help for those who don't have enough supportive resources to make use of it - which is very hard to effectively plan for, yet is exceedingly common. Without one's own independent resources, the natural aging and end of life process can be especially harsh. Elderly who are economically and food insecure experience far heightened incidence of depression, asthma, heart attack, and heart failure, and a host of other maladies. They are at greater risk for elder-abuse, accidental death, life-quality threatening conditions developing or worsening, and more. Scare-tactics aren't always persuasive, and they do little to improve the lives of many because the people who need to know it most generally just don't believe it. But my hope here is that the rather highly educated and sophisticated audience here will see a little more of the harsher world that their own good decisions, good fortune, culture, and position in society shields them from experiencing. There is a downside to good outcomes, which is that it can cause us to be blind to just how extremely different is the experience of others. Not all experience such terrible outcomes - but many hundreds of thousands in the US alone - do, and sometimes worse. It is not helpful to be unrealistic about this: life is not inherently kind. However, none of this suggests that being co-dependent or giving up your own financial well-being is necessary or advised to help others. Share your budgeting strategies, your plans for the future, your gentle concerns, and give of your time and resources as generously as you can - within your own set budgets and ensuring your own financial well-being. And most of all - do not so easily give up on your family and friends, and count them as life-long hopeless ne'er-do-wells. Let's all strive to be good, kind, honest, and offer non-judgmental support and advice to the best of our ability to the people we care about. It is ultimately their choice - restricted by their own experiences and abilities - but need not be fate. People regularly disappoint, but sometimes they surprise and delight. Take care of yourself, and give others the best chance you can, too.\"", "title": "" }, { "docid": "1d6f0faf2adfc80f6b2f81af07236421", "text": "The limits on an HSA are low enough that there's no real danger of overfunding it. The limits max out at (as of 2011, for an individual) at just over $3000 per year. Sometime in the next few years, you will have more than $3000 in health care expenses. It might be something like a car accident, acid reflux, a weird mole that the doctor wants to check out, a broken toe, a few nasty cavities that need to be filled, an expensive antibiotic, or something else entirely. Or, it might be something less dramatic, getting eaten away by copays and contact lenses. When that happens, you want the peace of mind that you can pay for your deductible plus any other expenses. Keep in mind that even a $5000 deductible can cost you more than $5000 out-of-pocket; either because of non-insured expenses, or simply an illness that straddles multiple calendar years. Besides, it's not like your HSA money is going anywhere; even if you never touch it, it's just a savings account that you can't touch until you turn 65. And if you do truly have an emergency, you can get at it if you have to. Even if your HSA is filled with several years' worth of deductibles, it's still a way to shield thousands of dollars a year from taxes, with luck moving them into lower-tax years 40 years from now. And it's a way that doesn't involve income limits or mandatory withdrawals.", "title": "" }, { "docid": "ab01833e8f8774001c65b319b671cfb9", "text": "Pre tax insurance is not possible unless the emplyer provides hsa and do a payroll deduction. Obamacare is all post tax and you can do deduction if your expenses exceeds 10%of your income", "title": "" }, { "docid": "c256cc471cf2a1929507906a781f412f", "text": "\"Two typical responses to articles/surveys making such claims: 1. People use other forms of asset for emergency savings because interest rates are low - clearly false. 2. People use other forms of saving than a saving account therefore such surveys as the X% can't handle a $500 emergency are wrong on their face - this is false the vast majority use a savings account. I've chosen a topic that absolutely annoys the shit out of me every time it comes up, how people save their money. Every time this topic comes up about X% of americans can't come up with $Y dollars in an emergency or have less than $Z in savings someone inevitably chimes in with the linked response. I have never seen anyone attempt to source their hand waving response beyond their own anecdote, which is usually a thinly veiled brag about how financially savvy they are with their wealth. Perhaps people who have no assets, or crippling debt don't go out of their way to brag about it... I could link multiple reddit posts making a similar response, which I address with my own stock response about once every 1-2 months. Instead I've decided to expand with data from several other sources. This is the prototypical good/bad research problem. If you're asserting something, but qualify your statement with, \"\"I\"\"m sure we'd find...if we looked into...\"\" then you're doing it wrong. A good researcher or journalist doesn't put bullshit like that in their work because it's their job to actually look for sources of data; data which should exist with multiple government and independent groups. So let's get started (all data as recent as I could find, oldest source is for 2010): * [Most americans don't invest in the stock market](https://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf) About 48.8% of americans owned publicly traded stock directly or indirectly, with a much smaller percent (13.8%) owning stock directly - pages 18 and 16 respectively. It's important to note the predominance of indirect ownership which suggests this is mostly retirement accounts. It's entirely possible people are irresponsible with their emergency savings, but I think it safe to say we should not expect people to dip into their retirement accounts for relatively minor emergency expenses. The reason is obvious, even if it covers the expense they now have to make up the shortfall for their retirement savings. This is further supported by the same source: >\"\"The value of assets held within IRAs and DC plans are among the most significant compo-nents of many families’ balance sheets and are a significant determinant of their future retirement security.\"\" Ibid (page 20, PDF page 20 of 41) There is also a break down of holdings by asset type on page 16, PDF page 16 of 41. * [This data is skewed by the top 10% who keep more of their wealth in different asset types.](http://www2.ucsc.edu/whorulesamerica/power/wealth.html) For a breakdown between the 1st, 10th, and 90th percentiles see table 3. So far it seems pretty hard to maintain a large percent of americans have their wealth stored outside of savings accounts, mattresses aside. * [Here's my original reply as to the breakdown of americans assets by type and percent holding.](https://imgur.com/a/DsLxB) Note this assumes people have assets. [Source for images/data.](https://www.census.gov/people/wealth/data/dtables.html) Most people use savings accounts, with runner up falling to checking accounts. This will segue into our next topic which is the problem of unbanked/underbanked households. * [A large number of individuals have no assets; breaking down by asset types assumes people have assets in the first place.](https://www.fdic.gov/householdsurvey/) To quote the FDIC: >\"\"Estimates from the 2015 survey indicate that 7.0 percent of households in the United States were unbanked in 2015. This proportion represents approximately 9.0 million households. An additional 19.9 percent of U.S. households (24.5 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system.\"\" That's right there are millions of households so finance savvy they don't even have bank accounts! Obviously it's because of low interest rates. Also, most people have a checking account as well as savings account, the percent with \"\"checking and savings\"\" was 75.8% while those with \"\"checking only\"\" were 22.2% (page 25, PDF page 31 of 88). It's possible in some surveys people keep all their money in checking, but given other data sources, and the original claim this fails to hold up. If the concern was interest rates it makes no sense to keep money in checking which seldom pays interest. This survey also directly addresses the issue of \"\"emergency savings\"\": > \"\"Overall, 56.3 percent of households saved for unexpected expenses or emergencies in the past 12 months.\"\" (page 37, PDF page 43 of 88) Furthermore: >\"\"Figure 7.2 shows that among all households that saved for unexpected expenses or emergencies, savings accounts were the most used savings method followed by checking accounts: more than four in five (84.9 percent) kept savings in one of these accounts. About one in ten (10.5 percent) households that saved maintained savings in the home, or with family or friends.\"\" Emphasis added. * [Why don't people have wealth in different asset classes? Well they don't save money.](http://cdn.financialsamurai.com/wp-content/uploads/2014/06/savings-rates-by-wealth-class.png) This is further supported by the OECD data: * [Americans \"\"currency and deposits\"\" are 13% vs 5.8% for \"\"securities and other shares\"\" as % of total financial assets.](https://data.oecd.org/hha/household-financial-assets.htm) Additionally: * [Interest earning checking accounts: 44.6% of american households (second image)](https://imgur.com/a/DsLxB) * [\"\"Among all households that saved for unexpected expenses or emergencies, savings accounts were the most used savings method followed by checking accounts...\"\" (page 7, PDF page 13 of 88)](https://www.fdic.gov/householdsurvey/2015/2015report.pdf) * ~70% saved for an emergency with a savings account vs ~24% who used checking. Ibid. In fairness the FDIC link does state banked americans were more likely to hold checking accounts than savings accounts (98% vs ~77% respectively) but that doesn't mean they're earning interest in their checking account. It's also worth noting median transaction account value was for 2013 (this is the federal reserve data) $4100.\"", "title": "" }, { "docid": "5ab3e118c60058987f14696f65d3471e", "text": "\"You don't mention what kind of insurance you're talking about, but I'll just address one angle on the question. For some kinds of insurance, such as health insurance (in the US), auto insurance, and homeowner's insurance, you may be insuring against an event that you would not be able to pay for without the insurance. For instance, if you are at fault in a car accident and injure someone, they could sue you for $100,000. A lot of people don't have $100,000. So it's not even a matter of \"\"I'll take the risk of having to pay it when the time comes\"\"; if the time comes, you could lose virtually everything you own and still have to pay more from future earnings. You're not just paying $X to offset a potential loss of $Y; you're paying $X to offset a potential derailment of your entire life. It is plausible that you could assign a reasonable monetary value to that potential \"\"cost\"\" that would mean you actually come out ahead in the insurance equation. It is with smaller expenses (such as insuring a new cellphone against breakage) that insurance becomes harder to justify. When the potential nonfinancial \"\"collateral damage\"\" of a bad event are less, you must justify the insurance expenses on the financial consequences only, which, as you say, is often difficult.\"", "title": "" }, { "docid": "1433cfaddc0136852971c4afa4d49617", "text": "I would suggest that you use Emergency Funds for things that have a Low likelihood of happening but if they do happen can be devastating. I used to work as a financial advisor and the sugfestion we gave people is to have about 3 months worth of expenses in cash. This was primarily to cover things luke loss of work or some unforseen even that would prevent you from missing work for an extended period of time. Once you have your emergency fund saved do not touch it! Leave it where it is. Then tou can start working on a savings account for those items that are more likely to happen but dont have as much of a negative impact.", "title": "" } ]	fiqa
b9cde26a662b9ba0cc32141481d3867b	What is best investment which is full recession proof?	[ { "docid": "9f23f29ee7298a4b0713f216a85b8eb2", "text": "Can anyone suggest all type of investments in India which are recession proof? There are no such investments. Quite a few think bullions like Gold tend to go up during recession, which is true to an extent; however there are enough articles that show it is not necessarily true. There are no fool proof investments. The only fool proof way is to mitigate risks. Have a diversified portfolio that has Debt [Fixed Deposits, Bonds] and equity [Stocks], Bullion [Gold], etc. And stay invested for long as the effects tend to cancel out in the long run.", "title": "" }, { "docid": "5e202bfb617d559d8a4363c6f6ce12c3", "text": "\"I don't think there is a recession proof investment.Every investment is bound to their ups and downs. If you buy land, a change in law can change the whole situation it may become worthless, same applies for home as well. Gold - dependent on world economy. Stock - dependent on world economy Best way is to stay ever vigilant of world around you and keep shuffling from one investment to another balance out your portfolio. \"\"The most valuable commodity I know of is information.\"\" - Wall Street -movie\"", "title": "" } ]	[ { "docid": "26319fad3c7c2643b6c4d66d4084a2d5", "text": "1) The risks are that you investing in financial markets and therefore should be prepared for volatility in the value of your holdings. 2) You should only ever invest in financial markets with capital that you can reasonably afford to put aside and not touch for 5-10 years (as an investor not a trader). Even then you should be prepared to write this capital off completely. No one can offer you a guarantee of what will happen in the future, only speculation from what has happened in the past. 3) Don't invest. It is simple. Keep your money in cash. However this is not without its risks. Interest rates rarely keep up with inflation so the spending power of cash investments quickly diminishes in real terms over time. So what to do? Extended your time horizon as you have mentioned to say 30 years, reinvest all dividends as these have been proven to make up the bulk of long term returns and drip feed your money into these markets over time. This will benefit you from what is known in as 'dollar cost averaging' and will negate the need for you to time the market.", "title": "" }, { "docid": "1499fff1bb487b3e47ef0a42749a9ee4", "text": "\"My original plan was to wait for the next economic downturn and invest in index funds. These funds have historically yielded 6-7% annually when entered at any given time, but maybe around 8-9% annually when entered during a recession. These numbers have been adjusted for inflation. Questions or comments on this strategy? Educate yourself as index funds are merely a strategy that could be applied to various asset classes such as US Large-cap value stocks, Emerging Market stocks, Real Estate Investment Trusts, US Health Care stocks, Short-term bonds, and many other possibilities. Could you be more specific about which funds you meant as there is some great work by Fama and French on the returns of various asset classes over time. What about a Roth IRA? Mutual fund? Roth IRA is a type of account and not an investment in itself, so while I think it is a good idea to have Roth IRA, I would highly advise researching the ins and outs of this before assuming you can invest in one. You do realize that index funds are just a special type of mutual fund, right? It is also worth noting that there are a few kinds of mutual funds: Open-end, exchange-traded and closed-end. Which kind did you mean? What should I do with my money until the market hits another recession? Economies have recessions, markets have ups and downs. I'd highly consider forming a real strategy rather than think, \"\"Oh let's toss it into an index fund until I need the money,\"\" as that seems like a recipe for disaster. Figure out what long-term financial goals do you have in mind, how OK are you with risk as if the market goes down for more than a few years straight, are you OK with seeing those savings be cut in half or worse?\"", "title": "" }, { "docid": "8cc00e61174d102fff008e8fa1aad7fa", "text": "\"For a two year time frame, a good insured savings account or a low-cost short-term government bond fund is most likely the way I would go. Depending on the specific amount, it may also be reasonable to look into directly buying government bonds. The reason for this is simply that in such a short time period, the stock market can be extremely volatile. Imagine if you had gone all in with the money on the stock market in, say, 2007, intending to withdraw the money after two years. Take a broad stock market index of your choice and see how much you'd have got back, and consider if you'd have felt comfortable sticking to your plan for the duration. Since you would likely be focused more on preservation of capital than returns during such a relatively short period, the risk of the stock market making a major (or even relatively minor) downturn in the interim would (should) be a bigger consideration than the possibility of a higher return. The \"\"return of capital, not return on capital\"\" rule. If the stock market falls by 10%, it must go up by 11% to break even. If it falls by 25%, it must go up by 33% to break even. If you are looking at a slightly longer time period, such as the example five years, then you might want to add some stocks to the mix for the possibility of a higher return. Still, however, since you have a specific goal in mind that is still reasonably close in time, I would likely keep a large fraction of the money in interest-bearing holdings (bank account, bonds, bond funds) rather than in the stock market. A good compromise may be medium-to-high-yield corporate bonds. It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb.\"", "title": "" }, { "docid": "74ea18e3d9909a7d8434a44d78226db5", "text": "Failing some answers to my comment, I am going to make some assumptions: Based upon a quick review of this article I'd probably be in the Russell 2000 Value Index Fund (IWN). Quite simply it gives you broad market exposure so you can be diversified by purchasing one fund. One of the key success factors is starting, not if you pick the best fund at the onset. I can recall, 20 years ago being amazed (and it was quite a feat) at someone who was able to invest $400 per month. These days that won't get you to the ROTH maximum and smart 20 somethings are doing just that.", "title": "" }, { "docid": "1ec54a8c54ec30ce5f44f84bf3f18a2a", "text": "none of which give a good return if the underlying economy is shit. the underlying economy will be shit if there hasn't been sufficient investment in more productive endeavors. if the underlying economy hasn't been sufficiently capitalized, that will present juicy returns to investors. it's a complete substance-less threat that if we fail to continue to coddle the rentiers, the economy will collapse because they'll do X with their money (X being something other than maximizing return)", "title": "" }, { "docid": "991a3c3f2d868d20ef41153c719b87fe", "text": "Recessions are prolonged by less spending and wages being 'sticky' downward. My currency, the 'wallark', allows a company to pay its workers in it's own scrip instead of dollars which they can use to purchase its goods, thus reducing it's labor costs and allowing prices to fall faster. While scrip in the past purposely devalued to discourage hoarding, the wallark hold's it's purchasing power. The difference is, a worker can only use it to purchase their company's good on the date the wallark was earned or before. In other words, each good is labeled with a date it was put on display for sale, if a worker earns scrip on that same day, they can trade the scrip for that good, or any good that was on the shelves on that day it was earned or before that date. Any good that comes onto market after the date that particular wallark was earned cannot be purchased with that wallark(which is dated), and must be purchased either with dollars or with wallark that was earned on that good's date or after. This incentivizes spending without creating inflation, and allows costs to fall which helps businesses during rough economic times. Please feel free to read it, and comment on my site! Any feedback is welcome!", "title": "" }, { "docid": "ca439f4a6582d3c83baf1e7055724e58", "text": "Even post meltdown, there are banks that will lend money based on a low loan to value, so 50% might not be a problem. But such loans come at a price. The current 30 year fixed rated is 4.5% or so, but you might see quite a bit higher than this on the loan.", "title": "" }, { "docid": "dd8e5ca4888ff871a3b76ce481bb3bd5", "text": "\"First of all, bear in mind that there's no such thing as a risk-free investment. If you keep your money in the bank, you'll struggle to get a return that keeps up with inflation. The same is true for other \"\"safe\"\" investments like government bonds. Gold and silver are essentially completely speculative investments; over the years their price tends to vary quite wildly, so unless you really understand how those markets work you should steer well clear. They're certainly not low risk. Repeatedly buying a property to sell in a couple of years time is almost certainly a bad idea; you'll end up paying substantial transaction fees each time that would wipe out a lot of the possible profit, and of course there's always the risk that prices would go down not up. Buying a property to keep - and preferably live in - might be a decent option once you have a good deposit saved up. It's very hard to say where prices will go in future, on the one hand London prices are very high by historical standards, but on the other hand supply is likely to remain severely constrained for years to come. I tend to think of a house as something that I need one of for the rest of my life, and so in one sense not owning a house to live in is a gamble that house prices and rents won't go up substantially. If you own a house, you're insulated from changes in rent etc and even if prices crash at least you still have somewhere to live. However that argument only works really well if you expect to keep living in the same area under most circumstances - house prices might crash in your area but not elsewhere.\"", "title": "" }, { "docid": "d7701032534ea45756ab7256d60fb80c", "text": "If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.", "title": "" }, { "docid": "312d9c813916aa05b71e3fdeac51bd57", "text": "\"Yes. Bonds perform very well in a recession. In fact the safer the bond, the better it would do in a recession. Think of markets having four seasons: High growth and low inflation - \"\"growing economy\"\" High growth and high inflation - \"\"overheating economy\"\" Low growth and high inflation - \"\"stagflation\"\" Low growth and low inflation - \"\"recession\"\" Bonds are the best investment in a recession. qplum's flagship strategy had a very high allocation to bonds in the financial crisis. That's why in backtest it shows much better returns.\"", "title": "" }, { "docid": "310e106c027c7dcd5e4af05a23fa280a", "text": "Depends on the level of risk in the specific p2p provider. I've looked at lendinvest which secures loans against property. You can select loans based on loan-to-value ratio etc. Even if a recession happens, if the LTV is around 50% it would have to be a pretty awful recession for you to lose any money once they recover, although there will be a delay while you wait for the recovery to happen. I would thus consider this lower risk than other p2p options, so I'd be willing to put more money into it. At the end of the day as others have said there's no objective answer. This is just one factor to consider which I don't think has been pointed out yet on this discussion", "title": "" }, { "docid": "638320cdc9164f1f10fc3d266a808369", "text": "\"Nobody has a \"\"crash proof\"\" portfolio -- you can make it \"\"crash resistant\"\". You protect against a crash by diversifying and not reacting out of fear when the markets are down. Be careful about focusing on the worst possible scenario (US default) vs. the more likely scenarios. Right now, many people think that inflation and interest rates are heading up -- so you should be making sure that your bond portfolio is mostly in short-duration bonds that are less sensitive to rate risk. Another risk is opportunity cost. Many people sold all of their equities in 2008/2009, and are sitting on lots of money in cash accounts. That money is \"\"safe\"\", but those investors lost the opportunity to recoup investments or grow -- to the tune of 25-40%.\"", "title": "" }, { "docid": "b549c917ad91bcb86a4641bf40d080ff", "text": "A somewhat provocative (but not unserious) proposal: Rent, don't buy a house to live in. In 2007/8, the thing that got many people in deep trouble is their mortgage. It's not a productive investment but a speculative bet on what was in fact a bubble and a class of assets that is notoriously slow to recover after a slump. Before thinking about your savings or buying into silly ideas about gold, you should realise that as a middle class worker, the biggest risk after a crisis is losing your job. Renting your accommodation means being able to downgrade or move very quickly and not being forced to sell a house at the worse possible time. If you really do need to liquidate some of your investments at a bad time, having a more diversified portfolio means that you are not losing everything to meet some short-term obligations. Assuming you're in the US, this means forgoing some nice tax advantages that might be too tempting to resist (I'm not so I am basing this on what I read on this site) but, bubbles aside, there is nothing that makes real estate a particularly good investment as such, especially if you also live in the house you're buying. You might very well come out on top but you expose yourself to several risks and are less prepared to face a crisis.", "title": "" }, { "docid": "58d36651cc5f1d4b3e8327bc4833378a", "text": "\"If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following \"\"market conditions\"\" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about.\"", "title": "" }, { "docid": "caa5d97fc383cae03ecd6b727f445d39", "text": "I-series Treasury bonds are the closest thing you can get to an investment where your principal is guaranteed to be returned (even accounting for inflation). https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm Treasury Inflation Protected Securities are another option, but if you have to sell before maturity then 'the market' may not pay you back your initial investment. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm", "title": "" } ]	fiqa
b59862a9b8baaff6f728336e5e350211	Effect of Quantitative Easing on Price of Bonds	[ { "docid": "af9e3804fe0ba09f7a01b49f444fe670", "text": "\"The classic definition of inflation is \"\"too much money chasing too few goods.\"\" Low rates and QE were intended to help revive a stalled economy, but unfortunately, demand has not risen, but rather, the velocity of money has dropped like a rock. At some point, we will see the economy recover and the excess money in the system will need to be removed to avoid the inflation you suggest may occur. Of course, as rates rise to a more normal level, the price of all debt will adjust. This question may not be on topic for this board, but if we avoid politics, and keep it close to PF, it might remain.\"", "title": "" }, { "docid": "f5980ed493aedbecbc092add2c4be4dc", "text": "QE is artificial demand for bonds, but as always when there are more buyers than sellers the price of anything goes up. When QE ends the price of bonds will fall because everyone will know that the biggest buyer in the market is no longer there. So price of bonds will fall. And therefore the interest rate on new bonds must increase to match the total return available to buyers in the secondary market.", "title": "" } ]	[ { "docid": "f51352ee8542211f99b0f6241d0fffa5", "text": "\"Some people believe that inflation is caused by an increase in the money supply when the banks engage in fractional reserve lending. Is this correct? You are referring to the Austrian school of thought. The Austrians define inflation in terms of money supply. In other words, inflation is defined as an increase in the aggregate money supply, even if prices stay the same of fall. This is not the only definition of inflation. The mainstream defines inflation as a general increase in the prices of consumer goods. Based on the first definition, then your supposition is correct by definition. Based on the second definition, you can make a case that money supply affects prices. But keep in mind, it's just one factor affecting prices. Furthermore, economics is resistant to experimentation, so it is difficult to establish causality. Austrian economists tend to approach the problem of \"\"proof\"\" using a 2-pronged tactic: establish plausibility by explaining the mechanism, then look for historical evidence to back up that explanation. As I understand it, when there is more available money in the market, the price of goods will increase. But will a normal merchant acknowledge the increase of money supply and raise prices immediately? I posit that, in the short run, merchants won't increase prices in response to increased money supply. So, why does increased money supply lead to price inflation? The simple answer, in the Austrian school of thought, is that you have more money chasing the same amount of goods. In other words, printing money doesn't actually increase the number of widgets made. I believe the Austrian school is consistent with your supposition that prices don't increase in the short run. In other words, producers don't increase prices immediately after observing an increase in the money supply. Specifically, after the banks print more notes, where will the money be distributed first? The Austrian story goes as follows: Imagine that the first borrower is a home constructor, and he is borrowing freshly \"\"printed\"\" money to build new homes. This constructor will need to buy materials and hire labor to build homes, and in doing so he will bid against other home constructors. The increased demand for lumber, nails, tools, carpentry, etc. will ever so slightly increase the market prices for these goods and services. So the money goes first to the borrower, but then flows also to the people selling to the borrower, and the people selling to the sellers, etc. It has a ripple effect. Who will be the first one to have a need to rise their price? These producers won't need to increase their price, but they will choose to do so if the believe that demand outstrips supply. In other words if you have more orders than you can fill, then you may post higher prices because you think consumers will tolerate the higher price. You might object that competition deters any one producer from unilaterally raising prices, but in fact if all producers are failing to keep up with demand, then you can unilaterally raise prices because other producers don't have any excess inventory to undercut you with.\"", "title": "" }, { "docid": "8bc279563293599f6a7ccf87b98342bd", "text": "I came up with a real way. I saw once the market be so dumb as to allow this to work. Inflation rate = 2.5%. Home interest rate = 3%. Tax deduction = 1%. Money spent on inflation-adjusted I bonds (at the time these paid 0% net, that is 2.5% gross). Result, .5% profit after accounting for inflation. The kicker: Uncle Sam's I bonds are tax free. Sure it's not possible today, but the rates occasionally drop low enough.", "title": "" }, { "docid": "96a2942dfa624446406a128889324e34", "text": "There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio. You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters. The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere. As more people want to buy stocks, the price rises. Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere.", "title": "" }, { "docid": "b79d4842956bb4bda053d7609ac5bbc8", "text": "Despite QE, monetary expansion in the US has gone down for the last 10 years. I am not quite sure what you are asking. Yes banks have trillions at the Fed because of the central bank “money printing,” but none of that is leaking into the economy. Are you referring to central banks around the world purchasing US treasuries? Are you asking what assets are closely connected to treasuries that you can avoid?", "title": "" }, { "docid": "0d7882c298cb26a09da949ad3a233ca7", "text": "\"Its definitely not a stupid question. The average American has absolutely no idea how this process works. I know this might be annoying, but I'm answering without 100% certainty. The Fed would increase the money supply by buying back government bonds. This increased demand for bonds would raise their price and therefore lower the interest return that they deliver. Since U.S. treasury bonds are considered to be the very safest possible investment, their rate is the \"\"risk free\"\" rate upon which all other rates are based. So if the government buys billions of these bonds, that much money ends up in the hands of whoever sold them. These sellers are the large financial organizations that hold all of our money (banks and large investment vehicles). Now, since bond rates are lower, they have an incentive to put that money somewhere else. It goes into stocks and investment in business ventures. I'm less certain about how this turns into inflation that consumers will recognize. The short answer is that there is only a finite number of goods and services for us to buy. If the amount of money increases and there are still the same number of goods and services, the prices will increase slightly. Your question about printing money to pay off debts is too complex for me to answer. I know that the inflation dynamic does play a role. It makes debts easier to pay off in the future than they seem right now. However, causing massive inflation to pay off debts brings a lot of other problems.\"", "title": "" }, { "docid": "448e3bbfec8eca4a4454abef042cc878", "text": "Why does the rising price of a bond pushes it's yield down? The bond price and its yield are linked; if one goes up, the other must go down. This is because the cash flows from the bond are fixed, predetermined. The market price of the bond fluctuates. Now what if people are suddenly willing to pay more for the same fixed payments? It must mean that the return, i.e. the yield, will be lower. Here we see that risk associated with the bonds in question has skyrocketed, and thus bonds' returns has skyrocketed, too. Am I right? The default risk has increased, yes. Now, I assume that bonds' price is determined by the market (issued by a state, traded at the market). Is that correct? Correct, as long as you are talking about the market price. Then who determines bonds' yields? I mean, isn't it fixed? Or - in the FT quote above - they are talking about the yields for the new bonds issued that particular month? The yield is not fixed - the cash flows are. Yield is the internal rate of return. See my answer above to your first question.", "title": "" }, { "docid": "26f32cc1e82922c4ef673358422fa5ae", "text": "Treasury bonds (of the same date and maturity) are completely fungible. One is exactly the same as the other. It doesn't matter who the Fed buys it from in the long term: there will be fewer outstanding Treasury bonds and more outstanding US dollars, and the price of a Treasury bond will be higher. If Goldman Sachs owns US treasury bonds, they will benefit from quantitative easing one way or another, simply because the value of those bonds goes up when the Fed is willing to buy them at a good price. In the short term, banks might do things with money (like make loans and perform other investment activity) a little faster than the Treasury. (The Treasury might skip or reduce the size of future bond sales.) There is also the opportunity for a tiny amount of arbitrage between the market price of a bond and the price the Fed is willing to pay, but everyone with a big chunk of bonds is able to compete for that little bit of profit (which is why these things are called open market operations) so it's not really all that hot. Really, people! There are far more legitimate criticisms of QE2 than Goldman Sachs participating in the treasury auction process! For starters, consider criticisms of the effects of the policy.", "title": "" }, { "docid": "a8ddcd2bb7d01b9ae2744c9547cfa41c", "text": "\"The public doesn't really need to \"\"notice\"\" for inflation to take effect. Inflation happens there's more money relative to things to buy. Most people think that if say we increase the money supply by 2x, everything should get more expensive. But it matters \"\"where\"\" the increase in money supply is and to \"\"whom\"\" is receiving it. For example, the liquid money supply for US$ increased almost 4 times from 2009 to 2017 via quantitative easing, where the central bank purchased not just short term treasuries, but also longer term bonds. You would think that having 4x the amount of US$ circulating would lead to a lot of inflation on consumer prices. For every $1 that was floating around in 2009, we now have $4, so people should be willing to pay more for a given good, increasing its price. However, the \"\"new\"\" money has been primarily used to purchase assets, and drive up their prices. It has not really found its way to into worker pay (or to the general public), as median income for workers has stayed relatively flat in that time frame. So it can be argued that the \"\"asset\"\" markets are feeling the effects of \"\"inflation\"\" from the increased money supply. Where real estate prices, public stock prices, venture capital investments, etc. have all seen a large increase in their costs to acquire relative to the same asset and opportunity. These assets are acting like a \"\"sponge\"\" for the \"\"new money\"\" that prevents the effects of its inflationary properties from exiting out into the consumer economy. That is also why central banks across the globe are in a predicament in how to \"\"stop\"\" quantitative easing. If they were to shrink the money supply, the inflationary pressures on assets would go down because there's not enough new money to keep raising their prices. Doing it the wrong way would cause housing, stocks, and investment markets to stop growing, because there wouldn't be as much \"\"new money\"\" creating demand for those assets. The best way I can illustrate this is with an example: Say you have an economy that consists of an \"\"Orange Tree\"\" that produces 10 oranges per year. There are 10 people in this economy that each want 1 orange per year. And there is a circulating money supply of $10. The owner of the Orange Tree hires all 10 people to pick 1 orange for him, and pays them $1 to pick. In this scenario, each person picks 1 orange and gives it to the owner. They then receive $1. They then turn around and purchase one of the oranges from the owner of the tree. Because demand is 10 oranges, and supply is 10 oranges, and the money supply is $10, each orange is priced at $1 and everyone is happy. Now let's say the central bank \"\"prints\"\" $100 more dollars. If the central bank gave it to the \"\"people\"\" evenly, each person would end up with $11. Now we have 10 people that want 10 oranges and each have $11. So, the price for the oranges would \"\"inflate\"\" to $11 per orange. Now let's say instead of giving the extra $100 to the \"\"people,\"\" the central bank instead gives it to the \"\"orange tree owner.\"\" The owner can still pick his 10 oranges with the 10 people (the labor force), and can still charge $1 per orange. As long as oranges are still $1, he doesn't really need to increase the \"\"wages\"\" of the orange pickers. So, instead, he invests the $50 into building a bigger house for himself, and then puts the remaining $50 into developing an \"\"orange picking machine.\"\" The supply of oranges is the same, the demand for oranges is the same, and the supply of money that demands oranges is the same, so each orange will continue to be priced at $1. In this scenario, the supply of money increased by 10x, but the prices of oranges did not inflate. This is because the new money went into assets, not consumer demand. Now play this scenario forward a few years. The orange tree owner now has a machine that picks oranges, so he stops hiring people to pick oranges. Now he has a new house and all the oranges he can eat. Now let's say this economy was replicated 100 times, but here are only 20 houses. So there are 100 \"\"orange tree owners\"\" and 1,000 people that get paid to pick oranges and are willing to pay to consume oranges. The central bank hands $100 to each of the 100 orange tree owners. In this case, some of the Orange Tree owners will bid up the price of the houses from $50 to $100. The other Orange Tree Owners may invest in bigger and better \"\"Orange Tree Picking\"\" machines. That automation will lower the cost to pick oranges, and increase profits if prices stay the same. Eventually, those owners will be able to bid more than $100 for one of the 20 houses. As this plays out, the price of a house will continue to increase until all orange picking is automated, but no one can afford oranges because they are not needed to pick them anymore. This is a simplified version of what's basically happening on a global scale.\"", "title": "" }, { "docid": "154d7f5c99eb49598a76e1db747b22f3", "text": "I'm not sure what point you think I was making. It looks like you think I'm supporting the idea that QE causes inflation, which it doesn't. At least not when it is being used as it has been. What it does seem to have done is depress interest rates and create a speculative market that doesn't match up with economic reality. It has also created a ridiculous profit loop for investment banks selling bonds to the Fed. You can't talk about QE without mentioning that banks are now incentivized to hold onto reserves because they can collect interest. So the banks screwed up, were heavily subsidized under the pretense of it being best for the taxpayer, and were then rewarded for sitting on all of that money. If I support any viewpoint it is this. The government agreed to give the banks a thin veneer of solvency by granting them enormous sums in a short period. Obviously if that much currency went straight into the market it would be a disaster, so it put a mechanism in place to reward them for holding onto it. All QE did was massively increase the debt burden of the government, which will be passed on to taxpayers in the form of taxes, fines, fewer benefits, worsening infrastructure, and more restrictions. QE may have not caused inflation, but it certainly didn't help the vast majority of Americans who will simply see their standard of living decline at a quicker pace. I'm sure this will get blamed on immigrants or something instead of the reality that our government is tacitly rewarding banks for not lending to individuals. Why would they? An individual might not pay them back, but the government always will by simply extracting more out of those very individuals.", "title": "" }, { "docid": "b61eb81f67a953cfb6e04afe443616a9", "text": "Huh? I don't see how this effects inflation in practice.... (only in theory) Basically, I sell short end bonds and buy longer end bonds pocketing the difference in yield and increasing my duration. GLD and mining are hedges against inflation, markets are stupidly short term looking and care only about current expectations, if the current macro situation deteoriates we see prices fall.", "title": "" }, { "docid": "13ef7f9e39be68ec99874aa10daa9f40", "text": "I am going to speak in general, as this has also been the case in europe. First of all QE is an increase of money supply but using non conventional measures(there might be exceptions) some examples of this measures are changing interest rates or TLTRO. As to why this hasnt transitioned into more inflation, which in the end has but years after, has been a question that people have asked a lot. One of the reasons for this is the transmission mechanism not working properly, which implies that despite the fact banks have received money, they havent been able to move it to the real economy hence not increasing prices.", "title": "" }, { "docid": "c480cc34018d4f6ac8d9e295e42efa98", "text": "It is different this time. But I think the risk of asset prices rising is almost as equal as them falling. QE caused asset price inflation, but QE was only to calm/support the market. They're probably not going to stuff that QE money back into the central bank for a very long time either. Maybe, they'll just keep rolling over the bonds out to maturity, while relying on deficits to inflate away the assets at the Fed. https://youtu.be/o8LAUQwv77Q My bet is the main risks going forward are political risks, and continued modest inflation among things not measured by CPI.", "title": "" }, { "docid": "9ae6bb4df00454b020003c9348baf8aa", "text": "QE2 will mean that there are about $500 billion dollars in existence which weren't there before. These dollars will all be competing with the existing dollars for real goods and services, so each dollar will be worth a little less, and prices will rise a little. This is inflation. You can probably expect 1.5%-2% annual inflation for the US dollar over the next several years (the market certainly does in the aggregate, anyway). This is in terms of US-based goods and services. QE2 will also reduce the amount of other currencies you can get for the same dollar amount. The extent to which this will occur is less clear, in part because other currencies are also considering quantitative easing. Your long-term savings should probably not be in cash anyway, because of the low returns; this will probably affect you far more than the impact of quantitative easing. As for your savings which do remain in cash, what you should do with them depends on how you plan to dispose of them. The value of a currency is usually pretty stable in terms of the local economy's output of goods and services - it's the value in international trade which tends to fluctuate wildly. If you keep your savings in the same currency you plan to spend them in, they should be able to maintain their value decently well in the intermediate term.", "title": "" }, { "docid": "ba635a0e2132b69b629c4d6de7a2b27b", "text": "Bond prices move inversely to their yields. So when you sell bonds and create a supply side deluge, bond prices will fall. Since bond prices are falling, yields go up. (The dollar amount that the bond pays out is the same. It's simply that since the bond price has fallen, that dollar amount paid out expressed in percentage terms of the bond price has risen).", "title": "" }, { "docid": "47e265958b57cdfd56a88083c375e30f", "text": "As a 24 year old, single,your needs for insurance are minimal. Why you might consider it are for these reasons. You are young, so it will be cheaper than buying say at 34. Insurance is always on sale. Two, there is no guarantee that your health will always be good, you may have to pay additional premiums later or even be refused coverage. Ask me, I pay 70% more than others my age for the same coverage. Three, insurance ownership with equity values can grow tax free as you accumulate the monies. Consider it like a bond portfolio offering guaranteed returns on portions of the growth, and a long term return of 5.5% or slighly more. Four, stating sooner versus later means more cash buildup. Just like being in a pension will generate more cash for you by age 65, than if you had started at age 34. Insurance is only one tool in getting a good start. It is not a panacea.", "title": "" } ]	fiqa
b632c4c9c67fb1871cc96f30f14e6b6b	If gold's price implodes then what goes up?	[ { "docid": "a5fc1225abe1e6651a20b3d8eea0eab7", "text": "\"Ok, I think what you're really asking is \"\"how can I benefit from a collapse in the price of gold?\"\" :-) And that's easy. (The hard part's making that kind of call with money on the line...) The ETF GLD is entirely physical gold sitting in a bank vault. In New York, I believe. You could simply sell it short. Alternatively, you could buy a put option on it. Even more risky, you could sell a (naked) call option on it. i.e. you receive the option premium up front, and if it expires worthless you keep the money. Of course, if gold goes up, you're on the hook. (Don't do this.) (the \"\"Don't do this\"\" was added by Chris W. Rea. I agree that selling naked options is best avoided, but I'm not going to tell you what to do. What I should have done was make clear that your potential losses are unlimited when selling naked calls. For example, if you sold a single GLD naked call, and gold went to shoot to $1,000,000/oz, you'd be on the hook for around $10,000,000. An unrealistic example, perhaps, but one that's worth pondering to grasp the risk you'd be exposing yourself to with selling naked calls. -- Patches) Alternative ETFs that work the same, holding physical gold, are IAU and SGOL. With those the gold is stored in London and Switzerland, respectively, if I remember right. Gold peaked around $1900 and is now back down to the $1500s. So, is the run over, and it's all downhill from here? Or is it a simple retracement, gathering strength to push past $2000? I have no idea. And I make no recommendations.\"", "title": "" }, { "docid": "3ea59ac7efc1564bd9772aec0fc73a5c", "text": "\"It's not clear that anything needs to go up if gold goes down. In a bubble, asset prices can just collapse, without some other asset increasing to compensate. Economies are not a zero-sum game. On the other hand, gold may fall when people decide they don't need to hoard some store of value that, to their minds, never changes. It could very well indicate that there is more confidence in the broader economy. I am not a gold bug, so I don't much see the point in \"\"investing\"\" in something that is non-productive and also inedible, but to each his own.\"", "title": "" }, { "docid": "0725fa86485e769dcd515cc6a01768ad", "text": "\"Nothing necessarily has to \"\"benefit.\"\" Right now, what primarily drives demand for gold is its perceived use as a hedge against the inflation of fiat currency. I.e. when inflation strikes, the price of gold goes up rapidly. Thus, for a given currency, gold decreasing in price is almost always a signal that the currency is increasing in value. However, it may be that at some point in time people everywhere just decide that gold is no longer worth using as an inflation hedge, and thus the price collapses simply because demand collapsed. No corresponding \"\"benefit\"\".\"", "title": "" }, { "docid": "831c8f232d1346bee6ed25d4c736aa80", "text": "It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.", "title": "" } ]	[ { "docid": "9f0df3b976c5c95311470cb1c41604f2", "text": "They wont let it collapse, they will devalue it over time to some effect via bailouts and borrowing. Invest in commodities so your cash retains its value, physical gold is always strong. Other currencies are an option but this is more of a gamble.", "title": "" }, { "docid": "58449f8023032c3e88340a3a6ff677d6", "text": "Redditors! Buy gold and demand that the financial institution who sold it deliver it. When they try to buy enough gold to cover their short the price will explode, free money. Disclaimer: you all have to do it or it won't work", "title": "" }, { "docid": "38aa011258eb268a60e1affa22392333", "text": "No. If you have to ignore a price spike, obviously its value is not constant. Gold is a commodity, just like every other commodity.", "title": "" }, { "docid": "18a4ec884d5992249a95fe141fdd1279", "text": "No. The value of the dollar will continue to decline, in turn adding to the value of gold. The current prices are not high for metals, although not rock bottom prices. Especially given what central banks are going to do. (QE). We are nowhere near a gold bubble.", "title": "" }, { "docid": "ddb92aa59e5753bd3a789b295a63dca6", "text": "\"In my opinion, you're in a precious metals \"\"bubble\"\" when rising prices are driven by the people's desire the own the commodity without a reason other than \"\"the market is going up\"\". Usually \"\"bubble\"\" markets are fueled by lots of debt. IMO, this isn't a bubble. I don't think that silver and gold values are shooting up like a rocket due to some orgy of speculation. In my opinion, citizens are losing faith in the government and in the value of money itself. If you have money to save, most banks pay less than 1%. The government claims that inflation is nonexistant -- the inflation rate on a US Series I Savings Bond was 0.37% in November 2010. Yet most people are noticing escalations in price in things that dominate their budget -- fuel, healthcare, local taxes and food. I bought a pound of store-brand butter for $3.99 yesterday... that was $0.99 4-5 years ago. People are seeing precious metals as a way to hedge against that. They're rational about it -- trying to protect assets is different than speculation. I think the question to ask is: \"\"Is the US Dollar's value a bubble?\"\"\"", "title": "" }, { "docid": "2e8427f6c06c93827246c711c98b9cb6", "text": "\"I've mostly seen this term peddled by those with large portfolios in gold/commodities. The incentive for these guys, who for example may have a large portfolio in gold, is to drive demand for gold up - which in turn drives the value of the gold they're holding up and makes their assets more valuable. The easiest way to get a large amount of people to invest in gold is to scare them into thinking the whole market is going to fall apart and that gold is their best/only option. I personally think that the path we're on is not particularly sustainable and that we're heading for a large correction/recession anyways - but for other reasons. Example: [Peter Shiff YouTube Channel called \"\"The Economist\"\" with conspiracy videos](https://www.youtube.com/user/PeterSchiffChannel/videos) [Actual \"\"The Economist\"\" magazine researching the market](https://www.youtube.com/user/EconomistMagazine/videos) (edit: formatting)\"", "title": "" }, { "docid": "cef4fa3efefe86f85f703ff4e020704f", "text": "\"If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market. Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$. To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180) GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500) From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio \"\"s\"\" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold. So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist.\"", "title": "" }, { "docid": "9aabe7143c93b50c64bded075fdfaca7", "text": "Your question asks about the mechanism of money inflation - not price inflation. Money inflation occurs when new money is introduced into an economy. The value of money is subject to supply and demand like other items in the economy. The effects of new money can be difficult to predict. One of the results of additional money can be rising prices. These rising prices can be concentrated in one particular area - stocks, homes, food - or they can be spread out over many items. This is true regardless of the form of money being inflated - gold, silver, or paper money. There were times in history when large discoveries of gold and silver were found that caused prices to rise as a result. Of course, the large discoveries of gold and silver pale in comparison to the gigantic discoveries by central banks of new fiat currency.", "title": "" }, { "docid": "3e15fa69c9638052da5104cf68de929d", "text": "Approximately 5.3 billion ounces have been mined. This puts the total value of all gold in the world at about $9.5 trillion, based on $1800/oz. Total world net worth was $125T in 2006. There's an odd thing that happens when one asset's value is suddenly such a large percent of all assets. (This reminds me of how and why the tech bubble burst. Cisco and EMC would have been worth more than all other stocks combined if they grew in the 00's like they did in the 90's.) Production (in 2005/6) ran about 80 million oz/yr. Just over 1.5% impact to total supply, so you are right in that observation. On the other hand, the limited amount out here, means that if everyone decided to put their wealth in gold, it would be done by driving the price to bubblicious levels. One can study this all day, and parse out how much is in investment form (as compared to jewelry, etc) and realize that a few trillion dollars in value pales in comparison to the wealth of the US alone, let alone the world. Half the world can't buy two oz if they tried. Of course there's pressure to reopen mines that had costs pushing $800/oz. Understand that the supply of $300 gold is long gone. As the easy gold has been mined, and cost goes up, there's a point where mines close. But as the price of gold trades at these levels, the mines that couldn't produce at $600 are now opening.", "title": "" }, { "docid": "500707114934997f55ec17ae6020bf57", "text": "Gold isn't constant in value. If you look at the high price of $800 in January of 1980 and the low of $291 in 2001, you lost a lot of purchasing power, especially since money in 2001 was worth less than in 1980. People claim gold is a stable store of value but it isn't.", "title": "" }, { "docid": "6772c658a9ce2de9ba987109f7782764", "text": "\"Gold may have some \"\"intrinsic value\"\" but it cannot be accurately determined by investors by any known valuation techniques. In fact, if you were to apply the dividend discount model of John Burr Williams - a variation of which is the basis of Discounted Cash Flow (DCF) analysis and the basis of most valuation techniques - gold would have zero intrinsic value because it produces no cash flow. Legendary focus investor Warren Buffett argues that investing in gold is pure speculation because of the reason mentioned above. As others have mentioned, gold prices are affected by supply and demand, but the bigger influence on the price of gold is how the economy is. Gold is seen as a store of value because, according to some, it does not \"\"lose value\"\" unlike paper currency during inflation. In inflationary times, demand increases so gold prices do go up, which is why gold behaves similar to a commodity but has far less uses. It is difficult to argue whether or not gold gains or loses value because we can't determine the intrinsic value of gold, and anyone who attempts to justify any given price is pulling blinders over your eyes. It is indisputable that, over history, gold represents wealth and that in the past century and the last decade, gold prices rise in inflationary conditions as people dump dollars for gold, and it has fallen when the purchasing power of currency increases. Many investors have talked about a \"\"gold bubble\"\" by arguing that gold prices are inflated because of inflation and the Fed's money policy and that once interest rates rise, the money supply will contract and gold will fall, but again, nobody can say with any reasonable accuracy what the fair value of gold at any given point is. This article on seeking alpha: http://seekingalpha.com/article/112794-the-intrinsic-value-of-gold gives a quick overview, but it is also vague because gold can't be accurately priced. I wouldn't say that gold has zero intrinsic value because gold is not a business so traditional models are inappropriate, but I would say that gold certainly doesn't have a value of $1,500 and it's propped so high only because of investor expectation. In conclusion, I do not believe you can accurately state whether gold is undervalued or overvalued - you must make judgments based on what you think about the future of the market and of monetary policy, but there are too many variables to be accurate consistently.\"", "title": "" }, { "docid": "b9620cb243a43bef92f19b69725a8d89", "text": "\"Bitcoin will never come back down; it's a limited commodity that is tradable like a currency. Since it's a commodity, it will always have value and since it's a limited commodity, that value will always go up. Disclaimer: by \"\"come back down\"\" I meant back down to the $3 a coin it was at when it hit it's first spike without being obsoleted. Not the current $5000 shenanigans; this is just part of it's market cycle.\"", "title": "" }, { "docid": "bd4f3e7ca6ee85d18d460aeb65be06f4", "text": "If the US economy crashes at all suddenly, the global economy goes with it. In that case, yes, the postapocalyptic scenarios may be the best answer. But that's got so low a probability of happening that you'd be a fool to invest in it. If you really feel the need, consider investing in the companies which supply those activities. The big winners in the California gold rush were the general stores that sold supplies to the speculators.", "title": "" }, { "docid": "50b52264b9409f57b1b597876e96528a", "text": "Technically, you could improve your odds in this hypothetical pre-apocolyptic economy by diversifying your digital and tangible precious-metal-commodity portfolio by going in with gold, silver, platinum, palladium, and others. That being said I'm not sure if one can access tangible stores of all these metals...", "title": "" }, { "docid": "ed2c6d6b02ce66f39164f5b8fba20730", "text": "Somebody will have to file all the required paperwork and fees with the local government, state government and even the federal government. This paperwork is used by these governments to record who owns the property and how it is owned. Prior to the settlement date they also will need to verify how the property is described and owned so that you are sure that you are being sold the exact property you expect, and that it is delivered to you free and clear of all other debts. If this is done wrong you might discover years later that you paid money for something that you don't really own. In some jurisdictions this has to be done via a law office, in others there is no requirement for a lawyer. Because a mortgage company, bank, or credit union is giving you money for the loan, they may require you to use a settlement attorney. They don't want to discover in 5 years that a simple mistake will cost them hundreds of thousands to fix. The mortgage company is required to give you a more detailed estimate of all the closing costs before you are committed to the loan. The quoted paragraph is not good enough. Even if you can avoid the use of a lawyer these functions still need to be done by somebody, and that will still cost money.", "title": "" } ]	fiqa
7e8e00e396b4789fb850141b6e857e6f	Query regarding international transaction between governments	[ { "docid": "295d1fc6625802aa6d59929026e4f2a7", "text": "$USD, electronic or otherwise, are not created/destroyed during international transactions. If India wants to buy an F-16s, at cost $34M USD, they'll have to actually acquire $34M USD, or else convince the seller to agree to a different currency. They would acquire that $34M USD in a few possible ways. One of which is to exchange INR (India Rupees) at whatever the current exchange rate is, to whomever will agree to the opposite - i.e., someone who has USD and wants INR, or at least is willing to be the middleman. Another would be to sell some goods or services in the US (for USD), or to someone else for USD. Indian companies undoubtedly do this all the time. Think of all of those H1B workers that are in the news right now; they're all earning USD and then converting those to INRs. So the Indian government can just buy their USD for INR, directly or more likely indirectly (through a currency exchange market). A third method would be to use some of their currency stores. Most countries have significant reserves of various foreign currencies on hand, for two reasons: one to simplify transactions like this one, and also to stabilize the value of their own currency. A less stable currency can be stabilized simply by the central bank of that country owning USD, EUR, Pounds Sterling, or similar stable-value currencies. The process for an individual would be essentially the same, though the third method would be less likely available (most individuals don't have millions in cash on hand from different currencies - although certainly some would). No government gets involved (except for taxes or whatnot), it's just a matter of buying USD in exchange for INRs or for goods or services.", "title": "" }, { "docid": "aa6b5fd3a2691763e0186d3daa30563b", "text": "Buyer A didn't send money to the US government, Buyer A sent money to Seller B, a US resident. I think the most common way to facilitate a transaction like this is a regular old international wire transfer. Buyer A in India goes to their bank to exchange X INR to $1mm USD. $1mm USD is then wire transferred to Seller B's bank account. The USD was sold to Buyer A, either by funds held by Buyer A's bank, or foreign exchange markets, or possibly the US government. Seller B may owe taxes on the gain derived from the sale of this thing to Buyer A, but that taxation would arise regardless of who the buyer was. Buyer A may owe an import tax in India upon importing whatever they bought. I don't think it's common to tax imported money in this sort of transactional setting though.", "title": "" }, { "docid": "a0fd3892b5b4a6ff7c51355d21f1b976", "text": "For the US government, they've just credited Person B with a Million USD and haven't gained anything (afterall, those digits are intangible and don't really have a value, IMO). Two flaws in this reasoning: The US government didn't do anything. The receiving bank credited the recipient. If the digits are intangible, such that they haven't gained anything, they haven't lost anything either. In practice, the role of governments in the transfer is purely supervisory. The sending bank debits the sender's account and the receiving bank credits the recipient's account. Every intermediary makes some money on this transaction because the cost to the sender exceeds the credit to the recipient. The sending bank typically receives a credit to their account at a correspondent bank. The receiving bank typically receives a debit from their account at a correspondent bank. If a bank sends lots of money, eventually its account at its correspondent will run dry. If a bank receives lots of money, eventually its account at its correspondent will have too much money. This is resolved with domestic payments, sometimes handled by governmental or quasi-governmental agencies. In the US, banks have an account with the federal reserve and adjust balances there. The international component is handled by the correspondent bank(s). They also internally will credit and debit. If they get an imbalance between two currencies they can't easily correct, they will have to sell one currency to buy the other. Fortunately, worldwide currency exchange is extremely efficient.", "title": "" } ]	[ { "docid": "33f8ccc33e64dc2d35f0ca02ffeb95c4", "text": "Ok, its been over a week, I think I am done with this. If you feel answering last makes you a winner, GJ. You are, though, incorrect in showing any example of a country that simultaneously purchased and sold its own debt. Also, I rule.", "title": "" }, { "docid": "48b53ceb967c84617f5899bbf19d2dc8", "text": "Usually, your situation is a generalized form of import/export, with you as the net exporter of goods/services and the individual consuming your goods/service as net importer. Import export laws vary from country to country but following are the general tariffs/taxes applicable: Export tax/duty: From your sovereign jurisdiction (read country/region/EU region), there could be export restriction or tariffs applicable to your exported goods/services on the other hand there may not be any, check with EU export law on this and then your country specific law. If there is any tax/tariff payable, you shall have to pay the same on the transactions. Import tax/duty: This is more related to your customer who is purchasing the goods/services from you, however, you should know this. Your customer will be liable to pay any import tax/duty as applicable for importing of your goods/services in that country/region, if it is applicable. Shipping Insurance: If it is a physical goods, there would be shipping and with shipping comes insurance and indemnity (if applicable). So there is a cost to it, you need to be aware of this. Sales Tax: There is no Govt. on earth or history which does not or did not charge sales tax in some form or the other. EU/country will also have sales tax, you should be aware of this as per transaction you may have to pay sales tax to the Govt. This would add to the cost. Credit of Foreign Currency Payments: Some countries have tax/tariffs attached to foreign currency credits/transfers or bank charges attached to the same, you may have to open specific type of bank A/C to receive the credits. These laws are specific to country/region, you should be aware of the same. The above are generic considerations and not specific to EU and to a greater/lesser extent applicable to all countries/regions. Best would be to search the net on the above points for EU region and get answers or approach a chartered accountant who will give you all the information.", "title": "" }, { "docid": "a7b97f8d1e7cef7a371db32488ca1d52", "text": "Yes it is possible. It would depend on Banks policies whether they would lend. Quite a few large corporations borrow money in one country for business needs in other country", "title": "" }, { "docid": "ac0fb7596fc865512efa670b65d98db4", "text": "\"No it is not \"\"Normal\"\" the normal process is that the money is transferred to your account with out issue. This would be an exception. That does not mean that there is anything to worry about. It could be that the transaction met some criteria that triggered closer examination, or it could be that yours is just one randomly being reviewed. And it could just be that your husbands partner misunderstood or lied. Step 1 would be contact the bank and find out what is going on and if there is any action you need to take. Assuming that the bank confirms the status and the amount is significant enough I would probably give my lawyer a heads up of what is going on. If Homeland Security is involved there is a reasonable chance that you will need that representation anyway so getting the lawyer involved early might save you a headache in the end. The lawyer is probably the only person that will be able to get any answers for your anyway. from comments: My husband is a consultant that works for another company - as a consultant. That company received a contract from a government south of the US (Free Trade approved). That government first wired the overall government contract to the company account in that originating country, then... the funds were wired to the US counterpart company ... then then consultants gets paid. It sounds like the contract is not your normal business to business international contract. So normal goes out the window there. When you start getting foreign governments involved things get... lets use the word \"\"interesting.\"\" If the contract involves anything with military or restricted technology applications (even if they are not directly military) then HSA wants to make sure that no one is circumventing export restrictions. With out knowing more specifics it is difficult to guess whether or not there is anything for your husband to worry about. The bottom line for him is that he does not have his money so he should keep that in mind when delivering services to the Prime Contractor.\"", "title": "" }, { "docid": "a48564da87b5eb0b0cc3034531aa5dd7", "text": "The money is transferred through an electronic funds transfer, which is an umbrella term that encompasses wire transfers, direct debits, etc. The application form for Key Trade Bank (the only place I can find that uses that exact phrasing) lists a SWIFT number. This usually indicates that the transfer of funds is done through an international wire transfer. In the most basic sense, the process works like this: Key Trade Bank uses the SWIFT number to notify your current bank of the transfer. Your bank instructs the settlement bank, e.g. the central bank of your country, where your bank is located, to transfer funds to Key Trade. If Key Trade is in another country from your current country, your central bank will send money to the central bank where Key Trade is located, which will in turn send the money to Key Trade. Otherwise, your central bank deposits the money into the account that Key Trade also has with them, and the transfer is complete.", "title": "" }, { "docid": "2210ac514c3dce54d6f12496a35e9a2d", "text": "If both bank accounts are in your name, it appears that NS&I have a free International Payments Service. The Post office international payments are apparently free if you transfer at least £250. In both cases, I have not used the services and I'm not sure if there is some catch that I have missed. Perhaps they only appear free due to an unfavourable exchange rate — I don't know. See also: UK fee-free foreign transfer to own account", "title": "" }, { "docid": "2010171848c9f2ed7905095c9d3428af", "text": "\"You might want to read about about the Coase Theorem. \"\"In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining.\"\" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars. Thus, the amount of money is not relevant- it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price. Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because \"\"that's how it's always been.\"\" Nobody \"\"creates/supervises\"\" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values.\"", "title": "" }, { "docid": "c09e0ca4cba8ddc88883306ee7d79eac", "text": "\"This sounds like a FATCA issue. I will attempt to explain, but please confirm with your own research, as I am not a FATCA expert. If a foreign institution has made a policy decision not to accept US customers because of the Foreign Financial Institution (FFI) obligations under FATCA, then that will of course exclude you even if you are resident outside the US. The US government asserts the principle of universal tax jurisdiction over its citizens. The institution may have a publicly available FATCA policy statement or otherwise be covered in a new story, so you can confirm this is what has happened. Failing that, I would follow up and ask for clarification. You may be able to find an institution that accepts US citizens as investors. This requires some research, maybe some legwork. Renunciation of your citizenship is the most certain way to circumvent this issue, if you are prepared to take such a drastic step. Such a step would require thought and planning. Note that there would be an expatriation tax (\"\"exit tax\"\") that deems a disposition of all your assets (mark to market for all your assets) under IRC § 877. A less direct but far less extreme measure would be to use an intermediary, either one that has access or a foreign entity (i.e. non-US entity) that can gain access. A Non-Financial Foreign Entity (NFFE) is itself subject to withholding rules of FATCA, so it must withhold payments to you and any other US persons. But the investing institutions will not become FFIs by paying an NFFE; the obligation rests on the FFI. PWC Australia has a nice little writeup that explains some of the key terms and concepts of FATCA. Of course, the simplest solution is probably to use US institutions, where possible. Non-foreign entities do not have foreign obligations under FATCA.\"", "title": "" }, { "docid": "c0568dee1a562b5ddf66be45c0d8fcde", "text": "\"One option would be to physically ship the money from Israel to the US. I quickly ran the numbers for shipping different amounts of $100 bills (One pound equals 454 bills) using a popular shipping company. Here are the results: The \"\"sweet\"\" spot is $100,000. That would only cost you $76 to ship which is just 0.08% of the amount being transferred. Of course, the shipping company's website says international shipments of money are prohibited. Their website, however, let me categorize the shipment as \"\"money\"\". Strange.\"", "title": "" }, { "docid": "4e31045050a5d96241b49790eec6f013", "text": "Currently many countries (and non-government bodies) hold dollars to facilitate trade. If the dollar is no longer used in their trade, then they no longer have a reason to hold those dollars. If every other country starts to dump their dollar holdings into the world currency markets, the number of dollars floating around in those market would shoot up. The massive supply increase of dollars (we're assuming these other countries are holding massive amounts of dollars) would lead to a large drop in value of the dollar - lots more dollars chasing the same amount of goods. Every purchase will become much more expensive for anyone still buying with dollars, including the American government trying to buy expensive military equipment - unless the US government also switches to using something else to purchase military supplies.", "title": "" }, { "docid": "0e07d5b3f580cca005fc97c88282ef40", "text": "\"An US person could be liable for corruption charges in the US for paying a bribe in a foreign country, because of [FCPA](http://en.wikipedia.org/wiki/Foreign_Corrupt_Practices_Act). Quoting: \"\"The anti-bribery provisions of the FCPA make it unlawful for a U.S. person [...] to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person.\"\"\"", "title": "" }, { "docid": "14dc8a9c4d042aa2886edc440c53c496", "text": "It is non-binding. I'm not positive of China receiving money but I know they wouldn't have to give money. They also don't need to cut their carbon emissions in the near future where the U.S. who competes with China economically would have to cut their emissions by over 20%.", "title": "" }, { "docid": "5eb519a294ef6b48089d860918f02d49", "text": "Politics matter when these types of things are being initially negotiated. Otherwise an early proposal that is intended to be just a bargaining position will be reported as OBAMA IS TAKING OUR FREEDOMS, and they will be forced to remove the bargaining position by politics instead of good policy. This will be voted on by the Senate, and will have to be ratified by 67 Senators. Trust me, this treaty will have its day in front of the people.", "title": "" }, { "docid": "bac039338b7d35deb88310614fc1cdde", "text": "Swaps form backstop to a shit load of int'l trade. Liquidity of currency is a huge factor in being a govt reserve currency, which USD currently has the VAST majority of holdings. This agreement is a shove against USE dominance in trade settlements, which is negative. Also challenges us general capital markets dominance a bit", "title": "" }, { "docid": "06238bcde4f209948bd74386f6b222c0", "text": "\"I've bought ISO stock over they years -- in NYSE traded companies. Every time I've done so, they've done what's called \"\"sell-to-cover\"\". And the gubmint treats the difference between FMV and purchase price as if it's part of your salary. And for me, they've sold some stock extra to pay estimated taxes. So, if I got this right... 20,000 shares at $3 costs you 60,000 to buy them. In my sell-to-cover at 5 scenario: did I get that right? Keeping only 4,000 shares out of 20,000 doesn't feel right. Maybe because I've always sold at a much ratio between strike price and FMV. Note I made some assumptions: first is that the company will sell some of the stock to pay the taxes for you. Second is your marginal tax rate. Before you do anything check these. Is there some reason to exercise immediately? I'd wait, personally.\"", "title": "" } ]	fiqa
e2f25e26fd4636bef93a6f1365c7f2be	Mortgage sold to yet another servicer. What are my options?	[ { "docid": "c656406e5832542d6366718a515013fa", "text": "Are my mortgage terms locked in? Who oversees this? Yes your terms like rate, balance, penalties, due dates, are all covered in the mortgage documents. Those will not change. If the mortgage is an adjustable or has a balloon payment those terms will be followed by the new company. That being said, mistakes can be made. Double check everything. I had a transfer get messed up once, and all the terms were wrong. It took a few months but everything was worked out. In fact because they first tried to stonewall me I was able to negotiate some additional concessions out of them. Running your own escrow account is one thing you always want to do. That makes sure that the taxes and insurance are always paid by you, even if the servicing company has a glitch. Generally you have to have enough equity to not have PMI in order to get them to agree to the self-escrow option. If you have a problem with the servicing company then contact the Consumer Finance Protection Bureau a part of the US Government. They have only been a round a few years, thus I have no experience with them. Have an issue with a financial product or service? We'll forward your complaint to the company and work to get a response from them. The last few times I applied for a mortgage or refinanced a mortgage the lender had to reveal as part of the application stage the percentage of recent mortgages they still own/service. Check those numbers the next time you apply.", "title": "" }, { "docid": "dcd3f1bfd91b3e4ba23288497bd15f5b", "text": "\"Your mortgage terms are locked in; the servicer/new owner cannot change the terms without your consent, but the servicer can be more aggressive in taking action (as specified in your mortgage contract) against you. For example, if the mortgage agreement calls for penalties for missing a payment or making it late, your friendly neighborhood banker might waive the penalty if the payment is received a day late once (but perhaps not the second or the third time), but the servicer doesn't know you personally and does not care; you are hit with the penalty right away. If the payment was received a day late because of delays in the post office, too bad. If you used a bank bill payment service that \"\"guarantees\"\" on-time arrival, talk to the bank. All perfectly legal, and what you agreed to when you signed the contract. If you can set up electronic payments of your mortgage payments, you can avoid many of these hassles. If you are sending in more money than what is due each month, you should make sure that the extra money reduces the principal amount owed; easy enough if you are sending a physical check with a coupon that has an entry line for \"\"Extra payment applied to principal\"\" on it. But, the best mortgage contracts (from the bank's point of view) are those that say that extra money sent in applies to future monthly installments. That is, if you send in more than the monthly payment one month, you can send in a reduced payment next month; the bank will gladly hold the extra amount sent in this month and apply it towards next month's payment. So, read your mortgage document (I know, I know, the fine print is incomprehensible) to see how extra money is applied. Finally, re-financing your mortgage because you don't like the servicer is a losing proposition unless you can, somehow, ensure that your new bank will not sell your new mortgage to the same servicer or someone even worse.\"", "title": "" }, { "docid": "642b2e4f9c3ead1b07d1a182c3669717", "text": "You would need to check the original mortgage papers you signed with the originators. Chances are you agreed to allow the mortgage to be sold and serviced by other parties. Refinancing would also put you in the same boat unless you got them to take that clause out of the mortgage/refinance papers. Also, chances are most small banks and originators simply can not keep mortgages on their books. There are also third parties that service loans too that do not actually own the mortgages as well. This is another party that could be involved out of many in your mortgage. I would also not worry about 127/139 complaints out of 1,100,000 loans. Most probably were underwater on their mortgage but I am sure a few are legitimate complaints. Banks make mistakes (I know right!). Anyway, good luck and let me know if you find out anything different.", "title": "" } ]	[ { "docid": "91284308cba499b85643f7b82623a40f", "text": "Underwriting manager here. It's not a big deal. Call your processor or loan officer tomorrow to make sure it's been cleared. My guess is that the underwriter or loan officer noted the discrepancy and corrected it in their systems. You'll have to sign a updated 1003 and 4506T at closing with correct info. In other words...no biggie, no worries. Not a show stopper at all.", "title": "" }, { "docid": "0ee6c73b0deba35ce0e6b077e959d1b4", "text": "That sucks. If BofA is taking responsibility for the insurance payment, then they should..., well, take responsibilty - full responsibility. I hope these people get reimbursed fairly. Didn't their insurance company contact them about the policy? If not, I'd certainly be shopping for a new insurance company, and possibly I'd include them in a lawsuit. The insurance company should be contacting the bank and their customer. Mine sent me a couple of letters, saying a copy was sent to the bank (although I think they still had the original bank, not BofA). But BofA had recently paid the premium, so they ignored it - basically dropped the ball. When I got the 2nd letter from the insurance company, I called again, and the guy at BofA got right on the ball, checked it out, and fixed it very quickly, then helped me cancel my escrow so I could handle it directly in the future. Perhaps I was lucky to get someone who cared about their job enough to follow through. But I also jumped in to make sure it got taken care of, so if he hadn't, I would have been bothering them until they did.", "title": "" }, { "docid": "8f92ce53db50ec532e8395af9da6f0bb", "text": "I think you are running into multiple problems here: All these together look like a high risk to a bank, especially right now with companies being reluctant to hire full-time employees. Looking at it from their perspective, the last thing they need right now is another potential foreclosure on their books. BTW, if it is a consolation, I had to prove 2 years of continuous employment (used to be a freelancer) before the local credit union would consider giving me a mortgage. We missed out on a couple of good deals because of that, too.", "title": "" }, { "docid": "8d8e0ea294d9717ae772681b2fc45021", "text": "I'm sorry, but who pressured the appraiser to overstate the value of the house by threatening him with a loss of future business? I'm pretty sure I hired him but the lender threatened him. After I only had one house for him to do. You're missing the bigger picture", "title": "" }, { "docid": "6e0f5a5bd8fcf16434ed72e82e14daf0", "text": "Consider that the bank of course makes money on the money in your escrow. It is nothing but a free loan you give the bank, and the official reasons why they want it are mostly BS - they want your free loan, nothing else. As a consequence, to let you out of it, they want the money they now cannot make on your money upfront, in form of a 'fee'. That explains the amount; it is right their expected loss by letting you out. Unfortunately, knowing this doesn't change your options. Either way, you will have to pay that money; either as a one-time fee, or as a continuing loss of interest. As others mentioned, you cannot calculate with 29 years, as chances are the mortgage will end earlier - by refinancing or sale. Then you are back to square one with another mandatory escrow; so paying the fee is probably not a good idea. If you are an interesting borrower for other banks, you might be able to refinance with no escrow; you can always try to negotiate this and make it a part of the contract. If they want your business, they might agree to that.", "title": "" }, { "docid": "450c8ae1359a23cf337b1a1817dd9c03", "text": "What options do I have? Realistically? Get a regular full time job. Work at it for a year or so and then see about buying a house. That said, I recently purchased a decent home. I am self-employed and my income is highly erratic. Due to how my clients pay me, my business might go a couple months with absolutely no deposits. However, I've been at this for quite a few years. So, even though my business income is erratic, I pay myself regularly once a month. In order to close the deal with the mortgage company I had to provide 5 years worth of statements on my business AND my personal bank accounts. Also I had about a 30% down payment. This gave the bank enough info to realize that I could absolutely make the payments and we closed the deal. I'd say that if you have little to no actual financial history, don't have a solid personal income and don't have much of a down payment then you probably have no business buying a house at this point. The first time something goes wrong (water heater, ac, etc) you'll be in a world of trouble.", "title": "" }, { "docid": "6c71772824094fe9bf7f68024218d142", "text": "There are programs out there which will let you refinance even when underwater, under the Government's HARP program. You are overpaying by nearly $7,000 per year compared to a refinance to 4.5%. A classic example of how the bubble hurt people who overextended themselves a bit as housing shot up. The bank risks a $50K loss if you default or short sell this property. I'd go in and sit down with a branch manager and ask what they can do to recast the loan to a lower rate as you are ready, wiling and able to keep the house and make your payments. Good luck.", "title": "" }, { "docid": "c81c3ab693664ad7f518315e463bdc63", "text": "Will citizens advice be able to help me, or am I only going to get told to seek legal advice anyway? They are just advisory. i.e. help/guide people. They are not responsible for any outcome. What can I do as I'm not the person who's made payment or been paid, but I also don't want to cause the estate agent lots of work from my mistake, but legally no bank will talk to me anyway. You are right. You estate agent would have to follow-up with banks [which you have already done]. Will I have to seek legal action or the estate agent? Once you follow-up with the Banks and the Ombudsman, you should proceed to legal. Legally if it is a mistake on your part, the beneficiary is NOT entitled to the money and has to refund it. However establishing this takes a while and hence most of the times beneficiary does not pay back the money that is not rightfully his.", "title": "" }, { "docid": "b11a00537c257f650ed6a54ae8d0c128", "text": "I'm not sure about your first two options. But given your situation, a variant of option three seems possible. That way you don't have to throw away your appraisal, although it's possible that you'll need to get some kind of addendum related to the repairs. You also don't have your liquid money tied up long term. You just need to float it for a month or two while the repairs are being done. The bank should be able to preapprove you for the loan. Note that you might be better off without the loan. You'll have to pay interest on the loan and there's extra red tape. I'd just prefer not to tie up so much money in this property. I don't understand this. With a loan, you are even more tied up. Anything you do, you have to work with the bank. Sure, you have $80k more cash available with the loan, but it doesn't sound like you need it. With the loan, the bank makes the profit. If you buy in cash, you lose your interest from the cash, but you save paying the interest on the loan. In general, the interest rate on the loan will be higher than the return on the cash equivalent. A fourth option would be to pay the $15k up front as earnest money. The seller does the repairs through your chosen contractor. You pay the remaining $12.5k for the downpayment and buy the house with the loan. This is a more complicated purchase contract though, so cash might be a better option. You can easily evaluate the difficulty of the second option. Call a different bank and ask. If you explain the situation, they'll let you know if they can use the existing appraisal or not. Also consider asking the appraiser if there are specific banks that will accept the appraisal. That might be quicker than randomly choosing banks. It may be that your current bank just isn't used to investment properties. Requiring the previous owner to do repairs prior to sale is very common in residential properties. It sounds like the loan officer is trying to use the rules for residential for your investment purchase. A different bank may be more inclined to work with you for your actual purchase.", "title": "" }, { "docid": "b97679e455babf6f40d25eba1bd3ad0c", "text": "The issuer of the service contract is making money. DO NOT buy these contracts. Self insure over your life time 40/60 years and you will save money.", "title": "" }, { "docid": "4a5d9fd18704adeef6278900266fbf8d", "text": "\"The comments are getting too much, but to verify that you are not insane, you are being bullied. It sounds like this is a sub-prime loan, of which you are wisely trying to get out of. It also sounds like they are doing everything in their power to prevent you from doing so. For them you are a very profitable customer. This might take some legwork for you, but depending on how bad they are violating the law they might be willing to forgive the loan. What I am trying to say, it might be very worth your while! Your first step will be looking for any free resources at your disposal: Just be cautious as many \"\"credit representation\"\" type business are only offering loan consolidation. That is not what you need. Fight those bastards!\"", "title": "" }, { "docid": "d3131fea694d5ac842c532e951554e55", "text": "\"I'm sorry to hear you've made a mistake. Having read the contract of sale we signed, I do not see any remedy to your current situation. However, I'm interested in making sure I do not take advantage of you. As such, I'll return the vehicle, you can return my money plus the bank fees I paid for the cashiers check, tax, title, and registration, and I will look at buying a vehicle from another dealership. This seems to be the most fair resolution. If I were to pay for your mistake at a price I did not agree to, it would not be fair to me. If you were to allow this vehicle to go to me at the price we agreed to, it wouldn't be fair to you. If I were to return the car and begin negotiations again, or find a different car in your lot, it would be difficult for us to know that you were not going to make a similar mistake again. At this point I consider the sale final, but if you'd prefer to have the vehicle back as-is, returning to us the money we gave you as well as the additional costs incurred by the sale, then we will do so in order to set things right. Chances are good you will see them back down. Perhaps they will just cut the additional payment in half, and say, \"\"Well, it's our mistake, so we will eat half the cost,\"\" or similar, but this is merely another way to get you to pay more money. Stand firm. \"\"I appreciate the thought, but I cannot accept that offer. When will you have payment ready so we can return the car?\"\" If you are firm that the only two solutions is to keep the car, or return it for a full refund plus associated costs, I'd guess they'd rather you keep the car - trust me, they still made a profit - but if they decide to have it returned, do so and make sure they pay you in full plus other costs. Bring all your receipts, etc and don't hand over the keys until you have the check in hand. Then go, gladly, to another dealership that doesn't abuse its customers so badly. If you do end up keeping the car, don't plan on going back to that dealership. Use another dealership for warranty work, and find a good mechanic for non-warranty work. Note that this solution isn't legally required in most jurisdictions. Read your contract and all documentation they provided at the time of sale to be sure, but it's unlikely that you are legally required to make another payment for a vehicle after the sale is finalized. Even if they haven't cashed the check, the sale has already been finalized. What this solution does, though, is put you back in the driver's seat in negotiating. Right now they are treating it as though you owe them something, and thus you might feel an obligation toward them. Re-asserting your relationship with them as a customer rather than a debtor is very important regardless of how you proceed. You aren't legally culpable, and so making sure they understand you aren't will ultimately help you. Further, dealerships operate on negotiation. The primary power the customer has in the dealership is the power to walk away from a deal. They've set the situation up as though you no longer have the power to walk away. They didn't threaten with re-possession because they can't - the sale is final. They presented as a one-path situation - you pay. Period. You do have many options, though, and they are very familiar with the \"\"walk away\"\" option. Present that as your chosen option - either they stick with the original deal, or you walk away - and they will have to look at getting another car off the lot (which is often more important than making a profit for a dealership) or selling a slightly used car. If they've correctly pushed the title transfer through (or you, if that's your task in your state) then your brief ownership will show up on carfax and similar reports, and instantly reduces the car's worth. Having the title transfer immediately back to the dealership doesn't look good to future buyers. So the dealership doesn't want the car back. They are just trying to extract more money, and probably illegally, depending on the laws in your jurisdiction. Reassert your position as customer, and decide now that you'll be fine if you have to return it and walk away. Then when you communicate that to them, chances are good they'll simply cave and let the sale stand as-is.\"", "title": "" }, { "docid": "393cfe7f63759aa40272e57c8141fe59", "text": "\"The long and short of it is, the mortgage company has a significant interest in the resale value of the home in the event of a default. Imagine a scenario where you say to yourselves that you're not going to repair the deck just yet (\"\"meh, we'll do that next summer\"\") and something happens that causes a default on the mortgage. The resale value of the home may be harmed by the deck, even though you're willing to live with it. That being the case, the mortgage company has every right to insist that you carry out the repairs in order to maintain the property in salable condition, so the essence of it is, you don't have much choice but to do the repairs. Keep in mind too that the insurance company paid for the roof and the deck to be repaired. If they were to learn that you now have no intention of using the money to repair the property, you could end up in legal hot water with them. After all, you did accept the check for repairs that you're now not carrying out.\"", "title": "" }, { "docid": "148f0f976110c67e4db7052db46b5637", "text": "\"Without all the details it's hard to tell what options you may have, but none of them are good. When you cosign you are saying that, you believe the primary signer will make good on the loan, but that if he doesn't you will. You are 100% responsible for this debt. As such, there are some actions you can take. First, really try to stress to your friend, that they need to get you outta this loan. Urge them to re-finance with out you if they can. Next look for \"\"better\"\" ways of defaulting on the loan and take them. Depending on what the loan is for you could deed-in-lue or short sale. You may just have to admit default. If you work with the bank, and try not to drag out the process, you will likely end up in a better place down the line. Also of importance is ownership. If you pay the loan, do you get ownership of the thing the loan was secured against? Usually not, but working with an attorney and the bank, maybe. For example, if it's a car, can the \"\"friend\"\" sign over the car to you, then you sell it, and reduce your debt. Basically as a cosigner, you have some rights, but you have all the responsibilities. You need to talk to an attorney and possibly the bank, and see what your options are. At this point, if you think the friend is not that much of a friend anymore, it's time to make sure that any conversation you have with them is recorded in email, or on paper.\"", "title": "" }, { "docid": "9eba7b4b42d5fbc2ded2082e426640d5", "text": "\"That is called \"\"substitution of collateral.\"\" And yes, it can be done, but only with consent of the lender. The \"\"best case\"\" for this kind of maneuver is if the second house is larger and more valuable than the first. Another possibility is that you have two mortgages on the first house and none on the second, and you want to move the second mortgage on the first house to the second one, effectively making it a \"\"first\"\" mortgage. In these instances, the lender has a clear incentive to allow a substitution of collateral, because the second one is actually better than the first one. The potential problem in your case, is if the second house were more expensive than the first house, you could not use the sale proceeds of the first house as to buy the second house without borrowing additional money. In that case, a possible solution would be to go back to the lender on your first house for a larger mortgage, with the proceeds of that mortgage being used to retire the earlier mortgage. Depending on your credit, payment record, etc. they might be willing to do this.\"", "title": "" } ]	fiqa
5d9d80845de04b5d65949a6f1938163c	How to make money from a downward European market?	[ { "docid": "734dc1eac022f461a30d9161d3e9296a", "text": "If you want to make money while European equities markets are crashing and the Euro itself is devaluing: None of these strategies are to be taken lightly. All involve risk. There are probably numerous ways that you can lose even though it seems like you should win. Transaction fees could eat your profits, especially if you have only a small amount of capital to invest with. The worst part is that they all involve timing. If you think the crash is coming next week, you could, say, buy a bunch of puts. But if the crash doesn't come for another 6 months, all of your puts are going to expire worthless and you've lost all of your capital. Even worse, if you sell short an index ETF this week in advance of next week's impending crash, and some rescue package arrives over the weekend, equity prices could spike at the beginning of the week and you'd be screwed.", "title": "" }, { "docid": "0eb21d9f6455f52ae8801d8e14bb77ec", "text": "Not a day goes by that someone isn't forecasting a collapse or meteoric rise. Have you read Ravi Batra's The Great Depression of 1990? The '90s went on to return an amazing 18.3%/yr compound growth rate for the decade. (The book sells for just over $3 with free Amazon shipping.) In 1987, Elaine Garzarelli predicted the crash. But went years after to produce unremarkable results. Me? I saw that 1987 was up 5% or so year on year (in hindsight , of course), and by just staying invested, I added deposits throughout the year, and saw that 5% return. What crash? Looking back now, it was a tiny blip. You need to be diversified in a way that one segment of the market falling won't ruin you. If you think the world is ending, you should make peace with your loved ones and your God, no investment advice will be of any value. (Nor will gold for that matter.)", "title": "" }, { "docid": "8a080e1c73376ec5140bfb8cd3a5182a", "text": "What you do is you create an infomercial where you sell a booklet about junk investments that you are absolutely certian may survive an end of the world scenerio. Then you sell that booklet to people who fear for their family. It is basically a tax on stupidity but works because it prays on the fears of the stupid. It requires moral bankruptcy, but you can end up with quite a bit of money... of course if the Euro does crash then you have a lot of worthless money.", "title": "" }, { "docid": "2711d8725581d1898abe86bccd10e2ea", "text": "Invest in solid companies, not in esoteric products built on sand. The problem is with finance, not with real economy: oil companies make money, mobile phone companies make money, airlines make money...", "title": "" }, { "docid": "746695f1ed40084921944d10b539c726", "text": "Trying to make money on something going down is inherently more complicated, risky and speculative than making money on it going up. Selling short allows for unlimited losses. Put options expire and have to be rebought if you want to keep playing that game. If you are that confident that the European market will completely crash (I'm not, but then again, I tend to be fairly contrarian) I'd recommend just sitting it out in cash (possibly something other than the Euro) and waiting until it gets so ridiculously cheap due to panic selling that it defies all common sense. For example, when companies that aren't completely falling apart are selling for less than book value and/or less than five times prior peak earnings that's a good sign. Another indicator is when you hear absolutely nothing other than doom-and-gloom and people swearing they'll never buy another stock as long as they live. Then buy at these depressed prices and when all the panic sellers realize that the world didn't end, it will go back up.", "title": "" }, { "docid": "1c66eb649353a9323ccb2f532281e3d6", "text": "If you are interested in short term trading and live in the UK you can do some Spread Betting. If you know what you are doing you can make money no matter which way the market is moving. Note that most people don't know what they are doing and lose their money pretty quickly.", "title": "" }, { "docid": "9dd846caff0d2863a2c27ba0c795985d", "text": "The best way to make money on a downward market is to buy at the bottom, sell at the top. Lather, rinse, repeat.", "title": "" } ]	[ { "docid": "43a9b92312ba34413f5070c89cd8da50", "text": "I live in europe but have been paid in usd for the last few years and the best strategy I've found is to average in and average out. i.e. if you are going in August then buy some Euro every few weeks until you go. At least this way you mitigate the risk involved somewhat.", "title": "" }, { "docid": "2946b37fe124978cc75eb71e8f0a2c12", "text": "\"A simple way to ask the question might be to say \"\"why can't I just use the same trick with my own shares to make money on the way down? Why is borrowing someone else's shares necessary to make the concept a viable one? Why isn't it just the inverse of 'going long'?\"\" A simple way to think about it is this: to make money by trading something, you must buy it for less than you sell it for. This applies to stocks like anything else. If you believe the price will go up, then you can buy them first and sell them later for a higher price. But if you believe the price will go down, the only way to buy low and sell high is to sell first and buy later. If you buy the stock and it goes down, any sale you make will lose you money. I'm still not sure I fully understand the point of your example, but one thing to note is that in both cases (i.e., whether you buy the share back at the end or not), you lost money. You say that you \"\"made $5 on the share price dropping\"\", but that isn't true at all: you can see in your example that your final account balance is negative in both cases. You paid $20 for the shares but only got $15 back; you lost $5 (or, in the other version of your example, paid $20 and got back $5 plus the depreciated shares). If you had bought the shares for $20 and sold them for, say, $25, then your account would end up with a positive $5 balance; that is what a gain would look like. But you can't achieve that if you buy the shares for $20 and later sell them for less. At a guess, you seem to be confusing the concept of making a profit with the concept of cutting your losses. It is true that if you buy the shares for $20 and sell them for $15, you lose only $5, whereas if you buy them for $20 and sell for $10, you lose the larger amount of $10. But those are both losses. Selling \"\"early\"\" as the price goes down doesn't make you any money; it just stops you from losing more money than you would if you sold later.\"", "title": "" }, { "docid": "bd73aefd86f04d3f7c589c41e3bfbaff", "text": "I'm currently using ecns to trade odd lot taxables. However, this is a market that some days produces big returns and some days the faucet is barely dripping. The constant uncertainly and having to go to work everyday to hunt is awesome but at the same time rather questionable in the long run. Any suggestions? I'm also looking to raise my current take home.", "title": "" }, { "docid": "0242f3b75c5f03501851593ad39b712b", "text": "A stock, bond or ETF is basically a commodity. Where you bought it does not really matter, and it has a value in USD only inasmuch as there is a current market price quoted at an American exchange. But nothing prevents you from turning around and selling it on a European exchange where it is also listed for an equivalent amount of EUR (arbitrage activities of investment banks ensure that the price will be equivalent in regard to the current exchange rate). In fact, this can be used as a cheap form of currency conversion. For blue chips at least this is trivial; exotic securities might not be listed in Europe. All you need is a broker who allows you to trade on European exchanges and hold an account denominated in EUR. If necessary, transfer your securities to a broker who does, which should not cost more than a nominal fee. Mutual funds are a different beast though; it might be possible to sell shares on an exchange anyway, or sell them back to the issuer for EUR. It depends. In any case, however, transferring 7 figure sums internationally can trigger all kinds of tax events and money laundering investigations. You really need to hire a financial advisor who has international investment experience for this kind of thing, not ask a web forum!", "title": "" }, { "docid": "76ac0ccef92f402277009b4b0bb59ed5", "text": "I have an opposite view from all the other contributions here. Why not consider starting your own business. With the little money you have the return will most times be much higher than stocks return. The business is yours; you keep the business and the profit streams in the long term. Simply find businesses you can even start with a 100 or 200 euros and keep the rest with your bank. this is a sure way to become millionaire my friends.", "title": "" }, { "docid": "b346ac30ad1dc6e6710e573670fca002", "text": "Gundlach shared a chart that showed how investors in European “junk” bonds are willing to accept the same no-default return as they are for U.S. Treasury bonds. In other words, the yield on European “junk” bonds is about the same—between 2 percent and 3 percent—as the yield on U.S. Treasuries, even though the risk profile of the two could not be more different. Sounds like a strong indicator to me. How might this play out in the US?", "title": "" }, { "docid": "45c3cb28491d6b35f3219f442d3100a6", "text": "\"These have the potential to become \"\"end-of-the-world\"\" scenarios, so I'll keep this very clear. If you start to feel that any particular investment may suddenly become worthless then it is wise to liquidate that asset and transfer your wealth somewhere else. If your wealth happens to be invested in cash then transferring that wealth into something else is still valid. Digging a hole in the ground isn't useful and running for the border probably won't be necessary. Consider countries that have suffered actual currency collapse and debt default. Take Zimbabwe, for example. Even as inflation went into the millions of percent, the Zimbabwe stock exchange soared as investors were prepared to spend ever-more of their devaluing currency to buy stable stocks in a small number of locally listed companies. Even if the Euro were to suffer a critical fall, European companies would probably be ok. If you didn't panic and dig caches in the back garden over the fall of dotcom, there is no need to panic over the decline of certain currencies. Just diversify your risk and buy non-cash (or euro) assets. Update: A few ideas re diversification: The problem for Greece isn't really a euro problem; it is local. Local property, local companies ... these can be affected by default because no-one believes in the entirety of the Greek economy, not just the currency it happens to be using - so diversification really means buying things that are outside Greece.\"", "title": "" }, { "docid": "20a7eb90fb4fb80f4664b2eeed2ac630", "text": "First, I want to point out that your question contains an assumption. Does anyone make significant money trading low volume stocks? I'm not sure this is the case - I've never heard of a hedge fund trading in the pink sheets, for example. Second, if your assumption is valid, here are a few ideas how it might work: Accumulate slowly, exit slowly. This won't work for short-term swings, but if you feel like a low-volume stock will be a longer-term winner, you can accumulate a sizable portion in small enough chunks not to swing the price (and then slowly unwind your position when the price has increased sufficiently). Create additional buyers/sellers. Your frustration may be one of the reasons low-volume stock is so full of scammers pumping and dumping (read any investing message board to see examples of this). If you can scare holders of the stock into selling, you can buy significant portions without driving the stock price up. Similarly, if you can convince people to buy the stock, you can unload without destroying the price. This is (of course) morally and legally dubious, so I would not recommend this practice.", "title": "" }, { "docid": "42c61a2744cf88cd86fad3c9d4b20d07", "text": "(buy these when you expect the price to go down) You 'lock in' the price you can sell at. If the price goes down below the 'locked-in' price, you buy at the new low price and sell at the higher 'locked-in' price; make money. (buy these when you expect the price to go up) You 'lock in' the price you can buy at. If the price goes up above the 'locked-in' price, you buy at the 'locked-in' price and sell at the new higher price, make money.", "title": "" }, { "docid": "455ceacc14850079dda8e7f4e7bd571d", "text": "I've been short the Euro for several months now against the USD (could be various others as well). I got in at 1.42, sold on a bounce up to 1.36, bought back at 1.38 and now will probably ride it out lower. Regardless of whether or not the Eurozone breaks up, I see it breaking through the 1.30 mark in the near-term. After that, I'm not sure how low it goes, but there is certainly potential for it to head towards 1/1. In order to reduce the burden, the ECB needs to devalue the currency. Although Germany really doesn't want this due to their anti-inflationary ideology, if Italy comes crashing down, so does France. When France goes, Germany goes into a deep recession if not a depression. They have to devalue some. As for a collapse, I have no idea. It probably depends on how many (if any) countries retain the currency and who they are.", "title": "" }, { "docid": "1d0e9fb5f53f1cbe07f842216fc89322", "text": "\"to answer the question in the title of your post... + convince your fellow Euro nations to accept austerity, + convince them to elect responsible governments, + demand transparency from your leaders, and... + make sure this never ever happens again. Alternatively, build a time machine and go back in time to either... + immigrate to another part of the world, + sabotage the corruption of the PIGS nations, + prevent the formation of a shared currency, or finally, + do something to ensure Germany didn't lose WWII, as letting them be in charge of everybody's money would appear to be a sound financial decision. That is how you negate the impact of the Euro collapsing. Now, on to the details of your question... I believe your initial assessment is correct. If one accountable nation were responsible for the solvency of its currency, it could be trusted indefinitely. As is the case with the Euro, as no one country is directly responsible for it, the less responsible governments are in a race to exploit it as much as possible. Remember, \"\"Spain no es Zimbabwe!\"\" I think Euro zone nations will be lucky if all that comes of this is the fall of the Euro. Wars between nations have been fought over less significant developments than what Greece, Italy and Spain have done to the financial stability of their Euro zone counterparts. Foreign gold trusts, possession of physical precious metals and precious metal ETFs (GLD is one stock ticker of such a fund, although I would look to a similar fund issued by a company with better physical gold audits) can hedge your currency risk. Check with local laws regarding physical possession of gold. In the USA when we left the gold standard for our currency, the government confiscated all privately owned precious metals and raided customer bank security boxes. Assess your own risk of that sort of thing happening.\"", "title": "" }, { "docid": "531b4168ddf30bcc15f30b86c0f9b4e3", "text": "You could buy Bitcoins. They are even more deflationary than Swiss Francs. But the exchange rate is currently high, and so is the risk in case of volatility. So maybe buy an AltCoin instead. See altcoin market capitalization for more information. Basically, all you'd be doing is changing SwissFrancs into Bitcoin/AltCoin. You don't need a bank to store it. You don't need to stockpile cash at home. Stays liquid, there's no stock portfolio (albeit a coin portfolio), unlike in stocks there are no noteworthy buy and sell commissions, and the central bank can't just change the bills as in classic-cash-currency. The only risk is volatility in the coin market, which is not necessarely a small risk. Should coins have been going down, then for as long as you don't need that money and keep some for everyday&emergency use on a bank account, you can just wait until said coins re-climb - volatility goes both ways after all.", "title": "" }, { "docid": "9022ca35c72304a2ec71658907353a47", "text": "\"I would just buy one ETF (index-fund) on the market you think will perform better. It will take care to buy the 5 most solid stock in this market and many other more to reduce the risk to the bear minimum. You will also spend only few bucks in comissions, definitely less than what you would spend buying multiple stocks (even just 5). It's hard enough to forecast which market will perform better, it's even harder to do stock picking unless you have the time and the knowledge to read into companies' balance sheets/economic incomes/budgets/market visions etc. And even if you are great in reading into companies balance sheets/economic incomes/budgets, the stock market usually behaves like a cows' drove, therefor even if you choosed the most valuable solid stocks, be prepared to see them run down even a 50% when all the market runs down a 50%. During the 2008 crisis the Europe market has lost a 70%, and even the most solid sectors/stocks like \"\"Healthcare\"\" and \"\"Food & Beverage\"\" lost a painful 40% to 50% (true that now these sectors recovered greatly compared to the rest of the market, but they still run down like cows during the crisis, and if you holded them you would have suffered a huge pain/stress). But obviously there's always some profet/wizard which will later tell you he was able to select the only 5 stocks among thousands that performed well.\"", "title": "" }, { "docid": "68307d5be9ffcdcde08545453139e73a", "text": "\"Buying physical gold: bad idea; you take on liquidity risk. Putting all your money in a German bank account: bad idea; you still do not escape Euro risk. Putting all your money in USD: bad idea; we have terrible, terrible fiscal problems here at home and they're invisible right now because we're in an election year. The only artificially \"\"cheap\"\" thing that is well-managed in your part of the world is the Swiss Franc (CHF). They push it down artificially, but no government has the power to fight a market forever. They'll eventually run out of options and have to let the CHF rise in value.\"", "title": "" }, { "docid": "fe72286db97efd593f55374538a2eb10", "text": "\"Most markets around the world have been downtrending for the last 6 to 10 months. The definition of a downtrend is lower lows and lower highs, and until you get a higher low and confirmation with a higher high the downtrend will continue. If you look at the weekly charts of most indexes you can determine the longer term trend. If you are more concerned with the medium term trend then you could look at the daily charts. So if your objective is to try and buy individual stocks and try to make some medium to short term profits from them I would start by first looking at the daily charts of the index your stock belongs to. Only buy when the intermediate trend of the market is moving up (higher highs and higher lows). You can do some brief analysis on the stocks your interested in buying, and two things I would add to the short list in your question would be to check if earnings are increasing year after year. The second thing to look at would be to check if the earnings yield is greater than the dividend yield, that way you know that dividends are being paid out from current earnings and not from previous earning or from borrowings. You could then check the daily charts of these individual stocks and make sure they are uptrending also. Buy uptrending stocks in an uptrending market. Before you buy anything write up a trading plan and develop your trading rules. For example if price breaks through the resistance line of a previous high you will buy at the open of the next day. Have your money management and risk management rules in place and stick to your plan. You can also do some backtesting or paper trading to check the validity of your strategy. A good book to read on money and risk management is - \"\"Trade your way to Financial Freedom\"\" by Van Tharp. Your aim should not be to get a winner on every trade but to let your winners run and keep your losses small.\"", "title": "" } ]	fiqa
7b7954e3afe477f5d1edf077bc586854	How does the price of oil influence the value of currency?	[ { "docid": "be5a343ff06889ca387adaed1aed3f15", "text": "From an investor's standpoint, if the value of crude oil increases, economies that are oil dependent become more favourable (oil companies will be more profitable). Therefore, investors will find that country's currency more attractive in the foreign exchange market.", "title": "" }, { "docid": "c6f6b991db212603d74dbba5aac2305f", "text": "Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?", "title": "" } ]	[ { "docid": "bd8b84e461d61c7f379907a7ed788f9e", "text": "\"My question boiled down: Do stock mutual funds behave more like treasury bonds or commodities? When I think about it, it seems that they should respond the devaluation like a commodity. I own a quantity of company shares (not tied to a currency), and let's assume that the company only holds immune assets. Does the real value of my stock ownership go down? Why? On December 20, 1994, newly inaugurated President Ernesto Zedillo announced the Mexican central bank's devaluation of the peso between 13% and 15%. Devaluing the peso after previous promises not to do so led investors to be skeptical of policymakers and fearful of additional devaluations. Investors flocked to foreign investments and placed even higher risk premia on domestic assets. This increase in risk premia placed additional upward market pressure on Mexican interest rates as well as downward market pressure on the Mexican peso. Foreign investors anticipating further currency devaluations began rapidly withdrawing capital from Mexican investments and selling off shares of stock as the Mexican Stock Exchange plummeted. To discourage such capital flight, particularly from debt instruments, the Mexican central bank raised interest rates, but higher borrowing costs ultimately hindered economic growth prospects. The question is how would they pull this off if it's a floatable currency. For instance, the US government devalued the US Dollar against gold in the 30s, moving one ounce of gold from $20 to $35. The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it was stored in United States Bullion Depository at Fort Knox and other locations. The act also changed the nominal price of gold from $20.67 per troy ounce to $35. But now, the US Dollar is not backed by anything, so how do they devalue it now (outside of intentionally inflating it)? The Hong Kong Dollar, since it is fixed to the US Dollar, could be devalued relative to the Dollar, going from 7.75 to 9.75 or something similar, so it depends on the currency. As for the final part, \"\"does the real value of my stock ownership go down\"\" the answer is yes if the stock ownership is in the currency devalued, though it may rise over the longer term if investors think that the value of the company will rise relative to devaluation and if they trust the market (remember a devaluation can scare investors, even if a company has value). Sorry that there's too much \"\"it depends\"\" in the answer; there are many variables at stake for this. The best answer is to say, \"\"Look at history and what happened\"\" and you might see a pattern emerge; what I see is a lot of uncertainty in past devaluations that cause panics.\"", "title": "" }, { "docid": "20f5e8dda815a97019c151c8a937f3d1", "text": "\"Overall, since gold has value in any currency (and is sort of the ultimate reserve currency), why would anyone want to currency hedge it? Because gold is (mostly) priced in USD. You currency hedge it to avoid currency risk and be exposed to only the price risk of Gold in USD. Hedging it doesn't mean \"\"less speculative\"\". It just means you won't take currency risk. EDIT: Responding to OP's questions in comment what happens if the USD drops in value versus other major currencies? Do you think that the gold price in USD would not be affected by this drop in dollar value? Use the ETF $GLD as a proxy of gold price in USD, the correlation between weekly returns of $GLD and US dollar index (measured by major world currencies) since the ETF's inception is around -47%. What this says is that gold may or may not be affected by USD movement. It's certainly not a one-way movement. There are times where both USD and gold rise and fall simultaneously. Isn't a drop in dollar value fundamentally currency risk? Per Investopedia, currency risk arises from the change in price of one currency in relation to another. In this context, it's referring to the EUR/USD movement. The bottom line is that, if gold price in dollar goes up 2%, this ETF gives the European investor a way to bring home that 2% (or as close to that as possible).\"", "title": "" }, { "docid": "53a33eed609d2c59d67a43cc281aea4f", "text": "There are various indexes on the stock market that track the currencies. Though it is different than Forex (probably less leverage), you may be able to get the effects you're looking for. I don't have a lot of knowledge in this area, but looked some into FXE, to trade the Euro debt crisis. Here's an article on Forex, putting FXE down (obviously a biased view, but perhaps will give you a starting point for comparison, should you want to trade something specific, like the current euro/dollar situation).", "title": "" }, { "docid": "373405496876cbac2dcdeaea58cecc4b", "text": "\"Anthony Russell - I agree with JohnFx. Petroleum is used in making many things such as asphalt, road oil, plastic, jet fuel, etc. It's also used in some forms of electricity generation, and some electric cars use gasoline as a backup form of energy, petrol is also used in electricity generation outside of cars. Source can be found here. But to answer your question of why shares of electric car companies are not always negatively related to one another deals with supply and demand. If investors feel positively about petroleum and petroleum related prospects, then they are going to buy or attempt to buy shares of \"\"X\"\" petrol company. This will cause the price of \"\"X\"\", petrol company to rise, ceteris paribus. Just because the price of petroleum is high doesn't mean investors are going to buy shares of an electric car company. Petrol prices could be high, but numerous electric car companies could be doing poorly, now, with that being said you could argue that sales of electric cars may go up when petrol prices are high, but there are numerous factors that come into play here. I think it would be a good idea to do some more research if you are planning on investing. Also, remember, after a company goes public they no longer set the price of the shares of their stock. The price of company \"\"X\"\" shares are determined by supply and demand, which is inherently determined by investors attitudes and expectations, ultimately defined by past company performance, expectations of future performance, earnings, etc.. It could be that when the market is doing well - it's a good sign of other macroeconomic variables (employment, GDP, incomes, etc) and all these factors power how often individuals travel, vacation, etc. It also has to deal with the economy of the country producing the oil, when you have OPEC countries selling petrol to the U.S. it is likely much cheaper per barrel than domestic produced and refined petrol because of the labor laws, etc. So a strong economy may be somewhat correlated with oil prices and a strong market, but it's not necessarily the case that strong oil prices drive the economy..I think this is a great research topic that cannot be answered in one post.. Check this article here. From here you can track down what research the Fed of Cleveland has done concerning this. My advice to you is to not believe everything your peers tell you, but to research everything your peers tell you. With just a few clicks you can figure out the legitimacy of many things to at least some degree.\"", "title": "" }, { "docid": "1ebda2a7bb0b077f8bc29ca0eb874729", "text": "Yes, this phenomenon is well documented. A collapse of an economy's exchange rate is coincidented with a collapse in its equities market. The recent calamities in Turkey, etc during 2014 had similar results. Inflation is highly correlated to valuations, and a collapse of an exchange rate is highly inflationary, so a collapse of an exchange rate is highly correlated to a collapse in valuations.", "title": "" }, { "docid": "cef4fa3efefe86f85f703ff4e020704f", "text": "\"If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market. Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$. To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180) GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500) From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio \"\"s\"\" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold. So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist.\"", "title": "" }, { "docid": "942a3f398e3d98d215c135e3a7153627", "text": "\"From my limited experience with foreign exchange... Money is a commodity.. people buy it and sell it like other products.. if \"\"money\"\" is in demand the price goes up.. this is the case when a countries stocks are hot, and you need to purchase that countries currency to buy that stock... I've also seen the currency rise on news and speculation. Many years ago, I administered foreign receivables... My job was to settle letters of credit from Britain... I remember on one ocassion Margaret Thatcher said something to upset the markets.. her remark caused the price of the UK pound to fluctuate.\"", "title": "" }, { "docid": "08f30ae13d4446f5989046359125f7c2", "text": "One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.", "title": "" }, { "docid": "9f910dd25fe2c3ef06ed799d1f813b10", "text": "\"It's very hard to measure the worth of an abstract concept like money, particularly over long periods of time. In the modern era we have things like the Consumer Price Index (CPI) in the United States, where the Bureau of Labor Statistics literally sends \"\"shoppers\"\" out to find prices of things and surveys people to find out what they buy. This results in a variety of \"\"indexes\"\" which variously get reported by media outlets as \"\"inflation\"\" (or \"\"deflation\"\" if the change in value goes the other way). There are also other measurements available like the MIT Billion Prices Project which attempt to make their own reading of the \"\"worth\"\" of currencies. Those kinds of things are about the only ways to measure a currency's change in \"\"value to itself\"\" because a currency is basically only worth what one can buy with it. While it isn't \"\"all the world's currencies combined\"\", there is a concept of the International Monetary Fund's \"\"Special Drawing Rights (SDR)\"\", which is a basket of five currencies used by world central banks to help \"\"back\"\" each other's currencies, and is (very) occasionally used as a unit of currency for international contracts. One might be able to compare the price of one currency to that of the SDR, or even to any other weighted average of world currencies that one wanted, but I don't think it's done nearly as often as comparing currencies to the basket of goods one can buy to find \"\"inflation\"\". Even though one might think what would be important to measure would be overall Money Supply Inflation, much more often people care more about measuring Price Inflation. (Occasionally people worry about Wage Inflation, but generally that's considered a result of high Price Inflation.) In order to try to keep this on topic as a \"\"personal finance\"\" thing rather than an \"\"economics\"\" thing, I guess the question is: Why do you want to know? If you have some assets in a particular currency, you probably care most about what you'll be able to buy with them in the future when you want or need to spend them. In that sense, it's inflation that you're likely caring about the most. If you're trying to figure out which currency to keep your assets in, it largely depends on what currency your future expenses are likely to be in, though I can imagine that one might want to move out of a particular currency if there's a lot of political instability that you're expecting to lead to high inflation in a currency for a time.\"", "title": "" }, { "docid": "aa44f765e5a2f38704d6cc8e004c6e7c", "text": "Most of the gold prices at international markets are USD denominated. Hence the prices would be same in international markets where large players are buying and selling. However this does not mean that the prices to the individuals in local markets is same. The difference is due to multiple things like cost of physical delivery, warehousing, local taxation, conversion of Local currency to USD etc. So in essence the price of Gold is similar to price of Crude Oil. The price of Oil is more or less same on all the markets exchanges, though there is small difference this is because of the cost of delivery/shipment which is borne by the buyer. However the cost of Oil to retail individual varies from country to country.", "title": "" }, { "docid": "a563599240df32f6f33488f04190e1bb", "text": "Yes. When the currency of a country appreciates, it benefits some groups and disadvantages others. In particular, exporters suffer when a currency increases in value relative to other countries. In a country like the US, where exporters are small relative to the economy, this isn't a big deal. In germany, where exporters make up a big part of the economy, a currency increasing in value leads to large numbers of layoffs and other negative net effects to the economy.", "title": "" }, { "docid": "bc3847d8114169b949d9e465c019279a", "text": "That value differs between a starving man and a man who never fears lack of food. Let's take, instead, the value of your mother's affection. Were you to have to pay for that affection, for her hugs, they would lose value. Offering a price makes her affection worth LESS. Therefore value is not tied to currency, nor is value indelibly tied to Capitalism. Trading capital for your mother's affection negates the value of the affection.", "title": "" }, { "docid": "3f97d35bd94c664205c2929914af3cc9", "text": "Stocks, gold, commodities, and physical real estate will not be affected by currency changes, regardless of whether those changes are fast or slow. All bonds except those that are indexed to inflation will be demolished by sudden, unexpected devaluation. Notice: The above is true if devaluation is the only thing going on but this will not be the case. Unfortunately, if the currency devalued rapidly it would be because something else is happening in the economy or government. How these asset values are affected by that other thing would depend on what the other thing is. In other words, you must tell us what you think will cause devaluation, then we can guess how it might affect stock, real estate, and commodity prices.", "title": "" }, { "docid": "a857c7fd17b6e619da8d93a365390bd1", "text": "The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.", "title": "" }, { "docid": "6affe05bdebd9125b9c8e5dc36920781", "text": "\"if you have 401k with an employer already, has the following features: Your contributions are taxed That's only true if you're a high income earner. https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work For example, married filing jointly allows full deduction up to $99,000 even if you have a 401(k). \"\"the timing is just different\"\" And that's a good thing, since if your retirement tax rate is less than your current tax rate, you'll pay less tax on that money.\"", "title": "" } ]	fiqa
8c3aa436f69a09498114e411fa3367bf	Considering buying a house in town with few major employers (economic stability)	[ { "docid": "c0c5c193b74f257a8d808dd4ef685225", "text": "It seems pretty clear to me that one of two things will happen regarding your local housing market: Personally, I'd hold out until either 1 or 2 happens, and then buy. (Assuming you plan to stay in your town regardless.) If you wait you'll end up with either a stronger investment or a big discount.", "title": "" }, { "docid": "6950d92f340ffdb328d15afac8299aba", "text": "BLUF: Continue renting, and work toward financial independence, you can always buy later if your situation changes. Owning the house you live in can be a poor investment. It is totally dependent on the housing market where you live. Do the math. The rumors may have depressed the market to the point where the houses are cheaper to buy. When you do the estimate, don't forget any homeowners association fees and periodic replacement of the roof, HVAC system and fencing, and money for repairs of plumbing and electrical systems. Calculate all the replacements as cost over the average lifespan of each system. And the repairs as an average yearly cost. Additionally, consider that remodeling will be needful every 20 years or so. There are also intangibles between owning and renting that can tip the scales no matter what the numbers alone say. Ownership comes with significant opportunity and maintenance costs and is by definition not liquid, but provides stability. As long as you make your payments, and the government doesn't use imminent domain, you cannot be forced to move. Renting gives you freedom from paying for maintenance and repairs on the house and the freedom to move with only a lease to break.", "title": "" } ]	[ { "docid": "ff1b45edc4eca37b570b308f78dab670", "text": "\"The house that sells for $200,000 might rent for a range of monthly numbers. 3% would be $6000/yr or $500/mo. This is absurdly low, and favors renting, not buying. 9% is $1500/mo in which case buying the house to live in or rent out (as a landlord) is the better choice. At this level \"\"paying rent\"\" should be avoided. I'm simply explaining the author's view, not advocating it. A quote from the article - annual rent / purchase price = 3% means do not buy, prices are too high annual rent / purchase price = 6% means borderline annual rent / purchase price = 9% means ok to buy, prices are reasonable Edit to respond to Chuck's comment - Mortgage rates for qualified applicants are pretty tight from low to high, the 30 year is about 4.4% and the 15, 3.45%. Of course, a number of factors might mean paying more, but this is the average rate. And it changes over time. But the rent and purchase price in a given area will be different. Very different based on location. See what you'd pay for 2000 sq feet in Manhattan vs a nice town in the Mid-West. One can imagine a 'heat' map, when an area might show an $800 rent on a house selling for $40,000 as a \"\"4.16\"\" (The home price divided by annual rent) and another area as a \"\"20\"\", where the $200K house might rent for $1667/mo. It's not homogeneous through the US. As I said, I'm not taking a position, just discussing how the author formulated his approach. The author makes some assertions that can be debatable, e.g. that low rates are a bad time to buy because they already pushed the price too high. In my opinion, the US has had the crash, but the rates are still low. Buying is a personal decision, and the own/rent ratios are only one tool to be added to a list of factors in making the decision. Of course the article, as written, does the math based on the rates at time of publication (4%/30years). And the ratio of income to mortgage one can afford is tied to the current rate. The $60K couple, at 4%, can afford just over a $260K mortgage, but at 6%, $208K, and 8%, $170K. The struggle isn't with the payment, but the downpayment. The analysis isn't too different for a purchase to invest. If the rent exceeds 1% of the home price, an investor should be able to turn a profit after expenses.\"", "title": "" }, { "docid": "95213e824822aad6bd798e86cb0ef1b6", "text": "Amazon was a terrible addition to town. They sprouted condo towers and congestion in South Lake Union, then shipped in interns and employees who live in dorms and eat in the company cafeteria during their two waking that they are not at work. These people don't even take transit. There is near zero benefit unless you're a landlord downtown and enjoy the increase in rents.", "title": "" }, { "docid": "4868ceb88a6bd253ef1d6e26028246ad", "text": "I'm confused why you think you need a $450k house. That seems extremely high in today's market except perhaps in certain major urban locations. If you're going to live in suburbia or a smaller town/city, you should be able to find a nice 3br house for well under $300k. Before you rule out buying a house, I'd spend some time researching the real estate listings in your area, foreclosures, properties owned by bankruptcy court, etc. - you might be surprised to find a great home for as low as $150-200k. Of course if you live in a place where what I'm saying is completely off-base, please disregard my answer.", "title": "" }, { "docid": "0102625e19f34c53b32cd07f2edc0bfe", "text": "For me there are two issues. So, what to do? You have the basics of a very strong position coming together. A good salary in a good city. I'd be patient and work on consolidating my position for another year to 18 months (including building a rainy day fund) and look to buy then.", "title": "" }, { "docid": "0e11ca85524b85f798be8af25214f87d", "text": "Over the last ten years you have reaped the benefits of a good financial decision. (Presumably your low mortgage has freed up money for other financial priorities.) There would be no harm in making a clean break by selling as is. On the other hand, the resale value would probably be rather low considering the condition and the neighborhood. I don't want to assume too much here, but if a potential buyer is interested in the house by virtue of not being able to afford a house in a better neighborhood or better condition, their finances and credit history may make it difficult for them to be approved for a mortgage. That would reduce the potential buyer pool and further reduce the sale price. If you can pull more in rent than the mortgage, you definitely have an opportunity to come ahead. Maybe window A/C units and a repaired chimney are enough if you're renting. Your rental income would pay for that in less than a year even while paying your mortgage for you. (Of course you don't want to become a sleazy slumlord either.)", "title": "" }, { "docid": "e4f81a0e0901c815c3775b9638c257a6", "text": "The only real option (long-term) is for businesses to move to other areas and re-distribute the population, which would allow for cheaper areas/homes to become viable options. This has actually begun to happen really, not many people may be aware yet of what's occurring in Nevada today. Apple just joined Tesla and Switch in announcing billion dollar investments in Virginia City, Nevada. Google also made huge land purchases. The tech population has begun moving into cheaper areas already and many people will follow, to cheaper homes and lower costs of living. All people are to blame for this real estate situation, everyone is just looking out for themselves and they are all concentrating in specific areas - naturally costs will rise. Re-distributing the population geographically (businesses + wealth) will relieve this kind of stress happening in focused areas.", "title": "" }, { "docid": "3eff2d19c29b1c7d18c9fb810330fac4", "text": "\"Welcome to Money.SE, and thank you for your service. In general, buying a house is wise if (a) the overall cost of ownership is less than the ongoing cost to rent in the area, and (b) you plan to stay in that area for some time, usually 7+ years. The VA loan is a unique opportunity and I'd recommend you make the most of it. In my area, I've seen bank owned properties that had an \"\"owner occupied\"\" restriction. 3 family homes that were beautiful, and when the numbers were scrubbed, the owner would see enough rent on two units to pay the mortgage, taxes, and still have money for maintenance. Each situation is unique, but some \"\"too good to be true\"\" deals are still out there.\"", "title": "" }, { "docid": "933d4d77ab71aaf0bdb5e1d198ab6f1b", "text": "When I bought my own place, mortgage lenders worked on 3 x salary basis. Admittedly that was joint salary - eg you and spouse could sum your salaries. Relaxing this ratio is one of the reasons we are in the mess we are now. You are shrewd (my view) to realise that buying is better than renting. But you also should consider the short term likely movement in house prices. I think this could be down. If prices continue to fall, buying gets easier the longer you wait. When house prices do hit rock bottom, and you are sure they have, then you can afford to take a gamble. Lets face it, if prices are moving up, even if you lose your job and cannot pay, you can sell and you have potentially gained the increase in the period when it went up. Also remember that getting the mortgage is the easy bit. Paying in the longer term is the really hard part of the deal.", "title": "" }, { "docid": "05fe48493991c5b36b90932e2b37f540", "text": "Some highly pessimistic things worth noting to go alongside all the stability and tax break upside that homes generally provide: Negative equity is no joke and basically the only thing that bankrupts the middle classes consistently en masse. The UK is at the end of a huge housing bull run where rents are extremely cheap relative to buying (often in the 1% range within the M25), Brexit is looming and interest rates could well sky rocket with inflation. Borrowing ~500k to buy a highly illiquid asset you might have to fire sale in case of emergency/job loss etc for 300k in a few years when lots of (relatively) cheap rental housing is available to rent risk free, could be argued to be a highly lopsided and dangerous bet vs the alternatives. Locking in 'preferential' mortgage rates can be a huge trap: low interest rates generally increase asset values. If/when they rise, assets fall in value as the demand shrinks, making you highly exposed to huge losses if you need to sell before it is paid off. In the case of housing this can be exceptionally vicious as the liquidity dramatically dries up during falls, meaning fire sales become much more severe than they are for more liquid assets like stock. Weirdly and unlike most products, people tend to buy the very best house they can get leverage for, rather than work out what they need/want and finding the best value equivalent. If a bank will lend you £20 a day to buy lunch, and you can just afford to pay it, do you hunt out the very best £20 lunch you can every day, or do you make some solid compromises so you can save money for other things etc? You seem to be hunting very close to the absolute peak amount you can spend on these numbers. Related to above, at that level of mortgage/salary you have very little margin for error if either of you lose jobs etc. Houses are much more expensive to maintain/trade than most people think. You spend ~2-5% every time you buy and sell, and you can easily spend 2-20k+ a year depending what happens just keeping the thing watertight, paid for, liveable and staying up. You need to factor this in and be pessimistic when you do. Most people don't factor in these costs to the apparent 'index' rise in house values and what they expect to sell for in x years. In reality no buy and hold investor can ever realise even close to the quoted house price returns as they are basically stocks you have to pay 5% each time you buy or sell and then 1-20% percent a year to own - they have to rise dramatically over time for you to even break even after all the costs. In general you should buy homes to make memories, not money, and to buy them at prices that don't cause you sleepless nights in case of disasters.", "title": "" }, { "docid": "910af6955795603ab97b04e074e1c735", "text": "It is a decent time to purchase real estate despite dsquid's opinion. I feel dsquid is falling for the old economic psychology of what ever direction its going it will continuing in that direction, which is a bad mentality for any investing (up or down). This may not be the bottom, and there is some sign that another dip is coming with in a year or two. But if you purchase now, and focus on a few key factors you may end up on the upside of the swing. First and foremost location matters more then value of the property. When the pent up demand is eventually released (after we get employment moving in the right direction) you will see a land grab. The first and highest valued places are those with nice neighborhoods and good schools as the young families (economically unburdened) start making homes. Second pay attention to valuation in so much as your burden. This means consider taxes and mortgage and terms of mortgage (stay away from variable or balloon rates). When thing go up the interest rates will lead the way. In this time of uncertainty you should make sure you can cover your mortgage payment with ease. Put plenty down (20% being the recommended to avoid mortgage insurance and long term costs) and shoot low on price. If you're handy you may even consider buying something that needs minor work (outdated kitchen or the like). If you shoot lower then your limit, then you'll be comfortable even if things turn sour for you. Ultimately all this hinges on what you want to do with the property. Its a wise time to buy homes today where you will be able to rent them out tomorrow. But the important thing is aim in the middle instead of at your limit (450 is definitely your limit). Remember banks will always tell you that you're able to afford twice as much as you actually should. And keep in mind, no matter how new or nice the home, it will need work at some point and that costs. So you should have that in mind when you consider savings. Based on your information I wouldnt shoot higher then 250-300k. I have friends who make your salary in dividends plus two incomes and they are comfortable in their home at its 250 price. They are able to afford repairs and upgrade regularly and arent threatened by potential tax hikes (though they gripe of course). The one good piece of advice from dsquid IMHO is that you should be ready for the environment to change. Higher interests rates will weigh on your comfort as much as CPI and increased taxes will so plan for them to be much higher and you'll be ahead of the game.", "title": "" }, { "docid": "c02bdf6aeb4bfdfa3d5984e2b27f6d83", "text": "If there are a lot of houses for sale, can you be sure that in a year or two you can sell yours? How long does the average house in that area stay on the market before it is sold? What percentage of houses never get sold? If it can't be sold due to the crowded market you will be forced to rent the house. The question for you then is how much rental income can you get? Compare the rental income to your monthly cost of owning, and managing the house. One benefit to buying a house in a market that is easy to rent a house would be if you are forced to move quickly, then you aren't stuck being 3 months into a 12 month lease. Keep in mind that markets can change rather dramatically in just a few years. Housing costs were flat for much of the 90's, then rocketed up in the first half of the last decade, and after a big drop, they are one a slow climb back up. But the actual path they are on depends on the part of the US you are in. The rule of thumb in the past was based on the fact that over a few years the price would rise enough overcome the closing costs on the two transactions. Unfortunately the slow growth in the 90's meant that many had to bring checks to closing because the equity gained wasn't enough to overcome the closing costs due to low down payment loans. The fast growth period meant that people got into exotic loans to maximize the potential income when prices were going up 10-20% a year. When prices dropped some found that they bought houses they couldn't afford, but couldn't sell to break even on the transaction. They were stuck and had to default on the mortgage. In fact I have never seen a time frame when the rule of thumb ever applied.", "title": "" }, { "docid": "b214c21bfffcc07a9824cab573471df1", "text": "That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include: Pros: If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires. Cons: If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth.", "title": "" }, { "docid": "1ae3cb543558e6c150f706998416094c", "text": "You want to buy a house for $150,000. It may be possible to do this with $10,000 and a 3.5% downpayment, but it would be a lot better to have $40,000 and make a 20% downpayment. That would give you a cushion in case house prices fall, and there are often advantages to a 20% downpayment (lower rate; less mandatory insurance). You have an income of $35,000 and expenses of $23,000 (if you are careful with the money--what if you aren't?). You should have savings of either $17,500 or $11,500 in case of emergencies. Perhaps you simply weren't mentioning that. Note that you also need at least $137 * 26 = $3562 more to cover mortgage payments, so $15,062 by the expenses standard. This is in addition to the $40,000 for downpayment and closing costs. What do you plan to do if there is a problem with the new house, e.g. you need a new roof? Or smaller expenses like a new furnace or appliance? A plumbing problem? Damages from a storm? What if the tenants' teenage child has a party and trashes the place? What if your tenants stop paying rent but refuse to move out, trashing the place while being evicted? Your emergency savings need to be able to cover those situations. You checked comps (comparable properties). Great! But notice that you are looking at a one bathroom property for $150,000 and comparing to $180,000 houses. Consider that you may not get the $235 for that house, which is cheaper. Perhaps the rent for that house will only be $195 or less, because one bathroom doesn't really support three bedrooms of people. While real estate can be part of a portfolio, balance would suggest that much more of your portfolio be in things like stocks and bonds. What are you doing for retirement? Are you maxing out any tax-advantaged options that you have available? It might be better to do that before entering the real estate market. I am a 23 year old Australian man with a degree in computer science and a steady job from home working as a web developer. I'm a bit unclear on this. What makes the job steady? Is it employment with a large company? Are you self-employed with what has been a steady flow of customers? Regardless of which it is, consider the possibility of a recession. The company can lay you off (presumably you are at the bottom of the seniority). The new customers may be reluctant to start new projects while their cash flow is restrained. And your tenants may move out. At the same time. What will you do then? A mortgage is an obligation. You have to pay it regardless. While currently flush, are you the kind of flush that can weather a major setback? I would feel a lot better about an investment like this if you had $600,000 in savings and were using this as a complementary investment to broaden your portfolio. Even if you had $60,000 in savings and would still have substantial savings after the purchase. This feels more like you are trying to maximize your purchase. Money burning a hole in your pocket and trying to escape. It would be a lot safer to stick to securities. The worst that happens there is that you lose your investment (and it's more likely that the value will be reduced but recover). With mortgages, you can lose your entire investment and then some. Yes, the price may recover, but it may do so after the bank forecloses on the mortgage.", "title": "" }, { "docid": "ad8e946365b5d91b69c106948370a81c", "text": "There's a company called IdealSpot (I haven't used them, just heard of them) that will do that kind of analysis for you and suggest locations. Also, Census data is free and a good resource for demographic data when it comes to neighborhoods. Also, if you have a local SBDC they may have those numbers handy and they also can really walk you through the loan part of the process as well.", "title": "" }, { "docid": "4ec027c43f61f7abba959c4f54093321", "text": "Seems pretty stupid to buy when switching jobs every 2-4 years yields the greatest gains in salary. Why would you want to grow roots in an area for 15-30 years when you might be better off changing jobs/locales? Sure you don't have to keep your house that long but with all the extra costs and risks renting is a fine option for an upwardly mobile citizen.", "title": "" } ]	fiqa
c6582f060a8115e8fedf24ae7b711477	When will the U.K. convert to the Euro as an official currency?	[ { "docid": "4918534ff779f1f19ed9ab1e18c78017", "text": "\"I read an account of why the U.K. didn't end up with the euro as its currency in David M. Smick's great book The World Is Curved: Hidden Dangers to the Global Economy. Chapter 6 of the book is titled \"\"Nothing Stays the Same: The 1992 Sterling Crisis.\"\" Here's a very brief excerpt; emphasis mine: [...] As this story shows, such blindness to the realities of a changing world can be very dangerous. In this case, the result was the brutal collapse of the British pound, which explains why the British people still use their own currency, the pound or sterling, and not the euro. The events that unfolded in the autumn of 1992 were totally unforeseen, yet they reshaped the European monetary world and represent a phenomenon that continues to impact global economies. [...] Smick's account of the events around 1992 runs about 28 pages. Here's my version, in a nutshell: At the time, Britain was part of the European Exchange Rate Mechanism, or ERM. The belief in Europe was that by uniting currencies under a common mechanism, Europe could gain influence in international financial policy largely dominated by the United States. The ERM was a precursor to monetary union. The Maastricht Treaty would eventually create the European Union and the euro. Britain joined the ERM later than other nations, in 1990, and after some controversy. Being part of the ERM required member nations to agree to expand and contract their currencies only within certain agreed upon limits called currency bands. Due to the way this had been structured, Germany's strong position placed it at the top of the system. At some point in 1992, Germany had raised interest rates to curb future inflation. However, Britain wanted Germany to cut rates – Britain was not in as enviable a position, economically speaking, and its currency was under pressure. The currency band system would put Britain in a tighter spot with Germany raising rates. Enter George Soros, the Hungarian billionaire, a.k.a. \"\"the man who broke the Bank of England.\"\" Soros took a huge short position against the Sterling. He believed the Sterling was overvalued relative to the German deutsche mark, and Britain would be forced to devalue its currency and realign with respect to the ERM. Other traders followed and also sold the Sterling short. With much pressure on the currency, the Bank of England had to buy up Sterling in order to maintain its agreement under the ERM. Of course, they needed to borrow other currencies to do this. Soon the BoE was in over its head defending the Sterling, realizing the exchange rate it needed to maintain under the ERM simply wasn't sustainable. Britain was forced to withdraw from the ERM on Black Wednesday, September 16th, 1992. And so, Britain does not use the euro today – and any talk of doing so is politically controversial. Therefore I wouldn't bet on Britain adopting the euro any time soon – too many of the players are still in politics and remember 1992 well. I think if Britain adopting the euro is ever to happen, it will be when the memory of 1992 has faded away. BTW, George Soros made off with more than US$1 billion. Soros is a very smart guy.\"", "title": "" }, { "docid": "17b51bc610cbce0f58d07b01916d0533", "text": "Not anytime soon, I suspect, but not necessarily for financial reasons. I found this interesting, including the link to the five tests, but I think that this topic is only partially judged through financial eyes, there's a lot of political issues around this with national identity/immigration issues already in the spot light as well as political aspirations. If there will be a call in the near future to join the Euro, how would that reflect on the financial industry in the UK from a PR perspective? and on the political leadership and how it managed the financial crisis? I believe that it is in the interest of all the people in the high positions to show the country getting back on track rather than making ground shaking moves. But what do I know....:-)", "title": "" }, { "docid": "ef80263b369e51a638758552741f4eed", "text": "When economies are strong, it is particularly alluring to have a single currency as it makes trade and tourism simpler and helps reduce costs. The problem comes when individual member economies get into trouble. Because the Eurozone is a loose grouping of nations, there is no direct equivalent of the US Federal government to coordinate a response, there is instead an odd mixture of National and Central government that makes it harder to get a unified approach to the economy (OK, it's maybe not so different to the US in reality). This lack of flexibility means that some of the key levers of international finance are compromised, for example a weak economy can't float its currency to improve exports. Similarly individual country's interest rates can't be adjusted to balance spending. I suspect the main reason though is political and based on concepts of sovereignty and national pride. The UK does the majority of its trade with the Eurozone, so the pros would possibly outweigh the cons, but the UK as a whole (and some of our papers in particular) have always regarded Europe with suspicion. Most Brits only speak English and find France and Germany a strange and obtuse place. The (almost) common language makes it easier to relate to the US and Canada than our near neighbours. It seems the perception amongst the political establishment is that any attempt to join the Euro is political suicide, while that is the case it is unlikely to happen. Purely from a personal perspective, I'd welcome the Euro except it means a lot of the products I routinely buy would become a lot more expensive if price is 'harmonised'. For an example compare the price of the iPod Touch in the UK (£209.99) to France(€299). The French pay £262 at the current exchange rate, which is close to 25% more. Ouch. See also my question about Canada adopting the US Dollar", "title": "" }, { "docid": "13ec3c8d310d30d31f350c0251af4f40", "text": "I can't see it happening because most of the population seems to be against it, even if their reasoning on the whole is wrong. Theoretically, people are against the Euro here as a result of national pride. If it's the best thing to do for the good of the country then national pride shouldn't be taken into account. It'd be perverse in the sense that you'd be stopping your country from progressing because you love it. That doesn't add up. Personally, I don't think it's possible for an entire continent to have a single currency. There's too many different countries and cultures involved. For it to work you'd have to have centralised fiscal policy and this makes no sense at all for a continent. What works here might not work in France or Germany. What works in Greece might not work here. etc, etc. The make up of each country's economies is different.", "title": "" }, { "docid": "95ce912acd7a4989895d064ae70790be", "text": "A lot of smaller (and/or weaker) countries did not have much choice when Germany and France decided to rename the German Mark as the Euro, as most of their trade was already in Marks. It was even common for their population to have their savings in Marks. So the question was. Do we wish to have to use the Euro with or without a seat on the board? It was a no brainer for them at the time... The UK has a lot of trade with the USA and other countries outside of the Euro zone, so we are unlikely to have to join the Euro. So in the end it comes down to this point - if the British voters trust a UK government they elected more or less than an EEC government mostly elected by people in the other EEC countries. I don’t think the UK will be joining the Euro anytime soon, but everything can (and will) change with the passage of time. (After all the USA used to be part of the pound trading zone and please can you pay us all the back dated tax you stop paying after a little tea party!) Update: Given what has just happen to Grease and Spain and the Conservative Party has the most seats in the UK parliament, I don’t think the UK will not be joining the Euro for the next 5 years at least", "title": "" }, { "docid": "6cc7e456751c9ae6e555519de100de88", "text": "In many countries in Europe the prices shot through the roof, so it is not all positive. Also the switching country gives out lot of monetary control that is not welcomed by many. I think that UK is not going to change to euro for a long long time.", "title": "" } ]	[ { "docid": "2c73a1a0bd1d304831e47d5f9a7718ca", "text": "\"This is the best tl;dr I could make, [original](http://www.reuters.com/article/us-britain-economy/uk-stuck-in-slow-growth-gear-boe-on-course-to-raise-rates-idUSKBN1CF1F1) reduced by 86%. (I'm a bot) *** > LONDON - Britain&#039;s Brexit-bound economy remains stuck in a low gear but is probably not weak enough to dissuade the Bank of England from raising interest rates next month, economic data showed. > The BoE said last month that most of its policymakers thought it was likely that they would need to raise rates for the first time in a decade in the coming months. > The BoE believes last year&#039;s Brexit vote will create more inflation pressure by dampening business investment and slowing migration to Britain. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/75iaad/uk_stuck_in_slow_growth_gear_boe_on_course_to/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~225637 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: Britain^#1 month^#2 economy^#3 data^#4 year^#5\"", "title": "" }, { "docid": "324db0b73ebde0b9908675aaec81ed4f", "text": "I'm travelling to the US soon and will transfer to a US $ account from either an € account or £ account. My dad recommends transferring € because it's strong at the moment compared to previously. The £ is weak compared to what it was, but still stronger than €. Which is the best option at the moment?", "title": "" }, { "docid": "031f7677868338ead3397e82547dabd7", "text": "\"This is the best tl;dr I could make, [original](http://www.reuters.com/article/uk-britain-sterling-idUSKBN1AR0M9) reduced by 75%. (I'm a bot) *** > LONDON - Sterling fell to a fresh 10-month low against the euro on Friday as investors added bearish bets against the British currency on concerns the economy may be struggling to gain momentum. > Sterling fell 0.2 percent to 90.92 pence against the euro, its lowest level since October 2016. > It has fallen for two consecutive weeks and has weakened nearly 9 percent against the euro since early May. Morgan Stanley strategists are predicting euro parity with the pound in the first quarter of 2018. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6thf3f/british_pound_further_down/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~190040 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: against^#1 since^#2 Sterling^#3 week^#4 euro^#5\"", "title": "" }, { "docid": "b7228ac919920c2b403555de25be31a4", "text": "If you are really worried your best bet is to move all your cash from Sterling into a foreign currency that you think will be resilient should Brexit occur. I would avoid the Euro! You could look at the US Dollar perhaps, make sure you are aware of the charges for moving the money over and back again, as you will at some stage probably want to get back into Sterling once it settles down, if it does indeed fall. Based on my experience on the stock markets (I am not a currency trader) I would expect the pound to fall fairly sharply on a vote for Brexit and the Euro to do the same. Both would probably rebound quite quickly too as even if there is a Brexit vote it doesn't mean the UK Government will honour the outcome or take the steps quickly. I AM NOT A FINANCIAL ADVISOR AND HAVE NO QUALIFICATIONS AS SUCH ", "title": "" }, { "docid": "f07f11ef961fba7897da39b6b1e87f3e", "text": "The interpretation is correct. The Reuters may give you the London 4PM rates if you query after the close for the day. The close rate is treated as the rate. http://uk.reuters.com/business/currencies/quote?srcAmt=1&srcCurr=GBP&destAmt=&destCurr=USD The London 4PM rate may be obtained from Bank of England at the link below; http://www.bankofengland.co.uk/mfsd/iadb/index.asp?Travel=NIxSTxTIx&levels=1&XNotes=Y&XNotes2=Y&Nodes=X3790X3791X3873X33940&SectionRequired=I&HideNums=-1&ExtraInfo=false&A3836XBMX3790X3791.x=4&A3836XBMX3790X3791.y=3 Or any other Bank that provides such data", "title": "" }, { "docid": "24f047182185523c6a864864bc1ebf1f", "text": "I personally don't agree with a currency union. I'd rather follow Ireland's example when they gained independence and created the Irish Pound and peg it to Sterling, which they did for over 70 years before transitioning to the Euro. There isn't any debt to reject or default on.The UK treasury has already assured the debt market that it's 100% responsible for it. Scotland has no responsibility for taking on any debt, but might/will in response to negotiations and in return for something. Debt markets will be far more receptive of a country which has 0 government debt. We're not talking South Sudan or a tin pot south american country, we're talking about a mature northern european democratic state. I should also note, that oil is a bonus, but not a required export. With oil, Scotland has higher revenue per person than the entire UK, but if it disappeared tomorrow, we're only slightly below the UK average. [Institute for financial studies.](http://www.ifs.org.uk/publications/6881)", "title": "" }, { "docid": "b36c234151124c34fb9189a4356e13d3", "text": "Either way you'll be converting to US Dollars somewhere along the line. You are seeking something that is very redundant", "title": "" }, { "docid": "d5ad8f7505f1e6b36d1f04037c3d7275", "text": "22 June 2016 would have been the time to do this. Nobody on here can tell you what GBP/EUR will do in the next few months and years now. Brexit is going to happen, which implies lower UK growth and consequently a lower path for GBP interest rates, but this is all already priced in. If you believe the UK economy will underperform current forecasts and/or the euro-area economy will outperform current forecasts, that may imply there's scope for further GBP depreciation. If you believe the probability of a further political shock from a 'no deal' Brexit is materially higher than the market thinks, the same is true. But the opposite of these things could happen also. I would worry less about playing the currency markets as a retail investor and more about what currency your outgoings are denominated in. You live in Spain. Do you have significant GBP expenses or liabilities, or do you expect to have them in the future? If not, why are you taking currency risk by holding GBP balances? Whereas if you do - e.g. if you plan to move (back?) to the UK in the near future - then it makes more sense.", "title": "" }, { "docid": "ef460d634d8c9cabb476c9eb30f28f93", "text": "A Yen is like a penny. Buy a chocolate bar 100¥ or £1.00. Should the UK get rid of pennies and only price things to the pound?", "title": "" }, { "docid": "0917358d7171dfb49f861e4ea004f0e4", "text": "GBP is widely traded currency and it is definitely possible to send GBP internationally with out any conversion. Of late banks are trying to maximize the FX and if they see a Euro country the sending bank assumes the beneficiary account is in Euro and converts to get FX spread than letting the beneficiary bank decide. Keep complaining to your bank and then the sending bank will put your account in exception and not convert next payments", "title": "" }, { "docid": "e651432466f0d37eb0787dcba0048ec2", "text": "There is (at least) one service that allows you to convert USD, GBP and EUR at the interbank spot rate, and make purchases using a prepaid MasterCard in many more currencies (also at the interbank rate). They currently don't charge any fees (as of September 2015). You could use your US prepaid card to fund your account with Revolut and then spend them in your local currency (HRK?) without fees (you can check the current USD/HRK rate with their currency calculator); you can also withdraw to non-EUR SEPA-enabled bank accounts, but then your bank would charge you for the necessary currency conversion (both by fees and their exchange rate). If you have a bank account in EUR, you could alternatively convert your USD balance to EUR and then withdraw that to your EUR bank account. If your US prepaid card has a corresponding bank account which can be used for ACH direct debit or domestic wire transfers (ask the issuer if you are unsure), TransferWise or a similar service might also be an option; they allow you to fund a transaction using one of those methods and then credit an account in", "title": "" }, { "docid": "cbf4a5de9f84ac8dfd484389fa250ed0", "text": "\"Currently, there is simply no reason to do so. It's not a problem. It is no more of a problem or effort to denote \"\"5,000\"\" than it is to denote \"\"50.00\"\". But if there were a reason to do so, it wouldn't be all that difficult. Of course there would be some minor complications because some people (mostly old people presumably) would take time getting used to it, but nothing that would stop a nation from doing so. In Iceland, this has happened on several occasions in the past and while Iceland is indeed a very small economy, it shouldn't be that difficult at all for a larger one. A country would need a grace period while the old currency is still valid, new editions of already circulating cash would need to be produced, and a coordinated time would need to be set, at which point financial institutions change their balances. Of course it would take some planning and coordination, but nothing close to for example unifying two or more currencies into one, like the did with the euro. The biggest side-effect there was an inflation shot when the currencies got changed in each country, but this can be done even with giant economies like Germany and France. Cutting off two zeros would be a cakewalk in comparison. But in case of currencies like the Japanese Yen, there is simply no reason to take off 2 zeros yet. Northern-Americans may find it strange that the numbers are so high, but that's merely a matter of what you're used to. There is no added complication in paying 5.000 vs. 50 at a restaurant, it merely takes more space on a computer screen and bill, and that's not a real problem. Besides, most of the time, even in N-America, the cents are listed as well, and that doesn't seem to be enough of a problem for people to concern themselves with. It's only when you get into hyper-inflation when the shear space required for denoting prices becomes a problem, that economies have a real reason to cut off zeros.\"", "title": "" }, { "docid": "e61919cc2567f96df4868a9c4de17281", "text": "At any instant, three currencies will have exchange rates so if I know the rate between A and B, and B to C, the A to C rate is easily calculated. You need X pounds, so at that moment, you are subject to the exchange rate right then. It's not a deal or bargain, although it may look better in hindsight if the currencies move after some time has passed. But if a currency is going to depreciate, and you have the foresight to know such things, you'd already be wealthy and not visiting here.", "title": "" }, { "docid": "73f0f5884654654b0658b3caef2f0620", "text": "You will most likely not be able to avoid some form of format conversion, regardless of which data you use since there is, afaik, no standard for this data and everyone exports it differently. One viable option would be, like you said yourself, using the free data provided by Dukascopy. Please take into consideration that those are spot currency rates and will most likely not represent the rate at which physical and business-related exchange would have happened at this time.", "title": "" }, { "docid": "94d2490c97d88ed2dc63b9efb26711fb", "text": "\"You are right, if by \"\"a lot of time\"\" you mean a lot of occasions lasting a few milliseconds each. This is one of the oldest arbitrages in the book, and there's plenty of people constantly on the lookout for such situations, hence they are rare and don't last very long. Most of the time the relationship is satisfied to within the accuracy set by the bid-ask spread. What you write as an equality should actually be a set of inequalities. Continuing with your example, suppose 1 GBP ~ 2 USD, where the market price to buy GBP (the offer) is $2.01 and to sell GBP (the bid) is $1.99. Suppose further that 1 USD ~ 2 EUR, and the market price to buy USD is EUR2.01 and to sell USD is EUR1.99. Then converting your GBP to EUR in this way requires selling for USD (receive $1.99), then sell the USD for EUR (receive EUR3.9601). Going the other way, converting EUR to GBP, it will cost you EUR4.0401 to buy 1 GBP. Hence, so long as the posted prices for direct conversion are within these bounds, there is no arbitrage.\"", "title": "" } ]	fiqa
abf65a5ba89b87c14127877c7438cad1	The U.S. National Debt: What is it, where did it come from, and how does it work?	[ { "docid": "d41d8cd98f00b204e9800998ecf8427e", "text": "", "title": "" }, { "docid": "edf7c1457d24618f33e20f3583190f90", "text": "\"It is measured in US dollars. The US cannot just print the money because that would cause inflation. Remember that money is really just a convenient placeholder for the barter system. Creating more money regardless of whether there is more value in the economy (work, resources, etc.) is a very bad idea, and doing so has collapsed the economies of many countries. Debt increasing means that the US owes other countries more money. So yes, they are receiving more money from other countries, but the US has to pay it all back with interest eventually. The US government spends more money than it receives in taxes. To decrease the debt, spending needs to decrease and/or taxes need to increase. Many countries lend to the US. One of the biggest is China. These countries do so because of interest -- the US pays back more money than it gets lent, so the lending countries make a profit. If China suddenly called in all its debt to the US, this would severely damage the world economy. China's biggest trading partner is the US, so it has no interest in harming the US this way; it would harm itself. Additionally, the US would probably refuse to pay it (not to mention that it can't), and then China would lose all the money it \"\"invested\"\" in the US. It would benefit no one.\"", "title": "" }, { "docid": "da65d37e11ced3265657280ccf9478aa", "text": "\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \"\"National Debt\"\" of a country can be thought of as being the sum of all the \"\"Bonds\"\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\"\"Default\"\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\"", "title": "" } ]	[ { "docid": "51ae70970f131c5d6c844b349c70a334", "text": "\"Well, the one variable you're forgetting is that we didn't have as much debt hanging over our heads as we do now. As I understand it, maintaining that conflict cost so much money, we're still paying for it today, the better part of a century later. Are you sure that the Federal government should undertake that level of spending again as the Fed is poised to raise rates, reversing a decades long trend of cheap borrowing? Edit: typo, added \"\"sure\"\"\"", "title": "" }, { "docid": "edfaea8b74131376f39df1847e966ad5", "text": "It's misleading news. Comparing debt levels in nominal terms is completely pointless over a period of more than a few months. The article you responded to quite literally quoted extracts from the article you subsequently posted and explained why they were misleading or incorrect.", "title": "" }, { "docid": "86624c3d1509fa6dba40561c99974129", "text": "\"What a great explanation! I was familiar with many of the concepts, but I've learnt quite a lot. Do you happen to know any sources for further reading that are just as understandable to a non-economist? And/Or would you mind continuing / expanding this into whichever direction you find worth exploring? I would love to see this explanation \"\"connected\"\" to the debt crisis and how/why the US and europe seem to be in different situations there. Maybe that would be too complex to explain in more detail using your model, but maybe it is possible..?\"", "title": "" }, { "docid": "e0e5d944dbede9d873ca89e5d76e8c6a", "text": "Every year stories like this come out. Every year the US does not default on its debt. We all should know by now that the US, as a financially sovereign nation that issues its own currency, cannot default on its debt. This fearmongering is just a click-baity waste of time, and yes, a waste of money.", "title": "" }, { "docid": "c4256692af1f36bc4422ea1aa0c48647", "text": "So much spin with you. Kenyes wrote explicitly about deficit spending, and the repayment of those deficits. The denomination of the currency, floating or otherwise, is besides the point. Again, you just want to model away the burden and risk of debt. It's never worked, and it never will.", "title": "" }, { "docid": "da30a3dcb2f76975f39adac551027576", "text": "\"I'm surprised people don't bring this up more often....if you add together, not just our sovereign debt, but public and private debt, plus our contingent liabilities, meaning FHA, student loans, fannie mae, freddie mac, AIG, etc. that totals over $100 TRILLION dollars, more than we could ever pay back, meaning literally there is no amount of growth and taxes that could ever pay this money back. (cite my sources do a google search of James Rickards Hopkins lecture it's in the first few minutes) The reason you need to add all that together is because the economy can't grow if nobody has any money for investment, etc. (there isn't much home equity left after the housing crisis, retirement plans aren't holding as much, etc.) there wouldn't be an easy way to grow this economy, that's why we have \"\"currency wars\"\" competitive devaluations....to me we're already over the cliff I don't see us heading back, but I'm not saying that means we're going to collapse, just we'll need to go back to some sort of standard where our currency is backed by something (i.e. commodities or gold or something) and there are going to be A LOT of losses in the near term....meaning I want OUT of dollars.... combined with our lazy/entitled generation (don't tell me creating some website where you can order artistic candy on a stick is going to save our economy...we need to produce and innovate again to lower our trade deficit and so people actually bring their capital here), and dwindling resources I'd say it's already game over, the pieces just need to move into place\"", "title": "" }, { "docid": "b12b0aabd80cb5c2609e5f39ae7a7ad3", "text": "The debt is absolutely real. China loans money to US via buying the US treasury bonds. The bond is essentially a promise to pay back the money with interest, just like a loan. As you point out, the US can print money. If this were to happen, then the USD that the owner of a treasury bond receives when the bond matures are worth less that than the USD used to purchase the bonds. There are lots of reasons why the US doesn't want to print lots of money, so the purchaser of the bond is probably confident it won't happen. If for some reason they think it is possible, then they will want to cover that risk by only purchasing bonds that have a higher interest rate. The higher interest offsets the risk of the USD being worth less. Of course, there are lots more details, e.g., the bonds themselves are bought and sold before maturity, but this is the basic idea.", "title": "" }, { "docid": "53205f3ae9cc5c0fa3b952d110994482", "text": "\"I think a big part of the issue is ignorance. For instance, the US govt cannot default on its loans, yet you keep hearing people speak as if it could. The US govt also does not have to borrow to pay for anything, it creates its own money whenever it wants. These 2 facts often evade many people, and they feel the US govt should act like a household, business, or a state govt. This disconnect leads to a lot of confusion, and things like \"\"fiscal crisis\"\". Just remember Rahm Emanuel - don't let a crisis go to waste. Disclaimer: this is not to say the US should create money whenever it wants without thought. However, the simple fact is it can. For those interested in more, check out Modern Monetary Theory (MMT). Its economic study in a world not based on gold standard, or convertible currency (fiat currency).\"", "title": "" }, { "docid": "571398a48e3c53d7bc290a6bf8d61fda", "text": "It's a persistent myth that the US has any trouble whatsoever selling its debt. No country with it's own fiat currency has trouble selling debt. Of course there is a limit to it and that limit comes in the form of inflation via currency weakness. The dollar is, in fact, still near historic highs even though it has come down some recently. I would not be the slightest bit concerned until the DXY is down in the 70s.", "title": "" }, { "docid": "5dcc89257e63613f61bf2a73177ea86d", "text": "\"> but the other countries are just decline stage. I think you have a typo. Could you please explain what you mean? If I understand correctly, you are saying that the US produces \"\"value\"\" and other countries do not. As the US has tended to run a high deficit since the Reagan era (i.e. it increases its debt every year) this seems a contentious statement.\"", "title": "" }, { "docid": "aa54fda0a92cf027e4c6bb162493e245", "text": "The higher the debt, the higher inflation needs to be to wash the debt away. This is why the debt and US equities move upward hand in hand. The same goes for US housing. Just as homeowners borrow money through mortgages so that house prices rise, the banks borrow the money for mortgages through the central banks. Thus, the cycle circulates. The more debt, the higher the prices! Everybody makes money from debt. That is why the US has the highest external debt on the globe, yet they are considered one of the wealthiest countries in the world.", "title": "" }, { "docid": "02a356426e29ae90e2620cb53aff3028", "text": "I still don't fully understand how gold is debt. I get that you made the connection that gold is money, and previously explained how money is debt. But that doesn't make gold debt. Gold is a commodity just as oil, apples, deer, shoes, etc. It might not provide any utility, but is still something people have come to value in and of itself.", "title": "" }, { "docid": "f4d5041c8853eb7d34b9ce9103b06f26", "text": "> Your question is expressed as a run-on sentence, which I'm having trouble parsing. Maybe you could restate. The one in the title? If yes, here it is restated: As I currently understand, we owe much of our national debt to ourselves. The reason for this is that people are being charged interest that does not exist in the system. Therefore, if we tried to pay the debt (like some conservative politicians are fighting for) it would be a massive transfer of wealth from the 99% to the 1%, since most of the debt is owed to the 1% (banks). So I was wondering if this conclusion/summary/understanding is flawed in some way.", "title": "" }, { "docid": "315b96980ba53cf27c60c176d224e58b", "text": ">The US government debt is how much USD the government has paid the US non-government in excess of what it's taxed them. Correct? Incorrect. The US debt/savings is the balance of credit the US government maintains with US banks, and foreign sovereigns/banks. Why do you need to say it another way? WTF is 'non-government' savings? Other than an academically retarded way of saying 'debt' of course? Its not a bad thing... unless interest rates rise. But this time is different, so that'll never happen. I'm sticking to my initial assessment. Fairyland.", "title": "" }, { "docid": "7d87c699d1503768a304fa752a29f7e3", "text": "Your score is real-time, updating every time new data hits the reporting agencies. Dilip is correct, go over 20%, and it will hit the report, but then the score returns to normal after the next bill shows a sub-20% utilization. Say your average spending is $1000, but your limit is $5000. There's no harm in asking for a small increase in the limit, or simply pay a bit toward the bill before the statement is cut. The bill and reported balance will be lower and your score, unaffected.", "title": "" } ]	fiqa
d3e8bbc0c0536a3eab270b32aa30f53b	What does an x% inflation rate actually mean?	[ { "docid": "0d4694b1a2b6366c8246417079ec2e9f", "text": "\"Let's say there's a product worth $10 in July and the inflation rate in August is 10%. Will it then cost $11 in August? Yes. That's basically what inflation means. However. The \"\"monthly\"\" inflation numbers you typically see are generally a year over year inflation rate on that month. Meaning August 2017 inflation is 10% that means inflation was 10% since last July 2016, not since July 2017. At the micro consumer level, inflation is very very very vague. Some sectors of the economy will inflate faster than the general inflation rate, others will be slower or even deflate. Sometimes a price increase comes with a value increase so it's not really inflation. And lastly, month over month inflation isn't something you will feel. Inflation is measured on the whole economy, but actual prices move in steps. A pear today might cost $1, and a pear in five years might cost $1.10. That's 10% over 5 years or about 2% per year but the actual price change might have been as abrupt as yesterday a pear was $1 and now it's $1.10. All of the prices of pears over all of the country won't be the same. Inflation is a measure of everything in the economy roughly blended together to come up with a general value for the loss in purchasing power of a currency and is applicable over long periods. A USD inflation rate of 3% does not mean the pear you spent $1 on today will necessarily cost $1.03 next year.\"", "title": "" }, { "docid": "2e303c2f2321209f102fd1dbeeba0a4e", "text": "As pointe out by @quid, inflation figures are almost always quoted as a comparison of prices last month, and prices a year ago last month. So 10% inflation in August means that things cost 10% more than they did in August a year ago. This can lead to some perverse conclusions. Consider an imaginary economy where prices stay constant over years. Annualized inflation is zero. Then something happens on January 2nd, 2018. Some crop fails, a foreign cheap source of something becomes unavailable, whatever. Prices rise, permanently, as more expensive sources are used. This is the only disruption to prices. Nothing else goes wrong. So, in February, 2018, the authorities find that prices in January, 2018 rose by 1% over January 2017. Inflation! Politicians pontificate, economists wring their hands, etc. In March, again, prices for February, 2018 are found to be 1% higher than for February, 2017. More wailing... This goes on for months. Every month, inflation (year over year) is unchanged at 1%. Everyone has a theory as to how to stop it... Finally, in February, 2019, there's a change! Prices in January, 2019, were the same as in January 2018. Zero inflation! Everyone takes credit for bringing down inflation...", "title": "" }, { "docid": "93d05466043c338b0908f39e91a40b71", "text": "\"Individual product prices do not necessarily rise at inflation rates. What inflation means is that the purchasing power of one unit of currency decreases by x% in a year, which is typically measured by looking at a broad spectrum of products in an economy and extrapolating to \"\"all products\"\". So for all products across an economy, the aggregate price of all goods will, on average, be X% higher that they were this time last year. Some products will be cheaper, some will be more expensive, but on average their prices will rise with inflation rates. For the other part of your question, inflation is an annualized percentage, so an inflation rate of 12% means prices are 12% higher than they were a year ago, so if you extrapolate that linear trend, prices will rise (again, on average) 1% in a month.\"", "title": "" }, { "docid": "b5118f81051f23c2de558ebb01684b73", "text": "\"Inflation is an attempt to measure how much less money is worth. It is a weighted average of some bundle of goods and services price's increase. Money's value is in what you can exchange it for, so higher prices means money is worth less. Monthly inflation is quoted either as \"\"a year, ending on that month\"\" or \"\"since the previous month\"\". As the values differ by more than a factor of 10, you can usually tell which one is being referred to when they say \"\"inflation in August was 0.4%, a record high\"\" or \"\"inflation in August was 3.6%\"\". You do need some context of the state of the economy, and how surprised the people talking about the numbers are. Sometimes they refer to inflation since the last month, and then annualize it, which adds to the confusion. \"\"Consumer Inflation\"\"'s value depends on what the basket of goods is, and what you define as the same \"\"good\"\". Is a computer this year the same as the last? If the computer is 10x faster, do you ignore that, or factor it in? What basket do you use? The typical monthly consumables purchased by a middle class citizen? By a poor citizen? By a rich citizen? A mixture, and if so which mixture? More detailed inflation figures can focus on inflation facing each quntile of the population by household income, split durable goods from non-durable goods from services, split wage from non-wage inflation, ignore volatile things like food and energy, etc. Inflation doesn't directly cause prices to raise; instead it is a measure of how much raise in prices happened. It can easily be a self-fullfilling prophesy, as inflation expectations can lead to everyone automatically increasing the price they charge for everything (wages, goods, etc). Inflation can be viewed as a measurement of the \"\"cost of holding cash\"\". At 10% inflation per year, holding a million dollars in cash for a year costs you 100,000$ in buying power. At 1% inflation it costs 10,000$. At 0.1% inflation, 1000$. Inflation of 10% in one year, followed by 10% the next, adds up to 1.1*1.1-1 = 21% inflation over the two years. For low inflation numbers this acts a lot like adding; the further from 0% you get the more the lower-order terms make the result larger. 1% inflation for two years adds up to 2.01%, 10% over two years 21%, 100% over two years 300%, 1000% over two years 12000%, etc. (and yes, some places suffer 1000% inflation)\"", "title": "" }, { "docid": "62e5deb81b126cbdf0a917b716abcd64", "text": "Inflation is a reflection on the expansion of the money supply, aka debt, being created by a central bank. Fiat currencies usually inflate, because there is no limit to the amount of debt that can be created. The consequences of reckless money supply expansion can be seen throughout history, see Zimbabwe, though there have been many others...Brazil, Argentinia, etc...", "title": "" } ]	[ { "docid": "ba326d329c8e239ec41ea6590f2d3269", "text": "\"The classic definition of inflation is \"\"too much money chasing too few goods.\"\" Within a tight range, say 1-3%, inflation is somewhat benign. There's a nice inflation widget at The Inflation Calculator which helps me see that an item costing $1000 in 1975 would now (2010) be about $4000, and $1000 from 1984 till now, just over $2000. I chose those two years to make a point. First, I am 48, I graduated college in 1984, so in my working life I've seen the value of the dollar drop by half. On the other hand it only took 9 years from 75-84 to see a similar amount of inflation occur. I'd suggest that the 26 year period is far more acceptable than the 9. Savers should be aware of their real return vs what was a result of inflation. I'm not incensed either way but logically have to acknowledge the invisible tax of inflation. I get a (say) 6% return, pay 2% in tax, but I'm not ahead by 4%, 3% may be lost to inflation. On the flip side, my mortgage is 3.5%, after taxes that's 2.625%, but less than 0% after (long term) inflation. So as a debtor, I am benefiting by the effect of inflation on what I owe. Interesting also to hear about deflation as we've grown used to it in the case of electronics but little else. Perhaps the iPad won't drop in price, but every year it will gain features and competitors will keep the tablet market moving. Yet people still buy these items. Right now, there's not enough spending. I'd suggest that, good financial advice aside, people as a whole need to start spending to get the economy moving. The return of some inflation would be a barometer of that spending starting to occur.\"", "title": "" }, { "docid": "97aa231a19798daa12a7ee08fa689c13", "text": "\"Suppose you have $100 today and suppose that hamburgers cost $5. If you are holding $100, you could buy 20 hamburgers at $5 each. Now suppose you take that $100 and stuff it under your mattress for 24 years. When you pull out your money, you still have $100, but it turns out hamburgers now cost $10. The increase from $5 to $10 is inflation. Your savings of $100 was \"\"eroded\"\" by half even though before and after you had $100 and now you can only buy 10 hamburgers instead of 20 hamburgers. Suppose inflation is 3%. That means that if you earn 3% return on your investments, you'll stay even with inflation (If you can buy 20 hamburgers today, then at any point you can still buy 20 hamburgers). If you want your money to grow in a real, tangible way you'll want to seek returns that beat the rate of inflation.\"", "title": "" }, { "docid": "424c9c2407fdcc3d408c3faece150d42", "text": "Inflation data is a general barometer for inflation that a typical consumer would experience. Generally when calculating inflation for yourself you would only include items that you use and in percentages of your budget. Personal inflation is much more useful when attempting to calculate safe withdrawal rates or projections into the future.", "title": "" }, { "docid": "c0bac9a98e7ae3f01a8f47c2fd878128", "text": "\"Krugman argues (and I agree with him on this one) that this is a telltale sign that the US is in a [liquidity trap](http://en.wikipedia.org/wiki/Liquidity_trap). Basically interest rates are near 0 and the banks are very risk adverse right now, so they sit on reserves instead of lending them out. In this scenario, the government \"\"printing\"\" money has no effect on inflation (or much of anything) because it just sits in bank reserves. A more right wing economist might spin a different story though.\"", "title": "" }, { "docid": "b2e48515aa9d61db8cdfc0c509211815", "text": "\"he is saying that \"\"QE\"\" meaning \"\"quantitative easing\"\" meaning \"\"the theory that the government flooded the markets with money, artificially driving up the price of stocks\"\" meant that hedge funds, which HEDGE, and benefit from an up-and-down market, couldn't win in a market where it just kept going up. It's basically a conspiracy theory bears have been pushing for years \"\"QE artificially inflated the market, it's gonna crash!\"\"\"", "title": "" }, { "docid": "cb97d4254b7f8d86f8b8fbdc412ac78c", "text": "Despite my previous claim to not respond to crank messages, no, you are also spectacularly ignorant of the basics about how inflation is calculated. The Department of Labor Statistics has an army of people going into retail each month to evaluate comparables. Heads of lettuce, gallons of milk and twinkies are not, in fact, 4x smaller than they were in 2007 and even if they were, DLS corrects for it.", "title": "" }, { "docid": "1df8591be32d4babf6b7a50426ebacda", "text": "Yes - it's called the rate of inflation. The rate of return over the rate of inflation is called the real rate of return. So if a currency experiences a 2% rate of inflation, and your investment makes a 3% rate of return, your real rate of return is only 1%. One problem is that inflation is always backwards-looking, while investment returns are always forward-looking. There are ways to calculate an expected rate of inflation from foreign exchange futures and other market instruments, though. That said, when comparing investments, typically all investments are in the same currency, so the effect of inflation is the same, and inflation makes no difference in a comparative analysis. When comparing investments in different currencies, then the rate of inflation may become important.", "title": "" }, { "docid": "449483cee026bd679f401c16997e763c", "text": "\"This is the best tl;dr I could make, [original](http://ngdp-advisers.com/2017/09/14/thinking-constrained-phillips-box-get-nightmarish-solutions/) reduced by 75%. (I'm a bot) *** > Grep Ip has an article: The Fed&#039;s Bad Options for Addressing Too-Low Inflation in which he argues that what looks like a dream economy could be a nightmare for the Fed&acute;s chairwoman. > The reason being that, according to the Fed&acute;s Phillips Curve precepts to which the Fed subscribes, when unemployment is this low inflation should move up to the Fed&acute;s 2% target. > Just as it reaped rising inflation by producing a rising NGDP growth trend, lowered inflation by producing a falling NGDP growth trend and kept inflation &quot;On trend&quot; by producing a stable NGDP growth trend, it can raise the level of the stable NGDP growth trend, which it stopped doing in 2010. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/70qy24/the_dangers_of_phillips_curve_thinking/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~211779 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: Inflation^#1 Fed^#2 growth^#3 trend^#4 recession^#5\"", "title": "" }, { "docid": "1288eb3447af04ec9c46e16193f4414c", "text": "you understand inflation is necessary for growth? inflation is an increase in the money supply. the fed has a policy of inflation targeting. they say okay we are fine with 2% inflation lets keep it at that level. and their policies aim to keep inflation at that level.", "title": "" }, { "docid": "dfc8159b5632cc4cc11c53b4744a9d71", "text": "I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.", "title": "" }, { "docid": "94f4b3bad0673cfc2d66983ab898f89d", "text": "What you said is technically correct. But the implication OP might get from that statement is wrong. If the Fed buys bonds and nominal yields go down (Sometimes they might even go up if it meant the market expected the Fed's actions to cause more inflation), inflation expectations don't go down unless real yields as measured by TIPs stay still.", "title": "" }, { "docid": "f5006e159057eb54f759199c5b603f5f", "text": "There's a difference between physical currency and money (For example a bank may only hold only a small percentage of total deposits as cash that it's customers can withdraw). I'm not sure which you're referring to, but either way you should read about inflation.", "title": "" }, { "docid": "e183820002d184bf7eefe4b2ae7bc7be", "text": "Fascinating article. I have read that the Federal Reserve is contemplating allowing the unemployment rate to drop further until some of the elusive wage gains appear. Still seems risky if inflation suddenly shows up and rates have to rise fast to hold it off.", "title": "" }, { "docid": "49d0cce28b6e56ca03065381e94c5258", "text": "yeah, its actually pretty stupid to brag about this sort of thing. it is my understanding that inflation averages about 2% a year so your numbers are off. my guess is that he is just bullshitting and has no idea what his financial people have done with the money.", "title": "" }, { "docid": "9faf2ffe78d03744c1bf640fa384a3c7", "text": "Can't be true. I read r/economy and I know real inflation is 15%, real unemployment is 25%, we're in a double-dip recession, a second tsunami of mortgage foreclosure is coming, hundreds of cities are going to default on their bonds, and ... And we're all going to die on the side of the road. Alone. In the rain. Edit: [See](http://www.reddit.com/r/economy/comments/2dm13e/job_surge_suggests_higher_wages_are_coming/cjr00wh)? And this guy is an optimist.", "title": "" } ]	fiqa
55ffe74c82f699f8bd6d876e96457b5a	What variety of hedges are there against index funds of U.S. based stocks?	[ { "docid": "c931e46f81de6d63fdb5f24ab5231f46", "text": "The only way to hedge a position is to take on a countervailing position with a higher multiplier as any counter position such as a 1:1 inverse ETF will merely cancel out the ETF it is meant to hedge yielding a negative return roughly in the amount of fees & slippage. For true risk-aversion, continually selling the shortest term available covered calls is the only free lunch. A suboptimal version, the CBOE BuyWrite Index, has outperformed its underlying with lower volatility. The second best way is to continually hedge positions with long puts, but this can become very tax-complicated since the hedged positions need to be rebalanced continually and expensive depending on option liquidity. The ideal, assuming no taxes and infinite liquidity, is to sell covered calls when implied volatility is high and buy puts when implied volatility is low.", "title": "" }, { "docid": "59f0fb24483bf24e45448509eb2c3850", "text": "\"Even though \"\"when the U.S. sneezes Canada catches a cold\"\", I would suggest considering a look at Canadian government bonds as both a currency hedge, and for the safety of principal — of course, in terms of CAD, not USD. We like to boast that Canada fared relatively better (PDF) during the economic crisis than many other advanced economies, and our government debt is often rated higher than U.S. government debt. That being said, as a Canadian, I am biased. For what it's worth, here's the more general strategy: Recognize that you will be accepting some currency risk (in addition to the sovereign risks) in such an approach. Consistent with your ETF approach, there do exist a class of \"\"international treasury bond\"\" ETFs, holding short-term foreign government bonds, but their holdings won't necessarily match the criteria I laid out – although they'll have wider diversification than if you invested in specific countries separately.\"", "title": "" } ]	[ { "docid": "49c04ad737c5a0deda7822f0b1b98a9c", "text": "Finviz can be screened by beta which is an index of correlation. Finviz covers all major North American exchanges and some others.", "title": "" }, { "docid": "09e980bf943b6eeb7b8dbbbff9bf7cc0", "text": "\"Hmm, this would seem to be impossible by definition. The definition of an \"\"index fund\"\" is that it includes exactly the stocks that make up the index. Once you say \"\"... except for ...\"\" then what you want is not an index fund but something else. It's like asking, \"\"Can I be a vegetarian but still eat beef?\"\" Umm, no. There might be someone offering a mutual fund that has the particular combination of stocks that you want, resembling the stocks making up the index except with these exclusions. That wouldn't be an index fund at that point, but, etc. There are lots of funds out there with various ideological criteria. I don't know of one that matches your criteria. I'd say, search for the closest approximation you can find. You could always buy individual stocks yourself and create your own pseudo-index fund. Depending on how many stock are in the index you are trying to match and how much money you have to invest, it may not be possible to exactly match it mathematically, if you would have to buy fractions of shares. If the number of shares you had to buy was very small you might get killed on broker fees. And I'll upvote @user662852's answer for being a pretty close approximation to what you want.\"", "title": "" }, { "docid": "daccd8ca0d17624588d8df91bea8c332", "text": "One advantage not pointed out yet is that closed-end funds typically trade on stock exchanges, whereas mutual funds do not. This makes closed-end funds more accessible to some investors. I'm a Canadian, and this particular distinction matters to me. With my regular brokerage account, I can buy U.S. closed-end funds that trade on a stock exchange, but I cannot buy U.S. mutual funds, at least not without the added difficulty of somehow opening a brokerage account outside of my country.", "title": "" }, { "docid": "470a89e85ec159eb02808be2dc87f28e", "text": "You haven't looked very far if you didn't find index tracking exchange-traded funds (ETFs) on the Toronto Stock Exchange. There are at least a half dozen major exchange-traded fund families that I'm aware of, including Canadian-listed offerings from some of the larger ETF providers from the U.S. The Toronto Stock Exchange (TSX) maintains a list of ETF providers that have products listed on the TSX.", "title": "" }, { "docid": "843db0456e443311227525c4f76b1fb7", "text": "ETFs are legally separate from their issuer, so the money invested should (the lines can get blurry in a massive crisis) be inaccessible to any bankruptcy claims. The funds assets (its shares in S&P500 companies) are held by a custodian who also keeps these assets separate from their own book. That said, if no other institution takes over the SPY funds the custodian will probably liquidate the fund and distribute the proceeds to the ETF holders, this is likely a less than ideal situation for the holders as the S&P500 would probably not be at its highest levels if State Street is going bankrupt (not to mention the potential taxation).", "title": "" }, { "docid": "96c20301e3d9cce0e80714e7dbe7ede1", "text": "You could look up the P/E of an equivalent ETF, or break the ETF into components and look those up. Each index has its own methodology, usually weighted by market cap. See here: http://www.amex.com/etf/prodInf/EtAllhold.jsp?Product_Symbol=DIA", "title": "" }, { "docid": "2e5bb05701d5b40caffbc5d98be9d723", "text": "Domini offers such a fund. It might suit you, or it might include things you wish to avoid. I'm not judging your goals, but would suggest that it might be tough to find a fund that has the same values as you. If you choose individual stocks, you might have to do a lot of reading, and decide if it's all or none, i.e. if a company seems to do well, but somehow has an tiny portion in a sector you don't like, do you dismiss them? In the US, Costco, for example, is a warehouse club, and treats employees well. A fair wage, benefits, etc. But they have a liquor store at many locations. Absent the alcohol, would you research every one of their suppliers?", "title": "" }, { "docid": "625a988bfb55940701a041358b283f3b", "text": "Some of the ETFs you have specified have been delisted and are no longer trading. If you want to invest in those specific ETFs, you need to find a broker that will let you buy European equities such as those ETFs. Since you mentioned Merrill Edge, a discount broking platform, you could also consider Interactive Brokers since they do offer trading on the London Stock Exchange. There are plenty more though. Beware that you are now introducing a foreign exchange risk into your investment too and that taxation of capital returns/dividends may be quite different from a standard US-listed ETF. In the US, there are no Islamic or Shariah focussed ETFs or ETNs listed. There was an ETF (JVS) that traded from 2009-2010 but this had such little volume and interest, the fees probably didn't cover the listing expenses. It's just not a popular theme for North American listings.", "title": "" }, { "docid": "6ca55b8facce5ce4bdb899ce505e1d9c", "text": "I think you need a diversified portfolio, and index funds can be a part of that. Make sure that you understand the composition of your funds and that they are in fact invested in different investments.", "title": "" }, { "docid": "a32f54bdd61a5215210518695d1f65e1", "text": "\"I think you are asking about actively managed funds vs. indexes and possibly also vs. diversified funds like target date funds. This is also related to the question of mutual fund vs. ETF. First, a fund can be either actively managed or it can attempt to track an index. An actively managed fund has a fund manager who tries to find the best stocks to invest in within some constraints, like \"\"this fund invests in large cap US companies\"\". An index fund tries to match as closely as possible the performance of an index like the S&P 500. A fund may also try to offer a portfolio that is suitable for someone to put their entire account into. For example, a target date fund is a fund that may invest in a mix of stocks, bonds and foreign stock in a proportion that would be appropriate to someone expecting to retire in a certain year. These are not what people tend to think of as the canonical examples of mutual funds, even though they share the same legal structure and investment mechanisms. Secondly, a fund can either be a traditional mutual fund or it can be an exchange traded fund (ETF). To invest in a traditional mutual fund, you send money to the fund, and they give you a number of shares equal to what that money would have bought of the net asset value (NAV) of the fund at the end of trading on the day they receive your deposit, possibly minus a sales charge. To invest in an ETF, you buy shares of the ETF on the stock market like any other stock. Under the covers, an ETF does have something similar to the mechanism of depositing money to get shares, but only big traders can use that, and it's not used for investing, but only for people who are making a market in the stock (if lots of people are buying VTI, Big Dealer Co will get 100,000 shares from Vanguard so that they can sell them on the market the next day). Historically and traditionally, ETFs are associated with an indexing strategy, while if not specifically mentioned, people assume that traditional mutual funds are actively managed. Many ETFs, notably all the Vanguard ETFs, are actually just a different way to hold the same underlying fund. The best way to understand this is to read the prospectus for a mutual fund and an ETF. It's all there in reasonably plain English.\"", "title": "" }, { "docid": "ead7c9267f9e549354648cf5ca4cd186", "text": "\"I though that only some hedge funds operated that way and others were specific vehicles to provide an efficient hedge? This one is described as \"\"betting against chipmakers\"\" and is blaming a substantial loss against one market, so it can't be doing a great job of hedging itself. Though I think we're saying the same thing and just have a different view of the common meaning of \"\"hedge fund\"\".\"", "title": "" }, { "docid": "0b4d041501b889e30080b61b2a31216c", "text": "You could certainly look at the holdings of index funds and choose index funds that meet your qualifications. Funds allow you to see their holdings, and in most cases you can tell from the description whether certain companies would qualify for their fund or not based on that description - particularly if you have a small set of companies that would be problems. You could also pick a fund category that is industry-specific. I invest in part in a Healthcare-focused fund, for example. Pick a few industries that are relatively diverse from each other in terms of topics, but are still specific in terms of industry - a healthcare fund, a commodities fund, an REIT fund. Then you could be confident that they weren't investing in defense contractors or big banks or whatever you object to. However, if you don't feel like you know enough to filter on your own, and want the diversity from non-industry-specific funds, your best option is likely a 'socially screened' fund like VFTSX is likely your best option; given there are many similar funds in that area, you might simply pick the one that is most similar to you in philosophy.", "title": "" }, { "docid": "7f0601be1f9b011df688d8b6ebf0f923", "text": "An index will drop a company for several reasons: A fund decides how close they want to mirror the index. Some do so exactly, others only approximate the index.", "title": "" }, { "docid": "e76b027a9e1943e499ed139aa5f86886", "text": "The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.", "title": "" }, { "docid": "64ffe186c7354d96182c0cee97da4d0b", "text": "\"As of right now it looks like you can't issue an ETF at least because the underlying \"\"commodity\"\" isn't regulated. (See Winkelvoss ETF). I suspect you would run into this problem with any 1940 act fund (mutual fund), but it's more a situation of \"\"not approved\"\" rather than illegal, so an MLP hedge fund structure would probably be fine. And some googling finds Iterative Instinct Management's Storj SPV.\"", "title": "" } ]	fiqa
9f6c6959accb0faf01a997d4d42310dc	Why doesn't the emerging markets index reflect GDP growth?	[ { "docid": "75c48506b317dc3518cb079bdcf946b9", "text": "\"GDP being a measurement for an economy's growth and with the stock market being driven (mostly) by company profits you would expect a tight correlation between GDP growth and stock market performance. After all, a growing economy should lead to a corresponding increase in profit right? But the stock market is heavily influenced by investor mentality; irrational exuberant buying and panic selling make the stock market far more volatile than GDP ever can be. Just look at the 2001 bubble and 2008 panic sell-off for famous examples. I feel emerging markets are particularly prone to overly optimistic buying to \"\"get in\"\" on the GDP growth followed by overly pessimistic selling when politics get unfavorable. Also keep in mind that GDP measurements are all done after the fact, the growth that is reported has already happened. The stock market might have already expected the reported growth and priced it in. A final point: governments and companies in emerging markets have a reputation (sometimes deserved) of poor governance, think corruption, nepotism etc. So even if the economy grows substantially investors might not believe they can profit from the growth. P.S. What do you base the \"\"no great increase\"\" on? Emerging markets have had a rough decade but that index would have still returned 9% annually if you held it since 2001.\"", "title": "" } ]	[ { "docid": "77709d67eb01b6301a7a4f77c3b801a8", "text": "\"I went to Morningstar's \"\"Performance\"\" page for FUSEX (Fideltiy's S&P 500 index fund) and used the \"\"compare\"\" tool to compare it with FOSFX and FWWFX, as well as FEMKX (Fidelity Emerging Markets fund). According to the data there, FOSFX outperformed FUSEX in 2012, FEMKX outperformed FUSED in 2010, and FWWFX outperformed FUSEX in both 2010 and 2012. When looking at 10- and 15-year trailing returns, both FEMKX and FWWFX outperformed FUSEX. What does this mean? It means it matters what time period you're looking at. US stocks have been on an almost unbroken increase since early 2009. It's not surprising that if you look at recent returns, international markets will not stack up well. If you go back further, though, you can find periods where international funds outperformed the US; and even within recent years, there have been individual years where international funds won. As for correlation, I guess it depends what you mean by \"\"low\"\". According to this calculator, for instance, FOSFX and FUSEX had a correlation of about 0.84 over the last 15 years. That may seem high, but it's still lower than, say, the 0.91 correlation between FUSEX and FSLCX (Fideltiy Small Cap). It's difficult to find truly low correlations among equity funds, since the interconnectedness of the global economy means that bull and bear markets tend to spread from one country to another. To get lower correlations you need to look at different asset classes (e.g., bonds). So the answer is basically that some of the funds you were already looking at may be the ones you were looking for. The trick is that no category will outperform any other over all periods. That's exactly what volatility means --- it means the same category that overperforms in some periods will underperform in others. If international funds always outperformed, no one would ever buy US funds. Ultimately, if you're trying to decide on investments for yourself, you need to take all this information into account and combine it with your own personal preferences, risk tolerance, etc. Anecdotally, I recently did some simulation-based analyses of Vanguard funds using data from the past 15 years. Over this period, Vanguard's emerging markets fund (VEIEX) comes out far ahead of US funds, and is also the least-correlated with the S&P 500. But, again, this analysis is based only on a particular slice of time.\"", "title": "" }, { "docid": "62c2505b9c73061efe7702f188ad3fbd", "text": "It's important to realize that any portfolio, if sufficiently diversified should track overall GDP growth, and anything growing via a percentage per annum is going to double eventually. (A good corner-of-napkin estimate is 70/the percentage = years to double). Just looking at your numbers, if you initially put in the full $7000, an increase to $17000 after 10 years represents a return of ~9.3% per annum (to check my math $7000*1.09279^10 ≈ $17000). Since you've been putting in the $7000 over 10 years the return is going to be a bit more than that, but it's not possible to calculate based on the information given. A return of 9.3% is not bad (some rules of thumb: inflation is about 2-4% so if you are making less than that you're losing money, and 6-10% per annum is generally what you should expect if your portfolio is tracking the market)... I wouldn't consider that rate of return to be particularly amazing, but it's not bad either, as you've done better than you would have if you had invested in an ETF tracking the market. The stock market being what it is, you can't rule out the possibility that you got lucky with your stock picks. If your portfolio was low-risk, a return of 9%ish could be considered amazing, but given that it's about 5-6 different stocks what I'd consider amazing would be a return of 15%+ (to give you something to shoot for!) Either way, for your amount of savings you're probably better off going with a mutual fund or an ETF. The return might be slightly lower, but the risk profile is also lower than you picking your stocks, since the fund/ETF will be more diversified. (and it's less work!)", "title": "" }, { "docid": "0a39e508126cf4dbdb4d2f1ff5c3bfeb", "text": "I feel something needs to be addressed The last 100 years have been a period of economic prosperity for the US, so it's no surprise that stocks have done so well, but is economic prosperity required for such stock growth? Two world wars. The Great Depression. The dotcom bust. The telecom bust. The cold war. Vietnam, Korea. OPEC's oil cartel. The Savings and Loans crisis. Stagflation. The Great Recession. I could go on. While I don't fully endorse this view, I find it convincing: If the USA has managed 7% growth through all those disasters, is it really preposterous to think it may continue?", "title": "" }, { "docid": "c09e215e6a32255c048d38b6554d40d4", "text": "Long term taxation cannot by itself surpress GDP if those same taxes are being used on goods and services. It can surpress growth, and cause a fall off if people are leaving the area or closing businesses but at some point it'll hit an equilibrium point. GDP does include government spending after all.", "title": "" }, { "docid": "cb40a5c5e8bfae437717b1aef30d92ca", "text": "\"Very different statement. \"\"There's an asset bubble/opacity in Chinese real estate and equities\"\" is a BIT different from \"\"I never trust anything coming out of China. They're all smoke and mirrors.\"\" China has, in fact, had rapid economic growth for decades. The fact that you are a student makes me suspect you've been taught laissez-faire ideology rather than a more historically-grounded economic analysis that includes the role of things like infrastructure projects in economic growth (the primary driver of China's boom).\"", "title": "" }, { "docid": "ae119a1854147b5b6ee88b6f3dd09dc4", "text": "\"He is wrong. Using Total Return (Reinvesting Dividend), from the peak in December 1999, it only took 6 years to recover. You can check the data for free here. Make sure you choose \"\"Gross Index Level\"\". ACWI Index is Developed Markets + Emerging Markets. World Index is Developed Markets only.\"", "title": "" }, { "docid": "7d3ad473454d6b6e90a3e42310e00a8c", "text": "Bloomberg Commodity Index is one you check out. [link](https://www.bloomberg.com/quote/BCOM:IND) Oil does have a heavier weighting though (around 20% through Brent and WTI iirc) so while things like aluminium, gold, corn etc are up for the year BCOM is down YTD. Still a decent broad-based index for you to consider.", "title": "" }, { "docid": "9ba531704a6a6569d654bfcf27ce3fb7", "text": "\"Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs. They offer the same data-centric information for other investments as well, such as individual stocks and bonds. You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds. Other investment management companies (Fidelity, Schwab, etc.) presumably do as well. You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds. That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into \"\"established\"\" economies and a certain fraction into \"\"emerging\"\" ones. I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little.\"", "title": "" }, { "docid": "be3f373f8d70b137501de20014c0ab9d", "text": "> So what’s the problem? When investors put their money in an index like the S&P 500, they believe that they are just investing in “the market”, broadly. But now, these for-profit indices have made an active decision to exclude certain stocks on the basis of their voting structures. The author doesn't seem to understand the difference between the companies creating the passive funds that track the indices and the companies creating the indices that are being tracked. Indices have always been subject to somewhat arbitrary rules for what is being included and how its value is calculated. So this article is completely missing the point.", "title": "" }, { "docid": "dabc7412a6bb3aa6b04232e77185d57a", "text": "\"The June 2014 issue of Barclays Wealth's Compass magazine had a very nice succinct article on this topic: \"\"Value investing – does a rules-based approach work?\"\". It examines the performance of value and growth styles of investment in the MSCI World and S&P500 arenas for a few decades back, and reveals a surprisingly complicated picture, depending on sector, region and time-period. Their summary is basically: A closer look however shows that the overall success of value strategies derives mainly from the 1970s and 1980s. ... in the US, value has underperformed growth for over 25 years since peaking in July 1988. Globally, value experienced a 30% setback in the late 1990s so that there are now periods with a length of nearly 13 years over which growth has outperformed. So the answer to \"\"does it beat the market?\"\" is \"\"it depends...\"\". Update in response to comment below: the question of risk adjusted returns is interesting. To quote another couple of fragments from the piece: Since December 1974, [MSCI world] value has outperformed growth by 2.6% annually, with lower risk. This outperformance on a risk-adjusted basis is the so-called value premium that Eugene Fama and Kenneth French first identified in 1992... and That outperformance has, however, come with more risk. Historical volatility of the pure style indices has been 21-22% compared to 16% for the market. ... From a maximum drawdown perspective, the 69% drop of pure value during the financial crisis exceeded the 51% drop of the overall market.\"", "title": "" }, { "docid": "c605fb562aaa9d64793b16976ff99d90", "text": "I believe you're looking for some sort of formula that will determine how changes in savings, investing, and spending will affect economic growth. If such a formula existed (and worked) then central planning would work since a couple of people could pull some levers to encourage more savings, or more investing, or more spending - depending on what was needed at that particular time. Unfortunately, no magic formula exists and so no person has enough knowledge to determine what the proper amount of savings, investing, or spending should be at a given time. I found this resource particular helpful in describing the interactions between savings, consumption, and investing.", "title": "" }, { "docid": "20984d9997018556431fd926c4c88de0", "text": "I'm not sure I'm following what you said. GDP PPP standardizes prices across countries to better compare how much is produced in each country. So 2 Big Macs sold at a low price in china results in a lower GDP than 1 expensive Big Mac in the US. Although with GDP PPP, china would have the bigger figure after adjusting for price differences since it produces more.", "title": "" }, { "docid": "e5997e6ec7e713084af4c61b9c04ffb6", "text": "First of all, Mezz lending is, in my opinion, the riskiest piece of the capital stack. It has all the drawbacks of debt with none of the benefits of equity. You can be rest assured, when shit goes south, the market goes through the mezz about as fast as you can blink. They are the most marginal piece of the capital stack and only seem to appear in red hot markets (which, is to say, late stage markets). Also, this article defines terms and talks about economic macro metrics like that somehow informs the reader that the Chinese Real estate market is a good investment. Yes, GDP growth informs rent growth and overall demand but that like saying GDP growth increases corporate earning. No duh. That doesn't tell me if the the cap rate already prices in that growth or what if the pipeline of development is overbuilt. Not to mention, investing in another market, in the most speculative risk curve of an alternative asset with no liquidity or legal recourse. Yeah, no. edit: and current exchange risk.", "title": "" }, { "docid": "00e8698d18a6edb4b5965c3a58a3bfa3", "text": "GDP growth is one of several components of nominal equity returns; the (probably not comprehensive) list includes: Real GDP/earnings growth Inflation Dividend payouts and share buybacks Multiple expansion (the market willing to pay more per dollar of earnings) Changes in interest rate expectations As other comments mention you could also see larger companies tending to deliver higher returns as for any number of reasons related to M&A, expansion into foreign markets, etc.", "title": "" }, { "docid": "6a6596afc17a33022b76c8b593409015", "text": "The value premium would state the opposite in fact if one looks at the work of Fama and French. The Investment Entertainment Pricing Theory (INEPT) shows a graph with the rates on small-cap/large-cap and growth/value combinations that may be of interest as well for another article noting the same research. Index fund advisors in Figure 9-1 shows various historical returns up to 2012 that may also be useful here for those wanting more detailed data. How to Beat the Benchmark is from 1998 that could be interesting to read about index funds and beating the index in a simpler way.", "title": "" } ]	fiqa
fd491c397954a4074b590ebeee195656	Why do 10 year Treasury bond yields affect mortgage interest rates?	[ { "docid": "ebe6ac0b79f9cec2027e75b7e1e713e5", "text": "You’ve really got three or four questions going here… and it’s clear that a gap in understanding one component of how bonds work (pricing) is having a ripple effect across the other facets of your question. The reality is that everybody’s answers so far touch on various pieces of your general question, but maybe I can help by integrating. So, let’s start by nailing down what your actual questions are: 1. Why do mortgage rates (tend to) increase when the published treasury bond rate increases? I’m going to come back to this, because it requires a lot of building blocks. 2. What’s the math behind a bond yield increasing (price falling?) This gets complicated, fast. Especially when you start talking about selling the bond in the middle of its time period. Many people that trade in bonds use financial calculators, Excel, or pre-calculated tables to simplify or even just approximate the value of a bond. But here’s a simple example that shows the math. Let’s say we’ve got a bond that is issued by… Dell for $10,000. The company will pay it back in 5 years, and it is offering an 8% rate. Interest payments will only be paid annually. Remember that the amount Dell has promised to pay in interest is fixed for the life of the bond, and is called the ‘coupon’ rate. We can think about the way the payouts will be paid in the following table: As I’m sure you know, the value of a bond (its yield) comes from two sources: the interest payments, and the return of the principal. But, if you as an investor paid $14,000 for this bond, you would usually be wrong. You need to ‘discount’ those amounts to take into account the ‘time value of money’. This is why when you are dealing in bonds it is important to know the ‘coupon rate’ (what is Dell paying each period?). But it is also important to know your sellers’/buyers’ own personal discount rates. This will vary from person to person and institution to institution, but it is what actually sets the PRICE you would buy this bond for. There are three general cases for the discount rate (or the MARKET rate). First, where the market rate == the coupon rate. This is known as “par” in bond parlance. Second, where the market rate < the coupon rate. This is known as “premium” in bond parlance. Third, where the market rate > coupon rate. This is known as a ‘discount’ bond. But before we get into those in too much depth, how does discounting work? The idea behind discounting is that you need to account for the idea that a dollar today is not worth the same as a dollar tomorrow. (It’s usually worth ‘more’ tomorrow.) You discount a lump sum, like the return of the principal, differently than you do a series of equal cash flows, like the stream of $800 interest payments. The formula for discounting a lump sum is: Present Value=Future Value* (1/(1+interest rate))^((# of periods)) The formula for discounting a stream of equal payments is: Present Value=(Single Payment)* (〖1-(1+i)〗^((-n))/i) (i = interest rate and n = number of periods) *cite investopedia So let’s look at how this would look in pricing the pretend Dell bond as a par bond. First, we discount the return of the $10,000 principal as (10,000 (1 / 1.08)^5). That equals $6,807.82. Next we discount the 5 equal payments of $800 as (800* (3.9902)). I just plugged and chugged but you can do that yourself. That equals $3,192.18. You may get slightly different numbers with rounding. So you add the two together, and it says that you would be willing to pay ($6,807.82 + $3,192.18) = $10,000. Surprise! When the bond is a par bond you’re basically being compensated for the time value of money with the interest payments. You purchase the bond at the ‘face value’, which is the principal that will be returned at the end. If you worked through the math for a 6% discount rate on an 8% coupon bond, you would see that it’s “premium”, because you would pay more than the principal that is returned to obtain the bond [10,842.87 vs 10,000]. Similarly, if you work through the math for a 10% discount rate on an 8% coupon bond, it’s a ‘discount’ bond because you will pay less than the principal that is returned for the bond [9,241.84 vs 10,000]. It’s easy to see how an investor could hold our imaginary Dell bond for one year, collect the first interest payment, and then sell the bond on to another investor. The mechanics of the calculations are the same, except that one less interest payment is available, and the principal will be returned one year sooner… so N=4 in both formulae. Still with me? Now that we’re on the same page about how a bond is priced, we can talk about “Yield To Maturity”, which is at the heart of your main question. Bond “yields” like the ones you can access on CNBC or Yahoo!Finance or wherever you may be looking are actually taking the reverse approach to this. In these cases the prices are ‘fixed’ in that the sellers have listed the bonds for sale, and specified the price. Since the coupon values are fixed already by whatever organization issued the bond, the rate of return can be imputed from those values. To do that, you just do a bit of algebra and swap “present value” and “future value” in our two equations. Let’s say that Dell has gone private, had an awesome year, and figured out how to make robot unicorns that do wonderful things for all mankind. You decide that now would be a great time to sell your bond after holding it for one year… and collecting that $800 interest payment. You think you’d like to sell it for $10,500. (Since the principal return is fixed (+10,000); the number of periods is fixed (4); and the interest payments are fixed ($800); but you’ve changed the price... something else has to adjust and that is the discount rate.) It’s kind of tricky to actually use those equations to solve for this by hand… you end up with two equations… one unknown, and set them equal. So, the easiest way to solve for this rate is actually in Excel, using the function =RATE(NPER, PMT, PV, FV). NPER = 4, PMT = 800, PV=-10500, and FV=10000. Hint to make sure that you catch the minus sign in front of the present value… buyer pays now for the positive return of 10,000 in the future. That shows 6.54% as the effective discount rate (or rate of return) for the investor. That is the same thing as the yield to maturity. It specifies the return that a bond investor would see if he or she purchased the bond today and held it to maturity. 3. What factors (in terms of supply and demand) drive changes in the bond market? I hope it’s clear now how the tradeoff works between yields going UP when prices go DOWN, and vice versa. It happens because the COUPON rate, the number of periods, and the return of principal for a bond are fixed. So when someone sells a bond in the middle of its term, the only things that can change are the price and corresponding yield/discount rate. Other commenters… including you… have touched on some of the reasons why the prices go up and down. Generally speaking, it’s because of the basics of supply and demand… higher level of bonds for sale to be purchased by same level of demand will mean prices go down. But it’s not ‘just because interest rates are going up and down’. It has a lot more to do with the expectations for 1) risk, 2) return and 3) future inflation. Sometimes it is action by the Fed, as Joe Taxpayer has pointed out. If they sell a lot of bonds, then the basics of higher supply for a set level of demand imply that the prices should go down. Prices going down on a bond imply that yields will go up. (I really hope that’s clear by now). This is a common monetary lever that the government uses to ‘remove money’ from the system, in that they receive payments from an investor up front when the investor buys the bond from the Fed, and then the Fed gradually return that cash back into the system over time. Sometimes it is due to uncertainty about the future. If investors at large believe that inflation is coming, then bonds become a less attractive investment, as the dollars received for future payments will be less valuable. This could lead to a sell-off in the bond markets, because investors want to cash out their bonds and transfer that capital to something that will preserve their value under inflation. Here again an increase in supply of bonds for sale will lead to decreased prices and higher yields. At the end of the day it is really hard to predict exactly which direction bond markets will be moving, and more importantly WHY. If you figure it out, move to New York or Chicago or London and work as a trader in the bond markets. You’ll make a killing, and if you’d like I will be glad to drive your cars for you. 4. How does the availability of money supply for banks drive changes in other lending rates? When any investment organization forms, it builds its portfolio to try to deliver a set return at the lowest risk possible. As a corollary to that, it tries to deliver the maximum return possible for a given level of risk. When we’re talking about a bank, DumbCoder’s answer is dead on. Banks have various options to choose from, and a 10-year T-bond is broadly seen as one of the least risky investments. Thus, it is a benchmark for other investments. 5. So… now, why do mortgage rates tend to increase when the published treasury bond yield rate increases? The traditional, residential 30-year mortgage is VERY similar to a bond investment. There is a long-term investment horizon, with fixed cash payments over the term of the note. But the principal is returned incrementally during the life of the loan. So, since mortgages are ‘more risky’ than the 10-year treasury bond, they will carry a certain premium that is tied to how much more risky an individual is as a borrower than the US government. And here it is… no one actually directly changes the interest rate on 10-year treasuries. Not even the Fed. The Fed sets a price constraint that it will sell bonds at during its periodic auctions. Buyers bid for those, and the resulting prices imply the yield rate. If the yield rate for current 10-year bonds increases, then banks take it as a sign that everyone in the investment community sees some sign of increased risk in the future. This might be from inflation. This might be from uncertain economic performance. But whatever it is, they operate with some rule of thumb that their 30-year mortgage rate for excellent credit borrowers will be the 10-year plus 1.5% or something. And they publish their rates.", "title": "" }, { "docid": "34355b7409a90fc5e25f780b12d07c66", "text": "The yield on treasury bond indicates the amount of money anyone at can make at virtually zero risk. So lets say banks have X [say 100] amount of money. They can either invest this in treasury bonds and get Y% [say 1%] interest that is very safe, or invest into mortgage loans [i.e. lend it to people] at Y+Z% [say at 3%]. The extra Z% is to cover the servicing cost and the associated risk. (Put another way, if you wanted only Y%, why not invest into treasury bonds, rather than take the risk and hassle of getting the same Y% by lending to individuals?) In short, treasury bond rates drive the rate at which banks can invest surplus money in the market or borrow from the market. This indirectly translates into the savings & lending rates to the banks' customers.", "title": "" }, { "docid": "15e8bee2da522fc40bf064208134acbd", "text": "yield on a Treasury bond increases This primarily happens when the government increases interest rates or there is too much money floating around and the government wants to suck out money from the economy, this is the first step not the other way around. The most recent case was Fed buying up bonds and hence releasing money in to the economy so companies and people start investing to push the economy on the growth path. Banks normally base their interest rates on the Treasury bonds, which they use as a reference rate because of the probability of 0 default. As mortgage is a long term investment, so they follow the long duration bonds issued by the Fed. They than put a premium on the money lent out for taking that extra risk. So when the governments are trying to suck out money, there is a dearth of free flowing money and hence you pay more premium to borrow because supply is less demand is more, demand will eventually decrease but not in the short run. Why do banks increase the rates they loan money at when people sell bonds? Not people per se, but primarily the central bank in a country i.e. Fed in US.", "title": "" }, { "docid": "fda38f2836f6ffc43aba5c23742f35a5", "text": "\"The simple answer is that, even though mortgages can go for 10, 15, 20 and 30 year terms in the U.S., they're typically backed by bonds sold to investors that mature in 10 years, which is the standard term for most bonds. These bonds, in the open market, are compared by investors with the 10-year Treasury note, which is the gold standard for low-risk investment; the U.S. Government has a solid history of always paying its bills (though this reputation is being tested in recent years with fights over the debt ceiling and government budgets). The savvy investor, therefore, knows that he or she can make at least the yield from the 10-year T-note in that time frame, with virtually zero risk. Anything else on the market is seen as being a higher risk, and so investors demand higher yields (by making lower bids, forcing the issuer to issue more bonds to get the money it needs up front). Mortgage-backed securities are usually in the next tier above T-debt in terms of risk; when backed by prime-rate mortgages they're typically AAA-rated, making them available to \"\"institutional investors\"\" like banks, mutual funds, etc. This forms a balancing act; mortgage-backed securities issuers typically can't get the yield of a T-note, because no matter how low their risk, T-debt is lower (because one bank doesn't have the power to tax the entire U.S. population). But, they're almost as good because they're still very stable, low-risk debt. This bond price, and the resulting yield, is in turn the baseline for a long-term loan by the bank to an individual. The bank, watching the market and its other bond packages, knows what it can get for a package of bonds backed by your mortgage (and others with similar credit scores). It will therefore take this number, add a couple of percentage points to make some money for itself and its stockholders (how much the bank can add is tacitly controlled by other market forces; you're allowed to shop around for the lowest rate you can get, which limits any one bank's ability to jack up rates), and this is the rate you see advertised and - hopefully - what shows up on your paperwork after you apply.\"", "title": "" }, { "docid": "c26765078c78e8b309ff703f65207fe4", "text": "Different bonds (and securitized mortgages are bonds) that have similar average lives tend to have similar yields (or at least trade at predictable yield spreads from one another). So, why does a 30 year mortgage not trade in lock-step with 30-year Treasuries? First a little introduction: Mortgages are pooled together into bundles and securitized by the Federal Agencies: Fannie Mae, Freddie Mac, and Ginnie Mae. Investors make assumptions about the prepayments expected for the mortgages in those pools. As explained below: those assumptions show that mortgages tend to have an average life similar to 10-year Treasury Notes. 100% PSA, a so-called average rate of prepayment, means that the prepayment increases linearly from 0% to 6% over the first 30 months of the mortgage. After the first 30 months, mortgages are assumed to prepay at 6% per year. This assumption comes from the fact that people are relatively unlikely to prepay their mortgage in the first 2 1/2 years of the mortgage's life. See the graph below. The faster the repayments the shorter the average life of the mortgage. With 150% PSA a mortgage has an average life of nine years. On average your investment will be returned within 9 years. Some of it will be returned earlier, and some of it later. This return of interest and principal is shown in the graph below: The typical investor in a mortgage receives 100% of this investment back within approximately 10 years, therefore mortgages trade in step with 10 year Treasury Notes. Average life is defined here: The length of time the principal of a debt issue is expected to be outstanding. Average life is an average period before a debt is repaid through amortization or sinking fund payments. To calculate the average life, multiply the date of each payment (expressed as a fraction of years or months) by the percentage of total principal that has been paid by that date, summing the results and dividing by the total issue size.", "title": "" } ]	[ { "docid": "8071a6472c0484cb470020ad36178cfc", "text": "All else constant, yes. It's one more reason rates aren't being raised quickly. The housing market is very delicate. Before the crash, a lot of homes in my area were 25% cheaper than after the rates dropped to historic lows. My area wasn't heavily affected by the recession, but homeowners still greatly benefitted from the increase in housing values which led to a lot more investment, though the houses aren't actually worth anything more. To raise rates dramatically now would be to trap a lot of homebuyers in homes that aren't worth what they owe.", "title": "" }, { "docid": "e768a08c0ab799ca0b2022ed60642360", "text": "But it also can't be 1.46%, because that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. The rates are displayed as of Today. As the footnote suggests these are to be read with Maturities. A Treasury with 1 year Maturity is at 1.162% and a Treasury with 30Y Maturity is at 2.78%. Generally Bonds with longer maturity terms give better yields than bonds of shorter duration. This indicates the belief that in long term the outlook is positive.", "title": "" }, { "docid": "39d088a91a2089dc380ac875eee0e4b4", "text": "The Fed sets the overnight borrowing costs by setting its overnight target rate. The markets determine the rates at which the treasury can borrow through the issuance of bonds. The Fed's actions will certainly influence the price of very short term bonds, but the Fed's influence on anything other than very short term bonds in the current environment is very muted. Currently, the most influential factor keeping bond prices high and yields low is the high demand for US treasuries coming from overseas governments and institutions. This is being caused by two factors : sluggish growth in overseas economies and the ongoing strength of the US dollar. With many European government bonds offering negative redemption yields, income investors see US yields as relatively attractive. Those non-US economies which do not have negative bond yields either have near zero yields or large currency risks or both. Political issues such as the survival of the Euro also weigh heavily on market perceptions of the current attractiveness of the US dollar. Italian banks may be about to deliver a shock to the Eurozone, and the Spanish and French banks may not be far behind. Another factor is the continued threat of deflation. Growth is slowing around the world which negatively effects demand. Commodity prices remain depressed. Low growth and recession outside of the US translate into a prolonged period of near zero interest rates elsewhere together with renewed QE programmes in Europe, Japan, and possibly elsewhere. This makes the US look relatively attractive and so there is huge demand for US dollars and bonds. Any significant move in US interest rates risks driving to dollar ever higher which would be very negative for the future earning of US companies which rely on exports and foreign income. All of this makes the market believe that the Fed's hands are tied and low bond yields are here for the foreseeable future. Of course, even in the US growth is relatively slow and vulnerable to a loss of steam following a move in interest rates.", "title": "" }, { "docid": "5fc1b6f50dab7b6be9ad8ae72e29381d", "text": "\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \"\"interest rate\"\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \"\"interest rates\"\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\"", "title": "" }, { "docid": "a5983c003ade5140773b9f348f02fc90", "text": "I'll get to my answer in a moment, but first need to put focus on the two key components of bond prices: interest rates and credit risk. Suppose that the 10-year treasury has a coupon of 2% per year (it would be paid as 1% twice per year, in reality). If you own one contract of the bond which we suppose has a so-called face-value of $100, then this contract will over the ten years pay you a total of $20 in coupons, then $100 at redemption. So $120 in total. Would you therefore buy this 10-year treasury bond for $120, or more, or less? Well, if there were bank accounts around which were offering you an interest rate of 2% per year fixed for the next 10 years, then you could alternatively generate $120 from just $100 deposited now (if we assume that the interest paid is not put back in the account to earn 2% per year). Consequently, a price of $100 for the treasury would seem about right. However, suppose that you are not very confident that the banks that offer these accounts will even be around in 10 years time, maybe they will fail before that and you'll never get your money back. Then you might say to yourself that the above calculation is mathematically right, but not really a full representation of the different risks. And you conclude that maybe treasuries should be a bit more expensive, because they offer better credit risk than bank deposits. All of this just to show that the price of bonds is a comparative valuation of rates and credit: you need to know the general level of interest rates available in other investment products (even in stocks, I'd say), you need to have a feel for how much credit risk there is in the different investment products. Most people think that 'normally' interest rates are positive, because we are so familiar with the basic principle that: if I lend you some money then you need to pay me some interest. But in a world where everyone is worried about bank failures, people might prefer to effectively 'deposit' our savings with the US treasury (by buying their bonds) than to deposit their savings in the local bank. The US treasury will see this extra demand and put up the prices of their bonds (they are not stupid at the US treasury, you know!), so maybe the price of the 10-year treasury will go above $120. It could, right? In this scenario, the implied yield on the 10-year treasury is negative. There you go, yields have gone negative because of credit risk concerns.", "title": "" }, { "docid": "f057ba558284c21dbce37c95a845abb6", "text": "Sheegan has a great explanation of how the TBA market contributes to mortgage rates. The 30 Year Mortgage rates are closely tied to the 10-Year Treasury. One can track this rate at many stock quoting sites using symbol TNX.", "title": "" }, { "docid": "2967b77ae227b3ece809a193dbd635fa", "text": "\"The most fundamental observation of bond pricing is this: Bond price is inversely proportional to bond yields When bond yields rise, the price of the bond falls. When bond yields fall, the price of the bond rises. Higher rates are \"\"bad\"\" for bonds. If a selloff occurs in the Russian government bond space (i.e. prices are going down), the yield on that bond is going to increase as a consequence.\"", "title": "" }, { "docid": "4ab0b024ef52c5ac19a6f78b16f7b899", "text": "Compound growth isn't a myth, it just takes patience to experience. A 10% annual return will double the investment not in 10 years, but just over 7. Even though a mortgage claims to use simple interest, if your loan is 5% and there's 14 years to go, $100 extra principal will knock off $200 from the final payment. The same laws of compounding and Rule of 72 are at play.", "title": "" }, { "docid": "60c7a63fe5895530895d65fd191b7bab", "text": "The 10yr bond pays coupons semi annually. The yield % is what you would get annually if you hold the bond to full term. The coupon payment won't be exactly 1.65%/2 because of how bond pricing and yields work. The yield commonly quoted does not tell you how much each interest payment is. You have to look at the price and coupon of a specific individual bond. The rate you see is the market equilibrium yield at the present. Example, I offer two different people two different bonds. Joe buys a 10yr bond paying 5% coupons semi annually at a par value of $1000. I charge him $1000. Bob wants to buy a 10yr bond paying 10% coupons semi annually at a par value of $1000. I charge him $1500 for this. The yield is similar between the two (not equal due to math details but lets assume). So at the end of 10 yrs, the two have roughly the same total amount of $. Bob's paid more each year but he paid more up front. This is why the federal govt can issue bonds with diff coupons and the market prices them so the yield rises/falls to the market clearing yield.", "title": "" }, { "docid": "2aaca1bc531b6eef0e29db9a819bcf72", "text": "Bonds can increase in price, if the demand is high and offer solid yield if the demand is low. For instance, Russian bond prices a year ago contracted big in price (ie: fell), but were paying 18% and made a solid buy. Now that the demand has risen, the price is up with the yield for those early investors the same, though newer investors are receiving less yield (about 9ish percent) and paying higher prices. I've rarely seen banks pay more variable interest than short term treasuries and the same holds true for long term CDs and long term treasuries. This isn't to say it's impossible, just rare. Also variable is different than a set term; if you buy a 10 year treasury at 18%, that means you get 18% for 10 years, even if interest rates fall four years later. Think about the people buying 30 year US treasuries during 1980-1985. Yowza. So if you have a very large amount of money you will store it in bonds as its much less likely that the US treasury will go bankrupt than your bank. Less likely? I don't know about your bank, but my bank doesn't owe $19 trillion.", "title": "" }, { "docid": "9f6eb9bab6cfd828e5f156662dbcbb2a", "text": "Imagine that the existing interest rate is 5%. So on a bond with face value of 100, you would be getting a $5 coupon implying a 5% yield. Now, if let's say the interest rates go up to 10%, then a new bond issued with a face value of 100 will give you a coupon of $10 implying a 10% yield. If someone in the bond market buys your bond after interest price adjustment, in order to make the 10% yield (which means that an investor typically targets at least the risk-free rate on his investments) he needs to buy your bond at $50 so that a $5 coupon can give a 10% yield. The reverse happens when interest rates go down. I hope this somewhat clears the picture. Yield = Coupon/Investment Amount Update: Since the interest rate of the bond does not change after its issuance, the arbitrage in the interest rate is reflected in the market price of the bond. This helps in bringing back the yields of old bonds in-line with the freshly issued bonds.", "title": "" }, { "docid": "4d7f0dab1da044ee38655d1d3c8a4adb", "text": "Leverage increase returns, but also risks, ie, the least you can pay, the greater the opportunity to profit, but also the greater the chance you will be underwater. Leverage is given by the value of your asset (the house) over the equity you put down. So, for example, if the house is worth 100k and you put down 20k, then the leverage is 5 (another way to look at it is to see that the leverage is the inverse of the margin - or percentage down payment - so 1/0.20 = 5). The return on your investment will be magnified by the amount of your leverage. Suppose the value of your house goes up by 10%. Had you paid your house in full, your return would be 10%, or 10k/100k. However, if you had borrowed 80 dollars and your leverage was 5, as above, a 10% increase in the value of your house means you made a profit of 10k on a 20k investment, a return of 50%, or 10k/20k*100. As I said, your return was magnified by the amount of your leverage, that is, 10% return on the asset times your leverage of 5 = 50%. This is because all the profit of the house price appreciation goes to you, as the value of your debt does not depend on the value of the house. What you borrowed from the bank remains the same, regardless of whether the price of the house changed. The problem is that the amplification mechanism also works in reverse. If the price of the house falls by 10%, it means now you only have 10k equity. If the price falls enough your equity is wiped out and you are underwater, giving you an incentive to default on your loan. In summary, borrowing tends to be a really good deal: heads you win, tails the bank loses (or as happened in the US, the taxpayer loses).", "title": "" }, { "docid": "238acb579177dbbd1370975042f0620f", "text": "Usually Bonds are used to raised capital when a lender doesn't want to take on sole risk of lending. If you are looking at raising anything below 10m bonds are not a option because the bank will just extend you a line of credit.", "title": "" }, { "docid": "cd32495b2fc65a7b03e82757110cf866", "text": "\"The CBOE states, in an investor's guide to Interest Rate Options: The Options’ Underlying Values Underlying values for the option contracts are 10 times the underlying Treasury yields (rates)— 13-week T-bill yield (for IRX), 5-year T-note yield (for FVX), 10-year T-note yield (for TNX) and 30-year T-bond yield (for TYX). The Yahoo! rate listed is the actual Treasury yield; the Google Finance and CBOE rates reflect the 10 times value. I don't think there's a specific advantage to \"\"being contrary\"\", more likely it's a mistake, or just different.\"", "title": "" }, { "docid": "7f75c0771b06c01b4141fee10ae68e63", "text": "I think your comment sounded a lot more reasonable and aware of how it goes than the writer; and yes it does makes sense that for little investors like retailers, there is not really a point to consider it, as you said. I don't think it redeems the article at all.", "title": "" } ]	fiqa
777d2eac607a416364e4662085d7025f	If banks offer a fixed rate lower than the variable rate, is that an indication interest rates may head down?	[ { "docid": "53a4702afa7b5c8d2feab0fd72d0caa6", "text": "\"This is known as an inverted yield curve. It is rare, and can be caused by a few things, as discussed at the link. It can be because the view is that the economy will slow and therefore interest rates will go down. It is not caused by \"\"secret\"\" preparation. It could also be that there is generally in the world a move towards safer investments, making their interest rates cheaper. If I had to guess (and this guess is worth what you paid for it) it is because Australia's interest rate is significantly greater than other parts of the world, long term lower risk investment is being attracted there, as it gets a better return than elsewhere. This is pushing rates lower on long term bonds. So I would not take it as an indication of a soon-to-be economic downturn simply because in this global economy Australia is different in ways that influence investment and move interest rates.\"", "title": "" }, { "docid": "bad7733c71b5c618301ebf612cd85e05", "text": "Usually that is the case that when fixed rates are lower than the variable rates, it is an indication that the banks feel the next movement in rates could be down. You also need to look at the fixed rates for different periods, for example 1 year fixed compared to 3 year fixed and 5 year fixed rates. If you find the 3 and 5 year fixed rates are higher than the 1 year fixed rates this could be an indication that the banks feel rates will fall in the short term but the falls won't last long and will continue to rise after a year or so. If the 3 year fixed rates are also low in comparison, then the banks may feel that the economy is heading for a longer term down trend. The banks won't want to lose out, so will change their fixed rates on their perception of where they feel the economy is headed. Since your post in May 2011, the standard variable rate has since dropped twice (in November and December) to be at 7.30%. You will also find that fixed rates have also been dropped further by the banks, indicating additional future cuts in the variable rates. Regards, Victor", "title": "" } ]	[ { "docid": "b4e446ef6ed7ae3dba27349e0b3fede8", "text": "You're not crazy, but the banks are. Here's the problem: You're taking 100% LTV on property A - you won't be able to get a second mortgage for more than 80% total (including the current mortgage) LTV. That's actually something I just recently learned from my own experience. If the market is bad, the banks might even lower the LTV limit further. So essentially, at least 20% of your equity in A will remain on the paper. Banks don't like seeing the down-payment coming from anywhere other than your savings. Putting the downpayment from loan proceeds, even if not secured by the property which you're refinancing, will probably scare banks off. How to solve this? Suggest to deal with it as a business, putting both properties under a company/LLC, if possible. It might be hard to change the titles while you have loans on your properties, but even without it - deal with it as if it is a business. Approach your bank for a business loan - either secured by A or unsecured, and another investment loan for B. Describe your strategy to the banker (preferably a small community bank in the area where the properties are), and how you're going to fund the properties. You won't get rates as low as you have on A (3.25% on investment loan? Not a chance, that one is a keeper), but you might be able to get rid of the balloon/variable APR problem.", "title": "" }, { "docid": "48f0b8daf92c94325fe3993451500c40", "text": "The United States Federal Reserve has decided that interest rates should be low. (They think it may help the economy. The details matter little here though.) It will enforce this low rate by buying Treasury bonds at this very low interest rate. (Bonds are future money, so this means they pay a lot of money up front, for very little interest in the future. The Fed will pay more than anyone who offers less money up front, so they can set the price as long as they're willing to buy.) At the end of the day, Treasury bonds pay nearly no interest. Since there's little money to be made with Treasuries, people who want better-than-zero returns will bid up the current-price of any other bonds or similar loan-like instruments to get what whatever rate of return that they can. There's really no more than one price for money; you can think of the price of those bonds as basically (Treasury rate + some modifier based on the risk) percent. I realize thinking about bond prices is weird and different than other prices (you're measuring future-money using present-money and it's easy to be confused) and assure you it ultimately makes sense :) Anyway. Your savings account money has to compete with everyone else willing to lend money to banks. Everyone-else lends money for peanuts, so you get peanuts on your savings account too. Your banking is probably worth more to your bank on account of your check-card payment processing fees (collected from the merchant) than from the money they make lending out your savings (notice how many places have promotional rates if you make your direct deposits or use your check card to make a purchase N times a month). In Europe, it's similar, except you've got a different central bank. If Europe's bank operated radically differently for an extended period of time, you'd expect to see a difference in the exchange rates which would ultimately make the returns from investing in those currencies pretty similar as well. Such a change may show up domestically as inflation in the country with the loose-money policy, and internationally as weakness against other currencies. There's really only one price for money around the entire world. Any difference boils down to a difference in (perceived) risk.", "title": "" }, { "docid": "dc5d2f7ab87c363b8359dcfbff796599", "text": "The key word you are looking for is that you want to refinance the loan at a lower rate. Tell banks that and ask what they can offer you.", "title": "" }, { "docid": "feb21810230b9f43fca6b46a596cab28", "text": "\"I am lucky enough to have chosen a flexible mortgage that allows me to change payment amounts at certain, very lenient intervals (to a minimum amount). So when I was laid off, the first thing I did was call my bank to lower my payments to a level that allowed me some breathing room, at my new, lower income. If and when my family's income increases, I'll re-adjust my payments to a higher amount. But if you're concerned about the \"\"what if\"\"s in this economy, I'd definitely choose a mortgage that allows for flexibility so that you don't lose your house if you don't have to, particularly if your situation is temporary.\"", "title": "" }, { "docid": "c1065ee20942a2afea1ec71785bc1d8f", "text": "Makes sense so long as you can afford it while still maintaining at least six months living reserves. The sooner you own outright a decreasing asset the better which should be considered when selecting your loan term. However, with today's low rates and high performing stock market you may want to consider allowing that money to be put to better use. It all depends how risk adverse you are. That emotional aide of this decision and emotions have value, but only you can determine what that value is. So - generally speaking, the sooner you own an asset of decreasing value the better off you are, but in exceptionally low interest rate environments such as today there are, as mentioned, other things you may want to consider. Good luck and enjoy your new ride. Nothing better then some brand new wheels aye.", "title": "" }, { "docid": "9bd0f3fe069b9d41b6a0d7cbd12c89bf", "text": "I am currently in the process of purchasing a house. I am only putting 5% down. I see that some are saying that the traditional 20% down is the way to go. I am a first time homebuyer, and unfortunately we no longer live in the world where 20% down is mandatory, which is part of the reason why housing prices are so high. I feel it is more important that you are comfortable with what your monthly payments are as well as being informed on how interest rates can change how much you owe each month. Right now interest rates are pretty low, and it would almost be silly to put 20% down on your home. It might make more sense to put money in different vehicle right now, if you have extra, as the global economy will likely pick up and until it does, interest rates will likely stay low. Just my 2 cents worth. EDIT: I thought it would not be responsible of me not to mention that you should always have extra's saved for closing costs. They can be pricey, and if you are not informed of what they are, they can creep up on you.", "title": "" }, { "docid": "ca9ff7c27a27a446f5031e35247d5294", "text": "Asset prices are inversely related to interest rates. If you're valuing a business or a bond, if you use a lower interest rate you get a higher valuation. Historic equity returns benefit from a falling interest rate environment which won't be repeated as interest rates can only go so low. edit: typo", "title": "" }, { "docid": "a292093e9a0f0ce7871e0b2312b7f0f8", "text": "I've recently started studying a bit of finance (I am a software developer) and have a question regarding the Bank of England (BoE) announcement. The BoE agreed in maintaining its current interest rate (0.25% I think), although it announced it would be buying GILT (Government Bonds), wouldn't the purchase of bonds by a central bank make the interest rate move down? Isn't the goal of a central bank purchasing bonds, to move the interest rate? Is there a difference between adding liquidity to the market (increasing money supply) and changing the interest rate? Can these two things be separated? Thank you :)", "title": "" }, { "docid": "f4ffb2830cbb0448b37aaf4292b04e29", "text": "\"Since I can't vote up the answer yet, I will agree with it here. I find the best tactic when you call is to tell them you have an offer in hand and will use it if they don't match the rate exactly or discount it enough to save you the trouble of going through the process of a balance transfer. So if they balk and say \"\"No,\"\" then walk and go (to the in hand offer). Just remember, the worst they can say is \"\"No.\"\" If you don't even bother to ask, it's as if you did and they said \"\"No,\"\" as either scenario leaves you with the same result: an unchanged interest rate.\"", "title": "" }, { "docid": "3338ec3d0d5b89a5e26b1e9989b9d8b9", "text": "Interest rates are market driven. They tend to be based on the prime rate set by the federal reserve bank because of the tremendous lending capacity of that institution and that other loan originators will often fund their own lending (at least in part) with fed loans. However, there is no mandatory link between the federal reserve rate and the market rate. No law stipulates that rates cannot rise or fall. They will rise and fall as lenders see necessary to use their capital. Though a lender asking 10% interest might make no loans when others are willing to lend for 9%. The only protection you have is that we are (mostly) economically free. As a borrower, you are protected by the fact that there are many lenders. Likewise, as a lender, because there are many borrowers. Stability is simply by virtue of the fact that one market participant with inordinate pricing will find fewer counterparties to transact.", "title": "" }, { "docid": "c836582f2f36569871d4b8c5e68becd4", "text": "Some good and some bad here. The bad amounts to the fact that consumers are missing out on potential opportunity in the markets due to fear. Any financial advisor or analyst can tell you that there are a multitude of ways to enjoy the markets while limiting risk. You may not make a Million but, you will likely beat the savings account rate. On the good news front it is great that Americans continue to shed debt and are hesitant to take on more. Somewhere in the middle is the fact that some borrowers who may be able to qualify for lower rates can't get them due to depreciated home values. The bottom line there is that if you can afford your mortgage, be happy. You don't NEED to refinance for a lower rate, our grandparents never refinanced and they did ust fine.", "title": "" }, { "docid": "4b7f04d94c8e7840ef8cb467b3b6f302", "text": "\"When \"\"people say\"\", each person is referring to whatever he/she is looking at. Interest rates tend to move roughly the same, but often there is a bias regarding long vs. short term. In the US right now, short term interest rates are very low but there is a lot of chatter saying they will rise in the future. The differential between long term rates and short term rates is high compared to historical norms, suggesting that the market believes this chatter. You can also look at the differences in rates between different quality levels. If the economy is improving, the difference in rate for lower rated debt vs. higher rated debt decreases as people think the chance of businesses failing is decreasing. Right now, any interest rate you look at is well below long term historical averages, so asserting that interest rates are low is quite safe.\"", "title": "" }, { "docid": "584de925e50869048ed428309b9d453b", "text": "If economic conditions are weakening, i.e. unemployment rising, business and consummer confidence dropping, etc., you can expect interest rates and thus mortgage rates to drop. If economic conditions are strengthening you can expect interest rates and thus mortgage rates to start rising. As you are in the US, and with official interest rates there at 0.25% there is not much room for these rates to fall further. I am in Australia, with official interest rates at 3.75%, and with the economic weakness in the US and Europe and with China slowing down, we can expect our rates to fall further over the next year. Regarding your timeframe of one to two weeks, unless there is a decision on rates in the US in the next week I don't think there would be much change, especially with rates there at record lows. You are probably best to shop around for the best rates now and refinance once you have found one you are happy with.", "title": "" }, { "docid": "25907cc9e2791e40ad246d9032062ee2", "text": "Some loans have a variable interest rate which can protect the lender from inflation and the borrower from deflation. How much protection it offers depends on how closely the interest rate follows the inflation/deflation rate. Most variable rate loans have limits on how much and how frequently they can adjust. In your deflation scenario, the lender comes out ahead with a fixed rate loan already, since those future dollars are worth more than current dollars. The borrower doesn't owe more dollars, but the value of the dollars they owe is higher.", "title": "" }, { "docid": "cabd6507f50414dfaa6ef94b564f4d3a", "text": "\"The reason to put more money down or accept a shorter maximum term is because the bank sweetens the deal (or fails to sour it in some fashion). For example, typically, if there is less than 20% down, you have to pay an premium called \"\"Private Mortgage Insurance\"\", which makes it bad deal. But I see banks offering the same rate for a 15%-year mortgage as for a 30-year one, and I think: fools and their money. Take the 30-year and, if you feel like it pay more every month. Although why you would feel like it, I don't know, since it's very difficult to get that money back if you need it.\"", "title": "" } ]	fiqa
8c702c237d284b35927d09d13d6df748	What governs the shape of price history graphs?	[ { "docid": "c49bd44e7d3b0a7175b32dfd136e5cd2", "text": "\"Let me see if I can restate your question: are speculative investments more volatile (subject to greater spikes and drops in pricing) than are more long-term investments which are defined by the predictability of their dividend returns? The short answer is: yes. However, where it gets complicated is in deciding whether something is a speculative investment. Take your example of housing. People who buy a house as an investment either choose to rent it out (so receive \"\"rent\"\" as \"\"dividend\"\") or live in it (foregoing dividends). Either way, the scale of the investment is large and this is often the only direct investment that people manage themselves. For this reason houses are bound up in the sentimental value people attach to a home, the difficulty of uprooting and moving elsewhere in search of cheaper housing or better employment, or the sunk cost of debt that can't be recovered by a fire-sale. Such inertia can lead to sudden sell-offs as critical inflection points are reached (such as hoped-for economic improvements fail to materialise and cash needs become critical). At different levels that is true of just about every investment. Driving price-volatility is the ease of sale and the trade-offs involved. A share that offers regular and dependable dividends, even if its absolute value falls, is going to be hung on to more frequently than those shares that suffer a similar decline but only offer a capital gain. For the latter, the race is on to sell before the drop neutralises any remaining capital gain the investor may have experienced. A house with a good tenant or a share with stable dividends will be kept in preference for the quick cash-return of selling an asset that offers no such ongoing returns. This would result, visually, in more eratic curves for \"\"speculative\"\" shares while more stable shares are characterised by periods of stability interspersed with moments of mania. But I have to take your query further, since you provide graphical evidence to support your thesis. Your charts combine varying time-scales, different sample rates and different scales (one of which is even a log scale). It becomes impossible to draw any sort of meaningful micro-comparison unless they're all presented using exactly the same criteria.\"", "title": "" }, { "docid": "4e7195e30b812e86bb2533302a952026", "text": "I agree with @Turukawa that the x-axes need to be the same to make a direct comparison. However, the graphs you linked make me think of introductory calculus: If you time averaged plots, speculative investments (gold, housing) seem to have many large concave up time periods and the dow jones has many concave down sections. Using the concavity test: If the first derivative tells you about the rate of change, the second derivative tells you about the rate of change of rate of change. Remember back to Physics 101: 1st derivative is velocity & second derivative is acceleration. It would be interesting to have the same time scales for your plots & compare these accelerations between the two. I suspect the more volatile investments would have larger (in magnitude) accelerations during boom/bust cycles than less speculative investments.", "title": "" }, { "docid": "16b0f346130714809d8295fe35c92f4d", "text": "\"Dividend-paying securities generally have predictable cash flows. A telecom, electric or gas utility is a great example. They collect a fairly predictable amount of money and sells goods at a fairly predictable or even regulated markup. It is easy for these companies to pay a consistent dividend since the business is \"\"sticky\"\" and insulated by cyclical factors. More cyclic investments like the Dow Jones Industrial Average, Gold, etc are more exposed to the crests and troughs of the economy. They swing with the economy, although not always on the same cycle. The DJIA is a basket of 30 large industrial stocks. Gold is a commodity that spikes when people are faced with uncertainty. The \"\"Alpha\"\" and \"\"Beta\"\" of a stock will give you some idea of the general behavior of a stock against the entire market, when the market is trending up and down respectively.\"", "title": "" } ]	[ { "docid": "1089e6bf48d8e525ba8d50f75a91228b", "text": "\"I'm not sure the term actually has a clear meaning. We can think of \"\"what does this mean\"\" in two ways: its broad semantic/metaphorical meaning, and its mechanical \"\"what actual variables in the market represent this quantity\"\". Net buying/selling have a clear meaning in the former sense by analogy to the basic concept of supply and demand in equilibrium markets. It's not as clear what their meaning should be in the latter sense. Roughly, as the top comment notes, you could say that a price decrease is because of net selling at the previous price level, while a price rise is driven by net buying at the previous price level. But in terms of actual market mechanics, the only way prices move is by matching of a buyer and a seller, so every market transaction inherently represents an instantaneous balance across the bid/ask spread. So then we could think about the notion of orders. Actual transactions only occur in balance, but there is a whole book of standing orders at various prices. So maybe we could use some measure of the volume at various price levels in each of the bid/ask books to decide some notion of net buying/selling. But again, actual transactions occur only when matched across the spread. If a significant order volume is added on one side or the other, but at a price far away from the bid/offer - far enough that an actual trade at that price is unlikely to occur - should that be included in the notion of net buying/selling? Presumably there is some price distance from the bid/offer where the orders don't matter for net buying/selling. I'm sure you'd find a lot of buyers for BRK.A at $1, but that's completely irrelevant to the notion of net buying/selling in BRK.A. Maybe the closest thing I can think of in terms of actual market mechanics is the comparative total volumes during the period that would still have been executed if forced to execute at the end of period price. Assuming that traders' valuations are fixed through the period in question, and trading occurs on the basis of fundamentals (which I know isn't a good assumption in practice, but the impact of price history upon future price is too complex for this analysis), we have two cases. If price falls, we can assume all buyers who executed above the last price in the period would have happily bought at the last price (saving money), while all sellers who executed below the last price in the period would also be happy to sell for more. The former will be larger than the latter. If the price rises, the reverse is true.\"", "title": "" }, { "docid": "28a55eec01c1f3f06b65170e0b5a45d0", "text": "I would go even farther than Victor's answer. There is little evidence that candlestick patterns and technical analysis in general have any predictive power. Even if they did in the past, of which there is some evidence, in modern times they are so easy to do on computers that if they worked algorithmic traders would have scanned almost all traded stocks and bought/sold the stock before you even had a chance to look at the graph. While the best technical traders who are very good at quickly using pattern recognition across many indicators as Victor mentioned might be able to add some advantage. The odds that a pattern so simple to code such as Bullish Engulfing would have predictive power is tiny.", "title": "" }, { "docid": "5c291b45326bdd1bed1fdb57f3537c81", "text": "\"Stock support and resistance levels mean that historically, there was \"\"heavy\"\" buying/selling at those levels. This suggests, but does not guarantee, that \"\"someone\"\" will buy at \"\"support\"\" levels, and \"\"someone\"\" will sell at \"\"resistance levels. Any \"\"history\"\" is meaningful, but most analysts will say that after six months to a year, the impact of events declines the further back in time you go. They can be meaningful for periods as short as days.\"", "title": "" }, { "docid": "bce60eee62029c856c8cdb7e9bb7937b", "text": "The last two big ones actually were kind of gradual. For example, S&P was already at 18% drawdown beginning of September 2008 before it went down the cliff. (Not sure if you specifically meant the initial corrections only, rather than full-blown bear markets).", "title": "" }, { "docid": "adeb80ddb87ca61ed1643fd255493a12", "text": "Candlesticks and TA are a relic of pre-computer trading, period. Market makers use sophisticated algorithms not for trading, but manipulations.", "title": "" }, { "docid": "57165bce8395c150584db3d30c37a8d3", "text": "Well, you can't really have it both ways. You said that they were both using the same method, but, in fact, they aren't. You can call the weighting biased, but in fact if appears that BPP is doing little or minimal weighting, and yet still is showing that prices, in general, are mapping similarly to the BLS published CPI. Unless you're arguing an MIT 'academic conspiracy' (and even if you are), I think you've failed to make your case. BPP is independant, it uses a different methodology, and yet the results confirm those of the BLS.", "title": "" }, { "docid": "6360e82fca576b1e4ac690aac5a37829", "text": "\"I looked at data from Sept 2010 to present: Standard deviation is what shows the spread shape of returns over time, and it meanS that about 2/3 of the time, AAPL return was within +/- 1.65 higher/lower than the daily average return which was .21 %. Not sure where to go with this except to suggest that in fact, AAPL is more volatile than the S&P and even another random tech company. With time, I'd probably come up with a list of stock more volatile. I know that when I look at a list of stocks I track on Yahoo, there are always a few that are just as volatile on a given day. Excel makes the above analysis easy to do for a given stock, and it's actually an interesting exercise, at least for me. Disclaimer - the shape of stock returns is not a bell curve, and STdev is just a best fit. Edit - given more time to tinker on excel, it would be interesting to see how the stock's volatility tracked over the years, did it increase or does it feel that way due to the high price? A $20 swing on a $600 stock is the same as a $2 swing on a $60 stock, yet \"\"up $20\"\" sounds huge.\"", "title": "" }, { "docid": "8ad5f8bd548127edc2bc57ee3372271b", "text": "\"Great question! A Yield Curve is a plot of the yields for different maturities of debt. This can be for any debt, but the most common used when discussing yield curves is the debt of the Federal Government. The yield curve is observed by its slope. A curve with a positive slope (up and to the right) or a steepening curve, i.e. one that's becoming more positively sloped or less negatively sloped, may indicate several different situations. The Kansas City Federal Reserve has a nice paper that summarizes various economic theories about the yield curve, and even though it's a bit dated, the theories are still valid. I'll summarize the major points here. A positively sloped yield curve can indicate expectations of inflation in the future. The longer a security has before it matures, the more opportunities it has to be affected by changes in inflation, so if investors expect inflation to occur in the future, they may demand higher yields on longer-term securities to compensate them for the additional inflationary risk. A steepening yield curve may indicate that investors are increasing their expectations of future inflation. A positively sloped yield curve may also reflect expectations of deprecation in the dollar. The publication linked before states that depreciation of the dollar may have increased the perceived risk of future exchange rate changes and discouraged purchases of long-term Treasury securities by Japanese and other foreign investors, forcing the yields on these securities higher. Supply shocks, e.g. decreases in oil prices that lead to decreased production, may cause the yield curve to steepen because they affect short-term inflation expectations significantly more than long-term inflation. For example, a decrease in oil prices may decrease short-term inflation expectations, so short-term nominal interest rates decline. Investors usually assume that long-term inflation is governed more by fundamental macroeconomic factors than short-term factors like commodity price swings, so this price shock may lead short-term yields to decrease but leave long-term relatively unaffected, thus steepening the yield curve. Even if inflation expectations remain unchanged, the yield curve can still change. The supply of and demand for money affects the \"\"required real rate,\"\" i.e. the price of credit, loans, etc. The supply comes from private savings, money coming from abroad, and growth in the money supply, while demand comes from private investors and the government. The paper summarizes the effects on real rates by saying Lower private saving, declines in the real money supply, and reduced capital inflows decrease the supply of funds and raise the required real rate. A larger government deficit and stronger private investment raise the required real rate by increasing the demand for funds. The upward pressure on future real interest rates contributes to the yield curve's positive slope, and a steepening yield curve could indicate an increasing government deficit, declines in private savings, or reduced capital coming in from abroad (for example, because of a recession in Europe that reduces their demand for US imports). an easing of monetary policy when is economy is already producing near its capacity ... would initially expand the real money supply, lowering required short-term real interest rates. With long-term real interest rates unchanged, the yield curve would steepen. Lower interest rates in turn would stimulate domestic spending, putting upward pressure on prices. This upward price pressure would probably increase expected inflation, and as the first bullet point describes, this can cause long-term nominal interest rates to rise. The combination of the decline in short-term rates and the rise in long-term rates steepens the yield curve. Similarly, an inverted yield curve or a positively sloped yield curve that is becoming less steep may indicate the reverse of some or all of the above situations. For example, a rise in oil prices may increase expectations of short-term inflation, so investors demand higher interest rates on short-term debt. Because long-term inflation expectations are governed more by fundamental macroeconomic factors than short-term swings in commodity prices, long-term expectations may not rise nearly as much as short term expectations, which leads to a yield curve that is becoming less steep or even negatively sloped. Forecasting based on the curve slope is not an exact science, just one of many indicators used. Note - Yield Curve was not yet defined here and was key to my answer for What is the \"\"Bernanke Twist\"\" and \"\"Operation Twist\"\"? What exactly does it do? So I took the liberty of ask/answer.\"", "title": "" }, { "docid": "6be9ede1c3f854caa8cfd3b0e63ec2b6", "text": "\"A brief review of the financial collapses in the last 30 years will show that the following events take place in a fairly typical cycle: Overuse of that innovation (resulting in inadequate supply to meet demand, in most cases) Inadequate capacity in regulatory oversight for the new volume of demand, resulting in significant unregulated activity, and non-observance of regulations to a greater extent than normal Confusion regarding shifting standards and regulations, leading to inadequate regulatory reviews and/or lenient sanctions for infractions, in turn resulting in a more aggressive industry \"\"Gaming\"\" of investment vehicles, markets and/or buyers to generate additional demand once the market is saturated \"\"Chickens coming home to roost\"\" - A breakdown in financial stability, operational accuracy, or legality of the actions of one or more significant players in the market, leading to one or more investigations A reduction in demand due to the tarnished reputation of the instrument and/or market players, leading to an anticipation of a glut of excess product in the market \"\"Cold feet\"\" - Existing customers seeking to dump assets, and refusing to buy additional product in the pipeline, resulting in a glut of excess product \"\"Wasteland\"\" - Illiquid markets of product at collapsed prices, cratering of associated portfolio values, retirees living below subsistence incomes Such investment bubbles are not limited to the last 30 years, of course; there was a bubble in silver prices (a 700% increase through one year, 1979) when the Hunt brothers attempted to corner the market, followed by a collapse on Silver Thursday in 1980. The \"\"poster child\"\" of investment bubbles is the Tulip Mania that gripped the Netherlands in the early 1600's, in which a single tulip bulb was reported to command a price 16 times the annual salary of a skilled worker. The same cycle of events took place in each of these bubbles as well. Templeton's caution is intended to alert new (especially younger) players in the market that these patterns are doomed to repeat, and that market cycles cannot be prevented or eradicated; they are an intrinsic effect of the cycles of supply and demand that are not in synch, and in which one or both are being influenced by intermediaries. Such influences have beneficial effects on short-term profits for the players, but adverse effects on the long-term viability of the market's profitability for investors who are ill-equipped to shed the investments before the trouble starts.\"", "title": "" }, { "docid": "eea837f2962ad63b6cc13e0c938fd84a", "text": "Support and resistance only works as a self-fulfilling prophecy. If everyone trading that stock agrees there's a resistance at so-and-so level, and it is on such-and-such scale, then they will trade accordingly and there will really be a support or resistance. So while you can identify them at any time scale (although as a rule the time scale on which you observed them should be similar to the time scale on which you intend to use them), it's no matter unless that's what all the other traders are thinking as well. Especially if there are multiple possible S/P levels for different time scales, there will be no consensus, and the whole system will break down as one cohort ruins the other group's S/P by not playing along and vice versa. But often fundamentals are expected to dominate in the long run, so if you are thinking of trades longer than a year, support and resistance will likely become meaningless regardless. It's not like that many people can hold the same idea for that long anyhow.", "title": "" }, { "docid": "af78c4c4186788dd4ac2f120b3c02a17", "text": "Bonds are extremely illiquid and have traditionally traded in bulk. This has changed in recent years, but bonds used to be traded all by humans not too long ago. Currently, price data is all proprietary. Prices are reported to the usual data terminals such as Bloomberg, Reuters, etc, but brokers may also have price gathering tools and of course their own internal trade history. Bonds are so illiquid that comparable bonds are usually referenced for a bond's price history. This can be done because non-junk bonds are typically well-rated and consistent across ratings.", "title": "" }, { "docid": "0bf9a326cad902294b3ef374b12f6d63", "text": "Regardless of your thoughts on what was happening in late 2012, financial prices should not be used as the sole barometer of a recovery...this is why the Fed uses tons of macroeconomic data, not just that BAC has been up 20% in the last 6 months. My point is if you are going to tout what seems to be a market timing model, where the authors are proud of the fact that the entire thing is data mined, you need strong out of sample evidence (over a few business cycles) that it works. Nothing here comes close", "title": "" }, { "docid": "67e4b5300c51efab8635a449c192e413", "text": "\"That characterisation of arbitrage-free pricing sounds a bit like the \"\"relative vs. fundamental\"\" approaches to asset pricing that Cochrane outlines (in his text, Asset Pricing). Rebonato also makes this distinction with regard to term structure models in Volatility and Correlation. On one extreme you have CAPM-style models in which asset prices are completely determined by investors' risk preferences; on the other extreme, you would have something like a SABR-Libor Market Model where you take everything up to and including the volatility surface as given. What's interesting to me is the way in which these different classes of models get used in various parts of the financial industry. So, buy side firms tend to rely a lot more on equilibrium-style models, since they ultimately care about things like how the equity risk premium or the bond risk premium affect asset prices. In contrast, derivatives quants working at a big sell-side bank who are pricing exotics don't care about what the \"\"fundamental\"\" value of their underlying assets is; they just take that as given and price the exotic accordingly.\"", "title": "" }, { "docid": "4a0041d3be74b8476abfc38b7f35e3bc", "text": "It does when you argue that a single factor is causing the price chart to move a certain way. If they start to think it's perhaps more complicated than that, then yes, it breaks down quickly, which was precisely my point.", "title": "" }, { "docid": "bbeb862496110b094cc1321832a0fff5", "text": "\"IMO: If you look long and hard enough at your data you're going to bump into these kinds of \"\"patterns\"\". There is no \"\"curse of 7\"\". “Looking at the chart makes you want to hide under your desk when you see it, but remember this is only a sample size of 11, and the average performance is greatly skewed by big drops late in 1907, 1937, 1957, and 1987. Also, consider that 1907, 1937, and 1957 were all recessionary years, and equities had run up 40% for the year in August 1987, so a pullback was not surprising.\"\" [Quote](https://lplresearch.com/2017/08/11/the-curse-of-years-ending-in-7/)\"", "title": "" } ]	fiqa
c3c2024773b9831212d510f724663b44	What will be the long term impact of the newly defined minimum exchange rate target from francs to euro?	[ { "docid": "5ed06b4b485a29dc989f8c087d98d527", "text": "The total size of the eurozone economy is $13 trillion, whereas Switzerland'd GDP is about $0.5 trillion, so the eurozone is about 26 times larger. As such, I would not expect this move to have a large effect on the eurozone economy. On the margins, this may decrease somewhat eurozone exports to Switzerland and increase imports from Switzerland, so this would be a slight negative for eurozone growth. Switzerland accounts for 5.2% of the EU's imports, and these imports will now be slightly cheaper, which puts some deflationary pressure on the EU, particularly in the Swiss-specialized industries of chemicals, medicinal products, machinery, instruments and time pieces. But overall, 5.2% is a rather small proportion. Bottom line, most common eurozone countries' people should probably not fret too much about this announcement. What it means for Switzerland and Swiss citizens, however, is a totally different (and much more interesting) question.", "title": "" }, { "docid": "b7577e9124a4a8752111a7e91e5033a0", "text": "The idea behind this move is to avoid or mitigate long-term deflationary pressure and to boost the competitiveness of Swiss exporters. This is primarily a Swiss-based initiative that does not appear likely to have a major impact on the broader Eurozone. However, some pressure will be felt by other currencies as investors look to purchase - ie. this is not a great scenario for other countries wanting to keep their currencies weak. In terms of personal wealth - if you hold Swiss f then you are impacted. However, 1.2 is still very strong (most analysts cite 1.3 as more realistic) so there seems little need for a reaction of any kind at the personal level at this time, although diversity - as ever - is good. It should also be noted that changing the peg is a possibility, and that the 1.3 does seem to be the more realistic level. If you hold large amounts of Swiss f then this might cause you to look at your forex holdings. For the man in the street, probably not an issue.", "title": "" }, { "docid": "c4d799f952082cf6768813a8df4b3127", "text": "The Swiss franc has appreciated quite a bit recently against the Euro as the European Central Bank (ECB) continues to print money to buy government bonds issues by Greek, Portugal, Spain and now Italy. Some euro holders have flocked to the Swiss franc in an effort to preserve the savings from the massive Euro money printing. This has increased the value of the Swiss franc. In response, the Swiss National Bank (SNB) has tried to intervene multiple times in the currency market to keep the value of the Swiss franc low. It does this by printing Swiss francs and using the newly printed francs to buy Euros. The SNB interventions have failed to suppress the Swiss franc and its value has continued to rise. The SNB has finally said they will print whatever it takes to maintain a desired peg to the Euro. This had the desired effect of driving down the value of the franc. Which effect will this have long term for the euro zone? It is now clear that all major central bankers are in a currency devaluation war in which they are all trying to outprint each other. The SNB was the last central bank to join the printing party. I think this will lead to major inflation in all currencies as we have not seen the end of money printing. Will this worsen the European financial crisis or is this not an important factor? I'm not sure this will have much affect on the ongoing European crisis since most of the European government debt is in euros. Should this announcement trigger any actions from common European people concerning their wealth? If a European is concerned with preserving their wealth I would think they would begin to start diverting some of their savings into a harder currency. Europeans have experienced rapidly depreciating currencies more than people on any other continent. I would think they would be the most experienced at preserving wealth from central bank shenanigans.", "title": "" } ]	[ { "docid": "e1efb7090aedbe05bd825078862807e9", "text": "It's not necessary to convert it back for the changes to affect value. Lets say you have a euro account with 1000 euro and a gbp account with 920 gbp (the accounts are equal in value given current exchange rates). You could exchange either account for ~$1180 usd. If you exchange the euro account for USD, and say the euro gets stronger against the pound and dollar (and subsequently the pound and dollar are weaker against the euro); then if you would've kept the 1000 euro it would now be worth more than 920 gbp and more than 1180 usd, and you would've been better off exchanging the gbp account for usd. Barring some cataclysmic economic event; exchange rates between well established currencies don't radically change over a few weeks trip, so I wouldn't really worry about it one way or the other.", "title": "" }, { "docid": "5887589fd2f004e5ffadf2a922b01929", "text": "Im creating a 5-year projection on Profit and loss, cash flow and balance sheet and i\\m suppose to use the LIBOR (5 year forward curve) as interest rate on debt. This is the information i am given and it in USD. Thanks for the link. I guess its the USD LIBOR today, in one year, in two years, three years, four years and five years", "title": "" }, { "docid": "a829b0cd8b0cae7deedf77c992b58af3", "text": "It's impossible to determine which event will cause a major shift for a certain currency pair. However, this does not mean that it's not possible to identify events that are important to the overall market sentiment and direction. There are numerous sites that provide a calendar for upcoming and past events and their impact which is most of the time indicated as low, medium and high. Such sites are: Edit: I would like to add to that, that while these are major market movers, you cannot forget that they mainly provide a certain direction for the market but that it's not always clear in which direction the market will go. A recent and prime example of a major event that triggered opposite effects of what you would expect, is the ECB meeting that took place the 3rd of December. Due to the fact that the market already priced in further easing by the ECB the euro strengthened instead of weakening compared to the dollar. This strengthening happened even though the ECB did in fact adjust the deposit by 10 base points to -0.30 % and increased the duration of the QE. Taking above example into consideration it's important to always remember that fundamentals are hard to grasp and that it will take a while to make it a second nature and become truly successful in this line of trading. Lastly, fundamentals are only a part of the complete picture. Don't lose sight of support and resistance levels as well as price action to determine when and how to enter a trade.", "title": "" }, { "docid": "3336d6fc35d673959c37b0dcb67d246c", "text": "It's not. If you look at the page you link to and change dates, it's clear the rate changes a bit. 120.15 120.1 per hundred. The Swiss can keep the 1.200 as a target and if it's higher, sell agingst the euro to bring it down, if lower, buy. If the swiss experienced a serious financial crisis and their currency fell, they may not have the power to control it, if the rest of the world said it was worth less, you can be sure it will fall.", "title": "" }, { "docid": "3200217e7939b7c9eb0a82e4a1124feb", "text": "Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. An example: You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss. In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset.", "title": "" }, { "docid": "cef4fa3efefe86f85f703ff4e020704f", "text": "\"If there is a very sudden and large collapse in the exchange rate then because algorithmic trades will operate very fast it is possible to determine “x” immediately after the change in exchange rate. All you need to know is the order book. You also need to assume that the algorithmic bot operates faster than all other market participants so that the order book doesn’t change except for those trades executed by the bot. The temporarily cheaper price in the weakened currency market will rise and the temporarily dearer price in the strengthened currency market will fall until the prices are related by the new exchange rate. This price is determined by the condition that the total volume of buys in the cheaper market is equal to the total volume of sells in the dearer market. Suppose initially gold is worth $1200 on NYSE or £720 on LSE. Then suppose the exchange rate falls from r=0.6 £/$ to s=0.4 £/$. To illustrate the answer lets assume that before the currency collapse the order book for gold on the LSE and NYSE looks like: GOLD-NYSE Sell (100 @ $1310) Sell (100 @ $1300) <——— Sell (100 @ $1280) Sell (200 @ $1260) Sell (300 @ $1220) Sell (100 @ $1200) ————————— buy (100 @ $1190) buy (100 @ $1180) GOLD-LSE Sell (100 @ £750) Sell (100 @ £740) ————————— buy (200 @ £720) buy (200 @ £700) buy (100 @ £600) buy (100 @ £550) buy (100 @ £530) buy (100 @ £520) <——— buy (100 @ £500) From this hypothetical example, the automatic traders will buy up the NYSE gold and sell the LSE gold in equal volume until the price ratio \"\"s\"\" is attained. By summing up the sell volumes on the NYSE and the buy volumes on the LSE, we see that the conditions are met when the price is $1300 and £520. Note 800 units were bought and sold. So “x” depends on the available orders in the order book. Immediately after this, however, the price of the asset will be subject to the new changes of preference by the market participants. However, the price calculated above must be the initial price, since otherwise an arbitrage opportunity would exist.\"", "title": "" }, { "docid": "634ae536b1c98d917d05eebcab734301", "text": "Operation twist is just an asset swap. The balance sheet isn't being expanded, money isn't being printed to buy treasuries. The fed is just selling short term assets and buying longer term assets. If more longer term treasuries are bought this brings the yield down (for bonds the more you buy them, the lower the yield goes). Lower long term interest rates means people can borrow at low rates and this is supposed help the economy. No printing of money means that gold doesn't get more precious. I do think gold will do well though, if the ECB wants to save the EU they're going to have to print, and print a lot. The Bank of England is doing some QE too. Lots of countries will be/ are easing.", "title": "" }, { "docid": "12b36b072e86700840072c0c1575631c", "text": "Well, you could just deposit the Euros in your French bank. In the US, you'll have to deal with foreign exchange services, unless you're talking large amounts for banks to want to handle (they'll handle small amounts too, of course, but not without a significant fee). Best thing I can think of is keeping them in a drawer with your passport. You'll use them on your next flight. Being French national, you're undoubtedly bound to visit the Euro zone again.", "title": "" }, { "docid": "6d87984f8fd0b68c76fb7161190f20fd", "text": "\"The risk is that greece defaults on it's debts and the rest of the eurozone chose to punish it by kicking it out of the Eurozone and cutting off it's banks from ECB funds. Since the greek government and banks are already in pretty dire straits this would leave greece with little choice but to forciblly convert deposits in those banks to a \"\"new drachma\"\". The exchange rate used for the forced conversions would almost certainly be unfavorable compared to market rates soon after the conversion. There would likely be capital controls to prevent people pulling their money out in the runup to the forced conversion. While I guess they could theoretically perform the forced conversion only on Euro deposits this seems politically unlikely to me.\"", "title": "" }, { "docid": "9a49a74eb5a5c0016c80d3cba33b34eb", "text": "The real, short-term effect is that prices will go up a bit, have no effect on the amount of actual travel, and the government(s) that impose this tax will rake in more money to waste. This is what the governments actually want, but CO2 emissions is a good way to sell it. The long-term effect is that people will be just a bit more, on the margin, likely to avoid interacting with the European economy, which sucks for everyone.", "title": "" }, { "docid": "9a3a4bfb1af5d188ee9d565c1c846036", "text": "\"There's an ideological/psychological aspect of this too apart from the practical problems. Eurozone leaders keep saying the mantra: conversion to the euro is \"\"irreversible\"\". There are analogies of this in recent history, it reminds me of the soviet leaders and their belief that communism is where history ends. They genuinely thought that once a communist system is built up in a country, it would stay forever. They believed in the superiority of their system, among other things this lead to the isolation of the Soviet Union from the West and the start of the Cold War. Then, in 1956 they were proven wrong with the Hungarian revolution and while they tried to \"\"clean up\"\" the situation as fast as they could and forget about it, their downhill inevitably started. Back to the present, you can easily see the importance of keeping Greece in the EZ. If Greece exits, the illusion of the irreversibility of the Euro is gone, and it would start to fall apart.\"", "title": "" }, { "docid": "381ec914798b6e7bd9ca5a71455574e1", "text": "Their biggest problem is that their main industry is shipping. Anything they could do to their currency wouldn't help the shipping industry at all. They can't even raise taxes, they aren't the only convenience flag in the world and ships are obviously very easy to move out. The only industry they have that could get any benefit from a devaluation would be tourism, but that would be mostly negated by moving out of the euro.", "title": "" }, { "docid": "78c84c5efcb07192d4a37d43f50b678c", "text": "I think the point is that m2 is 13.7 trillion usd, the Swiss investment is not even half a percent. The us equities marker valuation is larger at 22.5 trillion USD. Dumping an extra 100 bil usd is too little to do anything. Even dumping a trillion USD is a relatively small number.", "title": "" }, { "docid": "7ea314b3dbeec651d17d4d45e178c4b9", "text": "Balanced out might be a better way to put it. Imports become cheaper, driving down inflation, which should permit companies to operate at a lower cost, which should eventually work to limit or eliminate the impact of the shift. These balancing factors generally occur in the long term and specific sectors of the economy will be impacted to different degrees.", "title": "" }, { "docid": "b9584a6f6554b2d2367ec417532961f0", "text": "e.g. a European company has to pay 1 million USD exactly one year from now While that is theoretically possible, that is not a very common case. Mostly likely if they had to make a 1 million USD payment a year from now and they had the cash on hand they would be able to just make the payment today. A more common scenario for currency forwards is for investment hedging. Say that European company wants to buy into a mutual fund of some sort, say FUSEX. That is a USD based mutual fund. You can't buy into it directly with Euros. So if the company wants to buy into the fund they would need to convert their Euros to to USD. But now they have an extra risk parameter. They are not just exposed to the fluctuations of the fund, they are also exposed to the fluctuations of the currency market. Perhaps that fund will make a killing, but the exchange rate will tank and they will lose all their gains. By creating a forward to hedge their currency exposure risk they do not face this risk (flip side: if the exchange rate rises in a favorable rate they also don't get that benefit, unless they use an FX Option, but that is generally more expensive and complicated).", "title": "" } ]	fiqa
2796134b12c63ce7018b54c9a6814dbb	Emerging markets index fund (VDMIX) for an inexperienced investor	[ { "docid": "ecaf5b8798b632c7f3dde298577f22c5", "text": "\"In this environment, I don't think that it is advisable to buy a broad emerging market fund. Why? \"\"Emerging market\"\" is too broad... Look at the top 10 holdings of the fund... You're exposed to Russia & Brazil (oil driven), Chinese and Latin American banks and Asian electronics manufacturing. Those are sectors that don't correlate, in economies that are unstable -- a recipie for trouble unless you think that the global economy is heading way up. I would recommend focusing on the sectors that you are interested in (ie oil, electronics, etc) via a low cost vehicle like an index ETF or invest using a actively managed emerging markets fund with a strategy that you understand. Don't invest a dime unless you understand what you are getting into. An index fund is just sorting companies by market cap. But... What does market cap mean when you are buying a Chinese bank?\"", "title": "" } ]	[ { "docid": "83019dc6c425172c79135e3a453e0f56", "text": "\"I recommend avoiding trading directly in commodities futures and options. If you're not prepared to learn a lot about how futures markets and trading works, it will be an experience fraught with pitfalls and lost money – and I am speaking from experience. Looking at stock-exchange listed products is a reasonable approach for an individual investor desiring added diversification for their portfolio. Still, exercise caution and know what you're buying. It's easy to access many commodity-based exchange-traded funds (ETFs) on North American stock exchanges. If you already have low-cost access to U.S. markets, consider this option – but be mindful of currency conversion costs, etc. Yet, there is also a European-based company, ETF Securities, headquartered in Jersey, Channel Islands, which offers many exchange-traded funds on European exchanges such as London and Frankfurt. ETF Securities started in 2003 by first offering a gold commodity exchange-traded fund. I also found the following: London Stock Exchange: Frequently Asked Questions about ETCs. The LSE ETC FAQ specifically mentions \"\"ETF Securities\"\" by name, and addresses questions such as how/where they are regulated, what happens to investments if \"\"ETF Securities\"\" were to go bankrupt, etc. I hope this helps, but please, do your own due diligence.\"", "title": "" }, { "docid": "2b6cde81fdb549260eac7262ff180761", "text": "The idea of an index is that it is representative of the market (or a specific market segment) as a whole, so it will move as the market does. Thus, past performance is not really relevant, unless you want to bank on relative differences between different countries' economies. But that's not the point. By far the most important aspect when choosing index funds is the ongoing cost, usually expressed as Total Expense Ratio (TER), which tells you how much of your investment will be eaten up by trading fees and to pay the funds' operating costs (and profits). This is where index funds beat traditional actively managed funds - it should be below 0.5% The next question is how buying and selling the funds works and what costs it incurs. Do you have to open a dedicated account or can you use a brokerage account at your bank? Is there an account management fee? Do you have to buy the funds at a markup (can you get a discount on it)? Are there flat trading fees? Is there a minimum investment? What lot sizes are possible? Can you set up a monthly payment plan? Can you automatically reinvest dividends/coupons? Then of course you have to decide which index, i.e. which market you want to buy into. My answer in the other question apparently didn't make it clear, but I was talking only about stock indices. You should generally stick to broad, established indices like the MSCI World, S&P 500, Euro Stoxx, or in Australia the All Ordinaries. Among those, it makes some sense to just choose your home country's main index, because that eliminates currency risk and is also often cheaper. Alternatively, you might want to use the opportunity to diversify internationally so that if your country's economy tanks, you won't lose your job and see your investment take a dive. Finally, you should of course choose a well-established, reputable issuer. But this isn't really a business for startups (neither shady nor disruptively consumer-friendly) anyway.", "title": "" }, { "docid": "663374eb1366efd15357a239d1becb56", "text": "Thanks for the advice. I will look into index funds. The only reason I was interested in this stock in particular is that I used to work for the company, and always kept an eye on the stock price. I saw that their stock prices recently went down by quite a bit but I feel like I've seen this happen to them a few times over the past few years and I think they have a strong catalogue of products coming out soon that will cause their stock to rise over the next few years. After not being able to really understand the steps needed to purchase it though, I think I've learned that I really don't know enough about the stock system in general to make any kind of informed decisions about it and should probably stick to something lower-risk or at least do some research before making any ill-informed decisions.", "title": "" }, { "docid": "1649515073aaa06f4dd5ac3ab440d8f9", "text": "You can trade VXX, but VIX is only an index. http://www.marketwatch.com/investing/stock/VXX?CountryCode=US", "title": "" }, { "docid": "63c887e3ce5fcbdc3b4a2d62eecfd837", "text": "Let's say that you want to invest in the stock market. Choosing and investing in only one stock is risky. You can lower your risk by diversifying, or investing in lots of different stocks. However, you have some problems with this: When you buy stocks directly, you have to buy whole shares, and you don't have enough money to buy even one whole share of all the stocks you want to invest in. You aren't even sure which stocks you should buy. A mutual fund solves both of these problems. You get together with other investors and pool your money together to buy a group of stocks. That way, your investment is diversified in lots of different stocks without having to have enough money to buy whole shares of each one. And the mutual fund has a manager that chooses which stocks the fund will invest in, so you don't have to pick. There are lots of mutual funds to choose from, with as many different objectives as you can imagine. Some invest in large companies, others small; some invest in a certain sector of companies (utilities or health care, for example), some invest in stocks that pay a dividend, others are focused on growth. Some funds don't invest in stocks at all; they might invest in bonds, real estate, or precious metals. Some funds are actively managed, where the manager actively buys and sells different stocks in the fund continuously (and takes a fee for his services), and others simply invest in a list of stocks and rarely buy or sell (these are called index funds). To answer your question, yes, the JPMorgan Emerging Markets Equity Fund is a mutual fund. It is an actively-managed stock mutual fund that attempts to invest in growing companies that do business in countries with rapidly developing economies.", "title": "" }, { "docid": "7b9e1b14c98aa0813d39fed38251fb95", "text": "\"My advice would be to invest that 50k in 25% batches across 4 different money markets. Batch 1: Lend using a peer-to-peer account - 12.5k The interest rates offered by banks aren't that appealing to investors anymore, at least in the UK. Peer to peer lending brokers such as ZOPA provide 5% to 6% annual returns if you're willing to hold on to your investment for a couple of years. Despite your pre-conceptions, these investments are relatively safe (although not guaranteed - I must stress this). Zopa state on their website that they haven't lost any money provided from their investors since the company's inception 10 years ago, and have a Safeguard trust that will be used to pay out investors if a large number of borrowers defaulted. I'm not sure if this service is available in Australia but aim for an interest rate of 5-6% with a trusted peer-to-peer lender that has a strong track record. Batch 2: The stock market - 12.5k An obvious choice. This is by far the most exciting way to grow your money. The next question arising from this will likely be \"\"how do I pick stocks?\"\". This 12.5k needs to be further divided into 5 or so different stocks. My strategy for picking stock at the current time will be to have 20% of your holdings in blue-chip companies with a strong track record of performance, and ideally, a dividend that is paid bi-anually/quarterly. Another type of stock that you should invest in should be companies that are relatively newly listed on the stock market, but have monopolistic qualities - that is - that they are the biggest, best, and only provider of their new and unique service. Examples of this would be Tesla, Worldpay, and Just-eat. Moreover, I'd advise another type of stock you should purchase be a 'sin stock' to hedge against bad economic times (if they arise). A sin stock is one associated with sin, i.e. cigarette manufacturers, alcohol suppliers, providers of gambling products. These often perform good while the economy is doing well, but even better when the economy experiences a 2007-2008, and 2001-dotcom type of meltdown. Finally, another category I'd advise would be large-cap energy provider companies such as Exxon Mobil, BP, Duke Energy - primarily because these are currently cheaper than they were a few months ago - and the demand for energy is likely to grow with the population (which is definitely growing rapidly). Batch 3: Funds - 12.5k Having some of your money in Funds is really a no-brainer. A managed fund is traditionally a collection of stocks that have been selected within a particular market. At this time, I'd advise at least 20% of the 12.5k in Emerging market funds (as the prices are ridiculously low having fallen about 60% - unless China/Brazil/India just self destruct or get nuked they will slowly grow again within the next 5 years - I imagine quite high returns can be had in this type of funds). The rest of your funds should be high dividend payers - but I'll let you do your own research. Batch 4: Property - 12.5k The property market is too good to not get into, but let's be honest you're not going to be able to buy a flat/house/apartment for 12.5k. The idea therefore would be to find a crowd-funding platform that allows you to own a part of a property (alongside other owners). The UK has platforms such as Property Partner that are great for this and I'm sure Australia also has some such platforms. Invest in the capital city in areas as close to the city's center as possible, as that's unlikely to change - barring some kind of economic collapse or an asteroid strike. I think the above methods of investing provide the following: 1) Diversified portfolio of investments 2) Hedging against difficult economic times should they occur And the only way you'll lose out with diversification such as this is if the whole economic system collapses or all-out nuclear war (although I think your investments will be the least of your worries in a nuclear war). Anyway, this is the method of investing I've chosen for myself and you can see my reasoning above. Feel free to ask me if you have any questions.\"", "title": "" }, { "docid": "b37971b421af08c8675b6b64c044e31f", "text": "One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.", "title": "" }, { "docid": "9d53eb6e97cd4e36144f3f6406937ca0", "text": "Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended. However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA.", "title": "" }, { "docid": "bffeaf61787f6b4ab0868de12b79540f", "text": "\"I got started by reading the following two books: You could probably get by with just the first of those two. I haven't been a big fan of the \"\"for dummies\"\" series in the past, but I found both of these were quite good, particularly for people who have little understanding of investing. I also rather like the site, Canadian Couch Potato. That has a wealth of information on passive investing using mutual funds and ETFs. It's a good next step after reading one or the other of the books above. In your specific case, you are investing for the fairly short term and your tolerance for risk seems to be quite low. Gold is a high-risk investment, and in my opinion is ill-suited to your investment goals. I'd say you are looking at a money market account (very low risk, low return) such as e.g. the TD Canadian Money Market fund (TDB164). You may also want to take a look at e.g. the TD Canadian Bond Index (TDB909) which is only slightly higher risk. However, for someone just starting out and without a whack of knowledge, I rather like pointing people at the ING Direct Streetwise Funds. They offer three options, balancing risk vs reward. You can fill in their online fund selector and it'll point you in the right direction. You can pay less by buying individual stock and bond funds through your bank (following e.g. one of the Canadian Couch Potato's model portfolios), but ING Direct makes things nice and simple, and is a good option for people who don't care to spend a lot of time on this. Note that I am not a financial adviser, and I have only a limited understanding of your needs. You may want to consult one, though you'll want to be careful when doing so to avoid just talking to a salesperson. Also, note that I am biased toward passive index investing. Other people may recommend that you invest in gold or real estate or specific stocks. I think that's a bad idea and believe I have the science to back this up, but I may be wrong.\"", "title": "" }, { "docid": "084178e30a3bcf661ea87151e51bc5b7", "text": "\"From Wikipedia A frontier market is a type of developing country which is more developed than the least developing countries, but too small to be generally considered an emerging market. The term is an economic term which was coined by International Finance Corporation’s Farida Khambata in 1992. The term is commonly used to describe the equity markets of the smaller and less accessible, but still \"\"investable\"\", countries of the developing world. The frontier, or pre-emerging equity markets are typically pursued by investors seeking high, long-run return potential as well as low correlations with other markets. Some frontier market countries were emerging markets in the past, but have regressed to frontier status. Investopedia has a good comparison on Emerging Vs Frontier While frontier market investments certainly come with some substantial risks, they also may post the kind of returns that emerging markets did during the 1990s and early 2000s. The frontier market contains anywhere from one-fifth to one-third of the world’s population and includes several exponentially growing economies. The other Question and are they a good option as well? This depends on risk appetite and your current investment profile. If you have already invested in domestic markets with a well diversified portfolio and have also invested in emerging markets, you can then think of expanding your portfolio into these.\"", "title": "" }, { "docid": "439efeb6b6ac2416f6b97b3d938e2ebb", "text": "In your case I think you are doing just fine. Index funds, by their nature, have lower transaction costs and fewer taxable events than actively managed funds, good work. Index funds do not preclude the generation of dividends, and by their nature they probably generate slightly more than actively managed funds. You could take capital gain or dividend or both distributions, rather than reinvest them, if paying the taxes are a hardship. Otherwise look at the taxes you pay as your contributions to these funds. It stinks, but this is why 401K/IRA were rather revolutionary when they were formed. It was a really good deal to not have people's capital gains eaten by taxes when they occurred. Now its old hat, but it was pretty darn cool at the time. Should you prefer VTMSX rather than VFIAX? We can't really make the call on that one. Which one will perform better after taxes? Its anyone's guess. It is kind of a good problem to have.", "title": "" }, { "docid": "5a83c41e0a07b2235e9e033cc4f9bab3", "text": "Go to fidelity.com and open a free brokerage account. Deposit money from your bank account into your fidelity account. (expect a minimum of $2500, FBIDX requires more I believe) Buy free to trade ETF Funds of your liking. I tend to prefer US Bonds to stocks, FBIDX is a decent intermediate US Bond etf, but the euro zone has added a little more volatile lately than I'd like. If you do really want to trade stocks, you may want to go with a large cap fund like FLCSX, but it is more risky especially in this economy. (but buy low sell high right?) I've put my savings into FBIDX and FGMNX (basically the same thing, intermediate bond ETF funds) and made $700 in interest and capitol gains last year. (started with zero initially, have 30k in there now)", "title": "" }, { "docid": "fbb037d43fbddf31cc04e52bfcb39196", "text": "\"An Exchange-Traded Fund (ETF) is a special type of mutual fund that is traded on the stock exchange like a stock. To invest, you buy it through a stock broker, just as you would if you were buying an individual stock. When looking at a mutual fund based in the U.S., the easiest way to tell whether or not it is an ETF is by looking at the ticker symbol. Traditional mutual funds have ticker symbols that end in \"\"X\"\", and ETFs have ticker symbols that do not end in \"\"X\"\". The JPMorgan Emerging Markets Equity Fund, with ticker symbol JFAMX, is a traditional mutual fund, not an ETF. JPMorgan does have ETFs; the JPMorgan Diversified Return Emerging Markets Equity ETF, with ticker symbol JPEM, is an example. This ETF invests in similar stocks as JFAMX; however, because it is an index-based fund instead of an actively managed fund, it has lower fees. If you aren't sure about the ticker symbol, the advertising/prospectus of any ETF should clearly state that it is an ETF. (In the example of JPEM above, they put \"\"ETF\"\" right in the fund name.) If you don't see ETF mentioned, it is most likely a traditional mutual fund. Another way to tell is by looking at the \"\"investment minimums\"\" of the fund. JFAMX has a minimum initial investment of $1000. ETFs, however, do not have an investment minimum listed; because it is traded like a stock, you simply buy whole shares at whatever the current share price is. So if you look at the \"\"Fees and Investment Minimums\"\" section of the JPEM page, you'll see the fees listed, but not any investment minimums.\"", "title": "" }, { "docid": "f773014a6042d754ea2057697b5efa0f", "text": "So, couple of things. Firstly, every international ETF includes risk disclosure language in the prospectus covering both market disruption events as well as geopolitical risk, so the sponsor would be pretty well insulated from direct liability for anything. If the Russian market were truly shut down there are true-up mechanisms in place but in the scenario you're describing the market is still open, it's just only a few participants can trade in it. First thing to do is shut down creates- that is, allow no new money to come into the fund. This at least prevents your problem from getting bigger. Second you're going to switch all redemptions to in kind only. MV itself can't trade in the underlying so they're kind of jammed here. An ETF sponsor can't really refuse your redemption request (can delay, but only for a short time), but they can control the form in which they respond to it. What theoretically should happen here is an AP not subject to sanctions will step in and handle redemptions. Issue is, they'll probably charge for this so you should expect the fund to start trading at a discount to NAV (you, as an investor, sell to them cheaply, they submit a redemption request, then sell the stocks locally). Someone else has pointed that market makers will start stat arbing the fund using correlated/substitute instruments, which totally will help keep things in line, but my guess is that you'd still see the name trading away from NAV regardless. Driver of this will be the amount of money desperate to get out - if investors are content to wait the sanctions out who knows.", "title": "" }, { "docid": "3244cb5dd6f3993ed5ce0f950901c5ab", "text": "Other than the possibility of minimal entry price being prohibitively high, there's no reason why you couldn't participate in any global trading whatsoever. Most ETFs, and indeed, stockbrokers allows both accounts opening, and trading via the Internet, without regard to physical location. With that said, I'd strongly advice you to do a proper research, and reality check both on your risk/reward profile, and on the vehicles to invest in. As Fools write, money you'll need in the next 6 months have no place on the stockmarket. Be prepared, that you can indeed loose all of your investment, regardless of the chosen vehicle.", "title": "" } ]	fiqa
8a5252a3c36fc97ada7f740b87a56ced	Why would a central bank or country not want their currency to appreciate against other currencies?	[ { "docid": "a83c8e47219effc49996c8f7f32aec0b", "text": "I wrote about the dynamic of why either of a lower or higher exchange rate would be good for economies in Would dropping the value of its currency be good for an economy? A strong currency allows consumers to import goods cheaply from the rest of the world. A weak currency allows producers to export goods cheaply to the rest of the world. People are both consumers and producers. Clearly, there have to be trade-offs. Strong or weak mean relative to Purchasing Power Parity (i.e. you can buy more or less of an equivalent good with the same money). Governments worrying about unemployment will try and push their currencies weaker relative to others, no matter the cost. There will be an inflationary impact (imported inputs cost more as a currency weakens) but a country running a major surplus (like China) can afford to subsidise these costs.", "title": "" }, { "docid": "836c45df6cea7cf6e1395f3d353619b6", "text": "It would essentially make goods from other countries more cheaper than goods from US. And it would make imports from these countries to China more expensive. The below illustration is just with 2 major currencies and is more illustrative to show the effect. It does not actually mean the goods from these countries would be cheaper. 1 GBP = 1.60 USD 1 EUR = 1.40 USD 1 CNY = 0.15 USD Lets say the above are the rates for GBP, EUR, CNY. The cost of a particular goods (assume Pencils) in international market is 2 USD. This means for the cost of manufacturing this should be less than GBP 1.25 in UK, less than 1.43 in Euro Countires, less than 13.33 CNY in China. Only then export would make sense. If the real cost of manufacturing is say 1.4 GBP in UK, 1.5 EUR in Euro countires, clearly they cannot compete and would loose. Now lets say the USD has appreciated by 20% against other currencies. The CNY is at same rate. 1 GBP = 1.28 USD 1 EUR = 1.12 USD 1 CNY = 0.15 USD Now at this rate the cost of manufacturing should be less than GBP 1.56 GBP, less than 1.78 EUR in Euro Countires. In effect this is more than the cost of manufacturing. So in effect the goods from other countires have become cheaper/compatative and goods from China have become expensive. Similarly the imports from these countires to China would be more expensive.", "title": "" } ]	[ { "docid": "6fbe5c263a53570193750b611429aaa0", "text": "Because people trade currency in exchange for goods and services. They can easily prevent competition by violent means or by having control of the market through market share. Price can be controlled by the threat of super low prices in order to drive out competing businesses.", "title": "" }, { "docid": "1a5261fd35e60a67b52827496240db6b", "text": "\"Like Jeremy T said above, silver is a value store and is to be used as a hedge against sovereign currency revaluations. Since every single currency in the world right now is a free-floating fiat currency, you need silver (or some other firm, easily store-able, protect-able, transportable asset class; e.g. gold, platinum, ... whatever...) in order to protect yourself against government currency devaluations, since the metal will hold its value regardless of the valuation of the currency which you are denominating it in (Euro, in your case). Since the ECB has been hesitant to \"\"print\"\" large amounts of currency (which causes other problems unrelated to precious metals), the necessity of hedging against a plummeting currency exchange rate is less important and should accordingly take a lower percentage in your diversification strategy. However, if you were in.. say... Argentina, for example, you would want to have a much larger percentage of your assets in precious metals. The EU has a lot of issues, and depreciation of hard assets courtesy of a lack of fluid currency/capital (and overspending on a lot of EU governments' parts in the past), in my opinion, lessens the preservative value of holding precious metals. You want to diversify more heavily into precious metals just prior to government sovereign currency devaluations, whether by \"\"printing\"\" (by the ECB in your case) or by hot capital flows into/out of your country. Since Eurozone is not an emerging market, and the current trend seems to be capital flowing back into the developed economies, I think that diversifying away from silver (at least in overall % of your portfolio) is the order of the day. That said, do I have silver/gold in my retirement portfolio? Absolutely. Is it a huge percentage of my portfolio? Not right now. However, if the U.S. government fails to resolve the next budget crisis and forces the Federal Reserve to \"\"print\"\" money to creatively fund their expenses, then I will be trading out of soft assets classes and into precious metals in order to preserve the \"\"real value\"\" of my portfolio in the face of a depreciating USD. As for what to diversify into? Like the folks above say: ETFs(NOT precious metal ETFs and read all of the fine print, since a number of ETFs cheat), Indexes, Dividend-paying stocks (a favorite of mine, assuming they maintain the dividend), or bonds (after they raise the interest rates). Once you have your diversification percentages decided, then you just adjust that based on macro-economic trends, in order to avoid pitfalls. If you want to know more, look through: http://www.mauldineconomics.com/ < Austrian-type economist/investor http://pragcap.com/ < Neo-Keynsian economist/investor with huge focus on fiat currency effects\"", "title": "" }, { "docid": "ef80263b369e51a638758552741f4eed", "text": "When economies are strong, it is particularly alluring to have a single currency as it makes trade and tourism simpler and helps reduce costs. The problem comes when individual member economies get into trouble. Because the Eurozone is a loose grouping of nations, there is no direct equivalent of the US Federal government to coordinate a response, there is instead an odd mixture of National and Central government that makes it harder to get a unified approach to the economy (OK, it's maybe not so different to the US in reality). This lack of flexibility means that some of the key levers of international finance are compromised, for example a weak economy can't float its currency to improve exports. Similarly individual country's interest rates can't be adjusted to balance spending. I suspect the main reason though is political and based on concepts of sovereignty and national pride. The UK does the majority of its trade with the Eurozone, so the pros would possibly outweigh the cons, but the UK as a whole (and some of our papers in particular) have always regarded Europe with suspicion. Most Brits only speak English and find France and Germany a strange and obtuse place. The (almost) common language makes it easier to relate to the US and Canada than our near neighbours. It seems the perception amongst the political establishment is that any attempt to join the Euro is political suicide, while that is the case it is unlikely to happen. Purely from a personal perspective, I'd welcome the Euro except it means a lot of the products I routinely buy would become a lot more expensive if price is 'harmonised'. For an example compare the price of the iPod Touch in the UK (£209.99) to France(€299). The French pay £262 at the current exchange rate, which is close to 25% more. Ouch. See also my question about Canada adopting the US Dollar", "title": "" }, { "docid": "65f64df82912de866c806551dee668fe", "text": "\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \"\"persistent pressure to further depreciate\"\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \"\"appreciates\"\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\"", "title": "" }, { "docid": "621eb1ca846df96ea2ee6dd9bf8c66d0", "text": "Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)", "title": "" }, { "docid": "07da716d1d8347d82b6dc1b3a03cfbd2", "text": "Some countries are considering stocking up on gold to shore up their notes. (Or so I heard) If this happens, gold will obviously become more rare. The price will then be valued not only by the buying and selling of it but also by the forced rarity of it.", "title": "" }, { "docid": "5f86975dd87e90730ed4af18e94a1174", "text": "I think part of the confusion is due to the age of the term and how money has changed over time relative to being backed by precious metals vs using central banks etc. Historically: Because historically the coin itself was precious metal, if a change occurred between the 'face value' of the coin and value of the precious metal itself, the holder of the coin was less affected since they have the precious metal already in hand. They could always trade it based on the metal value instead of the face value. OTOH if you buy a note worth an the current price of ounce of gold, and the price of gold goes up, and then the holder wants to redeem the note, they end up with less than an ounce of gold. In the more modern age The main concern is the cost to borrow funds to put money into circulation, or the gain when it goes out of circulation. The big difference between the two is that bills tend stay in circulation until they wear out, have to be bought back and replaced. Coins on the other hand last longer, but have a tendency to drop out of circulation due to collectors (especially with 'collectible series' coins that the mint seems to love to issue lately). This means that bills issued tend to stay in circulation, while only a percentage of coins stays in circulation. So the net effect on the money supply is different for the two, and since modern 'seigniorage' is all about the cost to put money in circulation, it is different in the case of coins where some percentage will not remain circulating.", "title": "" }, { "docid": "ece3f0159cfff20ed6af0c8782e52e25", "text": "To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.", "title": "" }, { "docid": "e8fb271efafbf0a477901f22bb9c94d3", "text": "\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \"\"weak\"\" and some \"\"strong\"\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\"", "title": "" }, { "docid": "6d807445b9349bc0ed11734145071c16", "text": "There are some out there making the argument that negative yields on the German Schatz (2-year note) are the result of speculators betting on a break-up of the euro area and its common currency. Specifically that assets held in euros, i.e. German bonds, would be re-denominated into a new Deutschmark that would appreciate in value against other European currencies.", "title": "" }, { "docid": "c293eedb83f25dabcb22559f40ee799b", "text": "\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \"\"buy\"\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \"\"basket\"\" of things they produce that another country will want, and a \"\"shopping list\"\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\"", "title": "" }, { "docid": "55d08474692fb05632b873fe894e4fb8", "text": "\"Wikipedia talks about the Chinese currency: Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly \"\"to prevent inflows of hot money\"\"), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference.\"", "title": "" }, { "docid": "e445a0592214b800d5a666495d7d54d3", "text": "It's called correlation. I found this: http://www.forexrazor.com/en-us/school/tabid/426/ID/437424/currency-pair-correlations it looks a good place to start Similar types of political economies will correlate together, opposite types won't. Also there are geographic correlations (climate, language etc)", "title": "" }, { "docid": "044fdf5aa76caf1ff09dad3499548b51", "text": "The Euro is a common currency between various countries in Europe. This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily. For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively. If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively. As more countries withdraw, a shared currency becomes less and less appealing.", "title": "" }, { "docid": "a1fe391915a01cd10375e2bdf0a87c8d", "text": "Money, like anything else, is subject to the demands of people. There are times when money is in high demand. This drives up its value. People in Japan want cash because they have an immediate need to buy emergency supplies as well as rebuild and replace damaged items. This is why the yen strengthened. This is probably why the market plummeted as people liquidated some of their stocks to get cash. The Bank Of Japan (BOJ) will not stand for a rising yen, however. It is pulling a Bernanke and printing yen in an effort to keep it weak.", "title": "" } ]	fiqa
20a1972a916033c2850c29743cbca8ea	Why does money value normally decrease?	[ { "docid": "0ee9ed2e804a5d0b0b1f130dad46ebe6", "text": "\"Your house doesn't need to multiply in order to earn a return. Your house can provide shelter. That is not money, but is an economic good and can also save you money (if you would otherwise pay rent). This is the primary form of return on the investment for many houses. It is similar for other large capital investments - like industrial robots, washing machines, or automobiles. The value of money depends on: As long as the size and velocity of the money supply changes about as much as the overall economic activity changes, everything is pretty much good. A little more and you will see the money lose value (inflation); a little less and the money will gain value (deflation). As long as the value of inflation or deflation remains very low, the specifics matter relatively little. Prices (including wages, the price of work) do a good job of adjusting when there is inflation or deflation. The main problem is that people tend to use money as a unit of account, e.g. you owe $100,000 on your mortgage, I have $500 in the bank. Changing the value of those numbers makes it really hard to plan for the future! Imagine if prices and wages fell in half: it would be twice as hard to pay off your mortgage. Or if the bank expected massive inflation in the future: they would want to charge you a lot more interest! Presently, inflation is the norm because the government entities, who help adjust how much money there will be (through monetary policy - interest rates and the like - ask about it if you're interested), will generally gradually increase the supply of money a little bit more quickly than the economy in general. They may also be worried that outright deflation over the long term will lead to people postponing purchases (to get more for their money later), harming overall economic activity, so they tend to err on the slightly positive side. The value of money, however, has not really \"\"ordinarily decreased\"\" until the modern era (the 1930s or so). During much of history, a relatively low fixed amount of valuable commodities (gold) served as money. When the economy grew, and the same amount of money represented more economic activity, the money became more valuable, and deflation ensued. This could have the unfortunate effect of deterring investment, because rich jerks with lots of money could see their riches increase just by holding on to those riches instead of doing anything productive with them. And changes in the supply of gold wreaked havoc with the money supply whenever there was some event like a gold rush: Because precious metals were at the base of the monetary system, rushes increased the money supply which resulted in inflation. Soaring gold output from the California and Australia gold rushes is linked with a thirty percent increase in wholesale prices between 1850 and 1855. Likewise, right at the end of the nineteenth century a surge in gold production reversed a decades-long deflationary trend and is often credited with aiding indebted farmers and helping to end the Populist Party’s strength and its call for a bimetallic (gold and silver) money standard. -- The California Gold Rush Today, there is way too little gold production to represent all the growth in world economic activity - but we don't have a gold standard anymore, so gold is valuable on its own merits, because people want to buy it using money, and its price is free to fluctuate. When it gets more valuable, and people pay more for it, mines will go through more effort to locate, extract and refine it because it will be more profitable. That's how most commodities work. For more information on these tidbits of history, some in-depth articles on:\"", "title": "" }, { "docid": "19bc40de0fa8ac43da9a0c74b6dbc19b", "text": "You expect interest because you forgo the opportunity of using the money as well as the risk of losing the money if the borrower can not pay you back. This is true also with gold - you would expect interest if you loaned someone your gold for a time period. When you deposit your money in the bank you are loaning your money to the bank who then loans the money to others. This is how the bank is able to pay interest on your accounts.", "title": "" }, { "docid": "07853fa175f861e90859a420391f7217", "text": "\"You get paid interest on deposits because banks only keep a fraction of the deposits on-hand. The rest is put to other uses, such as loaning money to others. If you deposit money and yield 1% interest, the bank is able to fund an auto loan, at 5%. By saving, you are actually making more capital available in the marketplace. \"\"Fixed\"\" or \"\"durable\"\" assets like gold, real property, or durable goods are different -- their value is based on attributes such as demand (gold, oil) or location (real property). If you bought an apartment in Manhattan in 1975, it appreciated greatly in value over the course of 30 years... but it did so because demand for apartments in New York City grew, while the supply of apartments grew more slowly. The government prints money for two core reasons: Think of it this way: Money is valuable because it is money.\"", "title": "" }, { "docid": "9fd2abbe8153ffbff95970ca5c3d394d", "text": "The reason is governments print extra money to cause inflation (hopefully reasonable) so that people don't just sit comfortably but do something to make money work. Thus inflation is an artificial measure which leads to money value gradually decreasing and causing people invest money in one way or another to beat inflation or maybe even gain some more money. Printing money is super cheap unlike producing any kind of commodity and that makes money different from commodities - commodities have their inherent value, but money has only nominal value, it's an artificial government-controlled product.", "title": "" }, { "docid": "29e1e185178fcf4be86b59ab877aa348", "text": "It is in circles. Today Money is fiat money. From economic stand point a moderate inflation is good. It there is near zero inflation or deflation, then economy would come to standstill and would stagnate. Hence everything has to becomes expensive. This keeps the economy in motion. House or Gold does increase in value otherwise one would not have purchased them. If you are saying on buying a house, you keep it with someone and after a period of time you get one extra room or keep an ounce of gold and after some years it becomes 2 ounce, well it does increase but differently. There reason there aren't many such schemes is because quantifying it is difficult. It would normally fetch more money than one had bought it for.", "title": "" }, { "docid": "23392efb363ee757969743f316d6ba6d", "text": "\"Currently, the quantity theory of money is widely accepted as an accurate model of inflation in the long run. Consequently, there is now broad agreement among economists that in the long run, the inflation rate is essentially dependent on the growth rate of money supply. However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates - Wikipedia: Inflation causes You also asked \"\"can you give any reference that explains that this [encouraging people to work] is one of the reasons government prints money?\"\" See the list of positive effects of inflation in that article.\"", "title": "" } ]	[ { "docid": "96e19b1eecb7bdc0b59c5bc4571733ce", "text": "I guess other than tradition and inflation, probably because the merchants want them. In the US, what currently costs $2.00 used to cost $0.10. So 75 years ago, those individual cents made a pretty bid difference. Inflation causes prices to go up, but doesn't get us to just change our currencies patterns. In your example, you are assuming that in an average day, the rounding errors you are willing to accept happen a couple of times. 2 or 3 cents here and there mean nothing to you. However to the merchant, doing hundreds or thousands of transactions per day, those few cents up and down mean quite a bit in terms of profit. To an individual, looking at a time frame more than a single day (because who only participates in economies for a single day) there are potentially millions of transactions in a lifetime, mean potentially giving away millions of dollars because they didn't want to wait. And as for the comment that people working each 3 cents every 10 seconds, I would assume at least some of the time when they are waiting for rounding errors, they are not at work getting paid. That concept is assuming that somebody is always willing to pay them for their time regardless of where that person is in the world; I have no facts and wild assumptions, but surely that can't be true for even a majority of workers. Finally, you should be happy if you happy to have an income high enough that you don't care about individual cents. But there are those business people who see opportunity in folks like you and profit greatly from it. I personally worry very much about who has my money; gov't gets paid to the penny and I expect returns to the penny. A super polite service employee who smiled a lot serving me a beer is getting all the rounding errors I have.", "title": "" }, { "docid": "7bbdff4b74a172dce539bd323e632508", "text": "\"The time value of money is very important in understanding this issue. Money today is worth more than money next year, two years from now, etc. It's a well understood economics concept, and well worth reading about if you have some, well, time. Not only is money literally worth more now than later due to inflation, but there is the simple fact that, assuming you have money for the purpose of doing something, being able to do that thing today is better than doing that same thing tomorrow. \"\"A bird in the hand is worth two in the bush\"\" gets to this rather directly; having it now is better than probably having it later. Would you rather have a nice meal tonight, or eat beans and rice tonight and then have the same nice meal next year? That's why interest exists, in part: you're offered some money now, for more money later; or in the case of buying a bond, you're offered more money later for some money now. The fact that people have different discount rates for money later is why the loan market can exist: people with more money than they can use now have a lower discount for future money than people who really need money right now (to buy a house, to pay their rent, whatever). So when choosing to buy a bond, you look at the money you're going to get, both over the short term (the coupon rate) and the long term (the face value), and you consider whether $80 now is worth $100 in 20 years, plus $2 per year. For some people it is - for some people it isn't, and that's why the price is as it is ($80). Odds are if you have a few thousand USD, you're probably not going to be interested in this - or if you have a very long term outlook; there are better ways to make money over that long term. But, if you're a bank needing a secure investment that won't lose value, or a trust that needs high stability, you might be willing to take that deal.\"", "title": "" }, { "docid": "48ca23bc31b6c0b6e5fc9c66936c846b", "text": "It means that your money does not have the same amount of buying power.", "title": "" }, { "docid": "b7014291a54c94cf4f0041e20974babf", "text": "I think precious metals as an investment might set one up for disappointment. Why does it seem to continually decline despite the variance? As many have noted, there isn't much productive use for precious metals, and no major wars are taking place, so they aren't being used as currency substitutes, not to mention that more is being pulled out of the ground every day. The real reason why this graph shows silver to decline in real value over time is because its using a suboptimal price index. An optimal one would most likely show a stable price over the long run. Silver is a great speculation if one can determine with high confidence the direction.", "title": "" }, { "docid": "5b5c2acc8f04aa3cde3a4b81f405cb5b", "text": "\"There are a few different ways you can look at this. You can't really take money out of the economy, as it can't \"\"leave society\"\" and the economy is the interaction of society. One example kind of close to this was a multi-millionaire died without an heir with millions in his bank account. The bank will continue to use the funds, but the money itself won't be spent. Some people saw this as a \"\"waste\"\", like value was lost, but really all it does (hoarding money or even burning it) is change the money supply. That being said there are two approaches to looking at capitalism as a balanced ecosystem. One is Keynesianism, which focuses on demand. The other is Marxism, which focuses on more internal mechanisms of capitalism. Both are concerned with inequality. With high inequality, those with capital tend to have more reinvestment as a percentage of income/wealth. With a return on investment this will increase inequality. The Keynesian issue is that this will lower demand, creating imbalance in the economy and long-term problems to function. The answer was more redistribution and higher labor wages. For Marxists, they believe that capitalism generates endless \"\"capital accumulation\"\", not because of a demand component, but because of labor theory of value. That wealth and value is not determined by the market, but at exploitation of labor. On this critical side you have critiques of the fetishism of market value. With high inequality you have money \"\"leaving the system\"\" in what some call waste--something not socially useful. Baran and Sweezy in \"\"Monopoly Capital\"\" talk about this in the form of things like military spending, and, I think, advertisement. But it can also relate to the generation of \"\"wealth\"\" (opposed to income). Things that don't hold inherent value, like art, becomes investment. You can't say it is \"\"taken out of \"\" the economy, but the value itself is generated by those who can purchase it. Though, I believe this value fetishism is more an outcome of the contradictions, rather than the cause. What it does contribute to contradictions, however, is the rise of speculation. Rather than consumption or productive investment, accumulation will increasingly become speculative. Real estate is usually the primary example. Many people buy houses, condos, or land, not for use, but for the expectation that the value will go up. When bad enough this can reshape the market, so for people who aren't investing their rent/living cost increases. This likewise happens with stocks and other financial investments. Again, it can't really \"\"leave the economy\"\", but it makes it more difficult for the \"\"traditional\"\" or productive and labor economy to operate.\"", "title": "" }, { "docid": "bc3847d8114169b949d9e465c019279a", "text": "That value differs between a starving man and a man who never fears lack of food. Let's take, instead, the value of your mother's affection. Were you to have to pay for that affection, for her hugs, they would lose value. Offering a price makes her affection worth LESS. Therefore value is not tied to currency, nor is value indelibly tied to Capitalism. Trading capital for your mother's affection negates the value of the affection.", "title": "" }, { "docid": "7657bf599858de4a50236f552c16d40a", "text": "\"If you think your cash will buy fewer goods in the future due to inflation, are there goods you will want or need in the future that you can purchase now? I think the cost of storage would need to be less than the inflation in price for this to make sense. If you used commodity trading there may not actually be a storage cost but likely some fees involved that would need to be weighed against the expected inflation. Basically if \"\"things\"\" are going to cost more in the future, making your cash worth less, can you convert cash into \"\"things\"\" before prices escalate?\"", "title": "" }, { "docid": "76f805fba133d2272947714245b4c446", "text": "As the value of a currency declines, commodities, priced in that currency, will rise. The two best commodities to see a change in would be oil and gold.", "title": "" }, { "docid": "5f86975dd87e90730ed4af18e94a1174", "text": "I think part of the confusion is due to the age of the term and how money has changed over time relative to being backed by precious metals vs using central banks etc. Historically: Because historically the coin itself was precious metal, if a change occurred between the 'face value' of the coin and value of the precious metal itself, the holder of the coin was less affected since they have the precious metal already in hand. They could always trade it based on the metal value instead of the face value. OTOH if you buy a note worth an the current price of ounce of gold, and the price of gold goes up, and then the holder wants to redeem the note, they end up with less than an ounce of gold. In the more modern age The main concern is the cost to borrow funds to put money into circulation, or the gain when it goes out of circulation. The big difference between the two is that bills tend stay in circulation until they wear out, have to be bought back and replaced. Coins on the other hand last longer, but have a tendency to drop out of circulation due to collectors (especially with 'collectible series' coins that the mint seems to love to issue lately). This means that bills issued tend to stay in circulation, while only a percentage of coins stays in circulation. So the net effect on the money supply is different for the two, and since modern 'seigniorage' is all about the cost to put money in circulation, it is different in the case of coins where some percentage will not remain circulating.", "title": "" }, { "docid": "b4940a56597daa47fcd9f02797c22a8e", "text": "\"Once a currency loses value, it never regains it. Period. Granted there have been short term periods of deflation, as well as periods where, due to relative value fluctuation, a currency may temporarily gain value against the U.S. dollar (or Euro, Franc, whatever) but the prospect of a currency that's lost 99.99% of its value will reclaim any of that value is an impossibility. Currency is paper. It's not stock. It's not a hard commodity. It has no intrinsic value, and no government in history has ever been motivated to \"\"re-value\"\" its currency. Mind you, there have been plenty of \"\"reverse splits\"\" where a government will knock off the extraneous zeroes to make handling units of the currency more practical.\"", "title": "" }, { "docid": "9178447e3c6b7a4528522f3c1acb7cdc", "text": "If that fraction is really small, then the amount of gold can be thought of as relatively constant. That fraction is very small. After all, people have been mining gold for thousands of years. So the cumulative results of gold mining have been building up the supply for quite some time. Meanwhile, owners of gold rarely destroy it. A little bit of gold is used in some industries as a consumable. This limited consumption of gold offsets some of the production that comes from mining. But truthfully this effect is minuscule. For the most part people either hoard it like its made of gold, or sell it (after all it is worth its weight in gold). If you're interested Wikipedia lists a few more factors that affect gold prices. (If you're not interested Wikipedia lists them anyway.)", "title": "" }, { "docid": "7b42364f8eb819cf045e88bb58afbaca", "text": "Besides overnight news events and auction mechanisms there is a more fundamental reason the price of a stock is always moving. Theoretically the stock price will move slightly even in the unlikely scenario that absolutely nothing of interest happens during the entire night. Let me go into that in some more detail: Stock valuation using Discounted Cash FLow One of the fundamental reasons that stock value is constantly changing is because underneath every stock there is a company that expects to make some kind of profit or loss in the future. We have to go into the fundamentals of stock value to understand why this is important: One popular way to determine the value of a stock is by looking into the future and summing up all the earnings (or cashflows) it has yet to produce. You have to reduce each amount by a certain factor that gets larger for payments that are farther into the future. Think of it this way: a dollar in hand now is better than a dollar that you get tomorrow. This method of valuation is called Discounted Cash Flow (abbr. DCF; see the wikipedia article on DCF) Time's effect on stock value Now take the Close price C, and the open price O. Let's assume that since there has been no news, the expectations for future earnings are the same for C and O. Remember that the discounting factor for these earnings is dependent on the time until the cashflow occurs? For O, this time is slightly shorter than for C, and therefore the value will be slightly higher (or lower, when the company is expected to incur losses). So now you can see that even without all the external forces that continuously push and pull on the stock price, a stock still changes in value over time. Hope this helps.", "title": "" }, { "docid": "de76dd8be879644dd6aff119fe53a486", "text": "Money itself has no value. A gold bar is worth (fuzzy rushed math, could be totally wrong on this example figure) $423,768.67. So, a 1000 dollars, while worthless paper, are a token saying that you own %.2 of a gold bar in the federal reserve. If a billion dollars are printed, but no new gold is added to the treasury, then your dollar will devalue, and youll only have %.1 percent of that gold bar (again, made up math to describe a hypothetical). When dollars are introduced into the economy, but gold has not been introduced to back it up, things like the government just printing dollars or banks inventing money out of debt (see the housing bubble), then the dollar tokens devalue further. TL;DR: Inflation is the ratio of actual wealth in the Treasury to the amount of currency tokens the treasury has printed.", "title": "" }, { "docid": "57346e5c8968d96bbab7fe6d0e8c6996", "text": "\"Paraphrased from Economics of Money, Banking and Financial Markets: Money is (1) a medium of exchange, (2) a unit of account, (3) a store of value. To the first point: as Homer Simpson's brain explained to him \"\"Money can be exchanged for goods and services\"\". The second: money acts as a measure to keep track of the relative worth of an enormous amount of items. This makes it much simpler than tracking how many apples are worth how many deerhides, and so on and so forth as occurs in barter economies. The last point: money is a terrible store of value. Your money tends to inflate, meaning that its worth decreases over time. I think your explanation went into territory that it didn't need to. Your explanation of the creation of money for example seems to imply that the banking system is not involved in the process of money creation when actually the opposite is true.\"", "title": "" }, { "docid": "5f43d2f0322d76a0b82103c77237d251", "text": ">you can have the exact same scenario I described above in a competing currency system. Not for a lengthy period of time, or in massive amounts (as we see today). >Typically the Cantillion Effect has bankers disadvantaged because they get their interest payment after the inflation effects prices. It is the primary loan receiver who gets the best value. I encourage you to watch this short video, to understand how the transfer of wealth to bankers occurs: http://www.youtube.com/watch?v=hx16a72j__8", "title": "" } ]	fiqa
77004043cf25c26dd4a10258e2142286	Pros & cons in Hungary of investing retirement savings exclusively in silver? What better alternatives, given my concerns?	[ { "docid": "438545110087a3379434531a7350b942", "text": "\"To be honest, I think a lot of people on this site are doing you a disservice by taking your idea as seriously as they are. Not only is this a horrible idea, but I think you have some alarming misunderstandings about what it means to save for retirement. First off, precious metals are not an \"\"investment\"\"; they are store of value. The old saying that a gold coin would buy a suit 300 years ago and will still buy a suit today is pretty accurate. Buying precious metals and expecting them to \"\"appreciate\"\" in the future because they are \"\"undervalued\"\" is just flat-out speculation and really doesn't belong in a well-planned retirement account, unless it's a very small part for the purposes of diversification. So the upshot to all of this is the most likely outcome is you get zero return after inflation (maybe you'll get lucky or maybe you'll be very unlucky). Next you would say that sure, you're giving up some expected return for a reduction in risk. But, you've done away with diversification which is the most effective way to minimize risk... And I'm not sure what scenario you're imagining that the stock market or any other reasonable investment doesn't make any returns. If you invest in a market wide index fund, then the expected return is going to be roughly in proportion with productivity gains. To say that there will be no appreciation of the stock market over the next 40 years is to say that technological progress will stop and/or we will have large-scale economic disruptions that will wipe out 40 years of progress. If that happens, I would say it's highly questionable whether silver will actually be worth anything at all. I'd rather have food, property, and firearms. So, to answer your question, practically any other retirement savings plan would be better than the one that you currently outlined, but the best plan is just to put your money in a very low-cost index fund at Vanguard and let it sit until you retire. The expense ratios are so stupidly small, that it's not going to meaningfully affect your return.\"", "title": "" }, { "docid": "e4bf9d247623ce514a12a958cb59e780", "text": "\"This sound like a very bad idea. If you invest exclusively in silver, your investment is not diversified in any way. This is what I would call risky. Have a look at index funds and ETFs and build a diversified portfolio. It does not take much time, and you don't need to let it do by someone else. They are risky too, but I see \"\"silver only\"\" as much riskier. You reduce the risk by holding on to the funds for a long time.\"", "title": "" }, { "docid": "b7014291a54c94cf4f0041e20974babf", "text": "I think precious metals as an investment might set one up for disappointment. Why does it seem to continually decline despite the variance? As many have noted, there isn't much productive use for precious metals, and no major wars are taking place, so they aren't being used as currency substitutes, not to mention that more is being pulled out of the ground every day. The real reason why this graph shows silver to decline in real value over time is because its using a suboptimal price index. An optimal one would most likely show a stable price over the long run. Silver is a great speculation if one can determine with high confidence the direction.", "title": "" }, { "docid": "4f9847f7b6ee037d2b5ce638f730adb0", "text": "First is storage which is a big and a detrimental headache. Security is another big headache. Investing in precious metal has always been an investment opportunity in the countries in the east i.e. India and China because of cultural reason and due to absence of investment opportunities for the less fortunate ones. It isn't the case so in the West. Secondly what is the right an opportune moment is open to question. When the worlwide economy is up and running, that is probably the time to buy i.e. people would like to put money in use rather than store. The saying goes the other way when the economy is stagnating. Then there is also the case of waiting out the bad periods to sell your gold and silver. If you do want to buy precious metals then use a service like BullionVault, rather than doing those yourself. It takes care of the 2 big headaches, I mentioned earlier.", "title": "" }, { "docid": "cdffb915d0dd1bd742154da933a60b2b", "text": "The points given by DumbCoder are very valid. Diversifying portfolio is always a good idea. Including Metals is also a good idea. Investing in single metal though may not be a good idea. •Silver is pretty cheap now, hopefully it will be for a while. •Silver is undervalued compared to gold. World reserve ratio is around 1 to 11, while price is around 1 to 60. Both the above are iffy statements. Cheap is relative term ... there are quite a few metals more cheaper than Silver [Copper for example]. Undervalued doesn't make sense. Its a quesiton of demand and supply. Today Industrial use of Silver is more widespread, and its predecting future what would happen. If you are saying Silver will appreciate more than other metals, it again depends on country and time period. There are times when even metals like Copper have given more returns than Silver and Gold. There is also Platinum to consider. In my opinion quite a bit of stuff is put in undervalued ... i.e. comparing reserve ratio to price in absolute isn't right comparing it over relative years is right. What the ratio says is for every 11 gms of silver, there is 1 gm of Gold and the price of this 1 gm is 60 times more than silver. True. And nobody tell is the demand of Silver 60 times more than Gold or 11 times more than Gold. i.e. the consumption. What is also not told is the cost to extract the 11 gms of silver is less than cost of 1 gm of Gold. So the cheapness you are thinking is not 100% true.", "title": "" }, { "docid": "1c7a11941b50af2b1317846c5b706ab0", "text": "\"Because most of the posters have disparaged the pursuit of silver without a reflection upon what you wrote in the question - your concern about Hungary and its government, I'll weigh in it. In a stable and solid political and economic environment, this advice against silver would be generally correct. As you commented, though, this has not been the case and thus it is difficult for some to understand this. Given your concerns, here's a question to reflect upon - what can the government of Hungary not confiscate? Or what have they not confiscated in the past? If silver is on that list, then very few people here will understand because statements like, To be honest, I think a lot of people on this site are doing you a disservice by taking your idea as seriously as they are, are completely predicated on an environment that has been relatively stable over the years. I know my fellow Americans (and some Europeans) don't get this, but some countries have seen disasters - for instance, Brazil has been hyperinflation even when interest rates with insane interest rates (over 1000%). So this answer won't be popular, but depending on your environment, silver may be an excellent choice. If the government of Hungary has confiscated silver in the past (or you suspect they might), though, I'd stay far away from it. In reading and listening to people in these environments, citizens typically want something the government does want to take inventory of that tend to hold their value or rise during times of crisis. Most Americans (if they were honest) really can't relate to this and the few that can would agree. Another popular item to have, which doesn't physically exist, is a rare, but valuable skill that will be needed in a crisis. For instance, being highly skilled at negotiation and knowing the right people both come in handy at difficult times. Can you pay for learning or increasing those skill sets now? Never forget that self-investment can go far. And as a financial note and word of advice from someone who's been a financial adviser for over half a decade, a good financial adviser always seeks to get the person's information before providing advice and almost never says that a particular choice is always bad or always good; I would seldom say that a person should do one thing and it will always be good advice because that may not work in their country/state/environment/situation/etc. As they say in the SQL Server community - \"\"it depends\"\" and that holds true for finance. In the long run, those items which we may not think of as good investments or stores of value may end up having their day. To paraphrase Solomon, \"\"There's a time and place for everything under the sun.\"\" Even in my short life, I've witnessed a period of gold and silver routing the stock market and the stock market routing gold and silver. I suspect I'll see both again if I live a few more decades. tl;dr\"", "title": "" }, { "docid": "1a5261fd35e60a67b52827496240db6b", "text": "\"Like Jeremy T said above, silver is a value store and is to be used as a hedge against sovereign currency revaluations. Since every single currency in the world right now is a free-floating fiat currency, you need silver (or some other firm, easily store-able, protect-able, transportable asset class; e.g. gold, platinum, ... whatever...) in order to protect yourself against government currency devaluations, since the metal will hold its value regardless of the valuation of the currency which you are denominating it in (Euro, in your case). Since the ECB has been hesitant to \"\"print\"\" large amounts of currency (which causes other problems unrelated to precious metals), the necessity of hedging against a plummeting currency exchange rate is less important and should accordingly take a lower percentage in your diversification strategy. However, if you were in.. say... Argentina, for example, you would want to have a much larger percentage of your assets in precious metals. The EU has a lot of issues, and depreciation of hard assets courtesy of a lack of fluid currency/capital (and overspending on a lot of EU governments' parts in the past), in my opinion, lessens the preservative value of holding precious metals. You want to diversify more heavily into precious metals just prior to government sovereign currency devaluations, whether by \"\"printing\"\" (by the ECB in your case) or by hot capital flows into/out of your country. Since Eurozone is not an emerging market, and the current trend seems to be capital flowing back into the developed economies, I think that diversifying away from silver (at least in overall % of your portfolio) is the order of the day. That said, do I have silver/gold in my retirement portfolio? Absolutely. Is it a huge percentage of my portfolio? Not right now. However, if the U.S. government fails to resolve the next budget crisis and forces the Federal Reserve to \"\"print\"\" money to creatively fund their expenses, then I will be trading out of soft assets classes and into precious metals in order to preserve the \"\"real value\"\" of my portfolio in the face of a depreciating USD. As for what to diversify into? Like the folks above say: ETFs(NOT precious metal ETFs and read all of the fine print, since a number of ETFs cheat), Indexes, Dividend-paying stocks (a favorite of mine, assuming they maintain the dividend), or bonds (after they raise the interest rates). Once you have your diversification percentages decided, then you just adjust that based on macro-economic trends, in order to avoid pitfalls. If you want to know more, look through: http://www.mauldineconomics.com/ < Austrian-type economist/investor http://pragcap.com/ < Neo-Keynsian economist/investor with huge focus on fiat currency effects\"", "title": "" } ]	[ { "docid": "5affdedc6246219e3093477fd999126e", "text": "Reddit doesn't have a ton of resources to offer you as you learn about where to invest, you want to start reading up on actual investing sites. You might start with Motley Fool, StockTwits, Seeking Alpha, Marketwatch, etc. I agree with hipster's take, if all countries are going to keep printing money and expanding their debts and craziness, gold has a bright future. Land, petroleum, commodities, and precious metals have an intrinsic worth that will still be there regardless of what currencies are doing, versus bonds which are merely promises to pay, which will be paid off in devalued money, or stocks which are just promises of future earnings. Think about spreading your risk in a few different places, one chunk here, one chunk there. Some people in the US now are big on dividend paying stocks in lieu of bonds which only pay a percent, which is negative return after inflation. Some people buy 'royalty trust' units, which throw off income from oil leases as dividends. You might want to park a portion in a different currency, but dollar funds aren't going to pay interest and Switzerland plans to keep devaluing its currency as people keep bidding the price up. I don't know if you are allowed to buy CEF, a bullion-backed fund out of Canada in your country, but that's one way to own gold & silver. But with the instability out there, you might prefer a bit of the real thing stashed in a safe place. Or if you have a bit of family land, maybe just be sure you can pay the taxes to keep it; or pursue any other way to own 'real stuff' that will still be worth something after all hell breaks loose.", "title": "" }, { "docid": "4562815066c5bab4d0cdee26be14c660", "text": "\"There is no zero risk option! There is no safe parking zone for turbulent times! There is no such thing as a zero-risk investment. You would do well to get this out of your head now. Cash, though it will retain its principle over time, will always be subject to inflation risk (assuming a positive-inflation environment which, historically in the US anyway, has always been the case since the Great Depression). But I couldn't find a \"\"Pure Cash - No investment option\"\" - what I mean by this is an option where my money is kept idle without investing in any kind of financial instrument (stocks, bonds, other MFs, currencies, forex etc etc whatever). Getting back to the real crux of your question, several other answers have already highlighted that you're looking for a money market fund. These will likely be as close to cash as you will get in a retirement account for the reasons listed in @KentA's answer. Investing in short-term notes would also be another relatively low-risk alternative to a money market fund. Again, this is low-risk, not no-risk. I wanted such kinda option because things may turn bad and I may want nothing invested in the stock markets/bond markets. I was thinking that if the market turns bear then I would move everything to cash Unless you have a the innate ability to perfectly time the market, you are better off keeping your investments where they are and riding out the bear market. Cash does not generate dividends - most funds in a retirement account do. Sure, you may have a paper loss of principle in a bear market, but this will go away once the market turns bull again. Assuming you have a fairly long time before you retire, this should not concern you in the slightest. Again, I want to stress that market timing does not work. Even the professionals, who get paid the big bucks to do this, on average, get it right as often as they get it wrong. If you had this ability, you would not be asking financial questions on Stack Exchange, I can tell you that. I would recommend you read The Four Pillars of Investing, by William Bernstein. He has a very no-nonsense approach to investing and retirement that would serve you (or anybody) well in turbulent financial markets. His discussion on risk is especially applicable to your situation.\"", "title": "" }, { "docid": "e0081fa5ad1190bd93454b9dd8ca49d4", "text": "Gold is a good investment when central bank money printers can’t take their thumbs off the print button. Over the last 3 years the US Federal Reserve printed a ton of dollars to bail out banks and to purchase US federal debt. Maybe I should exchange my dollars for euros? The European Central Bank (ECB) is following the FED plan and printing money to buy Greek, Italian, and now Spanish bonds. This, indirectly, is a bailout of French and German banks. Maybe I should exchange my euros for yen? The Bank Of Japan (Japan’s central bank) is determined not to let the yen rise against other currencies so they too are printing money to keep the yen weak. Maybe I should exchange my yen for swiss francs? The Swiss National Bank (Switzerland’s central bank) is also determined not to let the franc rise against other currencies so they too are printing money. You quickly begin to realize that your options are dwindling for places to put your money where the government central bank isn’t working hard to dilute your savings. Physical gold is also a good investment for several other situations: What situations would lead to a drop in gold prices? What are the alternatives? Silver has traditionally been used more as money than gold. Silver is usually used for day-to-day purchases while gold is used for savings.", "title": "" }, { "docid": "9a55bf800e3b8318039ed73b974c6f75", "text": "Advantages of Gold IRA (regardless of where you're holding it): Disadvantages of Gold IRA: Instead, you can invest in trust funds like SLV (The ETF for silver) or GLD in your regular brokerage IRA. These funds negotiate their prices of storage, are relatively liquid, and shield you from the dangers of owning physical metal while providing opportunity to invest in it at market prices.", "title": "" }, { "docid": "263e89f9838c5e3af00d6b60d70cb784", "text": "As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it. A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid. Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy. As for your questions: Precious metal... Buying or selling look for the trends and time frame for your desired holdings. Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you. Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere. Find a strategy and perfect it, make a plan and stick to it. As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.", "title": "" }, { "docid": "eefe526e99c585f680907b8039439560", "text": "Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.", "title": "" }, { "docid": "0ead1dede2e47b352659caf9da89e7ee", "text": "This kid gives a good summary of the silver market as it currently stands, and why you should own the physical: https://www.youtube.com/watch?v=oAK9ohz9h7M But yes, you will do well to have bank accounts in China and Switzerland, diversifying into yuan and francs... and also jurisdictionally diversifying.", "title": "" }, { "docid": "5625496dedd8862d5e88416d729fc2de", "text": "\"First off, the answer to your question is something EVERYONE would like to know. There are fund managers at Fidelity who will a pay $100 million fee to someone who can tell them a \"\"safe\"\" way to earn interest. The first thing to decide, is do you want to save money, or invest money. If you just want to save your money, you can keep it in cash, certificates of deposit or gold. Each has its advantages and disadvantages. For example, gold tends to hold its value over time and will always have value. Even if Russia invades Switzerland and the Swiss Franc becomes worthless, your gold will still be useful and spendable. As Alan Greenspan famously wrote long ago, \"\"Gold is always accepted.\"\" If you want to invest money and make it grow, yet still have the money \"\"fluent\"\" which I assume means liquid, your main option is a major equity, since those can be readily bought and sold. I know in your question you are reluctant to put your money at the \"\"mercy\"\" of one stock, but the criteria you have listed match up with an equity investment, so if you want to meet your goals, you are going to have to come to terms with your fears and buy a stock. Find a good blue chip stock that is in an industry with positive prospects. Stay away from stuff that is sexy or hyped. Focus on just one stock--that way you can research it to death. The better you understand what you are buying, the greater the chance of success. Zurich Financial Services is a very solid company right now in a nice, boring, highly profitable business. Might fit your needs perfectly. They were founded in 1872, one of the safest equities you will find. Nestle is another option. Roche is another. If you want something a little more risky consider Georg Fischer. Anyway, what I can tell you, is that your goals match up with a blue chip equity as the logical type of investment. Note on Diversification Many financial advisors will advise you to \"\"diversify\"\", for example, by investing in many stocks instead of just one, or even by buying funds that are invested in hundreds of stocks, or indexes that are invested in the whole market. I disagree with this philosophy. Would you go into a casino and divide your money, putting a small portion on each game? No, it is a bad idea because most of the games have poor returns. Yet, that is exactly what you do when you diversify. It is a false sense of safety. The proper thing to do is exactly what you would do if forced to bet in casino: find the game with the best return, get as good as you can at that game, and play just that one game. That is the proper and smart thing to do.\"", "title": "" }, { "docid": "ec199cf207762c464059adad4d27fd60", "text": "Withdraw your savings as cash and stuff them into your mattress? Less flippantly, would the fees for a safe deposit box at a bank big enough to hold CHF 250'000 be less than the negative interest rate that you'd be penalized with if you kept your money in a normal account?", "title": "" }, { "docid": "aa01502eec01a6f65c85bb2e05377b52", "text": "I assume you've looked into gold as an asset class (which is considered to be a good diversifier in your portfolio at about 5% of investments) because there are a lot of opinions around about that. But in terms of physical vs paper gold investment, my experience has been that they'll absolutely kill you on fees if you're not careful. I had a broker try and charge me $80/oz. They do it in the margins though, so they'll just sell at say $1,350 but buy at $1,200. Just make sure you either know the market price when you walk in and stick to your guns or lock in a price ahead of time.", "title": "" }, { "docid": "88637e2af57ebc9fb599d840f9745fb0", "text": "Estonia is one of the few countries where you can purchase silver tax-free. You may wish to hedge your risk by investing a percentage of your Estonian currency into this tangible asset. Silver can be stored securely at a place of your choosing rather than in a financial institution. Plus you can purchase a small amount with only minor transaction costs.", "title": "" }, { "docid": "bbff14d0604cfd236b9c40dcd9f54084", "text": "\"A credit card is basically a \"\"revolving\"\" loan, in which you're allowed to borrow up to a certain amount (the limit), and any time you borrow, you pay interest. If you were to borrow $100 to pay for something via a credit card, you'd have a $100 balance on the card. If you then pay $70 cash to the card, there would be $30 remaining. That $30 balance could accrue interest. The timing of that interest charge could vary. The 20% you've quoted is almost certainly \"\"APR,\"\" of which the \"\"A\"\" stands for \"\"annual,\"\" so that 20% would be an annual rate. It makes the most sense, mind you, to keep a minimal balance on a credit card, as the interest rate is higher than most other loans.\"", "title": "" }, { "docid": "eacc0213a87e88848b0b53f9b49d628e", "text": "\"This model would work fine under a couple of assumptions: that market interest rates never change, and that the borrower will surely make all the payments as agreed. But neither of those assumptions are realistic. Suppose Alice loans $1,000,000 to Bob at 4% under the terms you describe. Bob chooses to make interest-only payments of $40,000 per year. Some time later, prevailing interest rates go up to 10%. Now Alice would really like Bob to repay the entire principal as quickly as possible, because that money could be earning her $100,000 per year instead of only $40,000, but under the contract she has no way to force Bob to do so. And Bob has no incentive to repay any of the principal, because he can earn more interest on it than he has to pay to Alice. So Alice is not going to be very happy about this. You might say, but at least Alice is only losing \"\"potential\"\" money; she's still turning a profit of $10,000 per year, since her bank only charges her 3% interest. Ah, but you're assuming that Alice can get a bank loan with a rate of 3% fixed forever. The bank doesn't want to make such a loan either, for exactly the same reasons. So in practice, any loan like this would be expected to have a variable interest rate. There's a flip side, too. Suppose instead that market rates drop to 1%. Now Alice would like Bob to repay the principal as slowly as possible, because she's earning 4% on that money, which is better than any other options available to her. But Bob now has every incentive to repay it as fast as he can - or even to refinance by taking out another loan at, say, 2%, and using the proceeds to repay the entire principal to Alice. (This risk still applies with most traditional loans, since the borrower usually always has the right to pay early, but some loans include a \"\"prepayment penalty\"\" in such cases to help compensate the lender.) Thus, when Bob has all the power to decide when to pay, Alice is sure to lose no matter which way interest rates move. A loan with a fixed term helps insulate Alice against this risk. She may be able to make a guess about the likelihood of interest rates going up to 10% in the next 15 or 30 years, and increase Bob's fixed rate to account for this; that's much easier than trying to account for the possibility of interest rates going up to 10% ever. (And if she does have to try to account for this, she's probably going to have to set the interest rate extremely high; so Bob might accept a fixed term of repayment in exchange for a more reasonable rate.) Even if we suppose that Alice has done the best possible credit check and that Bob is a perfectly trustworthy fellow who would never dream of defaulting on his loan, catastrophes do happen. Maybe Bob is robbed of all his money by an evil accountant, or has a mid-life crisis and spends it all on opera tickets. Whatever, Bob is now bankrupt and Alice is never going to get her principal back, nor any further interest payments either. Even if the loan is secured by some collateral, there's still a risk since the collateral might lose value. Alice has some chance of estimating the risk of this happening in the next 15 or 30 years, and can set the interest rate to compensate for it. But it is harder for her to estimate the risk of this happening ever, and if she tries, she'll have to set the rate so high that Bob might prefer a fixed term and a lower rate. (There's a side issue as to what happens if Bob dies with the loan still outstanding. If it's an unsecured loan, typically Alice can try to collect the principal from Bob's estate, but if there isn't enough, too bad for Alice; she can't force Bob's heirs to continue making payments. If it's a secured loan, Alice may be able to have Bob's heirs continue paying or else she seizes the collateral; but she still has the risk of the collateral losing value.)\"", "title": "" } ]	fiqa
530b8e94ff7638170151000d6f369072	How does the currency between countries relate	[ { "docid": "621eb1ca846df96ea2ee6dd9bf8c66d0", "text": "Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.)", "title": "" }, { "docid": "e445a0592214b800d5a666495d7d54d3", "text": "It's called correlation. I found this: http://www.forexrazor.com/en-us/school/tabid/426/ID/437424/currency-pair-correlations it looks a good place to start Similar types of political economies will correlate together, opposite types won't. Also there are geographic correlations (climate, language etc)", "title": "" } ]	[ { "docid": "a784e06e0738e08af5368a14b5afae86", "text": "There's another dimension here as currency conversion isn't necessarily the final answer. As stated by others, converting money between the three should theoretically end up with the exact same value, less transactional costs. However the kink is that the price of most products are not updated as the currencies change. In many cases the price difference is such that even accounting for shipping and exchange fees, purchasing a product from a distributor in a foreign country can be cheaper than just picking it up at the local store. You might even be able to take advantage of this when purchasing at a single store. If that store is set up to accept multiple currencies then it's a matter of looking at the conversion rates the moment you are buying and deciding which one is the cheapest route for you. Of course, this generally will not work for smaller purchases like a cup of coffee or a meal. Primarily because the fee for the exchange might eclipse any savings.", "title": "" }, { "docid": "2e695a5a44676fed9b45586d7c613fde", "text": "\"Yes, but it depends on WHICH other currencies the country's money is depreciating against, and to what extent. This is why China \"\"pegging\"\" the renminbi/yuan to the dollar is an issue, it means Chinese goods do NOT become more expensive in the US.\"", "title": "" }, { "docid": "5d0b360de7d5745d006ae345e6072492", "text": "The value of the asset doesn't change just because of the exchange rate change. If a thing (valued in USD) costs USD $1 and USD $1 = CAN $1 (so the thing is also valued CAN $1) today and tomorrow CAN $1 worth USD $0.5 - the thing will continue being worth USD $1. If the thing is valued in CAN $, after the exchange rate change, the thing will be worth USD $2, but will still be valued CAN $1. What you're talking about is price quotes, not value. Price quotes will very quickly reach the value, since any deviation will be used by the traders to make profits on arbitrage. And algo-traders will make it happen much quicker than you can even notice the arbitrage existence.", "title": "" }, { "docid": "d1138e355b81a7a8ac2647aa46a98c76", "text": "It is interesting to consider the Netherlands which is part of the Euro zone. Germany uses 1 and 2 cent coins. Adjacent is the Netherlands where items remain priced to the cent but cash totals are rounded to the nearest 5c so 1 and 2c coins are out of circulation.", "title": "" }, { "docid": "9436fc2ca722cf39549c45710f53c2c0", "text": "It's slightly more complicated than that. Usually a country that was in Greece's situation would be able to use inflation to devalue their currency which would have the effect of lowering the value of the government's debts and also of making Greek prices more competitive in the international market. Or they could use quantitative easing to inject cheap cash into the economy to help stimulate it. Because Greece is on the Euro, however, they have no control over their own currency and their options are highly limited. Additionally, when you join the EU, especially the Eurozone, that's supposed to come with additional internal responsibilities, but it's also supposed to come with additional external ones as well. Greece has a responsibility to get its shit together, but the whole point is that more financially stable countries have a responsibility to help them. Right now that means Germany; they're the ones with the greatest control over the Euro and they're shying away from their duties. If the rest of Europe didn't want to risk ending up in this position they shouldn't have let Greece into the Eurozone.", "title": "" }, { "docid": "33688c0a4dd603830a854a65e4b90871", "text": "\"I think you missed the first two paragraphs of the article. It's raising the prices in some countries in Europe due to local tax increases, and in addition to that it's changing the currencies used in the countries you listed. The only thing about the title that may be considered \"\"misleading\"\" is the use of \"\"across the word\"\" instead of \"\"across Europe\"\".\"", "title": "" }, { "docid": "9502308b68e5cffb5c3f0fbd260caeb6", "text": "Chinese suppliers can quote their price in CNY rather than USD (as has been typical), and thus avoid the exchange risk from US dollar volatility- the CNY has been generally appreciating so committing to receive payments in US dollars when their costs are in CNY means they are typically on the losing end of the equation and they have to pad their prices a bit. Canadian importers will have to buy RMB (typically with CAD) to pay for their orders and Canadian exporters can take payment in RMB if they wish, or set prices in CAD. By avoiding the US dollar middleman the transactions are made less risky and incur less costs. Japan did this many decades ago (they, too, used to price their products in USD). This is important in transactions of large amounts, not so much for the tiny amounts associated with tourism. Two-way annual trade between China and Canada is in excess of $70bn. Of course Forex trading may greatly exceed the actual amounts required for trade- the world Forex market is at least an order of magnitude greater than size of real international trade. All that trading in currency and financial instruments means more jobs on Bay Street and more money flowing into a very vital part of the Canadian economy. Recent article from the (liberal) Toronto Star here.", "title": "" }, { "docid": "143c8924071160f71f9e1bd71c72159c", "text": "Two parties will agree to pay each other's interest obligations. This is generally for one of two reasons: * One party wishes to swap a fixed interest rate (eg coupons on a bond) for a floating interest rate (eg: payments on a loan). If their counterparty wishes the opposite, and the rates are acceptable to both, they will agree to swap their obligations * There are two firms, based in countries A and B. Each firm has a branch in the other's country, and these branches each have a loan, denominated in that other countries currency. To reduce each firm's exposure to FX risk, they can swap their obligations, so A will pay interest on B's loan (which is in A's currency) and B on A's loan (which is in B's currency). edit: removed infuriating unterminated bracket.", "title": "" }, { "docid": "c760adde250dd20b09e0e032b5bdd9d6", "text": "When you buy a currency via FX market, really you are just exchanging one country's currency for another. So if it is permitted to hold one currency electronically, surely it must be permitted to hold a different country's currency electronically.", "title": "" }, { "docid": "cbf4a5de9f84ac8dfd484389fa250ed0", "text": "\"Currently, there is simply no reason to do so. It's not a problem. It is no more of a problem or effort to denote \"\"5,000\"\" than it is to denote \"\"50.00\"\". But if there were a reason to do so, it wouldn't be all that difficult. Of course there would be some minor complications because some people (mostly old people presumably) would take time getting used to it, but nothing that would stop a nation from doing so. In Iceland, this has happened on several occasions in the past and while Iceland is indeed a very small economy, it shouldn't be that difficult at all for a larger one. A country would need a grace period while the old currency is still valid, new editions of already circulating cash would need to be produced, and a coordinated time would need to be set, at which point financial institutions change their balances. Of course it would take some planning and coordination, but nothing close to for example unifying two or more currencies into one, like the did with the euro. The biggest side-effect there was an inflation shot when the currencies got changed in each country, but this can be done even with giant economies like Germany and France. Cutting off two zeros would be a cakewalk in comparison. But in case of currencies like the Japanese Yen, there is simply no reason to take off 2 zeros yet. Northern-Americans may find it strange that the numbers are so high, but that's merely a matter of what you're used to. There is no added complication in paying 5.000 vs. 50 at a restaurant, it merely takes more space on a computer screen and bill, and that's not a real problem. Besides, most of the time, even in N-America, the cents are listed as well, and that doesn't seem to be enough of a problem for people to concern themselves with. It's only when you get into hyper-inflation when the shear space required for denoting prices becomes a problem, that economies have a real reason to cut off zeros.\"", "title": "" }, { "docid": "b599fa547d14e731b3f8685f44242823", "text": "of course the value will be non zero however it would be very small, as all the countries would not leave at once... if its a piig holding the bag it would fall precipitously, if its a AAA (non france) it would go to 1.5 Its very path dependent on whom leaves when", "title": "" }, { "docid": "c49716a0538758168f596a785f54f5f0", "text": "From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.", "title": "" }, { "docid": "d3207224e410452dea55c68e15e4aaf4", "text": "Whether it's historically stronger or weaker isn't going to have an impact on you; the forex exposure you have is going forward if the exchange rates change you will have missed out on having more or less value by leaving it in a certain currency. (Ignoring fees) Say you exchange €85 for $100, if while you're in the US the Euro gets stronger than it currently is, and the exchange rate changes to €8:$10; then you will lose out on €5 if you try to change it back, and the opposite is true if the euro gets weaker than it currently is you would gain money on exchanging it back. Just look at it as though you're buying dollars like it were a commodity. If the euro gets stronger it buys more dollars and you should've held onto it in euros, if it gets weaker it buys less dollars and you were better off having it in dollars. You would want to use whichever currency you think will be weaker or gain the least against the dollar while you're here.", "title": "" }, { "docid": "24cf4e2fb2e9b789ee644ad9cc13f632", "text": "What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency. People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight.", "title": "" }, { "docid": "be5a343ff06889ca387adaed1aed3f15", "text": "From an investor's standpoint, if the value of crude oil increases, economies that are oil dependent become more favourable (oil companies will be more profitable). Therefore, investors will find that country's currency more attractive in the foreign exchange market.", "title": "" } ]	fiqa
16c5097148df0423c56b70ee2a2b2f41	What do “cake and underwear” stocks refer to?	[ { "docid": "d407dde09a02878064db1dc11e7a5df2", "text": "\"JoeTaxpayer's answer is dead on... but let me give my own two cents with a little bit of math. Otherwise, I personally find that people talking about diversified portfolios tends to be full of buzzwords. Let's say that Buffett's investments are $10 million. He would like to earn ≥7% this year, or $700,000. He can invest that money in coca-cola//underwear, which might return: Or he can invest in \"\"genius moves\"\" that will make headlines: (like buying huge stakes in Goldman Sachs), which might return: And he makes plays for the long haul based on the expected value of the investments. So if he splits it 50/50... ($5 million/ $5 million), then his expected value is 822,250: By diversifying, he does reduce the expected value of the portfolio... (He is not giving $10 M the chance to turn into $1.5 million or $2 million for him!). The expected value of that shock-and-awe portfolio with all $10 million invested in it is $1.2M. By taking less risk... for less reward... his expected return is lower. But his risk is lower too. Scale this example back up into the $100 million or billion range that Buffett invests in and that extra margin makes the difference. In the context of your original article, the lower-risk 'cake and underwear' investments let Buffett go big on the things that will make 20%+ returns on billions of dollars, without completely destroying his investment capital when things take a turn for the worse.\"", "title": "" }, { "docid": "d2e5cb4a310f73fce5c8025e2ddbde27", "text": "\"There are some euphemisms that are better known than others. A category of stocks that's suitable for \"\"widows and orphans\"\" would be stocks that are low beta, and perhaps high dividend. Safe (being relative) enough to put a window's money into. The term \"\"cake and underwear\"\" appears to me to be a Buffetism. And I'd interpret it to mean,\"\"not tech, not stocks that are either high growth or cyclic, but stocks that make things that have steady demand and that most consumers use.\"\" Google the phrase, only Buffet comes up.\"", "title": "" }, { "docid": "9847b1f7b0946ae03c01bd1aa3d97fcc", "text": "\"I interpret that to mean \"\"vice\"\" stocks and necessities. \"\"Cake\"\" may just be a nicer way of saying \"\"sin\"\" (see The Virtues of Vice Stocks) and includes \"\"lesser sins\"\" like sweets and soda in the group. \"\"Underwear\"\" likely means things that people are going to buy regardless of the economy - daily staples, which are generally safer stocks.\"", "title": "" } ]	[ { "docid": "b28010f24ba136e0758ff60ec4c89ee2", "text": "\"While I'm sure there's some truth to the argument that unsophisticated retail investors index against the S&P 500 thinking that they're tracking \"\"the market,\"\" I don't think it makes sense to steer the S&P 500 in that direction to cater to that lowest common denominator. The ad absurdum conclusion of that course of action, of course, would be to abolish the S&P 500 entirely and move those assets into the S&P Total Market Index. But clearly there's value in having an index that tracks US large-caps with single share classes, just as there's value in having an index that tracks US large-caps in general. As for whether it will be a loss for passive investors...it will be interesting to see how that pans out. Maybe good corporate governance and direct accountability by managers really do contribute positively to returns in the long run and investors will benefit from this change as a result. Or maybe this will result in companies with multiple share classes being undervalued and create an opportunity to earn outsized returns by investing in them, and indexes that omit those companies will underperform. Only time will tell.\"", "title": "" }, { "docid": "b583fecfeb40397dd661145c544214c0", "text": "There's a bunch of publicly traded companies in Canada. Canopy Growth, CanniMed, MedReleaf, and a few others that are slipping me right now. You can also go to Motif Investing and look at all the marijuana ETF's which will also have the underlying stock.", "title": "" }, { "docid": "99d8dbc7258bcc02dbd72eb71e62cbbe", "text": "There isn't a single universal way to reference a stock, there are 4 major identifiers with many different flavours of exchange ticker (see xkcd:Standards) I believe CUSIPs and ISINs represent a specific security rather than a specific listed instrument. This means you can have two listed instruments with one ISIN but different SEDOLs because they are listed in different places. The difference is subtle but causes problems with settlement Specifically on your question (sorry I got sidetracked) take a look at CQS Symbol convention to see what everything means", "title": "" }, { "docid": "0b9ab3d3b8b770d7d16cf7c3414314a1", "text": "\"Not going to pretend to know what any of that actually means mate, haha! But if it involves Brownian Motion/Ito then you might find something relatable in that paper. Plenty of stuff outside that, but most not as \"\"mathematically clean\"\" (ie will involve hacks to fit observed data), or on the flipside closer to philosophical stuff like Mandelbrot and (sigh) Taleb, who more or less do a great job of explaining why the gospel models are all crap (which is reasonable), and that real world markets can't be bunged into a nice cookie-cutter model.\"", "title": "" }, { "docid": "3947d4b6cc5d4b0c7caa6eab42a99285", "text": "Keep in mind that it's a cliche statement used as non-controversial filler in articles, not some universal truth. When you were young, did you mom tell you to eat your vegetables because children are starving in Ethiopia? This is the personal finance article equivalent of that. Generally speaking, the statement as an air of truth about it. If you're living hand to mouth, you probably shouldn't be thinking about the stock market. If you're a typical middle class individual investor, you probably shouldn't be messing around with very speculative investments. That said, be careful about looking for some deeper meaning that just isn't there. If the secret of investment success is hidden in that statement, I have a bridge to sell you that has a great view of Brooklyn.", "title": "" }, { "docid": "d06bd90c8c2f6535c34d228a6af19839", "text": "I suspect this is related to the fact that Blue Apron completed its IPO very recently and insider shares are likely still under a lockup period. So in the case of APRN stock only the 30mm shares involved in the IPO are trading until the insider lockup expires which is usually about 90 days.", "title": "" }, { "docid": "9ded3a7c1b081bb1aedfe9475c327af3", "text": "I use to play marbles at school. Marbles were like gold the more you had the richer you were. They were a scarce commodity only a few in circulation. Once I secured a wealth of marbles I realized they were of little real value. They were only of illusory value. As long as we all were deceived into believe they had value they I was rich. Sure marble could be used to make marble floors ;) they were lovely to look at, and every one wanted them. Then one day, I discovered the emperor had no clothes. Wow, the day that everyone sees the true value of gold, what a stock market crash that will be. I tried to avoid gold as much as possible, but this is hard to do in todays stock market. My solace is that we will all be in the same golden (Titanic) boat, only I hope to limit my exposure as much as possible. Anyone want a gold watch for a slice of bread?", "title": "" }, { "docid": "2649f29b989d8e7f895fca5b3d7d7194", "text": "\"At the bottom of Yahoo! Finance's S & P 500 quote Quotes are real-time for NASDAQ, NYSE, and NYSE MKT. See also delay times for other exchanges. All information provided \"\"as is\"\" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein. Fundamental company data provided by Capital IQ. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc. Orderbook quotes are provided by BATS Exchange. US Financials data provided by Edgar Online and all other Financials provided by Capital IQ. International historical chart data, daily updates, fundAnalyst estimates data provided by Thomson Financial Network. All data povided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon. Thus, yes there is a DB being accessed that there is likely an agreement between Yahoo! and the providers.\"", "title": "" }, { "docid": "9e00415f5ff94621197e5f22dbca4dde", "text": "To be flippant: it is illegal because it is against the law; there is no considered involved, it just is. To elaborate, part of the illusion of the stock exchange and other market-like entities is that of (apparent) fairness. If I think a stock will go up because it is involved in a growing industry, that is generally public information. Conversely if I have a dim view of a particular company because of its track record of product launches, that is similarly out in the open. A secret formula is something that I invented or discovered, not (presumably) something that I stole from someone else. To stretch that further: If I notice that Company X stock always moves with Company Y stock, that is indeed something that I have found, that I can try to profit from. It is secret to me, but not particularly dependent upon information not available to others, just that my interpretation is better. So trading on information in the public domain is fine, as it preserves the principal of fairness I mentioned, whereas inside knowledge breaks that principal.", "title": "" }, { "docid": "cc51a6bde4b85c0849c31a210d1ba7a3", "text": "\"In [United States vs. O'Hagan](https://en.wikipedia.org/wiki/United_States_v._O%27Hagan) the Supreme Court established the precedent of interpreting SEC rule 10(b) using the \"\"misappropriation theory\"\". The theory establishes that: > misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to disclose or abstain. You're correct that from a legal perspective the rules are anything but clear outside of company insiders. However, your own admission is consistent with what anyone in the securities industry knows is true - if you trade on material non-public information, you risk being charged. I think most would conclude that it's unethical irrespective of the letter of the law. It damages the integrity and functioning of markets. Furthermore, if the law was clarified, I think it's highly unlikely it would state \"\"trading on material non-public information is permissible for anyone who is not a company insider\"\". Instead, I would expect it to be consistent with \"\"Trading on material non-public information is illegal. If in doubt, abstain.\"\" And this is exactly what the government officials should be doing - abstaining.\"", "title": "" }, { "docid": "c0c0d39f8df8c4b635315554a55d549e", "text": "\"Sure, it doesn't, but realistically they can't/shouldn't do anything about it in their index funds, because then they're just another stock picker, trying to gauge which companies are going to do best. Their funds not all being indexes is what I was getting at with my original question. How much leeway do they have in their definitions of other funds? IE, if they had a dividend fund that included all large cap dividend paying stocks above 3% yield, they couldn't take out Shell just because of climate risk without fundamentally changing what the fund is. But if it's just \"\"income fund\"\" then they can do whatever in that space.\"", "title": "" }, { "docid": "d8ff7ca00fec2541fdf41386bef1ea37", "text": "\"Share prices change (or not) when shares are bought and sold. Unless he's sitting on a large percentage of the total shares, the fact that he isn't selling or buying means he's having no effect ar all on the stock price, and unless there's a vote war going on in the annual meeting his few stockholder votes aren't likely to have much effect there either (though there's always the outside chance of his being a tiebreaker). On the other hand, there's nothing inherently wrong with holding shares for a very long time and just taking the dividends (\"\"clipping coupons\"\"). Buy-and-hold is a legitimate strategy. Basically: His reason is wrong, but his action may be right, and you should probably just not ask.\"", "title": "" }, { "docid": "a67795c4945d50f6df11379fd3da65e3", "text": "Aside from the fact that fast food is a main culprit of the obesity epidemic that is literally crippling the United States populace, >A better-ranked restaurant stock from the same space is Dave & Buster’s Entertainment, Inc. (PLAY - Free Report) that has surpassed estimates in each of the trailing four quarters, delivering an average positive surprise of 30.5%.", "title": "" }, { "docid": "a2687a838a4c2f0effb07b4ec3585b60", "text": "Im an actor preparing for a role. I play a trader in the UK during the late 80s. I have a very basic understanding of the stock market and am unsure what some of the dialogue is referring to. For example: “bid 28 at the figure” “sell at 3” “5 march at 28” “9 for 5” “bid 4 at 6” “closing out now at 4”. What do these numbers mean exactly. It doesn’t help that im Australian and this is a UK production, or that im an idiot", "title": "" }, { "docid": "3365eaf1af20cd0487b113340fb84876", "text": "First, realize that Wikipedia is written by individuals, just like this board has thousands of members. The two definition were written and edited by different people, most likely. Think Venn diagram. The definition for financial instruments claims that it's the larger set, and securities is contained in a subset. Comparing the two, it seems pretty consistent. Yes, Securities include derivatives. Transferable is close to tradable, although to me tradable implies a market as compared to private transfers. I don't believe there's an opposite, per se, but there's 'other stuff.' My house has value, but is not a security. My coffee cup has no value. Back to the concept of Venn. There aren't really opposites, just items falling outside the set we're discussing. I'd caution, this is a semantic exercise. If you know what you're buying, a stock, a bond, a gold bar, etc, whether it's a financial instrument or security doesn't matter to you.", "title": "" } ]	fiqa
bdffcb043fd5d5c355cc58979f1879d8	Is there a good rule of thumb for how much I should have set aside as emergency cash?	[ { "docid": "88b10fa224e349b5f108f802f30c4b58", "text": "If you are still paying off debt, then you should have about $1000 in savings and put all you can towards non-mortgage debt. If you don't have any debt besides your mortgage, then add up all of your monthly expenses including food, gas, utilities and keep 3-6 months in liquid savings. Whether you keep 3 or 6 months depends on how safe your income is. If you have a steady safe job, you might be safe with 3 months. But, if your employer is cutting back or you are in a commission based job or self employed - then lean more towards 6 months expenses. Congrats on your new home!", "title": "" }, { "docid": "5c55561d6243e5c78953a6dc97e7a62a", "text": "We aim to keep 6 months of expenses. The rationale is that its enough time to recover from most serious illnesses (that you can recover from) or a redundancy or pay for a large unexpected problem not covered by the insurance (e.g. the boiler dying). It also gives us enough time to reorganise finances if needed. For example we could get out of contracts (like mobile phones, sky TV), sell the car, and maybe even find a cheaper house if needed in that time. It will take a good chunk of time to build up that amount and it's worth considering how many commitments you have (kids, wife, mortgage, car...) as the fewer you have the less you need. If you have fewer commitments you can be comfortable with much less contingency. When I lived in rented accomodation and didn't run a car or have many possessions, I just maintained enough cash to cover my bills for about 6 weeks, this would give me enough time to find another job, and if I didn't get one I could always crash round a friend's house.", "title": "" }, { "docid": "7730e24ba7b99012fc2c2ab898a85097", "text": "\"While I certainly agree with the principle of paying down debt, there is some value in having a healthy cash cushion. If an emergency expense were to come up, and your credit has been cut-off or reduced to the point where you have no excess credit, then having real cash on hand is critical. I would perform the following thought-experiment: What if my available credit had been cut off? How much would I need in cash to survive for 1 month, 3 months, 5 months, etc.? Consider what time period you'd be comfortable with, and set that amount as your minimum desired cash on hand. While it may seem extreme to not have access to credit at all, during the credit crisis many banks and lenders \"\"tightened\"\" their lending: reducing credit limits, closing lines of credit, calling loans, raising rates, etc. Suze Orman recommends cash savings equivalent to 8 months living expenses. That doesn't mean 8 months salary, but 8 months of what it would take to live on. At one point, in the midst of the economic crisis, I thought that made sense. The Simple Dollar blog considers Suze's recommendation and the idea of emergency fund vs. debt repayment. Worth reading: Is Suze Right? Do Emergency Funds Now Trump Debt Repayment?.\"", "title": "" }, { "docid": "3f92a79f53d8f78839f6fc06c3529306", "text": "I think this varies considerably depending on your situation. I've heard people say 6 month's living expenses, and I know Suze Orman recommended bumping that to 8 months in our current economy. My husband and I have no children, lots of student loan debts, but we pay off our credit cards in full each month and are working to save up for a house. We've talked through a few different what-if scenarios. If one of us were to lose our job, we have savings to cover the difference between our reduced income and paying the bills for 6 or 8 months while the other person regained employment. If both of us were to lose our jobs simultaneously, our savings wouldn't hold us over for more than 3 or 4 months, but if that were to happen, we would likely take advantage of the opportunity to relocate closer to our families, and possibly even move in to my parent's house for a short time. With no children and no mortgage, our commitments are few, so I don't feel the need to have a very large emergency cash fund, especially with student loans to pay off. Think through a few scenarios for your life and see what you would need. Take into consideration expenses to break a rental lease, cell phone contract, or other commitments. Then, start saving toward your goal. Also see answers to a similar question here.", "title": "" }, { "docid": "c4eeed1ef12f17beb4e7a2a0d12b5fcc", "text": "\"Since it's not tagged united-states, I'd like to offer a more general advice. Your emergency fund should match the financial risks that are relevant to you. The two main classes of financial risk are of course a sudden increase in costs or a decrease in income. You'd have to address both independently. First, loss of income. For most, this would simply equate to the loss of a job. How much benefits would you expect to get, and for how long? This is often the most important question; the 6 months advise in the US is based on a lack of benefits. With two incomes, you're less likely to lose both jobs at the same time. That's a general advise, though. If you both work for the same employer, the risk of losing two jobs at the same time is certainly real. Also, in countries with little protection against dismissal (such as the US), the chance of being layed off at the same time is also higher. On the debit side, there are also two main risks. The first is the loss or failure of an essential possession, i.e. one which requires immediate replacement. This could include a car, or a washing machine. You already paid for one before, so you should have a good idea how much it costs. The second expenditure risk is health-related costs. Those can suddenly crop up, but often you have some kind of insurance. If not, you'd need to account for some costs, but it's hard to come up with an objective number here. The two categories are dependent, of course. Health-related costs may very well coincide with a loss of income, especially if you're self-employed. Now, once you've figured out what the risks are, it's time to figure out how to insure against them. Insurance might be a better choice than an emergency fund, especially for the health costs. You might even discover that you don't need an emergency fund at all. In large parts of Europe, you could establish a credit margin that's not easily revoked (i.e. overdraft agreements), and unemployment benefits are sufficient to cover your regular cost of living. The main risk would then be a sudden lack of liquidity if your employer goes bankrupt and fails to pay the monthly wages, which means your credit should be guaranteed sufficient to borrow one month of expenses. (This of course assumes quite good credit; \"\"pay off my car\"\" doesn't suggest that.)\"", "title": "" }, { "docid": "8fc31bee29fcccd98b7ffc46d880a225", "text": "How to start is pretty simple. With your next pay check set aside an amount and open a separate savings account. Since this is an emergency fund - you want it someplace where you can get to the money quickly (so a CD or mutual fund is not good), but you want it in a separate account so that you don't accidentally use it. Once the account is opened I'd recommend setting up an automatic transfer, or make it part of the direct deposit if you do that, so that you put in some money regularly (every pay check). By adding to it regularly and not using it, you'll more quickly achieve your goal. I'd recommend stopping, or slowing any retirement savings or other investing, until you get the emergency fund in place. If you have an emergency, the money in the retirement fund isn't going to do you much good as it costs too much to do an early withdrawal. The whole point of the emergency fund is to have liquidity when you need it so that you don't incur the costs of unplugging your longer term investments. Also don't worry overly much about making money on this money. This isn't an investment it is there for emergencies.", "title": "" }, { "docid": "9d74ca2e3c20b44933c7a577edf6cb3f", "text": "I think that Dave Ramsey has a good approach to emergency funds. Save $1,000 that is immediately accessible in an emergency, pay off your debts, then build a 3-6 month fund. Two years is great, but takes a really long time to build up.", "title": "" }, { "docid": "60666aaf544bc6876227b675032017d9", "text": "6 to 9 months worth of expenses is recommended. You should also consider having long-term disability insurance in place, in case of serious illness or accident.", "title": "" }, { "docid": "bd26abf3b69e716f0b351554612c93ad", "text": "\"Between 6 months and a year is normally regarded as the \"\"standard\"\". Plan out what your monthly expenses are and save that money away. One thing to consider is what extras can you give up. If you are currently eating steak and lobster every day can you live with switching to ramen noodles for a period of time? Can you switch from premium cable to basic cable (or cancel it altogether)? Questions like this can greatly impact the amount you have to set aside. I personally have my emergency fund in CDs that mature the first of every month. I know there is less liquidity in this approach but I'm ok with that. My emergency fund is a sum of cash I'll always have so I wanted to reap the benefits of a higher yield. If it comes down to it I can place an expense on a credit card and pay off the credit card when funds become available.\"", "title": "" }, { "docid": "2d20c592fe9b767d533c4d7ac614c12e", "text": "The bare minimum should be 6-months of expenses. Ideally, it should be at least 1 year. My personal preference is 2+ years, but one thing at a time. Figure out your necessary expenses: food, shelter, transportation and necessary extras. An example of a necessity, beyond the basics, for me is a decent internet connection. Telephone costs is another good example. (Meanwhile, electricity and such bills should be included in the figure for shelter.) You may want to include some allowance for clothing as well; especially for the 2+ year plan.", "title": "" }, { "docid": "afc7a583a601552cab2572954c57cb67", "text": "The main factor should be what sorts of emergencies you are trying and also need to protect yourself against. Overall I'd say at least 6-9 months of expenses, adjusted for the above factors. More might be better but I'd probably keep that in a different type of investment vehicle, mainly because it doesn't really need to be accessible instantaneously like your normal emergency fund would need to be.", "title": "" }, { "docid": "cda8732e8212e65f3d20e97eca5a2eac", "text": "First you should maintain a monthly expense and find out the burn rate. There would be certain expenses that are annual but mandatory [School fees, Insurance Premium, Property Taxes, etc]. So the ideal emergency fund depending on your industry should be 3 month to 6 months plus your mandatory yearly payments, more so if they come together. For example Most of my annual payments come out in May and I bank on the Bonus payout in April to cater to this spike in expense. So if I were to lose a job in March, my emergency funds would be sufficient for routine expenses, if i don't provision for additional funds Second you need to also figure out the reduced rate of monthly burn and ideally the emergency funds should be for 3 months of normal burn and 6 months of reduced burn.", "title": "" }, { "docid": "e2c615fd4f7a73bbb20af667505655f4", "text": "Many, many good answers here, but I like this one: One month's worth of expenses for each full percentage of unemployment. Therefore, it would normally float between, say five months and ten months. When the economy's hoppin' -- you have less to worry about. When times are tough -- beef up that fund.", "title": "" } ]	[ { "docid": "bd29431b9fd6786487aa9b028a61c3fe", "text": "\"Coming from an area that is hurricane prone, and seeing what happens to local businesses during evacuations/power outages/gas shortages, I think what you already have on hand should be sufficient. And it sounds like that's exactly what you're budgeting for. I'd say 2 weeks worth of fuel and food costs, with the budget for each in line with riding out a natural disaster. True \"\"Preppers\"\" would say keep your money in gold buried in the backyard surrounded by land mines, but that's not perhaps what you're looking for. It is not uncommon for gas stations and grocery stores to revert to cash only sales, especially if they're not big chain operations. If the internet is out, or power is spotty, they may not be able to process CCs. Again, think smaller or more rural businesses. I have seen gas stations switch to cash only during gas shortages as well to help limit how much fuel people were buying. $250 should get you through fine unless you drive a tank and need steak every night. You could probably go with less, but it's entirely dependent on your needs. As Joe rightly stated in his answer, if it's desperate enough times that you can't use a CC or debit card, cash may not even be useful to you.\"", "title": "" }, { "docid": "666830cd1b6ebe18043cca6f38b2392a", "text": "Most financial guru's recommend between three and six months of savings, modified by how likely you think it is you'll lose your job. Note that the months here are months of expenses not income. Dave Ramsey on the other hands recommends saving only $1000 until you've paid all debts (except your home). This strategy only makes sense if you're paying off debt very aggressively. Since you have many relatively small debts, you would benefit greatly from the debt snowball (recent research shows it's more effective in practice than paying off high interest first). As you quickly pay off the smaller loans you reduce the amount you must pay each month, reducing your risk (your emergency fund now goes that much farther), and enabling you to put more on the next debt. In your particular case the debt snowball would be: etc. Again, this is good because it quickly reduces your monthly required debt payments.", "title": "" }, { "docid": "9b9a659ee68b3baea3494b9c715fafe6", "text": "\"For me, the emergency fund is meant to cover unexpected, but necessary expenses that I didn't budget for. The emergency fund allows me to pay for these things without going into debt. Let's say that my car breaks down, and I don't have any money in my budget for fixing it. I really need to get my car fixed, so I spend the money from my emergency fund. However, cars break down periodically. If I was doing a better job with my budget, I would allocate some money each month into a \"\"car repair/maintenance\"\" category. (In fact, I actually do this.) With my budgeting software, I can look at how much I've spent on car repairs over the last year, and budget a monthly amount for car repair expenses. Even if I do this, I might end up short if I am unlucky. Emergency fund to the rescue! If I'm budgeting correctly, I don't pay any regular bills out of this fund, as those are expected expenses. Car insurance, life insurance, and property tax are all bills that come on a regular basis, and I set aside money for each of these each month so that when the bill comes, I have the money ready to go. The recommended size of an emergency fund is usually listed as \"\"3 to 6 months of expenses.\"\" However, that is just a rough guideline. As you get better with your budget, you might find that you have a lower probability of needing it, and you can let your emergency fund fall to the lower end of the guideline range. The size of my own emergency fund is on the lower end of this scale. And if I have a true crisis (i.e. extended unemployment, severe family medical event), I can \"\"rob\"\" one of my other savings funds, such as my car replacement fund, vacation fund, etc. Don't be afraid to spend your emergency fund money if you need it. If you have an unexpected, necessary expense that you have not budgeted for, use the emergency fund money. However, your goal should be to get to the point where you never have to use it, because you have adequately accounted for all of the expenses that you can reasonably expect to have in the future.\"", "title": "" }, { "docid": "caa58a3c723ea171bbb174a6b013af7c", "text": "\"Probably not what you want to hear, but: Open a savings account. Deposit a pre-determined amount every month. Write down what you are saving for in specific detail. Emergencies are injury, sickness, auto breakdowns, bail money, eviction, nasty stuff like that. If you are saving up for something fun, trip to Europe, car, etc. write that down. Do not take from the account for any other purpose. Avoid taking it out even in lesser emergencies if you can do so without incurring debt. Don't daydream about what you could do with it. It is not for that. It's purpose should be singular. Keep an extra, smaller amount for frivolous stuff in your main checking or a different savings. Use that for impulse buys, and if the impusle can't be afforded by that amount, train yourself to know \"\"can't\"\". I can't buy that, it's not in the budget. Not I shouldn't. I can't. Good luck!\"", "title": "" }, { "docid": "db8d4c4cce926a378d2a142d5ebe4879", "text": "\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \"\"money within a few days\"\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \"\"gimmicky\"\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\"", "title": "" }, { "docid": "ad506b5910152fb05fc69f2320f26b2a", "text": "\"In your comment, you said: It just seems a little stupid to me to go and put away money for the explicit purpose of emergencies (presumably in a way that's somehow different from how you would normally save money). Seems better to go and treat the money as you would normally, and then pull whatever you need from the money that you had saved. The problem with that logic is that people save money for many different things. You might save for a vacation, or a new refrigerator, or a new car, or a house, or your kids' college education. If you \"\"pull whatever you need\"\" for such expenses, you may find that when a real emergency occurs, you don't have enough money. The things you used it for may have been legitimate, reasonable expenses, but nonetheless you may later wish you had deferred those expenses until after you had built up a cushion. So the idea of an emergency fund is to designate certain money that is not to be used for \"\"whatever you need\"\", but specifically for unforeseen circumstances. Of course there can be debate about what counts as an emergency, but the main point is to distinguish saving for planned future expenses from saving for unplanned future expenses. Note that this doesn't mean the money has to be in a separate account, or saved in any special \"\"way\"\". It just means the money has to be considered by you as an emergency fund. For some people, it may be psychologically useful to put the emergency fund in a separate account that they never withdraw from. But even if you just have all your money in one savings account and you mentally tell yourself, \"\"I don't want to ever let the balance drop below $10,000, just so I have a safety cushion\"\" then you are effectively designating that $10,000 as an emergency fund.\"", "title": "" }, { "docid": "5e7c5f632da708af4b9140aa819ccbf3", "text": "What you put that money into is quite relevant. It depends on how soon you will need some, or all, of that money. It has been very useful to me to divide my savings into three areas... 1) very short term 'oops' funds. This is for when you forget to put something in your budget or when a monthly bill is very high this month. Put this money into passbook savings. 2) Emergency funds that are needed quite infrequently. Used for such things as when you go to the hospital or an appliance breaks down. Put this money in higher yeald savings, but where it can be accessed. 3) Retirement savings. Put this money into a 401-K. Never draw on it till you retire. Make no loans against it. When you change jobs roll over into a self-directed IRA and invest in an ETF that pays dividends. Reinvest the dividend each month. So, like I said, where you put that money depends on how soon you will need it.", "title": "" }, { "docid": "c0364ea9ed924d97f3b4e2d2d2f20006", "text": "This is a somewhat subjective question, but if you are following a particular personal finance methodology, just do whatever they recommend. For example, I believe that Dave Ramsey's program calls for the emergency fund to be in a different account.", "title": "" }, { "docid": "151ec6d3e24b890cc9732e88649dfd6e", "text": "\"What you're describing makes sense. I'd probably call the non-liquid portion something besides my \"\"emergency fund\"\", but that's semantics mostly. If you have 3 months of \"\"very liquid\"\" cash in this emergency fund and you're comfortable that this amount is good for your situation, then I don't see why you can't have additional savings in more or less liquid vehicles. Whatever you set up, you'll want to think about how to tap it when you need it. You might have a CD ladder with one maturing every three months. That would give you access to these funds after your liquid funds dry up. (Or for a small/short term emergency, you'll be able to replenish the liquid fund with the next-maturing CD.) Or set up a T Bill ladder with the same structure. This might provide you with a tax advantage.\"", "title": "" }, { "docid": "d0ad9f9eb2ce3f554c89fd6e9644f846", "text": "\"If you've already got emergency savings sufficient for your needs, I agree that you'd be better served by sending that $500 to your student loan(s). I, personally, house the bulk of my emergency savings in CDs because I'm not planning to touch it and it yields a little better than a vanilla savings account. To address the comment about liquidity. In addition to my emergency savings I keep plain vanilla savings accounts for miscellaenous sudden expenses. To me \"\"emergency\"\" means lost job, not new water pump for my car; I have other budgeted savings for that but would spend it on a credit card and reimburse myself anyway so liquidity there isn't even that important. The 18 month CDs I use are barely less liquid than vanilla savings and the penalty is just a couple months of the accrued interest. When you compare a possible early distribution penalty against the years of increased yield you're likely to come out ahead after years of never touching your emergency savings, unless you're budgeted such that a car insurance deductible is an emergency expense. Emergency funds should be guaranteed and non-volatile. If I lose my job, 90 days of accrued interest isn't a hindrance to breaking open some of my CDs, and the process isn't so daunting that I'd meaningfully harm my finances. Liquidity in 2017 and liquidity in whatever year a text book was initially written are two totally different animals. My \"\"very illiquid\"\" brokerage account funds are only one transaction and 3 settlement days less liquid than my \"\"very liquid\"\" savings account. There's no call the bank, sell the security, wait for it to clear, my brokerage cuts a check, mail the check, cash the check, etc. I can go from Apple stock on Monday to cash in my hand on like Thursday. On the web portal for the bank that holds my CDs I can instantly transfer the funds from a CD to my checking account there net of a negligible penalty for early distribution. To call CDs illiquid in 2017 is silly.\"", "title": "" }, { "docid": "cb3ecfb14beec853e9a1bf84bf19d800", "text": "If you set a savings amount now and leave it totally fixed you're likely to massively undershoot or overshoot. What is more likely is that you will adjust either your savings or your retirement expectations as things go along. If it turns out you have $10M (2010 dollars) at age 50 perhaps you'll retire early, and if you have $10k perhaps you'll buckle down and work much longer or save much more. So I think what you are looking for is an assurance that if you budget to save x% of your salary over n years, and you get an after-inflation after-tax return of y% pa, you will eventually be able to retire on an income equivalent to z% of your working income. It's pretty easy to calculate that through a future-value formula. For instance, one set of values that works is saving 20% of income, 5% real return, 30 years = final income of 66% of working income. Or save half your income and within 14 years you can retire and keep spending the amount you were previously spending. Resist the temptation to crank up the assumed return until you get the value you want. I think it would be great hubris to try to make this very precise. Yes, probably you will get raises, of course there are taxes to take into account (probably higher while you're saving), inflation and returns will vary from year to year, et. You can guess at them. But they'll change, and there are bigger things that are unpredictable: your personal life, your health, the economic future of your career or industry. I reckon this simple formula is about as good as you will get.", "title": "" }, { "docid": "ee8811b2d81aab7d77767fffc1331f20", "text": "Emergency funds, by the name it implies that they should be available on hand at a very short notice if needed. Conservation of principal (not withstanding inflation, but rather in absolute terms) is also a very important criteria of any kind of account that you will use to save the emergency fund. I would suggest the following breakup. The number in brackets signifies the amount of per month expenses that you can keep in that account. = total 6 months living expenses", "title": "" }, { "docid": "8bcb299542d5b53e6cf270068befe62c", "text": "The 'appropriate' amount of cash/bonds to hold will be largely a matter of opinion, but here are the general reasons why having at least some is a good idea: Cash is very liquid, and bonds are often mostly liquid. This means you can access them very quickly, without taking on losses. To get the most liquidity out of your bonds, you can do what is called 'laddering'. This means that you take out different bond amounts with different maturity dates, and periodically renew them on a schedule, so that you always have some bonds maturing, which you can access without paying an interest penalty. You can look this term up online for more details. Cash and bonds are low risk. If you have absolutely no low-risk assets, then in the event of, say, a market crash, you may have no savings to fall back on. By owning some bonds, and some equities, you are able to earn a modest return, without being too risky. However, note that some bonds are just as risky as equities - any bond which pays an abnormally high interest rate does so because the entity backing the repayment (government, company, whomever) is thought to not be guaranteed to be able to do so. The 25% figure given by your author is his opinion on the appropriate mix of cash/bonds to equities, but there are many views on the matter. Consider that any 'rule of thumb' in personal finance should be for general consideration only.", "title": "" }, { "docid": "8521b813447d2a21cb90b3f05d77a8fc", "text": "Lets do the math (assuming a lot of stuff, like your interest rates and that you make the contribution at the beginning of the year, also your tax bracket at the withdrawal time frame.) 1.) Beginning of year 1 Roth Option $5k contribution Non Roth Option $5k contribution 2.) Beginning of year 2 Roth Option $5000 + $150 interest + 5K contribution = $10150 Non Roth Option $5000 + $75 interest + 5K contribution = $10075 3.) End of year 2 Buy a house! yay! Roth Option---before withdrawal account value = 10150+10150*.03=10454.5 after withdrawl (assuming 38% tax on earnings withdrawal (10%penalty + 28% income tax estimate.) = 10327.17 Non Roth Option = 10 226.125 So you are talking about a significant amount of paperwork to either 1.) Net yourself $100 toward the purchase 2.) Cost yourself $226 on the purchase but have $454.50 in your roth ira. I am not sure I would do that, but it might be worth it.", "title": "" }, { "docid": "f3fda49133ddf3a7714c9031ffd89e6f", "text": "Without Obamacare I would be without insurance. Also, if you follow economic theory, the cheapest way to provide healthcare is to have a large amount of people paying into the same pool. The largest pool would be the entire population. The only way for that to function would be to pay the government to provide healthcare for all. There is an economic academic paper on this subject. I'll post it in an edit once I find it.", "title": "" } ]	fiqa
c652f558b106e239052f5d6784e5c885	Equity prices during currency devaluation — Mexico 1994	[ { "docid": "1ebda2a7bb0b077f8bc29ca0eb874729", "text": "Yes, this phenomenon is well documented. A collapse of an economy's exchange rate is coincidented with a collapse in its equities market. The recent calamities in Turkey, etc during 2014 had similar results. Inflation is highly correlated to valuations, and a collapse of an exchange rate is highly inflationary, so a collapse of an exchange rate is highly correlated to a collapse in valuations.", "title": "" } ]	[ { "docid": "34dbb599706ed734ca0886f5f0c026ce", "text": "Investing in the early 70s would have been fine, trying to pile on the boat after the fact (late 70s, early 80s), those people would lose. The fluctuations then had largely to do with the collapse of the USSR. Parallels could certainly be drawn to modern times, but the main thing is that if you invested early, you could ride out the worst of storms without having to worry about a company or a currency becoming worthless overnight.", "title": "" }, { "docid": "5d0b360de7d5745d006ae345e6072492", "text": "The value of the asset doesn't change just because of the exchange rate change. If a thing (valued in USD) costs USD $1 and USD $1 = CAN $1 (so the thing is also valued CAN $1) today and tomorrow CAN $1 worth USD $0.5 - the thing will continue being worth USD $1. If the thing is valued in CAN $, after the exchange rate change, the thing will be worth USD $2, but will still be valued CAN $1. What you're talking about is price quotes, not value. Price quotes will very quickly reach the value, since any deviation will be used by the traders to make profits on arbitrage. And algo-traders will make it happen much quicker than you can even notice the arbitrage existence.", "title": "" }, { "docid": "c480cc34018d4f6ac8d9e295e42efa98", "text": "It is different this time. But I think the risk of asset prices rising is almost as equal as them falling. QE caused asset price inflation, but QE was only to calm/support the market. They're probably not going to stuff that QE money back into the central bank for a very long time either. Maybe, they'll just keep rolling over the bonds out to maturity, while relying on deficits to inflate away the assets at the Fed. https://youtu.be/o8LAUQwv77Q My bet is the main risks going forward are political risks, and continued modest inflation among things not measured by CPI.", "title": "" }, { "docid": "b7b84c856eb772803ebfa337eef126f3", "text": "\"Yes, you're still exposed to currency risk when you purchase the stock on company B's exchange. I'm assuming you're buying the shares on B's stock exchange through an ADR, GDR, or similar instrument. The risk occurs as a result of the process through which the ADR is created. In its simplest form, the process works like this: I'll illustrate this with an example. I've separated the conversion rate into the exchange rate and a generic \"\"ADR conversion rate\"\" which includes all other factors the bank takes into account when deciding how many ADR shares to sell. The fact that the units line up is a nice check to make sure the calculation is logically correct. My example starts with these assumptions: I made up the generic ADR conversion rate; it will remain constant throughout this example. This is the simplified version of the calculation of the ADR share price from the European share price: Let's assume that the euro appreciates against the US dollar, and is now worth 1.4 USD (this is a major appreciation, but it makes a good example): The currency appreciation alone raised the share price of the ADR, even though the price of the share on the European exchange was unchanged. Now let's look at what happens if the euro appreciates further to 1.5 USD/EUR, but the company's share price on the European exchange falls: Even though the euro appreciated, the decline in the share price on the European exchange offset the currency risk in this case, leaving the ADR's share price on the US exchange unchanged. Finally, what happens if the euro experiences a major depreciation and the company's share price decreases significantly in the European market? This is a realistic situation that has occurred several times during the European sovereign debt crisis. Assuming this occurred immediately after the first example, European shareholders in the company experienced a (43.50 - 50) / 50 = -13% return, but American holders of the ADR experienced a (15.95 - 21.5093) / 21.5093 = -25.9% return. The currency shock was the primary cause of this magnified loss. Another point to keep in mind is that the foreign company itself may be exposed to currency risk if it conducts a lot of business in market with different currencies. Ideally the company has hedged against this, but if you invest in a foreign company through an ADR (or a GDR or another similar instrument), you may take on whatever risk the company hasn't hedged in addition to the currency risk that's present in the ADR/GDR conversion process. Here are a few articles that discuss currency risk specifically in the context of ADR's: (1), (2). Nestle, a Swiss company that is traded on US exchanges through an ADR, even addresses this issue in their FAQ for investors. There are other risks associated with instruments like ADR's and cross-listed companies, but normally arbitrageurs will remove these discontinuities quickly. Especially for cross-listed companies, this should keep the prices of highly liquid securities relatively synchronized.\"", "title": "" }, { "docid": "b1e6e328ddefd77d0000e46e8212a7af", "text": "To answer your original question: There is proof out there. Here is a paper from the Federal Reserve Bank of St. Louis that might be worth a read. It has a lot of references to other publications that might help answer your question(s) about TA. You can probably read the whole article then research some of the other ones listed there to come up with a conclusion. Below are some excerpts: Abstract: This article introduces the subject of technical analysis in the foreign exchange market, with emphasis on its importance for questions of market efficiency. “Technicians” view their craft, the study of price patterns, as exploiting traders’ psychological regularities. The literature on technical analysis has established that simple technical trading rules on dollar exchange rates provided 15 years of positive, risk-adjusted returns during the 1970s and 80s before those returns were extinguished. More recently, more complex and less studied rules have produced more modest returns for a similar length of time. Conventional explanations that rely on risk adjustment and/or central bank intervention do not plausibly justify the observed excess returns from following simple technical trading rules. Psychological biases, however, could contribute to the profitability of these rules. We view the observed pattern of excess returns to technical trading rules as being consistent with an adaptive markets view of the world. and The widespread use of technical analysis in foreign exchange (and other) markets is puzzling because it implies that either traders are irrationally making decisions on useless information or that past prices contain useful information for trading. The latter possibility would contradict the “efficient markets hypothesis,” which holds that no trading strategy should be able to generate unusual profits on publicly available information—such as past prices—except by bearing unusual risk. And the observed level of risk-adjusted profitability measures market (in)efficiency. Therefore much research effort has been directed toward determining whether technical analysis is indeed profitable or not. One of the earliest studies, by Fama and Blume (1966), found no evidence that a particular class of TTRs could earn abnormal profits in the stock market. However, more recent research by Brock, Lakonishok and LeBaron (1992) and Sullivan, Timmermann an d White (1999) has provided contrary evidence. And many studies of the foreign exchange market have found evidence that TTRs can generate persistent profits (Poole 6 (1967), Dooley and Shafer (1984), Sweeney (1986), Levich and Thomas (1993), Neely, Weller and Dittmar (1997), Gençay (1999), Lee, Gleason and Mathur (2001) and Martin (2001)).", "title": "" }, { "docid": "8e437a2c62972a44657f449075e12786", "text": "\"Debt is nominal, which means when inflation happens, the value of the money owed goes down. This is great for the borrower and bad for the lender. \"\"Investing\"\" can mean a lot of different things. Frequently it is used to describe buying common stock, which is an ownership claim on a company. A company is not a nominally fixed asset, by which I mean if there was a bunch of inflation and nothing else happened (i.e., the inflation was not the cause or result of some other economic change) then the nominal value of the company will go up along with the prices of other things. Based on the above, I'd say you are incorrect to treat debt and investment returns the same way with respect to inflation. When we say equity returns 9%, we mean it returns a real 7% plus 2% inflation or whatever. If the rate of inflation increased to 10% and nothing else happened in the economy, the same equity would be expected to return 17%. In fact, the company's (nominally fixed) debts would be worth less, increasing the real value of the company at the expense of their debt-holders. On the other hand, if we entered a period of high inflation, your debt liability would go way down and you would have benefited greatly from borrowing and investing at the same time. If you are expecting inflation in the abstract sense, then borrowing and investing in common stock is a great idea. Inflation is frequently the result (or cause) of a period of economic trouble, so please be aware that the above makes sense if we treat inflation as the only thing that changed. If inflation came about because OPEC makes oil crazy expensive, millennials just stop working, all of our factories got bombed to hades, or trade wars have shut down international commerce, then the value of stocks would most definitely be affected. In that case it's not really \"\"inflation\"\" that affected the stock returns, though.\"", "title": "" }, { "docid": "fdd6fecc1e7ce846d102fc249edcf623", "text": "One place you might consider looking for answers is in case studies from Harvard Business School. When I was working an MBA, we studied the default of Argentina as part of our economics coursework. Other sources for your consideration might include:", "title": "" }, { "docid": "8568a818f3a0c4a7473017be99a53d48", "text": "\"I found an answer by Peter Selinger, in two articles, Tutorial on multiple currency accounting (June 2005, Jan 2011) and the accompanying Multiple currency accounting in GnuCash (June 2005, Feb 2007). Selinger embraces the currency neutrality I'm after. His method uses \"\"[a]n account that is denominated as a difference of multiple currencies... known as a currency trading account.\"\" Currency trading accounts show the gain or loss based on exchange rates at any moment. Apparently GnuCash 2.3.9 added support for multi-currency accounting. I haven't tried this myself. This feature is not enabled by default, and must be turned on explicity. To do so, check \"\"Use Trading Accounts\"\" under File -> Properties -> Accounts. This must be done on a per-file basis. Thanks to Mike Alexander, who implemented this feature in 2007, and worked for over 3 years to convince the GnuCash developers to include it. Older versions of GnuCash, such as 1.8.11, apparently had a feature called \"\"Currency Trading Accounts\"\", but they behaved differently than Selinger's method.\"", "title": "" }, { "docid": "4648dfc15b0c956e6a3a09c8f7728c39", "text": "Anything related to the central bank will have a large impact, as they are the ones who determine interest rates, and interest rates have a big effect on currency flows. GDP is also important, as when there is an economic slowdown it may result in the central bank reducing rates to boost economic activity. The opposite is also true, large increases in GDP may mean that an interest rate hike might be needed. Inflation data is also very important. Again, large changes in inflation either way may push the central bank towards changing rates. This data typically is in the form of CPI Note that each central bank is different. They all have specific mandates and specific pieces of economic data that they place emphasis on. The Federal Reserve as of late has closely been watching inflation data, especially wage inflation data, and employment. Significant deviations in these data points from whats expected by investors can greatly move the market. However, these specific factors are a little less important for, say, Mexico, which is mostly concerned with headline inflation. Read the statements issued by the central banks to find out whats important to them. Central banks also issue expectations for things like growth, CPI, etc. If these expectations are not met, it may result in a policy change, or at least talk of a policy change, at the next meeting of the central bank. Anticipating these policy changes and trading accordingly is one strategy to be a profitable forex trader Also, there are several forex news calendars online that indicate what is likely to be high impact news. These can be helpful starting out.", "title": "" }, { "docid": "cee9b98982b85e76940d279d5a7f8ddd", "text": "If one of the EURO countries goes bankrupt, then it will destablise the entire financial industry. IE there would be many financial institutions [Banks, Credit Union, Pension Funds, Insurance Funds, Corporates] that are holding EURO Investments in that country will loose their money and this will have a cascading impact ... similar and much bigger than US Sub-prime crisis of 2008. So if your money is in EURO and you are staying in EURO countires, the inflation will mean your money is of less value ... If you are holding USD and staying in EURO and country goes bankrupt then chances are that it will loose value with USD and hence you can convert them to EURO and spend more EUROs to buy the same items ...", "title": "" }, { "docid": "c1d1cbd0e1908d02ab73a8abb6f63350", "text": "\"The first thing to realize is that the type of chart you saw is not appropriate for long-term comparisons. The vertical axis uses a linear scale, where each unit occupies the same amount of space. This is visually misleading because the relevant information at any point in the chart is \"\"how much is the value going up or down?\"\" and \"\"how much\"\" change depends on how much the value of the investment is at that moment. For example, if you buy something at $10 and the price changes $1, that is significant, 10%. If you buy something at $1000 and the price changes $1, that is not so significant, only 0.1%. The problem in that chart is that 100 Dow points occupy the same space whether the Dow is at 870 or 10800. To get a better feel for the volatility, you should use a log (logarithmic) scale. Google has an option for this. Using it shows: In this chart you can see that the volatility appears much less extreme in recent years. True, the 2006-2009 change is the largest drop, and there might be slightly higher volatility generally, but it is not nearly as extreme-looking. The drops in 1974 and 1987 can be seen to be significant.\"", "title": "" }, { "docid": "b5b49a3a8fa4b6fa8cd2bfec13bd22e7", "text": "\"There are basically two different markets for ADRs and ordinary shares. 1) The American market, 2) the \"\"local\"\" market. The following is not true for most stocks in \"\"developed\"\" markets. But it is often true that the American market (for ADRs) is far more liquid than the local market for ordinary shares of a developing country. For instance, there was a time when the ADRs of Telmex (Telefonos of Mexico) was the fifth most traded stock in the world, after Exxon (before its merger with Mobil), IBM, Microsoft, and A T&T, meaning that it was easy to trade with low fees on the NYSE. It was much harder and slower to buy the local shares of Telmex in Mexico, on the Mexican exchange. Also, the accompanying currency transactions were harder to execute with the ord, because you have to settle in local currency and pay an FX commission. With the ADR, the exchange rate is \"\"built\"\" into the (dollar) price, and you settle in dollars.\"", "title": "" }, { "docid": "410f540b4ab654bf8bda42f5bd8443f1", "text": "If you make money in currency speculation (as in your example), that is a capital gain. A more complicated example is if you were to buy and then sell stocks on the mexican stock exchange. Your capital gain (or loss) would be the difference in value in US dollars of your stocks accounting for varying exchange rates. It's possible for the stocks to go down and for you to still have a capital gain, and vice versa.", "title": "" }, { "docid": "65f64df82912de866c806551dee668fe", "text": "\"You are violating the Uncovered Interest Rate Parity. If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The \"\"persistent pressure to further depreciate\"\" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and \"\"appreciates\"\" as you said. The entire Country A will also borrow their money at Country B. The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold.\"", "title": "" }, { "docid": "05fb22bec39ba639a5e5e1d1d355b2fe", "text": "The measure of change of value of a currency in relation to itself is inflation (or deflation).", "title": "" } ]	fiqa
046355308c2ebdb6c9b3ab6afd481c68	What is the difference between speculating and investing?	[ { "docid": "98d9f2c9a4ae10eb6c2234f4874cd846", "text": "Speculation means putting your money on a hunch that some event may occur, depending on current circumstances and some future circumstances. So either you win huge or lose a lot. Investment is a conscious decision made on well defined research and grounded on good reasons i.e. economy, industry, company reports etc. Here is a link on wikipedia with more details on Speculation.", "title": "" }, { "docid": "02382e9730d0476bf5a1918851d312c7", "text": "\"Classic investing guru Benjamin Graham defines \"\"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.\"\" He contrasts this with speculation which is anything else (no thorough analysis, no safety of principal, or no adequate return). The word \"\"adequate\"\" is important, since it contrasts adequate returns with those that are either lower than needed or higher than necessary to reach your goals.\"", "title": "" }, { "docid": "ae2968db81d18066dd43cbea0110900c", "text": "\"Investing is balancing the desire for return against the various risks that your money is faced with. There's also a recognition that an investment will be in place for some extended period of time. Speculation is seeking short-term maximum return, without protecting yourself against risk. \"\"Speculation\"\" or \"\"Speculators\"\" is often thrown out as a pejorative, but you need speculation to have a healthy market.\"", "title": "" }, { "docid": "33757616c6976558ea265d9cec6236a2", "text": "In my opinion the difference is semantic. A professional, or someone wanting to present an air of competence, is more likely to talk about investing in shares, as the word investment carries with it connotations of effort, energy and a worthwhile result. Whereas, the word speculation implies the hope of gain but with the risk of loss.", "title": "" }, { "docid": "0b2cd1d374057742a8282ff21ffba93e", "text": "I consider speculation to be a security purchase where the point is to sell it to someone for a higher price. Day-trading is completely speculative. I consider Investment to be a purchase you make for its underlying value. You are buying it at that price because you believe the present value of the future payments is higher than the price you are paying. I may sell an investment if a higher price is offered than I think it's worth, or if the business situation changes, but I don't plan on it. Hedging is a third type of security purchase, where you are decreasing your overall risk. If you are a hog farmer, selling hog futures on the CME is hedging, because it locks in the amount you get per hog, regardless of what the price of hogs does. Commodities markets only have hedgers and speculators. Investors don't make sense, it doesn't have an underlying value.", "title": "" }, { "docid": "2fca1facc06f3225c3ebc700424e3432", "text": "Colloquially, there's no difference except for the level of risk (which is an estimate anyway). Classically, investment is creating wealth through improvement or production. Purchasing a house with the intent to renovate and sell it for a profit would be an investment, as the house is worth more when you sell than when you bought it. Speculation, on the other hand, is when you hope to make a profit through changes in the market itself. Purchasing a house, letting it sit for 6 months, and selling it for a profit would be speculation.", "title": "" }, { "docid": "ccad5df003233c9e6cdffdce3837c9a4", "text": "\"Speculation is when someone else makes an investment you don't like. The above is tongue in cheek, but is a serious answer. There are several attempts at separating the two, but they turn into moral judgements on the value of a pure \"\"buy and hold\"\" versus any other investment strategy (which is itself doubtful: is shorting an oil stock more \"\"speculation\"\" than buying and holding an alternative energy stock?). Some economists take the other route and just argue that we should remove the moral judgement and celebrate speculation as we celebrate investment.\"", "title": "" } ]	[ { "docid": "6d6f870f48d0f4bf8e0c576af96e9095", "text": "\"I'd argue the two words ought to (in that I see this as a helpful distinction) describe different activities: \"\"Investing\"\": spending one's money in order to own something of value. This could be equipment (widgets, as you wrote), shares in a company, antiques, land, etc. It is fundamentally an act of buying. \"\"Speculating\"\": a mental process in which one attempts to ascertain the future value of some good. Speculation is fundamentally an act of attempted predicting. Under this set of definitions, one can invest without speculating (CDs...no need for prediction) and speculate without investing (virtual investing). In reality, though, the two often go together. The sorts of investments you describe are speculative, that is, they are done with some prediction in mind of future value. The degree of \"\"speculativeness\"\", then, has to be related to the nature of the attempted predictions. I've often seen that people say that the \"\"most speculative\"\" investments (in my use above, those in which the attempted prediction is most chaotic) have these sorts of properties: And there are probably other ideas that can be included. Corrections/clarifications welcome! P.S. It occurs to me that, actually, maybe High Frequency Trading isn't speculative at all, in that those with the fastest computers and closest to Wall Street can actually guarantee many small returns per hour due to the nature of how it works. I don't know enough about the mechanics of it to be sure, though.\"", "title": "" }, { "docid": "4cb4cf822b300219efe529fc8b57c8e3", "text": "\"Day trading is an attempt to profit on high frequency signal changes. Long term investing profits on low frequency changes. What is the difference? High Frequency Signal = the news of the day. This includes things like an earnings report coming out, panic selling, Jim Cramer pushing his \"\"buy buy buy\"\" button, an oil rig blowing up in the ocean, a terrorist attack in some remote region of the globe, a government mandated recall, the fed announcing an interest rate hike, a competitor announcing a new product, hurricanes, cold winters, a new health study on child obesity, some other company in the same sector missing their earnings, etc. Think daily red and green triangles on CNBC: up a buck, down a buck. Low Frequency Signal = The long term effectiveness of a company to produce and sell a product efficiently plus the sum of the high frequency signal over a long period of time. Think 200 day moving average chart of a stock. No fast changes, just, long term trends. Over time, the high frequency changes tend to negate each other. To me, long term investing is wiser because the low frequency signal is dominated by a companies ability to function well over time. That in turn is driven by the effectiveness of its leadership coupled with the skill and motivation of its employees. You are betting on the company and its people. Pseudo-random shorterm forces, which you can't control, play less of a role. The high frequency signal, on the other hand, is dominated by sporadic and unpredictable forces that typically can't be controlled by the company. It has some tinge of randomness about it. Trying to invest on that random component is not investing at all, it is gambling (akin to \"\"investing\"\" in that next coin flip coming up heads) I understand the allure of high frequency trading. Look at the daily chart of a popular stock and focus on the up and down ticks. Mathematically, you could make a killing if you could just stack all those upticks on top of each other. If only it was that easy.\"", "title": "" }, { "docid": "033b3dc786aabf615ad1a76442c0e644", "text": "\"There are moral distinctions that can be drawn between gambling and investing in stocks. First and I think most important, in gambling you are trying to get money for nothing. You put $100 down on the roulette wheel and you hope to get $200 back. In investing you are not trying to get something for nothing. You are buying a piece of a hopefully profit-making company. You are giving this company the use of your money, and in exchange you get a share of the profits. That is, you are quite definitely giving something: the use of your money for a period of time. You invest $100 of your money, and you hope to see that grow by maybe $5 or $10 a year typically. You may get a sudden windfall, of course. You may buy a stock for $100 today and tomorrow it jumps to $200. But that's not the normal expectation. Second, gambling is a zero sum game. If I gamble and win $100, then someone else had to lose $100. Investing is not a zero sum game. If I buy $100 worth of stock in a company and that grows to $200, I have in a sense \"\"won\"\" $100. But no one has lost $100 to give me that money. The money is the result of the profit that the company made by selling a valuable product or service to customers. When I go to the grocery store and buy a dozen eggs for $2, some percentage of that goes to the stockholders in the grocery store, say 5 cents. So did I lose 5 cents by buying those eggs? No. To me, a dozen eggs are worth at least $2, or I wouldn't have bought them. I got exactly what I paid for. I didn't lose anything. Carrying that thought further, investing in the stock market puts money into businesses. It enables businesses to get started and to grow and expand. Assuming these are legitimate businesses, they then provide useful products and services to customers. Gambling does not provide useful products and services to anyone -- except to the extent that people enjoy the process of gambling, in which case you could say that it is equivalent to playing a video game or watching a movie. Third -- and these are all really related -- the whole goal of gambling is to take something from another person while giving him nothing in return. Again, if I buy a dozen eggs, I give the store my $2 (or whatever amount) and I get a dozen eggs in exchange. I got something of value and the store got something of value. We both walk away happy. But in gambling, my goal is that I will take your money and give you nothing in return. It is certainly true that buying stocks involves risk, and we sometimes use the word \"\"gamble\"\" to describe any risk. But if it is a sin to take a risk, then almost everything you do in life is a sin. When you cross the street, there is a risk that you will be hit by a car you didn't see. When you drink a glass of water, there is the risk that it is contaminated and will poison you. When you get married, there is a risk that your spouse will divorce you and break your heart. Etc. We are all sinners, we all sin every day, but we don't sin quite THAT much. :-) (BTW I don't think that gambling is a sin. Nothing in the Bible says that gambling is a sin. But I can comprehend the argument for it. I think gambling is foolish and I don't do it. My daughter works for a casino and she has often said how seeing people lose money in the casino regularly reminds her why it is stupid to gamble. Like she once commented on people who stand between two slot machines, feed them both coins and then pull the levers down at the same time, \"\"so that\"\", she said, \"\"they can lose their money twice as fast\"\".)\"", "title": "" }, { "docid": "aeb64b07561075ceb2b069672dc49c04", "text": "From a mathematical expected-value standpoint, there is no difference between gambling (e.g. buying a lottery ticket) and investing (e.g. buying a share of stock). The former probably has negative expected value while the latter probably has positive expected value, but that is not a distinction to include in a definition (else every company that gives a bad quarterly earnings report suddenly changes categories). However, investment professionals have a vested interest in claiming there is a difference; that justifies them charging fees to steer you into the right investment. Consequently, hair-splitting ideas like the motive behind a purchase are introduced. The classification of an item to be purchased should not depend on the mental state of its purchaser. Depending on the situation, it may be right to engage in negative EV behavior. For example, if you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one.", "title": "" }, { "docid": "b1226b18f17ae68a16316ef098513605", "text": "Very likely this refers to trading/speculating on leverage, not investing. Of course, as soon as you put leverage into the equation this perfectly makes sense. 2007-2009 for example, if one bought the $SPX at its highs in 2007 at ~$1560.00 - to the lows from 2009 at ~$683.00 - implicating that with only 2:1 leverage a $1560.00 account would have received a margin call. At least here in Europe I can trade index CFD's and other leveraged products. If i trade lets say >50:1 leverage it doesn’t take much to get a margin call and/or position closed by the broker. No doubt, depending on which investments you choose there’s always risk, but currency is a position too. TO answer the question, I find it very unlikely that >90% of investors (referring to stocks) lose money / purchasing power. Anyway, I would not deny that where speculators (not investors) use leverage or try to trade swings, news etc. have a very high risk of losing money (purchasing power).", "title": "" }, { "docid": "cf558c2e2343e30252737004eaaee0fe", "text": "\"Although this has been touched upon in comments, I think the following line from the currently accepted answer shows the biggest issue: There is a clear difference between investing and gambling. The reality is that the difference isn't that clear at all. Tens of comments have been written arguing in both directions and looking around the internet entire essays have been written arguing both positions. The underlying emotion that seems to shape this discussion primarily is whether investing (especially in the stock market) is a form of gambling. People who do invest in this way tend to get relatively emotional whenever someone argues that this is a form of gambling, as gambling is considered a negative thing. The simple reality of human communication is that words can be ambiguous, and the way investors will use the words 'investments' and 'gambles' will differ from the way it is used by gamblers, and once again different from the way it's commonly used. What I definitely think is made clear by all the different discussions however is that there is no single distinctive trait that allows us to differentiate investing and gambling. The result of this is that when you take dictionary definitions for both terms you will likely end up including lottery tickets as a valid form of investment. That still however leaves us with a situation where we have two terms - with a strong overlap - which have a distinctive meaning in communication and the original question whether buying lottery tickets is an investment. Over on investorguide.com there is an absolutely amazing strongly recommended essay which explores countless of different traits in search of a difference between investing and gambling, and they came up with the following two definitions: Investing: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): sufficient research has been conducted; the odds are favorable; the behavior is risk-averse; a systematic approach is being taken; emotions such as greed and fear play no role; the activity is ongoing and done as part of a long-term plan; the activity is not motivated solely by entertainment or compulsion; ownership of something tangible is involved; a net positive economic effect results.\"\" Gambling: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): little or no research has been conducted; the odds are unfavorable; the behavior is risk-seeking; an unsystematic approach is being taken; emotions such as greed and fear play a role; the activity is a discrete event or series of discrete events not done as part of a long-term plan; the activity is significantly motivated by entertainment or compulsion; ownership of something tangible is not involved; no net economic effect results.\"\" The very interesting thing about those definitions is that they capture very well the way those terms are used by most people, and they even acknowledge that a lot of 'investors' are gambling, and that a few gamblers are 'investing' (read the essay for more on that). And this fits well with the way those two concepts are understood by the public. So in those definitions normally buying a lottery ticket would indeed not be an investment, but if we take for example Vadim's operation example If you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one. this can suddenly change the perception and turn 'gambling' into 'high-risk investing'.\"", "title": "" }, { "docid": "08d5925d71bac21221c3b6a39b518ede", "text": "There is a difference between trading which is short term focussed and investing which is longterm focussed. On the long term what drives stock prices is still the overall economy and the performance of the underlying business aspects. I do not think that any trading algorithms will change this. These are more concerned with short term profits regardless of the underlying business economics. Therefore I think that longterm investing using index funds is still a viable strategy for most private investors.", "title": "" }, { "docid": "3bf230205bb1a357e7a52292f2a695eb", "text": "\"There's several approaches to the stock market. The first thing you need to do is decide which you're going to take. The first is the case of the standard investor saving money for retirement (or some other long-term goal). He already has a job. He's not really interested in another job. He doesn't want to spend thousands of hours doing research. He should buy mutual funds or similar instruments to build diversified holdings all over the world. He's going to have is money invested for years at a time. He won't earn spectacular amazing awesome returns, but he'll earn solid returns. There will be a few years when he loses money, but he'll recover it just by waiting. The second is the case of the day trader. He attempts to understand ultra-short-term movements in stock prices due to news, rumors, and other things which stem from quirks of the market and the people who trade in it. He buys a stock, and when it's up a fraction of a percent half an hour later, sells it. This is very risky, requires a lot of attention and a good amount of money to work with, and you can lose a lot of money too. The modern day-trader also needs to compete with the \"\"high-frequency trading\"\" desks of Wall Street firms, with super-optimized computer networks located a block away from the exchange so that they can make orders faster than the guy two blocks away. I don't recommend this approach at all. The third case is the guy who wants to beat the market. He's got long-term aspirations and vision, but he does a lot more research into individual companies, figures out which are worth buying and which are not, and invests accordingly. (This is how Warren Buffett made it big.) You can make it work, but it's like starting a business: it's a ton of work, requires a good amount of money to get going, and you still risk losing lots of it. The fourth case is the guy who mostly invests in broad market indexes like #1, but has a little money set aside for the stocks he's researched and likes enough to invest in like #3. He's not going to make money like Warren Buffett, but he may get a little bit of an edge on the rest of the market. If he doesn't, and ends up losing money there instead, the rest of his stocks are still chugging along. The last and stupidest way is to treat it all like magic, buying things without understanding them or a clear plan of what you're going to do with them. You risk losing all your money. (You also risk having it stagnate.) Good to see you want to avoid it. :)\"", "title": "" }, { "docid": "5e926b3fac533119204833cd6bc4f96a", "text": "\"I'm posting this because I think I can do a better job of explaining and detailing everything from start to stop. :) A \"\"broker\"\" is just someone who connect buyers and sellers - a middleman of sorts who is easy to deal with. There are many kinds of brokers; the ones you'll most commonly hear about these days are \"\"mortgage broker\"\" (for arranging home loans) and \"\"stockbroker\"\". The stockbroker helps you buy and sell stock. The stockbroker has a connection to one or more stock exchanges (e.g. Nasdaq, NYSE) and will submit your orders to them in order to fulfill it. This way Nasdaq and NYSE don't have to be in the business of managing millions of customer accounts (and submitting tax information about those accounts to the government and what-not) - they just manage relationships with brokerages, which is much easier for them. To invest in a stock, you will need to: In this day and age, most brokers that you care about will be easily accessed via the Internet, the applications will be available on the Internet, and the trading interface will be over the Internet. There may also be paper and/or telephone interfaces to the brokerage, but the Internet interface will work better. Be aware that post-IPO social media stock is risky; don't invest any money if you're not prepared for the possibility of losing every penny of it. Also, don't forget that a variety of alternative things exist that you can buy from a broker, such as an S&P 500 index fund or exchange-traded corporate bond fund; these will earn you some reward over time with significantly less risk. If you do not already have similar holdings through a retirement plan, you should consider purchasing some of these sooner or later.\"", "title": "" }, { "docid": "9feb3b7674d2e90e21edb01d70da252e", "text": "I'd say the opposite of hedging is speculating. If you are convinced an asset will appreciate in value, or rather the probability of gains is enough to induce you to hold the asset, you are a speculator. There are lots of ways of speculating, including holding risky assets without hedging that risk and possibly magnifying that risk and return via leverage or the embedded leverage in a derivative contract. Generally speaking, if in expectation you are paying to reduce your risk, you are a hedger. If you are (in expectation) being paid to bear the risk that otherwise someone else would bear, you are a speculator. The word speculation has been tainted by politicians and others trying to vilify the practice, but at the end of the day it's what we are all doing when we buy stock or any other risky asset.", "title": "" }, { "docid": "3720ffc1b8dad0dbb9ca492cb0ba5d06", "text": "\"At my soon to be legendary Stock Options Cafe, I recently wrote an article \"\"Betting On Apple at 9 to 2.\"\" It described a trade in which a 35% move in a stock over a fixed time (2 years) would result in a 354% gain in one's bet. In this case, the options serve to create remarkable leverage for speculators. In general, option help provide liquidity and extend the nature of the risk/reward curve. There are option trades that range from conservative (e.g. a 'covered call') to wildly speculative, as the one I described above.\"", "title": "" }, { "docid": "0e489042542faae2282f064257d66c6f", "text": "I'm of the opinion that speculating is for young people like you, because they can afford to lose it all. Avoiding losses becomes necessary once you have to sustain a family, and manage a somewhat large retirement funds. Even if you lose all your money when speculating, you'll probably be better off later, because you make less costly mistakes once you have larger amounts of money.", "title": "" }, { "docid": "e9479291259074533e355387dc6805eb", "text": "\"The difference is in the interrelation between the varied investments you make. Hedging is about specifically offsetting a possible loss in an investment by making another related investment that will increase in value for the same reasons that the original investment would lose value. Gold, for instance, is often regarded as the ultimate hedge. Its value is typically inversely correlated to the rest of the market as a whole, because its status as a material, durable store of value makes it a preferred \"\"safe haven\"\" to move money into in times of economic downturn, when stock prices, bond yields and similar investments are losing value. That specific behavior makes investing in gold alongside stocks and bonds a \"\"hedge\"\"; the increase in value of gold as stock prices and bond yields fall limits losses in those other areas. Investment of cash in gold is also specifically a hedge against currency inflation; paper money, account balances, and even debt instruments like bonds and CDs can lose real value over time in a \"\"hot\"\" economy where there's more money than things to buy with it. By keeping a store of value in something other than currency, the price of that good will rise as the currencies used to buy it decrease in real value, maintaining your level of real wealth. Other hedges are more localized. One might, for example, trade oil futures as a hedge on a position in transportation stocks; when oil prices rise, trucking and airline companies suffer in the short term as their margins get squeezed due to fuel costs. Currency futures are another popular hedge; a company in international business will often trade options on the currencies of the companies it does business in, to limit the \"\"jitters\"\" seen in the FOREX spot market caused by speculation and other transient changes in market demand. Diversification, by contrast, is about choosing multiple unrelated investments, the idea being to limit losses due to a localized change in the market. Companies' stocks gain and lose value every day, and those companies can also go out of business without bringing the entire economy to its knees. By spreading your wealth among investments in multiple industries and companies of various sizes and global locations, you insulate yourself against the risk that any one of them will fail. If, tomorrow, Kroger grocery stores went bankrupt and shuttered all its stores, people in the regions it serves might be inconvenienced, but the market as a whole will move on. You, however, would have lost everything if you'd bet your retirement on that one stock. Nobody does that in the real world; instead, you put some of your money in Kroger, some in Microsoft, some in Home Depot, some in ALCOA, some in PG&E, etc etc. By investing in stocks that would be more or less unaffected by a downturn in another, if Kroger went bankrupt tomorrow you would still have, say, 95% of your investment next egg still alive, well and continuing to pay you dividends. The flip side is that if tomorrow, Kroger announced an exclusive deal with the Girl Scouts to sell their cookies, making them the only place in the country you can get them, you would miss out on the full possible amount of gains you'd get from the price spike if you had bet everything on Kroger. Hindsight's always 20/20; I could have spent some beer money to buy Bitcoins when they were changing hands for pennies apiece, and I'd be a multi-millionaire right now. You can't think that way when investing, because it's \"\"survivor bias\"\"; you see the successes topping the index charts, not the failures. You could just as easily have invested in any of the hundreds of Internet startups that don't last a year.\"", "title": "" }, { "docid": "8477563bc35d3c544d79b99077b08ad6", "text": "Technical Analysis assumes that the only relevant number(s) regarding a security is (are) price (and price momentum, price patterns, price harmonics, price trends, price aberrations, etc.). Technical is all based on price. Technical is not based on any of the fundamentals. Technical Analysis is for traders (speculators) not for long term investors. A long term investor is more concerned with the dividend payment history and such similar data as he makes his money from the dividend payments not from the changes in price (because he buys and holds, not buy low sell high).", "title": "" }, { "docid": "d0d36743053de6cb8ced6d9be693f9c6", "text": "In theory - Yes. So as long as someone will accept you as a (very) mature student, you plan to never earn over 21k a year for the next 30 years (no longer wiped out at 65), you could get a loan, slightly unethically (unless you fancy doing the course). Also if you did have to start paying it back - since interest rates are currently 6.1% this means the loan is doubling potentially just under every 12 years (approx) As to the side question of is it fraud? I couldn't say. Is a student getting maximum loans but planning on being a jobless bum for the rest of their lives and never paying back loans also committing fraud? One could argue Yes, but i don't believe a lack of ambition is currently illegal.", "title": "" } ]	fiqa
0436507d3dd1c2be916715a894e8b70c	Are Target Funds Unsafe - Post Q.E.?	[ { "docid": "fd7168ffe4dff9231c694b5b575ece84", "text": "It's a what-if? sort of question. What if rates stay down or trend only slightly higher, despite no QE? look at other countries response to tepid economies. My experience as professional advisor (25 yrs) tells me the future is unknowable and diversity is good. Make alternative choices- they all won't work wonderfully, but some will.", "title": "" } ]	[ { "docid": "69dd9dbb23a5fbb80ce41d7c0fa951cb", "text": "\"Making these difficult portfolio decisions for you is the point of Target-Date Retirement Funds. You pick a date at which you're going to start needing to withdraw the money, and the company managing the fund slowly turns down the aggressiveness of the fund as the target date approaches. Typically you would pick the target date to be around, say, your 65th birthday. Many mutual fund companies offer a variety of funds to suit your needs. Your desire to never \"\"have to recover\"\" indicates that you have not yet done quite enough reading on the subject of investing. (Or possibly that your sources have been misleading you.) A basic understanding of investing includes the knowledge that markets go up and down, and that no portfolio will always go up. Some \"\"recovery\"\" will always be necessary; having a less aggressive portfolio will never shield you completely from losing money, it just makes loss less likely. The important thing is to only invest money that you can afford to lose in the short-term (with the understanding that you'll make it back in the long term). Money that you'll need in the short-term should be kept in the absolute safest investment vehicles, such as a savings account, a money market account, short-term certificates of deposit, or short-term US government bonds.\"", "title": "" }, { "docid": "fc7f42649f3f23fb3fac410b56aced21", "text": "\"This company was a reputable rating agency for many years. See Weiss Research website, ratings section for a very different perspective on Martin Weiss's work than the websites with which he is now associated. I checked both links provided, and agree with the questioner in every way: These appear to be highly questionable investment research websites. I use such strong terms based on the fact that the website actually uses the distasteful pop-up ploy, \"\"Are you SURE you want to leave this site?\"\" Clearly, something changed between what Weiss Ratings was in the past (per company history since 1971) and what Martin Weiss is doing now. Larry Edelson seems to have been associated exclusively with questionable websites and high pressure investment advice since 2007. From 1996 through the present, he worked as either an employee or contractor of Weiss Research. Let's answer each of your questions. On June 22, 2006, the Commission instituted settled administrative proceedings against Weiss Research, Inc., Martin Weiss, and Lawrence Edelson (collectively, “Respondents”) for violations of the Investment Advisers Act of 1940 in connection with their operation of an unregistered investment adviser and the production and distribution of materially false and misleading marketing materials. Full details about Weiss Ratings operations, including its history from 1996 through 2001, when it operated in compliance with securities laws, then from 2001 through 2005, which was when the SEC filed charges for regulatory violations, are available from the June 2006 U.S. SEC court documents PDF. Finally, this quantitative assessment, \"\"Safe With Martin Weiss? (December 2010) by CXO Advisory (providers of \"\"objective research and reviews to aid investing decisions\"\") for its readers concluded the following: In summary, the performance of Martin Weiss’ premium services in aggregate over the past year is unimpressive. The study methodology was good, but I recommend reading the article (I posted the URL) to fully understand what caveats and assumptions were done to reach that conclusion.\"", "title": "" }, { "docid": "141996ecd5b6a61868abb87b8a3326de", "text": "In my experiences most hedge funds won't have a benchmark in their mandate and are evaluated based upon absolute returns. Their benchmarks are generally cash + x basis points. So, no attribution and no IR. No experience at all with CTA's though, so not sure how things are there.", "title": "" }, { "docid": "f733c669f45268778a0bccf62fb4aab9", "text": "Vanguard has a lot of mutual fund offerings. (I have an account there.) Within the members' section they give indications of the level of risk/reward for each fund.", "title": "" }, { "docid": "9d53eb6e97cd4e36144f3f6406937ca0", "text": "Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended. However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA.", "title": "" }, { "docid": "7176ccf3641af634c793417c35c17887", "text": "A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments.", "title": "" }, { "docid": "147924dddfdbd367a72caeaf012a1646", "text": "\"Stay away from leveraged or synthetic ETFs. This answer talks about why leveraged ETFs are dangerous. There are numerous articles to be found by searching for \"\"leveraged etf\"\". My answer to this question links to one of the more accessible explanations I've read.\"", "title": "" }, { "docid": "5571f9036e7c42555e0de2cabec4d54d", "text": "I work for a hedge fund, not wealth management, but I assume that client information is treated similarly. Misplacing it is a huge deal. The company will probably need to formally investigate it and inform all the clients involved. Even if they can prove that no one looked at the information it's going to make clients question the company's procedures. I could see it being a firing offense,depending on how many clients were affected and the nature of the data. Sorry if that's not what you wanted to hear.", "title": "" }, { "docid": "cb1442dc3f4f3e60bf8c5d6bcbaed8b8", "text": "\"My gut is to say that any time there seems to be easy money to be made, the opportunity would fade as everyone jumped on it. Let me ask you - why do you think these stocks are priced to yield 7-9%? The DVY yields 3.41% as of Aug 30,'12. The high yielding stocks you discovered may very well be hidden gems. Or they may need to reduce their dividends and subsequently drop in price. No, it's not 'safe.' If the stocks you choose drop by 20%, you'd lose 40% of your money, if you made the purchase on 50% margin. There's risk with any stock purchase, one can claim no stock is safe. Either way, your proposal juices the effect to creating twice the risk. Edit - After the conversation with Victor, let me add these thoughts. The \"\"Risk-Free\"\" rate is generally defined to be the 1yr tbill (and of course the risk of Gov default is not zero). There's the S&P 500 index which has a beta of 1 and is generally viewed as a decent index for comparison. You propose to use margin, so your risk, if done with an S&P index is twice that of the 1X S&P investor. However, you won't buy S&P but stocks with such a high yield I question their safety. You don't mention the stocks, so I can't quantify my answer, but it's tbill, S&P, 2X S&P, then you.\"", "title": "" }, { "docid": "7977d3c2f03fdc9ffd7ec7b2853de952", "text": "I would also consider unnecessarily complex investment strategies a big warning sign as they can easily hide poor investment advice or a bad strategy. This is especially the case when it comes to retail investment as complex strategies can have so many moving parts that you, as someone with a day job, can't spend enough time on it to keep an eye on everything and you only spot issues when it's too late. Other bugbears:", "title": "" }, { "docid": "f3532117ebd729f5fb0d5b00f4a6a637", "text": "\"Possible but very unlikely. Money market funds invest in high grade liquid assets and the primary goal is not to lose money. I have not been able to find an example of a Vanguard money market fund ever \"\"breaking the buck\"\" and having the value of a share go below a dollar. It is possible that this could happen in the event of a large scale financial collapse, but even then I would call it possible rather than likely.\"", "title": "" }, { "docid": "dc89ac65703cbe166a0f98fdfe4dba54", "text": "\"Use VTIVX. The \"\"Target Retirement 2045\"\" and \"\"Target Retirement 2045 Trust Plus\"\" are the same underlying fund, but the latter is offered through employers. The only differences I see are the expense ratio and the minimum investment dollars. But for the purposes of comparing funds, it should be pretty close. Here is the list of all of Vanguard's target retirement funds. Also, note that the \"\"Trust Plus\"\" hasn't been around as long, so you don't see the returns beyond the last few years. That's another reason to use plain VTIVX for comparison. See also: Why doesn't a mutual fund in my 401(k) have a ticker symbol?\"", "title": "" }, { "docid": "d75449a8b0d209111e03f801a5f73cad", "text": "\"@Alex B's answer hits most of it, but leaves out one thing: most companies control who can own their non-public shares, and prohibit transfers, sales, or in some cases, even ongoing ownership by ex-employees. So it's not that hard to ensure you stay under 500 investors. Remember that Sharespost isn't an exchange or clearinghouse; it's basically a bulletin board with some light contract services and third-party escrow services. I'd guess that many of the companies on their \"\"hot\"\" list explicitly prohibit the sale of their non-public shares.\"", "title": "" }, { "docid": "c373a9ff29b5f16a5563824d77021583", "text": "\"Yes, in my humble opinion, it can be \"\"safe\"\" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be \"\"safe\"\" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly volatile stock of a tiny company with no revenue, no profits, next to no assets, and continued challenges to its existence: \"\"There is material uncertainty about whether the Company will be able to obtain the required financing. This material uncertainty casts significant doubt about the Company’s ability to continue as a going concern.\"\" As a penny stock, they are in good company. Still, there are a variety of other reasons why such a stock might have gone up, or down, and no one [here] can say for sure. Even if there was a news item, any price reaction to news could just amount to speculation on the part of others having enough money to move the stock. There are better investments out there, and cheaper thrills, than most penny stocks.\"", "title": "" }, { "docid": "1dd0c63387c2a4ac3cc8e7366d4efd53", "text": "Mutual funds and pensions aren't likely to be too badly hit, as they are largely buy and hold organisations with low turnover of positions which is inherently difficult for hft to exploit. same with index trackers. These guys are exploited most by shower systematic traders thatare themselves exploited by hft. as an aside, finance is also strangely incestuous - pension funds often invest in hedge funds, that themselves often invest in hft.", "title": "" } ]	fiqa
8629a0ca4cfcc9deeacd3342ec2d3348	Dividends Growing Faster than Cost of Capital	[ { "docid": "9a358c70784ab3352e50e05bdf0ec7f6", "text": "I don't think the method falls short, it's the premise that is wrong. If the dividend stream really did grow faster than the cost of capital indefinitely, eventually the company behind the share would become larger than the entire economy. Logically, at some point, the growth must slow down.", "title": "" } ]	[ { "docid": "4dc47174d1d0b1723aae383b9a0d8096", "text": "\"I think Fidelity has a very nice introduction to Growth vs Value investing that may give you the background you need. People love to put stocks in categories however the distinction is more of a range and can change over time. JB King makes a good point that for most people the two stocks you mentioned would both be considered value right now as they are both stable companies with a significant dividend. You are correct though Pfizer might be considered \"\"more growth.\"\" A more drastic example would be the difference between Target and Amazon. Both are retail companies that sell a wide variety of products. Target is a value company: a established company with stable revenues that uses its income to give a fairly stable dividend. Amazon is a growth company: that is reinvesting its revenues back into the corporation to grow itself as fast as possible. The price of the Amazon stock reflects what people think will be future growth (future income) for the company. Whereas Target's price appears to be based on the idea that future income will be similar to current income. You can see why growth companies like Amazon might be more risky as that growth you paid a high price for may not be realized, but the payout may be much higher as well.\"", "title": "" }, { "docid": "18dc11038b704c39f7953a3b7ce11b67", "text": "I think the dividend fund may not be what youre looking for. You mentioned you want growth, not income. But I think of dividend stocks as income stocks, not growth. They pay a dividend because these are established companies that do not need to invest so much in capex anymore, so they return it to shareholders. In other words, they are past their growth phase. These are what you want to hold when you have a large nest egg, you are ready to retire, and just want to make a couple percent a year without having to worry as much about market fluctuations. The Russel ETF you mentioned and other small caps are I think what you are after. I recently made a post here about the difference between index funds and active funds. The difference is very small. That is, in any given year, many active ETFs will beat them, many wont. It depends entirely on the market conditions at the time. Under certain conditions the small caps will outperform the S&P, definitely. However, under other conditioned, such as global growth slowdown, they are typically the first to fall. Based on your comments, like how you mentioned you dont want to sell, I think index funds should make up a decent size portion of your portfolio. They are the safest bet, long term, for someone who just wants to buy and hold. Thats not to say they need be all. Do a mixture. Diversification is good. As time goes on dont be afraid to add bond ETFs either. This will protect you during downturns as bond prices typically rise under slow growth conditions (and sometimes even under normal conditions, like last year when TLT beat the S&P...)", "title": "" }, { "docid": "ee000eda9fda8d9a922a0c33865f3118", "text": "There can be the question of what objective do you have for buying the stock. If you want an income stream, then high yield stocks may be a way to get dividends without having additional transactions to sell shares while others may want capital appreciation and are willing to go without dividends to get this. You do realize that both Pfizer and GlaxoSmithKline are companies that the total stock value is over $100 billion yes? Thus, neither is what I'd see as a growth stock as these are giant companies that would require rather large sales to drive earnings growth though it may be interesting to see what kind of growth is expected for these companies. In looking at current dividends, one is paying 3% and the other 5% so I'm not sure either would be what I'd see as high yield. REITs would be more likely to have high dividends given their structure if you want something to research a bit more.", "title": "" }, { "docid": "aa89096b34cb48b4c6033c8c5a319377", "text": "DRiPs come to mind as something that may be worth examining. If you take the Microsoft example, consider what would happen if you bought additional shares each year by re-investing the dividends and the stock also went up over the years. A combination of capital appreciation in the share price plus the additional shares purchased over time can produce a good income stream over time. The key is to consider how long are you contributing, how much are you contributing and what end result are you expecting as some companies can have larger dividends if you look at REITs for example.", "title": "" }, { "docid": "2745009a1a49c653c34899e96bb6595f", "text": "The sum of the dividend yield plus capital growth is called total return. In your examples, you get to a total return of 7% through several different (and theoretically equivalent) paths. That is the right way of thinking.", "title": "" }, { "docid": "4ed058f7de8d238c01c3ce90f9ae86b7", "text": "\"Someone (I forget who) did a study on classifying total return by the dividend profiles. In descending order by category, the results were as follows: 1) Growing dividends. These tend to be moderate yielders, say 2%-3% a year in today's markets. Because their dividends are starting from a low level, the growth of dividends is much higher than stocks in the next category. 2) \"\"Flat\"\" dividends. These tend to be higher yielders, 5% and up, but growing not at all, like interest on bonds, or very slowly (less than 2%-3% a year). 3) No dividends. A \"\"neutral\"\" posture. 4) Dividend cutters. Just \"\"bad news.\"\"\"", "title": "" }, { "docid": "7bd14724d83214a490d517282be12cd3", "text": "I'm fairly convinced there is no difference whatsoever between dividend payment and capital appreciation. It only makes financial sense for the stock price to be decreased by the dividend payment so over the course of any specified time interval, without the dividend the stock price would have been that much higher were the dividends not paid. Total return is equal. I think this is like so many things in finance that seem different but actually aren't. If a stock does not pay a dividend, you can synthetically create a dividend by periodically selling shares. Doing this would incur periodic trade commissions, however. That does seem like a loss to the investor. For this reason, I do see some real benefit to a dividend. I'd rather get a check in the mail than I would have to pay a trade commission, which would offset a percentage of the dividend. Does anybody know if there are other hidden fees associated with dividend payments that might offset the trade commissions? One thought I had was fees to the company to establish and maintain a dividend-payment program. Are there significant administrative fees, banking fees, etc. to the company that materially decrease its value? Even if this were the case, I don't know how I'd detect or measure it because there's such a loose association between many corporate financials (e.g. cash on hand) and stock price.", "title": "" }, { "docid": "1af8f838d7041ba6c1066ea564d306ff", "text": "\"In the case of mutual funds, Net Asset Value (NAV) is the price used to buy and sell shares. NAV is just the value of the underlying assets (which are in turn valued by their underlying holdings and future earnings). So if a fund hands out a billion dollars, it stands to reason their NAV*shares (market cap?) is a billion dollars less. Shareholder's net worth is equal in either scenario, but after the dividend is paid they are more liquid. For people who need investment income to live on, dividends are a cheap way to hold stocks and get regular payments, versus having to sell part of your portfolio every month. But for people who want to hold their investment in the market for a long long time, dividends only increase the rate at which you have to buy. For mutual funds this isn't a problem: you buy the funds and tell them to reinvest for free. So because of that, it's a prohibited practice to \"\"sell\"\" dividends to clients.\"", "title": "" }, { "docid": "4858fd4539eaf8106d621633ab3c5e82", "text": "Profits go to the owners of the corporation for providing capitol. CAT is paying around 2% ... a little under $2/year/share in dividends. (note that dividends come out of profits, not before.) A 2% return on investment isn't a terrible thing. It's not great, but in current economic conditions, it's respectable. Looking at their financial statements, they don't have tons of cash on the books relative to what they spend in a quarter. They do have a fair chunk of their assets tied up in inventory. On the books, that goes down as a profit - kinda. It's mostly neutral accounting wise - money went out, inventory came in. You now have an asset worth exactly what you spent on it. The biggest growth in assets over the last couple of years has been in inventory. The amount in inventory is greater than assets minus liabilities. Then again, so is cash on hand, but the cash flow rate is also pretty high because the margins are low. So... yeah... they're making more money, but they're also investing most of that back into the capital costs of growing the business. New machinery, inventory that they can sell, business development in new markets, etc. Remember that capital costs are considered neutral - you receive an asset in return. This is distinct from operating costs which come straight to the bottom line.", "title": "" }, { "docid": "ff6a6b8b9211bde03bed2c76076b87f7", "text": "Usually when a company is performing well both its share price and its dividends will increase over the medium to long term. Similarly, if the company is performing badly both the share price and dividends will fall over time. If you want to invest in higher dividend stocks over the medium term, you should look for companies that are performing well fundamentally and technically. Choose companies that are increasing earnings and dividends year after year and with earnings per share greater than dividends per share. Choose companies with share prices increasing over time (uptrending). Then once you have purchased your portfolio of high dividend stocks place a trailing stop loss on them. For a timeframe of 1 to 3 years I would choose a trailing stop loss of 20%. This means that if the share price continues going up you keep benefiting from the dividends and increasing share price, but if the share price drops by 20% below the recent high, then you get automatically taken out of that stock, leaving your emotions out of it. This will ensure your capital is protected over your investment timeframe and that you will profit from both capital growth and rising dividends from your portfolio.", "title": "" }, { "docid": "5e78f2494d052c35cef96846a9158a3b", "text": "You can use long-term options called LEAPS to increase dividend yield. Here's how it works: Let's say you buy a dividend-yielding stock for $38 that pays an annual dividend of $2 for a 5.3% yield. Next, you SELL a deep-in-the-money LEAPS options. In this hypothetical we'll sell the $25 call option for $13. That now reduces our cost basis from $38 to $25. Since the dividend remains @ $2, our yield is now $2/$25 = 8%. Now there are issues that may need to be dealt with like early assignment of the option where rolling the option may be necessary. More details of this strategy can be found on my website.", "title": "" }, { "docid": "b0f869c36cbaef461e171d52dc5b2204", "text": "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.", "title": "" }, { "docid": "00e8698d18a6edb4b5965c3a58a3bfa3", "text": "GDP growth is one of several components of nominal equity returns; the (probably not comprehensive) list includes: Real GDP/earnings growth Inflation Dividend payouts and share buybacks Multiple expansion (the market willing to pay more per dollar of earnings) Changes in interest rate expectations As other comments mention you could also see larger companies tending to deliver higher returns as for any number of reasons related to M&A, expansion into foreign markets, etc.", "title": "" }, { "docid": "a976a049f5f67eca0de8bd55f6069b31", "text": "\"This effect has much empirical evidence as googling \"\"dividend price effect evidence\"\" will show. As the financial economic schools of thought run the gamut so do the theories. One school goes as far to call it a market inefficiency since the earning power thus the value of an equity that's affected is no different or at least not riskier by the percentage of market capitalization paid. Most papers offer that by the efficient market hypothesis and arbitrage theory, the value of an equity is known by the market at any point in time given by its price, so if an equity pays a dividend, the adjusted price would be efficient since the holder receives no excess of the price instantly before payment as after including the dividend since that dividend information was already discounted so would otherwise produce an arbitrage.\"", "title": "" }, { "docid": "bf0c9b4874c0abd6793911216f8c490b", "text": "A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period. Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period. To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%. The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits.", "title": "" } ]	fiqa
9268fca32630fbf9e7f5811057a88e51	How inflation in China makes real exchange rate between China and US to rise?	[ { "docid": "50293691274cf7b2b3f290670006f50a", "text": "Chinese currency is not freely convertible. Its exchange rate is not determined by the market but rather by the Chinese government. Thus the counter-intuitive result. In essence, the Chinese government is subsidizing exports (which is reasonable since exports is what drives the Chinese economy).", "title": "" } ]	[ { "docid": "fcb7db1a6c827df2536e19a202f8f991", "text": "\"Where goes the Delta? To the sea, of course. Your question is very valid and for once, I think most of the answers are too involved into mechanical details and are badly missing the big picture. At the risk of over simplifying things, let me try to describe the situation in broad strokes: Inflation: the volume of money grows faster than production (including services). Deflation: production increase faster than the volume of money. Imagine an economy with 10 products and $10. 1 product = $1. In an inflationary scenario, money available increase: $20 for 10 products. 1 product = $2. In a deflationary scenario, money available decrease: $5 for 10 products. 1 product = $0.5. So far, it's pretty textbook. Now onto the stuff that you don't usually read in textbooks: Time. Say 10 people are attending an auction, each with $10 bucks. 10 items are for sale. $100 and 10 items. Item price is $10. Now, if just before opening the bidding, you go around and give each person $40, every one has $50. Each product sells for $50. That's the picture people have of inflation. Prices have increased, but everybody has more money, so it comes down to the same thing. Now, let's bring this example closer to reality: You have to distribute $400, so the total amount of money is $500, which means that the normal price of each item should be $50. Now, imagine that instead of giving money to everyone at the same time, you started by giving $40 to 1 guy who was hanging out in front. The auction starts. While you go around distributing the money, the first guy manages to buy 2 items at $10 each. Now, there is $480 in the market, and only 8 items, making each item $60 on average. The next guy to get money manages to snap 2 items at $15. 6 items left and $450 in play. Each item now costs $75....and keep increasing in price as things move along. People who get the money early buy items under their real value, and people who get paid at the end pick up the tab, because by then, there are only a few items left. Back to reality, while inflation means that wages eventually increase (and they do), actual purchasing decrease for most people due to this simple trick. Employees are pretty much at the end of the chain. Income tax Another major source of \"\"signal loss\"\" is income tax. It works by brackets, as you certainly know. Simplifying again because I am lazy: Take a guy who earns $100. Pays no taxes. Can buy 100 products at $1 each. Now, put in some inflation... He earns $500. He pays $50 in taxes and can buy 90 products at $5 each. By the time he earns $10,000, he can only buy 50 products on account of income tax. So this is another area where you are bleeding purchasing power, and why income tax, which was originally presented as a tax for the ultra-rich is now a fact of life for most people (except the ultra-rich, of course). Money as debt Next stop: Money itself. Money is created as debt in our society. At the risk of over-simplifying things again, let's say Bank A has $1000 in assets. In the fractional reserve system (our current system), Bank A can lend out many times over that amount. Let's say $9,000, for a total of $10,000 (much more in reality). And of course, it lends that money at interest. When bank A has made $10,000 available through 10% interest loans, the total amount of money has increased by $10,000, but when the loans are paid back, $11,000 must be paid to the bank, so the net result of the operation is that $1,000 get taken out of the market. This system explains why almost all companies and governments have huge debts, and why most of the world's large companies belong to financial institutions of some kind, and why most of the world's wealth rest in very very few hands. To fully answer your question and provide details and references and names, one would have to write a book or 5. There is a lot more than can be said on the subject, and of course, all the examples given here are extremely simplified, but I think they illustrate the key issues pretty well. Bottom-line is that our system is designed that way. Our economic system is rigged and the delta bleeds out on automatic.\"", "title": "" }, { "docid": "05fb22bec39ba639a5e5e1d1d355b2fe", "text": "The measure of change of value of a currency in relation to itself is inflation (or deflation).", "title": "" }, { "docid": "53f31679e3888eada41157f5cbe307b5", "text": "Inflation is theft! It is caused when banks lend money that someone deposited, but still has claim to - called fractional reserve banking. On top of that, the Federal Reserve Bank (in the US) or the Central Bank of the currency (i.e. Bank of Japan, European Central Bank, etc.) can increase the monetary base by writing checks out of thin air to purchase debt, such as US Treasury Bonds. Inflation is not a natural phenomenon, it is completely man-made, and is caused solely by the two methods above. Inflation causes the business cycle. Lower interest rates caused by inflation cause long-term investment, even while savings is actually low and consumption is high. This causes prices to rise rapidly (the boom), and eventually, when the realization is made that the savings is not there to consume the products of the investment, you get the bust. I would encourage you to read or listen to The Case Against the Fed by Murray N. Rothbard - Great book, free online or via iTunes.", "title": "" }, { "docid": "7542bd7f9f2297ba5a327c11f55c391c", "text": "The only reason inflation has yet to show in the CPI is because the dollar is the global reserve currency and is the best house in a bad neighborhood, but that just means the rest of the world is becoming poorer at the same time as the U.S. - QE was 4 trillion. That's a debasement of the currency even if, for the reason I've already stated, it's not reflected in CPI.", "title": "" }, { "docid": "2e303c2f2321209f102fd1dbeeba0a4e", "text": "As pointe out by @quid, inflation figures are almost always quoted as a comparison of prices last month, and prices a year ago last month. So 10% inflation in August means that things cost 10% more than they did in August a year ago. This can lead to some perverse conclusions. Consider an imaginary economy where prices stay constant over years. Annualized inflation is zero. Then something happens on January 2nd, 2018. Some crop fails, a foreign cheap source of something becomes unavailable, whatever. Prices rise, permanently, as more expensive sources are used. This is the only disruption to prices. Nothing else goes wrong. So, in February, 2018, the authorities find that prices in January, 2018 rose by 1% over January 2017. Inflation! Politicians pontificate, economists wring their hands, etc. In March, again, prices for February, 2018 are found to be 1% higher than for February, 2017. More wailing... This goes on for months. Every month, inflation (year over year) is unchanged at 1%. Everyone has a theory as to how to stop it... Finally, in February, 2019, there's a change! Prices in January, 2019, were the same as in January 2018. Zero inflation! Everyone takes credit for bringing down inflation...", "title": "" }, { "docid": "8e8c1ebfbc151286159ad3e8e46305bc", "text": "The Hong Kong Dollar is based on the US dollar. The Hong Kong central bank recognizes the US dollar as its reserve currency. That is, the Hong Kong central bank keeps US dollars as its main reserve. Not long ago the reserve currency of choice would have been gold. Central banks of each country would need to have enough gold to back up any currency they issued. Now central banks use the US dollar instead. This is what is meant when people mention the US dollar being the reserve currency for most countries. From wiki regarding the HK dollar: A bank can issue a Hong Kong dollar only if it has the equivalent exchange in US dollars on deposit. So you're assumption is correct: as the US Federal Reserve prints more money and that money finds its way to Hong Kong banks, the Hong Kong banks will be able to issue more Hong Kong dollars which will have an inflationary affect. What to do? If you look around enough on this site you'll find some suggestions. Here is one.", "title": "" }, { "docid": "04d4827d726ea7bf03eb32ae11d2012b", "text": "Typically in a developed / developing economy if there is high overall inflation, then it means everything will rise including property/real estate. The cost of funds is low [too much money chasing too few goods causes inflation] which means more companies borrow money cheaply and more business florish and hence the stock market should also go up. So if you are looking at a situation where industry is doing badly and the inflation is high, then it means there are larger issues. The best bet would be Gold and parking the funds into other currency.", "title": "" }, { "docid": "1df8591be32d4babf6b7a50426ebacda", "text": "Yes - it's called the rate of inflation. The rate of return over the rate of inflation is called the real rate of return. So if a currency experiences a 2% rate of inflation, and your investment makes a 3% rate of return, your real rate of return is only 1%. One problem is that inflation is always backwards-looking, while investment returns are always forward-looking. There are ways to calculate an expected rate of inflation from foreign exchange futures and other market instruments, though. That said, when comparing investments, typically all investments are in the same currency, so the effect of inflation is the same, and inflation makes no difference in a comparative analysis. When comparing investments in different currencies, then the rate of inflation may become important.", "title": "" }, { "docid": "5fc1b6f50dab7b6be9ad8ae72e29381d", "text": "\"My answer is specific to the US because you mentioned the Federal Reserve, but a similar system is in place in most countries. Do interest rates increase based on what the market is doing, or do they solely increase based on what the Federal Reserve sets them at? There are actually two rates in question here; the Wikipedia article on the federal funds rate has a nice description that I'll summarize here. The interest rate that's usually referred to is the federal funds rate, and it's the rate at which banks can lend money to each other through the Federal Reserve. The nominal federal funds rate - this is a target set by the Board of Governors of the Federal Reserve at each meeting of the Federal Open Market Committee (FOMC). When you hear in the media that the Fed is changing interest rates, this is almost always what they're referring to. The actual federal funds rate - through the trading desk of the New York Federal Reserve, the FOMC conducts open market operations to enforce the federal funds rate, thus leading to the actual rate, which is the rate determined by market forces as a result of the Fed's operations. Open market operations involve buying and selling short-term securities in order to influence the rate. As an example, the current nominal federal funds rate is 0% (in economic parlance, this is known as the Zero Lower Bound (ZLB)), while the actual rate is approximately 25 basis points, or 0.25%. Why is it assumed that interest rates are going to increase when the Federal Reserve ends QE3? I don't understand why interest rates are going to increase. In the United States, quantitative easing is actually a little different from the usual open market operations the Fed conducts. Open market operations usually involve the buying and selling of short-term Treasury securities; in QE, however (especially the latest and ongoing round, QE3), the Fed has been purchasing longer-term Treasury securities and mortgage-backed securities (MBS). By purchasing MBS, the Fed is trying to reduce the overall risk of the commercial housing debt market. Furthermore, the demand created by these purchases drives up prices on the debt, which drives down interest rates in the commercial housing market. To clarify: the debt market I'm referring to is the market for mortgage-backed securities and other debt derivatives (CDO's, for instance). I'll use MBS as an example. The actual mortgages are sold to companies that securitize them by pooling them and issuing securities based on the value of the pool. This process may happen numerous times, since derivatives can be created based on the value of the MBS themselves, which in turn are based on housing debt. In other words, MBS aren't exactly the same thing as housing debt, but they're based on housing debt. It's these packaged securities the Fed is purchasing, not the mortgages themselves. Once the Fed draws down QE3, however, this demand will probably decrease. As the Fed unloads its balance sheet over several years, and demand decreases throughout the market, prices will fall and interest rates in the commercial housing market will fall. Ideally, the Fed will wait until the economy is healthy enough to absorb the unloading of these securities. Just to be clear, the interest rates that QE3 are targeting are different from the interest rates you usually hear about. It's possible for the Fed to unwind QE3, while still keeping the \"\"interest rate\"\", i.e. the federal funds rate, near zero. although this is considered unlikely. Also, the Fed can target long-term vs. short-term interest rates as well, which is once again slightly different from what I talked about above. This was the goal of the Operation Twist program in 2011 (and in the 1960's). Kirill Fuchs gave a great description of the program in this answer, but basically, the Fed purchased long-term securities and sold short-term securities, with the goal of twisting the yield curve to lower long-term interest rates relative to short-term rates. The goal is to encourage people and businesses to take on long-term debt, e.g. mortgages, capital investments, etc. My main question that I'm trying to understand is why interest rates are what they are. Is it more of an arbitrary number set by central banks or is it due to market activity? Hopefully I addressed much of this above, but I'll give a quick summary. There are many \"\"interest rates\"\" in numerous different financial markets. The rate most commonly talked about is the nominal federal funds rate that I mentioned above; although it's a target set by the Board of Governors, it's not arbitrary. There's a reason the Federal Reserve hires hundreds of research economists. No central bank arbitrarily sets the interest rate; it's determined as part of an effort to reach certain economic benchmarks for the foreseeable future, whatever those may be. In the US, current Fed policy maintains that the federal funds rate should be approximately zero until the economy surpasses the unemployment and inflation benchmarks set forth by the Evans Rule (named after Charles Evans, the president of the Federal Reserve Bank of Chicago, who pushed for the rule). The effective federal funds rate, as well as other rates the Fed has targeted like interest rates on commercial housing debt, long-term rates on Treasury securities, etc. are market driven. The Fed may enter the market, but the same forces of supply and demand are still at work. Although the Fed's actions are controversial, the effects of their actions are still bound by market forces, so the policies and their effects are anything but arbitrary.\"", "title": "" }, { "docid": "483a44043abcf489a5cbc05a12eb5d2d", "text": "I've always understood inflation to be linked to individual currencies, although my only research into the subject was an intro economics course in undergrad and I don't recall seeing why that would be the case. I guess the basic principle is that currency traders are watching the printing presses and trading in exchange markets to the point that the exchange rates fall in relation to increases in money supply. There's probably something about the carry trade in there as well, but it's late and I took some medications, so someone else will have to carry that torch. I must admit I've not really paid attention to foreign currencies like HKD, but the proximity and political relationship with China probably greatly complicates your question, since part of the problem has been China's currency peg.", "title": "" }, { "docid": "d1b4070ae8f86c7d172defb39f9cd1a7", "text": "Rates are arrived at by the cumulative buying and selling on the foreign exchange market, much the same way that stock prices are arrived at. If there are more people wanting to buy dollars with euros, EUR/USD goes down. If more people want to buy euros with dollars, then EUR/USD goes up. The initial rate was about $1.18 per euro when it began trading on January 1st, 1999. It replaced the European Currency Unit at that time, which was a weighted basket of currencies of (more or less) the participating countries. You're correct about the printing press in the US and other countries. The exchange rates do reflect in part how much of a relative workout those printing presses get.", "title": "" }, { "docid": "dfc8159b5632cc4cc11c53b4744a9d71", "text": "I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies.", "title": "" }, { "docid": "c6f6b991db212603d74dbba5aac2305f", "text": "Because we need energy in the form of oil. If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves. Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?", "title": "" }, { "docid": "55d08474692fb05632b873fe894e4fb8", "text": "\"Wikipedia talks about the Chinese currency: Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly \"\"to prevent inflows of hot money\"\"), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference.\"", "title": "" }, { "docid": "c55d58f7a3897d4ad0c85483e37456e1", "text": "Heh, Argentina's inflation numbers these past few years are [basically lies](http://en.mercopress.com/2012/02/02/imf-warn-argentina-on-lack-of-progress-in-addressing-inflation-data). The IMF data is based off of this data, so it doesn't prove what you think it proves. Not to say they haven't done okay, but when they've done well it's been purely because of China's demand for natural resources.", "title": "" } ]	fiqa
d6db226c04568131dab14b6f0125c085	I'm thinking of getting a new car … why shouldn't I LEASE one?	[ { "docid": "a5b7a01c6f647e9a59ef22f7f031ff54", "text": "If you are looking to build wealth, leasing is a bad idea. But so is buying a new car. All cars lose value once you buy them. New cars lose anywhere between 30-60% of their value in the first 4 years of ownership. Buying a good quality, used car is the way to go if you are looking to build wealth. And keeping the car for a while is also desirable. Re-leasing every three years is no way to build wealth. The American Car Payment is probably the biggest factor holding many people back from building wealth. Don't fall into the trap - buy a used car and drive it for as long as you can until the maintenance gets too pricey. Then upgrade to a better used car, etc. If you cannot buy a car outright with cash, you cannot afford it. Period.", "title": "" }, { "docid": "92f923e3727a7af46c38acb5c46bb1c7", "text": "You SHOULDN'T lease one if you are going to get an economy car, if you don't drive too much (<15K / year), and you want to hang on to the car for a long time. Otherwise, if you are a regular driver, driving a leased new quality car can be cost effective. Many cars now have bumper-to-bumper warranties that last as long as the lease (say 80K). So there is rarely any extra costs apart from regular maintenance. The sweet spot for most new cars is in the 5th, 6th, or 7th years, after they are paid off. But at that point, you may find you have maintenance bills that are approaching an average of $200 - $300 per month. In which case, a lease starts to look pretty good. I owned a 7 year old Honda Accord that cost only $80 less per month in maintenance than the new leased VW that replaced it. Haven't looked back after that. Into my 3rd car and 9th year of leasing.", "title": "" }, { "docid": "0d1c2177217b814358420c28431553fb", "text": "Here are the reasons I did not lease my current car. When you lease, you're tied in at a monthly payment for 48 months or more. The only way to get out of that payment is to transfer the lease or buy out the lease. If you buy/finance, you can always sell the car or trade it in to get out of the payments. Or you can pay down more of the vehicle to lower the payments. Most leases calculate the cost of leasing based on the 'residual value' of the vehicle. Often these values are far lower than the actual worth of the vehicle if you owned it for those months and sold it yourself. So when you do the math, the lease costs you more -especially with today's low financing rates.", "title": "" }, { "docid": "ae0abea7d2a2f457b0cf080bb3e85bd6", "text": "\"Also consider how cars fare under your ownership: Does your current car... If any of the answers to these questions are \"\"Yes\"\", you're probably going to get hosed with fees when you return the car.\"", "title": "" }, { "docid": "3d83da8b4a1ccb7bde4d33e13cb0fd76", "text": "I agree with Speedbird389 - I leased an economy car 10 years ago, paid the residual at the end of the lease because I knew the car would last a long time, but that cost me $5000 more than if I had bought it in the first place...", "title": "" }, { "docid": "63c200f9812b79185eda09b2cf23f12d", "text": "I never understood why people lease rather than buy or finance. I'm financing a new civic 09 @ 0.9%. At the end of the 5 year terms I will have paid less than $800 in interest.", "title": "" }, { "docid": "d077d3d3bf8b5ce59bace67a1779dfee", "text": "I have an eight year old Kia Spectra that my wife is after me to replace -- but it hadn't been giving me any trouble at all. Soon after she started telling me I should replace it soon it started having problems; compressor, tires, and so on. How did she know? Anyway, so now I'm looking -- not ready to buy yet, but I'm looking. The reason I won't be leasing is mileage. I live 45 miles from where I work, so with incidental driving, I put at least 100 miles a day on a car. That's about 26,000 miles a year if I do nothing but drive back and forth to work. On a monthly basis the lease is advertised as being less than most payments, but that is with a mileage limitation. Since most leases I've looked at top out the mileage well below that mark I won't be leasing. I am looking at the new cars that are available now -- but I don't plan on buying until next year, and buying a lightly used car that is only a year to two old. So I'm looking at what I will be buying while I can still find information about them. So yeah, mileage is a strong reason why I'm not considering leasing.", "title": "" }, { "docid": "7e8f5eacbea687c71855d6d66b1e28e1", "text": "\"It's a very simple equation. If we forget about the stress and limitations that come with the so-called \"\"lease\"\", and make the following assumptions: Then after 3 years of using this new car: I will never understand why people still \"\"lease\"\" a car. Even for very low income people who have to have a car, financing a per-owned decent car would do, but it's just \"\"show off\"\" seduction and lure that either unknowing minded or idiot teenagers fall for.\"", "title": "" } ]	[ { "docid": "833192fa2624bd4fca23f6210fe60398", "text": "It is almost never going to be more economical to buy a new car versus repairing your current car. If you want a new car, that is justification enough.", "title": "" }, { "docid": "49a980478d54768a73d86779c42b737e", "text": "\"One reason I have heard (beside to keep you paying rent) is the cost of maintenance and improvements. If you hire someone else to do all the work for you, then it may very well be the case, though it is not as bad as a car. Many factors come into play: If you are lucky, you may end up with a lot that is worth more than the house on it in a few decades' time. Personally, I feel that renting is sometimes better than owning depending on the local market. That said, when you own a home, it is yours. You do have to weigh in such factors as being tied down to a certain location to some extent. However, only the police can barge in -- under certain circumstances -- where as a landlord can come in whenever they feel like, given proper notice or an \"\"emergency.\"\" Not to mention that if someone slams a door so hard that it reverberates through the entire place, you can actually deal with it. The point of this last bit is the question of home ownership vs renting is rather subjective. Objectively, the costs associated with home ownership are the drags that may make it a bad investment. However, it is not like car ownership, which is quite honestly rarely an invesment.\"", "title": "" }, { "docid": "7d4e2921fe70ac4e499dd5d0c24be24c", "text": "A Lease is an entirely different way of getting a car. In two situations it makes sense, in all other scenarios it generally doesn't make sense to lease. In the case of always wanting a new car every 2 or 3 years it can make sense to lease. Of course if you drive more the allowed miles you will pay extra at the end of the lease. If you can take the monthly lease as a business expense leasing makes sense. Otherwise you want to pay cash, or get financing. Does zero percent make sense? Sometimes. The only way to make sense of the numbers is to start with your bank, have them approve of the loan first. Then armed with the maximum loan amount they will give you and the rate and the length of the loan, then visit the dealer. You have to run the numbers for your situation. It depends on your income, your other expenses, your credit score, your bank, what deal the dealership is running, how much you have for a down payment. Here is an example. For a recent loan situation I saw: 36 months, 1.49% rate, 20K loan, total interest paid: ~$466. Armed with that information can the person get a better deal at the dealership? There was only one way to find out. In that case the credit union was better. The rebate was larger than the interest paid.", "title": "" }, { "docid": "0b6cb4f01e80e8edc7cf6f1eaab104c7", "text": "\"Welcome to Personal Finance and Money. This answer will depend a lot on what is most important to the buyer, for example, whether it is important to always be in a newer car, to save money, or strike a balance between the two. There are trade-offs and I don't think there is one right answer for all circumstances. Leasing Leasing does make financial sense for at least two types of people I'm aware of: The company I work for provides company cars to sales executives, which we lease. We lease because it wouldn't be appropriate for a salesperson to meet a client in a car that clearly appears used. Similarly, I know people who value being in a newer car all the time, and for them, leasing makes more financial sense then buying a new car every 2-3 years, and selling their old car which is now 2-3 years old and has depreciated significantly. They understand that they are paying more to always be able to be in a newer car. I used to work with a manager who, every time the new model of the car he owned came out, would see the car and buy it on the spot, even though he already owned last year's model, and he didn't need two cars. He just couldn't help himself; he felt he had to have the new model. It's no use sermonizing about how he \"\"should\"\" learn to save money by just being content with what he had. In reality, if he is going to buy the new model every year no matter what, he should lease rather than buy. From my experience, I would only recommend leasing if you would otherwise be buying a new car on a regular basis, and the lease would be less expensive. This is probably the most cost effective way to maintain the highest possible quality, but would cost much more than buying and holding a new car or buying a value used car. I don't see reliability as much of a factor here since the seller will have a very good idea of how much maintenance will cost, but you will pay a premium to be able to pay a fixed cost for maintenance instead of risking a worse-than-average experience. Buying New According to Edmunds and BIGResearch, only a relatively small number of people are ever in the market for a new car at a given point in time. While you do pay quite a bit more to own a brand new car instead of the same car that is 2-3 years old, there are several reasons I'm aware of why people buy new cars: Number 4 is probably the biggest reason, and many people are willing to pay for the certainty of knowing that the miles are correct, the parts are new, the car is in good working condition, etc. Additionally, some makes of cars have much higher resale values than others (such as Hondas), meaning that there isn't as large of a drop in price between a new car and a used car. Many people consider buying a new car the best way to ensure they get the best reliability since they know the initial condition of the car and can care for it meticulously from that point on. This can especially make sense when the buyer intends to keep the car for the like of the car as the buyer will then benefit from having no car payments once it is paid off. Buying Used Buying a used car is the most affordable option, but for a given quality of car the reliability can be a significant potential pitfall. It can be very difficult for a non-professional to tell whether they are getting a good value. Additionally, it is hard for an owner who wants to sell a used car in excellent condition to get the true value of the car, and much easier for an unscrupulous seller to to get the market price by selling to an unaware buyer (the \"\"lemons\"\" problem in economics). You could buy an inspected car with a limited warranty from a retail seller like CarMax or a dealership, but you often pay a significant premium that cancels out much of the biggest reason to buy used - saving money. However, there is an opportunity to save money when buying used if you're willing to compromise on the condition of the car (if you don't care whether a car has hail damage, for example), or if you are able to wait until you find a motivated/distressed seller who needs to sell quickly and is willing to sell at a discount. If cost is your primary priority, buying a used car is likely the best option, but I would recommend the following in all circumstances: If the seller isn't willing to offer both of these, I would walk away. When buying used, you will also need to consider maintenance, which will vary significantly based on the make and model of the car as well as the condition, which is another risk you need to be willing to take on if you choose to buy used.\"", "title": "" }, { "docid": "56c679204005a8d67e24e64cb2aeaed7", "text": "I'm a finance manager at a dealership. The thing that I tell people about leasing: It's good if you plan to make more money in the future. You can get a new car. The downside of leasing. When you get out of your lease you will either pay straight cash, get another loan for the unit, or get a new unit. 3 years down the road you have no idea what interest rates will be. If you lock in your rate today you are guaranteed that rate. With the government increasing rates we could see higher rates that could cost you more. Also if you get a loan today it will be 5-6 years. Leasing will have a 3 year lease with another 5-6 year loan on top of that. Causing to pay more in the long run If your brother doesn't have straight cash to pay for it at the end of 3 years I recommend buying new", "title": "" }, { "docid": "b792851016cf8ff3dd6156ff029a2333", "text": "\"So this has been bugging me for a while, because I am facing a similar dilemma and I don't think anyone gave a clear answer. I bought a 2012 kia soul in 2012. 36 months financing at 300/mo. Will be done with my car loan in 2015. I plan on keeping it, while saving the same amount of money 300/mo until I buy my next car. But, I also have an option of trading it in for the the next car. Question: should I trade it in in 2015. should I keep it for 2 years more? 3 years more, before I buy the next car? What makes most financial sense and savings. I tried to dig up some data on edmunds - the trade-in value and \"\"true cost to own\"\" calculator. The make and model of my car started in 2010, so I do not have historical data, as well as \"\"cost to own\"\" calculator only spans 5 years. So - this is what I came up with: Where numbers in blue are totally made up/because I don't have the data for it. Granted, the trade-in values for the \"\"future\"\" years are guesstimated - based on Kia Soul's trade-in values from previous years (2010, 2011, 2012) But, this is handy, and as it gets closer to 2015 and beyond, I can re-plug in the data where it is available and have a better understanding of the trade-in vs keep it longer decision. Hope this helps. If the analysis is totally off the rocker, please let me know - i'll adjust it/delete it. Thank you\"", "title": "" }, { "docid": "20ce18a718c5c3163fe63f2a2e04f3a1", "text": "Leasing is not exactly a scam, but it doesn't seem to be the right product for you. The point of leasing over buying is that it turns the capital purchase of a car which needs to be depreciated for tax purposes into what is effectively a rental expense. Rent is an expense that can be deducted directly without depreciation. If you are not operating a business where you can take advantage of leasing's tax advantages, leasing is probably not for you. Because of the tax advantages, a lease can be more profitable for the car dealer. They can get a commission or finder's fee on the lease as well as the commission on the car sale. That extra profit comes from somewhere, presumably from you. If a business, you can then pass part of that to the government. As an individual, you lose that advantage. At this point, the best financial decision that you could make would be to buy out the lease on your current car. Lease prices are set based on the assumption that the car will have been abused during the course of the lease. If you are driving the car less than expected, its value is probably higher than the cost of buying out the lease. If you buy that car, you can drive it for years. Save up some money and buy your next car for cash rather than using financing. Of course, if you really want a new car and can afford it, you may not want to buy out the lease. That is of course your decision. You don't have to maximize your current financial position if buying a new car would return more satisfaction for the money in the long run. I would try to avoid financing for what is essentially a pleasure purchase though.", "title": "" }, { "docid": "7d981886fcd3d12405655510fc4a88ff", "text": "There are many reasons for buying new versus used vehicles. Price is not the only factor. This is an individual decision. Although interesting to examine from a macro perspective, each vehicle purchase is made by an individual, weighing many factors that vary in importance by that individual, based upon their specific needs and values. I have purchased both new and used cars, and I have weighted each of these factors as part of each decision (and the relative weightings have varied based upon my individual situation). Read Freakonomics to gain a better understanding of the reasons why you cannot find a good used car. The summary is the imbalance of knowledge between the buyer and seller, and the lack of trust. Although much of economics assumes perfect market information, margin (profit) comes from uncertainty, or an imbalance of knowledge. Buying a used car requires a certain amount of faith in people, and you cannot always trust the trading partner to be honest. Price - The price, or more precisely, the value proposition of the vehicle is a large concern for many of us (larger than we might prefer that it be). Selection - A buyer has the largest selection of vehicles when they shop for a new vehicle. Finding the color, features, and upgrades that you want on your vehicle can be much harder, even impossible, for the used buyer. And once you have found the exact vehicle you want, now you have to determine whether the vehicle has problems, and can be purchased at your price. Preference - A buyer may simply prefer to have a vehicle that looks new, smells new, is clean, and does not have all the imperfections that even a gently used vehicle would exhibit. This may include issues of pride, image, and status, where the buyer may have strong emotional or psychological needs to statisfy through ownership of a particular vehicle with particular features. Reviews - New vehicles have mountains of information available to buyers, who can read about safety and reliability ratings, learn about problems from the trade press, and even price shop and compare between brands and models. Contrasted with the minimal information available to used vehicle shoppers. Unbalanced Knowledge - The seller of a used car has much greater knowledge of the vehicle, and thus much greater power in the negotiation process. Buying a used car is going to cost you more money than the value of the car, unless the seller has poor knowledge of the market. And since many used cars are sold by dealers (who have often taken advantage of the less knowledgeable sellers in their transaction), you are unlikely to purchase the vehicle at a good price. Fear/Risk - Many people want transportation, and buying a used car comes with risk. And that risk includes both the direct cost of repairs, and the inconvenience of both the repair and the loss of work that accompanies problems. Knowing that the car has not been abused, that there are no hidden or lurking problems waiting to leave you stranded is valuable. Placing a price on the risk of a used car is hard, especially for those who only want a reliable vehicle to drive. Placing an estimate on the risk cost of a used car is one area where the seller has a distinct advantage. Warranties - New vehicles come with substantial warranties, and this is another aspect of the Fear/Risk point above. A new vehicle does not have unknown risk associated with the purchase, and also comes with peace of mind through a manufacturer warranty. You can purchase a used car warranty, but they are expensive, and often come with (different) problems. Finance Terms - A buyer can purchase a new vehicle with lower financing rate than a used vehicle. And you get nothing of value from the additional finance charges, so the difference between a new and used car also includes higher finance costs. Own versus Rent - You are assuming that people actually want to 'own' their cars. And I would suggest that people want to 'own' their car until it begins to present problems (repair and maintenance issues), and then they want a new vehicle to replace it. But renting or leasing a vehicle is an even more expensive, and less flexible means to obtain transportation. Expense Allocation - A vehicle is an expense. As the owner of a vehicle, you are willing to pay for that expense, to fill your need for transportation. Paying for the product as you use the product makes sense, and financing is one way to align the payment with the consumption of the product, and to pay for the expense of the vehicle as you enjoy the benefit of the vehicle. Capital Allocation - A buyer may need a vehicle (either to commute to work, school, doctor, or for work or business), but either lack the capital or be unwilling to commit the capital to the vehicle purchase. Vehicle financing is one area banks have been willing to lend, so buying a new vehicle may free capital to use to pay down other debts (credit cards, loans). The buyer may not have savings, but be able to obtain financing to solve that need. Remember, people need transportation. And they are willing to pay to fill their need. But they also have varying needs for all of the above factors, and each of those factors may offer value to different individuals.", "title": "" }, { "docid": "c67a88c4227e0bf04bf2a770ce04fe61", "text": "When getting a car always start with your bank or credit union. They are very likely to offer better loan rate than the dealer. Because you start there you have a data point so you can tell if the dealer is giving you a good rate. Having the loan approved before going to the dealer allows you to negotiate the best deal for the purchase price for the car. When you are negotiating price, length of loan, down payment, and trade in it can get very confusing to determine if the deal is a good one. Sometimes you can also get a bigger rebate or discount because to the dealer you are paying cash. The general advice is that a lease for the average consumer is a bad deal. You are paying for the most expensive months, and at the end of the lease you don't have a car. With a loan you keep the car after you are done paying for it. Another reason to avoid the lease. It allows you to purchase a car that is two or three years old. These are the ones that just came off lease. I am not a car dealer, and I have never needed a work visa, but I think their concern is that there is a greater risk of you not being in the country for the entire period of the lease.", "title": "" }, { "docid": "5edb07a608b5d2a227f966321bf0d408", "text": "Generally speaking, buying a fancy new car out of college is dumb. Buying a 3 year old flashy car with a 60 month loan is going to eat up your income, and when the thing starts breaking down, you'll get sick of buying $900 mufflers and $1,000 taillights pretty quickly. Buy a car that nobody wants for cheap and save up some money. Then buy yourself your dream car. Edit based on question update. You're posting to a Q&A site about money, and you're asking if spending over $30k (don't forget taxes) on a luxury car when you're making $60k is a good idea. You have car fever, and you're trying to sell this transaction as a good deal from a financial POV. At the end of the day, there is no scenario where buying an expensive car is a good financial transaction. For example, since you're planning on driving too many miles for a lease to make sense, the certified pre-owned warranty is a non-factor, because you'll have no warranty when the car breaks down in 4 years. The only reason CPO programs exist is to boost residual values to make leases more attractive -- luxury car makers are in the car leasing (as opposed to selling) business.", "title": "" }, { "docid": "411b2d4d2e5d9415dbd97a8e83cba938", "text": "\"Two reasons: Many people make lots of financial decisions (and other kinds of decisions) without actually running any numbers to see what is best (or even possible). They just go with their gut and buy things they feel like buying, without making a thoroughgoing attempt to assess the impact on their finances. I share your bafflement at this, but it is true. A sobering example that has stuck with me can be found in this Los Angeles Times story from a few years ago, which describes a family spending $1000 more than their income every month, while defaulting on their mortgage and dipping into their 7-year-old daughter's savings account to cover the bills --- but still spending $275 a month on \"\"beauty products and services\"\" and $200 a month on pet expenses. Even to the extent that people do take finances into account, finances are not the only thing they take into account. For many people, driving a car that is new, looks nice and fresh, has the latest features, etc., is something they are willing to pay money for. Your question \"\"why don't people view a car solely as a means of transportation\"\" is not a financial question but a psychological one. The answer to \"\"why do people buy new cars\"\" is \"\"because people do not view cars solely as a means of transportation\"\". I recently bought a used car, and while looking around at different ones I visited a car lot. When the dealer heard which car I was interested in, he said, \"\"So, I guess you're looking for a transportation car.\"\" I thought to myself, \"\"Duh. Is there any other kind?\"\" But the fact that someone can say something like that indicates that there are many people who are looking for something other than a \"\"transportation car\"\".\"", "title": "" }, { "docid": "8f7b37b3ab5986dbffeac01e38736a33", "text": "Don't buy the new car. Buy a $15k car with $5k down and a 3 year loan and save up the rest for your car. A $500/mo car payment is nuts unless you're making alot of money. I've been there, and it was probably the dumbest decision that I have ever made. When you buy a house, you end up with all sorts of unexpected expenses. When you buy a house AND are stuck in a $500/mo payment, that means that those unexpected expenses end up on a credit card.", "title": "" }, { "docid": "9ac3b585e1aba3033687d8d3489308d3", "text": "Leasing is never a good idea. A car is a depreciating asset -- it loses money over time. Pay cash for your car and buy used ones until your net worth reaches at least $1M.", "title": "" }, { "docid": "38ec38eaad11c8b8a112cf547e69262e", "text": "I think you're dancing with the line here, this question is hard to back up without opinions and could really be three different questions. I'm going to push aside the part about quality and reliability, that could be an emotional subject. So from a price standpoint, there's virtually no disagrement that it makes financial sense to buy a used car instead of a new car. The majority of new cars lose the majority of their resale value within the first year or two. If you purchase said car after someone else has used it for the first two years, you just avoided all of that depreciation yourself, and you're still going to be purchasing a perfectly reliable car as long as you are diligent in the buying process.", "title": "" }, { "docid": "4efbccc6cb586ee462049893dea8a984", "text": "Regarding the opportunity cost comparison, consider the following two scenarios assuming a three-year lease: Option A: Keep your current car for three years In this scenario, you start with a car that's worth $10,000 and end with a car that's worth $7,000 after three years. Option B: Sell your current car, invest proceeds, lease new car Here, you'll start out with $10,000 and invest it. You'll start with $10,000 in cash from the sale of your old car, and end with $10,000 plus investment gains. You'll have to estimate the return of your investment based on your investing style. Option C: Use the $10k from proceeds as down payment for new car In this scenario you'll get a reduction in finance charges on your lease, but you'll be out $10,000 at the end. Overall Cost Comparison To compare the total cost to own your current car versus replacing it with a new leased car, first look up the cost of ownership for your current car for the same term as the lease you're considering. Edmunds offers this research and calls it True Cost to Own. Specifically, you'll want to include depreciation, fuel, insurance, maintenance and repairs. If you still owe money you should also factor the remaining payments. So the formula is: Cost to keep car = Depreciation + Fuel + Insurance + Maintenance + Repairs On the lease side consider taxes and fees, all lease payments, fuel, and maintenance. Assume repairs will be covered under warranty. Assume you will put down no money on the lease and you will finance fees, taxes, title, and license when calculating lease payments. You also need to consider the cost to pay off your current car's loan if applicable. Then you should subtract the gains you expect from investing for three years the proceeds from the sale of your car. Assume that repairs will be covered under warranty. The formula to lease looks like: Lease Cost = Fuel + Insurance + Maintenance + Lease payments - (gains from investing $10k) For option C, where you use the $10k from proceeds as down payment for new lease, it will be: Lease Cost = Fuel + Insurance + Maintenance + Lease payments + $10,000 A somewhat intangible factor to consider is that you'll have to pay for body damage to a leased car at the end of the lease, whereas you are obviously free to leave damage unrepaired on your own vehicle.", "title": "" } ]	fiqa
9487c7d6d0230aa0793dcca70142d8a5	How are mortgage interest rates determined?	[ { "docid": "615e1ed754f28102037a6a0872d1af4f", "text": "Mortgage or other interest rates are determined by the banks on cost of funds, risk and operating cost. The Fed raises money from the markets by issuing Tresury Bonds at a specified rate. This rate at which it raises money varies depening on the economy. Thus there are 2 rates: the rate at which banks can borrow money from the Fed, which is higher than the rate that the Fed would give banks for excess money deposited with them. So if the cost of borrowing is less, banks can borrow this money from the Fed and loan it to individuals at a slightly higher rate that would cover their costs plus a small profit. The risk associated with a mortgage is less, and hence these would be cheaper, then say a personal loan. If the cost of borrowing goes up, the mortgage rate will go up. If the cost of borrowing money goes down, the cost would come down. Banks may not always borrow money to lend. If they have existing money, they can either park it with the Fed for a lower interest rate, or loan it to individuals for a rate higher than what they would have received from the Fed.", "title": "" }, { "docid": "b8a4333402bf954d50caee744a65301b", "text": "One will find that the fixed 30 year mortgage rate is tightly correlated to the 10 year treasury. An adder of 2-2.5% or so, changing slightly with the rest of the economy, as money can get tight or loose independent of the rate itself. In 2011 we are witnessing low rates yet tough loan standards, this is the phenomenon I am referencing.", "title": "" }, { "docid": "f057ba558284c21dbce37c95a845abb6", "text": "Sheegan has a great explanation of how the TBA market contributes to mortgage rates. The 30 Year Mortgage rates are closely tied to the 10-Year Treasury. One can track this rate at many stock quoting sites using symbol TNX.", "title": "" } ]	[ { "docid": "6a7d38f2451ab0d1f6ad2b66b641b5c7", "text": "The reason it's broken out is very specific: this is showing you how much interest accrued during the month. It is the only place that's shown, typically. Each month's (minimum) payment is the sum of [the interest accrued during that month] and [some principal], say M=I+P, and B is your total loan balance. That I is fixed at the amount of interest that accrued that month - you always must pay off the accrued interest. It changes each month as some of the principal is reduced; if you have a 3% daily interest rate, you owe (0.03B31) approximately (plus a bit as the interest on the interest accrues) each month (or 30 or 28). Since B is going down constantly as principal is paid off, I is also going down. The P is most commonly calculated based on an amortization table, such that you have a fixed payment amount each month and pay the loan off after a certain period of time. That's why P changes each month - because it's easier for people to have a constant monthly payment M, than to have a fixed P and variable I for a variable M. As such, it's important to show you the I amount, both so you can verify that the loan is being correctly charged/paid, and for your tax purposes.", "title": "" }, { "docid": "a8ab10fa53729a333b3bbac5f5281fc0", "text": "As of now in 2016, is is safe to assume that mortgage rates would/should not get back to 10%? What would the rates be in future is speculation. It depends on quite a few things, overall economy, demand / supply, liquidity in market etc ... Chances are less that rates would show a dramatic rise in near future. Does this mean that one should always buy a house ONLy when mortgage rates are low? Is it worth the wait IF the rates are high right now? Nope. House purchase decision are not solely based on interest rates. There are quite a few other aspects to consider, the housing industry, your need, etc. Although interest rate do form one of the aspect to consider specially affordability of the EMI. Is refinancing an option on the table, if I made a deal at a bad time when rates are high? This depends on the terms of current mortgage. Most would allow refinance, there may be penal charges breaking the current mortgage. Note refinance does not always mean that you would get a better rate. Many mortgages these days are on variable interest rates, this means that they can go down or go up. How can people afford 10% mortgage? Well if you buy a small cheaper [Less expensive] house you can afford a higher interest rate.", "title": "" }, { "docid": "7bd327e9066516fa1c01300257f23a07", "text": "It's easiest to get your payment from the PMT function in Excel or Google Sheets. So a $100,000 30 year mortgage at 3% looks like this: The basic calculation is pretty simple. You take the annual interest rate, say 3%, divided by 12, times the existing principal balance: The idea is that borrowers would like to have a predictable payment. The earlier payments are proportionally more interest than principal than later payments are but that's because there is much more principal outstanding on month 1 than on month 200.", "title": "" }, { "docid": "452f27da8e2c009b017c0b881ec4cf77", "text": "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", "title": "" }, { "docid": "c792b0ad91138ee36099aef622b3d59c", "text": "\"The answer to almost all questions of this type is to draw a diagram. This will show you in graphical fashion the timing of all payments out and payments received. Then, if all these payments are brought to the same date and set equal to each other (using the desired rate of return), the equation to be solved is generated. In this case, taking the start of the bond's life as the point of reference, the various amounts are: Pay out = X Received = a series of 15 annual payments of $70, the first coming in 1 year. This can be brought to the reference date using the formula for the present value of an ordinary annuity. PLUS Received = A single payment of $1000, made 15 years in the future. This can be brought to the reference date using the simple interest formula. Set the pay-out equal to the present value of the payments received and solve for X I am unaware of the difference, if any, between \"\"current rate\"\" and \"\"rate to maturity\"\" Finding the rate for such a series of payments would start out the same as above, but solving the resulting equation for the interest rate would be a daunting task...\"", "title": "" }, { "docid": "a4e5e4d432355e265639b5ac35bdbe3a", "text": "\"Banks make money on load origination fees. The \"\"points\"\" you pay or closing costs are the primary benefit to the banks. A vast majority of the time risks associated with the mortgage are sold to another party. FYI, the same is true with investment banks. In general, the transaction costs (which are ignored by modern finance theory) are the main thing running the incentives for the industry.\"", "title": "" }, { "docid": "8ab90eea050860a8a0fd05acc26713a6", "text": "\"To understand the Twist, you need to understand what the Yield Curve is. You must also understand that the price of debt is inverse to the interest rate. So when the price of bonds (or notes or bills) rises, that means the current price goes up, and the yield to maturity has gone down. Currently (Early 2012) the short term rate is low, close to zero. The tools the fed uses, setting short term rates for one, is exhausted, as their current target is basically zero for this debt. But, my mortgage is based on 10yr rates, not 1 yr, or 30 day money. The next step in the fed's effort is to try to pull longer term rates down. By buying back 10 year notes in this quantity, the fed impacts the yield at that point on the curve. Buying (remember supply/demand) pushes the price up, and for debt, a higher price equates to lower yield. To raise the money to do this, they will sell short term debt. These two transactions effectively try to \"\"twist\"\" the curve to pull long term rates lower and push the economy.\"", "title": "" }, { "docid": "dfa2ffd7e6e3892c85d2adf7481d1bdf", "text": "\"I am trying to set up a formula that will find interest-rate behind first pencil sheets at car dealerships. I am not a car finance expert so I need someone who is intimate with how these loans really work. The points of data I get at first pencil are: 1) Amount Financed 2) Period 3) Monthly Payment The data I need to extrapolate: 1) Rate in percentile so that I can compare to my bank's offer. I have tried this and many other stock \"\"find rate\"\" formulas with no accurate results: R=(A/P^(1/n)-1)n\"", "title": "" }, { "docid": "b03915b188d6fcb35d4155487adbc78c", "text": "In the US, our standard fixed rate mortgages would show no difference. My payment is calculated to be due on the 1st of each month. When I first got a mortgage, I was intrigued by this question, and experimented. I paid early, on the 15th, 2 weeks early, and looked at my next statement. It matched the amortization, exactly. Mortgages at the time were over 12%, so I'd imagine having seen the benefit of that 1/2% for the early payment. Next I paid on the last day before penalty, in effect, 2 weeks late. I expected to see extra interest accrue, again, just a bit, but enough to see when compared to the amortization table. Again, no difference, the next statement showed the same value to the penny.", "title": "" }, { "docid": "5112988b5497852ace1cbc38ea624643", "text": "Your calculations are correct if you use the same mortgage rate for both the 15 and 30 year mortgages. However, generally when you apply for a 15 year mortgage the interest rate is significantly less than the 30 year rate. The rate is lower for a number of reasons but mainly there is less risk for the bank on a 15 year payoff plan.", "title": "" }, { "docid": "ebe6ac0b79f9cec2027e75b7e1e713e5", "text": "You’ve really got three or four questions going here… and it’s clear that a gap in understanding one component of how bonds work (pricing) is having a ripple effect across the other facets of your question. The reality is that everybody’s answers so far touch on various pieces of your general question, but maybe I can help by integrating. So, let’s start by nailing down what your actual questions are: 1. Why do mortgage rates (tend to) increase when the published treasury bond rate increases? I’m going to come back to this, because it requires a lot of building blocks. 2. What’s the math behind a bond yield increasing (price falling?) This gets complicated, fast. Especially when you start talking about selling the bond in the middle of its time period. Many people that trade in bonds use financial calculators, Excel, or pre-calculated tables to simplify or even just approximate the value of a bond. But here’s a simple example that shows the math. Let’s say we’ve got a bond that is issued by… Dell for $10,000. The company will pay it back in 5 years, and it is offering an 8% rate. Interest payments will only be paid annually. Remember that the amount Dell has promised to pay in interest is fixed for the life of the bond, and is called the ‘coupon’ rate. We can think about the way the payouts will be paid in the following table: As I’m sure you know, the value of a bond (its yield) comes from two sources: the interest payments, and the return of the principal. But, if you as an investor paid $14,000 for this bond, you would usually be wrong. You need to ‘discount’ those amounts to take into account the ‘time value of money’. This is why when you are dealing in bonds it is important to know the ‘coupon rate’ (what is Dell paying each period?). But it is also important to know your sellers’/buyers’ own personal discount rates. This will vary from person to person and institution to institution, but it is what actually sets the PRICE you would buy this bond for. There are three general cases for the discount rate (or the MARKET rate). First, where the market rate == the coupon rate. This is known as “par” in bond parlance. Second, where the market rate < the coupon rate. This is known as “premium” in bond parlance. Third, where the market rate > coupon rate. This is known as a ‘discount’ bond. But before we get into those in too much depth, how does discounting work? The idea behind discounting is that you need to account for the idea that a dollar today is not worth the same as a dollar tomorrow. (It’s usually worth ‘more’ tomorrow.) You discount a lump sum, like the return of the principal, differently than you do a series of equal cash flows, like the stream of $800 interest payments. The formula for discounting a lump sum is: Present Value=Future Value* (1/(1+interest rate))^((# of periods)) The formula for discounting a stream of equal payments is: Present Value=(Single Payment)* (〖1-(1+i)〗^((-n))/i) (i = interest rate and n = number of periods) *cite investopedia So let’s look at how this would look in pricing the pretend Dell bond as a par bond. First, we discount the return of the $10,000 principal as (10,000 (1 / 1.08)^5). That equals $6,807.82. Next we discount the 5 equal payments of $800 as (800* (3.9902)). I just plugged and chugged but you can do that yourself. That equals $3,192.18. You may get slightly different numbers with rounding. So you add the two together, and it says that you would be willing to pay ($6,807.82 + $3,192.18) = $10,000. Surprise! When the bond is a par bond you’re basically being compensated for the time value of money with the interest payments. You purchase the bond at the ‘face value’, which is the principal that will be returned at the end. If you worked through the math for a 6% discount rate on an 8% coupon bond, you would see that it’s “premium”, because you would pay more than the principal that is returned to obtain the bond [10,842.87 vs 10,000]. Similarly, if you work through the math for a 10% discount rate on an 8% coupon bond, it’s a ‘discount’ bond because you will pay less than the principal that is returned for the bond [9,241.84 vs 10,000]. It’s easy to see how an investor could hold our imaginary Dell bond for one year, collect the first interest payment, and then sell the bond on to another investor. The mechanics of the calculations are the same, except that one less interest payment is available, and the principal will be returned one year sooner… so N=4 in both formulae. Still with me? Now that we’re on the same page about how a bond is priced, we can talk about “Yield To Maturity”, which is at the heart of your main question. Bond “yields” like the ones you can access on CNBC or Yahoo!Finance or wherever you may be looking are actually taking the reverse approach to this. In these cases the prices are ‘fixed’ in that the sellers have listed the bonds for sale, and specified the price. Since the coupon values are fixed already by whatever organization issued the bond, the rate of return can be imputed from those values. To do that, you just do a bit of algebra and swap “present value” and “future value” in our two equations. Let’s say that Dell has gone private, had an awesome year, and figured out how to make robot unicorns that do wonderful things for all mankind. You decide that now would be a great time to sell your bond after holding it for one year… and collecting that $800 interest payment. You think you’d like to sell it for $10,500. (Since the principal return is fixed (+10,000); the number of periods is fixed (4); and the interest payments are fixed ($800); but you’ve changed the price... something else has to adjust and that is the discount rate.) It’s kind of tricky to actually use those equations to solve for this by hand… you end up with two equations… one unknown, and set them equal. So, the easiest way to solve for this rate is actually in Excel, using the function =RATE(NPER, PMT, PV, FV). NPER = 4, PMT = 800, PV=-10500, and FV=10000. Hint to make sure that you catch the minus sign in front of the present value… buyer pays now for the positive return of 10,000 in the future. That shows 6.54% as the effective discount rate (or rate of return) for the investor. That is the same thing as the yield to maturity. It specifies the return that a bond investor would see if he or she purchased the bond today and held it to maturity. 3. What factors (in terms of supply and demand) drive changes in the bond market? I hope it’s clear now how the tradeoff works between yields going UP when prices go DOWN, and vice versa. It happens because the COUPON rate, the number of periods, and the return of principal for a bond are fixed. So when someone sells a bond in the middle of its term, the only things that can change are the price and corresponding yield/discount rate. Other commenters… including you… have touched on some of the reasons why the prices go up and down. Generally speaking, it’s because of the basics of supply and demand… higher level of bonds for sale to be purchased by same level of demand will mean prices go down. But it’s not ‘just because interest rates are going up and down’. It has a lot more to do with the expectations for 1) risk, 2) return and 3) future inflation. Sometimes it is action by the Fed, as Joe Taxpayer has pointed out. If they sell a lot of bonds, then the basics of higher supply for a set level of demand imply that the prices should go down. Prices going down on a bond imply that yields will go up. (I really hope that’s clear by now). This is a common monetary lever that the government uses to ‘remove money’ from the system, in that they receive payments from an investor up front when the investor buys the bond from the Fed, and then the Fed gradually return that cash back into the system over time. Sometimes it is due to uncertainty about the future. If investors at large believe that inflation is coming, then bonds become a less attractive investment, as the dollars received for future payments will be less valuable. This could lead to a sell-off in the bond markets, because investors want to cash out their bonds and transfer that capital to something that will preserve their value under inflation. Here again an increase in supply of bonds for sale will lead to decreased prices and higher yields. At the end of the day it is really hard to predict exactly which direction bond markets will be moving, and more importantly WHY. If you figure it out, move to New York or Chicago or London and work as a trader in the bond markets. You’ll make a killing, and if you’d like I will be glad to drive your cars for you. 4. How does the availability of money supply for banks drive changes in other lending rates? When any investment organization forms, it builds its portfolio to try to deliver a set return at the lowest risk possible. As a corollary to that, it tries to deliver the maximum return possible for a given level of risk. When we’re talking about a bank, DumbCoder’s answer is dead on. Banks have various options to choose from, and a 10-year T-bond is broadly seen as one of the least risky investments. Thus, it is a benchmark for other investments. 5. So… now, why do mortgage rates tend to increase when the published treasury bond yield rate increases? The traditional, residential 30-year mortgage is VERY similar to a bond investment. There is a long-term investment horizon, with fixed cash payments over the term of the note. But the principal is returned incrementally during the life of the loan. So, since mortgages are ‘more risky’ than the 10-year treasury bond, they will carry a certain premium that is tied to how much more risky an individual is as a borrower than the US government. And here it is… no one actually directly changes the interest rate on 10-year treasuries. Not even the Fed. The Fed sets a price constraint that it will sell bonds at during its periodic auctions. Buyers bid for those, and the resulting prices imply the yield rate. If the yield rate for current 10-year bonds increases, then banks take it as a sign that everyone in the investment community sees some sign of increased risk in the future. This might be from inflation. This might be from uncertain economic performance. But whatever it is, they operate with some rule of thumb that their 30-year mortgage rate for excellent credit borrowers will be the 10-year plus 1.5% or something. And they publish their rates.", "title": "" }, { "docid": "aefe743b20c09ba211183e7b92a884ed", "text": "Increasing rates from .75% to 1% is an attempt to control debt. The new 1% rate drives down demand for bonds based on the old .75% rate and drives down demand for stocks who have decrease profit because they pay more interest on debt. This is the federal reserves primary tool controling inflation. 1% is what the banks pay to borrow money, they base their lending rates on this 1% figure. If a person can guarantee a .75% return on money borrowed at 1%, they will opt to save and instead lend their money out at 1%.", "title": "" }, { "docid": "eeaaa8a25d877e0bee9104edeae47c39", "text": "The periodic rate (here, the interest charged per month), as you would enter into a finance calculator is 9.05%. Multiply by 12 to get 108.6% or calculate APR at 182.8%. Either way it's far more than 68%. If the $1680 were paid after 365 days, it would be simple interest of 68%. For the fact that payment are made along the way, the numbers change. Edit - A finance calculator has 5 buttons to cover the calculations: N = number of periods or payments %i = the interest per period PV = present value PMT = Payment per period FV= Future value In your example, you've given us the number of periods, 12, present value, $1000, future value, 0, and payment, $140. The calculator tells me this is a monthly rate of 9%. As Dilip noted, you can compound as you wish, depending on what you are looking for, but the 9% isn't an opinion, it's the math. TI BA-35 Solar. Discontinued, but available on eBay. Worth every cent. Per mhoran's comment, I'll add the spreadsheet version. I literally copied and pasted his text into a open cell, and after entering the cell shows, which I rounded to 9.05%. Note, the $1000 is negative, it starts as an amount owed. And for Dilip - 1.0905^12 = 2.8281 or 182.8% effective rate. If I am the loanshark lending this money, charging 9% per month, my $1000 investment returns $2828 by the end of the year, assuming, of course, that the payment is reinvested immediately. The 108 >> 182 seems disturbing, but for lower numbers, even 12% per year, the monthly compounding only results in 12.68%", "title": "" }, { "docid": "56a58342b49c9ab6bb9051c3635c622e", "text": "This is more a question for /r/personalfinance, but I'll answer it anyways. Just use the RATE formula in excel. =RATE(numperiods,monthly payment,amount financed)*12 Just make sure the number of periods is in months, the payment is negative, and to multiply the whole thing by 12 to get the annual interest rate.", "title": "" }, { "docid": "d4bbf4a437c658dd7ffd0efc29c1c713", "text": "The prime rate is actually the rate at which banks lend to consumers/businesses with the highest credit ratings. The bank rate (more commonly known as the overnight rate) is the interest rate at which banks can borrow funds from the Bank of Canada or from each other.", "title": "" } ]	fiqa
dc784988ee8a48cf14f0944211caaaf2	When will Canada convert to the U.S. Dollar as an official currency?	[ { "docid": "b4ef1dbf2f750fdcaca0ac264fa7116e", "text": "I don't see countries switching to the USD, I see countries moving away from it. The US has the largest peace time debt ever, is not being even close to fiscally responsible (approving ~4 trillion budget!) and is faced with 100 trillion in future commitments (social security, medicare) with a workforce (tax base) that is decreasing as the baby boomers retire. When the US cannot meet those obligations (and most experts agree there is no hope of that anymore) they will have to print money and devalue the currency.", "title": "" }, { "docid": "e1fd0bb6a3f88f00c291dcd7952a80c3", "text": "\"The conspiracy buffs think this is already in the works. If you are interested, Google this fictional currency called the \"\"Amero.\"\" Or you could just look up the snopes article on Amero.\"", "title": "" }, { "docid": "37e57867183532d34c9794f50a5563dc", "text": "I would say at about the same time as the US converts to having a public health system that covers everyone with very few people with private insurance.", "title": "" }, { "docid": "efdd508b2d8c7ae1db92ab0be6b5085a", "text": "\"Canada would most likely not convert any time in the near future. The challenge for Canada converting to the US Dollar or the fictional \"\"Amero\"\" mentioned by JohnFX is that : Some of the benefits would be: The challenge right now for any government would be to sell the pros over the cons and from that viewpoint the cons would appear to have more negative impact to voters. Considering that Canada currently has a minority government with no expected change to that status for some time the risk would be very high. For more details see Pros and Cons of Canadian Monetary Union and to see the Mexican impact see North American Currency Union It is interesting to note that currency union was first proposed in 1999 when the Canadian Dollar fluctuated between $0.64 to $0.69 US. The Canadian Dollar is closer to par with the US Dollar currently (in fact it rose to $1.10 US in Nov. 2007). Look-up historical rates at the Bank of Canada\"", "title": "" } ]	[ { "docid": "3d950755a8b61ed3e9d7451cdd84b0b3", "text": "\"Im not sure, but let me try. \"\"That person\"\" won't affect the value of currency, after two (or three) years (maybe months), agencies will report anomalies in country. Will be start the end of market. God bless FBI and NSA for prevent this. Actually, good \"\"hypothetical\"\" question.\"", "title": "" }, { "docid": "2ba17ab85beb48e86ad616ac75c3e6fe", "text": "\"The United Nations is already working on stripping us of our world reserve currency status. So are the BRICs. People think we need to maintain the status quo and give a specific country the world reserve currency. There are serious discussions to create a \"\"neutral\"\" global currency so no country has an edge. I found a lot of posts on the topic, but am linking to a really interesting post from a well known publication http://www.nypost.com/p/news/opinion/opedcolumnists/how_us_debt_risks_dollar_doomsday_j8dxHSYWUa22QpSN7ttOIL: >The US dollar is getting perilously close to losing its status as the world’s reserve currency. Should it cross the line, the 2008 financial crisis could look like a summer storm. Yes, worries about insolvency in Europe dominate the headlines. Last week, Standard & Poor’s cut Spain’s bond rating to BBB+ — a clear sign that Europe’s financial crisis is far from over. But America’s escalating debt problem is far more likely to precipitate a truly global crisis, because the dollar has for decades played such a central role in the world economy. How bad is the US problem? Former Treasury official Lawrence Goodman recently pointed out that investors are shunning US bonds and notes; the lack of other buyers forced the Federal Reserve to buy “a stunning . . . 61 percent of the total net issuance of US government debt” last year. Like many others, he warns that ballooning debt puts the US economy at risk for a sharp correction. REUTERS The greenback’s losing to the yuan. But the even larger risk is the potential loss of the dollar’s “reserve currency” status — a key support of the world economy for the last four decades. It started with the 1973 Saudi commitment to accept only US dollars as payment for oil, followed by OPEC’s 1975 agreement to trade only in dollars. Trading of other commodities came to be priced in dollars, reinforcing the dollar’s “reserve” status. As a result, central banks worldwide have held onto large reserves of dollars to facilitate trade. That, in turn, has enabled the US to print much larger amounts of its currency, with seemingly little inflationary consequences. It’s also made it easier for Americans to import more than they export, to consume more than they produce, and to spend more than they earn. But all that is changing rapidly. A number of countries are abandoning the dollar for the Chinese yuan. Last December, Japan and China agreed to trade in yen and yuan. In January, the 10 nations of the Association of Southeast Asian Nations finalized a non-dollar credit agreement equivalent to $240 billion, strengthening their economies’ links with China, Japan and South Korea. That same month, Chinese Premier Wen Jiabao signed a currency-swap agreement with the United Arab Emirates, which holds 7 percent of the world’s oil reserves. Iran has agreed to accept rubles and yuan in trade with Russia and China, and now is trading oil with India in rupees and gold. In late March, the China Development Bank agreed with its counterparts in Brazil, Russia, India and South Africa to eschew dollar lending and extend credit to each other in their own respective currencies. With global demand for dollars falling, central banks around the world will inevitably reduce their dollar reserves. That selloff further weakens the dollar against other currencies and in turn drives up inflation. All this comes as US federal debt is soaring, adding to concerns about the future value of that debt and of the dollar. It’s suddenly much easier to imagine a dollar collapse — which would be a highly unexpected occurrence, known as a “black swan” event. This would precipitate unprecedented disruption, because the dollar remains the world’s most important currency. Let’s hope we can avert a global crisis triggered by reckless US government spending. What’s needed is new leadership in Washington with the courage to get our fiscal house in order and to defend the dollar against attack in a competitive global market. Here is another opinion on the topic http://seekingalpha.com/article/475381-reserve-currency-china-sun-rises-u-s-sun-sets. Edit: Let me add if we are constantly adding stimulus from the central banks, we are going to be seriously jeopardizing the faith the rest of the world has in us as well. The Fed was the buyer of what like 10% of our bonds before the crisis? Now they are buying 60%. We have using quantitative easing and stimulus for three years to fix the economy. If we were suddenly having a riproarding recovery that would be fine because people would know we would be ready to start paying down our debts. However, we have spent trillions and our GDP growth is about two thirds the average since 1947. That's a sign that there is something perilously wrong with our economy right now. Clearly not an argument to end stimulus, because without it we would be in a major depression. The problem is that once people realize that they will question how stable our economy really is. Your argument that we are the most stable economy in the world and deserve the reserve currency status is circular logic. We have had the reserve currency status since 1944. That has helped us maintain the stability the rest of the world hasn't enjoyed for a very long time. Without it we may never have become anything near the country we are today. It gave us access to tremendous capital which we were able to use to expand our nation incredibly. We have built an empire on our ability to take on massive amounts of debt. I am sure we would have been a superpower without it, but no one can say how much humbler or how harder other recessions would have been if we had never been granted that privilege.\"", "title": "" }, { "docid": "9502308b68e5cffb5c3f0fbd260caeb6", "text": "Chinese suppliers can quote their price in CNY rather than USD (as has been typical), and thus avoid the exchange risk from US dollar volatility- the CNY has been generally appreciating so committing to receive payments in US dollars when their costs are in CNY means they are typically on the losing end of the equation and they have to pad their prices a bit. Canadian importers will have to buy RMB (typically with CAD) to pay for their orders and Canadian exporters can take payment in RMB if they wish, or set prices in CAD. By avoiding the US dollar middleman the transactions are made less risky and incur less costs. Japan did this many decades ago (they, too, used to price their products in USD). This is important in transactions of large amounts, not so much for the tiny amounts associated with tourism. Two-way annual trade between China and Canada is in excess of $70bn. Of course Forex trading may greatly exceed the actual amounts required for trade- the world Forex market is at least an order of magnitude greater than size of real international trade. All that trading in currency and financial instruments means more jobs on Bay Street and more money flowing into a very vital part of the Canadian economy. Recent article from the (liberal) Toronto Star here.", "title": "" }, { "docid": "8f064c96487ba818e346514e5d7967f4", "text": "\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-10-14/poloz-sees-canada-growth-moderating-while-sanguine-on-inflation) reduced by 84%. (I'm a bot) *** > Canadian growth will moderate in the second half of the year, as the Bank of Canada remains in &quot;Intense data-dependent mode&quot; in its consideration of whether to raise interest rates again at a time inflation is sluggish, Governor Stephen Poloz said. > Poloz, speaking to reporters Saturday in Washington, said there&#039;s a sense of &quot;Comfort&quot; that the global economy continues to improve while adding that Canada, which is leading the Group of Seven in growth, has not seen all citizens benefit equally. > The so-called Canada Child Benefit has had a &quot;Pretty significant&quot; impact on the Canadian economy, Poloz said, adding it could be one of the reasons Canada has seen rising labor-force participation. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/76wh0r/poloz_sees_canada_growth_moderating/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~229685 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: Poloz^#1 economy^#2 Canada^#3 growth^#4 Canadian^#5\"", "title": "" }, { "docid": "7d3077586f1ca10a37851e7b9c4f23a8", "text": "\"It looks like the HST will be in effect in Ontario on July 1st, 2010. As to whether it will replace GST with HST for all services, it looks like some sectors may get special treatment: Ontario may exempt mutual funds from HST (National Post). But it doesn't look final yet. However, I would suggest that most service-based businesses in Ontario need to prepare to start charging 13% HST instead of 5% GST. It will be the law. On the \"\"goods\"\" side of the new harmonized tax, it looks like certain goods will still be exempt from the provincial portion. Here's a quote from the Ontario Budget 2009 News Release: \"\"Books, diapers, children's clothing and footwear, children's car seats and car booster seats, and feminine hygiene products would be exempt from the provincial portion of the single sales tax.\"\" Here's some additional information on the introduction of the HST, from the province: General Transitional Rules for Ontario HST. And finally, another interesting article from the Ottawa Business Journal: Preparing For Ontario Sales Tax Harmonization – It's Not Too Early UPDATE: I just received an insert from Canada Revenue Agency included with my quarterly GST statement. Titled \"\"Harmonization of the Sales Tax in Ontario and British Columbia\"\", it contains a section titled \"\"What this means for you\"\" (as in, you the business owner). Here's an excerpt: [...] All Ontario and B.C. registrants would need to update their accounting and point-of-sale systems to accomodate the change in rate and new point-of-sale rebates for the implementation date of July 1, 2010. The harmonization of the sales tax in Ontario and B.C. may affect the filing requirements of registrants outside of these two provinces. Registrants will report their HST according to their current GST filing frequency. As a result of the harmonization, there will be changes to the rebates for housing and public service bodies. More information will be released as it becomes available. Visit the CRA web site often, at www.cra.gc.ca/harmonization, for the most up-to-date information on the harmonization of the sales tax and how it may affect you. [...] Last, I found some very detailed information on the HST here: NOTICE247 - Harmonized Sales Tax for Ontario and British Columbia - Questions and Answers on General Transitional Rules for Personal Property and Services. Chances are anything you want to know is in there.\"", "title": "" }, { "docid": "e6764b2393305ba566cb32c631dcaee3", "text": "\"As others have pointed out, the theoretical prices in each exchange rate are identical. However, the cost to you may vary. You need to work out the \"\"opportunity cost\"\" of using each of the three currencies, because you lose money every time you convert between two currencies. Let's supposed for example that you live in Canada and earn and spend CAD there, but also happen to have some HKD. To keep this simple I'll ignore the USD, but you can apply the same reasoning to that. If you're not planning on visiting Hong Kong for a while, then your holdings of HKD are just gathering dust, so your choices are to convert them to CAD and make the GBP purchase in CAD, or to spend the HKD directly on the GBP purchase. Probably the first option will end up costing you more in conversion fees than the second, but you need to look at the precise costs to verify this. If you are planning on visiting Hong Kong soon and will need the HKD, then the choices are somewhat different. You can either spend CAD on the GBP purchase, or you can spend the HKD on the GBP purchase and then soon convert some CAD into more HKD for your trip. In this case the first option will probably end up costing you less in conversion fees.\"", "title": "" }, { "docid": "55a87eedad4ce03ccbaaf80c43cd3869", "text": "Yes, you still need to pay income tax on your capital gain regardless of whether you converted your USD proceeds back into CAD. When you calculate your gains for tax purposes, you'll need to convert all of your gains to Canadian dollars. Generally speaking, CRA will expect you to use a historical USD to CAD exchange rate published by the Bank of Canada. At that page, notice the remark at right: Are the Exchange Rates Shown Here Accepted by Canada Revenue Agency? Yes. The Agency accepts Bank of Canada exchange rates as the basis for calculations involving income and expenses that are denominated in foreign currencies.", "title": "" }, { "docid": "d74301c7507073d54fb71f94b4126d2d", "text": "General advice for novice investors is to have the majority of your holdings be denominated in your home currency as this reduces volatility which can make people squeamish and, related to your second question, prevents all sorts of confusion. A rising CAD actually decreases the value (for you) of your current USD stock. After all, the same amount of USD now buys you less in CAD. An exception to the rule can be made if you would use USD often in your daily life yet your income is CAD. In this case owning stock denominated in USD can form a natural hedge in your life (USD goes up -> your relative income goes down but stock value goes up and visa versa). Keep in mind —as mentioned in the comments— that an US company with a listing in CAD is still going to be affected by price swings of USD.", "title": "" }, { "docid": "4f96e863ce27aefa989aa3d5ec68fba9", "text": "\"Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar… When this happens, the US dollar should drop to about 50% of it's current value and at that point, the US century will be over. What happens after that is anybodies guess but I expect that the US will have to either use it's military to shore up the dollar in exactly the same way they did when the invaded Iraq to prevent the sale of oil in Juan OR the US will blink and it's expensive military around the world will have to be clawed back. Simply put, the US will no longer be the world's policeman\"\".\"", "title": "" }, { "docid": "90a0c80cb6cc73d6f81b011cd974c1f0", "text": "If we knew for sure that euros are only going to be more expensive in the future, then the answer would be easy: Buy them all at one time, so that we are getting them at the best price. Of course, we can't assume that to be the case, they could get cheaper, so the answer gets more complicated. Focusing strictly on monetary considerations, there are two factors to examine: Using answers to this Travel Stack Exchange question as a reference, you see that the cost of currency conversion can be as low as 1%-2% if you make the transaction with a debit card, but can be as high as 15%. So, buying 1000 euros a month would cost between 20 and 150 euros. Examining a two year chart of the Euro-Canadian Dollar exchange rate gives us an idea of how much the currency fluctuates. Over the past two years, a euro has cost has much as $1.54 CAD and as little as $1.26 CAD, a 22% spread. Looking at it on a month-to month basis, we see that monthly changes have been as high as .05 to .07 (4-5%). As such, buying 1000 euros a month could cost 50 CAD more (or less) on a monthly basis due to variance in the exchange rate. If we anticipate our overhead cost of currency conversion to be more than 5%, it doesn't make sense to do multiple transactions; the costs are likely to outweigh the benefits. If we can keep them under that amount, then multiple transactions are advantageous when the euro is cheaper. The problem is somewhat analagous to that of someone who wants to make an annual investment in a mutual fund and is unsure of whether to make the purchase all at once, or to divide it over multiple purchases. One can't know for sure which way the mutual fund price is going to move over the time period Dollar cost averaging, spreading the purchase over regular intervals, is the generally accepted solution to this problem. As such, so long as we can keep the overhead cost of currency transactions low (<5%), doing transactions on a regular basis positions ourselves to take advantage of possible drops in the price of euros and reduces the risk of buying euros when they are most expensive. If we can't keep the cost low, then currency fees would be greater than potential price drops and we would be better off doing a single transaction.", "title": "" }, { "docid": "bc6e266b59ecc292bde5266b4226db53", "text": "\"The solution I've come up with is to keep income in CAD, and Accounts Receivable in USD. Every time I post an invoice it prompts for the exchange rate. I don't know if this is \"\"correct\"\" but it seems to be preserving all of the information about the transactions and it makes sense to me. I'm a programmer, not an accountant though so I'd still appreciate an answer from someone more familiar with this topic.\"", "title": "" }, { "docid": "7167ec18e71daaffb58292000094dc2c", "text": "Would I have to pay some kind of capital gains tax? And if so, when? Converting Tax paid USD into CAD is not a taxable event. A taxable even will occur if you convert back the CAD into USD. If you receive interest on the CAD then the interest is also a taxable event. Also, is there any reason this is a terrible idea? That will only be known in future. Its like predicting that in future this will turn out to be advantageous, however it may turn out the other way.", "title": "" }, { "docid": "d3fda19ff0c537aafefcb9589ece944d", "text": "Aren't we in /r/economy worried more about all of Canada and the entire oil sector? Sure evaluations are arbitrary, but carbon will be utterly worthless in a few ~~decades~~ years, whereas solving the byzantine generals problems seems to be very helpful.", "title": "" }, { "docid": "78749887079fab84bbbbd49b140d08da", "text": "I'm no expert, but this is my understanding. Not necessarily. For example, the Canadian dollar has jumped up recently because people are expecting a rate hike at the central bank this week some time. That is, the Canadian dollar is being traded for more because people expect that the currency will be harder to get later. This deflation (or decelerated inflation) is being priced in before it even happens. For inflation to propagate through an entire domestic supply chain of a good or service takes time. Raises aren't tied to inflation, nor the price of a Big Mac or price of a movie ticket or toaster that has been sitting on the shelf for a month. The price of the good in foreign currency will however hit the export as soon as it crosses the border.", "title": "" }, { "docid": "b36c234151124c34fb9189a4356e13d3", "text": "Either way you'll be converting to US Dollars somewhere along the line. You are seeking something that is very redundant", "title": "" } ]	fiqa
395b2fb1a303812fb2728f6b9d6e6fa1	How will the fall of the UK Pound impact purchasing my first property?	[ { "docid": "b6cbf93cdf03f9730462f5dd3d3dd2d7", "text": "\"Just to get the ball rolling, here's an answer: it won't affect you in the slightest. The pound happened to be tumbling anyway. (If you read \"\"in the papers\"\" that Brexit is \"\"making the pound fall\"\", that's as valuable as anything else you've ever read in the papers.) Currencies go up and down drastically all the time, and there's nothing you can do about it. We by fluke once bought a house in Australia when that currency was very low; over the next couple years the currency basically doubled (I mean per the USD) and we happened to sell it; we made a 1/2 million measured in USD. Just a fluke. I've had the opposite happen on other occasions over the decades. But... Currency changes mean absolutely nothing if you're in that country. The example from (2) was only relevant because we happened to be moving in and out of Aus. My various Australian friends didn't even notice that their dollar went from .5 to 1 in terms of USD (how could it matter to them?) All sorts of things drastically affect the general economy of a given country. (Indeed, note that a falling currency is often seen as a very good thing for a given nation's economy: conspiracy theorists in the states are forever complaining that ) Nobody has the slightest clue if \"\"Brexit\"\" will be good bad or indifferent for the UK. Anything could happen. It could be the beginning of an incredible period of growth for the UK (after all, why does Brussels not want your country to leave - goodwill?) and your house could triple in value in a year. Or, your house price could tumble to half in a year. Nobody has the slightest clue, whatsoever about the effects on the \"\"economy\"\" of a country going forward, of various inputs.\"", "title": "" }, { "docid": "a32103579ed3ba3b8902f81d055cf3ca", "text": "There are two impacts: First, if the pound is dropping, then buying houses becomes cheaper for foreign investors, so they will tend to buy more houses as investments, which will drive house prices up. Second, in theory you might be able to get a mortgage in a foreign country, let's say in Euro, and you might hope that over the next few years the pound would go up again, and the Euros that you owe the foreign bank become worth less.", "title": "" } ]	[ { "docid": "12c783ab58e622f4b75a45d00cc7d18a", "text": "There is a way I discovered of finding the current exchange rate before committing to buy, go to send payments, put in your own second email, pay 1gbp as the amount and it will give you the exchange rate and fees in your own currency, in my case euro, before you have to click on send payment", "title": "" }, { "docid": "f29a86a321e07b5b5de007b5c99d4858", "text": "\"A title such as \"\"5% Treasury Gilt 2020\"\" expresses the nominal yield. In other words, 5% is the yield you will receive if you are able to buy the Gilt at the nominal (issue) price of GBP100. Of course, you will not be able to buy such a Gilt in today's market for the nominal price of GBP100. It will be trading at a considerable premium and therefore, if you hold it until maturity you will realise a capital loss to offset the relatively high income you have received. Here is an example. The \"\"8% June 2021 Gilt\"\" has a coupon of 8%. To purchase a GBP100 nominal Gilt in today's market will cost you GBP135.89. Thus, you will pay 135.89 to receive GBP8.00 income annually. This represents a 5.88% yield (8/135.89 = 5.88%). That sounds pretty good. However, if you hold the Gilt until maturity you will only receive GBP100 on redemption and therefore you will experience a capital loss GBP35.89 on each Gilt purchased. When this capital loss is taken into account it means that the 5.88% yield you are receiving as income will be offset by the capital loss so that you have earned the equivalent of 0.757% annually. You can of course sell the Gilt before its 2021 maturity date, however as the maturity date gets closer the market price will get closer to the GBP100 nominal value and you will again face a capital loss. There's no free ride in the markets. 5 year Gilts currently have a redemption yield of about 0.75%, while 10 year Gilts currently have a redemption yield of about 1.15%. You may also wish to note that buying Gilts in the open market requires a minimum purchase of GBP10,000 nominal value. However, you can purchase small Gilt holdings through the post office.\"", "title": "" }, { "docid": "df91c47eafc6397732ede7d8f2fe2602", "text": "\"You are mixing issues here. And it's tough for members to answer without more detail, the current mortgage rate in your country, for one. It's also interesting to parse out your question. \"\"I wish to safely invest money. Should I invest in real estate.\"\" But then the text offers that it's not an investment, it's a home to live in. This is where the trouble is. And it effectively creates 2 questions to address. The real question - Buy vs Rent. I know you mentioned Euros. Fortunately, mortgages aren't going to be too different, lower/higher, and tax consequence, but all can be adjusted. The New York Times offered a beautiful infographing calculator Is It Better to Rent or Buy? For those not interested in viewing it, they run the math, and the simple punchline is this - The home/rent ratio can have an incredibly wide range. I've read real estate blogs that say the rent should be 2% of the home value. That's a 4 to 1 home/rent (per year). A neighbor rented his higher end home, and the ratio was over 25 to 1. i.e. the rent for the year was about 4% the value of the home. It's this range that makes the choice less than obvious. The second part of your question is how to stay safely invested if you fear your own currency will collapse. That quickly morphs into too speculative a question. Some will quickly say \"\"gold\"\" and others would point out that a stockpile of weapons, ammo, and food would be the best choice to survive that.\"", "title": "" }, { "docid": "81df6a5235dad320c3fa1c7971100e9e", "text": "\"No. Rural Scotland has exactly the same monetary system, and not the same bubble. Monaco (the other example given) doesn't even have its own monetary system but uses the Euro. Look instead to the common factor: a lot of demand for limited real estate. Turning towards the personal finance part of it, we know from experience that housing bubbles may \"\"burst\"\" and housing prices may drop suddenly by ~30%, sometimes more. This is a financial risk if you must sell. Yet on the other hand, the fundamental force that keeps prices in London higher than average isn't going away. The long-term risk often is manageable. A 30% drop isn't so bad if you own a house for 30 years.\"", "title": "" }, { "docid": "e1efb7090aedbe05bd825078862807e9", "text": "It's not necessary to convert it back for the changes to affect value. Lets say you have a euro account with 1000 euro and a gbp account with 920 gbp (the accounts are equal in value given current exchange rates). You could exchange either account for ~$1180 usd. If you exchange the euro account for USD, and say the euro gets stronger against the pound and dollar (and subsequently the pound and dollar are weaker against the euro); then if you would've kept the 1000 euro it would now be worth more than 920 gbp and more than 1180 usd, and you would've been better off exchanging the gbp account for usd. Barring some cataclysmic economic event; exchange rates between well established currencies don't radically change over a few weeks trip, so I wouldn't really worry about it one way or the other.", "title": "" }, { "docid": "9b390ab2b8987ad3f27153fc997b8bea", "text": "This is a bit of an open-ended answer as certain assumptions must be covered. Hope it helps though. My concern is that you have 1 year of university left - is there a chance that this money will be needed to fund this year of uni? And might it be needed for the period between uni and starting your first job? If the answer is 'yes' to either of these, keep any money you have as liquid as possible - ie. cash in an instant access Cash ISA. If the answer is 'no', let's move on... Are you likely to touch this money in the next 5 years? I'm thinking house & flat deposits - whether you rent or buy, cars, etc, etc. If yes, again keep it liquid in a Cash ISA but this time, perhaps look to get a slightly better interest rate by fixing for a 1 year or 2 year at a time. Something like MoneySavingExpert will show you best buy Cash ISAs. If this money is not going to be touched for more than 5 years, then things like bonds and equities come into play. Ultimately your appetite for risk determines your options. If you are uncomfortable with swings in value, then fixed-income products with fixed-term (ie. buy a bond, hold the bond, when the bond finishes, you get your money back plus the yield [interest]) may suit you better than equity-based investments. Equity-based means alot of things - stocks in just one company, an index tracker of a well-known stock market (eg. FTSE100 tracker), actively managed growth funds, passive ETFs of high-dividend stocks... And each of these has different volatility (price swings) and long-term performance - as well as different charges and risks. The only way to understand this is to learn. So that's my ultimate advice. Learn about bonds. Learn about equities. Learn about gilts, corporate bonds, bond funds, index trackers, ETFs, dividends, active v passive management. In the meantime, keep the money in a Cash ISA - where £1 stays £1 plus interest. Once you want to lock the money away into a long-term investment, then you can look at Stocks ISAs to protect the investment against taxation. You may also put just enough into a pension get the company 'match' for contributions. It's not uncommon to split your long-term saving between the two routes. Then come back and ask where to go next... but chances are you'll know yourself by then - because you self-educated. If you want an alternative to the US-based generic advice, check out my Simple Steps concept here (sspf.co.uk/seven-simple-steps) and my free posts on this framework at sspf.co.uk/blog. I also host a free weekly podcast at sspf.co.uk/podcast (also on iTunes, Miro, Mixcloud, and others...) They were designed to offer exactly that kind of guidance to the UK for free.", "title": "" }, { "docid": "a6f3673e71cdfeb5998f0abfae96975d", "text": "In general, to someone in a similar circumstance I might suggest that the lowest-risk option is to immediately convert your excess currency into the currency you will be spending. Note that 'risk' here refers only to the variance in possible outcomes. By converting to EUR now (assuming you are moving to an EU country using the EUR), you eliminate the chance that the GBP will weaken. But you also eliminate the chance that the GBP will strengthen. Thus, you have reduced the variance in possible outcomes so that you have a 'known' amount of EUR. To put money in a different currency than what you will be using is a form of investing, and it is one that can be considered high risk. Invest in a UK company while you plan on staying in the UK, and you take on the risk of stock ownership only. But invest in a German company while you plan on staying in the UK, you take on the risk of stock ownership + the risk of currency volatility. If you are prepared for this type of risk and understand it, you may want to take on this type of risk - but you really must understand what you're getting into before you do this. For most people, I think it's fair to say that fx investing is more accurately called gambling [See more comments on the risk of fx trading here: https://money.stackexchange.com/a/76482/44232]. However, this risk reduction only truly applies if you are certain that you will be moving to an EUR country. If you invest in EUR but then move to the US, you have not 'solved' your currency volatility problem, you have simply replaced your GBP risk with EUR risk. If you had your plane ticket in hand and nothing could stop you, then you know what your currency needs will be in 2 years. But if you have any doubt, then exchanging currency now may not be reducing your risk at all. What if you exchange for EUR today, and in a year you decide (for all the various reasons that circumstances in life may change) that you will stay in the UK after all. And during that time, what if the GBP strengthened again? You will have taken on risk unnecessarily. So, if you lack full confidence in your move, you may want to avoid fully trading your GBP today. Perhaps you could put away some amount every month into EUR (if you plan on moving to an EUR country), and leave some/most in GBP. This would not fully eliminate your currency risk if you move, but it would also not fully expose yourself to risk if you end up not moving. Just remember that doing this is not a guarantee that the EUR will strengthen and the GBP will weaken.", "title": "" }, { "docid": "eafe19575c9337cfa63e45572f1e32ba", "text": "Huh. It appears it's only currencies in sterling that are fully exempt. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12602 Government manuals are more detailed than .gov but still not perfect as it's HMRCs interpretation of legislation and has been overturned in the past. There is also another (old) article here about foreign currency transactions. https://www.taxation.co.uk/articles/2010/10/27/21191/currency-gains I have never come across forex capital gains in practice but I've learnt something today! Something to look out for in the UK as well I guess.", "title": "" }, { "docid": "bce16a459992b5cfe97275296a8ea3e4", "text": "I don't think that it's a good idea to have cash savings in different currencies, unless you know which will be the direction of the wind for that currency. You can suffer a lot of volatility and losses if you just convert your savings to another currency without knowing anything about which direction that pair will take. Today we can see Brexit, but this is a fact that has been discounted by the market, so the currencies are already adjusted to that fact, but we don't know what will happen in the future, maybe Trump will collapse the US economy, or some other economies in Asia will raise to gain more leadership. If you want to invest in an economy, I think that it's a best idea to invest on companies that are working in that country. This is a way of moving your money to other currencies, and at least you can see how is the company performing.", "title": "" }, { "docid": "35d91a387845c71bad1e0be0ab7a2293", "text": "\"Only you can decide whether it's wise or not given your own personal circumstances. Brexit is certainly a big risk, and noone can really know what will happen yet. The specific worries you mention are certainly valid. Additionally you might find it hard to keep your job or get a new one if the economy turns bad, and in an extreme \"\"no deal\"\" scenario you might find yourself forced to leave - though I think that's very unlikely. House prices could also collapse leaving you in \"\"negative equity\"\". If you're planning on staying in the same location in the UK for a long time, a house tends to be a worthwhile investment, particularly as you always need somewhere to live, so owning it is a \"\"hedge\"\" against prices rising. Even if prices do fall, you do still have somewhere to live. If you're planning on going back to your home country at some point, that reduces the value of owning a house. If you want to reduce your risk, consider getting a mortgage with a long-term fixed rate. There are some available for 10 years, which I'd hope would be enough to get us over most of the Brexit volatility.\"", "title": "" }, { "docid": "8e70ce25572e4501bd61389f004a1910", "text": "Just buy a FTSE-100 tracker. It's cheap and easy, and will hedge you pretty well, as the FTSE-100 is dominated by big mining and oil companies who do most of their business in currencies other than sterling.", "title": "" }, { "docid": "0a493da20b1cbd404298095c658da479", "text": "My 0,02€ - I probably live in the same country as you. Stop worrying. The Euro zone has a 100.000€ guaranty deposit. So if any bank should fail, that's the amount you'll receive back. This applies to all bank accounts and deposits. Not to any investments. You should not have more than 100.000€ in any bank. So, lucky you, if you have more than that money, divide between a number of banks. As for the Euro, there might be an inflation, but at this moment the USA and China are in a currency battle that 'benefits' the Euro. Meaning you should not invest in dollars or yuan at this time. Look for undervalued currency to invest in as they should rise against the Euro.", "title": "" }, { "docid": "dd8e5ca4888ff871a3b76ce481bb3bd5", "text": "\"First of all, bear in mind that there's no such thing as a risk-free investment. If you keep your money in the bank, you'll struggle to get a return that keeps up with inflation. The same is true for other \"\"safe\"\" investments like government bonds. Gold and silver are essentially completely speculative investments; over the years their price tends to vary quite wildly, so unless you really understand how those markets work you should steer well clear. They're certainly not low risk. Repeatedly buying a property to sell in a couple of years time is almost certainly a bad idea; you'll end up paying substantial transaction fees each time that would wipe out a lot of the possible profit, and of course there's always the risk that prices would go down not up. Buying a property to keep - and preferably live in - might be a decent option once you have a good deposit saved up. It's very hard to say where prices will go in future, on the one hand London prices are very high by historical standards, but on the other hand supply is likely to remain severely constrained for years to come. I tend to think of a house as something that I need one of for the rest of my life, and so in one sense not owning a house to live in is a gamble that house prices and rents won't go up substantially. If you own a house, you're insulated from changes in rent etc and even if prices crash at least you still have somewhere to live. However that argument only works really well if you expect to keep living in the same area under most circumstances - house prices might crash in your area but not elsewhere.\"", "title": "" }, { "docid": "9d7889c564e13973982ade3a7679300e", "text": "What about the debt attached to more recently purchased properties, purchased at the price before the market gets flooded with baby-boomer homes? I'm not an expert in real estate finance, but it sounds like if that downward pressure on prices isn't slight, financial institutions will be taking that risk for anyone who defaults on a mortgage after their property loses a substantial amount of its value. It seems like immigration could play an important role in offsetting this and keeping the prices stable, but that's a politically unpredictable issue to say the least.", "title": "" }, { "docid": "b35b8287eb0a1f8cad71238509d3ee0c", "text": "One extremely important aspect that must be taken into consideration is the state of the housing market. If prices are rising it will probably be a false economy to delay your house purchase. Say you pay off a £5,000 student loan, thus delaying your house purchase another year you could well end up forking out an extra £10,000 on the mortgage due to the rise in house prices. Of course, if the housing market is falling then, without a doubt, pay off the student debt.", "title": "" } ]	fiqa
174b7e268eacd406417357a9e0bb0b8e	What does the Fed do with the extra money it is printing?	[ { "docid": "e4ee281926e6a79e88acbe72e41096f9", "text": "\"First of all, just for the sake of clarity, the Federal Reserve doesn't actually \"\"print\"\" money - that's the job of the BEP. What they do is they buy US Treasury bonds - i.e., loan money to the US government. The money they do it with are created \"\"from thin air\"\" - just by adding some numbers in certain accounts, thus it is described as \"\"printing money\"\". The US government then spends the money however it wishes to. The idea is that this money is injected into the economy - since the only way the US government can use the money from these loans is to spend them on buying something or give it to some people that would spend them. As it is a loan, sometime in the future the US government would pay these loans back, and in this moment the Fed would decide - if they want to \"\"contract\"\" the supply of money back, they just \"\"destroy\"\" the money they've got, by erasing the numbers they created before. They could also do it by selling the bonds they hold on the open market and then again \"\"destroy\"\" the money they got as proceeds, thus lowering the amount of money existing in the economy. This way the Fed can control how much money is out there and thus supposedly influence inflation and economic activity. The Fed could also inject money in the economy by buying any assets after creating the money - for example, right now they own about a trillion dollars worth of various mortgage-based securities. But since buying specific security would probably give unfair advantage to the issuers and owners of this security, usually US treasury bonds if what they buy. The side effect of increased supply of money denominated in dollars would be, as you noted, devaluation of dollars compared to other currencies.\"", "title": "" }, { "docid": "5cc8717bf37eb28f7ca4ed32d22b878c", "text": "\"Usually the FED uses newly printed money to buy US treasuries from Goldman Sachs, JP Morgan, etc.. These banks then lend out the new cash which expands the money supply. During the height of the crisis the FED printed over $1.0 Trillion and bought....well...almost anything the banks couldn't offload elsewhere. Mortgage Backed Securities, Credit Default Swaps, you name it - they bought it. Must be nice to always have a customer to sell your junk investments to. They also bought these securities at face value - not at market value. Chart from here. The FED announced in early November, 2010 that they will print another $600 billion and buy US Treasuries. They will be buying ALL the debt that will be sold by the US government for the next 8 months. This was admitted by the Dallas FED chairman in this article: For the next eight months, the nation’s central bank will be monetizing the federal debt. \"\"Monetizing\"\" is a fancy word for printing money. I think this was done because the US government ran out of customers for its debt. China has reduced its purchases of US debt and the Social Security Trust Fund is no longer buying US debt since it is running a deficit.\"", "title": "" } ]	[ { "docid": "1979927d31a02180125fb2ab9be92ef5", "text": "I'm not sure that the deflation will occur regardless of policy choice. There is a clear choice: inflation through printing or some sort of sustained deflation/deleveraging. I'd actually venture to guess that the powers-that-be are clearly on the side of printing.", "title": "" }, { "docid": "0d7882c298cb26a09da949ad3a233ca7", "text": "\"Its definitely not a stupid question. The average American has absolutely no idea how this process works. I know this might be annoying, but I'm answering without 100% certainty. The Fed would increase the money supply by buying back government bonds. This increased demand for bonds would raise their price and therefore lower the interest return that they deliver. Since U.S. treasury bonds are considered to be the very safest possible investment, their rate is the \"\"risk free\"\" rate upon which all other rates are based. So if the government buys billions of these bonds, that much money ends up in the hands of whoever sold them. These sellers are the large financial organizations that hold all of our money (banks and large investment vehicles). Now, since bond rates are lower, they have an incentive to put that money somewhere else. It goes into stocks and investment in business ventures. I'm less certain about how this turns into inflation that consumers will recognize. The short answer is that there is only a finite number of goods and services for us to buy. If the amount of money increases and there are still the same number of goods and services, the prices will increase slightly. Your question about printing money to pay off debts is too complex for me to answer. I know that the inflation dynamic does play a role. It makes debts easier to pay off in the future than they seem right now. However, causing massive inflation to pay off debts brings a lot of other problems.\"", "title": "" }, { "docid": "24207e8002e469fc9ae131448ac96ded", "text": "I've wondered the same thing. And, after reading the above replies, I think there is a simpler explanation. It goes like this. When the bank goes to make a loan they need capital to do it. So, they can get it from the federal reserve, another bank, or us. Well, if the federal reserve will loan it to them for lets say 0.05%, what do you think they are going to be willing to pay us? Id say maybe 0.04%. Anyway, I could be wrong, but this makes sense to me.", "title": "" }, { "docid": "f7f27dfffa398fe03986c118eb595efc", "text": "The Fed controls the base interest rate for lending to banks. It raises this rate when the economy is doing well to limit inflation, and lowers this rate when the economy is doing poorly to encourage lending. Raising the interest rate signals that the Fed believes the economy is strong/strengthening. Obviously it's more complicated than that but that's the basic idea.", "title": "" }, { "docid": "51f8c1c0babf7b53f836d7e4acc07b74", "text": "Inflation follows the money, chases the money. All the money in the past few years has been directed into the banking system, and so we have an inflation in banking investments -- an investment bubble. The Fed makes a big mistake putting all the money into these investment banks. Better to put it into the population directly than let these buggering bankers control it. But then, the Fed is the buggering bankers, just wearing a different hat. It's Wyle E. Coyote time yet again as we wait to see how long it takes these bastards to realize there isn't anything substantial under their feet and it's a long way down to the canyon floor. Again.", "title": "" }, { "docid": "fc929fa4355c3dd27f4ca55f52c55e68", "text": "\"And where does, say, Federal reserve, gets the money to buy those [2.5 trillions](https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124)? As for \"\"inflationary pressure\"\" - we don't really know it. Those money circulate between various financial instruments - so it is a very big question whether or not they spill out to affect consumer prices.\"", "title": "" }, { "docid": "634ae536b1c98d917d05eebcab734301", "text": "Operation twist is just an asset swap. The balance sheet isn't being expanded, money isn't being printed to buy treasuries. The fed is just selling short term assets and buying longer term assets. If more longer term treasuries are bought this brings the yield down (for bonds the more you buy them, the lower the yield goes). Lower long term interest rates means people can borrow at low rates and this is supposed help the economy. No printing of money means that gold doesn't get more precious. I do think gold will do well though, if the ECB wants to save the EU they're going to have to print, and print a lot. The Bank of England is doing some QE too. Lots of countries will be/ are easing.", "title": "" }, { "docid": "afed2260187e757dc89cdc56403f68da", "text": "The money created by the Federal government is spent on public programs increasing the wealth of the general population. Banks loan money to the general population and make back more money in interests, thus gaining a part of the increased money created by the government. The bank can now pay back more that what the borrowed from the government.", "title": "" }, { "docid": "f5f0e1b9220aee83ca06c6ba197f50e6", "text": "\"Regardless of what they are doing, you can't \"\"kill inflation..\"\" Every single dollar created by the federal reserve is done so out of debt through a promissory note loaned by the US Treasury. The note which is essentially debt, is created & loaned with the understanding that the federal reserve will one day pay off it off. However, this is impossible because more money would have to be created to pay of these notes which in turn creates more debt. But wait, let's not forget to factor in tax! The debt can never be paid off, it is literally impossible through our current system of currency circulation carried out by the Federal Reserve. In other words, due to our crippling debt that cannot be alleviated, inflation will continue to occur because our currency will continue to devalue. Those that created the Federal Reserve (in what? the 20's) knew all of this to be true. There goal was to destabilize the economy and they succeeded, they being large influential families such as the Rockefellers and the Morgans. This is the exact reason Andrew Jackson shut down the original central bank.. They are a foundation for corruption and anyone who tells you otherwise is either ill informed or in on it. It is impossible to kill inflation & the notion that one company or one man can do so is preposterous and simply click bait.\"", "title": "" }, { "docid": "901f2c8cb32f9bbb3b3737c43cd6f6fd", "text": "\"The Federal Reserve is not the only way that money can be \"\"printed.\"\" Every bank does fractional reserve banking, thereby increasing the money supply every time they make a new loan. There's a number called the reserve requirement which limits how much money each bank can create. Lowering the reserve requirement allows banks to create more money. Raising it will destroy money. But banks can also destroy money by calling in loans or being less willing to make new loans. So when you look at the number of banks in the US, and the number of loans they all have, it's impossible to figure out exactly how much the money supply is expanding or contracting.\"", "title": "" }, { "docid": "a0fd3892b5b4a6ff7c51355d21f1b976", "text": "For the US government, they've just credited Person B with a Million USD and haven't gained anything (afterall, those digits are intangible and don't really have a value, IMO). Two flaws in this reasoning: The US government didn't do anything. The receiving bank credited the recipient. If the digits are intangible, such that they haven't gained anything, they haven't lost anything either. In practice, the role of governments in the transfer is purely supervisory. The sending bank debits the sender's account and the receiving bank credits the recipient's account. Every intermediary makes some money on this transaction because the cost to the sender exceeds the credit to the recipient. The sending bank typically receives a credit to their account at a correspondent bank. The receiving bank typically receives a debit from their account at a correspondent bank. If a bank sends lots of money, eventually its account at its correspondent will run dry. If a bank receives lots of money, eventually its account at its correspondent will have too much money. This is resolved with domestic payments, sometimes handled by governmental or quasi-governmental agencies. In the US, banks have an account with the federal reserve and adjust balances there. The international component is handled by the correspondent bank(s). They also internally will credit and debit. If they get an imbalance between two currencies they can't easily correct, they will have to sell one currency to buy the other. Fortunately, worldwide currency exchange is extremely efficient.", "title": "" }, { "docid": "6ec0d1a98960a242e0e709bf32c09507", "text": "The problem with that is that banks create the money they lend, thus they are able to lend far more. Individuals can only lend money that has already been created, and are at a big disadvantage. If it weren't for the federal reserve money printing machine, it would be a viable lending scheme.", "title": "" }, { "docid": "0b4e41c69874fd33f60e3e23225eb736", "text": "A central bank typically introduces new money into the system by printing new money to purchase items from member banks. The central bank can purchase whatever it chooses. It typically purchases government bonds but the Federal Reserve purchased mortgage-backed-securities (MBS) during the 2008 panic since the FED was the only one willing to pay full price for MBS after the crash of 2008. The bank, upon receipt of the new money, can loan the money out. A minimum reserve ratio specifies how much money the bank has to keep on hand. A reserve ratio of 10% means the bank must have $10 for every $100 in loans. As an example, let's say the FED prints up some new money to purchase some office desks from a member bank. It prints $10,000 to purchase some desks. The bank receives $10,000. It can create up to $100,000 in loans without exceeding the 10% minimum reserve ratio requirement. How would it do so? A customer would come to the bank asking for a $100,000 loan. The bank would create an account for the customer and credit $100,000 to the customer's account. There is a problem, however. The customer borrowed the money to buy a boat so the customer writes a check for $100,000 to the boat company. The boat company attempts to deposit the $100,000 check into the boat company's bank. The boat company's bank will ask the originating bank for $100,000 in cash. The originating bank only has $10,000 in cash on hand so this demand will immediately bankrupt the originating bank. So what actually happens? The originating bank actually only loans out reserves * (1 - minimum reserve ratio) so it can meet demands for the loans it originates. In our example the bank that received the initial $10,000 from the FED will only loan out $10,000 * (1-0.1) = $9,000. This allows the bank to cover checks written by the person who borrowed the $9,000. The reserve ratio for the bank is now $1,000/$9,000 which is 11% and is over the minimum reserve requirement. The borrower makes a purchase with the borrowed $9,000 and the seller deposits the $9,000 in his bank. The bank that receives that $9,000 now has an additional $9,000 in reserves which it will use to create loans of $9,000 * (1 - 0.1) = $8100. This continual fractional reserve money creation process will continue across the entire banking system resulting in $100,000 of new money created from $10,000. This process is explained very well here.", "title": "" }, { "docid": "1e7ddf36b836da978493b73d74558388", "text": "You need to read up on how QE works. Banks are not reinvesting deposits at the Fed in Equities. They are earning interest and sitting there, hence why the velocity of any money supply measure is far below where it used to be.", "title": "" }, { "docid": "8592a563001667b5d7ee8dc2edd53b11", "text": "If Jack owns all of the one million founding shares (which I assume you meant), and wants to transfer 250,000 shares to Venturo, then he is just personally selling shares to Venturo and the corporation gains nothing. If Jack does not own all of the founding shares, and the corporation had retained some, then the corporate shares could be sold to raise cash for the corporation. Usually in situations like this, the corporation will create more shares, diluting existing shareholders, and then sell the new shares on the open market to raise cash.", "title": "" } ]	fiqa
4dd3f763ca400baf543192e3299fa2c2	Who creates money? Central banks or commercial banks?	[ { "docid": "0b4e41c69874fd33f60e3e23225eb736", "text": "A central bank typically introduces new money into the system by printing new money to purchase items from member banks. The central bank can purchase whatever it chooses. It typically purchases government bonds but the Federal Reserve purchased mortgage-backed-securities (MBS) during the 2008 panic since the FED was the only one willing to pay full price for MBS after the crash of 2008. The bank, upon receipt of the new money, can loan the money out. A minimum reserve ratio specifies how much money the bank has to keep on hand. A reserve ratio of 10% means the bank must have $10 for every $100 in loans. As an example, let's say the FED prints up some new money to purchase some office desks from a member bank. It prints $10,000 to purchase some desks. The bank receives $10,000. It can create up to $100,000 in loans without exceeding the 10% minimum reserve ratio requirement. How would it do so? A customer would come to the bank asking for a $100,000 loan. The bank would create an account for the customer and credit $100,000 to the customer's account. There is a problem, however. The customer borrowed the money to buy a boat so the customer writes a check for $100,000 to the boat company. The boat company attempts to deposit the $100,000 check into the boat company's bank. The boat company's bank will ask the originating bank for $100,000 in cash. The originating bank only has $10,000 in cash on hand so this demand will immediately bankrupt the originating bank. So what actually happens? The originating bank actually only loans out reserves * (1 - minimum reserve ratio) so it can meet demands for the loans it originates. In our example the bank that received the initial $10,000 from the FED will only loan out $10,000 * (1-0.1) = $9,000. This allows the bank to cover checks written by the person who borrowed the $9,000. The reserve ratio for the bank is now $1,000/$9,000 which is 11% and is over the minimum reserve requirement. The borrower makes a purchase with the borrowed $9,000 and the seller deposits the $9,000 in his bank. The bank that receives that $9,000 now has an additional $9,000 in reserves which it will use to create loans of $9,000 * (1 - 0.1) = $8100. This continual fractional reserve money creation process will continue across the entire banking system resulting in $100,000 of new money created from $10,000. This process is explained very well here.", "title": "" }, { "docid": "0440d46c5a30fa44e6392fd3acc13e8a", "text": "\"Scenario 1 is typically the better description. If commercial banks were allowed to simply \"\"create\"\" money, they wouldn't be in the mess they're in now. In the U.S., the central bank is the Federal Reserve or Fed, and is the only entity (not the government, not the banks, not the people) that is allowed to create money \"\"out of thin air\"\". It does this primarily by buying government debt. The government spends more than it takes in, and so to come up with the deficit, it issues bonds. The Fed buys a certain amount of these bonds, and simply prints the money (or more realistically authorized the electronic transfer of $X to the Treasury) which the government then spends. That places money in the hands of corporations and the people, who turn around and spend it. However, long-term, the interest charges on money borrowed from the Fed will actually remove money from the economy. The central banks, therefore, have to constantly make marginal changes to various monetary policy tools they have when the economy is just humming along. If they do nothing, then too much of a short-term increase in money supply will result in there being \"\"too much money\"\" which makes an individual monetary unit worth less (inflation), while making money too hard to get will reduce the rate at which it's spent, reducing GDP and causing recessions. The exact scenario you describe is typically seen in cases where the government is running with a balanced budget, and the central bank thus can't give its \"\"new money\"\" to the government to spend when it wants to increase the money supply. In that situation, the central bank instead lowers its lending rate, the percentage interest that it will charge on loans made to other banks, thereby encouraging those banks to borrow more of the money created by the central bank. Those banks will then use the money to make loans, invest in the market, etc etc which puts the money in the economy. In the U.S., the Fed does have this tool as well, but increases or decreases in the \"\"Federal Funds Rate\"\" are typically used to influence the rate that banks charge each other to borrow money, thus encouraging or discouraging this lending. A lowering in the interest rate makes banks more likely to borrow from each other (and from the Fed but the amount of money \"\"created\"\" this way is a drop in the bucket compared to current \"\"quantitative easing\"\"), and thus increases the \"\"turnover\"\" of the existing money in the economy (how many times a theoretical individual dollar is spent in a given time period).\"", "title": "" }, { "docid": "7d8a54ce401b8444a25daaee08bf9786", "text": "Empirial evidence for the second scenario: Can banks individually create money out of nothing? — The theories and the empirical evidence. Excerpt: It was examined whether in the process of making money available to the borrower the bank transfers these funds from other accounts (within or outside the bank). In the process of making loaned money available in the borrower's bank account, it was found that the bank did not transfer the money away from other internal or external accounts, resulting in a rejection of both the fractional reserve theory and the financial intermediation theory. Instead, it was found that the bank newly ‘invented’ the funds by crediting the borrower's account with a deposit, although no such deposit had taken place. This is in line with the claims of the credit creation theory. Thus it can now be said with confidence for the first time – possibly in the 5000 years' history of banking - that it has been empirically demonstrated that each individual bank creates credit and money out of nothing, when it extends what is called a ‘bank loan’. The bank does not loan any existing money, but instead creates new money. The money supply is created as ‘fairy dust’ produced by the banks out of thin air.", "title": "" } ]	[ { "docid": "998811179d4010020bb3b3408dd346b8", "text": "\"left out of the pictures is the degree to which the ECB is buying their own bonds. At least with the FedResInk, we know what sort of \"\"open market\"\" action is being taken to keep interest rates held as close to zero as possible. I coke dealer can make sure his \"\"sales\"\" are through the roof by using his own product, but eventually he has to buy more supply. I think people are confused about central banks being that coke dealer or being his supplier.\"", "title": "" }, { "docid": "fefb2bebc863d73f23a0dfeed3af1802", "text": "Question: So basically the money created in this globalized digital world where capital is free to roam, it is referring to digital money and not actual physical cash. So the goldbugs that talk about america becoming weimar republic is delusional, since there isn't enough physical cash in relations to how big the economy is. And it is actually the debt lending that acts as a derivative of cash money that goes around posing as the money supply or the blood supply of an economy, and that feels like inflation, but when the debt is defaulted on or destroyed, underwritten or even paid back closing the circuit then it's deflationary? But does defaulting on ones debt create inflation since that money is still in the system and not being paid off? You know, when debts are paid off they are taken out of the system.", "title": "" }, { "docid": "b40d1d741cd2ee1d0e634f17623de06a", "text": "\"Since you're an idiot, here is a quote [\"\"The Bank of England (formally the Governor and Company of the Bank of England) is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world \"\"](http://en.wikipedia.org/wiki/Bank_of_England). Note that this bank, founded in 1694, is the model on which most modern central banks have been based. Now a quote from you: >The UK did NOT sell debt and simultaneously purchase its own debt in the past (until modern times). Owned, fool. And another quote to rub it in \"\"The lenders would give the government cash (bullion) and also issue notes against the government bonds, which can be lent again.\"\" You still have not listed an empire that did not purchase it's own debt.\"", "title": "" }, { "docid": "c65aff309720e8af2811e9306f15d440", "text": "Yes, money is created out of thin air, and it is a good and necessary thing. All money, even commodity money such as gold, is given value only by what can be traded for it. So in that sense all money is created out of thin air, because it represents the payment of a future debt. Money merely serves as IOUs between traders. Who do you think should be responsible for adding money to the system? Inndividuals? Been tried, doesn't work so well. Individual banks? Been tried, doesn't work so well. Nation states? Works a lot better, although can still fail. So far having a central bank issue money as an economy needs it for trade has been the most successful method to deal with who gets to issue the IOUs. EDIT: see my post above on a little how and why it works as it does.", "title": "" }, { "docid": "d42d3a0dc200cd5cfe6956bd4b2fceaf", "text": "There are two answers to this (excluding central banks which are really just a banks to private banks): Please note: This is an oversimplification and not accounting for the fact that banks operate in both categories now. Banks are either depository institutions or financial service/transaction providers. * Depository institutions are your typical retail bank (regions, boa retail, wells fargo retail, etc). They accept deposits from account holders and lend out via reserve lending to mortgages and business loans for their revenue generation. * Financial service/transaction providers are better known as IBanks. You have your Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, etc. These have traditionally been banks that do not accept deposit accounts but revenue generation comes from financial services such as asset management and research or from financial transaction facilitation such as market making (offering both buy/sell quotes in capital markets). This is generally the role that banks have played historically from the medieval ages on... They started out as being entities that provided access to connecting buyers and sellers of markets.", "title": "" }, { "docid": "bc00fd9613f0c6d3732e85398ec34f32", "text": "borrow money from the Central Bank Wrong premise. They cannot borrow as much as they want and they cannot borrow without collateral i.e. government debt instruments they hold or any other instrument with value. And banks don’t have unlimited collateral to borrow against. Secondly central banks aren’t in the business of lending unlimited money. The more money they lend out, the more is the money supply which stokes inflation which will eventually lead them to stop lending. At any point of time they want a certain amount of money movement, so they can control inflation and interest rates within an agreed limit and as limited by their economy. No sane central bank would want to stoke hyperflation by printing money at will e,g, Helicopter money. So the only other way for banks is to accept deposits from private individuals. You can also argue that banks make money by connecting lenders and borrowers and make their profit by being the middleman without using their assets. So you can say they are making a profit with the minimum usage of their capital. Albeit they have the central bank looking over their shoulder to police their behaviour. While some banks do charge fees for keeping deposits Yes but many provide certain extra services for which they charge. That is how they differentiate between no fee accounts and fee paying accounts.", "title": "" }, { "docid": "d8b546e3ca3edf9892dc011ac3e6ca69", "text": "It's quite the contrary. If there are mass failures of banks, then the money supply will collapse and there will be vicious deflation, increasing the value of money held as cash. It's only if governments print money to bail the banks out that there's a (small) risk of hyperinflation and the effective collapse of the currency.", "title": "" }, { "docid": "eba6fb586308512e456cfc30b0cfd7e9", "text": "Trade credit is fine and works without a central bank. All it needs is contract law. The perversion of that is using trade credit collected from somebody else to pay for goods and services mandated by the government as legal tender. That creates false savings that expand exponentially. It probably wouldn't happen much in a free market unless bought at a steep discount by the person receiving it. This is how collection companies work, they buy receivables from telephone companies or other businesses at a steep discount and try to collect on them. In a non-fiat system there would be plenty of trade credit, because how else are you going to drum up business? Personal relationships would ensure that debts were made good, everyone in the economy would be a banker with their own money or goods. I'm not saying we need libertarian minarchist government here for any of this to work. The government could intervene from time to time and tax to build infrastructure or raise a military for defence or whatever they really wanted but at least they wouldn't be creating booms and busts with their borrowing activity.", "title": "" }, { "docid": "81fb5e49a75af4893288857e2a4fc553", "text": "This is adequately covered by the differential between lending and receiving interest rates. ...and technically, they pay the central bank an interest rate on the money lent as well, which means that they are paying back equity holders (all be it very slowly and very slightly). The equity holders have the ability to will money into existence, so there's no artificial limitation they face with respect to the branch banking system.", "title": "" }, { "docid": "c64cffb9f5b04dd8da7726e4221e02f7", "text": "Yes there is an inverse relationship but that's how it's meant to work. Debt creates money. Banks do lend out customers savings for return interest as the bank can make a profit rather than the cash just sitting there. The process of Lending pumps money into the economy that wouldn't be there otherwise so it creates money. The banks will either have a cash deficit or surplus at end of each day and either need to borrow from other banks to balance their books or if in surplus lend to other banks to make interest because that's more profitable than holding the cash surplus. The overnight cash rate then determines interest rates we pay. High private debt occurs when lots of people are investing & buying things so there is stimulation and growth in the economy. A lot more tax is being paid in these periods so government debt is lower because they are getting lots of tax money. Also To stimulate the economy into this growth period the government usually sells off large cash bonds (lowering their debt) to release cash into the economy, the more cash available the less banks have to borrow to cover deficits on overnight cash market and the lower interest rates will be. Lower interest rates = more borrowing and higher Private debt. The government can't let growth get out of control as they don't want high inflation so they do the opposite to slow down growth, I.e buy up cash bonds and take money out of economy causing higher interest rates and less borrowing = More debt for government less for private.", "title": "" }, { "docid": "3eb06ff7ab226eddd36864af44dba95c", "text": "\"They could have printed 5.0T or 10.0T or 1000 quadrillion. It doesnt make any difference for the steps a Central Bank takes. They choose a figure based on balancing inflation vs interest rates. The legal powers Central Banks or IMF have do vary (i.e. to perform quantitative easing, purchasing company bonds, purchasing retail bank bonds) but they all follow that principle. Their tools are very limited and theyre legally obligated to seek certain targets like \"\"inflation between 0 to 2%\"\"\"", "title": "" }, { "docid": "a7fb572eaf82e37b17cdfe0713d57919", "text": "Commercial banks are not allowed to create real money. The confusion comes from the different ways money is counted. In M2, deposits count as money. So if you take $100 and deposit it in the bank, M2 will count the $100 deposit as money, as well as the $100 cash the bank has from the deposit. So under M2 the money supply has increased by $100, but no real money was created. Commercial banks can't create real money out of thin air, and they can't loan out money they don't have.", "title": "" }, { "docid": "854c8fa8a6896a7e1004e68dcdb3a9be", "text": "I think you'll find some sound answers here: Money Creation in the Modern Economy by the Bank of England Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.", "title": "" }, { "docid": "577a3a46a94f18e2d36e4c3e522350c2", "text": "Central Banks always controlled by politics. Bush Jr. told Greenspan that he needed to be reelected, and all Greenspan could do was lower interest rates to help, and that fueled more speculation by the commercial bankers. The president appoints the fed chairman, so dont tell me that they are independent of politicians. the whole notion that a central banker must be independent of the government force is fuking insane. You let private bankers control your monetary policy and you lose your nation's sovereignty. I'd rather put my trust to elected officials than unelected private financial mercenaries. Nationalize the FED.", "title": "" }, { "docid": "62e5deb81b126cbdf0a917b716abcd64", "text": "Inflation is a reflection on the expansion of the money supply, aka debt, being created by a central bank. Fiat currencies usually inflate, because there is no limit to the amount of debt that can be created. The consequences of reckless money supply expansion can be seen throughout history, see Zimbabwe, though there have been many others...Brazil, Argentinia, etc...", "title": "" } ]	fiqa
e1a4014622e88f330ba696d63e8abfec	What market conditions favor small cap stocks over medium cap stocks?	[ { "docid": "ec94e619279a22d59036bf0678740e40", "text": "Small cap companies are just smaller, so the risk for them to fail is higher but the potential for higher returns is also higher.", "title": "" }, { "docid": "205fa3365cf7f8bb34edcb71d1dd1c8b", "text": "Small companies are generally able to adapt quickly to take advantage of changing conditions to enter new markets when the economy is growing. This gives them a lot of growth potential under those circumstances. However, in times of crisis, there may not be a lot of new markets to enter, and financing to expand any operations may be impossible to get. Under these conditions, small-caps will suffer relative to large-caps.", "title": "" }, { "docid": "c9a0d2ef4bb24c36f58f127c3c3d9980", "text": "I think to answer this question it is best for you to learn more about why people diversify through asset allocation. Look at related questions involving Asset Allocation here. I've asked a couple questions about asset allocation - I think you'll find the top rated answer on this post useful.", "title": "" }, { "docid": "a08af0fde5e3795ba16efa8e6c5bc060", "text": "\"In general, small cap stocks are exposed to more downside during recessions and when credit is tight, because it is more difficult for small companies to raise capital, and minor variations in cash flow have a bigger impact. Coming out of recessions or when credit is cheap, small companies generally perform better than larger companies. In the depths of recession, small companies with good cash flow are often great value investments, as analysts and institutional investors \"\"punish\"\" the entire class of smallcap companies.\"", "title": "" } ]	[ { "docid": "9938ccde8ed3c696bcd07c8f5a680d32", "text": "It is a general truism but the reasons are that the rules change dramatically when you simply have more capital. Here are some examples, limited to particular kinds of markets: Under $2,000 in capital Nobody is going to offer you a margin account, and if you do get one it isn't with the best broker on commissions and other capabilities. So this means cash only trading, enjoy your 3 business day settlement periods. This means no shorting, confining a trader to only buy and hold strategies, making them more dependent on luck than a more capable trader. This means it is more expensive to buy stock, since you have to put down 100% of the cash to hold a share, whereas someone with more money puts down less capital to hold the exact same number of shares. This means no covered options strategies or spreads, again limiting the market directions where a trader could earn Under $25,000 in capital In the stock market, the pattern day trader rule applies to retail margin accounts with a balance under $25,000 and this severally limits the kinds of trades you are able to take because of the limit in the number of trades you can take in a given time period. Forget managing a multi-leg option position when the market isn't moving your direction. Under $125,000 in capital Worse margin rules. You excluded portfolio margin from your post, but it is a key part of the answer Over $1,000,000 in capital Participate in private placements, regulation D offerings reserved for accredited investors. These days, as buy and hold investments, these generally have more growth potential than publicly traded offerings. Over $5,000,000 in capital You can easily get the compliance and risk manager to turn the other way on margin rules. This is not conjecture, leverage up to infinity, try not to bankrupt yourself and the trading firm.", "title": "" }, { "docid": "0d004b1d7e0b8e2309af0ee4e6b08f4d", "text": "Volumes are used to predict momentum of movement, not the direction of it. Large trading volumes generally tend to create a price breakout in either positive or negative direction. Especially in relatively illiquid stocks (like small caps), sudden volume surges can create sharp price fluctuations.", "title": "" }, { "docid": "6a6596afc17a33022b76c8b593409015", "text": "The value premium would state the opposite in fact if one looks at the work of Fama and French. The Investment Entertainment Pricing Theory (INEPT) shows a graph with the rates on small-cap/large-cap and growth/value combinations that may be of interest as well for another article noting the same research. Index fund advisors in Figure 9-1 shows various historical returns up to 2012 that may also be useful here for those wanting more detailed data. How to Beat the Benchmark is from 1998 that could be interesting to read about index funds and beating the index in a simpler way.", "title": "" }, { "docid": "2aa8f9bc9b2fedb0eef66df8b2eea64f", "text": "Smaller markets can actually be more volatile so it's not a good idea to lower Graham's criteria for them. The only real adjustment possible is inflation adjustment. $100 million in 1973 United States works out to $500 million today based on the difference in CPI/Inflation from 1973. This number will be different for other markets where the rate of inflation since 1973 has been different. So the real question to ask is - what is to $100 million in the United States in 1973 worth today in your market? Source: http://www.serenitystocks.com/how-build-complete-benjamin-graham-portfolio", "title": "" }, { "docid": "8fd22fb4b04a3bab76b172ea9a18a837", "text": "Something to consider is that in the case of the company you chose, on the OTC market, that stock is thinly traded and with such low volume, it can be easy for it to fluctuate greatly to have trades occur. This is why volume can matter for some people when it comes to buying shares. Some OTC stocks may have really low volume and thus may have bigger swings than other stocks that have higher volume.", "title": "" }, { "docid": "219825e9f65a262e7eeab06b83097b17", "text": "The banks see small apartments as a higher risk because usually very small apartments are harder to sell, especially during a falling market when there is an oversupply of these apartments. The price of small apartments will also fall a lot quicker in a falling market. Regarding yield vs capital growth - the emphasis here is manly on high yielding properties in small country towns with small populations. How many properties can you buy with cash? Properties with good growth will enable you to build equity quicker and enable you to build a larger portfolio. In my opinion you need a combination of good yield and reasonable growth, because without yield you cannot replace your earned income with passive income, but without growth you can't expand your portfolio. So a combination of good yield with reasonable growth will give the best outcome.", "title": "" }, { "docid": "a2f7ad0541af31f8d8438cfa6e0f8f23", "text": "In less than two decades, more than half of all publicly traded companies have disappeared. There were 7,355 U.S. stocks in November 1997, according to the Center for Research in Security Prices at the University of Chicago’s Booth School of Business. Nowadays, there are fewer than 3,600. A close look at the data helps explain why stock pickers have been underperforming. And the shrinking number of companies should make all investors more skeptical about the market-beating claims of recently trendy strategies. Back in November 1997, there were more than 2,500 small stocks and nearly 4,000 tiny “microcap” stocks, according to CRSP. At the end of 2016, fewer than 1,200 small and just under 1,900 microcap stocks were left. Most of those companies melted away between 2000 and 2012, but the numbers so far show no signs of recovering. Several factors explain the shrinking number of stocks, analysts say, including the regulatory red tape that discourages smaller companies from going and staying public; the flood of venture-capital funding that enables young companies to stay private longer; and the rise of private-equity funds, whose buyouts take shares off the public market. For stock pickers, differentiating among the remaining choices is “an even harder game” than it was when the market consisted of twice as many companies, says Michael Mauboussin, an investment strategist at Credit Suisse in New York who wrote a report this spring titled “The Incredible Shrinking Universe of Stocks.” That’s because the surviving companies tend to be “fewer, bigger, older, more profitable and easier to analyze,” he says — making stock picking much more competitive. Consider small-stock funds. Often, they compare themselves to the Russell 2000, an index of the U.S. stocks ranked 1,001 through 3,000 by total market value. “Twenty years ago, there were over 4,000 stocks smaller” than the inclusion cutoff for the Russell 2000, says Lubos Pastor, a finance professor at the University of Chicago. “That number is down to less than 1,000 today.” So fund managers have far fewer stocks to choose from if they venture outside the index — the very area where the best bargains might be found. More money chasing fewer stocks could lead some fund managers to buy indiscriminately, regardless of value. Eric Cinnamond is a veteran portfolio manager with a solid record of investing in small stocks. Last year, he took the drastic step of shutting down his roughly $400 million mutual fund, Aston/River Road Independent Value, and giving his investors their money back. “Prices got so crazy in small caps, I fired myself,” he says. “My portfolio was 90% in cash at the end, because I couldn’t find anything to buy. If I’d kept investing, I was sure I’d lose people their money.” He adds, “It was the hardest thing I’ve ever done professionally, but I didn’t feel I had a choice. I knew my companies were overvalued.” Mr. Cinnamond hopes to return to the market when, in his view, values become attractive again. He doesn’t expect recent conditions to be permanent. The evaporation of thousands of companies may have one enduring result, however — and it could catch many investors by surprise. Most research on historical returns, points out Mr. Mauboussin, is based on the days when the stock market had twice as many companies as it does today. “Was the population of companies so different then,” he asks, “that the inferences we draw from it might no longer be valid?” So-called factor investing, also known as systematic or smart-beta investing, picks hundreds or thousands of stocks at a time based on common sources of risk and return. Among them: how big companies are, how much their shares fluctuate, how expensive their shares are relative to asset value and so on. But the historical outperformance of many such factors may have been driven largely by the tiniest companies — exactly those that have disappeared from the market in droves. Before concluding that small stocks or cheap “value” stocks will outrace the market as impressively as they did in the past, you should pause to consider how they will perform without the tailwinds from thousands of tiny stocks that no longer exist. The stock market has more than tripled in the past eight years, so the eclipse of so many companies hasn’t been a catastrophe. But it does imply that investing in some of the market’s trendiest strategies might be less profitable in the future than they looked in the past.", "title": "" }, { "docid": "2c2ba8dba2f6f2b1e937ccfc001c4238", "text": "\"In some cases, when a company purchases a minor stake, they often intend to increase the size of the stake over time. As a reference, note that Coca Cola has increased their stake in Green Mountain Coffee Roasters (GMCR) over time. It also adds some \"\"support\"\" to the price because these investors may be willing to step in and purchase the stock if there is any distress or poor performance. Finally, its generally a good \"\"tell\"\" that the stock has good things going for it and may be subject to additional interest from large investors.\"", "title": "" }, { "docid": "1ae7882f2844b494bdcbdeb862fd76c5", "text": "I would recommend using growth/value/income/bond based asset allocation because your goal is to find asset classes that have different performance trends (when 1 is up, the other is down and vice-versa). If you chose Domestic, US stocks and diversified between Med Cap and Large Cap stocks, they would not exactly mirror each other, but they would roughly rise and fall at the same time, preventing you from taking full advantage of diversification, increasing risk and lowering returns.", "title": "" }, { "docid": "e5394b50bb1808b2c811f7e934f56908", "text": "Well lets see... JP Morgan Chase, for example, has a market cap of $118 billion. The U.S. labor force is about 158 million people. So if every working american kicked in about 400 bucks, you'd have enough money to buy a a controlling stake in JPM. Goldman Sachs has a market cap of $44 billion. You could buy a controlling stake in Goldman if every working american threw in about 150 bucks. Of course you'd have to purchase the stock at a large premium if you're trying to gain a controlling stake.", "title": "" }, { "docid": "ae3752c58ec9c85c9a854e12a0c12946", "text": "\"The companies with the highest level of costumers that are able to stay under the limit for fuel will be able to draw the larger Revenue/Expense ratio (or what Obama calls it Profit to Earnings Ratio). This will make it easy for medium size companies to make the most money. Larger companies will still make money but will be \"\"pushed down\"\" because they have to pay that extra tax because they will reach the Cap of the Cap & Trade policy. This doesn't mean Companies with the lowest emissions will have to lowest prices. The larger companies will still have the decent prices. A company may have horrible engines but they don't fly so much they will not hit the cap in the cap & Trade so they wont have to pay that extra tax the larger companies do. So a company may start and grow very fast but once they get big enough they will start slowing down because of the government. Edit: last 2 paragraphs\"", "title": "" }, { "docid": "83ff91d25d43c5069739a553a5a028ad", "text": "It is not so useful because you are applying it to large capital. Think about Theory of Investment Value. It says that you must find undervalued stocks with whatever ratios and metrics. Now think about the reality of a company. For example, if you are waiting KO (The Coca-Cola Company) to be undervalued for buying it, it might be a bad idea because KO is already an international well known company and KO sells its product almost everywhere...so there are not too many opportunities for growth. Even if KO ratios and metrics says it's a good time to buy because it's undervalued, people might not invest on it because KO doesn't have the same potential to grow as 10 years ago. The best chance to grow is demographics. You are better off either buying ETFs monthly for many years (10 minimum) OR find small-cap and mid-cap companies that have the potential to grow plus their ratios indicate they might be undervalued. If you want your investment to work remember this: stock price growth is nothing more than You might ask yourself. What is your investment profile? Agressive? Speculative? Income? Dividends? Capital preservation? If you want something not too risky: ETFs. And not waste too much time. If you want to get more returns, you have to take more risks: find small-cap and mid-companies that are worth. I hope I helped you!", "title": "" }, { "docid": "6b45beb208958f92f06816ae6a8a6035", "text": "\"Market Capitalization is the value the market attributes to the company shares calculated by multiplying the current trading price of these shares by the total amount of shares outstanding. So a company with 100 shares trading at $10 has a market cap of $1000. It is technically not the same as the value of a company (in the sense of how much someone would need to pay to acquire the company), Enterprise value is what you want to determine the net value of a company which is calculated as the market capitalization + company debt (as the acquirer has to take on this debt) - company cash (as the acquirer can pocket this for itself). The exact boundary for when a company belongs to a certain \"\"cap\"\" is up for debate. For a \"\"large cap\"\" a market capitalization of $10 billion+ is usually considered the cutoff (with $100+ billion behemoths being called \"\"mega caps\"\"). Anything between $10 billion and ~$1 billion is considered \"\"mid cap\"\", from ~$1billion to ~$200 million it's called a \"\"small cap\"\" and below $200 million is \"\"nano cap\"\". Worth noting that these boundaries change quite dramatically over time as the overall average market capitalization increases as companies grow, for example in the 80s a company with a market cap of $1 billion would be considered \"\"large cap\"\". The market \"\"determines\"\" what the market cap of company should be based (usually but certainly not always!) on the historical and expected profit a company makes, for a simple example let's say that our $1000 market cap company makes $100 a year, this means that this company's earnings per share is $1. If the company grows to make $200 a year you can reasonably expect the share price to rise from $10 to ~$20 with the corresponding increase in market cap. (this is all extremely simplified of course).\"", "title": "" }, { "docid": "08731cc1aa3d6b5299b0f83c6ebf6b87", "text": "I was looking at NAT and NAO, NAT owns 20% of NAO. They trade opposite each other on the price of oil, low is good for NAT, bad for NAO. In bad times the other company's stock would probably rise, so they could trim excess shares to keep a stable monetary holding. This would create cash in bad times, in good times they could buy more, creating a floor as well for the other.", "title": "" }, { "docid": "64e8dd8b36ad83931c55f3dc479cf037", "text": "Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.", "title": "" } ]	fiqa
30a8474c32287b1df107d426a0b8ff19	How to measure how the Australian dollar is faring independent of the US dollar	[ { "docid": "24cf4e2fb2e9b789ee644ad9cc13f632", "text": "What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency. People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight.", "title": "" }, { "docid": "e5488cb152533b6023509b909b183eec", "text": "If you're interested in slower scale changes, one option is to use indexes that value a common commodity in different currencies such as the Big Mac Index. If a Big Mac costs more in AUD but stays the same in USD, then AUD have gone up.", "title": "" }, { "docid": "9f075fa3ec205b9336e653f38d077aab", "text": "The best answer to your question would to be what the interest rates are like in Australia itself. The Reserve Bank sets the target ‘cash rate’, which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. Decisions regarding the cash rate target are made by the Reserve Bank Board and explained in a media release announcing the decision at 2.30 pm after each Board meeting. (Prior to December 2007, media releases were issued only when the cash rate target was changed.) From Investopedia: How Rates Are Calculated Each central bank's board of directors controls the monetary policy of its country and the short-term prime interest rate that banks use to borrow from each other. When the economy is doing well, interest rates are hiked in order to curb inflation and when times are tough, cut rates to encourage lending and inject money into the economy. Have a look at this from graph from http://www.rba.gov.au/monetary-policy/int-rate-decisions/ I would then go to a website that allows you to compare, graphically, whichever interest rate you want.(Or you could get the raw data and run some analysis, to each his own) FYI, this topic (FX) is incredibly complex and I hope my answer satisfies your needs.Otherwise, talk to a quant. You will need a ton of data inputs to model the entire economy of Australia to try and predict what the central bank will do, which is what people try and do everyday. Best of luck!", "title": "" }, { "docid": "ece3f0159cfff20ed6af0c8782e52e25", "text": "To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.", "title": "" } ]	[ { "docid": "7c5e4cc3f975021d306cac2f5730af64", "text": "It's very simple. Use USDSGD. Here's why: Presenting profits/losses in other currencies or denominations can be useful if you want to sketch out the profit/loss you made due to foreign currency exposure but depending on the audience of your app this may sometimes confuse people (like yourself).", "title": "" }, { "docid": "9073fe66e32efa5077a99658e8e018e5", "text": "What you are asking about is called Interest Rate Parity. Or for a longer explanation the article Interest Rate Parity at Wikipedia. If the US has a rate of say zero, and the rate in Elbonia is 10%, one believes that in a year the exchange rate will be shifted by 10%, i.e. it will take 1.1 unit of their currency to get the dollars one unit did prior. Else, you'd always profit from such FOREX trades. (Disclaimer - I am not claiming this to be true or false, just offering one theory that explains the rate difference effect on future exchange rates.", "title": "" }, { "docid": "67072eec25ab3fc9e4d041e25dfb4f78", "text": "At present, Australia is looking like a good bet. I'll need to find a new job as part of the move. The problem with waiting until after things fall apart to move is that it may no longer be easily possible, and even if it is possible to leave, it may not be possible to take wealth out of the country. It would not surprise me at all for instance, to discover after high double digit inflation starts, that it was difficult to move precious metals out of the country. There is a distinct possibility that the government might choose to seize precious metals even from people not leaving. It wouldn't be the first time in US history that it was illegal for US citizens to own gold and silver (for those owning coins minted after 1933, the government could instead choose to redeem them at face value - i.e., a $20 gold piece for $20).", "title": "" }, { "docid": "65ee28372de3872e9a359166613cfa9a", "text": "Money is no longer backed by gold. It's backed by the faith and credit of the issuing government. A new country,say, will first trade goods for dollars or other currency, so its ownership of gold is irrelevant. Its currency will trade at a value based on supply/demand for that currency. If it's an unstable currency, inflating too quickly, the exchange rate will reflect that as well. More than that your question kind of mixes a number of issues, loosely related. First is the gold question, second, the question of currency exchange rates and they are derived, with an example of a new country. Both interesting, but distinct processes.", "title": "" }, { "docid": "6473d727ce6f8ff477b24768d2c05b49", "text": "\"Option pricing models used by exchanges to calculate settlement prices (premiums) use a volatility measure usually describes as the current actual volatility. This is a historic volatility measure based on standard deviation across a given time period - usually 30 to 90 days. During a trading session, an investor can use the readily available information for a given option to infer the \"\"implied volatility\"\". Presumably you know the option pricing model (Black-Scholes). It is easy to calculate the other variables used in the pricing model - the time value, the strike price, the spot price, the \"\"risk free\"\" interest rate, and anything else I may have forgotten right now. Plug all of these into the model and solve for volatility. This give the \"\"implied volatility\"\", so named because it has been inferred from the current price (bid or offer). Of course, there is no guarantee that the calculated (implied) volatility will match the volatility used by the exchange in their calculation of fair price at settlement on the day (or on the previous day's settlement). Comparing the implied volatility from the previous day's settlement price to the implied volatility of the current price (bid or offer) may give you some measure of the fairness of the quoted price (if there is no perceived change in future volatility). What such a comparison will do is to give you a measure of the degree to which the current market's perception of future volatility has changed over the course of the trading day. So, specific to your question, you do not want to use an annualised measure. The best you can do is compare the implied volatility in the current price to the implied volatility of the previous day's settlement price while at the same time making a subjective judgement about how you see volatility changing in the future and how this has been reflected in the current price.\"", "title": "" }, { "docid": "ae781ef3c03cfe23f54867fc42a17c79", "text": "That goodness here in Australia we don't annualise GDP figures rrom just on individual quarter. That is such a stupid practice. We state the quarterly figure and then add the previous three quarters to calculate the rolling 12 month figure. Makes so much more sense.", "title": "" }, { "docid": "edf7c1457d24618f33e20f3583190f90", "text": "\"It is measured in US dollars. The US cannot just print the money because that would cause inflation. Remember that money is really just a convenient placeholder for the barter system. Creating more money regardless of whether there is more value in the economy (work, resources, etc.) is a very bad idea, and doing so has collapsed the economies of many countries. Debt increasing means that the US owes other countries more money. So yes, they are receiving more money from other countries, but the US has to pay it all back with interest eventually. The US government spends more money than it receives in taxes. To decrease the debt, spending needs to decrease and/or taxes need to increase. Many countries lend to the US. One of the biggest is China. These countries do so because of interest -- the US pays back more money than it gets lent, so the lending countries make a profit. If China suddenly called in all its debt to the US, this would severely damage the world economy. China's biggest trading partner is the US, so it has no interest in harming the US this way; it would harm itself. Additionally, the US would probably refuse to pay it (not to mention that it can't), and then China would lose all the money it \"\"invested\"\" in the US. It would benefit no one.\"", "title": "" }, { "docid": "c293eedb83f25dabcb22559f40ee799b", "text": "\"The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to \"\"buy\"\" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a \"\"basket\"\" of things they produce that another country will want, and a \"\"shopping list\"\" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency.\"", "title": "" }, { "docid": "aa5a64ea84d9be313f4626824d8bf87b", "text": "I successfully used Currency Fair a few times, they seem to cater for both Australia and the UK. If I remember correctly, you can set everything up via Internet. As they explain on their website, first you open an account with them, then you transfer AUD to an Australian bank account that they will give you, then you exchange and transfer the money to your friend on their web page. Usually they are cheaper than PayPal, especially if you have time to play with their exchange by marketplace functionality (not recommended if you just want to do the transfer).", "title": "" }, { "docid": "12f117ba02a58310b9e6628c5a394b76", "text": "Well i'm not saying it will be terrible, i could have said this wrong but it might be terrible. Dollar is not the international currency just in oil but mostly everything. Different countries uses dollar to trade, this is one of the core reasons of US economy being the strongest. US should not be tolerant about this sort of stuff since if this trend continuous it could be disastrous.", "title": "" }, { "docid": "2cfadf29419115e8121eb3e8d6a98577", "text": "First of all, I think I'll clear off some confusion in the topic. The Sterling Ratio is a very simple investment portfolio measurement that fits nicely to the topic of personal finance, although not so much to a foreign exchange trading system. The Sterling Ratio is mainly used in the context of hedge funds to measure its risk-reward ratio for long term investments. To do so, it has been adapted to the following in order to appear more like the Sharpe Ratio: I Suppose this is why you question the Average Largest Draw-down. I'll come back to that later. It's original definition, suggested by the company Deane Sterling Jones, is a little different and perhaps the one you should use if you want to measure your trading system's long term risk-reward ratio, which is as followed: Note: Average Annual Draw-down has to be negative on the above-mentioned formula. This one is very simple to calculate and the one to use if you want to measure any portfolio's long-term results, such an example of a 5 or 10 years period and calculate the average of each years largest drawdown. To answer @Dheer's comment, this specific measurement can also be used in personal investments portfolio, which is considered a topic related to personal finance. Back to the first one, which answers your question. It's used in most cases in investment strategies, such as hedging, not trading systems. By hedging I mean that in these cases long term investments are made in anti-correlated securities to obtain a diversified portfolio with a very stable growth. This one is calculated normally annually because you rely on the Annual Risk-Free Rate. Having that in mind I think you can guess that the Average Largest Drawdown is the average between the Largest/Maximum Drawdown from each security in the portfolio. And this doesn't make sense in a trading system. Example: If you have invested in 5 different securities where we calculated the Largest Draw-down for each, such as represented in the following array: MaxDD[5] = { 0.12, 0.23, 0.06, 0.36, 0.09 }, in this case your Average Largest Draw-down is the average(MaxDD) that equals 0.172 or 17,2% If your portfolio's annual return is 15% and the Risk-free Rate is 10%, your Sterling Ratio SR = (0.15 - 0.10)/0.172, which result to 0.29. The higher the rate better is the risk-reward ratio of your portfolio. I suggest in your case to only use the original Sterling Ratio to calculate your long-term risk-reward, in any other case I suggest looking at the Sharpe and Sortino ratios instead.", "title": "" }, { "docid": "5d0b360de7d5745d006ae345e6072492", "text": "The value of the asset doesn't change just because of the exchange rate change. If a thing (valued in USD) costs USD $1 and USD $1 = CAN $1 (so the thing is also valued CAN $1) today and tomorrow CAN $1 worth USD $0.5 - the thing will continue being worth USD $1. If the thing is valued in CAN $, after the exchange rate change, the thing will be worth USD $2, but will still be valued CAN $1. What you're talking about is price quotes, not value. Price quotes will very quickly reach the value, since any deviation will be used by the traders to make profits on arbitrage. And algo-traders will make it happen much quicker than you can even notice the arbitrage existence.", "title": "" }, { "docid": "a22174c44403030698e39181361ab771", "text": "fx-rate.net offers a AUDUSD exchange rate comparison, which includes paypal: Currencyfair $1.14 Transferwise $ 2.29 Worldremit $ 3.50 Xendpay $ 3.71 Tranzfers $ 5.52 Ukforex $ 7.35 Skrill $ 15.13 Paypal $ 25.77 Kantox $ 27.76 http://fx-rate.net/currency-transfer/?c_input=AUD&cp_input=USD", "title": "" }, { "docid": "2e23c82ab6bb3ab7a9a80b14ade2e0cd", "text": "There's a concept called interest rate parity, which sort of says that you cannot profit on the difference in interest rates. This difference accounts for the predicted movement in exchange rates as well, along with the stability of the currencies.", "title": "" }, { "docid": "4d0385f44412a8f888adc633b39da262", "text": "\"When portfolio positions are reported in percentages, those percentages are relative to the portfolio's base equity. When you start out, that is equal to the cash you have in a portfolio. Later it's the net equity of the portfolio (i.e., how much money you could withdraw if you were to exit all your positions). If you put $5,000 into your account and are long and short 50%, then you are long $2,500 and short $2,500. If it's 100% and -100%, then long and short $5,000. \"\"Leverage\"\" is often computed gross (as if all positions were long). So if you have 100% and -100%, then your broker may say you are \"\"levered 2 to 1.\"\" That is, your gross exposure is twice as large as your underlying base equity.\"", "title": "" } ]	fiqa
1e5143366f7a2525e629744446117e1d	Please help me understand reasons for differences in Government Bond Yields	[ { "docid": "a8223f0b0ca62d0a0e94b73439519834", "text": "\"The real question is what does FT mean by \"\"Eurozone Bond\"\". There is no central European government to issue bonds. What they seem to be quoting is the rate for German Bunds. Germany has a strong economy with a manageable debt load, which means it is a safe Euro denominated investment. Bunds are in high demand across the Eurozone, which drives their price up, and their yield down. Greek 10yr bonds, which are Euro denominated, are yielding over 8%.\"", "title": "" }, { "docid": "aab39fc5fd7ac4fe676e73fe70b167da", "text": "These are yields for the government bonds. EuroZone interest rates are much lower (10 times lower, in fact) than the UK (GBP zone) interest rates. The rates are set by the central banks.", "title": "" } ]	[ { "docid": "34665581461e0a8d5d33457ae25d7895", "text": "The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.", "title": "" }, { "docid": "edfaea8b74131376f39df1847e966ad5", "text": "It's misleading news. Comparing debt levels in nominal terms is completely pointless over a period of more than a few months. The article you responded to quite literally quoted extracts from the article you subsequently posted and explained why they were misleading or incorrect.", "title": "" }, { "docid": "0e6602bd884bae5981aa067b8b0c3763", "text": "\"Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield. Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got \"\"enhanced\"\" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument. Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly. I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual \"\"ease of transacting\"\") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering an excellent alternative to self-directed investors who, looking for ease of trading and increased price transparency, want to practice indexing or active bond trading. However, bond ETFs are suitable for particular strategies. If, for instance, you are looking to create a specific income stream, bond ETFs may not be for you. Be sure to compare your alternatives before investing.\"", "title": "" }, { "docid": "484865bc376aca15ff872884d30cce0a", "text": "The Government doesn't borrow money. It in fact simply prints it. The bond market is used for an advanced way of controlling the demand for this printed money. Think about it logically. Take 2011 for example. The Govt spent $1.7 trillion more than it took in. This is real money that get's credited in to people's bank accounts to purchase real goods and services. Now who purchases the majority of treasuries? The Primary Dealers. What are the Primary Dealers? They are banks. Where do banks get their money? From us. So now put two and two together. When the Govt spends $1.7 trillion and credits our bank accounts, the banking system has $1.7 trillion more. Then that money flows in to pension funds, gets spent in to corporation who then send that money to China for cheap products... and eventually the money spent purchases up Govt securities for investments. We had to physically give China 1 trillion dollars for them to be able to purchase 1 trillion dollars in securities. So it makes sense if you think about how the math works in the real world.", "title": "" }, { "docid": "e72a9e53a04c6d504a9d521f8f8eb891", "text": "Haven't there been examples of governments defaulting, delaying payment and imposing haircuts on investors? Greece and Argentina come to mind. Quite a few Govt have defaulted in the past or were very of default or crisis. Most 3rd world countries or developing countries have under gone stress at some point. Greece was amongst the first example of Developed country going bankrupt. am I not better off if the fund invests solely in AAA corporate bonds, avoiding government bonds? Well that depends. Corporate bonds are not safer than Government Bonds. There have been instances of Corporate bonds not giving the required returns.", "title": "" }, { "docid": "2a0324b0cdfebc89bc0461b5ea87187f", "text": "Yield is the term used to describe how much income the bond will generate if the bond was purchased at a particular moment in time. If I pay $100 for a one year, $100 par value bond that pays 5% interest then the bond yields 5% since I will receive $5 from a $100 investment if I held the bond to maturity. If I pay $90 for the same one year bond then the bond yields 17% since I will receive $15 from a $90 investment if I held the bond to maturity. There are many factors that affect what yield creditors will accept: It is the last bullet that ultimately determines yield. The other factors feed into the creditor’s desire to hold money today versus receiving money in the future. I desire money in my hand more than a promise to receive money in the future. In order to entice me to lend my money someone must offer me an incentive. Thus, they must offer me more money in the future in order for me to part with money I have. A yield curve is a snapshot of the yields for different loan durations. The x-axis is the amount of time left on the bond while the y-axis is the yield. The most cited yield curve is the US treasury curve which displays the yields for loans to the US government. The yield curve changes while bonds are being traded thus it is always a snapshot of a particular moment in time. Short term loans typically have less yield than longer term loans since there is less uncertainty about the near future. Yield curves will flatten or slightly invert when creditors desire to keep their money instead of loaning it out. This can occur because of a sudden disruption in the market that causes uncertainty about the future which leads to an increase in the demand for cash on hand. The US government yield curve should be looked at with some reservation however since there is a very large creditor to the US government that has the ability to loan the government an unlimited amount of funds.", "title": "" }, { "docid": "f4dfadeeefad1c3988f5f9ae9342142f", "text": "Why does selling a bond drive up the yield? The bond will pay back a fixed amount when it comes due. The yield is a comparison of what you pay for the bond and what will be repaid when it matures (assuming no default). Why does the yield go up if the country is economically unstable? If the country's economy is unstable, that increases the chance that they will default and not pay the full value of the bonds when they mature. People are selling them now at a loss instead of waiting for a default later for a greater loss. So if you think Greece is not going to default as it's highly likely a country would completely default, wouldn't it make sense to hold onto the bonds? Only if you also think that they will pay back the full value at maturity. It's possible that they pay some, but not all. It's also possible that they will default. It's also possible that they will get kicked out of the Euro and start printing Drachmas again, and try to pay the bonds back with those which could devalue the bonds through inflation. The market is made of lots of smart people. If they think there are reasons to worry, there probably are. That doesn't mean they can predict the future, it just means that they are pricing the risk with good information. If you are smarter than the herd, by all means, bet against them and buy the bonds now. It can indeed be lucrative if you are right, and they are wrong.", "title": "" }, { "docid": "9419a87ad91b67ff8b186bc3e8ba3e11", "text": "Your question asked about a specific time the yield curve flattened or inverted. There are other times when the yield curve inverted or flattened. You also imply in your question that investors were flocking to long term bonds which lowered their yields. I don't believe this is the case. I believe investors were fleeing from short term bonds causing the yields on short term bonds to rise to meet those of long term bonds. The chart below shows the history of yields on US bonds over time. The shaded areas are where the yield curve flattened or inverted. Notice that after 1982 it is the short term yields that rise sharply to meet or cross the yields on longer term bonds. The yields on longer term bonds move little compared to the movement in yields on the short term bonds. Thus it is investors moving out of short term bonds that cause the yield curve to flatten or invert. These investors are not moving into longer term bonds since the yields on the longer term bonds do not move much at all at these times. In fact, in 2006 the longer term bond market was only 25% of the total US public debt while short term bonds made up 75%. It would take less money to move the yields on longer term bonds than it would on short term bonds yet the longer term yields did not move near as much as short term yields. So why are investors or banks moving out of short term bonds causing their yields to rise? I believe this happens for one of two reasons: they are moving into higher yielding investments or they need to raise cash to cover bad investments. Charts and more information here.", "title": "" }, { "docid": "192c5739c61012360fe2e4aa33adabe8", "text": "The forward curve for gold says little, in my opinion, about the expected price of gold. The Jan 16 price is 7.9% (or so) higher than the Jan 12 price. This reflects the current cost of money, today's low interest rates. When the short rates were 5%, the price 4 years out would be about 20% higher. No magic there. (The site you linked to was in German, so I looked and left. I'm certain if you pulled up the curve for platinum or silver, it would have the identical shape, that 7.9% rise over 4 years.) The yield curve, on the other hand, Is said to provide an indication of the direction of the economy, a steep curve forecasting positive growth.", "title": "" }, { "docid": "731bd197a7cbfbb1f1d38f9348447847", "text": "\"Its because of the economic uncertainty in the world. They are the \"\"risk-free\"\" investment as it is an almost guaranteed return if you exclude inflation and US gov't defaulting. A lot of people are afraid to invest elsewhere given the current economic climate. The yield on bonds is also low due to government intervention. Quantitative easing 1 and 2 and operation twist has forced yield this low, as that is what the government wants.\"", "title": "" }, { "docid": "55a7bd36c545fb5229e6d80425af33a9", "text": "This is a perfect example of why bonds are confusing at first glance. Think about it this way... You buy a 30-year Russian Bond at 4%. An event happens that makes Russia risky to invest in. You want to buy another bond but fuck 4%, you and the rest of the market want 6% to compensate you for the risk. Now let's say you want to sell your 4% bond... Well you're going to have to drop the price of that bond in order for it to appeal to an investor that could go out and get a 6%. On a 30-year bond of that kind, you're looking at about 75% of what you bought it for. So to wrap it up, high bond yields are great for buyers that don't already own them, but bad for sellers who want to get rid of their old ones. It is the opposite intuition as stocks and almost everything else.", "title": "" }, { "docid": "ececac6321b8ffaeba94cd84491d095d", "text": "Public Securities Association Standard Prepayment Model is what the acronym psa stands for. My understanding is that it allows for adjustments in monthly pre-payment amounts, which will then affect the yield of the bond. Not really sure what the most important bond measure would be... but if I had to guess I'd say its the mechanical bond price/ bond yield relationship. Yields go down, prices go up and vice versa.", "title": "" }, { "docid": "acd9a181cdb5204856ef8ff054d77951", "text": "A bond fund has a 5% yield. You can take 1/.05 and think of it as a 20 P/E. I wouldn't, because no one else does, really. An individual bond has a coupon yield, and a YTM, yield to maturity. A bond fund or ETF usually won't have a maturity, only a yield.", "title": "" }, { "docid": "b33cbf727f004a084bf7f74b3a932a74", "text": "\"Bingo, great question. I'm not the original poster, \"\"otherwiseyep\"\", but I am in the economics field (I'm a currency analyst for a Forex broker). I also happen to strongly disagree with his posts on the origin of money. To answer your question: the villagers are forced to use the new notes by their government, which demands that their income taxes be paid with the new currency. This is glossed over by otherwiseyep, which is unfortunate because it misleads people who are new to economics into believing the system of fiat money we have now is natural/emergent (created from the bottom-up) and not enforced from the top-down. Legal tender laws enforced in each nation's courts mean that all contracts can be settled in the local fiat currency, regardless of whether the receiver of the money wants a different currency. These laws (and the income tax) create an artificial \"\"root demand\"\" for the fiat currency, which is what gives it its value. We don't just decide that green paper has value. We are forced to accumulate it by the government. Fiat currencies are not money. We call them money, but in fact they are credit derivatives. Let me explain: A currency's value is inextricably tied to the nation's bond market. When investors buy a nation's bonds, they are loaning that nation money. The investor expects to receive interest payments on the bonds. The interest rate naturally rises as the bonds are perceived to be more-risky, and naturally falls as the bonds are perceived to be less-risky. The risk comes from the fact that governments sometimes get really close to not being able to pay their interest payments. They get into so much debt, and their tax-revenue shrinks as their economy worsens. That drives up the interest rate they must pay when they issue new bonds (ie add debt). So the value of a currency comes from tax revenue (interest payments). If a government misses an interest payment, or doesn't fully pay it, the market considers this a \"\"credit event\"\" and investors sell their bonds and freak out. Selling bonds has the effect of driving interest rates even higher, so it's a vicious cycle. If the government defaults, there's massive deflation because all debt denominated in that currency suddenly skyrockets due to the higher interest rates. This creates a chain of cascading defaults - one person defaults, which leads another person, and another, and so on. Everyone was in debt to everyone else, somewhere along the chain. In order to counteract this deflation (which ultimately leads to the kind of depression you saw in 1930's US), governments will print print print, expanding the credit supply via the banks. So this is what you see happening today - banks are constantly being bailed out all over the Western world, governments are cutting programs to be able to meet their interest payments, and central banks are expanding credit supplies and bailing out their buddies. Real money has ZERO counterparty risk. What is counterparty risk? It's just the risk that the guy who owes you something won't honor his debt. Gold and silver and salt and oil aren't IOU's. So they can be real money.\"", "title": "" }, { "docid": "eb87135e92e9f9687b5bcd31ce84598b", "text": "Option liquidity and underlying liquidity tend to go hand in hand. According to regulation, what kinds of issues can have options even trading are restricted by volume and cost due to registration with the authorities. Studies have shown that the introduction of option trading causes a spike in underlying trading. Market makers and the like can provide more option liquidity if there is more underlying and option liquidity, a reflexive relationship. The cost to provide liquidity is directly related to the cost for liquidity providers to hedge, as evidenced by the bid ask spread. Liquidity providers in option markets prefer to hedge mostly with other options, hedging residual greeks with other assets such as the underlying, volatility, time, interest rates, etc because trading costs are lower since the two offsetting options hedge most of each other out, requiring less trading in the other assets.", "title": "" } ]	fiqa
b1de818dd0adee16bb5f6f3b082d18f4	What is a “fiat” currency? Are there other types of currency?	[ { "docid": "e0c87afa723c17c8aa91a6422fd108b9", "text": "\"A \"\"fiat\"\" currency is non-convertible paper currency that a government establishes as legal tender. Most countries today are using fiat currencies. The rest have currencies pegged (or convertible to) US Dollars (which is a fiat currency). In the past, money was usually based on precious metals such as gold or silver. Until the end of the gold standard, you could theoretically go the the US Treasury with a US Note or Federal Reserve Note and convert the note into a fixed quantity of gold or silver (depending on the note). The US had a bi-metallic currency policy for political reasons, which means that money was backed by both gold and silver.\"", "title": "" }, { "docid": "22d9fea46660e285e4aada3aac03475d", "text": "In short. A fiat currency is money that has value only because (usually) a government says it does. A counter example (non-fiat currency) is a gold coin that has intrinsic value usually because it is made of valuable materials that people would trade goods/services. That is the value comes from what you are holding more than what it represents.", "title": "" }, { "docid": "88dddafea87382ca1c8605c4b9d69ef3", "text": "\"fiat in Latin means \"\"let it be\"\" or \"\"let it happen\"\" - as in \"\"fiat lux!\"\" meaning \"\"let there be light!\"\". Thus, fiat money means money that are created by the government decree - they would be random worthless pieces of paper otherwise, so the government says \"\"let this paper be worth $100\"\" and it becomes $100. Non-fiat money have some value that is beyond declaration - e.g., gold coin has the value of gold that is made of. Since 1971, almost all world currencies are fiat money.\"", "title": "" }, { "docid": "9c08965e5068787af8089dd5516a25b1", "text": "There's two types of categories at play that define currency types - but I think the first is more like what you are after. The first is there are essentially three currency types now recognised - see them described here: http://finance.mapsofworld.com/money/types/ The second is currencies can be categorised by the type of economy from which they are generated (reserve/commodity/etc) - see them described here: http://www.forextraders.com/learn-forex-trading-course/major-currency-pairs.html", "title": "" } ]	[ { "docid": "9ce931d868b678112c38d510efe1c7d3", "text": "\"I think the important fact here is that all of our currencies are Fiat Currencies. So currency technically means nothing, because (as you mentioned) the country could print more any time it wants. Now what makes it useful is the combination of two big things: So I would say, we know they owe us 100 \"\"dollars\"\", and the dollar is just a word we use to represent value. It is not technically worth anything, beyond the fact that the government controls the amount of that currency in circulation and you trust that people still want more of that currency.\"", "title": "" }, { "docid": "3365eaf1af20cd0487b113340fb84876", "text": "First, realize that Wikipedia is written by individuals, just like this board has thousands of members. The two definition were written and edited by different people, most likely. Think Venn diagram. The definition for financial instruments claims that it's the larger set, and securities is contained in a subset. Comparing the two, it seems pretty consistent. Yes, Securities include derivatives. Transferable is close to tradable, although to me tradable implies a market as compared to private transfers. I don't believe there's an opposite, per se, but there's 'other stuff.' My house has value, but is not a security. My coffee cup has no value. Back to the concept of Venn. There aren't really opposites, just items falling outside the set we're discussing. I'd caution, this is a semantic exercise. If you know what you're buying, a stock, a bond, a gold bar, etc, whether it's a financial instrument or security doesn't matter to you.", "title": "" }, { "docid": "39430e9e2b7e42a65b94a9ad0d7d55bf", "text": "\"Correct! But this is only true when a central bank is involved. So if there's a single institution that has a territorial monopoly on the production of money (and competing currencies aren't allowed via \"\"legal tender laws\"\"), then the debt-based money system OP describes isn't actually the system being used. That's the problem with his post: he's trying to make it seem like our current system of fiat currencies is somehow natural or emergent. It's not. What we have now is the result of a legal monopoly.\"", "title": "" }, { "docid": "dfc83f88b6585b59ac0a6f5dd80350e4", "text": "\"No money is gone. The movement of the existing currency has slowed down. Currency moves through the economy through deposits or loans to banks, and withdrawal from banks as proceeds from loans or return of deposits. When a bank makes a loan they provide a balance in a bank account, which isn't converted to hard currency until withdrawn. So those bank loans essentially count as currency, and thus effectively multiply the stock of currency available. Deposits into money market funds, and those funds loans into the commercial paper markets, have the same effect. Banks and money funds are now making fewer loans. In particular they are not funding \"\"companies\"\" that invested in securitizations of home mortgages and credit card receivables, but they are also lending less to businesses and consumers. Because they are lending less they are \"\"effectively multiplying\"\" the currency less. Think of deposited and lent currency as spare cycles on a desktop computer. You let your computer help decipher the genome when you aren't using it yourself. If you somehow feared that you would lose those cycles, slowing down your own computing, you would be less likely to lend those cycles out. There would still be the same number of computing cycles in the world, but the stock of those available for actual computing would appear to be diminished. The technical term for this concept is \"\"monetary velocity\"\" and it is a crucial factor in determing the level of overall economic activity, banking stability, and inflation.\"", "title": "" }, { "docid": "05314110242eda6406d27e495479cf4a", "text": "I asked a followup question on the Islam site. The issue with Islam seems to be that exchanging money for other money is 'riba' (roughly speaking usury). There are different opinions, but it seems that in general exchanging money for 'something else' is fine, but exchanging money for other money is forbidden. The physicality of either the things or the money is not relevant (though again, opinions may differ). It's allowed to buy a piece of software for download, even though nothing physical is ever bought. Speculating on currency is therefore forbidden, and that's true whether or not a pile of banknotes gets moved around at any point. But that's my interpretation of what was said on the Islam site. I'm sure they would answer more detailed questions.", "title": "" }, { "docid": "a857c7fd17b6e619da8d93a365390bd1", "text": "The fiat currency is the basis for currency markets - that is, currency that is not made of precious metals. The factors that influence what the value of a fiat currency are the state of the country's economy, what the gov't says the value should be, their fiscal policies, as well as what the currency is trading at. And what the currency is trading at is a product of these factors as well as the typical factors which would affect any stock trading. eHow has a great outline, here, which describes them.", "title": "" }, { "docid": "16cecbb5ce2237da0e81f24872f80020", "text": "\"Keep in mind that not every currency is \"\"tradeable\"\", i.e.: convertible. In fact, neither the Brazilian nor the Thai currencies are fully convertible, and the trading with them may be limited. There are 17 fully convertible currencies currently in the word, you can find the list here.\"", "title": "" }, { "docid": "1b8b1ccf5da9d12db5f771d27f4f5d92", "text": "Echoing JohnF, and assuming you mean the physical, rather than abstract meaning of money? The abstract concept obviously isn't replaced (unless the currency is discredited, or like the creation of the Euro which saw local currencies abandoned). The actual bits of paper are regularly collected, shredded (into itty-bitty-bits) and destroyed. Coinage tends to last a lot longer, but it also collected and melted down eventually. Depends on the country, though. No doubt, many people who took a gap year to go travelling in points diverse came across countries where the money is a sort of brown-grey smudge you hold with care in thick wadges. The more modern economies replace paper money on a dedicated cycle (around three years according to Wikipedia, anyway).", "title": "" }, { "docid": "37cce47a1ca4680ec6b7e86a5aac1343", "text": "AFAIK money is a fiat currency. The penny is only worth what the US government says it it worth. If I choose to have my coin material made into pennies then I face an opportunity cost because I could of used that copper elsewhere. If a penny worth of copper is worth 1.8 cents and I choose to make it into a a coin with a value of 1 cent then my opportunity cost is .8 cents. The whole point of a fiat currency is to take the actual material value of the money out of the equation. A gold coin back before fiat currencies was worth its weight in gold. This would be like saying that you are going to nominally change the value of your gold coin into a coin worth half of its weight. Its weight(value) is equal to 1 gold coin but its spending power is equal to 1/2 a gold coin. Do you lose value? Of course not. Do you lose spending power? YES Fiat currency is all about spending power, the value is fictional. When I make the spending power less than the value the purpose of a fiat currency breaks down.", "title": "" }, { "docid": "890e8e0a93a34ffc61874715ecaac7a2", "text": "\"You say you want a more \"\"stable\"\" system. Recall from your introductory economics courses that money has three roles: a medium of exchange (here is $, give me goods), a unit of account (you owe me $; the business made $ last year), and a store of value (I have saved $ for the future!). I assume that you are mostly concerned with the store-of-value role being eroded due to inflation. But first consider that most people still want regular currency, so as a medium of exchange or accounting unit anything would face an uphill battle. If you discard that role for your currency, and only want to store value with it, you could just buy equities and commodities and baskets of currencies and debt in a brokerage account (possibly using mutual funds) to store your value. Trillions of dollars' worth of business takes place this way every year already. Virtual currency was a bit of a dot-com bubble thing. The systems which didn't go completely bust and are still around have been beset by money-laundering, and otherwise remain largely an ignored niche. An online fiat currency has the same basic problem that another currency has. You need to trust the central bank not to create more money and cause inflation (or even just abscond with the funds... or go bankrupt / get sued). Perhaps the Federal Reserve may be jerking us around on that front right now.... they're still a lot more believable than a small private institution. Some banks might possibly be trustworthy enough to launch a currency, but it's hard to see why they'd bother (it can't be a big profit center, because people aren't willing to pay too much to just use money.) And an online currency that's backed by commodities (e.g. gold) is going to be subject to potentially violent swings in the prices of commodities. Imagine getting a loan out for your house, denominated in terms of e-gold, and then the price of gold triples. Ouch?\"", "title": "" }, { "docid": "1951fc9ac20beeb7cd1e29922454d7ce", "text": "\"Forex. I will employ my skill for \"\"suspension of disbelief\"\" and answer with no visceral reaction to Bitcoin itself. The Euro is not an 'investment.' It's a currency. People trade currencies in order to capture relative movements between pairs of currencies. Unlike stocks, that have an underlying business and potential for growth (or failure, of course) a currency trade is a zero sum game, two people on opposite sides of a bet. Bitcoin has no underlying asset either, no stock, no commodity. It trades, de facto, like a currency, and for purposes of objective classification, it would be considered a currency, and held similar to any Forex position.\"", "title": "" }, { "docid": "e3ed55129604b4bd007883097e75dc2f", "text": "\"The benefit of having gold to trade is that there is almost always someone that will take gold when the fiat currency is in trouble. The potential downfall of doing this is that when people think the fiat currency is in trouble, they tend to buy up gold, thus driving up the price. This means that you get less gold for each hour of work you perform (deer-haunch, basket of apples, etc.). Even more, if the financial crisis is limited to only one fiat currency, you have a situation where that fiat currency devalues but others can gain in value as people try to sell their old currency for the new standard currency. If people also sell their gold to buy up this currency, that lowers the price of gold in that currency. For example, let us assume that gold was 1000 dollars an ounce and 1000 euros an ounce. Suddenly, people start thinking that the euro is in trouble, so they start buying gold. The law of supply and demand kicks in (more buyers, same supply, so higher prices) and gold is suddenly worth 2000 dollars and 2000 euros an ounce. If you start buying at this point, you get half as much gold as the person who bought in the beginning. Suddenly, the euro collapses. Stores that used to take euros start demanding dollars. Suddenly, it costs 20,000 euros for an ounce of gold but an ounce of gold will only get you 1,000 dollars since everyone is selling their gold to get dollars. The people who buy gold in the \"\"panic\"\" end up losing half the value of their money if not more. The \"\"speculators\"\" that bought gold at $1,000, sold it at $2,000, and bought it back at $1,000 now have all their gold back plus the $1,000 the other people lost.\"", "title": "" }, { "docid": "aeaed7656b849572a06fdfc76899b390", "text": "\"Arbitrage is basically taking advantage of a difference in price. Generally extending to \"\"in different places for the same thing\"\". A monetary version would be interlisted stocks, that is stocks in companies that are on both the NYSE/Nasdaq and Toronto stock exchanges. If somebody comes along and buys a large number of shares in Toronto, that will tend to make the price go up - standard supply and demand. But if someone else can buy shares instead in NY, and then sell them in Toronto where the first person is buying up shares, where the price is higher, they the the arbitrageur (second person) can make pretty easy money. By its very nature, this tends to bring the prices back in line, as NY will then go up and Toronto will then go down (ignoring FX rates and the like for ease of explanation). The same can work for physical goods, although it does tend to get more complex with taxes, duties, and the like.\"", "title": "" }, { "docid": "379efa836cc7a4c7502ea05e87ecfafc", "text": "Currencies don't have intrinsic value. Just because you have to pay taxes in USD does not mean it has intrinsic value. The government could theoretically switch currency every second, not that that will ever happen. But yes the USD is supported by the US government and that's like a safety net for the value of the USD. Bitcoin doesn't have a government accepting bitcoin in taxes (except maybe liberland or something) so BTC doesn't have that safenet. But with such a liquid market and millions of buyorders bitcoin doesn't really need a safenet. There will always be demand. I prefer a scarce currency with growing demand than an inflationary currency backed by a corrupt government that loses value over time.", "title": "" }, { "docid": "fbca77f91a3bfecbbbdc58c5647c8e10", "text": "My local credit Union has insured IRA accounts or IRA certificates that get the same low interest rates that non-IRA accounts receive. They get NCUA insurance, which is the equivalence of FDIC insurance.", "title": "" } ]	fiqa
93ad3697f4c026803a5a71d048558726	Are there any hedged international funds in India?	[ { "docid": "ec5f6ab9304f1ac4a350e7eae49c1f3d", "text": "No there aren't any such funds.", "title": "" }, { "docid": "0ca8c9cd5fd73338e945a55f35705d55", "text": "There aren't and for a good reason. The long term trend of INR against USD, GBP, EUR and other harder currencies is down. Given the inflation differential between these economies and India's, fund managers and investors should expect this to continue. Therefore, if you are invested for any reasonable length of time, you would expect the forex movements to add to your returns. Historically, this has been true of international funds run in India.", "title": "" } ]	[ { "docid": "6bd346754f623a2f8c5d2724de8b9e26", "text": "Use a currency ETF. there are many. Specific to your question there is WisdomTree Dreyfus Brazilian Real Fund (BZF) I don't happen to find a currency ETF for Thailand, so the closest you could come to a Thai currency fund would be something that's an Index fund ETF that is based on an index in the Thai Market such as: MSCI Thailand Investable Market Index Fund Because that fund is investing in an index of stocks that trade on the Thai market, you are in effect investing in something denominated in Baht. This is spelled out in the prospectus where it discusses 'currency risk'. The problem is that you are however not investing in just the currency, but rather a broad index of stocks denominated in that currency. Still to the extent the market holds fairly steady, you get much the same effect of investing in just the currency. to the extent the market is moving, you get the net effect of what the thai market does, plus how the bhat trades relative to the dollar.", "title": "" }, { "docid": "e3fa2633eeeb6e8ba6822a96a3e32b19", "text": "I don't think it makes sense to invest in an FD since. 1.) A 30 day FD is not very likely to give you 8-9% 2.) Inflation is so high in India that your losing money even though you think that you are doing well enough. I would suggest you to expect a larger return and try hedging your portfolio correctly. For example you can buy a stock which is likely to go higher, and to limit your risks, you can buy a put option on the same stock, so even if the price falls drastically, you can exercise your option and not lose anything except for the premium you paid. Good luck:)", "title": "" }, { "docid": "5b1cf704ce16e9fd7760049709f62754", "text": "I am assuming you are an NRI from tax perspective. Any income NRI earns is non-taxable in India. It is irrelevant whether the funds were transferred to India or not and whether they were transferred to NRO or NRE account is not relevant.", "title": "" }, { "docid": "4bb3abcd14a58afbb8f891284510f413", "text": "We face the same issue here in Switzerland. My background: Institutional investment management, currency risk management. My thoughs are: Home Bias is the core concept of your quesiton. You will find many research papers on this topic. The main problems with a high home bias is that the investment universe in your small local investment market is usually geared toward your coutries large corporations. Lack of diversification: In your case: the ASX top 4 are all financials, actually banks, making up almost 25% of the index. I would expect the bond market to be similarly concentrated but I dont know. In a portfolio context, this is certainly a negative. Liquidity: A smaller economy obviously has less large corporations when compared globally (check wikipedia / List_of_public_corporations_by_market_capitalization) thereby offering lower liquidity and a smaller investment universe. Currency Risk: I like your point on not taking a stance on FX. This simplifies the task to find a hedge ratio that minimises portfolio volatility when investing internationally and dealing with currencies. For equities, you would usually find that a hedge ratio anywhere from 0-30% is effective and for bonds one that ranges from 80-100%. The reason is that in an equity portfolio, currency risk contributes less to overall volatility than in a bond portfolio. Therefore you will need to hedge less to achieve the lowest possible risk. Interestingly, from a global perspective, we find, that the AUD is a special case whereby, if you hedge the AUD you actually increase total portfolio risk. Maybe it has to do with the AUD being used in carry trades a lot, but that is a wild guess. Hedged share classes: You could buy the currency hedged shared classes of investment funds to invest globally without taking currency risks. Be careful to read exactly what and how the share class implements its currency hedging though.", "title": "" }, { "docid": "5b81e74bb215f0e6fac9214327575e07", "text": "\"I do not know anything about retail investing in India, since I am in the US. However, there are a couple of general things to keep in mind about gold that should be largely independent of country. First, gold is not an investment. Aside from a few industrial uses, it has no productive value. It is, at best, a hedge against inflation, since many people feel more comfortable with what they consider \"\"real\"\" money that is not subject to what seems to be arbitrary creation by central banks. Second, buying tiny amounts of gold as coin or bullion from a retail dealer will always involve a fairly significant spread from the commodity spot price. The spot price only applies to large transactions. Retail dealers have costs of doing business that necessitate these fees in order for them to make a profit. You must also consider the costs of storing your gold in a way that mitigates the risk of theft. (The comment by NL7 is on this point. It appeared while I was typing this answer.) You might find this Planet Money piece instructive on the process, costs, and risks of buying gold bullion (in the US). If you feel that you must own gold as an inflation hedge, and it is possible for residents of India, you would be best off with some kind of gold fund that tracks the price of bullion.\"", "title": "" }, { "docid": "bd6a726a6f23cd45a2d2da303a63e4fa", "text": "I worked for a company who managed money for Braeburn. They are managed more like a foundation than a hedge fund. They invested in a fixed income separate account. Yes, they definitely try to avoid taxes as the entity was domiciled in a Ireland and their offices were in Reno. The goal of Braeburn is to maintain that huge amount of cash on the balance. avoiding taxes is an efficient way to do that.", "title": "" }, { "docid": "33699ea0773d2f8560dc187dfcf52425", "text": "India does allow Resident Indians to open USD accounts. Most leading National and Private Banks offer this. You can receive funds and send funds subject to some norms.", "title": "" }, { "docid": "f9fc41103a1d03cb7e5841103a6bc8f8", "text": "A hedge fund is such a broad term as to not mean anything in practice. What do you find interesting in finance? Research that, understand that. Then go find the guys who are doing that and ask for a job and take it regardless of how much money it offers. The money is the yardstick, not the goal", "title": "" }, { "docid": "66dbe5aa78abf16b575a49b7483f9b3b", "text": "Yes it is viable but uncommon. As with everything to do with investment, you have to know what you are doing and must have a plan. I have been successful with long term trading of CFDs for about 4 years now. It is true that the cost of financing to hold positions long term cuts into profits but so do the spreads when you trade frequently. What I have found works well for me is maintaining a portfolio that is low volatility, (e.g. picking a mix of positions that are negatively correlated) has a good sharpe ratio, sound fundamentals (i.e. co-integrated assets - or at least fairly stable correlations) then leveraging a modest amount.", "title": "" }, { "docid": "5f9f12283747233c77cd51b2d3cbe33c", "text": "France taxes capital / dividend gains accrued in France. Hence you will not be able to reduce this liability. India does have a Double Tax Avoidance Treaty with France and you can claim relief for the tax paid in France.", "title": "" }, { "docid": "59f0fb24483bf24e45448509eb2c3850", "text": "\"Even though \"\"when the U.S. sneezes Canada catches a cold\"\", I would suggest considering a look at Canadian government bonds as both a currency hedge, and for the safety of principal — of course, in terms of CAD, not USD. We like to boast that Canada fared relatively better (PDF) during the economic crisis than many other advanced economies, and our government debt is often rated higher than U.S. government debt. That being said, as a Canadian, I am biased. For what it's worth, here's the more general strategy: Recognize that you will be accepting some currency risk (in addition to the sovereign risks) in such an approach. Consistent with your ETF approach, there do exist a class of \"\"international treasury bond\"\" ETFs, holding short-term foreign government bonds, but their holdings won't necessarily match the criteria I laid out – although they'll have wider diversification than if you invested in specific countries separately.\"", "title": "" }, { "docid": "b4b354080dc85234776d08425d237976", "text": "Your definition of 'outside your country' might need some redefinition, as there are three different things going on here . . . Your financial adviser appears to be highlighting the currency risk associated with point three. However, consider these risk scenarios . . . A) Your country enters a period of severe financial difficulty, and money markets shut down. Your brokerage becomes insolvent, and your investments are lost. In this scenario the fact of whether your investments were in an overseas index such as the S&P, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigated this scenario is an account with an overseas broker. B) Your country's stock market enters a sustained and deep bear market, decimating the value of shares in its companies. In this scenario the fact of whether your investments were made in from a brokerage overseas, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigate this scenario is investment in shares and indices outside your home country. Your adviser has a good point; as long as you intend to enjoy your retirement in your home country then it might be advisable to remove currency risk by holding an account in Rupees. However, you might like to consider reducing the other forms of risk by holding non-Indian securities to create a globally diversified portfolio, and also placing some of your capital in an account with a broker outside your home country (this may be very difficult to do in practice).", "title": "" }, { "docid": "02c8e697d20dcb9d21f4bc92bce2ac16", "text": "With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex trading for select currency pair [with one leg in INR] is allowed. Ex USDINR, EURINR, JPYINR, GBPINR. Forex trading for pairs without INR or not in the above list is NOT allowed.", "title": "" }, { "docid": "704b6900ee772c3bc8f88707d1921036", "text": "I'm not a professional, but my understanding is that US funds are not considered PFICs regardless of the fact that they are held in a foreign brokerage account. In addition, be aware that foreign stocks are not considered PFICs (although foreign ETFs may be).", "title": "" }, { "docid": "4d97de87747b20be3588bd3f49e8a1e5", "text": "There's a lot of foreign small and big businesses - as well as foreign individuals - that would love to invest in India. But they can't because of the strict regulations and outright prohibitions on foreigners. And instead of tearing down barriers to entry, Indian government is introducing more protectionist measures (as cheap goods come from China and Indian businesses can't compete despite cheaper labor force.) I don't know the answer to India's problems. I don't know what's going to happen. But I agree with the Infosys guy: India is no China and will not see that sort of success anytime soon. Sure, India is gaining ground every year, but to even catch up to China of today, it is going to take decades.", "title": "" } ]	fiqa
ad9683f572cbdb74889527e045e59e8c	How to rebalance a passive portfolio if I speculate a war is coming?	[ { "docid": "119329bb0d7d3ba1276201a248f9738b", "text": "At a risk of stating the obvious: a passive portfolio doesn't try to speculate on such matters.", "title": "" }, { "docid": "16bb013ce7ff372456293c42092fc655", "text": "Normally, in a war everybody suffers and the entire economy goes down. Military contractors do better than average, but the average sucks. The way to take advantage of knowing a war is coming is to leave as soon as possible. There are strategic materials that can become valuable in a war, but such investments are generally very specialized and not something an ordinary investor would be in a position to exploit. The most profitable businesses in war are food, oil, and ammunition.", "title": "" } ]	[ { "docid": "27956ee0d314fb8c8e1a361b3b04ae07", "text": "I would say your decision making is reasonable. You are in the middle of Brexit and nobody knows what that means. Civil society in the United States is very strained at the moment. The one seeming source of stability in Europe, Germany, may end up with a very weakened government. The only country that is probably stable is China and it has weak protections for foreign investors. Law precedes economics, even though economics often ends up dictating the law in the long run. The only thing that may come to mind is doing two things differently. The first is mentally dropping the long-term versus short-term dichotomy and instead think in terms of the types of risks an investment is exposed to, such as currency risk, political risk, liquidity risk and so forth. Maturity risk is just one type of risk. The second is to consider taking some types of risks that are hedged either by put contracts to limit the downside loss, or consider buying longer-dated call contracts using a small percentage of your money. If the underlying price falls, then the call contracts will be a total loss, but if the price increases then you will receive most of the increase (minus the premium). If you are uncomfortable purchasing individual assets directly, then I would say you are probably doing everything that you reasonably can do.", "title": "" }, { "docid": "59ee99fc3853372dbb802b2e295679f8", "text": "Dummy example to explain this. Suppose your portfolio contained just two securities; a thirty year US government bond and a Tesla stock. Both of those position are currently valued at $1mm. The Tesla position however is very volatile with its daily volatility being about 5% (based on the standard deviation of its daily return) whole there bond's daily volatility is 1%. Then the Tesla position is 5/6 of your risk while being only 1/2 of the portfolio. Now if in month the Tesla stock tanks to half is values then. Then it's risk is half as much as before and so it's total contribution to risk has gone down.", "title": "" }, { "docid": "80923207a6f183be4e8cc88ae83b06f9", "text": "Here is a simple example of how daily leverage fails, when applied over periods longer than a day. It is specifically adjusted to be more extreme than the actual market so you can see the effects more readily. You buy a daily leveraged fund and the index is at 1000. Suddenly the market goes crazy, and goes up to 2000 - a 100% gain! Because you have a 2x ETF, you will find your return to be somewhere near 200% (if the ETF did its job). Then tomorrow it goes back to normal and falls back down to 1000. This is a fall of 50%. If your ETF did its job, you should find your loss is somewhere near twice that: 100%. You have wiped out all your money. Forever. You lose. :) The stock market does not, in practice, make jumps that huge in a single day. But it does go up and down, not just up, and if you're doing a daily leveraged ETF, your money will be gradually eroded. It doesn't matter whether it's 2x leveraged or 8x leveraged or inverse (-1x) or anything else. Do the math, get some historical data, run some simulations. You're right that it is possible to beat the market using a 2x ETF, in the short run. But the longer you hold the stock, the more ups and downs you experience along the way, and the more opportunity your money has to decay. If you really want to double your exposure to the market over the intermediate term, borrow the money yourself. This is why they invented the margin account: Your broker will essentially give you a loan using your existing portfolio as collateral. You can then invest the borrowed money, increasing your exposure even more. Alternatively, if you have existing assets like, say, a house, you can take out a mortgage on it and invest the proceeds. (This isn't necessarily a good idea, but it's not really worse than a margin account; investing with borrowed money is investing with borrowed money, and you might get a better interest rate. Actually, a lot of rich people who could pay off their mortgages don't, and invest the money instead, and keep the tax deduction for mortgage interest. But I digress.) Remember that assets shrink; liabilities (loans) never shrink. If you really want to double your return over the long term, invest twice as much money.", "title": "" }, { "docid": "04a2944916adb2fe6a9cff9211f515d9", "text": "Yes, rebalancing with new money avoids capital gains taxes and loads (although if you're financially literate enough to be thinking about rebalancing techniques, I'm surprised to hear that you're invested in funds with loads). On the other hand, if it's taking you years to rebalance, then: (a) you are not rebalancing anywhere near frequently enough. Rebalancing should be something you do every 6 months or 1 year, such that it would take only a few weeks or maybe a month of new investment to get back in balance. (b) you will be out-of-balance for quite a long time, while the whole point of the theory of rebalancing is to always be mathematically prepared for swings in the market. Any time spent out of balance represents that much more risk that an unexpected market move can seriously hurt your portfolio. You should weigh the time it will take you to rebalance the long way (i.e. the risk cost of not rebalancing immediately) vs. the taxes and fees involved in rebalancing quickly. If you had said that it would take you only a couple weeks or a month to rebalance the long way, I would say that the long way is fine. But the prospect of spending years without a balanced portfolio seems far more costly to me than any expenses you might incur rebalancing quickly. Since it's almost the end of the calendar year, have you considered doing two quick rebalances, one this year, and another in January? That way half of the tax consequences would happen in April, and the other half not until the next April, giving you plenty of time to scrounge up the money. Also, even if you have no capital losses this year with which to offset some of your expected capital gains, you would have all of next year to harvest some losses against next year's half of the rebalancing gains.", "title": "" }, { "docid": "6550eb8b1f267dd995068f20e63ae48f", "text": "My super fund and I would say many other funds give you one free switch of strategies per year. Some suggest you should change from high growth option to a more balance option once you are say about 10 to 15 years from retirement, and then change to a more capital guaranteed option a few years from retirement. This is a more passive approach and has benefits as well as disadvantages. The benefit is that there is not much work involved, you just change your investment option based on your life stage, 2 to 3 times during your lifetime. This allows you to take more risk when you are young to aim for higher returns, take a balanced approach with moderate risk and returns during the middle part of your working life, and take less risk with lower returns (above inflation) during the latter part of your working life. A possible disadvantage of this strategy is you may be in the higher risk/ higher growth option during a market correction and then change to a more balanced option just when the market starts to pick up again. So your funds will be hit with large losses whilst the market is in retreat and just when things look to be getting better you change to a more balanced portfolio and miss out on the big gains. A second more active approach would be to track the market and change investment option as the market changes. One approach which shouldn't take much time is to track the index such as the ASX200 (if you investment option is mainly invested in the Australian stock market) with a 200 day Simple Moving Average (SMA). The concept is that if the index crosses above the 200 day SMA the market is bullish and if it crosses below it is bearish. See the chart below: This strategy will work well when the market is trending up or down but not very well when the market is going sideways, as you will be changing from aggressive to balanced and back too often. Possibly a more appropriate option would be a combination of the two. Use the first passive approach to change investment option from aggressive to balanced to capital guaranteed with your life stages, however use the second active approach to time the change. For example, if you were say in your late 40s now and were looking to change from aggressive to balanced in the near future, you could wait until the ASX200 crosses below the 200 day SMA before making the change. This way you could capture the majority of the uptrend (which could go on for years) before changing from the high growth/aggressive option to the balanced option. If you where after more control over your superannuation assets another option open to you is to start a SMSF, however I would recommend having at least $300K to $400K in assets before starting a SMSF, or else the annual costs would be too high as a percentage of your total super assets.", "title": "" }, { "docid": "67f92908515289320624d7c88b6ad245", "text": "I'v actually heard of this before, the idea is that you gamble across the spread. Most of these have a place in a risky asset class in portfolios. Think of it as the little bit of crack you do on the side of your vanilla life.", "title": "" }, { "docid": "3f9e5de579b5f93a6f62a45d4bce105d", "text": "\"You should establish a strategy -- eg a specific mix of investments/funds which has the long-term tradeofv of risk, returns, and diversification you want -- and stick to that strategy, rebalancing periodically to maintain your strategic ratios betwedn those investments. Yes, that means you will somettimes sell things that have been doing well and buy others that have been doing less well -- but that's to be expected; it's exactly what happens when you \"\"buy low, sell high\"\".\"", "title": "" }, { "docid": "17cee3ebfdac8768670d920046c52595", "text": "You're wise to consider mitigating risks considering your age and portfolio size, but 'in' and 'out' are so reductive and binary. Why not be both? Leave some in and let it ride, providing growth but taking risk. Put some in bonds, where it'll earn more than cash and maybe zig when stocks zag. I applaud you for calling the last two crashes, but remember: a lot of people called them. Jeremy Bentham called the dot com bubble years in advance - of course, he got out too early, and the investors in his funds suffered for it. Timing means getting the sell and the buy right, which very few can do. Hence my advice to hold a balanced portfolio or if you really do have the golden touch make use of that ability and get rich - no need to work a 9 to 5 if you can call market crashes accurately.", "title": "" }, { "docid": "3d1babfc30d5ff74831c9c3ab4156b3c", "text": "\"If you want to make a profit from long term trading (whatever \"\"long term\"\" means for you), the best strategy is to let the good performers in your portfolio run, and cull the bad ones. Of course that strategy is hard to follow, unless you have the perfect foresight to know exactly how long your best performing investments will continue to outperform the market, but markets don't always follow the assumption that perfect information is available to all participants, and hence \"\"momentum\"\" has a real-world effect on prices, whether or not some theorists have chosen to ignore it. But a fixed strategy of \"\"daily rebalancing\"\" does exactly the opposite of the above - it continuously reduces the holdings of good performers and increases the holdings of bad. If this type of rebalancing is done more frequently than the constituents of benchmark index are adjusted, it is very likely to underperform the index in the long term. Other issues in a \"\"real world\"\" market are the impact of increased dealing costs on smaller parcels of securities, and the buy/sell spreads incurred in the daily rebalancing trades. If the market is up and down 1% on alternate days with no long tern trend, quite likely the fund will be repeatedly buying and selling small parcels of the same stocks to do its daily balancing.\"", "title": "" }, { "docid": "371c1e838f63884778df632c1758dce0", "text": "Considering the historical political instability of your nation, real property may have higher risk than normal. In times of political strife, real estate plummets, precisely when the money's needed. At worst, the property may be seized by the next government. Also, keeping the money within the country is even more risky because bank accounts are normally looted by either the entering gov't or exiting one. The safest long run strategy with the most potential for your family is to get the money out into various stable nations with good history of protecting foreign investors such as Switzerland, the United States, and Hong Kong. Once out, the highest expected return can be expected from internationally diversified equities; however, it should be known that the value will be very variant year to year.", "title": "" }, { "docid": "45856bc2be034a008457fdc32d73a8dc", "text": "A strategy of rebalancing assumes that the business cycle will continue, that all bull and bear markets end eventually. Imagine that you maintained a 50% split between a US Treasury bond mutual fund (VUSTX) and an S&P 500 stock mutual fund (VFINX) beginning with a $10,000 investment in each on January 1, 2008, then on the first of each year you rebalanced your portfolio on the first of January (we can pretend the markets are open that day). The following table illustrates the values in each of those funds with the rebalancing transactions: This second table shows what that same money would look like without any rebalancing over those years: Obviously this is cherry-picking for the biggest drop we've recently experienced, but even if you skipped 2008 and 2009, the increase for a rebalanced portfolio from 2010-2017 is 85% verses 54% for the portfolio that is not being rebalanced in the same period. This is also a plenty conservative portfolio. You can see that a 100% stock portfolio dropped 40% in 2008, but the combined portfolio only dropped 18%. A 100% stock portfolio has gained 175% since 2009, compared to 105% for the balanced portfolio, but it's common to trade gains for safety as you get closer to retirement. You didn't ask about a 100% stock portfolio in your initial question. These results would be repeated in many other portfolio allocations because some asset classes outperform others one year, then underperform the next. You sell after the years it outperforms, then you buy after years that it underperforms.", "title": "" }, { "docid": "a60e5b4f3373df169d9c71b7bff93859", "text": "It is a dangerous policy not to have a balance across the terms of assets. Short term reserves should remain in short term investments because they are most likely needed in the short term. The amount can be shaved according to the probability of their respective needs, but long term asset variance usually exceed the probability of needing to use reserves. For example, replacing one month bonds paying essentially nothing with stocks that should be expected to return 9% will expose oneself to a possible sudden 50% loss. If cash is indeed so abundant that reserves can be doubled, this policy can be expected to be stable; however, cash is normally scarce. It is a risky policy to place reserves that have a 20% chance of being 100% liquidated into investments that have a 20% chance of declining by approximately 50% just for a chance of an extra 9% annual return. Financial stability should always be of primary concern with rate of return secondary only after stability has been reasonably assured.", "title": "" }, { "docid": "fdf6d44b9b633d26c622da16169598a4", "text": "They can rebalance and often times at a random manager's discretion. ETF's are just funds, and funds all have their own conditions, read the prospectus, thats the only source of truth.", "title": "" }, { "docid": "cb4539d14a460c05bbedaebb6a7be667", "text": "Trying to engage in arbitrage with the metal in nickels (which was actually worth more than a nickel already, last I checked) is cute but illegal, and would be more effective at an industrial scale anyway (I don't think you could make it cost-effective at an individual level). There are more effective inflation hedges than nickels and booze. Some of them even earn you interest. You could at least consider a more traditional commodities play - it's certainly a popular strategy these days. A lot of people shoot for gold, as it's a traditional hedge in a crisis, but there are concerns that particular market is overheated, so you might consider alternatives to that. Normal equities (i.e. the stock market) usually work out okay in an inflationary environment, and can earn you a return as they're doing so.... and it's not like commodities aren't volatile and subject to the whims of the world economy too. TIPs (inflation-indexed Treasury bonds) are another option with less risk, but also a weaker return (and still have interest rate risks involved, since those aren't directly tied to inflation either).", "title": "" }, { "docid": "6f5601bc847b9b759754505aebe97c44", "text": "Unfortunately I believe there is not a good answer to this because it's not a well posed problem. It sounds like you are looking for a theoretically sound criteria to decide whether to sell or hold. Such a criteria would take the form of calculating the cost of continuing to hold a stock and comparing it to the transactions cost of replacing it in your portfolio. However, your criteria for stock selection doesn't take this form. You appear to have some ad hoc rules defining whether you want the stock in your portfolio that provide no way to calculate a cost of having something in your portfolio you don't want or failing to have something you do want. Criteria for optimally rebalancing a portfolio can't really be more quantitative than the rules that define the portfolio.", "title": "" } ]	fiqa
3f05a44a19a56c3359474c3cb19b4e35	Ways to trade the Euro debt crisis	[ { "docid": "776a0fad3abfce8445dedec1de473ff6", "text": "Short the Pound and other English financial items. Because the English economy is tied to the EU, it will be hit as well. You might prefer this over Euro denominated investments, since it's not exactly clear who your counterpart is if the Euro really crashes hard. Meaning suppose you have a short position Euro's versus dollars, but the clearing house is taken down by the crash.", "title": "" }, { "docid": "ac121912dc1c747d695b32eb58af4f23", "text": "\"The way I am trading this is: I am long the USD / EUR in cash. I also hold USD / EUR futures, which are traded on the Globex exchange. I am long US equities which have a low exposure to Europe and China (as I expect China to growth significantly slower if the European weakens). I would not short US equities because Europe-based investors (like me) are buying comparatively \"\"safe\"\" US equities to reduce their EUR exposure.\"", "title": "" } ]	[ { "docid": "d2903c879070395bd1377a25c3f82b31", "text": "Huh? What does a flight to safety (cheaper US borrowing rates) have to do with the crisis not spreading if something goes wrong in Italy? It won't be the same over here - it will hit the banking system and companies tied to Europe rather than the sovereign market, but if something happens in Italy we'll feel it.", "title": "" }, { "docid": "fa6070b128d30dc1befad2f10a9c1934", "text": "theoretically this concept makes sense. However as recent numbers have shown ( I do not have the source handy but one can simply obtain this information via the ECB's website) banks have tapped this LTRO, something in the likes of 500 billion or so, and instead of buying Sovereign debt, they instead prefer to park this money with the ECB, paying something like 25 bps on deposits. so instead of using this LTRO money to buy Sovereigns or perhaps lend to other banks, easing the strain on LIBOR, banks have just parked this money back with the ECB, as the ECB has seen its deposits once again reach record amounts (again, see the ECB website for proof). Just this speaks volumes about the LTRO carry trade and how it is evidently not going to achieve its long term goal of bringing spreads down in Europe. Perhaps in the short run yes, but if you look at the fundamentals (EURUSD, the EUR Basis Swap and the OIS-LIBOR Spread) they show how the situation in Europe is far from over, and the LTRO is nothing close to a long term and stable solution", "title": "" }, { "docid": "b7577e9124a4a8752111a7e91e5033a0", "text": "The idea behind this move is to avoid or mitigate long-term deflationary pressure and to boost the competitiveness of Swiss exporters. This is primarily a Swiss-based initiative that does not appear likely to have a major impact on the broader Eurozone. However, some pressure will be felt by other currencies as investors look to purchase - ie. this is not a great scenario for other countries wanting to keep their currencies weak. In terms of personal wealth - if you hold Swiss f then you are impacted. However, 1.2 is still very strong (most analysts cite 1.3 as more realistic) so there seems little need for a reaction of any kind at the personal level at this time, although diversity - as ever - is good. It should also be noted that changing the peg is a possibility, and that the 1.3 does seem to be the more realistic level. If you hold large amounts of Swiss f then this might cause you to look at your forex holdings. For the man in the street, probably not an issue.", "title": "" }, { "docid": "531b4168ddf30bcc15f30b86c0f9b4e3", "text": "You could buy Bitcoins. They are even more deflationary than Swiss Francs. But the exchange rate is currently high, and so is the risk in case of volatility. So maybe buy an AltCoin instead. See altcoin market capitalization for more information. Basically, all you'd be doing is changing SwissFrancs into Bitcoin/AltCoin. You don't need a bank to store it. You don't need to stockpile cash at home. Stays liquid, there's no stock portfolio (albeit a coin portfolio), unlike in stocks there are no noteworthy buy and sell commissions, and the central bank can't just change the bills as in classic-cash-currency. The only risk is volatility in the coin market, which is not necessarely a small risk. Should coins have been going down, then for as long as you don't need that money and keep some for everyday&emergency use on a bank account, you can just wait until said coins re-climb - volatility goes both ways after all.", "title": "" }, { "docid": "6d87984f8fd0b68c76fb7161190f20fd", "text": "\"The risk is that greece defaults on it's debts and the rest of the eurozone chose to punish it by kicking it out of the Eurozone and cutting off it's banks from ECB funds. Since the greek government and banks are already in pretty dire straits this would leave greece with little choice but to forciblly convert deposits in those banks to a \"\"new drachma\"\". The exchange rate used for the forced conversions would almost certainly be unfavorable compared to market rates soon after the conversion. There would likely be capital controls to prevent people pulling their money out in the runup to the forced conversion. While I guess they could theoretically perform the forced conversion only on Euro deposits this seems politically unlikely to me.\"", "title": "" }, { "docid": "8a4a2be1c29e9de79c105c97a28e539e", "text": "You forgot the biggest thing: Japan still controls its own currency and Greece does not. If you don't control your currency, you have much more limited options when it comes to borrowing money. It is why US states can't borrow a lot of money, they all have to share the US dollar which no one state controls. So states are used to making cutbacks in hard times, but the Eurozone nations have not adopted this mindset. Greece isn't in trouble because it borrowed too much, it's in trouble because it borrowed so much and has to share the Euro. Greece can't inflate its currency, so if they can't make a payment they default, no one wants to lend to a place that might default. If Greece had its own currency still there would be no currency crisis in Europe, just some inflation.", "title": "" }, { "docid": "3f4e4d68c7f8d9a2124a3ce2c0c670d5", "text": "Economic and Monetary Union of the European Union: Monetary policy inflexibility Since membership of the eurozone establishes a single monetary policy for the respective states, they can no longer use an isolated monetary policy, e. g. to increase their competitiveness at the cost of other eurozone members by printing money and devalue, or to print money to finance excessive government deficits or pay interest on unsustainable high government debt levels. As a consequence, if member states do not manage their economy in a way that they can show a fiscal discipline (as they were obliged by the Maastricht treaty), they will sooner or later risk a sovereign debt crisis in their country without the possibility to print money as an easy way out. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^\| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^\| [^Exclude ^from ^subreddit](https://np.reddit.com/r/economy/about/banned) ^\| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^] ^Downvote ^to ^remove ^\| ^v0.23", "title": "" }, { "docid": "a1ff24e1167bbff2621b79995be46833", "text": "the problem now is A LOT of people dont have confidence in the euro, and they are taking their money out of it , and confidence is the only thing that backs the euro, or any fiat money. It's gonna get worst before it gets better unfortunately...", "title": "" }, { "docid": "879df5cccfdb6e93aa59f97d4b067107", "text": "Russia current account. https://tradingeconomics.com/russia/current-account US current account https://tradingeconomics.com/united-states/current-account Russia balance of trade https://tradingeconomics.com/russia/balance-of-trade US balance of trade https://tradingeconomics.com/united-states/balance-of-trade Forex reserve by country https://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves List of country by oil import size. https://en.wikipedia.org/wiki/List_of_countries_by_oil_imports . If I have to make a wild guess, country with huge deficit everything and no saving usually sinks faster in time of crisis.", "title": "" }, { "docid": "a34530bf8080f6caa6d2ebd0f47428c2", "text": "\"Yes, I'm a big picture guy. Like when the central banks opened unlimited short term lines recently the first thing I thought was \"\"now hedge funds can short the euro with impunity!\"\" So, short bets on the euro became a no brainer even as the market was perversely celebrating the announcement with a euro rally. Almost as if they have no idea how the bigger picture works. As if all liquidity is created equally. All it meant to me was that European banks would not have to call in the lines of credit they extend to hedge funds for THREE YEARS. That is enough time to crash the euro, hold a funeral and dance on the grave. It is just musical chairs over there. All the banks know the EU is coming for them an they all want to be in the right capital position to survive the banhammer. They'll sell out the euro to get there. I think I'm a bit too jaded for Graham style fundamental analysis. Then again I do use strong companies as my preferred trading vehicles. So, maybe I do a hybrid.\"", "title": "" }, { "docid": "4346f7b4245d33e783f7a3756f36ccb2", "text": "I vehemently disagree with this. Greek crisis is completely different form Spanish, Irish or Portuguese crisis. Greece has a balance of payments + fiscal crisis, due to a government which has not been balancing its budgets for decades (ever?). Greece cannot spend its way out of this crisis because this isn't a demand led crisis.", "title": "" }, { "docid": "0afc4be53a7d5723c723f6f6974db822", "text": "\"The biggest risk you have when a country defaults on its currency is a major devaluation of the currency. Since the EURO is a fiat currency, like almost all developed nations, its \"\"promise\"\" comes from the expectation that its union and system will endure. The EURO is a basket of countries and as such could probably handle bailing out countries or possibly letting some default on their sovereign debt without killing the EURO itself. A similar reality happens in the United States with some level of regularity with state and municipal debt being considered riskier than Federal debt (it isn't uncommon for cities to default). The biggest reason the EURO will probably lose a LOT of value initially is if any nation defaults there isn't a track record as to how the EU member body will respond. Will some countries attempt to break out of the EU? If the member countries fracture then the EURO collapses rendering any and all EURO notes useless. It is that political stability that underlies the value of the EURO. If you are seriously concerned about the risk of a falling EURO and its long term stability then you'd do best buying a hedge currency or devising a basket of hedge currencies to diversify risk. Many will recommend you buy Gold or other precious metals, but I think the idea is silly at best. It is not only hard to buy precious metals at a \"\"fair\"\" value it is even harder to sell them at a fair value. Whatever currency you hold needs to be able to be used in transactions with ease. Doesn't do you any good having $20K in gold coins and no one willing to buy them (as the seller at the store will usually want currency and not gold coins). If you want to go the easy route you can follow the same line of reasoning Central Banks do. Buy USD and hold it. It is probably the world's safest currency to hold over a long period of time. Current US policy is inflationary so that won't help you gain value, but that depends on how the EU responds to a sovereign debt crisis; if one matures.\"", "title": "" }, { "docid": "0dd6ac0337c6ae43d240dcf6908189ba", "text": "That's interesting. So Spain could be back in crisis mode if a crisis were to occur in Latam? The difference is quite large so it must mean Spain owns a heck of a lot of foreign assets producing significant returns relative to their GDP...", "title": "" }, { "docid": "e13140ddbbd5bb612d992c09669ccc10", "text": "\"In essence the problem that the OP identified is not that the FX market itself has poor liquidity but that retail FX brokerage sometimes have poor counterparty risk management. The problem is the actual business model that many FX brokerages have. Most FX brokerages are themselves customers of much larger money center banks that are very well capitalized and provide ample liquidity. By liquidity I mean the ability to put on a position of relatively decent size (long EURUSD say) at any particular time with a small price impact relative to where it is trading. For spot FX, intraday bid/ask spreads are extremely small, on the order of fractions of pips for majors (EUR/USD/GBP/JPY/CHF). Even in extremely volatile situations it rarely becomes much larger than a few pips for positions of 1 to 10 Million USD equivalent notional value in the institutional market. Given that retail traders rarely trade that large a position, the FX spot market is essentially very liquid in that respect. The problem is that there are retail brokerages whose business model is to encourage excessive trading in the hopes of capturing that spread, but not guaranteeing that it has enough capital to always meet all client obligations. What does get retail traders in trouble is that most are unaware that they are not actually trading on an exchange like with stocks. Every bid and ask they see on the screen the moment they execute a trade is done against that FX brokerage, and not some other trader in a transparent central limit order book. This has some deep implications. One is the nifty attribute that you rarely pay \"\"commission\"\" to do FX trades unlike in stock trading. Why? Because they build that cost into the quotes they give you. In sleepy markets, buyers and sellers cancel out, they just \"\"capture\"\" that spread which is the desired outcome when that business model functions well. There are two situations where the brokerage's might lose money and capital becomes very important. In extremely volatile markets, every one of their clients may want to sell for some reason, this forces the FX brokers to accumulate a large position in the opposite side that they have to offload. They will trade in the institutional market with other brokerages to net out their positions so that they are as close to flat as possible. In the process, since bid/ask spreads in the institutional market is tighter than within their own brokerage by design, they should still make money while not taking much risk. However, if they are not fast enough, or if they do not have enough capital, the brokerage's position might move against them too quickly which may cause them lose all their capital and go belly up. The brokerage is net flat, but there are huge offsetting positions amongst its clients. In the example of the Swiss Franc revaluation in early 2015, a sudden pop of 10-20% would have effectively meant that money in client accounts that were on the wrong side of the trade could not cover those on the other side. When this happens, it is theoretically the brokerage's job to close out these positions before it wipes out the value of the client accounts, however it would have been impossible to do so since there were no prices in between the instantaneous pop in which the brokerage could have terminated their client's losing positions, and offload the risk in the institutional market. Since it's extremely hard to ask for more money than exist in the client accounts, those with strong capital positions simply ate the loss (such as Oanda), those that fared worse went belly up. The irony here is that the more leverage the brokerage gave to their clients, the less money would have been available to cover losses in such an event. Using an example to illustrate: say client A is long 1 contract at $100 and client B is short 1 contract at $100. The brokerage is thus net flat. If the brokerage had given 10:1 leverage, then there would be $10 in each client's account. Now instantaneously market moves down $10. Client A loses $10 and client B is up $10. Brokerage simply closes client A's position, gives $10 to client B. The brokerage is still long against client B however, so now it has to go into the institutional market to be short 1 contract at $90. The brokerage again is net flat, and no money actually goes in or out of the firm. Had the brokerage given 50:1 leverage however, client A only has $2 in the account. This would cause the brokerage close client A's position. The brokerage is still long against client B, but has only $2 and would have to \"\"eat the loss\"\" for $8 to honor client B's position, and if it could not do that, then it technically became insolvent since it owes more money to its clients than it has in assets. This is exactly the reason there have been regulations in the US to limit the amount of leverage FX brokerages are allowed to offer to clients, to assure the brokerage has enough capital to pay what is owed to clients.\"", "title": "" }, { "docid": "9068374da97395610198f6d0ad280764", "text": "Krugman (Nobel prize in Economy) has just said: Greek euro exit, very possibly next month. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany. 3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals. 3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing. 4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or: 4b. End of the euro. And we’re talking about months, not years, for this to play out. http://krugman.blogs.nytimes.com/2012/05/13/eurodammerung-2/", "title": "" } ]	fiqa
de3e1e3e142c6f11bf178aed981e82dd	Does it make sense to buy a house in my situation?	[ { "docid": "e66894e2c15886345a1ef19e137189b6", "text": "Personally I would hold off on buying a house until you have the credit card paid down even more or paid off completely so that it is one less bill you have to worry about and once it is paid off you free up that much more money to maintain the home. Likewise, you also have a lot of variables right now and the resolution of those variables will affect how much you can afford in the way of a home. The less surprises the better. As I'm sure you know, being a home owner can be quite expensive and if something ends to be repaired then you have to pay for it out of your own pocket, at least when you are renting that falls onto someone else. Likewise, unless you are confident that the market has bottomed out by you, you might find that you are underwater on the mortgage once everything is said and done. If you want to start making process towards buying a home though, you could check to see if any of the local banks or credit unions have some sort of savings program where you get higher interest rates in exchange for designating the savings for the down payment on a mortgage. Likewise, you could just find a high yield savings account and start making automatic transfers into it every month.", "title": "" }, { "docid": "2d221a69223e936c8bb1b06b84d2a01c", "text": "I wouldn't buy a house at this time. Your credit card debt is the most expensive thing you have. Which is to say that you want to get rid of it as soon as possible. The lawyer isn't cheap, and your personal situation is not fully resolved. Congratulations on paying off the IRS, and getting up the 401k to 17.5k. Take care of the two things in paragraph 1, first,and then think about buying a house. You're doing too much good work to have it possibly be derailed by home payments.", "title": "" }, { "docid": "da1eab3f51253af88bd0bb0f14b9257c", "text": "There are many other good answers here, but I just wanted to note that it could be dangerous to rely on the changes in alimony and child support that you've mentioned. You have no way of predicting if your ex will lose her job or take the kids back more of the time. If you already have a house and mortgage and all of a sudden alimony and child support go up again, you could be in big trouble. Congrats on everything getting better, it sounds like you're dealing well with a crappy situation. Good luck!", "title": "" }, { "docid": "1274937bc6f58659e9d90fb5e93861c0", "text": "\"Short answer: NO. Do NOT buy a house. Houses are a \"\"luxury\"\" good (see Why is a house not an investment?). Although the experience of the early 2000s seemed to convince most people otherwise, houses are not an investment. Historically, it has usually been cheaper to rent, because owning a house has non-pecuniary benefits such as the ability to change things around to exactly the way you like them. Consult a rent vs. buy calculator for your area to see if your area is exceptional. I also would not rely on the mortgage interest deduction for the long term, as it seems increasingly likely the Federal government will do away with it at some point. The first thing you must do is eliminate your credit card and other debts. Try to delay paying your lawyers and anyone else who is not charging you interest (or threatening to harm you in other ways) as long as possible. Save enough money to maintain your current standard of living for 6 months should you lose your job, then put the rest in your 401(k). Another word of advice: learn to live with less. Your kids do not need separate bedrooms. Hopefully one day the time will come when you can afford a larger house, but it should not be your highest priority. You and your kids will all be worse off in the end should you have unexpected financial difficulties and you have overextended yourself to buy a house. Now that your credit score is up, see if you can renegotiate your credit card loans or negotiate a new loan with lower interest.\"", "title": "" }, { "docid": "b68e494bf8a664103589c1f240d388f4", "text": "The $3K includes property tax, right? It looks like the mortgage alone will be about $2150 or so. If your (cal) state tax is enough to put you into itemized deductions, your mortgage and property tax are a write off, and the $3k will actually be closer to the $2K you are considering for rent. The wild card as I see it is that your budget is so tight that any unforeseen expenses will be charged. As a long time homeowner, I know these expenses sometime appear to be high, and regular, despite their random nature. The money earmarked for credit card payments will go a long way to cover the tight budget you seem to have. This and your decreasing support makes this look tight but not impossible. The condition of the house would make or break the deal, in my opinion.", "title": "" }, { "docid": "a5a1055554174a3a49e1319ac76ef8e6", "text": "My opinion is to hold off. I don't see housing market rising anytime soon, possibly even going lower, so you don't have to worry about getting in before it rises. Pay off the credit card debt, maybe even earlier if possible, then that flexibility will be there, the divorce proceedings may have an end in sight, and therefore you'll know more about any outcomes from that. The economy is still shaky, the flexibility of renting may come in real handy.", "title": "" }, { "docid": "92f2653684d88975ae329e1a54900c99", "text": "I think your best course of action depends on the likely outcome of the divorce proceedings. The alimony/child support payments are controlled externally. I don't like to plan around things that I have no control over. In your shoes, I would probably avoid buying until things are settled down.", "title": "" }, { "docid": "ba86c7f1bf3e182b2c65610c2a93369b", "text": "Just echoing the other answers here. You're not ready yet. 3% down, or no money down loans are what got so many of us into trouble these last few years. It sounds like you make a pretty good living and are able to squirrel away money despite paying rent. Let me suggest something that I haven't seen here yet. Save up for a 20% down payment. You will get better rates, won't have to buy mortgage insurance and it will give you enough of a cushion on your payment that you could better weather a job loss or other loss of income. Your priority for saving are, in order: Home prices aren't going up any time soon, so you're not going to miss out on a great deal. Keep your expenses low, treat yourself and your kids once in a while and keep saving.", "title": "" }, { "docid": "4868ceb88a6bd253ef1d6e26028246ad", "text": "I'm confused why you think you need a $450k house. That seems extremely high in today's market except perhaps in certain major urban locations. If you're going to live in suburbia or a smaller town/city, you should be able to find a nice 3br house for well under $300k. Before you rule out buying a house, I'd spend some time researching the real estate listings in your area, foreclosures, properties owned by bankruptcy court, etc. - you might be surprised to find a great home for as low as $150-200k. Of course if you live in a place where what I'm saying is completely off-base, please disregard my answer.", "title": "" } ]	[ { "docid": "4ec027c43f61f7abba959c4f54093321", "text": "Seems pretty stupid to buy when switching jobs every 2-4 years yields the greatest gains in salary. Why would you want to grow roots in an area for 15-30 years when you might be better off changing jobs/locales? Sure you don't have to keep your house that long but with all the extra costs and risks renting is a fine option for an upwardly mobile citizen.", "title": "" }, { "docid": "167b251597ca2ddfdfb431069e0cb380", "text": "The simple answer is that you are correct. You should not purchase a house until you are financially stable enough to do so. A house is an asset that you must maintain, and it can be expensive to do so. Over the long term, you will generally save money by purchasing. However, in any given year you may spend much more money than a similar rental situation - even if the rent is higher than your mortgage payment. If you are financially stable with good cash savings or investments plus a 20% down payment, then anytime is a good time to buy if that is part of your financial plan. As of now in 2016, is is safe to assume that mortgage rates would/should not get back to 10%? Does this mean that one should always buy a house ONLy when mortgage rates are low? Is it worth the wait IF the rates are high right now? The mortgage rates are not the primary driver for your purchase decision. That might be like saying you should buy everything on sale at Target... because it's on sale. Don't speculate on future rates. Also, keep in mind that back when rates were high, banks were also giving much better savings/CD rates. That is all connected. Is refinancing an option on the table, if I made a deal at a bad time when rates are high? You need to make sure you get a loan that allows it. Always do a break-even analysis, looking at the money up-front you spend to refi vs the savings-per-year you will get. This should give you how many years until the refi pays for itself. If you don't plan on being in the house that long, don't do it. How can people afford 10% mortgage? Buying a house they can afford, taking into consideration the entire payment+interest. It should be a reasonable amount of your monthly income - generally 25% or less. Note that this is much less than you will be 'approved' for by most lenders. Don't let good rates suck you into a deal you will regret. Make sure you have the margin to purchase and maintain a home. Consider where you want to be living in 5 years. Don't leave so little financial breathing room that any bump will place you at risk of foreclosure. That said, home ownership is great! I highly recommend it.", "title": "" }, { "docid": "e4afa45e3f9c7762c55cd7b3460f6b61", "text": "In the situation you describe, I would strongly consider purchasing. Before purchasing, I would do the following: Think about your goals. Work with good people. Set a budget. Be able to handle surprises. If buying a home makes sense, you can do the following after buying:", "title": "" }, { "docid": "289ffa029d75f9233a18c3ccc3b0671f", "text": "\"I recommend reading What's the catch in investing in real estate for rent? and making a list of expenses. You have a known expense, the rent, and the assumption that it will rise a bit each year. If not each year, eventually the landlord will bump it, and on average, the rent should track inflation. The buy side is the complete unknown, especially to us here. The mortgage and taxes are just the beginning. My ongoing issue in the buy/rent debate is that it's easy to buy \"\"too big\"\" or at least far bigger that what you are renting. One extreme - a couple moves from their one bedroom apartment into their purchased 3BR home with far more space than they ever use. No need to paint the full picture of numbers, the house is a money pit, and they live for the house. Other end - Couple already renting a nice sized home, and they buy a similar one. They rent out the two spare bedrooms for 5 years until they have kids and want their privacy back. They bought smart, for less than market price, and from day one, the mortgage was lower than the rent they paid. By year 5, having sent the extra income to pay down the mortgage, they've paid down half the loan. As the kids come along, they refi to a new 30 yr fixed at 3.5%, and the payment is tiny compared to the rest of their budget. Simply put, the ratio of house price to rent for that same house is not a constant. When the ratio is high, it's time to rent. When it swings very low, it's worth considering a purchase. But the decision is never clear until every detail is known. The time may be perfect, and the day after you close, you lose your job, or in a good scenario, get a raise and are relocated. Just because you bought low yesterday, doesn't mean the market will pay you a good price today, it takes time for out-of-whack pricing to come back to normal. A simple question? Maybe. But we first need a lot of details to help you understand what you are considering.\"", "title": "" }, { "docid": "e9f76816678c0a267f047910b324fe99", "text": "With an investment, you tend to buy it for a very specific purpose, namely to make you some money. Either via appreciation (ie, it hopefully increases value after you take all the fees and associated costs into account, you sell the investment, realise the gains) or via a steady cashflow that, after you subtracted your costs, leaves you with a profit. Your primary residence is a roof over your head and first and foremost has the function of providing shelter for yourself and your family. It might go up in value, which is somewhat nice, but that's not its main purpose and for as long as you live in the house, you cannot realise the increase in value as you probably don't want to sell it. Of course the remortgage crowd would suggest that you can increase the size of the mortgage (aka the 'home atm') but (a) we all know how that movie ended and (b) you'd have to factor in the additional interest in your P&L calculation. You can also buy real estate as a pure investment, ie with the only objective being that you plan to make money on this. Normally you'd buy a house or an apartment with a view of renting it out and try to increase your wealth both due to the asset's appreciation (hopefully) and the rent, which in this scenario should cover the mortgage, all expenses and still leave you with a bit of profit. All that said, I've never heard someone use the reasoning you describe as a reason not to buy a house and stay in an apartment - if you need a bigger place for your family and can afford to buy something bigger, that falls under the shelter provision and not under the investment.", "title": "" }, { "docid": "05a2138741e77745d300937c6e2e859a", "text": "\"I assume you've no debt - if you do then pay that off. I'd be tempted to put the money into property. If you look at property prices over the past 20 years or so, you can see returns can be very good. I bought a house in 1998 and sold it in 2003 for about 110% of the purchase price. Disclaimer, past performance is no guarantee of future returns! It's a fairly low risk option, property prices appear to be rising currently and it's always good to get your foot on the housing ladder as quickly as you can as prices can rise to the stage where even those earning quite a good salary cannot afford to buy. Of course you don't have to live in the house, a rental income can be very handy without tying you down too much. There are plenty of places in the UK where £60k will buy you a reasonable property with a rental income of £400-£500, it doens't have to be near where you live currently. Just to put a few more figures in - if you get a house for £50k and rent it for £400 a month (perfectly feasible where I live) then that's very close to a 10% return year on year. Plus any gains made by the price of the house. The main downside is you won't have easy access to the money and you will have to look after a tenant if you decide to rent it out. Also if you do buy a property make sure it is in a good state of repair, you don't want to have to pay for a new roof for example in a couple of years time. Ideally you would then sell the house around the time property prices peak and buy another when they bottom out again. Not easy to judge though! I'd review the Trust Fund against others if you decide to keep it there as 12% over 6 years isn't great, although the stock market has been depressed so it may compare favouribly. Keep some \"\"rainy day\"\" money spare if you can.\"", "title": "" }, { "docid": "b214c21bfffcc07a9824cab573471df1", "text": "That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include: Pros: If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires. Cons: If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth.", "title": "" }, { "docid": "932da761aed6d1f0a6fa2e8efc6af74f", "text": "If you expect a significant increase in future income, then you should wait until that future income is assured, and then buy based on that decision. Buying more house than you can afford is what caused you to have to sell; you don't want to do that again. Instead of buying more house now, buy the right house for what you have now. Better yet, though, you might rent instead of buying until the future income comes onboard. Then you can get the best of both worlds - you get to buy the house you can afford in a year or two, but also don't overspend your income.", "title": "" }, { "docid": "80a726c21dbb5d848137fbfb2678c2d0", "text": "Another factor not mentioned are the rent prices in the area you are looking to live. I'd recommend buying a house of which the total monthly costs (mortgage, insurance, repairs, etc) are equal to or less than renting a house in the same area. If you can't find a property for sale that meets this requirement, you might actually be better off keep on renting, at least for a while, because you risk paying too much for your living expenses. A second point is, if possible, to buy when the mortgage interest rates are low, and then go for a mortgage with fixed interest and fixed repayments. While such a mortgage will be more more expensive than one with variable interest, and house prices are higher when mortgage rates are lower, future inflation is almost a certainty. And if your interest rate was fixed, and you are confident that you'll be able to negotiate salary raises in pace with the inflation, then inflation will gradually whittle down the rate between the mortgage payment and your income. Conversely, if interest rates are historically high, with no lowering in sight, then a variable loan might be more interesting. And do shop around for mortgages, there are many banks out there, the competition between them is heavy, and many banks, especially the smaller banks, will often be willing to give you a mortgage at better conditions than their competitors.", "title": "" }, { "docid": "1ae3cb543558e6c150f706998416094c", "text": "You want to buy a house for $150,000. It may be possible to do this with $10,000 and a 3.5% downpayment, but it would be a lot better to have $40,000 and make a 20% downpayment. That would give you a cushion in case house prices fall, and there are often advantages to a 20% downpayment (lower rate; less mandatory insurance). You have an income of $35,000 and expenses of $23,000 (if you are careful with the money--what if you aren't?). You should have savings of either $17,500 or $11,500 in case of emergencies. Perhaps you simply weren't mentioning that. Note that you also need at least $137 * 26 = $3562 more to cover mortgage payments, so $15,062 by the expenses standard. This is in addition to the $40,000 for downpayment and closing costs. What do you plan to do if there is a problem with the new house, e.g. you need a new roof? Or smaller expenses like a new furnace or appliance? A plumbing problem? Damages from a storm? What if the tenants' teenage child has a party and trashes the place? What if your tenants stop paying rent but refuse to move out, trashing the place while being evicted? Your emergency savings need to be able to cover those situations. You checked comps (comparable properties). Great! But notice that you are looking at a one bathroom property for $150,000 and comparing to $180,000 houses. Consider that you may not get the $235 for that house, which is cheaper. Perhaps the rent for that house will only be $195 or less, because one bathroom doesn't really support three bedrooms of people. While real estate can be part of a portfolio, balance would suggest that much more of your portfolio be in things like stocks and bonds. What are you doing for retirement? Are you maxing out any tax-advantaged options that you have available? It might be better to do that before entering the real estate market. I am a 23 year old Australian man with a degree in computer science and a steady job from home working as a web developer. I'm a bit unclear on this. What makes the job steady? Is it employment with a large company? Are you self-employed with what has been a steady flow of customers? Regardless of which it is, consider the possibility of a recession. The company can lay you off (presumably you are at the bottom of the seniority). The new customers may be reluctant to start new projects while their cash flow is restrained. And your tenants may move out. At the same time. What will you do then? A mortgage is an obligation. You have to pay it regardless. While currently flush, are you the kind of flush that can weather a major setback? I would feel a lot better about an investment like this if you had $600,000 in savings and were using this as a complementary investment to broaden your portfolio. Even if you had $60,000 in savings and would still have substantial savings after the purchase. This feels more like you are trying to maximize your purchase. Money burning a hole in your pocket and trying to escape. It would be a lot safer to stick to securities. The worst that happens there is that you lose your investment (and it's more likely that the value will be reduced but recover). With mortgages, you can lose your entire investment and then some. Yes, the price may recover, but it may do so after the bank forecloses on the mortgage.", "title": "" }, { "docid": "db30f9ff88078772375651cf85355306", "text": "House as investment is not a good idea. Besides the obvious calculations don't forget the property tax, home maintenance costs and time, insurance costs, etc. There are a lot of hidden drains on the investment value of the house; most especially the time that you have to invest in maintaining it. On the other hand, if you plan on staying in the area, having children, pets or like do home improvements, landscaping, gardening, auto repair, wood/metal shopping then a house might be useful to you. Also consider the housing market where you are. This gets a bit more difficult to calculate but if you have a high-demand rental market then the house might make sense as an investment if you can rent it out for more than your monthly cost (including all of those factors above). But being a landlord is not for everyone. Again more of your time invested into the house, you have to be prepared to go months without renting it, you may have to deal with crazy people that will totally trash your house and threaten you if you complain, and you may need to part with some of the rent to a management company if you need their skills or time. It sounds like you are just not that interested right now. That's fine. Don't rush. Invest your money some other way (i.e.: the stock market). More than likely when you are ready for a house, or to bail your family out of trouble (if that's what you choose to do), you'll have even more assets to do either with.", "title": "" }, { "docid": "3d352dd687331678cf1e9b26bddfc96b", "text": "\"1) Don't buy a house as an investment. Buy a house because you've reached the point in your life where you don't expect to move in the next five years and you'd prefer to own a house (with its advantages/disadvantages) than to rent (with its advantages/disadvantages). Thinking of houses primarily as investments is what caused the housing bubble, crash, and Great Recession. 2) Before buying a house for cash, look at the available mortgage interest rates versus market rate of return. Owning the house outright is slightly lower stress, but using the house as the basis for a \"\"leveraged investment\"\" may be financially wiser. (I compromised; I paid 50% down and took a mortgage for the other 50%.) 3) 1 year is short-term. Your money doesn't belong in the market if you're going to need it in the short term. If you really intend to pull it back out that soon, I'd stick with CD/money-market kinds of instruments. 4) Remember that while a house is illiquid, it is possible to take out home equity loans... so money you put into a house isn't completely inaccessible. You just can't move elsewhere as easily.\"", "title": "" }, { "docid": "f87fe8e98e124dc629edf77abcd2f338", "text": "Considering your question, I have been in the market for a house to buy. There is a house that I like and I wanted to know if I could afford it. You state your Assets: Awesome! Current Income: Great job putting $1000/month into your 401k! That is $12,000/year saved for retirement. Excellent! Current expenses: Why do you want to buy a house for more than 4x your gross income, and 3x median house price (U.S.)? Are you planning on living in the house for at least 5-7 years? There is a risk that interest rates will rise, and that will affect your ability to sell the house. Expected expenses: Adding your other essentials, You are considering increasing your expenses by $1000-1200/month. Looking at the amounts you quoted for direct housing expenses, you will have committed $2600/month to a mortgage payment. Adding your other estimated essentials, you will spend over $3700/month (leaving $2200/month for everything else). You may have higher utilities for a house than an apartment, you are doing well with your food budget, and your cellphone is lower than many. You anticipate $650/month ($7800/year) tax savings (be careful, congress is looking for ways to increase tax revenue). You want to keep your essential expenses under 50% (much more than 50% is difficult, and I am trying to get to 40%). You may live in an area where housing costs are an out-sized expense. But an option would be to save more, and a larger down payment could lower the monthly expenses below that 50% mark.", "title": "" }, { "docid": "79ecf644625863c23f86774ee6e00f66", "text": "\"When I was 23, the Toronto housing market was approaching a record high, and I thought, \"\"I must buy a place or I'll be locked out.\"\" And I did. Bad decision. I should have waited and saved my money. For the record, I thought I would never recover, but I did. Patience grasshopper. In actual fact the U.K. housing market is probably approaching a low, and you have a job that is paying you well enough. BUT the lesson I learned wasn't about buying at a high or a low, it was about the need never to let external factors rush your decision making. Your decisions have to make sense for your own unique situation. If you're living at home and you have domestic bliss, mum and dad aren't crimping your style (if you know what I mean), then, enjoy it. Your credit balance sounds understandable. It's not fatal. But it's a budget killer. Make adjustments (somehow/anyhow) so that you are paying it down month by month. Take it down to £0. You will feel amazing once you do it. After that, use the money that you were paying onto your credit card and start saving it. Whether you ultimately use the money for a house down-payment or your retirement, doesn't matter. Just get into the situation where you're saving.\"", "title": "" }, { "docid": "97fd99a51984de3474ad8e5da3acae09", "text": "Buying a house may save you money compared with renting, depending on the area and specifics of the transaction (including the purchase price, interest rates, comparable rent, etc.). In addition, buying a house may provide you with intangibles that fit your lifestyle goals (permanence in a community, ability to renovate, pride of ownership, etc.). These factors have been discussed in other answers here and in other questions. However there is one other way I think potential home buyers should consider the financial impact of home ownership: Buying a house provides you with a natural 'hedge' against possible future changes in your cost of living. Assume the following: If these two items are true, then buying a home allows you to guarantee today that your monthly living expenses will be mostly* fixed, as long as you live in that community. In 2 years, if there is an explosion of new residents in your community and housing costs skyrocket - doesn't affect you, your mortgage payment [or if you paid cash, the lack of mortgage payment] is fixed. In 3 years, if there are 20 new apartment buildings built beside you and housing costs plummet - doesn't affect you, your mortgage payment is fixed. If you know that you want to live in a particular place 20 years from now, then buying a house in that area today may be a way of ensuring that you can afford to live there in the future. *Remember that while your mortgage payment will be fixed, other costs of home ownership will be variable. See below. You may or may not save money compared with rent over the period you live in your house, but by putting your money into a house, you have protected yourself against catastrophic rent increases. What is the cost of hedging yourself against this risk? (A) The known costs of ownership [closing costs on purchase, mortgage interest, property tax, condo fees, home insurance, etc.]; (B) The unknown costs of ownership [annual and periodic maintenance, closing costs on a future sale, etc.]; (C) The potential earnings lost on your down payment / mortgage principal payments [whether it is low-risk interest or higher risk equity]; (D) You may have reduced savings for a long period of time which would limit your ability to cover emergencies (such as medical costs, unexpected unemployment, etc.) (E) You may have a reduced ability to look for a better job based on being locked into a particular location (though I have assumed above that you want to live in a particular community for an extended period of time, that desire may change); and (F) You can't reap the benefits of a rental market that decreases in real dollars, if that happens in your market over time. In short, purchasing a home should be a lifestyle-motivated decision. It financially reduces some the fluctuation in your long-term living costs, with the trade-off of committed principal dollars and additional ownership risks including limited mobility.", "title": "" } ]	fiqa
806484f60cc8bc12aad4bd6ea859758d	Buy small-cap ETF when you already have large-cap of the same market	[ { "docid": "1cf18975c984604687f3099d5817b239", "text": "Yes, you should own a diverse mix of company sizes to be well diversified. While both will probably get hit in a recession, different economies suit different sized companies very differently in many cases, and this diversity positions you best to not only not miss out in cases where small companies do better out of recessions than large, but also in environments where small companies rate of growth is larger in bull markets.", "title": "" } ]	[ { "docid": "22a624586462392a84b59b2656031d90", "text": "Why would it not make more sense to invest in a handful of these heavyweights instead of also having to carry the weight of the other 450 (some of which are mostly just baggage)? First, a cap-weighted index fund will invest more heavily in larger cap companies, so the 'baggage' you speak of does take up a smaller percentage of the portfolio's value (not that cap always equates to better performance). There are also equal-weighted index funds where each company in the index is given equal weight in the portfolio. If you could accurately pick winners and losers, then of course you could beat index funds, but on average they've performed well enough that there's little incentive for the average investor to look elsewhere. A handful of stocks opens you up to more risk, an Enron in your handful would be pretty devastating if it comprised a large percentage of your portfolio. Additionally, since you pay a fee on each transaction ($5 in your example), you have to out-perform a low-fee index fund significantly, or be investing a very large amount of money to come out ahead. You get diversification and low-fees with an index fund.", "title": "" }, { "docid": "64e8dd8b36ad83931c55f3dc479cf037", "text": "Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.", "title": "" }, { "docid": "651eb9014ce2244d382da1151926ee37", "text": "Yes, this is a way to avoid the pattern day trader regulation. The only downside being that your broker will have different commission rates and your capital will be split amongst several places.", "title": "" }, { "docid": "83ff91d25d43c5069739a553a5a028ad", "text": "It is not so useful because you are applying it to large capital. Think about Theory of Investment Value. It says that you must find undervalued stocks with whatever ratios and metrics. Now think about the reality of a company. For example, if you are waiting KO (The Coca-Cola Company) to be undervalued for buying it, it might be a bad idea because KO is already an international well known company and KO sells its product almost everywhere...so there are not too many opportunities for growth. Even if KO ratios and metrics says it's a good time to buy because it's undervalued, people might not invest on it because KO doesn't have the same potential to grow as 10 years ago. The best chance to grow is demographics. You are better off either buying ETFs monthly for many years (10 minimum) OR find small-cap and mid-cap companies that have the potential to grow plus their ratios indicate they might be undervalued. If you want your investment to work remember this: stock price growth is nothing more than You might ask yourself. What is your investment profile? Agressive? Speculative? Income? Dividends? Capital preservation? If you want something not too risky: ETFs. And not waste too much time. If you want to get more returns, you have to take more risks: find small-cap and mid-companies that are worth. I hope I helped you!", "title": "" }, { "docid": "1fa9a19bf4ae1323db1fa31bb93c3932", "text": "Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal.", "title": "" }, { "docid": "ddebe31d71f26aa6b26955c1a29cd63a", "text": "One difference is the bid/ask spread will cost you more in a lower cost stock than a higher cost one. Say you have two highly liquid stocks with tiny spreads: If you wanted to buy say $2,000 of stock: Now imagine these are almost identical ETFs tracking the S&P 500 index and extrapolate this to a trade of $2,000,000 and you can see there's some cost savings in the higher priced stock. As a practical example, recently a popular S&P 500 ETF (Vanguard's VOO) did a reverse split to help investors minimize this oft-missed cost.", "title": "" }, { "docid": "8b90dc3f316e64f6d93f0fd4e355334d", "text": "An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)", "title": "" }, { "docid": "757ae34017097661e6373b817280c474", "text": "In market cap weighted index there is fairly heavy concentration in the largest stocks. The top 10 stocks typically account for about 20% of the S&P 500 index. In Equal Weight this bias towards large caps is removed. The Market Cap method would be good when large stocks drive the markets. However if the markets are getting driven by Mid Caps and Small caps, the equal weight wins. Historically most big companies start out small and grow big fast in a short span of time. Thus if we were to do Market cap one would have purchased smaller number of shares of the said company as its cap/weight would have been small and when it becomes big we would have purchased the shares at a higher price. However if we were to do equal weight, then as the company grows big one would have more share at a cheaper price and would result in better returns. There is a nice article on this, also gives the comparision of the returns over a period of 10 years, where equal weight index has done good. It does not mean that it would continue. http://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#axzz1RRDCnFre", "title": "" }, { "docid": "b83a3611deb97cfa58b7ba4e4c074fc7", "text": "To a certain extent, small cap companies will in general follow the same trends as large cap companies. The extent of this cointegration depends on numerous factors, but a prime reason is the presence of systemic risk, i.e. the risk to the entire market. In simple terms, sthis is the risk that your portfolio will approach asymptotically as you increase its diversification, and it's why hedging is also important. That being said, small cap businesses will, in general, likely do worse than large cap stocks, for several reasons. This was/is certainly the case in the Great Recession. Small cap businesses have, on average, higher betas, which is a measure of a company's risk compared to the overall market. This means that small cap companies, on average outperform large cap companies during boom times, but it also means that they suffer more on average during bear times. The debate over whether or not the standard beta is still useful for small cap companies continues, however. Some economists feel that small cap companies are better measured against the Russell 2000 or similar indexes instead of the S&P 500. Small cap companies may face problems accessing or maintaining access to lines of credit. During the Great Recession, major lenders decreased their lending to small businesses, which might make it harder for them to weather the storm. On a related point, small businesses might not have as large an asset base to use as collateral for loans in bad times. One notable large cap company that used its asset base to their advantage was Ford, which gave banks partial ownership of its factories during hard times. This a) gave Ford a good amount of cash with which to continue their short-term operations, and b) gave the banks a vested interest in keeping Ford's lines of credit open. Ford struggled, but it never faced the financial problems of GM and Chrysler. Despite political rhetoric about Main Street vs. Wall Street, small businesses don't receive as much government aid in times of crisis as some large cap companies do. For example, the Small Business Lending Fund, a brilliant but poorly implemented idea in 2010, allocated less than $30 billion to small businesses. (The actual amount loaned was considerably less). Compare that to the amounts loaned out under TARP. Discussions about corporate lobbying power aside, small businesses aren't as crucial to the overall stability of the financial system Small businesses don't always have the manpower to keep up with changes in regulation. When the Dodd-Frank Act passed, large banks (as an example), could hire more staff to understand it and adapt to it relatively easily; small banks, however, don't always have the resources to invest in such efforts. There are other reasons, some of which are industry-specific, but these are some of the basic ones. If you want visual confirmation that small cap businesses follow a similar trend, here is a graph of the Russell 2000 and S&P 500 indexes: Here is a similar graph for the Russell 2000 and the Dow Jones Industrial Average. If you wanted to confirm this technically and control for the numerous complicated factors (overlap between indexes, systemic risk, seasonal adjustment, etc.), just ask and I'll try to run some numbers on it when I have a chance. Keep in mind, too, that looking at a pretty picture is no substitute for rigorous financial econometrics. A basic start would be to look at the correlation between the indexes, which I calculate as 0.9133 and 0.9526, respectively. As you can see, they're pretty close. Once again, however, the reality is more complicated technically, and a sufficiently detailed analysis is beyond my capabilities. Just a quick side note. These graphs show the logarithm of the values of the indexes, which is a common statistical nuance that is used when comparing time series with radically different magnitudes but similar trends. S&P500 and Russell 2000 data came from Yahoo! Finance, and the Dow Jones Industrial Average data came from Federal Reserve Economic Data (FRED) Per usual, I try to provide code whenever possible, if I used it. Here is the Stata code I used to generate the graphs above. This code assumes the presence of russell2000.csv and sp500.csv, downloaded from Yahoo! Finance, and DJIA.csv, downloaded from FRED, in the current directory. Fidelity published an article on the subject that you might find interesting, and Seeking Alpha has several pieces related to small-cap vs. large-cap returns that might be worth a read too.", "title": "" }, { "docid": "61a3236acf34529cae6bfa96e07ccccb", "text": "\"As Dheer pointed out, the top ten mega-cap corporations account for a huge part (20%) of your \"\"S&P 500\"\" portfolio when weighted proportionally. This is one of the reasons why I have personally avoided the index-fund/etf craze -- I don't really need another mechanism to buy ExxonMobil, IBM and Wal-Mart on my behalf. I like the equal-weight concept -- if I'm investing in a broad sector (Large Cap companies), I want diversification across the entire sector and avoid concentration. The downside to this approach is that there will be more portfolio turnover (and expense), since you're holding more shares of the lower tranches of the index where companies are more apt to churn. (ie. #500 on the index gets replaced by an up and comer). So you're likely to have a higher expense ratio, which matters to many folks.\"", "title": "" }, { "docid": "f3ea138a007df8c0daf625f11ca5d011", "text": "OK, VERY glad you get that idea! The problem with the ETF is: it's the monkeys-throwing-darts method. If the average (dollar-weighted) member stock in the ETF goes up, you win, but if half of them go under, and half succeed, over some time periods you will lose (and win over others). I guess my POV is: if you can't do serious research into the expected success of an individual company, maybe it's too risky to even try betting on the whole group. YMMV. The problem with your investment plan is: you are depending on luck, and the assumption the group will increase in value over your investment period. I prefer research over hope.", "title": "" }, { "docid": "38fb91972f883a1072bcaa4282627d5b", "text": "Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns. Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market. If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market.", "title": "" }, { "docid": "7e3309d191d613404bd65a9a8a47dd1f", "text": "If you are looking at long-term investments then you can look to Dheer's answer and see that it doesn't matter whether the money is large or small, the return will be the same. When it comes to shorter-term investments, it can actually pay to be a smaller investor. Consider a stock that may not be trading in high volume. If I want to take a position for 2,000 shares, I can probably buy it quite quickly without moving the market considerably. If I was managing your hypothetical portfolio opening a position for 1,000,000 shares, it can cause the price to go up significantly because I have to execute the order very carefully in order to not tip my hand to the market that I want a million shares. Algorithmic traders will see the volume increasing on those shares and will raise their asking price. High speed traders and market makers will also cause a lot of purchasing overhead. Then later when it comes time to sell, I will lose a percentage to the price drop as I start flooding the market with available shares.", "title": "" }, { "docid": "1406a6bc19c15ffdf325ac5ddf23d852", "text": "To add to Dheer's point, the vast majority of retail investors will have to pay fees and use up a large amount of valuable time on the entrance and exit of each stock, and each and every time you rebalance as the index weightings change. These also add up extremely fast vs the few basis points the large and liquid ETFs charge for this service.", "title": "" }, { "docid": "3b259209bb6129f9b253bc637549636c", "text": "\"The problem with daily-rebalanced \"\"inverse\"\" or \"\"leveraged\"\" ETFs is that since they rebalance every day, you can lose money even if your guess as to the market's direction is correct. Quoting from FINRA'S guide as to why these are a bad idea: How can this apparent breakdown between longer term index returns and ETF returns happen? Here’s a hypothetical example: let’s say that on Day 1, an index starts with a value of 100 and a leveraged ETF that seeks to double the return of the index starts at $100. If the index drops by 10 points on Day 1, it has a 10 percent loss and a resulting value of 90. Assuming it achieved its stated objective, the leveraged ETF would therefore drop 20 percent on that day and have an ending value of $80. On Day 2, if the index rises 10 percent, the index value increases to 99. For the ETF, its value for Day 2 would rise by 20 percent, which means the ETF would have a value of $96. On both days, the leveraged ETF did exactly what it was supposed to do—it produced daily returns that were two times the daily index returns. But let’s look at the results over the 2 day period: the index lost 1 percent (it fell from 100 to 99) while the 2x leveraged ETF lost 4 percent (it fell from $100 to $96). That means that over the two day period, the ETF's negative returns were 4 times as much as the two-day return of the index instead of 2 times the return. That example is for \"\"just\"\" leveraging 2x in the same direction. Inverse funds have the same kind of issue. An example from Bogleheads Wiki page on these kinds of funds says that over 12/31/2007 to 12/31/2010, The funds do exactly what they say on any given day. But any losses get \"\"locked in\"\" each day. While normally a 50% loss needs a 100% gain to get back to a starting point, a fund like this needs more than a 100% gain to get back to its starting point. The result of these funds across multiple days doesn't match the index it's matching over those several days, and you won't make money over the long term. Do look at the further examples at the links I've referenced above, or do your own research into the performance of these funds during time periods both when the market is going up and going down. Also refer to these related and/or duplicate questions:\"", "title": "" } ]	fiqa
23775fdc143717609f82097f61abc2fd	How big of a mortgage can I realistically afford?	[ { "docid": "638bd4fa6dd303bacc352bbf00a7f5bc", "text": "\"Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit. The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be \"\"other than house debt\"\" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment. PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering. I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low. By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?\"", "title": "" }, { "docid": "35c7213d5974f7a5e9d20957a0520a9d", "text": "You're biting off a lot. Let's say you can swing 5% for a down payment: $13k. A 30-year loan on $247k at the rate you quote gives you a payment of $1,270 per month. This does not include taxes, insurance, or private mortgage insurance (which you'll pay because you have a down payment less than 20%). The PMI will run you about $150-$200 per month, I think, until your loan-to-value ratio falls below 80%. Plus your HOA fee, utilities, your 401(k) loan payment, etc., you're pushing $2k/month. You have a roommate in mind, and that will help, but the roommate can go, and you still own the property. Then you get the whole payment all to yourself. If I had the option, I'd rent a little longer. Save up for a decent down payment, and shop around for someone who is desperate to sell.", "title": "" }, { "docid": "0102625e19f34c53b32cd07f2edc0bfe", "text": "For me there are two issues. So, what to do? You have the basics of a very strong position coming together. A good salary in a good city. I'd be patient and work on consolidating my position for another year to 18 months (including building a rainy day fund) and look to buy then.", "title": "" }, { "docid": "455e162cab382ba74e9f038ced8896a8", "text": "My primary concerns. There seems to still be a fair bit of distressed property (forclosures etc) on the market at current, which might well keep prices down for the next year or so that it takes to finish flushing that stuff out of the market. The gist I get from most experts/pundits is that There will be good deals around for while to come still I'd advise you wait. Go ahead and do the math to figure out what total you WOULD be paying would be, and charge yourself that much a mohth for rent in your current place, pocketing the difference in a savings account. You'll be able to get a feeling for what it's like to live with that kind of house payment, and if you can do it sans any room-mate (something you can't always count on) If you can manage it, then you have a much more realistic idea of what you can afford, AND you'll have saved up a bunch of money to help with a down-payment in the process. If for example your Mortgage plus taxes and insurance ends up running around say $1450 a month, plus another $150 for the HOA, well then, that's charging yourself $1600 a month for your 'rent' which means $1000 per month going into the bank, in two years that's nearly the same as what you have now in the $401K, and you'd have a really good idea if you can afford that much per month in housing costs. If you are bound and determined to do this now, then here's a few other things to consider. You might to shop around a bit to see how typical those HOA fees are. Yeah you don't have the expense and hassle of needing to mow the lawn, paint the place etc but still, 150 a month translates to around another 1.5 mortgage payments a year. You might be able to get around PMI by splitting the mortgage into two pieces and doing a 'purchase money second' of around 15-20% and 75-70% of the value for the main mortgage. That way the LoanToValue on your primary loan is under 80%, which could be worthwhile even if the interest rate on that second loan is a little higher (at least it's deductible, paying PMI is just money lost to you) although trying to do any kind of creative financing these days is a lot trickier", "title": "" }, { "docid": "3d389cb4b83d2bff38b4d4220683af49", "text": "If you are not planning on living in your condo for at least 10 years don't do it. For about 5 years your mortgage will be more then rent, after 5 years you start to break even and may start paying less. On the other hand, if you plan to be there for 10 years or more it might be a great savings tool,", "title": "" }, { "docid": "a88e34ed75c8f322558c7b5cc3d95cb8", "text": "I bought a house 6 months ago for $240,000 on an $80k salary am getting by just fine and am able to save money (and I live on Long Island, an extremely expensive area to live). I would look at finding a few more interest rate quotes; for instance, Wells Fargo is offering 4.25% right now for FHA (first time home buyers) loan (which only require 3.5% down). A lower interest rate will lower your monthly payment. Make the banks compete with one another - this little bit of leg-work will save you thousands upon thousands of dollars in the long run). Also, try to negotiate to NOT paying a point down on the mortgage - most of the time they are bull, especially in this economy (banks are desperate for new loans). However, as others have said, do not assume or count on rent coming in to be able to afford your mortgage (unless you are married). What if your friend moves out and you cannot find another tenant? However, I strongly recommend you talk to a financial adviser and your bank mortgage loan officer to work out the numbers - you will be surprised what you can afford when you factor in your income tax and mortgage interest write-offs.", "title": "" }, { "docid": "39e8f01085a8b30d1ece1187454e07dd", "text": "$260k mortgage is pretty high for $80k salary alone -- if you have expensive tastes, be prepared to tune them down. The make or break for you will be taxes and other recurring fees. If property taxes are trending higher than inflation in your area, you'll have trouble down the line. Decisions like this are really market driven, and I don't know much about Salt Lake City. In general, condo values get punished relative to single-family homes during bad market conditions. So if this is a really nice condo in a good building in a desirable part of the city you're probably going to see the value of the property increase as the general economy improves. If the property is good, go for it.", "title": "" } ]	[ { "docid": "dc7defb46e1c24902a2b49b740b35444", "text": "\"In most parts of the US, even the more expensive parts, a $100k income can afford the rent or mortgage on a reasonably safe* 2-3 bedroom home within an hour commute of your work, plus the means to commute, plus health insurance, plus retirement savings, plus at least some discretionary income (i.e., choice between living in a nicer neighborhood, eating out more often, buying brand-name apparel, etc). In some places, $100k affords a very comfortable lifestyle, with plenty of savings. A lot of people who live in or around big, expensive cities think it is outrageous that their $100k income doesn't get them a designer apartment, a wardrobe full of fitted suits, eating out twice a week, two overseas vacations per year, etc. They confuse not having a Hollywood lifestyle, with being poor. Those are some of the most obnoxious people in the world. *because this post is sure to draw the ire of some privileged people who think that \"\"reasonably safe\"\" means top 5%, I will offer the definition of \"\"reasonably safe\"\" as one of the top three quintiles of US zip codes with lowest violent crime rates per capita.\"", "title": "" }, { "docid": "fe42f4891bb8abe1c35dea12d56d0e78", "text": "Save up a bigger downpayment. The lender's requirement is going to be based on how much you finance, not the price of the house.", "title": "" }, { "docid": "f0938f9cb1ddcfe644e0c4bc217a2a3b", "text": "Not that I doubted everyone's assumption but I wanted to see the math so I did some spreadsheet hacking. I assumed a monthly payments for 30 years which left us with total payments of 483.89. I then assumed we'd pay an extra $200/month in one of two scenarios. Scenario 1 we just paid that $200 directly to the lender. In scenario 2 we set the extra $200 aside every month until we were able to pay off the $10k at 7%. I assumed that the minimum payments were allocated proportionately and the overpayments were allocated evenly. That meant we paid off loan 5 at about month 77, loan 4 in month 88, loan 3 in month 120, loan 2 in month 165, and loan 1 in month 170. Getting over to scenario 2 where we pay $483.89 to lender and save $200 separately. In month 48 we've saved $9600 relative to the principle remaining in loan 3 of $9547. We pay that off and we're left with loan 1,2,4,5 with a combined principle of about $60930. At this point we are now going to make payments of 683.89 instead of saving towards principle. Now our weighted average interest rate is 6.800% instead of 6.824%. We can calculate the number of payments left given a principle of 60930, interest of 6.8%, and payment of 683.89 to be 124.4 months left for a total of 172.4 months Conclusion: Scenario 1 pays off the debt 3 months sooner with the same monthly expenditure as scenario 2.", "title": "" }, { "docid": "eef055196175fbe5e94619b63cc7600b", "text": "\"My recommendation is to pay off your student loans as quickly as possible. It sounds like you're already doing this but don't incur any other large debts until you have this taken care of. I'd also recommend not buying a car, especially an expensive one, on credit or lease either. Back during the dotcom boom I and many friends bought or leased expensive cars only to lose them or struggle paying for them when the bottom dropped out. A car instantly depreciates and it's quite rare for them to ever gain value again. Stick with reliable, older, used cars that you can purchase for cash. If you do borrow for a car, shop around for the best deal and avoid 3+ year terms if at all possible. Don't lease unless you have a business structure where this might create a clear financial advantage. Avoid credit cards as much as possible although if you do plan to buy a house with a mortgage you'll need to maintain some credit history. If you have the discipline to keep your balance small and paid down you can use a credit card to build credit history. However, these things can quickly get out of hand and you'll wonder why you suddenly owe $10K, $20K or even more on them so be very careful with them. As for the house (speaking of US markets here), save up for at least a 20% down payment if you can. Based on what you said, this would be about $20-25K. This will give you a lot more flexibility to take advantage of deals that might come your way, even if you don't put it all into the house. \"\"Stretching\"\" to buy a house that's too expensive can quickly lead to financial ruin. As for house size, I recommend purchasing a 4 bedroom house even if you aren't planning on kids right away. It will resell better and you'll appreciate having the extra space for storage, home office, hobbies, etc. Also, life has a way of changing your plans for having kids and such.\"", "title": "" }, { "docid": "0f260d60e042c1bb1e0774d8db9cbbf1", "text": "I'm not saying it's great, but I have a 705... I think we'll get a second opinion to lower that rate. Also, logically, with a higher down payment, we should be able to reduce the amount we need to borrow. Is that how that would work? For example, if we scrounged up a $7,000 for a down payment and came down on the price say $3,000", "title": "" }, { "docid": "8c153ea4b906a889e5d80fc7a3b0859f", "text": "Two years ago, I wrote an article titled Student Loans and Your First Mortgage in response to this exact question posed by a fellow blogger. The bottom line is that the loan payment doesn't lower your borrowing power as it fits in the slice between 28% (total housing cost) and 38% (total monthly debt burden) when applying for a loan. But, the $20K is 20% down on $100K worth of house. With median home prices in the US in the mid-high $100Ks, you're halfway there. In the end, it's not about finance, it's a question of how badly you want to buy a house. If I got along with the parents, I'd stay as long as I was welcome, and save every dollar I could. Save for retirement, save for as large a downpayment as you can, and after you buy the house, pay the student loan aggressively. I moved out the week after I graduated.", "title": "" }, { "docid": "2f1d730eaf1d003c5d7ae2525da05a6c", "text": "No. This logic is dangerous. The apples to apples comparison between renting and buying should be between similar living arrangements. One can't (legitimately) compare living in a 600 sq ft studio to a 3500 sq ft house. With the proposal you offer, one should get the largest mortgage they qualify for, but that can result in a house far too big for their needs. Borrowing to buy just what you need makes sense. Borrowing to buy a house with rooms you may never visit, not a great idea. By the way, do the numbers. The 30 year rate is 4%. You'd need a $250,000 mortgage to get $10,000 in interest the first year, that's a $312,000 house given an 80% loan. On a median income, do you think it makes sense to buy a house twice the US median? Last, a portion of the tax savings is 'lost' to the fact that you have a standard deduction of nearly $6,000 in 2012. So that huge mortgage gets you an extra $4000 in write-off, and $600 back in taxes. Don't ever let the Tax Tail wag the Investing Dog, or in this case the House Dog. Edit - the investment return on real estate is a hot topic. I think it's fair to say that long term one must include the rental value of the house in calculating returns. In the case of buying of way-too-big house, you are not getting the return, it's the same as renting a four bedroom, but leaving three empty. If I can go on a bit - I own a rental, it's worth $200K and after condo fee and property tax, I get $10K/yr. A 5% return, plus whatever appreciation. Now, if I lived there, I'd correctly claim that part of my return is the rental value, the rent I don't pay elsewhere, so the return to me is the potential growth as well as saved rent. But if the condo rents for $1200, and I'd otherwise live in a $600 apartment with less space, the return to me is lost. In my personal case, in fact, I bought a too big house. Not too big for our paycheck, the cost and therefore the mortgage were well below what the bank qualified us for. Too big for the need. I paid for two rooms we really don't use.", "title": "" }, { "docid": "88890edbedd3979b6a8244e4a8df8b85", "text": "\"Here in the UK, the rule of thumb is to keep a lot of equity in your home if you can. I assume here that you have a lot of savings you're considering using. If you only have say 10% of the house price you wouldn't actually have a lot of choice in the matter, the mortgage lender will penalise you heavily for low deposits. The practical minimum is 5%, but for most people a 95% mortgage is just silly (albeit not as silly as the 100% or greater mortgages you could get pre-2008), and you should take serious individual advice before considering it. According to Which, the average in the UK for first-time buyers is 20% (not the best source for that data I confess, but a convenient one). Above 20% is not at all unusual. You'll do an affordability calculation to figure out how much you can borrow, which isn't at all the same as how much you should borrow, but does get you started. Basically you, decide how much a month you can spend on mortgage payments. The calculation will let you put every penny into this if you choose to, but in practice you'll want some discretionary income so don't do that. decide the term of the mortgage. For a young first-time buyer in the UK I think you'd typically take a 25-year term and consider early repayment options rather than committing to a shorter term, but you don't have to. Mortgage lenders will offer shorter terms as long as you can afford the payments. decide how much you're putting into a deposit make subtractions for cost of moving (stamp duty if applicable, fees, removals aka \"\"people to lug your stuff\"\"). receive back a number which is the house price you can pay under these constraints (and of course a breakdown of what the mortgage principle would be, and the interest rate you'll pay). This step requires access to lender information, since their rates depend on personal details, deposit percentage, phase of the moon, etc. Our mortgage advisor did multiple runs of the calculation for us for different scenarios, since we hadn't made up our minds entirely. Since you have not yet decided how much deposit to make, you can use multiple calculations to see the effect of different deposits you might make, up to a limit of your total savings. Putting up more deposit both increases the amount you can borrow for a given monthly payment (since mortgage rates are lower when the loan is a lower proportion of house value), and of course increases the house price you can afford. So unless you're getting a very high return on your savings, £1 of deposit gets you somewhat more than £1 of house, and the calculation will tell you how much more. Once you've chosen the house you want, the matter is even simpler: do you prefer to put your savings in the house and borrow less and make lower payments, or prefer to put your savings elsewhere and borrow more and make higher payments but perhaps have some additional income from the savings. Assuming you maintain a contingency fund, a lower mortgage is generally considered a good investment in the UK, but you need to check what's right for you and compare it to other investments you could make. The issue is complicated by the fact that residential property prices are rising quite quickly in most areas of the UK, and have been for a long time, meaning that highly-leveraged property investment appears to be a really good idea. This leads to the imprudent, but tempting, conclusion that you should buy the biggest house you can possibly afford and watch its value rises. I do not endorse this advice personally, but it's certainly true that in a sharply rising house market it's easier to get away with buying a bigger house than you need, than it is to get away with it in a flat or falling market. As Stephen says, an offset mortgage is a no-brainer good idea if the rate is the same. Unfortunately in the UK, the rate isn't the same (or anyway, it wasn't a couple of years ago). Offset mortgages are especially good for those who make a lot of savings from income and for any reason don't want to commit all of those savings to a traditional mortgage payment. Good reasons for not wanting to do that include uncertainty about your future income and a desire to have the flexibility to actually spend some of it if you fancy :-)\"", "title": "" }, { "docid": "4868ceb88a6bd253ef1d6e26028246ad", "text": "I'm confused why you think you need a $450k house. That seems extremely high in today's market except perhaps in certain major urban locations. If you're going to live in suburbia or a smaller town/city, you should be able to find a nice 3br house for well under $300k. Before you rule out buying a house, I'd spend some time researching the real estate listings in your area, foreclosures, properties owned by bankruptcy court, etc. - you might be surprised to find a great home for as low as $150-200k. Of course if you live in a place where what I'm saying is completely off-base, please disregard my answer.", "title": "" }, { "docid": "73162211768d136f87031dc72838e3b7", "text": "If you have a 20,000 balance and a 8.75% interest rate, you should be paying between $145 and $150 in interest each month, with the balance going to principal. (0.0875/12=0.007292, and that times 20,000 is 145.83; as interest is compounded daily, it'll be a little higher than that.) If the minimum is below $145, then you are not covering the interest; I suspect that is what is happening here, and they're reporting interest paid that wasn't covered in a prior month (assuming you have some months where you only pay the statement minimum, which is less than the total accrued interest). Assuming you're in the US (or most other western countries), your loan servicer should be explaining the exact amount each payment that goes to principal and interest. I recommend calling them up and finding out exactly why it's not consistent; what should be happening, assuming you pay more than the amount of interest each month, is the interest should go down (very) slowly each month and the amount paying off principal should go up (also slowly). EG: Etc., until eventually the interest is zero and your loan is paid off. It probably won't go this quickly for this size of loan - you're only paying off a tiny percentage of principal each month, $50/$20000 or 1/400th - so you won't make too much headway at this rate. Even adding another $25 would make a huge difference to the length of the loan and the amount of interest paid, but that's another story. You will eventually at this rate pay off the loan (at $200 a month for all 12 months); this isn't dissimilar to a 30 year mortgage in terms of percent interest to principal (in fact, it's better!). $50 a month times twelve is $600; 400 payments would take care of it (so a bit over 30 years). However, as you go you pay more principal and less interest, so you will actually pay it off in 15 years if you continue paying $200 a month exactly. What you may be seeing in your case is a combination of things: In months you pay less (ie, $100, say), the extra $45 in interest needs to go somewhere. It effectively becomes part of the principal, but from what I've seen that doesn't always happen directly - ie, they account it differently at least for a short time (up to a year, in my experience). This is because of tax laws, if I understand correctly - the amount you pay in interest is tax-deductible, but not the amount of the principal - so it's important for you to have as much called 'interest' as possible. Thus, if you pay $100 this month and $200 next month, that total of $300 is paying ~$290 of interest and $10 of principal, just as if you'd paid it $150 each month. If you had any penalties, such as for late payments, those come out off the top before interest; they may sometimes take that out as well. All in all, I strongly suggest having an enforced minimum (on your end) of the interest amount at least; that prevents you from being in a situation where your loan grows. If you can't always hit $200, that's fine; but at least hit $150 every single month. Otherwise you have a never ending cycle of student loan debt that you really don't want to be in. Separately, on the $1000 payment: As long as you make sure it's not assigned in such a way that the lender only accepts a month's worth at a time (which shouldn't happen, but there are shady lenders), it shouldn't matter what is called 'principal' and what is called 'interest'. The interest won't go up just because you're making a separate payment (it'll go down!). The portion that goes to interest will go to paying off the amount of interest you owe from the time of your last payment, plus any accrued but unpaid interest, plus principal. You won't have the option of not paying that interest, and it doesn't really matter anyway - it's all something you owe and all accruing interest, it only really matters for accounting and taxes. Double check with your lender (on the phone AND on their website, if possible) that overpayments are not penalized and are applied to principal immediately (or within a few days anyway) and you should be fine.", "title": "" }, { "docid": "3bc37934920f363c68b618b0b3e5d9d0", "text": "\"There are far more questions to be addressed here than one answer can address. Let me work backwards, and start with the easy part - \"\"I make $120K/yr, what can I afford?\"\" You are making $10K/mo. A great income. A well written mortgage will allow you to use 28% for housing, that's the mortgage, property tax, insurance, and HOA. On $2800, let's take out $500 for prop tax, and just $300 for insurance. I'll even ignore HOA for now. The remaining $2000/mo will fund a mortgage of $400K. That's not close to a $700K condo. A $550K mortgage would cost $2800/mo, and $3600 with tax and insurance, $4100 with HOA. Over 40% of your gross and a sign that you are in over your head. The real question is why you'd want to do this. $1600/mo rent means you can save $2000/mo in addition to what you already save if you stay put.\"", "title": "" }, { "docid": "5334ecb10e7edc640226aeaf0b65475b", "text": "\"I'm a little confused on the use of the property today. Is this place going to be a personal residence for you for now and become a rental later (after the mortgage is paid off)? It does make a difference. If you can buy the house and a 100% LTV loan would cost less than 125% of comparable rent ... then buy the house, put as little of your own cash into it as possible and stretch the terms as long as possible. Scott W is correct on a number of counts. The \"\"cost\"\" of the mortgage is the after tax cost of the payments and when that money is put to work in a well-managed portfolio, it should do better over the long haul. Don't try for big gains because doing so adds to the risk that you'll end up worse off. If you borrow money at an after-tax cost of 4% and make 6% after taxes ... you end up ahead and build wealth. A vast majority of the wealthiest people use this arbitrage to continue to build wealth. They have plenty of money to pay off mortgages, but choose not to. $200,000 at 2% is an extra $4000 per year. Compounded at a 7% rate ... it adds up to $180k after 20 years ... not exactly chump change. Money in an investment account is accessible when you need it. Money in home equity is not, has a zero rate of return (before inflation) and is not accessible except through another loan at the bank's whim. If you lose your job and your home is close to paid off but isn't yet, you could have a serious liquidity issue. NOW ... if a 100% mortgage would cost MORE than 125% of comparable rent, then there should be no deal. You are looking at a crappy investment. It is cheaper and better just to rent. I don't care if prices are going up right now. Prices move around. Just because Canada hasn't seen the value drops like in the US so far doesn't mean it can't happen in the future. If comparable rents don't validate the price with a good margin for profit for an investor, then prices are frothy and cannot be trusted and you should lower your monthly costs by renting rather than buying. That $350 per month you could save in \"\"rent\"\" adds up just as much as the $4000 per year in arbitrage. For rentals, you should only pull the trigger when you can do the purchase without leverage and STILL get a 10% CAP rate or higher (rate of return after taxes, insurance and other fixed costs). That way if the rental rates drop (and again that is quite possible), you would lose some of your profit but not all of it. If you leverage the property, there is a high probability that you could wind up losing money as rents fall and you have to cover the mortgage out of nonexistent cash flow. I know somebody is going to say, \"\"But John, 10% CAP on rental real estate? That's just not possible around here.\"\" That may be the case. It IS possible somewhere. I have clients buying property in Arizona, New Mexico, Alberta, Michigan and even California who are finding 10% CAP rate properties. They do exist. They just aren't everywhere. If you want to add leverage to the rental picture to improve the return, then do so understanding the risks. He who lives by the leverage sword, dies by the leverage sword. Down here in the US, the real estate market is littered with corpses of people who thought they could handle that leverage sword. It is a gory, ugly mess.\"", "title": "" }, { "docid": "f87fe8e98e124dc629edf77abcd2f338", "text": "Considering your question, I have been in the market for a house to buy. There is a house that I like and I wanted to know if I could afford it. You state your Assets: Awesome! Current Income: Great job putting $1000/month into your 401k! That is $12,000/year saved for retirement. Excellent! Current expenses: Why do you want to buy a house for more than 4x your gross income, and 3x median house price (U.S.)? Are you planning on living in the house for at least 5-7 years? There is a risk that interest rates will rise, and that will affect your ability to sell the house. Expected expenses: Adding your other essentials, You are considering increasing your expenses by $1000-1200/month. Looking at the amounts you quoted for direct housing expenses, you will have committed $2600/month to a mortgage payment. Adding your other estimated essentials, you will spend over $3700/month (leaving $2200/month for everything else). You may have higher utilities for a house than an apartment, you are doing well with your food budget, and your cellphone is lower than many. You anticipate $650/month ($7800/year) tax savings (be careful, congress is looking for ways to increase tax revenue). You want to keep your essential expenses under 50% (much more than 50% is difficult, and I am trying to get to 40%). You may live in an area where housing costs are an out-sized expense. But an option would be to save more, and a larger down payment could lower the monthly expenses below that 50% mark.", "title": "" }, { "docid": "d09b34b720637430e86f14b7e1ad35b7", "text": "You probably won't get a mortgage. UDSA has a 41% ratio of monthly debt to monthly income limit, and a score of 660 or better. A 250,000 mortgage at current rates for 30 year mortgage is about $1560/mo. (included in this figure is the 1% mortgage insurance premium, the .4% annual fee, the current rate for a 660 credit rating, the 2% points fee added at the front of the mortgage, typical closing cost added to transaction, and the .5% fee for over-mortgage insurance for the first 3 years since your mortgage will be higher than the value of the house due to these additional fees) Credit card payments = $120 ($60 times 2) Car payments = $542 ($271 for your car, $271 for the car you will be getting) Student loan = $50/month Child Support = $500/month Total = $2772/month Your income per month is 82000/12 = $6833/month $2772/$6833 = 40.6%... This is awfully close to the limit, so they likely would also look at your ability to save. Not seeing savings in the above example, I assume it is low. USDA site One mortgage help site breaks down some of the requirements into layman's language. Not knowing your exact location (county/state) and how many children you have, it is hard to be sure whether you make too much to qualify. This link shows the income limits by number of people in the house and the county/state. There are few places in which you could be living that would qualify you to any of their programs unless you have a several children. As others have posted, I suggest you get your debt down.", "title": "" }, { "docid": "59b95e58c37fdc1cfd69882241584d5b", "text": "The key question is whether this number includes taxes and insurance. When you get a mortgage in the U.S., the bank wants to be sure that you are paying your property taxes and that you have homeowners insurance. The mortgage is guaranteed by a lien on the house -- if you don't pay, the bank can take your house -- and the bank doesn't want to find out that your house burned down and you didn't bother to get insurance so now they have nothing. So for most mortgages, the bank collects money from the borrower for the taxes and insurance, and then they pay these things. This can also be convenient for the borrower as you are then paying a fixed amount every month rather than being hit with sizeable tax and insurance bills two or three times a year. So to run the numbers: As others point out, mortgage rates in the US today are running 3% to 4%. I just found something that said the average rate today is 3.6%. At that rate, your actual mortgage payment should be about $1,364. Say $1,400 as we're taking approximate numbers. So if the $2,000 per month does NOT include taxes and insurance, it's a bad deal. If it does, then not so bad. You don't say where you live. But in my home town, property taxes on a $300,000 house would be about $4,500 per year. Insurance is probably another $1000 a year. And if you have to get PMI, add another 1/2% to 3/4%, or $1500 to $2250 per year. Add those up and divide by 12 and you get about $600. Note my numbers here are all highly approximate, will vary widely depending on where the house is, so this is just a general ballpark. $1400 + $600 = $2000, just what you were quoted. So if the number is PITI -- principle, interest, taxes, and insurance -- it's about what I'd expect.", "title": "" } ]	fiqa
4ba5ea02ff0fb9e0a006ede881e6314c	Brent crude vs. USD market value	[ { "docid": "e28f9eea5648bd04f0d3a9cd12740871", "text": "I don't think the two are particularly linked. While Brick is right in that the price of oil is denominated in dollars, I don't think that's responsible for most of the movement here. Oil has been weak for intrinsic reasons related to oil: supply/demand imbalance, largely. (Oil also was way over-priced back when it was > $100 a barrel; a lot of that was due to worries about instability in the Middle East.) The dollar has been strong for other, separate intrinsic reasons. The American economy has had a stronger rebound than Europe or Asia; while we were hit hard in the 2008 recession, we rebounded pretty quickly from a whole-economy point of view (we still have a lot of weaknesses in terms of long-term unemployment, but that doesn't seem to be hurting our productivity much). Pick another time period, and you won't necessarily see the same matching path (and I would even say that those paths don't match particularly well). Marketwatch covered this for example; other sites show similar things. There is a weak correlation, but only in the short term, or for specific reasons.", "title": "" }, { "docid": "4f8847ee03e084d76b067e940cd6d7e1", "text": "\"It's standard to price oil in US$. That means that if the US$ gets stronger, the prices of oil drops even if its \"\"intrinsic value\"\" remains constant. Same thing happens for other commodities, such as gold. Think of the oil price in barrels/$. If the denominator (value of the $) goes up, then the ratio tends to go down.\"", "title": "" } ]	[ { "docid": "aa44f765e5a2f38704d6cc8e004c6e7c", "text": "Most of the gold prices at international markets are USD denominated. Hence the prices would be same in international markets where large players are buying and selling. However this does not mean that the prices to the individuals in local markets is same. The difference is due to multiple things like cost of physical delivery, warehousing, local taxation, conversion of Local currency to USD etc. So in essence the price of Gold is similar to price of Crude Oil. The price of Oil is more or less same on all the markets exchanges, though there is small difference this is because of the cost of delivery/shipment which is borne by the buyer. However the cost of Oil to retail individual varies from country to country.", "title": "" }, { "docid": "1067dd18b9d8b1ceff059de0557e2110", "text": "Just because pricing isn't tracked, doesn't mean the dollar price is not backed up by oil (they are others factors involved, of course). But the very fact that OPEC, the worlds largest oil cartel, currently only trade in dollars, effectively means that everyone who wants oil needs dollars to buy it. Therefore, to function in modern global economy, dollars are always needed regardless of exchange rates or interest rates on bonds. In reality the amount debt the US has backed up against its currency wouldn't hold for any other country, apart from US, with its petrodollar status.", "title": "" }, { "docid": "404f4c43c7313536978290ab8efe43b7", "text": "Yes, the US dollar is the standard for all global trade - IMF driven And China has been going for that title for the past decade and this is a very smart and tactical way to do it If this goes through, gold & oil might become really good place to be. The US has been in a supply run and kept the price of oil low. Things are changing quick...", "title": "" }, { "docid": "7c5e4cc3f975021d306cac2f5730af64", "text": "It's very simple. Use USDSGD. Here's why: Presenting profits/losses in other currencies or denominations can be useful if you want to sketch out the profit/loss you made due to foreign currency exposure but depending on the audience of your app this may sometimes confuse people (like yourself).", "title": "" }, { "docid": "8ad88c6e02a19df554b969904c287526", "text": "\"The prices quoted are for currency pairs traded on the foreign exchange market. For currencies traded on these exchanges, the exchange rates of a given currency pair are determined by the market, so supply and demand, investor confidence, etc. all play a role. EBS and Reuters are the two primary trading platforms in the foreign exchange market, and much of the data on exchange rates comes from them. Websites will usually get their data either from these sources directly or from a data provider that in turn gets it from EBS, Reuters, or another data source like Bloomberg or Haver Analytics. These data sources aren't free, however. In the US, many contracts, transactions, etc. that involve exchange rates use the exchange rate data published by the Federal Reserve. You might see this in contracts that specify to use \"\"the exchange rate published by the Federal Reserve at 12 pm (noon) on date --some date--\"\". You can also look at the Federal Reserve Economic Data, which maintains data series of historical daily, weekly, and monthly exchange rates for major currency pairs. These data are free, although they aren't realtime. Data for each business day is mostly updated the next business day.\"", "title": "" }, { "docid": "4f96e863ce27aefa989aa3d5ec68fba9", "text": "\"Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar… When this happens, the US dollar should drop to about 50% of it's current value and at that point, the US century will be over. What happens after that is anybodies guess but I expect that the US will have to either use it's military to shore up the dollar in exactly the same way they did when the invaded Iraq to prevent the sale of oil in Juan OR the US will blink and it's expensive military around the world will have to be clawed back. Simply put, the US will no longer be the world's policeman\"\".\"", "title": "" }, { "docid": "44c1a694da5c07c973e7e50b0180cf2c", "text": "According to your post, you bought seven shares of VBR at $119.28 each on August 23rd. You paid €711,35. Now, on August 25th, VBR is worth $120.83. So you have But you want to know what you have in EUR, not USD. So if I ask Google how much $845.81 is in EUR, it says €708,89. That's even lower than what you're seeing. It looks like USD has fallen in value relative to EUR. So while the stock price has increased in dollar terms, it has fallen in euro terms. As a result, the value that you would get in euros if you sold the stock has fallen from the price that you paid. Another way of thinking about this is that your price per share was €101,72 and is now €101,33. That's actually a small drop. When you buy and sell in a different currency that you don't actually want, you add the currency risk to your normal risk. Maybe that's what you want to do. Or maybe you would be better off sticking to euro-denominated investments. Usually you'd do dollar-denominated investments if some of your spending was in dollars. Then if the dollar goes up relative to the euro, your investment goes up with it. So you can cash out and make your purchases in dollars without adding extra money. If you make all your purchases in euros, I would normally recommend that you stick to euro-denominated investments. The underlying asset might be in the US, but your fund could still be in Europe and list in euros. That's not to say that you can't buy dollar-denominated investments with euros. Clearly you can. It's just that it adds currency risk to the other risks of the investment. Unless you deliberately want to bet that USD will rise relative to EUR, you might not want to do that. Note that USD may rise over the weekend and put you back in the black. For that matter, even if USD continues to fall relative to the EUR, the security might rise more than that. I have no opinion on the value of VBR. I don't actually know what that is, as it doesn't matter for the points I was making. I'm not saying to sell it immediately. I'm saying that you might prefer euro-denominated investments when you buy in the future. Again, unless you are taking this particular risk deliberately.", "title": "" }, { "docid": "7ef7559df647b9ac76b8ec7d324bbb4e", "text": "NUGT and DUST both track GDX with triple leverage, but in opposite directions. GDX has been rising steadily throughout 2016, and certainly since over the last month. DUST experiences much higher volume when GDX is in a downward trend, as it was from 2013-2016. I think you'll see the same thing with DRIP and GUSH when oil has been moving steadily in one direction or the other. This is really a reflection of the herd mentality to jump in when things look like they're going a particular direction.", "title": "" }, { "docid": "d1105d0dfbec07b6b30ea37e35393157", "text": "HSBC exchange spread between HKD and USD was 483 bps (1 bps is 0.0001) on their 24 hours exchange network a few weeks ago when I checked. It is very high for a pair of linked currencies which has very little fluctuation. One should expect less than 5 bps or even 1 bps. I did my currency conversion at a US brokerage which can take HKD currency and then I was able to pick the time/rate and amount I like to make the conversion. Basically, the currency pair runs within a tight band and you just need to buy USD with HKD at the time when it is near the edge of the band to your advantage. There is usually no fee on currency conversion. They make money through the spread. HSBC premier allows you to wire free among countries. I forget whether they offer tighter spread or not. Rob was right on about the cost of transferring money overseas. The majority of the cost is in the conversion, not the wiring.", "title": "" }, { "docid": "b25f5bafb3d66343aac4841d554e5e52", "text": "The missing information is at the end of the first line: the price is from NASDAQ (most specifically Nasdaq Global Select), which is a stock exchange in the USA, so the price is in US Dollars.", "title": "" }, { "docid": "69e213e1a561b292ef85f0c079ea6cb6", "text": "Russia main reserve is Euro, Gold and Yuan. They have dumped good sums of dollar since way back. The rest of oil buyers would gladly pay russians in whatever currency they want, specially if it is non dollar. Cheap oil on cheaper currency? Who doesn't want that? The chinese pay their oil in Yuan. Russian gladly takes Yuan, since its the most liquid currency in pacific, not to mention china is their no.1 trading partner.", "title": "" }, { "docid": "d2cc941b0968432c9831c1847e2dd468", "text": "\"First of all, the answer to your question depends on your starting dates and ending dates. So developed markets returns are higher over one period, and emerging markets returns over other periods. So far, there does not appear to be a systematic tilt in favor of one or the other. The reasons are as you said. Emerging markets tend to have higher returns in nominal terms, but developed markets currency movements (sometimes) cancel this out. So watch out for periods of strong and weak developed markets (e.g. U.S) currencies. In \"\"strong\"\" currency periods (such as those of the past five years or so), you want U.S. market exposure, and in \"\"weak\"\" currency periods, the larger nominal local returns will be fully reflected in dollar terms as well.\"", "title": "" }, { "docid": "244082b525c3e0b52022e26c339e7810", "text": "\"In the US, stocks are listed on one exchange but can be traded on multiple venues. You need to confirm exactly what your data is showing: a) trades on the primary-listed exchange; or b) trades made at any venue. Also, the trade condition codes are important. Only certain trade condition codes contribute towards the day's open/high/low/close and some others only contribute towards the volume data. The Consolidated Tape Association is very clear on which trades should contribute towards each value - but some vendors have their own interpretation (or just simply an erroneous interpretation of the specifications). It may surprise you to find that the majority of trading volume for many stocks is not on their primary-listed exchange. For example, on 2 Mar 2015, NASDAQ:AAPL traded a total volume across all venues was 48096663 shares but trading on NASDAQ itself was 12050277 shares. Trades can be cancelled. Some data vendors do not modify their data to reflect these busted trades. Some data vendors also \"\"snapshot\"\" their feed at a particular point in time of the data. Some exchanges can provide data (mainly corrections) 4-5 hours after the closing bell. By snapshotting the data too early and throwing away any subsequent data is a typical cause of data discrepancies. Some data vendors also round prices/volumes - but stocks don't just trade to two decimal places. So you may well be comparing two different sets of trades (with their own specific inclusion rules) against the same stock. You need to confirm with your data sources exactly how they do things. Disclosure: Premium Data is an end-of-day daily data vendor.\"", "title": "" }, { "docid": "73f0f5884654654b0658b3caef2f0620", "text": "You will most likely not be able to avoid some form of format conversion, regardless of which data you use since there is, afaik, no standard for this data and everyone exports it differently. One viable option would be, like you said yourself, using the free data provided by Dukascopy. Please take into consideration that those are spot currency rates and will most likely not represent the rate at which physical and business-related exchange would have happened at this time.", "title": "" }, { "docid": "369b54c7023ad44fe1764d78e1c1be63", "text": "To the best of my knowledge, Los Angeles County does not require a lawyer to be involved in a real-estate transaction. I looked through the County Recorder site and found no evidence that a lawyer is required. I live in a different county in California where a lawyer is also not required for real-estate transactions. Some counties do require a lawyer to be involved. That said, a purchase contract - is a contract. A legal document which you sign. A realtor may be able to help you understand the housing market pricing trends, but cannot (not allowed by law) draft the contract for you or advise to you on the clauses of the contract you're signing. Only a lawyer licensed in your State (California) is allowed to do that. So if you want a legal advice about the contract you're going to sign - you need to talk to a lawyer. Especially if you want a contract drafted for your own special needs, or have some specific titling requirements (for a company, or a trust - for example). Same goes for the mortgage contract and any other piece of paper you'll be signing during the closing meeting (and there will be plenty of such signatures). So it is not a question of need, it's a question of should.", "title": "" } ]	fiqa
4864a0028054eb190c66c22bcdee9a60	Is Real Estate ever a BAD investment? If so, when?	[ { "docid": "1372eca98843f33d82d53e28b69a5f0b", "text": "\"No, it can really not. Look at Detroit, which has lost a million residents over the past few decades. There is plenty of real estate which will not go for anything like it was sold. Other markets are very risky, like Florida, where speculators drive too much of the price for it to be stable. You have to be sure to buy on the downturn. A lot of price drops in real estate are masked because sellers just don't sell, so you don't really know how low the price is if you absolutely had to sell. In general, in most of America, anyway, you can expect Real Estate to keep up with inflation, but not do much better than that. It is the rental income or the leverage (if you buy with a mortgage) that makes most of the returns. In urban markets that are getting an influx of people and industry, however, Real Estate can indeed outpace inflation, but the number of markets that do this are rare. Also, if you look at it strictly as an investment (as opposed to the question of \"\"Is it worth it to own my own home?\"\") there are a lot of additional costs that you have to recoup, from property taxes to bills, rental headaches etc. It's an investment like any other, and should be approached with the same due diligence.\"", "title": "" }, { "docid": "5c5082a109e56963e97d599c10110ab2", "text": "Real estate is a lousy investment because: Renting a home and buying a home, all else being equal, are pretty similar in costs in the long term (if you can force yourself to invest the would-be down payment). So, buy a home if you want to enjoy the benefits of home ownership. Buy a home if you need to hedge against rising housing prices (e.g. you're on a fixed income and couldn't cope if rent increased a bunch when the economy heated up). Maybe buy a home if you're in a high tax bracket to save yourself from being taxed on your imputed rent, if it works out that way (consult your financial advisor). But don't consider it a really great investment vehicle. Returns are average and the risk profile isn't that attractive.", "title": "" }, { "docid": "98095fce9f91dbb6362fac9280e52d8c", "text": "Real estate is always an interesting dynamic. In most cases prices have always gone up. Price is mainly a function of demand. Sometimes demand is artificially inflated over a short term period and can come down quickly due to corrections. During recessions the housing market will usually slow down. There are some rare instances where certain areas never recover (see Subprime Mortgage Crisis Savings & Loans Crisis where scores of unwanted properties exist). Things to consider:", "title": "" }, { "docid": "8154fd100f804520d75c6fcbf83c9936", "text": "I'm surprised to even hear this question with the current state of devaluation of real estate. One thing I'll add to the other answers is to make sure you are doing a true apples/apples comparison to other investments when considering real estate. You can't just take subtract the purchase price from the sales price to get your ROI. Real estate has very heavy carry costs that you need to factor into any ROI calculation including: One more point: A house that you live in shouldn't be considered an investment, but rather an expense. You have to be able to liquidate an investment and collect your return. Unless you plan to move back in with your parents, you are always going to need a place to live so you can never really cash out on that investment, except perhaps by downgrading your lifestyle or a reverse mortgage.", "title": "" }, { "docid": "e058a9c9c6fcfe1a68a04d3b3487bba3", "text": "\"All other factors being equal, owning your primary residence is almost always a good investment over the long haul. Why? Because you have to live somewhere, and rentals, especially long-term leases that are important when you have kids in school, etc., are generally in the same ballpark as a mortgage in most markets. Giving $1,500 to a landlord gets me 30 days of living somewhere. Giving $1,500 to the bank gets me a place to live and equity in an asset which requires maintenance, but always has intrinsic value. Detroit is one extreme, Manhattan or Silicon Valley is another real estate extreme... everywhere else is somewhere in the middle. What isn't always a good investment is speculating in highly elastic \"\"investment property\"\" like vacation condos as an amateur. It's a cyclical market, but our attention spans are too short to realize that. As most of the other answers to this question indicate, people tend to be down in the dumps and see all of the problems with real estate when the market is not very good. Conversely people only see the upside and are oblivious to problems when the market is high.\"", "title": "" }, { "docid": "d9b3d137a9a7b62ce07f8c493bc452fd", "text": "\"As Yishani points out, you always have to do due diligence in buying a house. As I mentioned in this earlier post I'd highly recommend reading this book on buying a house associated with the Wall Street Journal - it clearly describes the benefits and challenges of owning a house. One key takeaway I had was - on average houses have a \"\"rate of return\"\" on par with treasury bills. Its best to buy a house if you want to live in a house, not as thinking about it as a \"\"great investment\"\". And its certainly worth the 4-6 hours it takes to read the book cover to cover.\"", "title": "" }, { "docid": "add0baeffeb943f2a17e61149836142c", "text": "\"There's an aspect to real estate that's under-discussed. When you take all factors into account, it just about keeps up with inflation over the long term. Three factors: Now - when you normalize all of this, calculating the \"\"hours worked\"\" needed to pay for the median home, you find a nearly flat line at just over 40 or so hours of pay per month.\"", "title": "" } ]	[ { "docid": "5091949ed7952e25b0a8a025af0aa5ee", "text": "Pretty simple: When is Cash Value Life Insurance a good or bad idea? It is never a good idea. How can life insurance possibly work as investment? It can't. Just as car, home, or health insurance is not an investment. Note for counter example providers: intent to commit insurance fraud is not an investment. Why not live your life so in 15 or 20 years you are debt free, have a nice emergency fund built and have a few 100 thousand in investments? Then you can self-insure. If you die with a paid off home, no debt, 20K in a money market, and 550,000 in retirement accounts would your spouse and children be taken care of?", "title": "" }, { "docid": "094cc46edbd8fa8d912fa6cb2f6da5dc", "text": "I know of no generic formula for determining if an investment property is a good investment, besides the trivial formula. Make sure your income is greater than your expenses, and hope the value of the property doesn't drop. Some people will tell you to expect the monthly rent to be a fixed percentage of the purchase price, but that is a goal not a certainty. It is also impossible to estimate the difficulty renting the property, or how long the roof will last. Taxes can't be predicted, as the value of the house increase, so do the property taxes, but you might not be able to increase the rent. You can't even predict the quality of the tenant. Will they damage the property? Or skip out early? You will need somebody who knows the local market to estimate the local conditions, and help you determine the estimated costs and income based on the actual property involved.", "title": "" }, { "docid": "bc857f6d3574927958580066c5cdad09", "text": "\"Here's what Suze Orman has to say about it: Good debt is money you borrow to purchase an asset, such as a home you can afford. History shows that home values generally rise in step with the inflation rate, so a mortgage is good debt. Student loans are, too, because they're an investment in the future. Census data pegs the average lifetime earnings of a high school graduate at a million dollars below that of someone with a bachelor's degree. Bad debt is money you borrow to buy a depreciating asset or to finance a \"\"want\"\" rather than a \"\"need.\"\" A car is a depreciating asset; from the day you drive it off the lot, it starts losing value. Credit card balances or a home equity line of credit that's used to pay for indulgences—vacations, shopping, spa days—is bad debt.\"", "title": "" }, { "docid": "4ec9c5228759edbab19be997d455092a", "text": "Real estate is not an investment but pure speculation. Rental income may make it look like an investment but if you ask some experienced investor you would be told to stay away from real estate unless it is for your own use. If you believe otherwise then please read on : Another strong reason not to buy real estate right now is the low interest rates. You should be selling real estate when the interest rates are so low not buying it. You buy real estate when the interest rate cycle peaks like you would see in Russia in months to come with 17% central bank rate right now and if it goes up a little more that is when it is time to start looking for a property in Russia. This thread sums it up nicely.", "title": "" }, { "docid": "cf50c055b7f7ddb663a5590ce31ba4b3", "text": "Be very careful about buying property because it has been going up quickly in recent years. There are some fundamental factors that limit the amount real-estate can appreciate over time. In a nutshell, the general real-estate market growth is supported by the entry-level property market. That is, when values are appreciating, people can sell and use the capital gains to buy more valuable property. This drives up the prices in higher value properties whose owners can use that to purchase more expensive properties and so on and so forth. At some point in a rising market, the entry-level properties start to become hard for entry-level buyers to afford. The machine of rising prices throughout the market starts grinding to a halt. This price-level can be calculated by looking at average incomes in an area. At some percentage of income, people cannot buy into the market without crazy loans and if those become popular, watch out because things can get really ugly. If you want an example, just look back to the US in 2007-2009 and the nearly apocalyptic financial crisis that ensued. As with most investing, you want to buy low and sell high. Buying into a hot market is generally not very profitable. Buying when the market is abnormally low tends to be a more effective strategy.", "title": "" }, { "docid": "1b2dd431b4ecc0f4628fb920d23cf43c", "text": "You don't start out buying a shopping mall, you have to work up to it. You can start with any amount and work up to a larger amount. For me, I saved 30% of my salary(net), investing in stocks for 8 years. It was tough to live on less, but I had a goal to buy passive income. I put down this money to buy 3 houses, putting 35% down and maintaining enough cash to make 5 years of payments. I rented out the houses making a cap of 15%. The cap is the net payment per year / cost of the property, where the net accounts for taxes and repairs. I did not spend any of the profits, but I did start saving less salary. After 5 years of appreciation, mortgage payments and rental profit, I sold one house to get a loan for a convenience store. Buildings go on the market all the time, it takes 14 years to directly recoup an investment at a 7% cap, which is the average for a commercial property sale. Many people cash out for this reason, it's slow, but steady growth, though the earnings on property appreciation is a nice bonus. Owning real estate is a long term game, after a long time of earning, you can reinvest, but it comes with the risk of bad or no tenants. You can start both slower and smaller, just make sure you're picking up assets, not liabilities. Like investing in cars is generally bad unless you are sure it will appreciate.", "title": "" }, { "docid": "b4d6409912f396ec96d4f024e56f5000", "text": "China is in the middle of a residential housing bubble, and now is probably a horrible time to invest in real estate in China. Even if China wasn't near the peak of its bubble it would probably still be a bad idea because owning real estate in a foreign country is expensive and risky. There are real currency risks, think what would happen if the yuan declined significantly against the dollar. There is also the risk of the government seizing foreign held investments (not extremely likely but plausible). Another consideration is that it would be next to impossible for you to get a loan to purchase a property US banks wouldn't touch it with a 10 ft pole and I doubt Chinese banks would be very interested in lending to foreigners.", "title": "" }, { "docid": "7463e6b01c2f38e523cd6ba482a29b8a", "text": "\"A couple of distinctions. First, if you were to \"\"invest in real estate\"\" were you planning to buy a home to live in, or buy a home to rent out to someone else? Buying a home as a primary residence really isn't \"\"investing in real estate\"\" per se. It's buying a place to live rather than renting one. Unless you rent a room out or get a multi-family unit, your primary residence won't be income-producing. It will be income-draining, for the most part. I speak as a homeowner. Second, if you are buying to rent out to someone else, buying a single home is quite a bit different than buying an REIT. The home is a lot less liquid, the transaction costs are higher, and all of your eggs are in one basket. Having said that, though, if you buy one right and do your homework it can set you on the road for a very comfortable retirement.\"", "title": "" }, { "docid": "a8ae0bc20cdc126b60553272d13fc94a", "text": "\"In economics, there is a notion called the Sunk Cost Fallacy. In a nutshell, the sunk cost fallacy says that human beings tend to prefer to \"\"throw good money after bad\"\" because of a strong loss aversion. That, coupled with how we frame an issue, makes it very tempting to say, \"\"if I just add these funds, I'll recoup my loss plus...\"\" In reality, the best best is to ignore sunk costs. (I know, far easier said than done, but bear with me a second.) How much you've invested is really irrelevant. The only question worth asking is this: \"\"Would I invest this money in the asset today?\"\" Put it this way - any money you spend on \"\"rescuing\"\" this upside mortgage is an investment that trades ready funds for a little more equity. Knowing that the mortgage is $100K in excess of the value, why buy that asset? If you could do a HARP, different story - but as you say, you can't. As such, buying into that investment is not the best use of your funds. You are throwing good money after bad. Invest your money where it will earn the best rate of return - not where your heart lead you.\"", "title": "" }, { "docid": "31a4b099a0205d14bad89d1129744e50", "text": "So your accountant certainly knows much more than I do about Israeli tax law and its interactions with US tax law, which is zero. I'm going to look at this problem from the investment perspective which I hope to convince you is the most important place to start. Then you can adjust for interactions between the Isreali and US tax codes. Even if the tax breaks are exceptional, it would be hard to recommend buying real estate as an investment in the 7-10 year time frame. Especially if this real estate is in the US. Open/Closing fees, mortgage fees, risk of property devaluation, bad-renters, acts of god, insurance costs and tax complications make short to medium term investments in real estate a particularly risky way to invest. Buying a local apartment and renting is somewhat more reasonable as you don't have to worry about the currency conversion and you can do a lot more research in your local environment and keep a closer eye on the property, it is still this a pretty concentrated risk. Saving and investing using tax-advantaged accounts is generally considered a great way to build toward a down payment in the medium term. A mixture of mostly local bonds with some local and foreign stocks and more and more cash as it gets close to purchase time is generally what is recommended when saving for a home. This mixture is relatively safe and will tend to grow steadily without the concentrated risk of a real estate investment. PFIC rules are complicated and certainly worth taking some time to understand, but owning real estate especially in a foreign country seems much more complicated and certainly riskier. There may be some rule that makes investing in REITs much better than normal stocks in these particular accounts though I would be surprised if that were the case. It is generally not true for people under just he US tax code. So while option (1) may not be the absolute best from a tax perspective it would certainly be my guess as the most likely to succeed.", "title": "" }, { "docid": "186632702891b096cb961029a47ca4d5", "text": "Of course, I know nothing about real estate or owning a home. I would love to hear people's thoughts on why this would or would not be a good idea. Are there any costs I am neglecting? I want the house to be primarily an investment. Is there any reason that it would be a poor investment? I live and work in a college town, but not your college town. You, like many students convinced to buy, are missing a great many costs. There are benefits of course. There's a healthy supply of renters, and you get to live right next to campus. But the stuff next to campus tends to be the oldest, and therefore most repair prone, property around, which is where the 'bad neighborhood' vibe comes from. Futhermore, a lot of the value of your property would be riding on government policy. Defunding unis could involve drastic cuts to their size in the near future, and student loan reform could backfire and become even less available. Even city politics comes into play: when property developers lobby city council to rezone your neighborhood for apartments, you could end up either surrounded with cheaper units or possibly eminent domain'd. I've seen both happen in my college town. If you refuse to sell you could find yourself facing an oddly high number of rental inspections, for example. So on to the general advice: Firstly, real estate in general doesn't reliably increase in value, at best it tends to track inflation. Most of the 'flipping' and such you saw over the past decade was a prolonged bubble, which is slowly and reliably tanking. Beyond that, property taxes, insurance, PMI and repairs need to be factored in, as well as income tax from your renters. And, if you leave the home and continue to rent it out, it's not a owner-occupied property anymore, which is part of the agreement you sign and determines your interest rate. There's also risks. If one of your buddies loses their job, wrecks their car, or loses financial aid, you may find yourself having to eat the loss or evict a good friend. Or if they injure themselves (just for an example: alcohol poisoning), it could land on your homeowners insurance. Or maybe the plumbing breaks and you're out an expensive repair. Finally, there are significant costs to transacting in real estate. You can expect to pay like 5-6 percent of the price of the home to the agents, and various fees to inspections. It will be exceedingly difficult to recoup the cost of that transaction before you graduate. You'll also be anchored into managing this asset when you could be pursuing career opportunities elsewhere in the nation. Take a quick look at three houses you would consider buying and see how long they've been on the market. That's months of your life dealing with this house in a bad neighborhood.", "title": "" }, { "docid": "5a7975f7b904e476239cf8f0dc1eb4de", "text": "\"If I buy property when the market is in a downtrend the property loses value, but I would lose money on rent anyway. So, as long I'm viewing the property as housing expense I would be ok. This is a bit too rough an analysis. It all depends on the numbers you plug in. Let's say you live in the Boston area, and you buy a house during a downtrend at $550k. Two years later, you need to sell it, and the best you can get is $480k. You are down $70k and you are also out two years' of property taxes, maintenance, insurance, mortgage interest maybe, etc. Say that's another $10k a year, so you are down $70k + $20k = $90k. It's probably more than that, but let's go with it... In those same two years, you could have been living in a fairly nice apartment for $2,000/mo. In that scenario, you are out $2k * 24 months = $48k--and that's it. It's a difference of $90k - $48k = $42k in two years. That's sizable. If I wanted to sell and upgrade to a larger property, the larger property would also be cheaper in the downtrend. Yes, the general rule is: if you have to spend your money on a purchase, it's best to buy when things are low, so you maximize your value. However, if the market is in an uptrend, selling the property would gain me more than what I paid, but larger houses would also have increased in price. But it may not scale. When you jump to a much larger (more expensive) house, you can think of it as buying 1.5 houses. That extra 0.5 of a house is a new purchase, and if you buy when prices are high (relative to other economic indicators, like salaries and rents), you are not doing as well as when you buy when they are low. Do both of these scenarios negate the pro/cons of buying in either market? I don't think so. I think, in general, buying \"\"more house\"\" (either going from an apartment to a house or from a small house to a bigger house) when housing is cheaper is favorable. Houses are goods like anything else, and when supply is high (after overproduction of them) and demand is low (during bad economic times), deals can be found relative to other times when the opposite applies, or during housing bubbles. The other point is, as with any trend, you only know the future of the trend...after it passes. You don't know if you are buying at anything close to the bottom of a trend, though you can certainly see it is lower than it once was. In terms of practical matters, if you are going to buy when it's up, you hope you sell when it's up, too. This graph of historical inflation-adjusted housing prices is helpful to that point: let me just say that if I bought in the latest boom, I sure hope I sold during that boom, too!\"", "title": "" }, { "docid": "53eba26870fc7db41c037231c4ffb043", "text": "Properties do in fact devaluate every year for several reasons. One of the reasons is that an old property is not the state of the art and cannot therefore compete with the newest properties, e.g. energy efficiency may be outdated. Second reason is that the property becomes older and thus it is more likely that it requires expensive repairs. I have read somewhere that the real value depreciation of properties if left practically unmaintained (i.e. only the repairs that have to absolutely be performed are made) is about 2% per year, but do not remember the source right now. However, Properties (or more accurately, the tenants) do pay you rent, and it is possible in some cases that rent more than pays for the possible depreciation in value. For example, you could ask whether car leasing is a poor business because cars depreciate in value. Obviously it is not, as the leasing payments more than make for the value depreciation. However, I would not recommend properties as an investment if you have only small sums of money. The reasons are manyfold: So, as a summary: for large investors property investments may be a good idea because large investors have the ability to diversify. However, large investors often use debt leverage so it is a very good question why they don't simply invest in stocks with no debt leverage. For small investors, property investments do not often make sense. If you nevertheless do property investments, remember the diversification, also in time. So, purchase different kinds of properties and purchase them in different times. Putting a million USD to properties at one point of time is very risky, because property prices can rise or fall as time goes on.", "title": "" }, { "docid": "51629c9b32f96cee6e2c56d472ad35b0", "text": "Your house is not an asset, it is a liability. Assets feed you. Liabilites eat you. Robert Kiyosaki From a cash flow perspective your primary residence (ie your house) is an investment but it is not an asset. If you add up all the income your primary residence generates and subtract all the expenses it incurs, you will see why investment gurus claim this. Perform the same calculations for a rental property and you're more likely to find it has a positive cash flow. If it has a negative cash flow, it's not an asset either; it's a liability. A rental property with a negative cash flow is still an investment, but cash flow gurus will tell you it's a bad investment. While it is possible that your house may increase in value and you may be able to sell it for more than you paid, will you be able to sell it for more than all of the expenses incurred while living there? If so, you have an asset. Some people will purchase a home in need of repair, live in it and upgrade it, sell it for profit exceeding all expenses, and repeat. These people are flipping houses and generating capital gains based on their own hard work. In this instance a person's primary residence can be an asset. How much of an asset is calculated when the renovated house is sold.", "title": "" }, { "docid": "3bd43884a9d185524af6a2230f569e8c", "text": "Your question may have another clue. You are bullish regarding the real estate market. Is that for your city, your state, your nation or for the whole world? Unless you can identify particular properties or neighborhoods that are expected to be better than the average return for your expected bull market in real estate, you will be taking a huge risk. It would be the same as believing that stocks are about to enter a bull market, but then wanting to put 50% of your wealth on one stock. The YTD for the DOW is ~+7%, yet 13 of the 30 have not reached the average increase including 4 that are down more than 7%. Being bullish about the real estate segment still gives you plenty of opportunities to invest. You can invest directly in the REIT or you can invest in the companies that will grow because of the bullish conditions. If your opinion changes in a few years it is hard to short a single property.", "title": "" } ]	fiqa
4c4076636864eb3d19891315224b2d24	$10,000 to invest in the house - Pay down principal or spruce up to increase appraisal?	[ { "docid": "3d0658033b028dc27886717f8b643785", "text": "\"There is no guarantee improvements will raise the appraised value. You also don't want your property tax appraisal to go up if you can avoid it. Since you are talking on the order of $10k I'll assume you're only a few thousand dollars more from getting to 20%. That said, any schemes you might come up with like refinancing or second line of credit will probably cost more in fees than they are worth, unless you can get a much nicer interest rate. Figure out how long you plan to stay there, Evaluate your options (do nothing, principal reduction, refinance for 30, 15, or even an ARM) and figure out your bottom line by comparing everything in a spreadsheet One more thing: if you do pay a substantial amount of extra principal, you can ask the lender to \"\"rebalance\"\" which will correct the minimum monthly payment to your remaining term. This will likely incur a fee, but could be helpful in an emergency\"", "title": "" } ]	[ { "docid": "2496a1379b1d804b89bcf3e6c0b4205c", "text": "Sorry, I don't think a bounty is the issue here. You seem to understand LTV means the bank you are talking to will lend you 60% of the value of the home you wish to purchase. You can't take the dollars calculated and simply buy a smaller house. To keep the numbers simple, you can get a $600K mortgage on a $1M house. That's it. You can get a $540K mortgage on a $900K house, etc. Now, 60% LTV is pretty low. It might be what I'd expect for rental property or for someone with bad or very young credit history. The question and path you're on need to change. You should understand that the 'normal' LTV is 80%, and for extra cost, in the form of PMI (Private Mortgage Insurance) you can even go higher. As an agent, I just sold a home to a buyer who paid 3% down. The way you originally asked the question has a simple answer. You can't do what you're asking.", "title": "" }, { "docid": "b3415a1c53a9d79df08c7fa642104a2f", "text": "Simply put, for a mortgage, interest is charged only on the balance as well. Think of it this way - on a $100K 6% loan, on day one, 1/2% is $500, and the payment is just under $600, so barely $100 goes to principal. But the last payment of $600 is nearly all principal. By the way, you are welcome to make extra principal payments along with the payment due each month. An extra $244 in this example, paid each and every month, will drop the term to just 15 years. Think about that, 40% higher payment, all attacking the principal, and you cut the term by 1/2 the time.", "title": "" }, { "docid": "fa3d4b96522bea88e0bdae412d40b18e", "text": "\"There is considerable truth to what your realtor said about the Jersey City NJ housing market these days. It is a \"\"hot\"\" area with lots of expensive condos being bought up by people working on Wall Street in NYC (very easy commute by train, etc) and in many cases, the offers to purchase can exceed the asking price significantly. Be that as is may, the issue with accepting a higher offer but smaller downpayment is that when the buyer's lender appraises the property, the valuation might come in lower and the buyer may have to come up with the difference, or be required to accept a higher interest rate, or be refused the loan altogether if the lender estimates that the buyer is likely to default on the loan because his credit-worthiness is inadequate to support the monthly payments. So, the sale might fall through. Suppose that the property is offered for sale at $500K, and consider two bids, one for $480K with 30% downpayment ($144K) and another for $500K with 20% downpayment ($100K). If the property appraises for $450K, say, and the lender is not willing to lend more than 80% of that ($360K), then Buyer #1 is OK; it is only necessary to borrow $480K - $144K = $336K, while Buyer #2 needs to come up with another $40K of downpayment to be able to get the loan, or might be asked to pay a higher interest rate since the lender will be lending more than 80% of the appraised value, etc. Of course, Buyer #2's lender might be using a different appraiser whose valuation might be higher etc, but appraisals usually are within the same ballpark. Furthermore, good seller's agents can make good estimates of what the appraisal is likely to be, and if the asking price is larger than the agent's estimate of appraised value, then it might be to the advantage of the selling agent to recommend accepting the lower offer with higher downpayment over the higher offer with smaller downpayment. The sale is more likely to go through, and an almost sure 6% of $480K (3% if there is a buyer's agent involved) in hand in 30 days time is worth more than a good chance of nothing at the end of 15 days when the mortgage is declined, during which the house has been off the market on the grounds that the sale is pending. If you really like a house, you need to decide what you are willing to pay for it and tailor your offer accordingly, keeping in mind what your buyer's agent is recommending as the offer amount (the higher the price, the more the agent's commission), how much money you can afford to put down as a downpayment (don't forget closing costs, including points that might be need to be paid), and what your pre-approval letter says about how much mortgage you can afford. If you are Buyer #1, have a pre-approval letter for $360K, and have enough savings for a downpayment of up to $150K, and if you (or your spouse!) really, really, like the place and cannot imagine living in any other place, then you could offer $500K with 30% down (and blow the other offer out of the water). You could even offer more than $500K if you want. But, this is a personal decision. What your realtor said is perfectly true in the sense that for Y > Z, an offer at $X with $Y down is better than an offer at $X with $Z down. It is to a certain extent true that for W > X, a seller would find an offer at $X with $Y down to be more attractive that an offer at $W with $Z$ down, but that depends on what the appraisal is likely to be, and the seller's agent's recommendations.\"", "title": "" }, { "docid": "deb953fcf7100653cf7a8ae876250bf7", "text": "The bank I work with would be more inclined to expand an existing HELOC rather than write a new one. I think that would be your best bet if you decide to continue borrowing against your home. Consider that your own income would have to support the repayment of these larger homes. If it is, why didn't you buy a larger home to begin with? As far as increasing the appraisal, you don't usually get one dollar of increased appraisal for each dollar you spend on improvements unless you have a rundown house in a nice neighborhood; part of the appraisal comes from a comparison with the appraisals of the other homes nearby. Eventually you get close enough to par with the other houses that anyone looking for something more expensive will often choose a different neighborhood entirely. Update: To your edit that mentions the original lender will cap the amount you can borrow, you can take additional secondary mortgages/HELOCs, but the interest rate is usually higher because it is not the first mortgage. I don't generally recommend it, but the option is there.", "title": "" }, { "docid": "7eff9b05f079615ac6d4d7cee02d6c73", "text": "It's important because it shows that the amount you owe does not decrease linearly with each payment, and you gain equity as a correspondingly slower rate at the beginning of the loan and faster at the end. This has to be figured in when considering refinancing, or when you sell the place and pay off the mortgage. It also shows why making extra payments toward principal (if your loan permits doing so) is so advantageous -- unlike a normal payment that lowers the whole curve by a notch, reducing the length of time over which interest is due and thus saving you money in the long run. (Modulo possible lost-opportnity costs, of course.)", "title": "" }, { "docid": "e4bf0dcb96ce68979ca1b604142bb2d7", "text": "\"Forget the math's specifics for a moment: here's some principles. Additional housing for a renter gives you returns in the form of money. Additional housing for yourself pays its returns in the form of \"\"here is a nice house, live in it\"\". Which do you need more of? If you don't need the money, get a nicer house for yourself. If you need (or want) the money, get a modest house for yourself and either use the other house as a rental property, or invest the proceeds of its sale in the stock market. But under normal circumstances (++) don't expect that buying more house for yourself is a good way to increase how much money you have. It's not. (++ the exception being during situations where land/housing value rises quickly, and when that rise is not part of a housing bubble which later collapses. Generally long-term housing values tend to be relatively stable; the real returns are from the rent, or what economists call imputed rent when you're occupying it yourself.)\"", "title": "" }, { "docid": "fcf93e39ce1d687130b67a82647cc911", "text": "\"Much of the interest on a loan comes in the first years of a mortgage, so the sooner you can pay that off, the better. But let's see what the numbers say. If you have a loan at 4%, principal of $100,000, a term of 30 years, then this gives monthly payments of $477.42 (using the Excel PMT function). If you sell the house after precisely 5 years worth of payments, then you have made $28,644.92 in payments, you still owe $90,924.93. Suppose you sell the house for $100,000. That means you will be in the hole for: $100,000 - $90,924.93 - $28,644.92 = -$19,569.85 Now, suppose you pay an extra $50 per month over the five years. The same calculation becomes: $100,000 - $87,659.98 - $31,644.92 = -$19,304.90 So in this scenario, which is a little simplistic, you are $264.95 better off. The question you have to ask is whether you could have done better investing the $3,000 in extra payments somewhere else. The CAGR in doing this is 1.7%, so you might be better off putting the money away. Running the same numbers for a 6% mortgage the CAGR you have is about 2.7%. Edit I've added a Google Docs spreadsheet (read-only) that you can download and play with. Feel free to correct anything you find amiss! Edit 2 OK, so I've had a look at what JoeTaxpayer is saying in the comments below, and now I agree: The CAGR should be 4%. Where I want wrong was to assume that the $50 per month payments over the five years are worth $50 * 5 * 12 = $3000. This neglects the \"\"time value of money\"\" --- having small amounts of money periodically, rather than all of it in a lump sum. Including this makes the \"\"effective\"\" value of the monthly $50 payments $2714.95 written as =PV(0.04/12,60,-50) in Excel or Google Docs. I've added a tab to the original spreadsheet to show the different calculations. Note that it still doesn't quite come to 4%, but I guess it's a minor error in the sheet. NB: I know, I'm leaving out mortgage interest tax relief, costs for selling etc. etc.\"", "title": "" }, { "docid": "d47d3e6a08b9cd9906a0b18a2a29bbf6", "text": "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.)", "title": "" }, { "docid": "0dc497d277202eaf06f2613555187913", "text": "\"I read the linked article as gef05 did, it states that the bank must stop charging PMI. But. My understanding is different. I understood that the requirement to remove PMI at sub 80 loan to value only occurred after the natural amortization time had passed. For example, you buy a $100K home, you will be at 80% LTV the day you owe 80K. This date can be calculated at the closing as you know your numbers by then. There's nothing stopping you from asking the bank to stop charging PMI sooner, but I believe they already have an end date in mind. Besides the appraisal request, what exactly did they give as the reason they won't cancel PMI? Edit - I just re-read the link. The line \"\"you show that the value of the property hasn't gone down\"\" makes the bank's appraisal request reasonable, IMHO.\"", "title": "" }, { "docid": "39d5031d5986136c4c29598f88e3bb45", "text": "After a 6% commission to sell, you have $80K in equity. 20% down on a $400K house. 5% down will likely cost you PMI, and I don't know that you'll ever see a 3.14% rate. The realtor may very well have knowledge of the cost to finish a basement, but I don't ask my doctor for tax advice, and I'd not ask a realtor for construction advice. My basement flooring was $20/sqft for a gym quality rubber tile. You can also get $2/sqft carpet. I'd take the $15K number with a grain of salt until I got real bids. What's there now? Poured cement? Is there clearance to put in a proper subfloor and still have adequate ceiling height? There are a lot of details that you need to research to do it right. That said, the move to a bigger house impacts your ability to save to the extent that you are taking too large a risk. The basement finish, even if $20K, is just a bit more than the commission on your home. I like the idea of sticking it out. Once the nanny is gone, enjoy the extra income, and use the money to boost your savings and emergency funds. As I read your question again, I suggest you cut the college funding in favor of the emergency fund. What good is a funded college account if you have no funds to sustain you through a period of unemployment? There's a lot to be gained in holding tight for these 3 years. It seems that what's too small for 5 would be spacious once the nanny is gone and the basement added. The cost of a too-big house is enormous over the long run. It's going to rise in value with inflation, but no more, and has all the added costs that you've mentioned. On a personal note, I'm in a large house, with a dining room that's used 2 or 3 times a year, and a living room (different from family room) that is my dog's refuge, but we never go in there. In hindsight, a house 2/3 the size would have been ideal. Finishing the basement doesn't just buy you time, it eliminates the need for the larger house.", "title": "" }, { "docid": "2ea4c5645f9501efe06d56633977f905", "text": "Keep in mind, there are times that house is in such bad shape that it's going to need 6 months of renovations, in which case you might ask the town if they are willing to reappraise a lower value until the work is completed. Keep in mind, you'll get a new appraisal when permitted (I mean pulling a permit from the town) work is done. I finished my basement and the town was eager to send the appraiser over even before work was fully complete.", "title": "" }, { "docid": "5de97a1bc0bbdec7f2e311fbfba9d0bd", "text": "\"Be careful that pride is not getting in the way of making a good decision. As it stands now what difference does it make to have 200K worth of debt and a 200K house or 225K of debt and a 250K house? Sure you would have a 25K higher net worth, but is that really important? Some may even argue that such an increase is not real as equity in primary residence might not be a good indication of wealth. While there is nothing wrong with sitting down with a banker, most are likely to see your scheme as dubious. Home improvements rarely have a 100% ROI and almost never have a 200% ROI, I'd say you'd be pretty lucky to get a 65% ROI. That is not to say they will deny you. The banks are in the business of lending money, and have the goal of taking as much of your hard earned paycheck as possible. They are always looking to \"\"sheer the sheep\"\". Why not take a more systematic approach to improving your home? Save up and pay cash as these don't seem to cause significant discomfort. With that size budget and some elbow grease you can probably get these all done in three years. So in three years you'll have about 192K in debt and a home worth 250K or more.\"", "title": "" }, { "docid": "ea86135aefc19f735f834aa9cfa4eac0", "text": "\"Pre-edit, Pete mentioned that he feels real estate agents would (a) like you to buy as much house as you afford, and (b) would love to show you three houses and have you choose one. As a real estate agent myself, I believe his warnings were understated. As with any industry, there are good and bad people. Agents are paid to move houses. If the median US home is under $200K, and commissions average say 5%, the $10,000 to be gained is split between the buyer brokerage and selling agent. The $5000 to each is then shared with 'the house.' So, this sale would net me $2500, gross. Move one a week, and the income is great, one per month, not so much. Tire kickers will waste an agent's time for a potential decision to wait another year and continue renting. Their obligation is to tell you the truth, but not to offer financial advice. Remember the mortgage crisis? It seems the banks and brokers aren't watching out for you either. They will tell you what they'll lend you, but not what you can afford. These numbers are worlds apart. I strongly recommend a 20% downpayment. The FHA PMI calculator shows that a 90% LTV (i.e. a 10% downpayment) for a $100K house will cost you $1200/yr in PMI. Think about this. For the $10,000 that you didn't put down, you are paying an extra $1200 each year. This is on top of the interest, so even at 5%, that last $10,000 is costing nearly 17%. If you can't raise that $10K (or whatever 10% is on that house) in cheaper funds, you should hold off. Using the 401(k) loan for this purpose is appropriate, yet emotionally charged. As if suck loans are written by the devil himself. \"\"Buy the biggest house you can\"\"? No. I have a better idea. Buy the smallest place you can tolerate. I have a living room (in addition to family room) that has been used 3 times in 20 years. A dining room we actually use. Twice per year. When your house is 50% too big, you pay 50% more property tax, more utility bills, and more maintenance. Closing costs, commission, etc, isn't cheap, but the lifetime cost of living in a too-big house is a money pit.\"", "title": "" }, { "docid": "8394b41dc5e16d17c616139c687e014c", "text": "If it is US, you need to take tax implications into account. Profit taken from sale of your home is taxable. One approach would be to take the tax hit, pay down the student loans, rent, and focus any extra that you can on paying off the student loans quickly. The tax is on realized gains when you sell the property. I think that any equity under the original purchase price is taxed at a lower rate (or zero). Consult a tax pro in your area. Do not blindly assume buying is better than renting. Run the numbers. Rent Vs buy is not a question with a single answer. It depends greatly on the real estate market where you are, and to a lesser extent on your personal situation. Be sure to include maintenance and HOA fees, if any, on the ownership side. Breakeven time on a new roof or a new HVAC unit or an HOA assessment can be years, tipping the scales towards renting. Include the opportunity cost by including the rate of return on the 100k on the renting side (or subtracting it on the ownership side). Be sure to include the tax implications on the ownership side, especially taxes on any profits from the sale. If the numbers say ownership in your area is better, then try for as small of a mortgage as you can get in a growing area. Assuming that the numbers add up to buying: buy small and live frugally, focus on increasing discretionary spending, and using it to pay down debt and then build wealth. If they add up to renting, same thing but rent small.", "title": "" }, { "docid": "8a394433b4cf50d06b1ac69538c921d1", "text": "Depends on the house. If it's a house that's <10 years old, you're looking at pretty minor repair work. You can probably afford to be aggressive. I bought a home built in 1927 in 2006. Since then, I've put on a roof, replaced windows, replaced hot water tanks, replaced bathroom fixtures and corrected plumbing horrors. Total cost: $20k. Had I spent down savings on a down payment, I would have been in rough shape financially. Other things to think about are:", "title": "" } ]	fiqa
d7791d5d9109519191d42b733a358879	Repaying Debt and Saving - Difficult Situation	[ { "docid": "7f4c07da2f87864cf9f933123aaa2f82", "text": "She seems to be paying an inordinate amount of money for car payments. $850/month is just too high. She may be able to get by on public transit, depending on where she lives, but if not, she needs to look at selling her car and picking up a cheap second-hand vehicle. Public transit would probably save her $750/month. Going to a cheaper car should still save her $300 - $400/month. Next, phone and cable. These are certainly nice, but they are rarely necessities. I do not have cable t.v., for example. I do have a cell phone, and I do have Internet (a requirement of my job), but no cable t.v. She may be able to save some money there. My guess is that she could save $125/month here, though I may be biased on how much it costs to heat a Canadian home in our cold, cold winters. And, of course, the college payment. $900 - $1000 a month? I understand that she is paying this so that your sister can attend college. That's very nice, but it certainly sounds like your mother cannot afford that. On the other hand, if this is repayment of college expenses already incurred, there may be no choice here. Rent, at $1625/month. I have no idea what that gets you in NJ, but perhaps she could rent out a room. It's not inconceivable that she could bring in $1000/month from doing so, though obviously that's going to very much depend on the real estate/rental market where you live. Alternatively, she could move out and move in with someone else and that should certainly get her share of the rent down to $800 - $1000/month or thereabouts, and most likely cut her utility bills, also. I've identified a number of places where she can save money. No doubt, the budget is tight, but I think she's spending on far more than just bare essentials. One thing that concerns me here is that she appears to have no emergency funds and very little for entertainment, other than cable t.v. If at all possible, she needs to cut her budget down so that she is not living paycheque to paycheque and has money to cover, for example, emergency car repairs. And I'd really like to see her have more than $50/month for expenses (which I'm guessing is entertainment). It may not be possible, of course, but I would most definitely say she should not be paying for your sister's college if this places her in such dire financial risk. Easier said than done, of course. Most certainly, I would not even consider cutting the health insurance, by the way. Another approach would be to look at how her expenses will go down when your sister is done school and perhaps cleared up other expenses. It may be worth borrowing from family and friends, knowing that in a year, her expenses will go down $500/month. That makes her budget manageable. Additionally, the debt repayment presumably will finish at some point. The point I'm trying to make is that, in a year, her budget will be just about manageable, and she may be able to get there with smaller trims in the immediate future.", "title": "" }, { "docid": "89dc3693851505397f9ef379fcf04750", "text": "Just a thought, but have you considered approaching your sister about assuming the student loans or repaying your mother (even if it is a small amount/month) for financing her college education? If she is in her last year of college, in theory she should be earning at least some income within the next 2 years. Also, it doesn't seem like a lot to ask considering the sacrifices (both financial and otherwise) that a single mom probably made over the years. I'm sure your mom would be hesitant to ask as it seems like she prioritizes her children above herself by your description of the situation, but I bet if you could talk the sister into the mom would grudgingly accept it if she really is in such a tight financial situation.", "title": "" }, { "docid": "3702a50e13b067ed77d7b377daccf624", "text": "\"Like everybody else I'm picking up on the school loans - you're mother isn't exactly earning a massive amount of money given her cost of living, why is she taking out student loans that benefit you and your sister? I'm not trying to be offensive but it's fairly obvious that she can't afford it. As a first step I think you should at least take over paying your own student loans (you sound like you're out of college already and if you have $8k to \"\"lend\"\" to your mother you probably have enough money to pay the student loans that benefited you, after all) or as someone else also recommended, assume your loans. As to your sister, maybe it's time for her to get (another) job to pay for the tuition so her mother doesn't have to go further into debt. Again, I'm not trying to be mean here but your mother is digging herself deeper and deeper into a hole because of the tuition. Something's gotta give, and delivering pizza or getting a paper round is a small sacrifice here. Next, the car - unless she has a managed to work herself out of some of this mess, I would consider getting a much cheaper car instead. This is provided that she isn't upside down on the loan. Personally I wouldn't trade in a vehicle with an upside down loan, if anything that's another bad financial decision. Assuming that she isn't upside down on the loan and has some equity in the car, I would seriously consider selling the car and using the equity to buy something small and cheap. That should also hopefully reduce the cost of gas and maybe insurance somewhat. I think these points are probably the quickest steps that can be taken towards recovering this situation. You already mentioned the longer term plans like downsizing the apartment, but TBH I'm not sure that this is really necessary. The big elephant in the room are the college costs and removing those from the equation would give her a serious amount of breathing room.\"", "title": "" }, { "docid": "41d2d9c7b28bef01f191226df1f01d17", "text": "I see one clear thing to help: She lives alone. Why does she need a two bedroom place?", "title": "" }, { "docid": "77dcc778863aba98f8b6cece6db553d4", "text": "Your mother has a problem that is typical for a woman with children. She is trying to help her children have a good life, by sacrificing to get them to a point where they can live comfortably on their own. Though she has a difficult situation now, much of the problems come from a very few choices by her and her children, and her situation can be fixed. Let me point out a few of the reasons why she has come to this point: My mother is a single mom... she is turning 50 this summer... she has about $60k in school loans from the college I attended... she has payments of $500/month ($10k) to my sisters college... she lives on her own in a 2 bedroom apartment... Mother's current 'income statement', Income Essentials (total $3131, 71%, too high, goal $2200) Lifestyle (total $150, low, she should have $500-900 to live her life) Financial (total $1350, 31%) Some observations and suggestions: Even though the $1625 rents seems high, your mom might enjoy her apartment and consider part of her rent ($300) a lifestyle choice (spending money for time), and the higher rent may make sense. But the rent is high for her income. Your mom should be spending more on food, and budget $200/month. Your mom should be saving money for investments and retirement. She should be putting 10% into savings ($440), plus any IRA/401K pretax savings. Your sister should be paying for her own college. She should take her own student loans, so that her mother can save for retirement. And since she only has $10K left, an alternative would be that you could loan her the money, and she could repay you when she graduates (you have money, as you loaned your mother $8K). You should be repaying the $500/month on the $60K student loan your mother took to help you get through college. You have benefited from the education, and the increased opportunity the college education has given you. Now is the time to accept responsibility and pay your debts. You could at least agree to split the expense with her, and were you paying even $300/month (leaving $200 for her), that would still fix her budget. Your mom should get a car that is paid for and reduce her transportation expenses, until the $350/month debt is resolved. She should resolve to spend no more than $300/month for a car, and with $100/month for insurance be under 10% for her vehicle. Since your mother lives in the US (NJ) she could avoid the $350/month debt payment though BK. But since there are other solutions she could exercise to resolve her problems, this is probably not needed. You mom could consider sharing her apartment to share expenses. Paying $1625 for an apartment for one person seems extravagant. She might enjoy sharing her apartment with a room-mate. That is about it. Once her children take responsibility for their lives, your mom will have a manageable budget, and less stress in her life. Mother's revised 'income statement', Income Essentials (total $2721, 62%, high, need to reduce by $500) Lifestyle (total $450, 10%, low) Financial (total $990, 23%) While you and your sister have these changes, Summary of changes: Some rent is lifestyle, reduced car loan by $200, sister pays her college $500, you pay your college $300, mom saves 10% of her income. Once your sister graduates and starts to repay you for your help with her college, you can take over paying the remainder of your loans, saving your mom an additional $200/month.", "title": "" }, { "docid": "d0c29efa2c321f49c4e1bcadd0f3cb60", "text": "Given the listed expenses, this problem will not have a nice solutions. So lets quickly go through them and see when the most pressing ones can be dealt with: Solved within 1 year: 900 Solved within a few years: 1300: 900+400 You may be able to save a couple of hundred on the rest, but just take a minute to look at the above. Within 1 year she will be able to 'break even' and within a few years she will be able to live fairly comfortably. She will eat through her funds in about 10 months, which should coincide with the end of the tuition costs. If you could just sponsor her a little bit, or just be there for her in case of unexpected expenses, she should make it till the end of the year after which things are looking up and she will have a healthy surplus each month. Soon you and your sister can probably help her build up a nice buffer quickly, after which her worries should be over.", "title": "" } ]	[ { "docid": "0f3cc07afc72563ecf7740e84bc54c8f", "text": "Well, if someone who owes me money defaults, I lose the money he promised to pay me. To me that would be a huge moral obstacle for declaring myself bankrupt. I was raised in believing that you keep your promises.", "title": "" }, { "docid": "f558925e3a6abbef64f0da229c20ddb0", "text": "\"Agree with Randy, if debt and debt reduction was all about math, nobody would be in debt. It is an emotional game. If you've taken care of the reasons you're in debt, changed your behaviors, then start focusing on the math of getting it done faster. Otherwise, if you don't have a handle on the behaviors that got you there, you're just going to get more rope to hang yourself with. I.e., makes sense to take a low-interest home equity loan to pay off high-interest credit card debt, but more likely than not, you'll just re-rack up the debt on the cards because you never fixed the behavior that put you into debt. Same thing here, if you opt not to contribute to \"\"pay off the cards\"\" without fixing the debt-accumulating behaviors, what you're going to do is stay in debt AND not provide for retirement. Take the match until you're certain you have your debt accumulation habits in check.\"", "title": "" }, { "docid": "a4d4d17abf7f4bb3f36468d46080dd2e", "text": "You should check out Dave Ramsey's Baby Steps. He has an great and well organized plan for getting out of debt and building wealth. My wife and I have followed the plan and will be paying off our home this year :) His advice on debt payments is to pay off the smallest balance first. This helps motivate you and your husband to push harder on your debts. Once the first pay is paid the money that would have gone to that debt is applied to the next smallest debt and so on. This is called a 'debt snowball' since by the end you will have plenty of money to pay that last few debts. While working on the smallest debt, making minimum payments on the others. Stop using the credit cards entirely! Don't use gimmicks to avoid facing the reality of the debt. Close your accounts and commit to never borrowing money again. This is a huge physiological shift. I used credit cards all the time for decades, that is a thing of the past for us, we pay cash or don't buy it. In your case, paying the 80% interest loan off is likely to be priority. I didn't even realize that was legal. Hopefully that is also the smallest balance. Start making a monthly budget and sticking to it. Check out Dave's 'irregular income' budget form, it is meant for couples in your situation. The first steps will be to pay food, rent, utilities and transportation. After that, list your debts in priority order and pay them as your husbands income comes in during the month. Don't despair, you two can get your financial life cleaned up! You just need a good plan and a lot of focus.", "title": "" }, { "docid": "3200c8e4d60be4560b6965e96b57034b", "text": "\"Doing what you suggest may actually be helpful. Today, you have wealth of 145k and debt of 140k, for net wealth of 5k. Your interest incurred is $671/month and your interest earned is $211, for a total loss of $460/month, just below the 491 $/month you are saving, so your total saving is $31/month currently. However, even though in total, you have more money each month than the month before, you are getting more debt and thus more interest to pay each month. Your interest earned is increasing much slower. That $31/month you are currently able to save? By the time you hit 51, that has become $0/month and is still dropping. By 60? Your debt has overtaken your retirement savings - that $5 net worth you have now is gone. If you were to withdraw money from your retirement to pay off your debt (with the $32k penalties) you would have wealth of 70k and debt of 97k, for a net wealth of -27k (i.e. net debt). Obviously, the above is not good. However, you reduce your monthly interest paid to $465, while also reducing your interest earned to $102. This is a total loss of $365/month, so you are saving $126/month. Note that in this case, your $491 monthly repayment is higher than the interest you have to pay on the account, this means that each month, your interest payment becomes lower, thus you pay off more and more each month. Your balance would be getting better each month (and at a faster rate each month. Your net wealth would be back in positives and above your wealth on your current trajectory before you hit 62. By 65, you will have $9000 of net wealth if you use your retirement savings now, as opposed to $9000 net debt if you don't. And just adding a few things on to the end 1) This is just the maths of it, and does not take into account your behaviour. If having that debt accruing is helping to motivate you to give up on luxuries, then this analysis does not apply. I am assuming that the $491/month is literally all you can save, and that no matter what changes, you will always deposit that $491. If you do not think you can continue to deposit that $491 if you stop seeing such high interest accruing, then do not do this. 2) I am assuming your interest earned on your IRA is 1.75%. If this is not the case, then please let me know, and I can adjust my numbers accordingly. From http://www.usatoday.com/story/news/politics/2014/01/28/obama-state-of-the-union-myra-savings-plan/4992743/ 3) I'm assuming all numbers you mentioned are accurate, and will stay constant (interest rates may not) 4) This is not professional, financial advice. I am just a person on the internet. 5) This goes without saying (and will probably go down as well as \"\"let them eat cake\"\" did), but saving more money each month will be a more powerful, risk free way to get out of this problem. Work a 2nd job, cut costs however you can. 6) Sorry if you were looking for something more motivational or sugar coated. 7) Best of luck, feel free to ask any questions. Graph below in red is your current trajectory, and blue is if you withdraw from your retirement to pay off your debt.\"", "title": "" }, { "docid": "ce8d6d5b04f5a41cc1c92d8503bc7181", "text": "\"All of the provided advice is great, but a slightly different viewpoint on debt is worth mentioning. Here are the areas that you should concentrate your efforts and the (rough) order you should proceed. Much of the following is predicated upon your having a situation where you need to get out of debt, and learn to better budget and control your spending. You may already have accomplished some of these steps, or you may prioritize differently. Many people advise prioritizing contributing to a 401(k) savings plan. But with the assumption that you need advise because you have debt trouble, you are probably paying absurd interest rates, and any savings you might have will be earning much lower rates than you are paying on consumer debt. If you are already contributing, continue the plan. But remember, you are looking for advice because your financial situation is in trouble, so you need to put out the fire (your present problem), and learn how to manage your money and plan for the future. Compose a budget, comprised of the following three areas (the exact percentages are fungible, fit them to your circumstances). Here is where planning can get fun, when you have freed yourself from debt, and you can make choices that resonate with your individual goals. Once you have \"\"put out the fire\"\" of debt, then you should do two things at the same time. As you pay off debt (and avoid further debt), you will find that saving for both independence and retirement become easier. The average American household may have $8000+ credit card debt, and at 20-30%, the interest payments are $150-200/month, and the average car payment is nearly $500/month. Eliminate debt and you will have $500-800/month that you can comfortably allocate towards retirement. But you also need to learn (educate yourself) how to invest your money to grow your money, and earn income from your savings. This is an area where many struggle, because we are taught to save, but we are not taught how to invest, choose investments wisely and carefully, and how to decide our goals. Investing needs to be addressed separately, but you need to learn how. Live in an affordable house, and pay off your mortgage. Consider that the payment on a mortgage on even a modest $200K house is over $1000/month. Combine saving the money you would have paid towards a mortgage payment with the money you would have paid towards credit card debt or a car loan. Saving becomes easy when you are freed from these large debts.\"", "title": "" }, { "docid": "6236c533a709b202a826720071e1f5a7", "text": "\"Although there is no single best answer to your situation, several other people have already suggest it in some form: always pay off your highest after-tax (!) interest loan first! That being said, you probably also have heard about the differentiation for good debt vs. bad debt. Good debt is considered a mortgage for buying your primary home or, as is the case here, debt for education. As far as I am concerned, those are pretty much the only two types of debt I'd ever tolerate. (There may be exceptions for health/medical reasons.) Everything else is consumer debt and my personal rule is, don't buy it if you don't have the money for it! Meaning, don't take on consumer debt. One other thing you may consider before accelerating paying off your student debt, the interest paid on it may be tax deductible. So you should look at what the true interest is on your student loan after taxes. If it is in the (very) low single digits, meaning between 1-3%, you may consider using the extra money towards an automatic investment plan into an ETF index fund. But that would be a question you should discuss with your tax accountant or financial adviser. It is also critical in that case that you don't view the money invested as \"\"found\"\" money later on, unless you have paid off all your debt. (This part is the most difficult for most people so be very cautious and conscious if you decide to go this route!) At any rate, congratulations on making so much progress paying off your debt! Keep it going.\"", "title": "" }, { "docid": "a44e35dde545195232ff10309b1e4906", "text": "As your main concern seems to be that you are not sure whether you can ever get a house, and actually support the expenses it incurs when you have one, here is a very simple answer: You say you are currently decreasing your creditcard debt by 2k per month. At that rate it will be finished within 2 years. Try to pay it off completely, if this succeeds in the next 2 years you can be confident that you can afford a 500k house. (Paying back 50k high interest debt in 2 years, is VERY roughly equivalent to payng back 500k low interest debt over 20 years , a reasonable time period in my environment). So, just pay back the creditcard as fast as you can, if two years sounds like a long time there is nothing stopping you to pay it back a little bit faster even! Note: This is written under the assumption that your student loan burden will not increase over time.", "title": "" }, { "docid": "976599fd71c2e4a449888f1f62112bab", "text": "\"There are two solutions. One is financially better, the other is psychologically better. Financially better: You should pay off loans in the order of interest rate, so the 9% first, then the six percent, then the 3-4%. If you pay back $1000, the first one saves you $90 a year in interest, the second saves you $60, the third $30-$40 a year. Every year until everything is paid back. Psychologically better: Some people have psychological problems paying back debt, and it is better for them to pay back small loans first. If you feel better having two loans instead of three, and feeling better makes you able to save money and pay back the other loans, while having three loans would make you depressed and unable to make savings - pay back the smaller loan. If you don't have that kind of problem, use the \"\"financially better\"\" method.\"", "title": "" }, { "docid": "948a4f5649ea7e6eff5c881e7c1a1db5", "text": "\"I think the real problem here is dealing with the variable income. The envelope solution suggests the problem is that your brother doesn't have the discipline to avoid spending all his money immediately, but maybe that's not it. Maybe he could regulate his expenses just fine, but with such a variable income, he can't settle into a \"\"normal\"\" spending pattern. Without any savings, any budget would have to be based on the worst possible income for a month. This isn't a great: it means a poor quality of life. And what do you do with the extra money in the better-than-worst months? While it's easy to say \"\"plan for the worst, then when it's better, save that money\"\", that's just not going to happen. No one will want to live at their worst-case standard of living all the time. Someone would have to be a real miser to have the discipline to not use that extra money for something. You can say to save it for emergencies or unexpected events, but there's always a way to rationalize spending it. \"\"I'm a musician, so this new guitar is a necessary business expense!\"\" Or maybe the car is broken. Surely this is a necessary expense! But, do you buy a $1000 car or a $20000 car? There's always a way to rationalize what's necessary, but it doesn't change financial reality. With a highly variable income, he will need some cash saved up to fill in the bad months, which is replenished in the good months. For success, you need a reasonable plan for making that happen: one that includes provisions for spending it other than \"\"please try not to spend it\"\". I would suggest tracking income accurately for several months. Then you will have a real number (not a guess) of what an average month is. Then, you can budget on that. You will also have real numbers that allow you to calculate how long the bad stretches are, and thus determine how much cash reserve is necessary to make the odds of going broke in a bad period unlikely. Having that, you can make a budget based on average income, which should have some allowance for enjoying life. Of course initially the cash reserve doesn't exist, but knowing exactly what will happen when it does provides a good motivation for building the reserve rather than spending it today. Knowing that the budget includes rules for spending the reserves reduces the incentive to cheat. Of course, the eventual budget should also include provisions for long term savings for retirement, medical expenses, car maintenance, etc. You can do the envelope thing if that's helpful. The point here is to solve the problem of the variable income, so you can have an average income that doesn't result in a budget that delivers a soul crushing decrease in quality of living.\"", "title": "" }, { "docid": "1d1b257f29aaef270074323d88d51d45", "text": "The good debt/bad debt paradigm only applies if you are considering this as a pure investment situation and not factoring in: A house is something you live in and a car is something you use for transportation. These are not substitutes for each other! While you can live in your car in a pinch, you can't take your house to the shops. Looking at the car, I will simplify it to 3 options: You can now make a list of pros and cons for each one and decide the value you place on each of them. E.g. public transport will add 5h travel time per week @ $X per hour (how much you value your leisure time), an expensive car will make me feel good and I value that at $Y. For each option, put all the benefits together - this is the value of that option to you. Then put all of the costs together - this is what the option costs you. Then make a decision on which is the best value for you. Once you have decided which option is best for you then you can consider how you will fund it.", "title": "" }, { "docid": "6c26cb8169b5246436c64281f34e0b34", "text": "\"I think you're asking yourself the wrong question. The real question you should be asking yourself is this: \"\"Do I want to a) give my parents a $45,000 gift, b) make them $45,000 loan, or c) neither?\"\" The way you are talking in your question is as if you have the responsibility and authority to manage their lives. Whether they choose bankruptcy, and the associated stigma and/or negative self-image of financial or moral failure, or choose to muddle through and delay retirement to pay off their debt, is their question and their decision. Look, you said that loaning it to them was out, because you'd rather see them retire than continue to work. But what if they want to continue to work? For all the stress they're dealing with now, entrepreneurial people like that are not happy You're mucking about in their lives like you can run it. Stop it. You don't have the right; they're adults. There may come a time when they are too senile to be responsible for themselves, and then you can, and should, step up and take responsibility for them in their old age, just as they did for you when you were a child. But that time is not now. And by the way, from the information you've given, the answer should be C) neither. If giving or loaning them this kind of money taps you out, then you can't afford it.\"", "title": "" }, { "docid": "91298b02ff1d1cb542057e55f27c6248", "text": "\"Your goals are excellent. I really admire your thoughts and plans, and I hold you in high esteem. Good credit is indeed an important thing to have, and starting young is THE smart idea with respect to this. I see that you have as a goal the purchase of a home. Indeed, another fine ambition. (Wow, you are a different breed from what I normally encounter on the internet; that's for sure !) Since this won't happen overnight, I would encourage you to think about another option. At this point in your life you have what few people have: options, and you have lots of them. The option I would like to suggest you consider is the debt free life. This does NOT mean life without a credit card, nor does it mean living with ones parents all their days. In its simplest form, it means that you don't owe anybody anything today. An adapted form of that; with the reality of leases and so on, is that you have more immediate cash in the bank than you have contractual responsibilities to pay others. e.g., if the rent on a place is X, and the lease is 12 months, then you don't sign until you have 12X in the bank. That's the idea. If there is anything good that these past 10 years of recession and financial disasters have provided us as a nation, it is a clear picture presented to our young people that a house is not a guaranteed way to riches. Indeed, I just learned this week of another couple, forced out by foreclosure again. Yes, in the 1970s and 1980s the formula which anyone could follow was to take a mortgage on a single family house; just about any house in any community; and ten years later double your money, while (during those ten years) paying about the same (and in a few years, actually less) amount of money as you would for an apartment with about half the space. Those days were then, not now, and I seriously doubt that I will ever see them again in my lifetime. You might, at your age, one day. In the mean time, I would like to suggest that you think about that word options again; something that you have that I don't. If your mind is made up for certain that a house is the one and only thing you want, okay; this does not apply. During this time of building your credit (we're talking more than a year) I would like to encourage you to look at some of the other options that are out there waiting for you; such as... I also encourage you to take a calculator and a spreadsheet (I would be surprised if there is no freeware out there to do this with a few clicks) and compare the past 30 years of various investments. For example... It is especially educational if you can see line charts, with the ups and downs along the way. One last thing; about the stock market, you have an option (I love that word when people your age are actually thinking) called \"\"dollar cost averaging\"\". If you are not aware of this concept, just ask and I will edit this post (although I'm confident it has been explained by others far better than myself on this very site). Hit just about any solid stock market investment (plain old mutual fund, even with a load, and it will still work) and I believe you'll see what I'm trying to get across. Still, yes, you need a roof, and a young person should clearly plan on leaving parents in a healthy and happy way; so again, if the house is the one and only goal, then go for it kid (uhm, \"\"kid\"\", if you're still under 18). All the best. Do remember that you will be fixing the pipes, not the maintenance guy.\"", "title": "" }, { "docid": "9abd11c4faeca3bc4564dcce7b880472", "text": "Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing. Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized. Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket. It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense.", "title": "" }, { "docid": "05eafe419e50fbf63ec7bbd92c9472d9", "text": "\"Thirty thousand in credit card debt is a \"\"big elephant to eat\"\" so to speak. But you do it by taking a bite at a time. One positive is that you do not want to borrow from your 401K. Doing so is a horrible idea. The first question you have to ask yourself and understand, is how you accumulated 30K in credit card debt in the first place? Most people get there by running up a relatively small amount, say 5K, and playing the zero transfer game a few times. Then add in a late payment, and a negative event or two (like the car breaking down or a trip to the emergency room) and poof a large amount of credit card debt. Obviously, I have no idea if this is how you got there, and providing some insight might help. Also, your age, approximate income, and other debts might also help provide more insight. I assume you are still working and under age 59.5 as you are talking about borrowing from your 401K. Where I come from is that my wife (then girlfriend) found ourselves under stifling debt a few years ago. When we married, we became very intentional and focused on ridding ourselves of debt and now sit completely debt free (including the house). During our debt payoff time, we lived off of less than 25% of our salary. We both took extra jobs when we were able. Intensity was our key. If I were you, I would not refi the house. There are costs associated with this and why would you put more debt on your home? I might cash out the annuity provided that there are no negative tax consequences and depending on how much you can get for it. Numbers are the key here. However, I feel like doing so will not retire this debt. The first thing you need to do is get on a written budget. A game plan for spending and stick to it. If you are married, your spouse has to be part of this process. The budget has to be fresh each month, and each month you and your wife should meet. To deviate from the budget, you will also need to have a meeting. My wife and I still do this despite being debt free and enjoying very healthy incomes. Secondly, it is about cutting expenses. Cable: off. No eating out or vacations. Cut back on cell phone plans, only basic clothing. Gift giving is of the $5 variety and only for those very close to you. Forget lattes, etc. Depending on your income I would cut 401K contributions to zero or only up to the company match (if your household income is above 150K/year). Third, it is about earning more. Ebay, deliver pizzas, cut grass, overtime, whatever. All extra dollars go to credit card balance reduction. At a minimum, you should find an extra $1000/month; however, I would shoot for 2K. If you can find 2K, you will be done with this in 13 months. I know the math doesn't work out for that, but once you get momentum, you find more. How good will it feel to be out from under this oppression next March? I know you can do this without cashing in the annuity or refinancing. Do you believe it?\"", "title": "" }, { "docid": "55bc23a70f3c2f798ddca615e31a746c", "text": "When paying off multiple debts there is a protocol that many support. Payoff your debts according to the snowball method. The snowball method proposes that you make minimum payments on all debts except the smallest one. Payoff the smallest debt as quickly as possible. As smaller debts are paid off, that makes one less minimum payment you need to make, leaving you with more money to put against the next smallest debt. So in your case, pay off the smaller debt completely, then follow up on the larger one by making regular payments at least equal to the sum of your two current minimum payments. You'll see immediate progress in tackling your debt and have one less minimum to worry about, which can serve as a little safety of it's own if you have a bad month. As to saving the thousand dollars, that is pragmatic and prudent. It's not financially useful (you won't make any money in a savings account), but having cash on hand for emergencies and various other reasons is an important security for modern living. As suggested in another answer, you can forgo saving this thousand and put it against debt now, because you will have a freed up credit card. Credit can certainly give you that same security. This is an alternative option, but not all emergencies will take a credit card. You typically can't make rent with your credit card, for example. Good luck paying your debts and I hope you can soon enjoy the freedom of a debt free life.", "title": "" } ]	fiqa
02441ef1ce6a4764f5ccd22dbf59af96	Are variable rate loans ever a good idea?	[ { "docid": "5b7e69c4462182ca6b9aaf0ccf110ab1", "text": "First, let me fill in the gaps on your situation, based on the numbers you've given so far. I estimate that your student loan balance (principal) is $21,600. With the variable rate loan option that you've presented, the maximum interest rate you could be charged would be 11.5%, which would bring your monthly payment up to that $382 number you gave in the comments. Your thoughts are correct about the advantage to paying this loan off sooner. If you are planning on paying off this loan sooner, the interest rate on the variable rate loan has less opportunity to climb. One thing to be cautious of with the comparison, though: The $1200 difference between the two options is only valid if your rate does not increase. If the rate does increase, of course, the difference would be less, or it could even go the other way. So keep in mind that the $1200 savings is only a theoretical maximum; you won't actually see that much savings with the variable rate option. Before making a decision, you need to find out more about the terms of this variable rate loan: How often can your rate go up? What is the loan rate based on? I'm not as familiar with student loan variable rate loans, but there are other variable rate loans I am familiar with: With a typical adjustable rate home mortgage, the rate is locked for a certain number of years (perhaps 5 years). After that, the bank might be allowed to raise the rate once every period of months (perhaps once every year). There will be a limit to how much the rate can rise on each increase (perhaps 1.0%), and there will be a maximum rate that could be charged over the life of the loan (perhaps 12%). The interest rate on your mortgage can adjust up, inside of those parameters. (The actual formula used to adjust will be found in the fine print of your mortgage contract.) However, the bank knows that if they let your rate get too high above the current market rates, you will refinance to a different bank. So the mortgage is typically structured so that it will raise your rate somewhat, but it won't usually get too far above the market rate. If you knew ahead of time that you would have the house paid off in 5 years, or that you would be selling the house before the 5 years is over, you could confidently take the adjustable rate mortgage. Credit cards, on the other hand, also typically have variable rates. These rates can change every month, but they are usually calculated on some formula determined ahead of time. For example, on my credit card, the interest rate is the published Prime Rate plus 13.65%. On my last statement, it said the rate was 17.15%. (Of course, because I pay my balance in full each month, I don't pay any interest. The rate could go up to 50%, for all I care.) As I said, I don't know what determines the rate on your variable rate student loan option, and I don't know what the limits are. If it climbs up to 11.5%, that is obviously ridiculously high. I recommend that you try to pay off this student loan as soon as you possibly can; however, if you are not planning on paying off this student loan early, you need to try to determine how likely the rate is to climb if you want to pick the variable rate option.", "title": "" }, { "docid": "eedf6da91e9b2f131f37f1f643d7a0e7", "text": "Fixed You are confirming the amount you are going t pay over the term of the loan. Variable: 3.79% over 82mo. The total difference over the life of the loan comes to around $1200 That is the wrong way to calculate the variable portion. The variable is primarily set with a margin over a certain benchmark i.e. Fed rate. Assuming the Fed rate doesn't change over or only goes lower the variable rate is the one to go. If it rises then your payment will increase. And the margin they take over the benchmark rate may increase, so the total amount you pay might increase too. I would assume a read through the T&Cs should clarify that for you. Is it ever a good idea to choose a variable rate loan? Only if you think we are in a low interest rate environment i.e. the economy is in doldrums and the Feds are trying to simulate the economy by decreasing the benchmark rates. And you are sure that the lender isn't going to increase his margins if the rate remains low for quite a substantial amount of time. And I might assume there will be penalties for paying off a loan quicker.", "title": "" }, { "docid": "b266b5b1531c97bf669ad11172c24e73", "text": "\"It all has to do with risk and reward. The risk is that interest rates will rise. To entice you to go with the variable, they make it so it is cheaper if interest rates never rise. Your job is to guess whether interest rates are likely to go up or not. In a first approximation, you should go fixed. The bank employs very smart people whose entire job is to know whether interest rates will go up or not. Those people chose the price difference between the two, and it's sure to favour the bank. That is, the risk of extra payments you'll make on the variable is probably more than the enticement. But, some people can't sleep at night if their payments (or more realistically, the interest part of their payments) might double. If that's you, go fixed. If that's not you, understand that the enticement actually has to be turned up a bit, to get more people to go variable, because of the sleeping-at-night feature. Think long and hard about your budget and what would happen if your payment jumped. If you could handle it, variable might be the better choice. Personally, I have been taking \"\"variable\"\" on my mortgage for decades (and now I don't have one) and never once regretted it. I also counselled my oldest child to take variable on her mortgage. Over this century so far, if rates ticked up, they didn't tick up to the level the fixed was offered at. Mostly they have sat flat. But if ever there was a world in which \"\"past performance does not predict future results\"\" it would be interest rate trends. Do your own research.\"", "title": "" }, { "docid": "530d44ec6a3ba57ef978b22dbab78778", "text": "It is often the case (more commonly in countries other than the USA) that a fixed-term loan has an early redemption penalty, because the lender themselves will incur a cost for settling the loan early, while a variable-rate loan does not. If this is the situation and you think you might want to pay off the loan early, you should definitely consider the variable rate rather than then fixed rate.", "title": "" }, { "docid": "aafdddb3091909bfbfb4540db55893ac", "text": "I have an example that may be interesting for your question. My grandfather had a tennis club around 35 years ago, and some other businesses. Some investments went bad and he was heading for bankruptcy due to the tennis club's expensive payments. So he asked to renegotiate a variable rate rather than a fixed rate, even though the interest rates were going up, not down. The idea was that if the current situation is going to bankrupt you, taking a chance might be better. As an analogy, if you can't swim and you'll drown in 6 feet of water, it doesn't matter that you're taking the risk to go deeper. You might have to take that chance to survive. He did keep the tennis club in the end but that's irrelevant here. For student loans, if I'm not mistaken, declaring bankruptcy doesn't free you of all their debt, so it may not be applicable. And this situation is when renegotiating, not when negotiating the first time. because obviously if you're in trouble financially, taking a loan you know you can't repay is suicide.", "title": "" }, { "docid": "35928dafa56c06450919a6377df27744", "text": "The earlier you are in your career, the more willing you should be to take a better opportunity even if it has a short-term financial cost. You go to college even if McDonald's has an opening. After college you may take an entry level job with better long-term prospects even if a higher paying job is available. You may train for some professional qualification. Having expenses you have to pay limits your flexibility to do this. A variable rate loan that goes up later may give you the freedom to make better decisions early on. Thus in this case it may be worthwhile. That said - be very wary of variable rate loans. Unless you have iron discipline, they give the opportunity to bury yourself.", "title": "" }, { "docid": "472fc2692d89395312d6f3c100ccbf5e", "text": "The simple answer is absolutely. With the parameters you quote, if you will pay off the loan in 82 months or less, you will be ahead taking the variable rate. You have put your finger on the important question as well. The higher initial interest is buying insurance against rates rising if you don't pay off the loan within 82 months. I suspect the contract loan term is much longer than that, because otherwise a variable rate does not make sense. You need to assess whether the insurance you are buying is worth the premium. You can look at what the formula for the variable rate would set the rate at today. It is probably somewhat higher than the 3.79%. That will tell you how much rates have to rise to make the variable rate go above 5.02%. Note that if the loan term is around 160 months (and it could well be 180 months, 15 years) you can afford the interest to rise to about 6.2% for the last half and you will still be dollars ahead. It could even rise higher if you discount expenses in the future. You could also hope that if inflation rises to make interest rates rise like that you will get cost of living raises that make this easy to pay.", "title": "" }, { "docid": "4341e7af6a7e63c4b43e2569cb114102", "text": "Up to some degree, a higher or lower interest rate means a bit less or a bit more money in your pocket. If the interest rate gets too high, you may be in trouble. So you first look at the situation and ask yourself: At what interest rate would I be in trouble? If this is a $20,000 student loan, then even a very high rate wouldn't be trouble. It would be unfortunate and unpleasant, but not fatal. For a $800,000 mortgage, that's different. Each percent more is $8,000 a year. Going from 3% to 10% would change the interest from $24,000 to $80,000 a year, which would be fatal for many people. In a situation where you can afford increasing variable payments without problems you can go for it. If your variable rate would vary over time between 4% and 6% you would still be even. In that situation, go for variable (taking into account where you think interest rates will go in the future). For a mortgage, the security would likely be more important. (On the other hand, if your dad is a multi-millionaire who would help you out, then that big rate increase wouldn't be fatal, and you could go for a variable rate mortgage). In some countries, you can cancel any loan contract when the interest rate is raised. So raising a variable mortgage interest rate would allow you to look elsewhere without early repayment penalties. Check out if that is the case for you.", "title": "" }, { "docid": "cd525f6bcaa0f7817bf2cd18b8aecb57", "text": "What's going on here is that the variable rate loan is transferring some of the risk from the bank to you. In a reasonable deal taking on risk brings with it reward. It's the same thing as deductibles on insurance--they're transferring some risk to you and thus your expected total cost goes down. Thus the proper evaluation of such deals is whether you can afford the outcome if you draw the short straw. If you feel you can afford the highest payment that can result then the variable rate is a good deal. If you're near your limit then stay with the safe option of the fixed rate. For a house this is easy enough to evaluate--run the calculations assuming the highest payment and see what the debt-to-income ratio is. Note that when we were getting mortgages there was another factor involved: the variable rate loans had a higher initiation cost. Combined with the very low difference between fixed and ARM rates at the time we went fixed but given the rates you quote going variable would have been a no-brainer for us.", "title": "" } ]	[ { "docid": "a4777ce9064e80c707b0fc4fbf7440d7", "text": "It's complicated. Really, there's no solid answer for your question. Everybody's risk tolerance and time horizon is going to be different. Those who can take on more risk can take on lower-grade C-G loans at Lending Club. Those with less risk tolerance should emphasize As and Bs.", "title": "" }, { "docid": "0dd467f067a26cb6d8483c39f8ba980e", "text": "\"I started with lending club about a year ago. I love it. It has been insightful. Off topic, but I am in a loan to a guy who make 120K a year and is regularly late and has a pretty high interest rate. Crazy. You gain some economies of scale by going with a bigger note. I have $100 notes that I get hit for 2 or 3 cents for a fee, where $25 notes are always a penny. However, I don't think that should be your deciding factor. I scale my note purchases based on how much I like the status of the borrower. For example, I did $100 (which is currently my max) for a guy with a reasonable loan amount 16K, a stable work history (15+ years), a great credit history, and a great interest rate (16.9%). If one of those things were a bit out of \"\"whack\"\". I might go $50, two $25. I prefer 36 month notes, really 5 years to get out of debt? It is unlikely to happen IMHO. Keep in mind that if you invest $100 in a loan, then you get one $100 note. You can't break them up into 4 $25 notes. For that reason, if you are likely to want to sell the note prematurely, keep it at $25. The market is greater. I've had a lot of success using the trading account, buying further discounted notes for people who want out of lending club, or get spooked by a couple of late payments and a change in billing date. Another advantage of using the trading account is you start earning interest day 1. I've had new notes take a couple of weeks to go through. To summarize: There are some other things, but that is the main stuff I look at.\"", "title": "" }, { "docid": "1a29abe8bc565c446b56b3aa8d4130e1", "text": "I was active in Prosper when it started up. It was very easy to get attracted to the high risk loans with big interest rates and I lost about 14% after all my loans ran their course. (There's 10 still active, but it won't change the figure by much). Prosper has wider standards than Lending club, so more borrowers with worse credit scores could ask for loans. Lenders could also set interest rates far lower, so they could end up having loans with rates lower than the risk implied. This was set up with the idea of a free market where anyone could ask to borrow and anyone could loan money at whatever interest rate they wanted, It turns out a lot of lenders were not as smart as they thought they were. (Aside: it's funny how people will clamor for a free market, but when they lose money will suddenly be against the free market they said they wanted, this seems to apply to both individual p2p lenders up to massive multinational banks.). Since then Prosper has tightened their standards on who can borrow and the interest rates are now fixed. So I expect going forward it will be less easy to lose a bunch of money. The key is that one bad loan will erase the return of many good ones. So it's best to examine the loans carefully and stick with the high quality. Simplified Example If you have 10 1 yr loans of $100 each paying 10% interest/year, you get 10% return at the end of the year, so $100 (10% of $1000.). BUT if one loan goes bad at the start, you have lost money. So a 90% success rate in picking borrowers leads to a loss. You want to diversity over quite a few loans and you want to fund quality loans. I think really enjoyed investing through Prosper, because it gave me an insight into lending and loss ratios that I had not had before. It also caused me to look at the banks with even more incredulity when the case of the no-doc loans and neg-am loans came to light.", "title": "" }, { "docid": "84da15fcc9d360379289e1a748504713", "text": "The loan is very likely to be syndicated, yes. I only state 7-10 because all of our loans to this point have been 7 year terms. And in many ways, this loan is just one of those loans, multiplied out in a modular sense.", "title": "" }, { "docid": "7515b32ac0cc666f93929353cfda8291", "text": "\"A) Yes, it does accomplish the goal of adding more money, but the money is in lieu of any return you can earn while the loan is outstanding. If you somehow knew exactly which periods where going to run negative, and you took a 401k loan during that time, you'd be in pretty good shape, but if you had that information you'd probably be ruling the world in short order and wouldn't care much about a measly 401k. B) It's a nice idea, but unfortunately you are not allowed to set your own interest rate. (If you could your idea would work perfectly.) The interest rate is bank specific, and is typically 1-2 points over prime. But if your plan was to leave your money sitting in cash or low interest bearing accounts anyway, the loan does actually achieve the goal of \"\"getting more money in there\"\". Though it's your money; you aren't \"\"earning\"\" it.\"", "title": "" }, { "docid": "8f656a547ba7391fa53d8bd4e208f2e4", "text": "If you get your income in the currency you have the new loan in, there is no exchange risk for the future. Assuming that you are able to get and serve that loan, it reduces your cost, so go for it. Yes, if the currency exchange rate changes the right way over the next years, you could have made a better deal - but consider it could also go the other way. If you really want to play this game, do it separately, by trading calls/puts on the currency exchange rate. See it as a separate and decoupled investment option.", "title": "" }, { "docid": "473bea867c1ec882bb7dd4adaa25a42a", "text": "Variable Annuities would be one option though there are SEC warnings about them, for an option that is tax-deferred and intended to be used for long-term investing such as retirement. There is a bit of a cost to gain the tax-deferral which may not always make them worthwhile.", "title": "" }, { "docid": "de4312884f19663ad7e0d0e07b86898f", "text": "You're talking about floating rate loans. It's so that the bond is marked back to market every 90 days. Any more often would be a hassle to deal with for everyone involved, any less often and they would be significant variance from LIBOR vs. the loan's specific rate.", "title": "" }, { "docid": "bad7733c71b5c618301ebf612cd85e05", "text": "Usually that is the case that when fixed rates are lower than the variable rates, it is an indication that the banks feel the next movement in rates could be down. You also need to look at the fixed rates for different periods, for example 1 year fixed compared to 3 year fixed and 5 year fixed rates. If you find the 3 and 5 year fixed rates are higher than the 1 year fixed rates this could be an indication that the banks feel rates will fall in the short term but the falls won't last long and will continue to rise after a year or so. If the 3 year fixed rates are also low in comparison, then the banks may feel that the economy is heading for a longer term down trend. The banks won't want to lose out, so will change their fixed rates on their perception of where they feel the economy is headed. Since your post in May 2011, the standard variable rate has since dropped twice (in November and December) to be at 7.30%. You will also find that fixed rates have also been dropped further by the banks, indicating additional future cuts in the variable rates. Regards, Victor", "title": "" }, { "docid": "b3666af20f9bb3570574b277a7faccb3", "text": "Unless you are getting the loan from a loan shark, it is the most common case that each payment is applied to the interest accrued to date and the rest is applied towards reducing the principal. So, assuming that fortnightly means 26 equally-spaced payments during the year, the interest accrued at the end of the first fortnight is $660,000 x (0.0575/26) = $1459.62 and so the principal is reduced by $2299.61 - $1459.62 = $839.99 For the next payment, the principal still owing at the beginning of that fortnight will be $660,000-$839.99 = $659,160.01 and the interest accrued will be $659,160.01 x (0.0575/26) = $1457.76 and so slightly more of the principal will be reduced than the $839.99 of the previous payment. Lather, rinse, repeat until the loan is paid off which should occur at the end of 17.5 years (or after 455 biweekly payments). If the loan rate changes during this time (since you say that this is a variable-rate loan), the numbers quoted above will change too. And no, it is not the case that just %5.75 of the $2300 is interest, and the rest comes off the principle (sic)? Interest is computed on the principal amount still owed ($660,000 for starters and then decreasing fortnightly). not the loan payment amount. Edit After playing around with a spreadsheet a bit, I found that if payments are made every two weeks (14 days apart) rather than 26 equally spaced payments in one year as I used above, interest accrues at the rate of 5.75 x (14/365)% for the 14 days rather than at the rate of (5.75/26)% for the time between payments as I used above each 14 days, $2299.56 is paid as the biweekly mortgage payment instead of the $2299.61 stated by the OP, then 455 payments (slightly less than 17.5 calendar years when leap years are taken into account) will pay off the loan. In fact, that 455-th payment should be reduced by 65 cents. In view of rounding of fractional cents and the like, I doubt that it would be possible to have the last equal payment reduce the balance to exactly 0.", "title": "" }, { "docid": "93fddc3431f0813570784cd3d9c55486", "text": "\"If the interest rate on the student loan is lower than inflation, then the student loan will be \"\"cheaper\"\" the longer you take to pay it. This is now a very rare instance, but there were programs and loan consolidation opportunities in the mid-200x's that allowed savvy student's to convert their loans to have an interest rate of around 1.5%. Right now the inflation rate is actually quite low, but it's not expected to stay there, and wasn't that low just a few years ago, so in the long run this type of debt will only be cheaper the longer it takes to pay off. It is risky, as others point out, as it can't be written off in bankruptcy, but there are other situations where it can be written off more easily than other debts, so on balance the risks aren't better or worse than other loans in general. For specific individual situations the risk equation might work out differently, though. Further, student loans aren't considered traditional debt by some lenders for specific lending opportunities, thus allowing you to go into greater debt for certain types of purchases. Whether this is good for you or not depends on the importance of the purchase. If you need to buy a house and the interest rate is higher than your student loan rate, it will be better, financially, to pay off the house first, while paying the minimum on the student loans. If you have no other debt with a higher interest, and the student loan interest is higher than inflation, there is no reason to delay paying off the student loan.\"", "title": "" }, { "docid": "feb21810230b9f43fca6b46a596cab28", "text": "\"I am lucky enough to have chosen a flexible mortgage that allows me to change payment amounts at certain, very lenient intervals (to a minimum amount). So when I was laid off, the first thing I did was call my bank to lower my payments to a level that allowed me some breathing room, at my new, lower income. If and when my family's income increases, I'll re-adjust my payments to a higher amount. But if you're concerned about the \"\"what if\"\"s in this economy, I'd definitely choose a mortgage that allows for flexibility so that you don't lose your house if you don't have to, particularly if your situation is temporary.\"", "title": "" }, { "docid": "bb9efb537062f9e9ff6780d279fb71ca", "text": "\"I figured that there must be some people in a corporate office somewhere who sign $100M loans for lunch. :) The banks have that experience (but I'm not interested in asking them for a sample), and our consultants definitely have that experience, but I'm looking to evaluate the consultants with this exercise. If they provide the sample, then deliver to that sample, I'm still blind as to whether that sample is \"\"good\"\" as compared to something that the corporate world would use on the daily. I'd take your advice for the $1M loan, but I can't help but think as the factors of 10 increase, the data required to properly negotiate also increases. I don't want to go in blind, and provide a proposal that looks like a high school project.\"", "title": "" }, { "docid": "06c1e18ad6b65885137491764fa1b147", "text": "The CBOE had a great article on this. I will search for it and edit. The normal dividends are not adjusted. Which is why you see early exercise of just out of the money options sometimes. To get that dividend. A special dividend, say a $50 stock with $1/yr dividend but now has a $3 one time dividend would likely result in an option strike adjustment.", "title": "" }, { "docid": "3edee93de0c92fab5e9154b80cd002ea", "text": "If you find a particular stock to be overvalued at $200 for example and a reasonable value at $175, you can place a limit order at the price you want to pay. If/when the stock price falls to your desired purchase price, the transaction takes place. Your broker can explain how long a limit order can stay open. This method allows you to take advantage of flash crashes when some savvy stock trader decides to game the market. This tactic works better with more volatile or low-volume stocks. If it works for an S&P500 tracking ETF, you have bigger problems. :) Another tactic is to put money into your brokerage cash account on a regular basis and buy those expensive stocks & funds when you have accumulated enough money to do so. This money won't earn you any interest while it sits in the cash account, but it's there, ready to be deployed at a moment's notice when you have enough to purchase those expensive assets.", "title": "" } ]	fiqa
599367355d8e70d2ce307a9fc3537187	Adjusting a value for inflation each month using rolling 12-monthly inflation figures	[ { "docid": "40e6216fd5028fb210f768d5786defe2", "text": "In the style of the Bank of England's Inflation Calculator, you can do the calculation like so. The third column is an index made from the inflation figures and the forth column shows the inflation-adjusted values. Using the index to calculate the difference in costs, for example: The formulas used to produce the table above are shown below.", "title": "" }, { "docid": "6ab85fd6f741cf68b186595808edbb84", "text": "\"The actual increase in the cost of living for one month over the previous month cannot be calculated from the annualized increase in cost over the entire previous year. Consider the hypothetical case of a very stable economy, where prices stay constant for decades. Nevertheless, the authorities issue monthly statements, reporting that the change in the cost of living, for the last month, year over year, is 0.00%. Then they go back to sleep for another month. Then, something happens, say in August, 2001. It causes a permanent large increase in the cost of many parts of the cost of living components. So, in September, the authorities announce that the cost of living for the end of August, 2001, compared to August a year ago, was up 10%. Great consternation results. Politicians pontificate, unions agitate on behalf of their members, etc... The economy returns to its customary behavior, except for that one-time permanent increase from August, 2001. So for the next eleven months, each month, the authorities compare the previous months prices to the prices from exactly a year ago, and announce that inflation, year over year, is still 10%. Finally, we reach September, 2002. The authorities look at prices for the end of August, 2002, and compare them to the prices from the end of August, 2001 (post \"\"event\"\"). Wonder of wonders, the inflation rate is back to 0.00%!! Absolutely nothing happened in August 2002, yet the rate of inflation dropped from 10% to 0%.\"", "title": "" } ]	[ { "docid": "bee1b08bfad94bfa962c90eff9c6f1bc", "text": "The question lacks specificity, i.e. when does the initial investment occur, now or one period from now? If now then it is a perpetuity due. I will consider under 2 scenarios, A and B, relating to the size of the initial investment. A. Assuming that the initial investment (C_0) occurs now and each payment thereafter has the relationship (1+g) with this investment then the relevant base equation is that for the present value of a growing perpetuity due, expressed in terms of C_0, i.e. PVGPD= [C_0(1+g)(1+i)]/(i-g). Now, to suit the question asked, we can see that i=fixed rate of return (f) and g = expected inflation rate (e) such that we can rewrite the equation as PVGPD = [C_0(1+e)(1+i)]/(i-e]. We know that f = is a fixed nominal rate and must be adjusted for e to calculate the real rate (r) according to the equation f=(1+r)(1+e)-1. Therefore PVGPD = [C_0(1+e)(1+(1+r)(1+e)-1)]/((1+r)(1+e)-1-e] Tidying up PVGPD = {C_0(1+r)(1+e)^2}/[r(1+e)] PVGPD = [C_0(1+r)(1+e)]/r B. Assuming that the initial investment (X) is not equal to each subsequent perpetual payment (C_1) then the relevant base equation is that for the the initial investment plus the present value of a growing perpetuity, i.e. PVGP= X + [C_1/(i-g)] Rewriting PVGP = X + [C_1/(f-e)] Substituting PVGPD = X + {C_1/[(1+r)(1+e)-1-e]} Tidying up PVGPD = X + C_1/[r(1+e)]", "title": "" }, { "docid": "1a145b5ee9ce9c6ae6b82003ba3e842a", "text": "If you have a lump sum, you could put it into a low risk investment (which should also have low fluctuations) right away to avoid the risk of buying at a down point. Then move it into a higher risk investment over a period of time. That way you'll buy more units when the price is lower than when it's higher. Usually I hear dollar cost averaging applied to the practice of purchasing a fixed dollar amount of an investment every week or month right out of your salary. The effect is pretty minimal though, except on the highest growth portfolios, and is generally just used as a sales tool by investment councilors (in my opinion).", "title": "" }, { "docid": "07c4b462447a984829ccd4f74b9b84a2", "text": "\"Everyone buys different kinds of goods. For example I don't smoke tobacco so I'm not affected by increased tobacco prices. I also don't have a car so I'm not affected by the reduced oil prices either. But my landlord increased the monthly fee of the apartment so my cost of living per month suddenly increased more than 10% relative to the same month a year before. This is well known, also by the statistical offices. As you say, the niveau of the rent is not only time- but also location specific, so there are separate rent indices (German: Mietspiegel). But also for the general consumer price indices at least in my country (Germany) statistics are kept for different categories of things as well. So, the German Federal Statistical Office (Statistisches Bundesamt) not only publishes \"\"the\"\" consumer price index for the standard consumer basket, but also consumer price indices for oil, gas, rents, food, public transport, ... Nowadays, they even have a web site where you can put in your personal weighting for these topics and look at \"\"your\"\" inflation: https://www.destatis.de/DE/Service/InteraktiveAnwendungen/InflationsrechnerSVG.svg Maybe something similar is available for your country?\"", "title": "" }, { "docid": "3d5a8298c41dbfe1d3ded257f82ae06b", "text": "The Finance functions in spreadsheet software will calculate this for you. The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods. The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this. Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable. The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly. As far as the spreadsheet goes, this is for the Google Sheets - Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative.", "title": "" }, { "docid": "552c97f6a717f65fe5560ea03fd90c76", "text": "\"I think we'd need to look at actual numbers to see where you're running into trouble. I'm also a little confused by your use of the term \"\"unexpected expenses\"\". You seem to be using that to describe expenses that are quite regular, that occur every X months, and so are totally expected. But assuming this is just some clumsy wording ... Here's the thing: Start out by taking the amount of each expense, divided by the number of months between occurrences. This is the monthly cost of each expense. Add all these up. This is the amount that you should be setting aside every month for these expenses, once you get a \"\"base amount\"\" set up. So to take a simple example: Say you have to pay property taxes of $1200 twice a year. So that's $1200 every 6 months = $200 per month. Also say you have to pay a water bill once every 3 months that's typically $90. So $90 divided by 3 = $30. Assuming that was it, in the long term you'd need to put aside $230 per month to stay even. I say \"\"in the long term\"\" because when you're just starting, you need to put aside an amount sufficient that your balance won't fall below zero. The easiest way to do this is to just set up a chart where you start from zero and add (in this example) $230 each month, and then subtract the amount of the bills when they will hit. Do this for some reasonable time in the future, say one year. Find the biggest negative balance. If you can add this amount to get started, you'll be safe. If not, add this amount divided by the number of months from now until it occurs and make that a temporary addition to your deposits. Check if you now are safely always positive. If not, repeat the process for the next biggest negative. For example, let's say the property tax bills are April and October and the water bills are February, May, August, and November. Then your chart would look like this: The biggest negative is -370 in April. So you have to add $370 in the first 4 months, or $92.50 per month. Let's say $93. That would give: Now you stay at least barely above water for the whole year. You could extend the chart our further, but odds are the exact numbers will change next year and you'll have to recalculate anyway. The more irregular the expenses, the more you will build up just before the big expense hits. But that's the whole point of saving for these, right? If a $1200 bill is coming next week and you don't have close to $1200 saved up in the account, where is the money coming from? If you have enough spare cash that you can just take the $1200 out of what you would have spent on lunch tomorrow, then you don't need this sort of account.\"", "title": "" }, { "docid": "c6fa632a4fe912a3d78b7a6592e82079", "text": "\"I wrote a little program one time to try to do this. I think I wrote it in Python or something. The idea was to have a list of \"\"projected expenses\"\" where each one would have things like the amount, the date of the next transaction, the frequency of the transaction, and so on. The program would then simulate time, determining when the next transaction would be, updating balances, and so on. You can actually do a very similar thing with a spreadsheet where you basically have a list of expenses that you manually paste in for each month in advance. Simply keep a running balance of each row, and make sure you don't forget any transactions that should be happening. This works great for fixed expenses, or expenses that you know how much they are going to be for the next month. If you don't know, you can estimate, for instance you can make an educated guess at how much your electric bill will be the next month (if you haven't gotten the bill yet) and you can estimate how much you will spend on fuel based on reviewing previous months and some idea of whether your usage will differ in the next month. For variable expenses I would always err on the side of a larger amount than I expected to spend. It isn't going to be possible to budget to the exact penny unless you lead a very simple life, but the extra you allocate is important to cushion unexpected and unavoidable overruns. Once you have this done for expenses against your bank account, you can see what your \"\"low water mark\"\" is for the month, or whatever time period you project out to. If this is above your minimum, then you can see how much you can safely allocate to, e.g. paying off debt. Throwing a credit card into the mix can make things a bit more predictable in the current month, especially for unpredictable amounts, but it is a bit more complicated as now you have a second account that you have to track that has to get deducted from your first account when it becomes due in the following month. I am assuming a typical card where you have something like a 25 day grace period to pay without interest along with up to 30 days after the expense before the grace period starts, depending on the relationship between your cut-off date and when the actual expense occurs.\"", "title": "" }, { "docid": "76e622fc225406dbd70fb144752364dc", "text": "\"You could use any of various financial APIs (e.g., Yahoo finance) to get prices of some reference stock and bond index funds. That would be a reasonable approximation to market performance over a given time span. As for inflation data, just googling \"\"monthly inflation data\"\" gave me two pages with numbers that seem to agree and go back to 1914. If you want to double-check their numbers you could go to the source at the BLS. As for whether any existing analysis exists, I'm not sure exactly what you mean. I don't think you need to do much analysis to show that stock returns are different over different time periods.\"", "title": "" }, { "docid": "dcfb167b3a1e18a2fb2ee716b90a66c4", "text": "Here's a good inflation calculator based on official US government sources: http://www.westegg.com/inflation/ You can get a good idea of the affect of productivity gains on prices by comparing price differences between different commodities. For example, eggs sold for $0.50-0.60/dozen in 1920, and are usually about $2.50/doz where I live. In real terms, the price actually declined from 1920 to 2010.", "title": "" }, { "docid": "a70568de6258ac4ff20caf60647f630e", "text": "\"First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether you hold equity, bonds, derivatives, etc., the real value of those assets is declining because of inflation, all else being equal. For example, if I invest $100 in an asset that pays a 10% rate of return over the next year, and I sell my entire position at the end of the year, I have $110 in nominal terms. Inflation affects the real value of this asset regardless of its asset class because those $110 aren't worth as much in a year as they are today, assuming inflation is positive. An easy way to incorporate inflation into your calculations of rate of return is to simply subtract the rate of inflation from your rate of return. Using the previous example with inflation of 3%, you could estimate that although the nominal value of your investment at the end of one year is $110, the real value is $100(1 + 10% - 3%) = $107. In other words, you only gained $7 of purchasing power, even though you gained $10 in nominal terms. This back-of-the-envelope calculation works for securities that don't pay fixed returns as well. Consider an example retirement portfolio. Say I make a one-time investment of $50,000 today in a portfolio that pays, on average, 8% annually. I plan to retire in 30 years, without making any further contributions (yes, this is an over-simplified example). I calculate that my portfolio will have a value of 50000 (1 + 0.08)^30, or $503,132. That looks like a nice amount, but how much is it really worth? I don't care how many dollars I have; I care about what I can buy with those dollars. If I use the same rough estimate of the effect of inflation and use a 8% - 3% = 5% rate of return instead, I get an estimate of what I'll have at retirement, in today's dollars. That allows me to make an easy comparison to my current standard of living, and see if my portfolio is up to scratch. Repeating the calculation with 5% instead of 8% yields 50000 * (1 + 0.05)^30, or $21,6097. As you can see, the amount is significantly different. If I'm accustomed to living off $50,000 a year now, my calculation that doesn't take inflation into account tells me that I'll have over 10 years of living expenses at retirement. The new calculation tells me I'll only have a little over 4 years. Now that I've clarified the basics of inflation, I'll respond to the rest of the answer. I want to know if I need to be making sure my investments span multiple currencies to protect against a single country's currency failing. As others have pointed out, currency doesn't inflate; prices denominated in that currency inflate. Also, a currency failing is significantly different from a prices denominated in a currency inflating. If you're worried about prices inflating and decreasing the purchasing power of your dollars (which usually occurs in modern economies) then it's a good idea to look for investments and asset allocations that, over time, have outpaced the rate of inflation and that even with the effects of inflation, still give you a high enough rate of return to meet your investment goals in real, inflation-adjusted terms. If you have legitimate reason to worry about your currency failing, perhaps because your country doesn't maintain stable monetary or fiscal policies, there are a few things you can do. First, define what you mean by \"\"failing.\"\" Do you mean ceasing to exist, or simply falling in unit purchasing power because of inflation? If it's the latter, see the previous paragraph. If the former, investing in other currencies abroad may be a good idea. Questions about currencies actually failing are quite general, however, and (in my opinion) require significant economic analysis before deciding on a course of action/hedging. I would ask the same question about my home's value against an inflated currency as well. Would it keep the same real value. Your home may or may not keep the same real value over time. In some time periods, average home prices have risen at rates significantly higher than the rate of inflation, in which case on paper, their real value has increased. However, if you need to make substantial investments in your home to keep its price rising at the same rate as inflation, you may actually be losing money because your total investment is higher than what you paid for the house initially. Of course, if you own your home and don't have plans to move, you may not be concerned if its value isn't keeping up with inflation at all times. You're deriving additional satisfaction/utility from it, mainly because it's a place for you to live, and you spend money maintaining it in order to maintain your physical standard of living, not just its price at some future sale date. 1) I use dollars as an example. This applies to all currencies.\"", "title": "" }, { "docid": "e579c480f632018d2e79008cd1ccaa4b", "text": "Line one shows your 1M, a return with a given rate, and year end withdrawal starting at 25,000. So Line 2 starts with that balance, applies the rate again, and shows the higher withdrawal, by 3%/yr. In Column one, I show the cumulative effect of the 3% inflation, and the last number in this column is the final balance (903K) but divided by the cumulative inflation. To summarize - if you simply get the return of inflation, and start by spending just that amount, you'll find that after 20 years, you have half your real value. The 1.029 is a trial and error method, as I don't know how a finance calculator would handle such a payment flow. I can load the sheet somewhere if you'd like. Note: This is not exactly what the OP was looking for. If the concept is useful, I'll let it stand. If not, downvotes are welcome and I'll delete.", "title": "" }, { "docid": "ba2ffd3d9a2721b4e06f7c2d830e42d3", "text": "\"I was afraid of this. If you are using 12 P/Y and 12 C/Y, then your interest rate should not be divided by 12. Also, you should use \"\"END\"\" as this means monthly payments are made at the end of the month - a usual default.\"", "title": "" }, { "docid": "f73c5e2421b687b44ad0d6913311ff7a", "text": "As an expansion on the correct answer: Consider a really boring economy. Nothing changes; wages and prices stay constant for years at a time. Every month the Consumer Price Index stays at 0%. Then, something catastrophic happens, say on July 31, 2000. A cheap local source for a vital resource runs out, and it must be obtained from a higher cost source. Floods cut internal road networks, resulting in higher transportation costs. Whatever. The new situation is permanent. As a result, the next month, August, 2000, prices go up 5%. That is, 5% higher than the previous month, July, 2000, and 5% higher than a year previously, August 1999. There is a lot of consternation, and politicians each promise that they and only they can wrestle inflation to the ground. But, when the figures for September, 2000 come out, inflation stays the same. Prices are the same as in August, 2000, and 5% higher than in September, 1999. This goes on for months. Nothing changes, prices stay the same, and the inflation rate, year over year, stays at 5%. Finally, the figures for August, 2001 come out. Wonder of wonders; prices are the same as in August, 2000, and inflation drops to zero. And the politicians all take the credit. Short version: inflation year over year changes either because of what in now included in the month just past, or what is now excluded from a year ago.", "title": "" }, { "docid": "c548c8f369622eaa6e0093a5f0b5d4ea", "text": "\"There has been almost no inflation during 2014-2015. do you mean rental price inflation or overall inflation? Housing price and by extension rental price inflation is usually much higher than the \"\"basket of goods\"\" CPI or RPI numbers. The low levels of these two indicators are mostly caused by technology, oil and food price deflation (at least in the US, UK, and Europe) outweighing other inflation. My slightly biased (I've just moved to a new rental property) and entirely London-centric empirical evidence suggests that 5% is quite a low figure for house price inflation and therefore also rental inflation. Your landlord will also try to get as much for the property as he can so look around for similar properties and work out what a market rate might be (within tolerances of course) and negotiate based on that. For the new asked price I could get a similar apartment in similar condos with gym and pool (this one doesn't have anything) or in a way better area (closer to supermarkets, restaurants, etc). suggests that you have already started on this and that the landlord is trying to artificially inflate rents. If you can afford the extra 5% and these similar but better appointed places are at that price why not move? It sounds like the reason that you are looking to stay on in this apartment is either familiarity or loyalty to the landlord so it may be time to benefit from a move.\"", "title": "" }, { "docid": "c7cf50b1d08c74636ecff24bf8c02aa3", "text": "These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10. The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result. You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there. (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.)", "title": "" }, { "docid": "e898bbf75859f38482dd86f748db8f8c", "text": "\"Anyone who has any business looking at growth numbers will know thay are meaningless in the first year, So all they need to know is that it's the first year. It's no different than the Billboard music charts' treatment of the \"\"last week's chart ranking\"\" and \"\"movement up/down\"\" columns. It will help with visual layout if the figure used is about the same size as a percentage number. \"\"New\"\" fits nicely.\"", "title": "" } ]	fiqa
ae9c86ad8fcc15cb4f88e17ba632f122	Investing in USD from the Eurozone (Jan 2015)	[ { "docid": "cdacd159176e301372a26a6f8d7cb14d", "text": "\"No, this is not solid advice. It's a prediction with very little factual basis, since US interest rates are kept just as low and debt levels are just as high as in the Eurozone. The USD may rise or fall against the EUR, stay the same or move back and forth. Nobody can say with any certainty. However, it is not nearly as risky as \"\"normal forex speculation\"\", since that is usually very short term and highly leveraged. You're unlikely to lose more than 20-30% of your capital by just buying and holding USD. Of course, the potential gains are also limited.\"", "title": "" } ]	[ { "docid": "eefc2de9693868d1aea53b7a9f8281ef", "text": "You can calculate your exposure intuitively, by calculating your 'fx sensitivity'. Take your total USD assets, let's assume $50k. Convert to EUR at the current rate, let's assume 1 EUR : 1.1 USD, resulting in 45.5k EUR . If the USD strengthens by 1%, this moves to a rate of ~1.09, resulting in 46k EUR value for the same 50k of USD investments. From this you can see that for every 1% the USD strengthens, you gain 500 EUR. For every 1% the USD weakens, you lose 500 EUR. The simplest way to reduce your exchange rate risk exposure, is to simply eliminate your foreign currency investments. ie: if you do not want to be exposed to fluctuations in the USD, invest in EUR only. This will align your assets with the currency of your future expenses [assuming you intend to continue living in Europe].This is not possible of course, if you would like to maintain investments in US assets. One relatively simple method available to invest in the US, without gaining an exposure to the USD, is to invest in USD assets only with money borrowed in USD. ie: if you borrow $50k USD, and invest $50k in the US stock market, then your new investments will be in the same currency as your debt. Therefore if the USD strengthens, your assets increase in relative EUR value, and your debt becomes more expensive. These two impacts wash out, leaving you with no net exposure to the value of the USD. There is a risk to this option - you are investing with a higher 'financial leverage' ratio. Using borrowed money to invest increases your risk; if your investments fall in value, you still need to make the periodic interest payments. Many people view this increased risk as a reason to never invest with borrowed money. You are compensated for that risk, by increased returns [because you have the ability to earn investment income without contributing any additional money of your own]. Whether the risk is worth it to you will depend on many factors - you should search this site and others on the topic to learn more about what those risks mean.", "title": "" }, { "docid": "02c8e697d20dcb9d21f4bc92bce2ac16", "text": "With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex trading for select currency pair [with one leg in INR] is allowed. Ex USDINR, EURINR, JPYINR, GBPINR. Forex trading for pairs without INR or not in the above list is NOT allowed.", "title": "" }, { "docid": "ea4549ecee88d0ebf51be242700a3fa2", "text": "Am I missing something or is the author? EUP5 USP5 SUP5 PUS5 EDIT: Its not just currency pairs either, 5DEL; EU5L; 5UKL; EU5S; 5DES. Unless I misunderstood something, the authors worst nightmare has already arrived in Europe.", "title": "" }, { "docid": "e5488cb152533b6023509b909b183eec", "text": "If you're interested in slower scale changes, one option is to use indexes that value a common commodity in different currencies such as the Big Mac Index. If a Big Mac costs more in AUD but stays the same in USD, then AUD have gone up.", "title": "" }, { "docid": "cee9b98982b85e76940d279d5a7f8ddd", "text": "If one of the EURO countries goes bankrupt, then it will destablise the entire financial industry. IE there would be many financial institutions [Banks, Credit Union, Pension Funds, Insurance Funds, Corporates] that are holding EURO Investments in that country will loose their money and this will have a cascading impact ... similar and much bigger than US Sub-prime crisis of 2008. So if your money is in EURO and you are staying in EURO countires, the inflation will mean your money is of less value ... If you are holding USD and staying in EURO and country goes bankrupt then chances are that it will loose value with USD and hence you can convert them to EURO and spend more EUROs to buy the same items ...", "title": "" }, { "docid": "28e02a87e6118dfc2685339589467995", "text": "The best way to do this would be to exchange the funds into USD and wire the funds to your bank account in the US. It is up to you whether you want to hold USD or Euros. Depends if you plan to invest money in the US.", "title": "" }, { "docid": "1f73dc803fba81d5dfb602b8038cccdb", "text": "It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.", "title": "" }, { "docid": "045a95698737bb16498d42194ede6411", "text": "I am just a C student with no hope for grad school, so you are going to have to walk me through this... The ECB (until recently), Japan, and the Swiss have been running QE programs equal to that of the Fed's in 2009 for the last couple of years. That's an extraordinary amount of money being created... what's more, is that the Swiss are even buying shitloads of American equities with it. Perhaps my understanding of M2 is flawed, but how would the Swiss national bank buying $63B in equities change M2? It's not like the fed is printing the money specifically for the transaction. The amount of QE being pumped into a healthy economy over the last couple years should be concerning, if only because it's unprecedented, especially since some of it is being directly invested into equities. I don't think there is a viable argument that can truthfully say that it isn't a pretty large variable in the market today.... but I could be wrong. Also, I've read enough, and heard enough, on how the inflation rate is measured to cultivate a healthy skepticism for the entire metric. The way they choose baskets, while obviously the best possible, is not something that lends itself to precision. Please be kind to my grammar.", "title": "" }, { "docid": "949551126783dc387e3ca4d8f8389f3b", "text": "What you want is the distribution yield, which is 2.65. You can see the yield on FT as well, which is listed as 2.64. The difference between the 2 values is likely to be due to different dates of updates. http://funds.ft.com/uk/Tearsheet/Summary?s=CORP:LSE:USD", "title": "" }, { "docid": "1951fc9ac20beeb7cd1e29922454d7ce", "text": "\"Forex. I will employ my skill for \"\"suspension of disbelief\"\" and answer with no visceral reaction to Bitcoin itself. The Euro is not an 'investment.' It's a currency. People trade currencies in order to capture relative movements between pairs of currencies. Unlike stocks, that have an underlying business and potential for growth (or failure, of course) a currency trade is a zero sum game, two people on opposite sides of a bet. Bitcoin has no underlying asset either, no stock, no commodity. It trades, de facto, like a currency, and for purposes of objective classification, it would be considered a currency, and held similar to any Forex position.\"", "title": "" }, { "docid": "90a0c80cb6cc73d6f81b011cd974c1f0", "text": "If we knew for sure that euros are only going to be more expensive in the future, then the answer would be easy: Buy them all at one time, so that we are getting them at the best price. Of course, we can't assume that to be the case, they could get cheaper, so the answer gets more complicated. Focusing strictly on monetary considerations, there are two factors to examine: Using answers to this Travel Stack Exchange question as a reference, you see that the cost of currency conversion can be as low as 1%-2% if you make the transaction with a debit card, but can be as high as 15%. So, buying 1000 euros a month would cost between 20 and 150 euros. Examining a two year chart of the Euro-Canadian Dollar exchange rate gives us an idea of how much the currency fluctuates. Over the past two years, a euro has cost has much as $1.54 CAD and as little as $1.26 CAD, a 22% spread. Looking at it on a month-to month basis, we see that monthly changes have been as high as .05 to .07 (4-5%). As such, buying 1000 euros a month could cost 50 CAD more (or less) on a monthly basis due to variance in the exchange rate. If we anticipate our overhead cost of currency conversion to be more than 5%, it doesn't make sense to do multiple transactions; the costs are likely to outweigh the benefits. If we can keep them under that amount, then multiple transactions are advantageous when the euro is cheaper. The problem is somewhat analagous to that of someone who wants to make an annual investment in a mutual fund and is unsure of whether to make the purchase all at once, or to divide it over multiple purchases. One can't know for sure which way the mutual fund price is going to move over the time period Dollar cost averaging, spreading the purchase over regular intervals, is the generally accepted solution to this problem. As such, so long as we can keep the overhead cost of currency transactions low (<5%), doing transactions on a regular basis positions ourselves to take advantage of possible drops in the price of euros and reduces the risk of buying euros when they are most expensive. If we can't keep the cost low, then currency fees would be greater than potential price drops and we would be better off doing a single transaction.", "title": "" }, { "docid": "3df65e68c8633ccfc01a4496253623f3", "text": "How can I calculate my currency risk exposure? You own securities that are priced in dollars, so your currency risk is the amount (all else being equal) that your portfolio drops if the dollar depreciates relative to the Euro between now and the time that you plan to cash out your investments. Not all stocks, though, have a high correlation relative to the dollar. Many US companies (e.g. Apple) do a lot of business in foreign countries and do not necessarily move in line with the Dollar. Calculate the correlation (using Excel or other statistical programs) between the returns of your portfolio and the change in FX rate between the Dollar and Euro to see how well your portfolio correlated with that FX rate. That would tell you how much risk you need to mitigate. how can I hedge against it? There are various Currency ETFs that will track the USD/EUR exchange rate, so one option could be to buy some of those to offset your currency risk calculated above. Note that ETFs do have fees associated with them, although they should be fairly small (one I looked at had a 0.4% fee, which isn't terrible but isn't nothing). Also note that there are ETFs that employ currency risk mitigation internally - including one on the Nasdaq 100 . Note that this is NOT a recommendation for this ETF - just letting you know about alternative products that MIGHT meet your needs.", "title": "" }, { "docid": "0afc4be53a7d5723c723f6f6974db822", "text": "\"The biggest risk you have when a country defaults on its currency is a major devaluation of the currency. Since the EURO is a fiat currency, like almost all developed nations, its \"\"promise\"\" comes from the expectation that its union and system will endure. The EURO is a basket of countries and as such could probably handle bailing out countries or possibly letting some default on their sovereign debt without killing the EURO itself. A similar reality happens in the United States with some level of regularity with state and municipal debt being considered riskier than Federal debt (it isn't uncommon for cities to default). The biggest reason the EURO will probably lose a LOT of value initially is if any nation defaults there isn't a track record as to how the EU member body will respond. Will some countries attempt to break out of the EU? If the member countries fracture then the EURO collapses rendering any and all EURO notes useless. It is that political stability that underlies the value of the EURO. If you are seriously concerned about the risk of a falling EURO and its long term stability then you'd do best buying a hedge currency or devising a basket of hedge currencies to diversify risk. Many will recommend you buy Gold or other precious metals, but I think the idea is silly at best. It is not only hard to buy precious metals at a \"\"fair\"\" value it is even harder to sell them at a fair value. Whatever currency you hold needs to be able to be used in transactions with ease. Doesn't do you any good having $20K in gold coins and no one willing to buy them (as the seller at the store will usually want currency and not gold coins). If you want to go the easy route you can follow the same line of reasoning Central Banks do. Buy USD and hold it. It is probably the world's safest currency to hold over a long period of time. Current US policy is inflationary so that won't help you gain value, but that depends on how the EU responds to a sovereign debt crisis; if one matures.\"", "title": "" }, { "docid": "61613f9d8b9dd2efa33ee36ade8f02a6", "text": "\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \"\"real economy\"\" is to \"\"lock in\"\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \"\"lock in\"\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \"\"sit on\"\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\"", "title": "" }, { "docid": "1cfa763eb7329a1cea601b1c91dda9c7", "text": "\"In short, yes. By \"\"forward selling\"\", you enter into a futures contract by which you agree to trade Euros for dollars (US or Singapore) at a set rate agreed to by both parties, at some future time. You are basically making a bet; you think that the dollar will gain on the Euro and thus you'd pay a higher rate on the spot than you've locked in with the future. The other party to the contract is betting against you; he thinks the dollar will weaken, and so the dollars he'll sell you will be worth less than the Euros he gets for them at the agreed rate. Now, in a traditional futures contract, you are obligated to execute it, whether it ends up good or bad for you. You can, to avoid this, buy an \"\"option\"\". By buying the option, you pay the other party to the deal for the right to say \"\"no, thanks\"\". That way, if the dollar weakens and you'd rather pay spot price at time of delivery, you simply let the contract expire un-executed. The tradeoff is that options cost money up-front which is now sunk; whether you exercise the option or not, the other party gets the option price. That basically creates a \"\"point spread\"\"; you \"\"win\"\" if the dollar appreciates against the Euro enough that you still save money even after buying the option, or if the dollar depreciates against the Euro enough that again you still save money after subtracting the option price, while you \"\"lose\"\" if the exchange rates are close enough to what was agreed on that it cost you more to buy the option than you gained by being able to choose to use it.\"", "title": "" } ]	fiqa
b179eed1fcaf6360d1a03216c35190c7	Are there special exceptions to the rule that (US) capital gains taxes are owed only when the gain materializes?	[ { "docid": "16fafc1f035e5b4f5afeac6a5bb0e2f0", "text": "Normally, you don't pay capital gains tax until you actually realize a capital gain. However, there are some exceptions. The exception that affected Eduardo Saverin is the expatriation tax, or exit tax. If you leave a country and are no longer a tax resident, your former country taxes you on your unrealized capital gains from the period that you were a tax resident of that country. There are several countries that have an expatriation tax, including the United States. Saverin left the U.S. before the Facebook IPO. Saverin was perhaps already planning on leaving the U.S. (he is originally from Brazil and has investments in Asia), so leaving before the IPO limited the amount of capital gains tax he had to pay upon his exit. (Source: Wall Street Journal: So How Much Did He Really Save?) Another situation that might be considered an exception and affects a lot of us is capital gain distributions inside a mutual fund. When mutual fund managers sell investments inside the fund and realize gains, they have to distribute those gains among all the mutual fund investors. This often takes the form of additional shares of the mutual fund that you are given, and you have to pay capital gains tax on these distributions. As a result, you can invest in a mutual fund, leave your money there and not sell, but have to pay capital gains tax anyway. In fact, you could owe capital gains tax on the distributions even if the value of your mutual fund investment has gone down.", "title": "" }, { "docid": "d55e2123743cdd8329b8a35345731e11", "text": "In addition to the expatriation case already mentioned by Ben Miller, traders/investors are required to use mark-to-market accounting on certain investments. These go by Section 1256 contracts due to the part of the law that defines them. Mark-to-market is also required on straddles (combination of a long and and a short position in equities that are expected to vary inversely to each other). Mark-to-market means that you have to treat the positions as if you closed them at their end-of-year market value (even if you still have the position across the new year).", "title": "" }, { "docid": "d423ee78b68467721af9eb9d16c3d672", "text": "This is really an extended comment on the last paragraph of @BenMiller's answer. When (the manager of) a mutual fund sells securities that the fund holds for a profit, or receives dividends (stock dividends, bond interest, etc.), the fund has the option of paying taxes on that money (at corporate rates) and distributing the rest to shareholders in the fund, or passing on the entire amount (categorized as dividends, qualified dividends, net short-term capital gains, and net long-term capital gains) to the shareholders who then pay taxes on the money that they receive at their own respective tax rates. (If the net gains are negative, i.e. losses, they are not passed on to the shareholders. See the last paragraph below). A shareholder doesn't have to reinvest the distribution amount into the mutual fund: the option of receiving the money as cash always exists, as does the option of investing the distribution into a different mutual fund in the same family, e.g. invest the distributions from Vanguard's S&P 500 Index Fund into Vanguard's Total Bond Index Fund (and/or vice versa). This last can be done without needing a brokerage account, but doing it across fund families will require the money to transit through a brokerage account or a personal account. Such cross-transfers can be helpful in reducing the amounts of money being transferred in re-balancing asset allocations as is recommended be done once or twice a year. Those investing in load funds instead of no-load funds should keep in mind that several load funds waive the load for re-investment of distributions but some funds don't: the sales charge for the reinvestment is pure profit for the fund if the fund was purchased directly or passed on to the brokerage if the fund was purchased through a brokerage account. As Ben points out, a shareholder in a mutual fund must pay taxes (in the appropriate categories) on the distributions from the fund even though no actual cash has been received because the entire distribution has been reinvested. It is worth keeping in mind that when the mutual fund declares a distribution (say $1.22 a share), the Net Asset Value per share drops by the same amount (assuming no change in the prices of the securities that the fund holds) and the new shares issued are at this lower price. That is, there is no change in the value of the investment: if you had $10,000 in the fund the day before the distribution was declared, you still have $10,000 after the distribution is declared but you own more shares in the fund than you had previously. (In actuality, the new shares appear in your account a couple of days later, not immediately when the distribution is declared). In short, a distribution from a mutual fund that is re-invested leads to no change in your net assets, but does increase your tax liability. Ditto for a distribution that is taken as cash or re-invested elsewhere. As a final remark, net capital losses inside a mutual fund are not distributed to shareholders but are retained within the fund to be written off against future capital gains. See also this previous answer or this one.", "title": "" } ]	[ { "docid": "7455173c32b84deeccb016729e52c76d", "text": "You don't have to wait. If you sell your shares now, your gain can be considered a capital gain for income tax purposes. Unlike in the United States, Canada does not distinguish between short-term vs. long-term gains where you'd pay different rates on each type of gain. Whether you buy and sell a stock within minutes or buy and sell over years, any gain you make on a stock can generally be considered a capital gain. I said generally because there is an exception: If you are deemed by CRA to be trading professionally -- that is, if you make a living buying and selling stocks frequently -- then you could be considered doing day trading as a business and have your gains instead taxed as regular income (but you'd also be able to claim additional deductions.) Anyway, as long as your primary source of income isn't from trading, this isn't likely to be a problem. Here are some good articles on these subjects:", "title": "" }, { "docid": "0bf9df35234c55b80d26c47745d7db62", "text": "If you're a non resident then you owe no capital gains tax to Canada. Most banks won't let you make trades if you're a non-resident. They may not have your correct address on file so they don't realize this. This is not tax law but just OSC (or equivalent) regulations. You do have to fill out paperwork for withholding tax on OAS/CPP payments. This is something you probably already do but here's a link . It's complicated and depends on the country you live in. Of course you may owe tax in Thailand, I don't know their laws.", "title": "" }, { "docid": "fa0eedb94ddb41b43cf2a8632c031a89", "text": "\"In this scenario the date of income is the date on which the contract has been signed, even if you received the actual money (settlement) later. Regardless of the NY special law for residency termination - that is the standard rule for recognition of income during a cash (not installments) sale. The fact that you got the actual money later doesn't matter, which is similar to selling stocks on a public exchange. When you sell stocks through your broker on a public exchange - you still recognize the income on the day of the sale, not on the day of the settlement. This is called \"\"the Constructive Receipt doctrine\"\". The IRS publication 538 has this to say about the constructive receipt: Constructive receipt. Income is constructively received when an amount is credited to your account or made available to you without restriction. You need not have possession of it. If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. Income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations. Once you signed the contract, the money has essentially been credited to your account with the counter-party, and unless they're bankrupt or otherwise insolvent - you have no restrictions over it. And also (more specifically for your case): You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income. You must report the income in the year the property is received or made available to you without restriction. Timing wire transfer is akin to holding and not depositing a check, from this perspective. So unless there was a restriction that was lifted after you moved out of New York, I doubt you can claim that you couldn't have received it before moving out, i.e.: you have, in fact, constructively received it.\"", "title": "" }, { "docid": "b650fc4e0e907668b3089ab88e802163", "text": "Equal sized gains and losses in alternating years would lead to an unjust positive tax. On the contrary. If I can take my gains at the long term rate (15%) in even years, but take losses in odd years, up to $3000, or let them offset short term gains at ordinary rate, I've just gamed the system. What is the purpose of the wash sale rule? Respectfully, we here can do a fine job of explaining how a bit of tax code works. And we can suggest the implication of those code bits. But, I suspect that it's not easy to explain the history of particular rules. For wash sale, the simple intent is to not let someone take a loss without actually selling the stock for a time. You'd be right to say the +/- 30 days is arbitrary. I'd ask you to keep 2 things in mind if you continue to frequent this board -", "title": "" }, { "docid": "ec9e92e8583f6e3fb635b2d9b7fe7e8e", "text": "\"I had been pondering this recently myself too. This question motivated me to do a little research. It appears that what happens is that (take a deep breath) the capital gain does push you into the next tax bracket, but the capital gain is always interpreted as the \"\"last\"\" income you received, so that if your non-capital-gains income is less than the threshold, it will all be taxed in the lower bracket, and only your capital gain will be taxed in the higher bracket (but it will be taxed at the capital-gains rate of that higher bracket). In short, a capital gain can only push capital gains into higher capital-gains tax brackets; it cannot push ordinary income into higher ordinary-income tax brackets. In addition, the amount of the capital gain is taxed in a marginal fashion, such that any portion of the gain that will \"\"fit\"\" into a lower bracket will be taxed at a lower level, with only the topmost portion of any gain being taxed at the top rate. This site is one claiming this: Will capital gain or dividend income push my other income into a higher tax bracket? No, the tax rates apply first to your “ordinary income” (income from sources other than long-term capital gains or qualifying dividends) so these items that are taxed at special rates won’t push your other income into a higher tax bracket. If my ordinary income puts me in the 15% tax bracket, can I receive an unlimited amount of long-term capital gain at the 0% rate? No, the 0% rate applies only to the amount of long-term capital gain and dividend income needed to “fill up” the 15% tax bracket. For example, if your ordinary income is $4,000 below the figure that would put you in the 25% bracket and you have a $10,000 long-term capital gain, you’ll pay 0% on $4,000 of your capital gain and 15% on the rest. There are several Bogleheads forum threads (here, here, here and here) that also touch on the same issue. The last of those links to the IRS capital gains worksheet. I traced through the logic and I believe it confirms this. Here's how it works: (In conclusion, we now know Mitt Romney's secret.)\"", "title": "" }, { "docid": "200fcef0533e0e0a2d7806632fc623de", "text": "\"For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%? You'll pay 20% assuming filing single and no major offsets to taxable income. Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the \"\"income\"\" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.\"", "title": "" }, { "docid": "5b05207842337ec0636cc55cd7c09c7b", "text": "Long-term capital gains, as you note, get special tax treatment. They are lower than regular income tax rates. Short-term capital gains aren't penalized, they are just treated as regular income under the regular rates. So, from a tax perspective, the day-trader gets by the same way as the rest of us because they are paying the same rates on the same progressive income tax scale.", "title": "" }, { "docid": "0bfbb3a0f9d2ac58c9bb99f9390209f7", "text": "\"Long term: Assuming you sold stock ABC through a registered stock exchange, e.g., the Bombay Stock Exchange or the National Stock Exchange of India, and you paid the Securities Transaction Tax (STT), you don't owe any other taxes on the long term capital gain of INR 100. If you buy stock BCD afterwards, this doesn't affect the long term capital gains from the sale of stock ABC. Short term: If you sell the BCD stock (or the ABC stock, or some combination therein) within one year of its purchase, you're required to pay short term capital gains on the net profit, in which case you pay the STT and the exchange fees and an additional flat rate of 15%. The Income Tax Department of India has a publication titled \"\"How to Compute your Capital Gains,\"\" which goes into more detail about a variety of relevant situations.\"", "title": "" }, { "docid": "0ebdfe4ade818d0840a54870502ca32a", "text": "More likely I miswrote. Yes, we're talking about capital gains. But who, outside of the moneyed elite, have enough capital gains to incur substantial taxes? Many don't and never will despite how hard they work or how productive they are. Also, doesn't taxing income more than capital gains discourage production? I always hear how high capital gains tax discourages investment and growth.", "title": "" }, { "docid": "0d1ca76eb17568106c8677da01b8a051", "text": "In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.", "title": "" }, { "docid": "3fa31b1975e0d7a3e9f65372d31635a5", "text": "Capital losses do mirror capital gains within their holding periods. An asset or investment this is certainly held for a year into the day or less, and sold at a loss, will create a short-term capital loss. A sale of any asset held for over a year to your day, and sold at a loss, will create a loss that is long-term. When capital gains and losses are reported from the tax return, the taxpayer must first categorize all gains and losses between long and short term, and then aggregate the sum total amounts for every single regarding the four categories. Then the gains that are long-term losses are netted against each other, therefore the same is done for short-term gains and losses. Then your net gain that is long-term loss is netted against the net short-term gain or loss. This final net number is then reported on Form 1040. Example Frank has the following gains and losses from his stock trading for the year: Short-term gains - $6,000 Long-term gains - $4,000 Short-term losses - $2,000 Long-term losses - $5,000 Net short-term gain/loss - $4,000 ST gain ($6,000 ST gain - $2,000 ST loss) Net long-term gain/loss - $1,000 LT loss ($4,000 LT gain - $5,000 LT loss) Final net gain/loss - $3,000 short-term gain ($4,000 ST gain - $1,000 LT loss) Again, Frank can only deduct $3,000 of final net short- or long-term losses against other types of income for that year and must carry forward any remaining balance.", "title": "" }, { "docid": "22134f97c9279b484342d04421ff2d5e", "text": "\"'Note that \"\"to keep an investor from lowering their tax bill\"\" is not an explanation'. Well, yes it is. In fact it is the only explanation. The rule plainly exists to prevent someone from realizing a loss when their economic situation remains unchanged before/after a sale. Now, you might say 'but I have suffered a loss, even if it is unrealized!' But, would you want to pay tax on unrealized gains? The tax system still caters to reducing the tax impact of investments, particularly capital investments. Part and parcel with the system of taxing gains only when realized, is that you can recognize losses only when realized. Are there other ways to 'artificially' reduce taxable income? Yes. But the goal of a good tax system should be to reduce those opportunities. Whether you agree that it is fair for the government to prevent this tax-saving opportunity, when others exist, is another question. But that is why the rule exists.\"", "title": "" }, { "docid": "75ffd20447fc3efc958c6f9cf52db524", "text": "Is the Grant Date or the Vest Date used when determining the 12-month cutoff for long-term and short-term capital gains? You don't actually acquire the stock until it's vested, so that is the date and price used to determine your cost basis and short-term/long-term gain/loss. The grant date really has no tax bearing. If you held the stock (time between vesting and sale) for more than one year you will owe long-term CG tax, if less than one year you will owe short-term CG tax.", "title": "" }, { "docid": "8bb9b540faa16f59254b2eeffb1f03b5", "text": "For the Roth the earnings: interest, dividends, capital gains distributions and capital gains are tax deferred. Which means that as long as the money stays inside of a Roth or is transferred/rolled over to another Roth there are no taxes due. In December many mutual funds distribute their gains. Let's say people invested in S&P500index fund receive a dividend of 1% of their account value. The investor in a non-retirement fund will be paying tax on that dividend in the Spring with their tax form. The Roth and IRA investors will not be paying tax on those dividends. The Roth investor never will, and the regular IRA investor will only pay taxes on it when they pull the money out.", "title": "" }, { "docid": "b9838f030c43ae7ef9cb5567a6f0bf48", "text": "My understanding is that when you die, the stocks are sold and then the money is given to the beneficiary or the stock is repurchased in the beneficiaries name. This is wrong, and the conclusion you draw from michael's otherwise correct answer follows your false assumption. You seem to understand the Estate Tax federal threshold. Jersey would have its own, and I have no idea how it works there. If the decedent happened to trade in the tax year prior to passing, normal tax rules apply. Now, if the executor chooses to sell off and liquidate the estate to cash, there's no further taxable gain, a $5M portfolio can have millions in long term gain, but the step up basis pretty much negates all of it. If that's the case, the beneficiaries aren't likely to repurchase those shares, in fact, they might not even know what the list of stocks was, unless they sifted through the asset list. But, that sale was unnecessary, assets can be divvied up and distributed in-kind, each beneficiary getting their fraction of the number of shares of each stock. And then your share of the $5M has a stepped up basis, meaning if you sell that day, your gains are near zero. You might owe a few dollars for whatever the share move in the time passing between the step up date and date you sell. I hope that clarifies your misunderstanding. By the way, the IRS is just an intermediary. It's congress that writes the laws, including the tangled web of tax code. The IRS is the moral equivalent of a great customer service team working for a company we don't care for.", "title": "" } ]	fiqa
c3334e179b66d97793997ed54f936706	What should I reserve “emergency savings” for?	[ { "docid": "78d29ec1636d812761993c1efc07f934", "text": "Emergency funds are good to keep yourself out of debt, for whatever reason. Job loss is a big place where an emergency fund can help you out. It buys you time to find another job before hauling out the credit cards for your groceries, falling behind on your mortgage and car payments, etc. But it can just as easily be used for major car repairs, serious medical issues, home repairs, etc. ... anything that needs to be done quickly, and isn't a discretionary item. The bigger your cash reserves, the better, especially now that the economy is bad.", "title": "" }, { "docid": "782aeb037539e9920bc6acc24d2e2fca", "text": "\"I think it is stated perfectly in the question, \"\"unforeseen critical needs.\"\" You know you will need to buy new tires for your car, they are critical but not unforeseen. However, if a tree falls on your car and you need to pay the insurance deductible for the repairs it would be unforeseen. You should budget for the expenses you can plan for in advance like car maintenance and repairs. An emergency fund is for items that are out of the ordinary.\"", "title": "" } ]	[ { "docid": "e9a227401a5aa5cbce8e3ddea2a6a61c", "text": "No cash is necessary for most people. In the modern day in the US there is no need to keep paper currency around for emergencies; any sort of emergency that knocked out all of the ability to use plastic (ATMs, credit cards, etc.) for an extended period of time AND knocked your bank out of service would be of the level that cash might not have any value either. Your $100 of cash for natural disasters is likely more than enough, and even that I wouldn't necessarily consider a vital thing in this day where even a major natural disaster probably isn't going to have too much impact on the financial sector outside of the immediate area (that you should be exiting quickly). Keep however much cash around that you need for day to day cash expenses, and that should be enough. The level of emergency that would suggest cash being needed would probably need more than you'd actually want to keep around, anyway - i.e., a complete collapse of the American or World financial system would imply you need months' worth of cash. That's just not feasible, nor is it practical financially. You should have your emergency fund making at least a bit of interest - 1% or so isn't hard to get right now, and in the near future that may increase substantially if interest rates go up. It also would make you a substantial theft target if it were known you had months' worth of cash around the house (i.e., thousands of dollars). Safes don't necessarily give you sufficient protection unless you've got a very good safe - commercial ones are only as safe as the ability to crack them and/or transport them is. Now, if you find yourself regularly out at 2am and run out of cash, and you live somewhere that ATMs don't exist, and you find yourself needing to pay cab drivers from time to time after a drunk bender... then I'd keep at least one cab's worth of cash at home.", "title": "" }, { "docid": "948a4f5649ea7e6eff5c881e7c1a1db5", "text": "\"I think the real problem here is dealing with the variable income. The envelope solution suggests the problem is that your brother doesn't have the discipline to avoid spending all his money immediately, but maybe that's not it. Maybe he could regulate his expenses just fine, but with such a variable income, he can't settle into a \"\"normal\"\" spending pattern. Without any savings, any budget would have to be based on the worst possible income for a month. This isn't a great: it means a poor quality of life. And what do you do with the extra money in the better-than-worst months? While it's easy to say \"\"plan for the worst, then when it's better, save that money\"\", that's just not going to happen. No one will want to live at their worst-case standard of living all the time. Someone would have to be a real miser to have the discipline to not use that extra money for something. You can say to save it for emergencies or unexpected events, but there's always a way to rationalize spending it. \"\"I'm a musician, so this new guitar is a necessary business expense!\"\" Or maybe the car is broken. Surely this is a necessary expense! But, do you buy a $1000 car or a $20000 car? There's always a way to rationalize what's necessary, but it doesn't change financial reality. With a highly variable income, he will need some cash saved up to fill in the bad months, which is replenished in the good months. For success, you need a reasonable plan for making that happen: one that includes provisions for spending it other than \"\"please try not to spend it\"\". I would suggest tracking income accurately for several months. Then you will have a real number (not a guess) of what an average month is. Then, you can budget on that. You will also have real numbers that allow you to calculate how long the bad stretches are, and thus determine how much cash reserve is necessary to make the odds of going broke in a bad period unlikely. Having that, you can make a budget based on average income, which should have some allowance for enjoying life. Of course initially the cash reserve doesn't exist, but knowing exactly what will happen when it does provides a good motivation for building the reserve rather than spending it today. Knowing that the budget includes rules for spending the reserves reduces the incentive to cheat. Of course, the eventual budget should also include provisions for long term savings for retirement, medical expenses, car maintenance, etc. You can do the envelope thing if that's helpful. The point here is to solve the problem of the variable income, so you can have an average income that doesn't result in a budget that delivers a soul crushing decrease in quality of living.\"", "title": "" }, { "docid": "0b3f82490545738a70a5650e386482f7", "text": "The latter. Simply because having some savings is always better than having no savings. Using a credit card in an emergency will always be an option (as long as you are paying off debt) but using savings earmarked for emergencies is better.", "title": "" }, { "docid": "bebad083a6e66d5ba199fd1e63a0f15b", "text": "With $800/month extra? Do both. (I am ethnocentric enough to assume you live in the same country as me) First, figure out what your emergency fund should look like. Put this money in a high yield checking or savings account. Add to it monthly until you reach your goal. It should be 3 to 6 months of your total monthly expenses. It will be a lot more than $2k I suspect. You will earn bubkis in interest, but the point of the emergency fund is a highly liquid asset for emergencies so you can choose cheaper car insurance and not buy warranties on stuff. With your $800/month, split it up this way: $416/month into a Roth IRA account at Vanguard (or Schwab or Fidelity) in the Star Fund (or similar low cost, diversified fund). The star is $1000 to open, pretty diversified. $416 is a lazy number that comes close to the $5000 annual limit for a Roth IRA in the US. Contribute like clockwork, directly from your paycheck if you can. This will make it easy to do and get you the benefit of dollar cost averaging. $200 or $300 into your savings account until you reach your emergency fund goal. $85 - $100. Live a little. Speculate in stocks with your vanguard account. Or rent fancy cars. Or taken a vacation or go party. If you are saving $800/month in your early 20 be proud of yourself, but have a little fun too so you can let off steam. It isn't much but you know you can play with it. Once you reach your emergency fund, save up for your future house or car or plane tickets to Paris. Ask another question for how to save up for these kinds of goals.", "title": "" }, { "docid": "2865107e261613e3cc2c935b5a67bace", "text": "\"These good rates all tend to be \"\"on up to $X\"\" where X is some low'ish number that could require multiple accounts. They often also come with other strings, like set up automatic deposits/withdrawals, and use debit card at least 15 times per month. The two you mention have these flaws, whether or not it's worth it depends on if you are happy to meet those requirements and how big your emergency fund is. Personally, I'd rather get rewards on a credit card than use a debit card, and I don't want to open a bunch of accounts, so I have a boring savings account with a pretty low interest rate for my emergency fund. It's liquid, earns some interest, and I don't have to think about it.\"", "title": "" }, { "docid": "efb6e6ad5609821682cc8914bf850d16", "text": "\"The guideline for the size of an emergency fund is just a guideline. I've usually heard it expressed as \"\"3 to 6 months,\"\" but everyone has a different idea of exactly how big it should be. The purpose of the fund is to give you enough cash to be able to pay for unexpected expenses that have come up that you have not budgeted for without you having to borrow money to pay for them. To figure out how big this fund should be, we look at the worst case scenario. Suppose that you lost your job tomorrow. What would you do? Cut your expenses. You'd probably be much more careful how you spend money. Secure health insurance. This would be done by either continuing your employer's policy with COBRA, or by purchasing your own insurance, likely through the Obamacare/ACA market. Keep in mind that most likely your employer is paying for a portion of your insurance now, so this expense will go up quite a bit no matter which option you choose. Look for another job. You'd probably begin your search for a new job immediately. The size of your emergency fund determines how long you will be able to go without income before you need to start a new job. Regarding cutting your expenses, it is up to you how much you would cut. There are things that are easy to cut temporarily (or permanently), such as restaurants, entertainment expenses, vacations, etc. You would probably stop retirement investing until you have income again. The more you cut, the longer your emergency fund would last. Things you don't want to cut are necessities, like housing, groceries, utilities, transportation, etc. I would also include health insurance in this list. Certainly, if you have a pre-existing condition, you do not want to let your health insurance coverage lapse. Your employability is also a factor. If you believe that you would have an easy time finding similar employment to what you have now, your emergency fund might not need to be quite as big as someone who believes they would have a harder time finding another job.\"", "title": "" }, { "docid": "4ee232426f873c73418bdcadf24765ed", "text": "The rule that I know is six months of income, stored in readily accessible savings (e.g. a savings or money market account). Others have argued that it should be six months of expenses, which is of course easier to achieve. I would recommend against that, partially because it is easier to achieve. The other issue is that people are more prone to underestimate their expenses than their income. Finally, if you base it on your current expenses, then budget for savings and have money left over, you often increase your expenses. Sometimes obviously (e.g. a new car) and sometimes not (e.g. more restaurants or clubs). Income increases are rarer and easier to see. Either way, you can make that six months shorter or longer. Six months is both feasible and capable of handling difficult emergencies. Six years wouldn't be feasible. One month wouldn't get you through a major emergency. Examples of emergencies: Your savings can be in any of multiple forms. For example, someone was talking about buying real estate and renting it. That's a form of savings, but it can be difficult to do withdrawals. Stocks and bonds are better, but what if your emergency happens when the market is down? Part of how emergency funds operate is that they are readily accessible. Another issue is that a main goal of savings is to cover retirement. So people put them in tax privileged retirement accounts. The downside of that is that the money is not then available for emergencies without paying penalties. You get benefits from retirement accounts but that's in exchange for limitations. It's much easier to spend money than to save it. There are many options and the world makes it easy to do. Emergency funds make people really think about that portion of savings. And thinking about saving before spending helps avoid situations where you shortchange savings. Let's pretend that retirement accounts don't exist (perhaps they don't in your country). Your savings is some mix of stocks and bonds. You have a mortgaged house. You've budgeted enough into stocks and bonds to cover retirement. Now you have a major emergency. As I understand your proposal, you would then take that money out of the stocks and bonds for retirement. But then you no longer have enough for retirement. Going forward, you will have to scrimp to get back on track. An emergency fund says that you should do that scrimping early. Because if you're used to spending any level of money, cutting that is painful. But if you've only ever spent a certain level, not increasing it is much easier. The longer you delay optional expenses, the less important they seem. Scrimping beforehand also helps avoid the situation where the emergency happens at the end of your career. It's one thing to scrimp for fifteen years at fifty. What's your plan if you would have an emergency at sixty-five? Or later? Then you're reducing your living standard at retirement. Now, maybe you save more than necessary. It's not unknown. But it's not typical either. It is far more common to encounter someone who isn't saving enough than too much.", "title": "" }, { "docid": "d4a7824dea6df0994920939dd1e862e6", "text": "\"The concept of emergency fund is a matter of opinion. I can tell you the consensus is that one should have 6-9 months worth of expenses kept as liquid cash. This is meant to cover literally all bills that you might encounter during that time. That's a lot of money. There are levels of savings that are shy of this but still responsible. Not enough to cover too much in case of job loss, but enough to cover the busted transmission, the broken water heater, etc. this is still more than many people have saved up, but it's a worthy goal. The doctor visit is probably the lowest level. Even without insurance, the clinic visit should be under $200, and this shouldn't cause you to have to carry that amount beyond the time the bill comes in. The point that shouldn't be ignored is that if you owe money at 18% on a credit card, the emergency fund is costing you money, and is a bit misguided. I'd send every cent I could to the highest rate card and not have more than a few hundred $$ liquid until the cards were at zero. Last - $5K, $10K in the emergency account is great, unless you are foregoing matched 401(k) dollars to do it. All just my opinion. Others here whom I respect might disagree with parts of my answer, and they'd be right. Edit - Regarding the 'consensus 6-9 months' I suggest - From Investopedia - \"\"...using the conservative recommendation to sock away eight months’ worth of living expenses....\"\" The article strongly support my range for the fact that it both cites consensus, yet disagrees with it. From Money Under 30 The more difficult you rank your ability to find a new job, the more we suggest you save — up to a year’s worth of expenses if you think your income would be very difficult to replace. From Bank of America I have no issue with those comfortable with less. A dual income couple who is saving 30% of their income may very well survive one person losing a job with no need to tap savings, and any 'emergency' expense can come from next month's income. That couple may just need this month's bills in their checking account.\"", "title": "" }, { "docid": "6145724be4af636f752ceb0e691717ba", "text": "Firstly well done on building a really sold base of savings. An emergency fund needs to have two key characteristics: Be enough to get you through a typical emergency event (often seen as approx. ~6 months’ salary in your style of situation assuming you have no dependents etc) Be liquid and available to you instantly if an emergency arises Once you have decided how much you will need for 1), you then generally find the best interest available on an instant access savings account and leave it there. It's important to note that because you need it very liquid and very secure you will basically never make (nor should you expect to make) any sizeable rate of interest on your emergency fund. Once this is done, whatever left should be invested in an asset/mix of assets that best fit your risk profile - of which long term bonds are a completely legitimate option, but it's hard to say without knowing more about your long term aims/liabilities/job market etc.", "title": "" }, { "docid": "7cbcc2d72fd579c88e0d29696cf6d16a", "text": "It depends on how immediately you think you'll need your emergency fund cash: If you anticipate running into problems where you need cash right away (e.g. you live paycheck to paycheck, and your car breaks down a lot), put it into a checking or money market account. If you don't think your emergencies will require immediate access to cash (e.g. unemployment), then put it in a savings account or CD. If there is a lot of money in your accounts that goes unused, and you want a bigger safety net, then consider investing it. Though it's generally a better idea to pay off debts at this point. I think the best idea is to split your emergency fund between your checking and savings. Maybe 20% checking and 80% savings. That way, you have some extra cash on hand when you need it, while most of your money is growing in savings.", "title": "" }, { "docid": "ee8811b2d81aab7d77767fffc1331f20", "text": "Emergency funds, by the name it implies that they should be available on hand at a very short notice if needed. Conservation of principal (not withstanding inflation, but rather in absolute terms) is also a very important criteria of any kind of account that you will use to save the emergency fund. I would suggest the following breakup. The number in brackets signifies the amount of per month expenses that you can keep in that account. = total 6 months living expenses", "title": "" }, { "docid": "0e18a477fd77394ef56f7c56879824f1", "text": "There is no right answer here, one has to make the choice himself. Its best to have an emergency fund before you start to commit funds to other reasons. The plan looks good. Keep following it and revise the plan often.", "title": "" }, { "docid": "a688bd683b9434c0fed89aadcbbb9cb3", "text": "\"The purpose of the emergency fund is to enable you to pay for unplanned necessary expenses without going into debt. You know that cars don't last forever and eventually need to be replaced. Ideally, you would have a \"\"car replacement fund\"\" which you contribute to a little every month. (Essentially, it is a car payment to yourself.) Then when it comes time to get a replacement car, you have money set aside for this purpose and know exactly how much you can spend. However, in your case it seems that you don't have enough money in your car replacement fund for the car that you want. There are a few different causes that might have led to this situation: Due to unforeseen circumstances, you need a replacement car before you thought you would need it. You find that your planning was not quite right, and you weren't saving as much as you need. You are trying to buy a more expensive car than you need. If a replacement car is a necessity, two of these are emergencies, one is not. If you don't have enough cash set aside for a car, it is certainly better to spend your emergency fund and pay cash than to borrow money to buy the car. Only you can decide if the car you are looking at is appropriate for you, or if you should be looking at a less expensive car. After you purchase the car, build your emergency fund back up first, then start saving for your next car.\"", "title": "" }, { "docid": "deefce8e1b71ab35ffa0f37d3583e233", "text": "\"Goodness, I wish I could put away half my paycheck. Not to rain on your parade, but a 6-month emergency fund is not quite \"\"very good.\"\" It is the typical starting time frame. Personally, I would feel more comfortable with a 2+ year fund. That is a bit extreme, but only because many of us can barely seem to make it around to a 6-month fund. So, we focus on the more attainable goal. I say you do all three. Make saving money your priority, but do enjoy some of it; in moderation. Do not plan on making any big purchases with it, but know that you will eventually be able able to do so. Money not spent is worthless Idle money is worthless. Make some -- hopefully -- prudent investments with some of your money. A small portion of that investment portfolio can/should be in speculative investments. Maybe even as much as 20% of your investment portfolio, since you are young. Consider that money gone and you will hopefully be surprised by one of those speculative investments. That is the crucial point: earmark a small portion of your investment portfolio which you are willing to lose. However, do not gamble with it. Research the hot emerging technologies, for example, and find a way to make an investment. So, in summary: You may have more money that you know what do with, right now. However, that does not mean you need to go out and spend it all. Trust me, as you get older you will think of plenty of good uses for that money.\"", "title": "" }, { "docid": "05eed73a4eaea66dd596aea8bc613431", "text": "I do understand what a creditor and equity holder is. I'm just saying my teacher NEVER brought up ponzi schemes and tied it to anything related to our accounting. He didn't think it was worth his time to go into details how ponzi schemes break accounting principles. I also posted the question in finance as my finance courses dealt with financing money... And banks...", "title": "" } ]	fiqa
7678b12f64d8e84460bffa4b1ba687ab	What are investment options for young married couple with no debt that have maxed out retirement savings?	[ { "docid": "85fff20fe4fa7addd4a2f7129c8cadb0", "text": "4.7 is a pretty low rate, especially if you are deducting that from your taxes. If you reduce the number by your marginal tax rate to get the real cost of the money you end up with a number that isn't far off from inflation, and also represents a pretty low 'yield' in terms of paying off the loan early. (e.g. if your marginal tax rate is 28%, then the net you are paying in interest after the tax deduction is 4.7 * .72 = 3.384) While I'm all for paying off loans with higher rates (since it's in effect the same as making that much risk free on the money) it doesn't make a lot of sense when you are down at 3.4 unless there is a strong 'security factor' (which really makes a difference to some folks) to be had that really helps you sleep at night. (to be realistic, for some folks close to retirement, there can be a lot to be said for the security of not having to worry about house payments, although you don't seem to be in that situation yet) As others have said, first make sure you have enough liquid 'emergency money' in something like a money market account, or a ladder of short term CD's If you are sure that the sprouts will be going to college, then there's a lot to be said for kicking a decent amount into a 529, Coverdell ESA (Educational Savings Account), uniform gift to minors account, or some combination of those. I'm not sure if any of those plans can be used for a kid that has not been born yet however. I'd recommend http://www.savingforcollege.com as a good starting point to get more information on your various options. As with retirement savings, money put in earlier has a lot more 'power' over the final balance due to compounding interest, so there's a lot to be said for starting early, although depending on what it takes to qualify for the plans there could be such a thing as too early ;-) ). There's nothing wrong with Managed mutual funds as long as the fund objective and investing style is in alignment with your objectives and risk tolerance; The fund is giving you a good return relative to the market as a whole; You are not paying high fees or load charges; You are not losing a lot to taxes. I would always look at the return after expenses when comparing to other options, and if the money is not in a tax deferred account, also look at what sort of tax burden you will be faced with. A fund that trades a lot will generate more short term gains which means more taxes than compared to a more passive fund. Anything lost to taxes is money lost to you so needs to come out of the total return when you calculate that. Sometimes such funds are better off as a choice inside an IRA or 401K, and you can instead use more tax efficient vehicles for money where you have to pay the taxes every year on the gains. The reason a lot of folks like index funds better is that: Given your described age, it's not appropriate now, but in the long run as you get closer to retirement, you may want to start looking at building up some investments that are geared more towards generating income, such as bonds, or depending on taxes where you live, Municipal bonds. In any case, the more money you can set aside for retirement now, both inside and outside of tax deferred accounts, the sooner you will get to the point of the 'critical mass' you need to retire, at that point you can work because you want to, not because you have to.", "title": "" }, { "docid": "0a9e5e503ff2d51c31561721478e15c2", "text": "You can't max out your retirement savings. There are vehicles that aren't tax-advantaged that you can fund after you've exhausted the tax-advantaged ones. Consider how much you want to put into these vehicles. There are disadvantages as well as advantages. The rules on these can change at any time and can make it harder for you to get your money out. How's your liquid (cash) emergency fund? It sounds like you're in a position to amass a good one. Don't miss this opportunity. Save like crazy while you can. Kids make this harder. Paying down your mortgage will save you interest, of course, but make sure you're not cash-poor as a result. If something happens to your income(s), the bank will still foreclose on you even if you only owe $15,000. A cash cushion buys you time.", "title": "" }, { "docid": "80acffb45c8498b0f661c11609063965", "text": "\"Paying the mortgage down is no different than investing in a long term taxable fixed instrument. In this economy, 4.7% isn't bad, but longer term, the stock market should return higher. When you have the kid(s), is your wife planing to work? If not, I'd first suggest going pre-tax on the IRAs, and when she's not working, convert to Roth. I'd advise against starting the 529 accounts until your child(ren) is actually born. As far as managed funds are concerned, I hear \"\"expenses.\"\" Why not learn about lower cost funds, index mutual funds or ETFs? I'd not do too much different aside from this, until the kids are born.\"", "title": "" } ]	[ { "docid": "8b0c286ab645d8767cbf1e001122d581", "text": "Put in the maximum you can into the 401(k), the limit should be $16,500 so long as the highly compensated rules don't kick in. Since you cannot deduct the traditional IRA, it's a great option to deposit to a traditional IRA and immediately convert that balance to a Roth account. That puts you at $21,500/yr saved, nearly 18%. There's nothing stopping you from investing outside these accounts. A nice ETF with low expenses, investing in a stock index (I am thinking SPY for the S&P 500) is great to accumulate long term.", "title": "" }, { "docid": "bc904594eeef2dc814c1121ab7f0ffd0", "text": "The biggest challenge as a young person maxing out a 401k in my opinion is the challenge of saving for a house, and (if necessary) paying off student loans. You have to consider - are you OK renting for the next 3, 5, 10 years? Or do you eventually want to buy a place? how much will that cost vs your current expenses? That being said, I didn't max out but had over 8-10% of 401k contribution in the same situation you're in right now and I don't regret it. Rereading your question, I see you are considering investing in a Roth IRA. Especially at your current age, assuming your wages will go UP, investing to the company match with the 401K and then maxing out a Roth IRA would be my recommendation. THEN continue maxing out the 401k (if you wish). P.S. I highly recommend doing two things if you go down this path:", "title": "" }, { "docid": "bd8d505bbe47d1a16680b5ed19bc6230", "text": "Craig touched on it, but let me expand on the point. Deposits, by definition, are withheld at your marginal rate. And since you can choose Roth vs Traditional right till filing time, you know with certainty the rate you are at each year. Absent any other retirement income, i.e. no pension, and absent an incredibly major change to our tax code, I know your starting rate, zero. The first $10K or so per person is part of their standard deduction and exemption. For a couple, the next $18k is taxed at 10%, and so on. Let me stop here to expand this important point. This is $38,000 for the couple, and the tax on it is less than $1900. 5%. There is no 5% bracket of course. It's the first $20K with zero tax, and that first $18,000 taxed at 10%. That $38,000 takes nearly $1M in pretax accounts to offer as an annual withdrawal. The 15% bracket starts after this, and applies to the next $57K of withdrawals each year. Over $95K in gross withdrawals of pretax money, and you still aren't in the 25% bracket. This is why 100% in traditional, or 100% in Roth aren't either ideal. I continue to offer the example I consider more optimizing - using Roth for income that would otherwise be taxed at 15%, but going pretax when you hit 25%. Then at retirement, you withdraw enough traditional to just stay at 10 or 15% and Roth for the rest. It would be a shame to retire 100% Roth and realize you paid 25% but now have no income to use up those lower brackets. Oddly, time value of money isn't part of my analysis. It makes no difference. And note, the exact numbers do change a bit each year for inflation. There's a also a good chance the exemptions goes away in favor of a huge increased standard deduction.", "title": "" }, { "docid": "39efca8110c7d497f195cadf2e5cc2fe", "text": "I think you have a good start understanding the ESA. $2k limit per child per year. The other choice is a 529 account which has a much higher limit. You can deposit up to 5 years worth of gifting per child, or $65k per child from you and another $65k from your wife. Sounds great, right? The downside is the 529 typically has fewer investment options, and doesn't allow for individual stocks. The S&P fund in my 529 costs me nearly 1% per year, in the ESA, .1%. the ESA has to be used by age 30, the 529 can be held indefinitely.", "title": "" }, { "docid": "66a8d2bd6df7b51a688f52da91c955b0", "text": "\"Your question is very broad. Whole books can and have been written on this topic. The right place to start is for you and your wife to sit down together and figure out your goals. Where do you want to be in 5 years, 25 years, 50 years? To quote Yogi Berra \"\"If you don't know where you are going, you'll end up someplace else.\"\" Let's go backwards. 50 Years I'm guessing the answer is \"\"retired, living comfortably and not having to worry about money\"\". You say you work an unskilled government job. Does that job have a pension program? How about other retirement savings options? Will the pension be enough or do you need to start putting money into the other retirement savings options? Career wise, do you want to be working as in unskilled government jobs until you retire, or do you want to retire from something else? If so, how do you get there? Your goals here will affect both your 25 year plan and your 5 year plan. Finally, as you plan for death, which will happen eventually. What do you want to leave for your children? Likely the pension will not be transferred to your children, so if you want to leave them something, you need to start planning ahead. 25 Years At this stage in your life, you are likely talking, college for the children and possibly your wife back at work (could happen much earlier than this, e.g., when the kids are all in school). What do you want for your children in college? Do you want them to have the opportunity to go without having to take on debt? What savings options are there for your children's college? Also, likely with all your children out of the house at college, what do you and your wife want to do? Travel? Give to charity? Own your own home? 5 Years You mention having children and your wife staying at home with them. Can your family live on just your income? Can you do that and still achieve your 50 and 25 year goals? If not, further education or training on your part may be needed. Are you in debt? Would you like to be out of debt in the next 5-10 years? I know I've raised more questions than answers. This is due mostly to the nature of the question you've asked. It is very personal, and I don't know you. What I find most useful is to look at where I want to be in the near, mid and long term and then start to build a plan for how I get there. If you have older friends or family who are where you want to be when you reach their age, talk to them. Ask them how they got there. Also, there are tons of resources out there to help you. I won't suggest any specific books, but look around at the local library or look online. Read reviews of personal finance books. Read many and see how they can give you the advice you need to reach your specific goals. Good luck!\"", "title": "" }, { "docid": "40965c0ba17523dcab20b0d0a7b79a96", "text": "\"(Since you used the dollar sign without any qualification, I assume you're in the United States and talking about US dollars.) You have a few options here. I won't make a specific recommendation, but will present some options and hopefully useful information. Here's the short story: To buy individual stocks, you need to go through a broker. These brokers charge a fee for every transaction, usually in the neighborhood of $7. Since you probably won't want to just buy and hold a single stock for 15 years, the fees are probably unreasonable for you. If you want the educational experience of picking stocks and managing a portfolio, I suggest not using real money. Most mutual funds have minimum investments on the order of a few thousand dollars. If you shop around, there are mutual funds that may work for you. In general, look for a fund that: An example of a fund that meets these requirements is SWPPX from Charles Schwabb, which tracks the S&P 500. Buy the product directly from the mutual fund company: if you go through a broker or financial manager they'll try to rip you off. The main advantage of such a mutual fund is that it will probably make your daughter significantly more money over the next 15 years than the safer options. The tradeoff is that you have to be prepared to accept the volatility of the stock market and the possibility that your daughter might lose money. Your daughter can buy savings bonds through the US Treasury's TreasuryDirect website. There are two relevant varieties: You and your daughter seem to be the intended customers of these products: they are available in low denominations and they guarantee a rate for up to 30 years. The Series I bonds are the only product I know of that's guaranteed to keep pace with inflation until redeemed at an unknown time many years in the future. It is probably not a big concern for your daughter in these amounts, but the interest on these bonds is exempt from state taxes in all cases, and is exempt from Federal taxes if you use them for education expenses. The main weakness of these bonds is probably that they're too safe. You can get better returns by taking some risk, and some risk is probably acceptable in your situation. Savings accounts, including so-called \"\"money market accounts\"\" from banks are a possibility. They are very convenient, but you might have to shop around for one that: I don't have any particular insight into whether these are likely to outperform or be outperformed by treasury bonds. Remember, however, that the interest rates are not guaranteed over the long run, and that money lost to inflation is significant over 15 years. Certificates of deposit are what a bank wants you to do in your situation: you hand your money to the bank, and they guarantee a rate for some number of months or years. You pay a penalty if you want the money sooner. The longest terms I've typically seen are 5 years, but there may be longer terms available if you shop around. You can probably get better rates on CDs than you can through a savings account. The rates are not guaranteed in the long run, since the terms won't last 15 years and you'll have to get new CDs as your old ones mature. Again, I don't have any particular insight on whether these are likely to keep up with inflation or how performance will compare to treasury bonds. Watch out for the same things that affect savings accounts, in particular fees and reduced rates for balances of your size.\"", "title": "" }, { "docid": "158a63615addb9a4abf5b13f930e9c11", "text": "It is great that you came up with a plan to own a rental home, free and clear, and also move up in home. It is also really good of you to recognize that curtailing spending has a profound effect on your net worth, many people fail to acknowledge that factoid and prefer to instead blame things outside their control. Good work there. Here are some items of your plan that I have comments on. 11mo by aggressively curtailing elective spending How does your spouse feel about this? They have to be on board, but it is such a short time frame this is very doable. cashing out all corporate stock, This will probably trigger capital gains. You have to be prepared to pay the tax man, but this is a good source of cash for your plan. You also have to have an additional amount that will likely be due next April 15th. redirecting all contributions to my current non-matched R401(k) This is fine as well because of the short time frame. withdrawing the principal from a Roth IRA This I kind of hate. We are so limited in money that we can put into tax favored plans, that taking money out bothers me. Also it is that much more difficult to save in a ROTH because of the sting of taxes. I would not do this, but would favor instead to take a few extra months to make your plan happen. buy home #2 How are you going to have a down payment for home #2? Is your intention to pay off home and save a while, then purchase home #2? I would do anything to avoid PMI. Besides I would take some time to live in a paid for house. Overall I would grade your plan a B. If take a bit longer, and remove the withdrawing from the ROTH, it then becomes an A-. With a good explanation of how you come up with the down payment for house 2, you could easily move to an A+.", "title": "" }, { "docid": "29d5fc6040fe343efceb9bc309b9c78e", "text": "If you're maxing out your 401k, just save in tax-efficient investments like stocks and tax efficient funds. If you live in a state with income taxes, look at municipal bond funds for some tax-free income. In 2011, be careful with bond funds and look for short duration funds.", "title": "" }, { "docid": "c3f562533bf3c3b4127193481644ff96", "text": "\"The word you are looking for is \"\"budget\"\" You can't pay off debt if you are spending more than you earn. Therefore, start a budget that you both work on at the same time, and both agree 100% with. Evaluate your progress on that budget on a regular basis. From your question, you understand what your obligations are and you seem to manage money pretty well. Therefore your key to retirement is just the ticket you need. As newlyweds, you both have to be VERY aware that the main reason a marriage fails in the US is money issues. Starting out with a groundwork where you both agree to your budget and can keep it will help you a lot in your upcoming life. Then, for some details Sprinkle your charitable donations anywhere in the list where you feel it is important.\"", "title": "" }, { "docid": "401c061194dac9da8592747cd33c6a11", "text": "With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k.", "title": "" }, { "docid": "abb269f55d7bd3bd7418fe02121cf251", "text": "At the very least you should invest as much as you can that your employer will match, as they are basically giving you free money for saving. After that I would prioritize a Roth IRA as that offers similar tax benefits with more liquidity. Provided you have enough money available in your emergency fund and have plenty for everyday expenses I see no reason not to max out your 401k after that if you can afford it. However, if your emergency fund is lacking, be sure to put some there. Other investments like a 529 may come into play if you have kids you plan on sending to college, but it all depends on your situation.", "title": "" }, { "docid": "18e2dbbfbc4a95e3a737de96b732f1da", "text": "You are young so you have time on your side. This allows you to invest in more aggressive investments. I would do the following 1) Contribute at least what your company is willing to match on your 401k, if your company offers a Roth 401k use that instead of the normal 401k (When this becomes available to you) 2) Open a Roth IRA Contribute the maximum to this account ~$5500/year 3) Live below your means, setup a budget and try and save/invest a minimum of 50% of your salary, do not get used to spending more money. With each bonus or salary increase a minimum of 75% of it should go toward your savings/investment. This will keep you from rapidly increasing your spending budget. 3) Invest in real estate (this could be its own post). Being young and not too far out of college you have probably been moving every year and have not accumulated so much stuff that it makes moving difficult. I would utilize your FHA loan slot to buy a multifamily property (2-4 Units) for your first property using only 3.5% down payment (you can put more down if you like). Learn how to analyze properties first and find a great Realtor/Mentor. Then I would continue as a NOMAD investor. Where you move every year into a new owner occupied property and turn the previous into a rental. This allows you to put 3-5% down payment of properties that you would otherwise have to put 20-25% and since you are young you can afford the risk. You should check out this article/website as it is very informative and can show you the returns that you could earn. Young Professional Nomad Good luck I am in a very similar situation", "title": "" }, { "docid": "3bf43f2321a84a27029a6e197426ed56", "text": "You're absolutely correct. If you have maxed out your retirement investment vehicles and have some additional investments in a regular taxable account, you can certainly use that as an emergency source of funds without much downside. (You can borrow from many retirement account but there are downsides.) Sure, you risk selling at a loss when/if you need the money, but I'd rather take the risk and take advantage of the investment growth that I would miss if I kept my emergency fund in cash or money market. And you can choose how much risk you're willing to take on when you invest the money.", "title": "" }, { "docid": "8dd79db65f2185bdc8fe64923d0173c3", "text": "\"Is the mortgage debt too high? The rental property is in a hot RE market, so could be easily sold with significant equity. However, they would prefer to keep it. Given the current income, there is no stress. However in absence of any other liquid [cash/near cash] assets, having everything locked into Mortgage is quite high. Even if real estate builds assets, these are highly illiquid investments. Have debt on such investments is risky; if there are no other investments. Essentially everything looks fine now, but if there is an crisis, unwinding mortgage debt is time consuming and if it forces distress sale, it would wipe out any gains. Can they afford another mortgage, and in what amount? (e.g. they are considering $50K for a small cabin, which could be rented out). I guess they can. But should they? Or diversify into other assets like stocks etc. Other than setting cash aside, what would be some good uses of funds to make sure the money would appreciate and outpace inflation and add a nice bonus to retirement? Mutual Funds / Stocks / bullions / 401K or other such retirement plans. They are currently in mid-30's. If there is ONE key strategy or decision they could make today that would help them retire \"\"early\"\" (say, mid-50's), what should it be? This opinion based ... it depends on \"\"what their lifestyle is\"\" and what would they want their \"\"lifestyle\"\" to be when they retire. They should look at saving enough corpus that would give an year on year yield equivalent to the retirement expenses.\"", "title": "" }, { "docid": "b5cb9014490f54e93bdd3c759e17a493", "text": "Granted, currencies don't have intrinsic value. Cryptocurrency is worse than government currencies in a few ways: - it costs real resources to produce - no institution keeps values stable - values are volatile in practice In those respects, crypto is more similar to a precious metal than a currency. Except it's worse than precious metals too, as metals have some intrinsic value. Crypto won't be able to overcome these disadvantages to compete with government-issued currencies in the long term. It might compete with gold long term. There are a lot of nuts and gold bugs in the world, and crypto might live on in that fringe space.", "title": "" } ]	fiqa
666c0f0cd60054318f259a3e8dcb958d	Was this a good deal on a mortgage?	[ { "docid": "2fde15ef05f969809eb70bc2c97b6795", "text": "That seems a very bad offer, it borders on fraud. In the current US economy, you should be able to get between 3 and 4 % APR (and that number is what you should look at). That means that for $300,000 over 30 years, you'd pay $1,265 to $1,432 per month. If you are able to pay more than that monthly rate, you should go for less than 30 years - 20, 15, 10, whatever you can afford - but don't overextend yourself. Google 'mortgage calculator' to do your own calculations.", "title": "" }, { "docid": "d4ad104e5fbb185e64fd29522d177b86", "text": "I'm calculating that to about a 7% apr, which given loan rates available today seems a bit high. I wouldn't get too caught up on what that equates to over the life of the loan. There are a lot of forces in play over a 30 year period, namely the time value of money. 30 years from now a dollar will be less valuable in real terms due to the forces of inflation. At 2% per year in inflation today's $1 will be worth about $0.55 in 30 years.", "title": "" }, { "docid": "18749a80f9c64913855cdf4a33c8e616", "text": "Some part of the payment is probably also going for tax escrow, insurance payments, probably PMI if you aren't putting at least 20% down. Get a complete breakdown of the costs. Remember to budget for upkeep. And please see past discussion of why buying a home at this point in your career/life may be very, very premature.", "title": "" }, { "docid": "59b95e58c37fdc1cfd69882241584d5b", "text": "The key question is whether this number includes taxes and insurance. When you get a mortgage in the U.S., the bank wants to be sure that you are paying your property taxes and that you have homeowners insurance. The mortgage is guaranteed by a lien on the house -- if you don't pay, the bank can take your house -- and the bank doesn't want to find out that your house burned down and you didn't bother to get insurance so now they have nothing. So for most mortgages, the bank collects money from the borrower for the taxes and insurance, and then they pay these things. This can also be convenient for the borrower as you are then paying a fixed amount every month rather than being hit with sizeable tax and insurance bills two or three times a year. So to run the numbers: As others point out, mortgage rates in the US today are running 3% to 4%. I just found something that said the average rate today is 3.6%. At that rate, your actual mortgage payment should be about $1,364. Say $1,400 as we're taking approximate numbers. So if the $2,000 per month does NOT include taxes and insurance, it's a bad deal. If it does, then not so bad. You don't say where you live. But in my home town, property taxes on a $300,000 house would be about $4,500 per year. Insurance is probably another $1000 a year. And if you have to get PMI, add another 1/2% to 3/4%, or $1500 to $2250 per year. Add those up and divide by 12 and you get about $600. Note my numbers here are all highly approximate, will vary widely depending on where the house is, so this is just a general ballpark. $1400 + $600 = $2000, just what you were quoted. So if the number is PITI -- principle, interest, taxes, and insurance -- it's about what I'd expect.", "title": "" }, { "docid": "c3381caa7edc086a41211ca618056174", "text": "The price of the loan may be justified if you're considered a high-risk applicant for some reason (e.g. you're putting very little money in initial payment), and if it includes all the associated expenses. What is more relevant to your situation is that you're probably better off renting. Think about it: your $300'000 house will require some repairs in those 30 years (let's estimate those at $100'000). That means in 30 years you'll build $200'000 of equity spending $720'000 on it. Of course this assumes that the value of the house will remain constant. You're effectively be throwing away $520'000, or more than $1'400 a month. If you can rent a place for $1'400 a month or less, you'll build more equity by renting that place for 30 years and saving the excess money in a bank account. If you consider the interest that money in your bank account will earn you (e.g. 3% annually), you'll build more than $200'000 equity in 30 years even if you spend as much as $1'650 on your rent and save only $350 a month.", "title": "" }, { "docid": "6d63608194326842e0479e29ce963b55", "text": "\"I'm a visual person so the idea of a 30 year mortgage didn't make much sense to me until I could see it This isn't exact but it's pretty close. The green Interest lines represent the money you're giving to the bank as a \"\"thank you\"\" for lending you a large amount of cash up front. As you've already figured out, that's at least the same amount as the price of the home! As much down-payment as is reasonable. Keep one eye on beating the interest Best of luck!\"", "title": "" } ]	[ { "docid": "cd40fec317928dc6104dc709adb7b007", "text": "On $4K/mo gross about $1000/mo can go to the mortgage, and at today's rates, that's about $200K of mortgage the bank might lend you. Income is qualified based on gross, not net, so if $48,000/yr is wrong, please scale my guesstimate down a bit. In the end, today's rates allow a mortgage of nearly 4X one's gross income. This is too high, in my opinion. I'm answering what the bank would approve you at, not what I think is wise. Wise, in my opinion is 2.5-3X one's income, tops.", "title": "" }, { "docid": "ab635d81d1df649f07e7120320dd0755", "text": "Forget about terms. Think about loans in terms of months. To simplify things, let's consider a $1000 loan with .3% interest per month. This looks like a ten month term, but it's equally reasonable to think about it on a month-to-month basis. In the first month, you borrowed $1000 and accrued $3 interest. With the $102 payment, that leaves $901 which you borrow for another month. So on and so forth. The payoff after five payments would by $503.54 ($502.03 principal plus $1.51 interest). You'd save $2.99 in interest after paying $13.54. The reason why most of the interest was already paid is that you already did most of the borrowing. You borrowed $502.03 for six months and about $100 each for five, four, three, two, and one month. So you borrowed about $4500 months (you borrowed $1000 for the first month, $901 for the second month, etc.). The total for a ten month $1000 loan is about $5500 months of borrowing. So you've done 9/11 of the borrowing. It's unsurprising that you've paid about 9/11 of the interest. If you did this as a six month loan instead, then the payments look different. Say You borrow $1000 for one month. Then 834 for one month. So on and so forth. Adding that together, you get about $168.50 * 21 or $3538.50 months borrowed. Since you only borrow about 7/9 as much, you should pay 7/9 the interest. And if we adding things up, we get $10.54 in interest, about 7/9 of $13.54. That's how I would expect your mortgage to work in the United States (and I'd expect it to be similar elsewhere). Mortgages are pretty straight-jacketed by federal and state regulations. I too once had a car loan that claimed that early payment didn't matter. But to get rid of the loan, I made extra payments. And they ended up crediting me with an early release. In fact, they rebated part of my last payment. I saved several hundred dollars through the early release. Perhaps your loan did not work the same way. Perhaps it did. But in any case, mortgages don't generally work like you describe.", "title": "" }, { "docid": "cb3d2f9d271b82b2e51e476bf192362f", "text": "\"I will echo the others; your home should be worth more to you than its market value. It is YOUR HOME. It's where you come home every day to your wife and kids, where you build a life. Yes it's an investment, but it's not like a stock or bond that you hold for a little while and then cash out for the profit. The one time you should be worried about being \"\"upside-down\"\" on your mortgage is if you're getting out. If you're moving to a new job at a new company in a new city, you have to make good on the remaining loan balance, and that won't all be from the sale of the house. Unless you're at that point however, if you can afford making the payments and have no reason to move or to cash in equity (of which you have none), then just keep making the payments. Hey, it's better than rent; you'll never see rent money again, while even if you're underwater, you're making headway with each payment.\"", "title": "" }, { "docid": "409ac925651cc4ebb63b381c55fee2a8", "text": "Sounds fishy - taking out more debt to pay the main mortgage down faster? There are a couple of issues I can see: I would think that a much more sensible strategy with a lot less risk is to save up extra cash and send your lender a check every quarter or six months.", "title": "" }, { "docid": "83b726abb06b3facfd6be7b430d842bc", "text": "Good! The article says it was some kind of collateral protection insurance that customers were signed up for despite it being unrequired for the loan. The accusations is that WF racketeered about 800,000 loans by bundling in this bunk insurance cost as part of the loan structure. I'm glad you're not caught up in it.", "title": "" }, { "docid": "8ff81d9f59ff081e30dc8aab9c2e1e17", "text": "There is a significant tie between housing prices and mortgage rates. As such, don't assume low mortgage rates mean you will be financially better off if you buy now, since housing prices are inversely correlated with mortgage rates. This isn't a huge correlation - it's R-squared is a bit under 20%, at a 1.5-2 year lag - but there is a significant connection there. Particularly in that 10%+ era (see chart at end of post for details) in 1979-1982, there was a dramatic drop in housing price growth that corresponded with high interest rates. There is a second major factor here, though, one that is likely much more important: why the interest rates are at 10%. Interest rates are largely set to follow the Federal Funds rate (the rate at which the Federal Reserve loans to banks). That rate is set higher for essentially one purpose: to combat inflation. Higher interest rates means less borrowing, slower economic growth, and most importantly, a slower increase in the money supply - all of which come together to prevent inflation. Those 10% (and higher!) rates you heard about? Those were in the 70's and early 80's. Anyone remember the Jimmy Carter years? Inflation in the period from 1979 to 1981 averaged over 10%. Inflation in the 70s from 1973 to 1982 averaged nearly 9% annually. That meant your dollar this year was worth only $0.90 next year - which means inevitably a higher cost of borrowing. In addition to simply keeping pace with inflation, the Fed also uses the rate as a carrot/stick to control US inflation. They weren't as good at that in the 70s - they misread economic indicators in the late 1970s significantly, lowering rates dramatically in 1975-1977 (from ~12% to ~5%). This led to the dramatic double-digit inflation of the 1979-1981 period, requiring them to raise rates to astronomic levels - nearly 20% at one point. Yeah, I hope nobody bought a house on a fixed-rate mortgage from 1979-1981. The Fed has gotten a lot more careful over the years - Alan Greenspan largely was responsible for the shift in policy which seems to have been quite effective from the mid 1980s to the present (though he's long gone from his spot on the Fed board). Despite significant economic changes in both directions, inflation has been kept largely under control since then, and since 1991 have been keeping pretty steady around 6% or less. The current rate (around 0%) is unlikely to stay around forever - that would lead to massive inflation, eventually - but it's reasonable to say that prolonged periods over 10% are unlikely in the medium term. Further, if inflation did spike (and with it, your interest rates), salaries tend to spike also. Not quite as fast as inflation - in fact, that's a major reason a small positive inflation around 2-3% is important, to allow for wages to grow more slowly for poorer performers - but still, at 10% inflation the average wage will climb at a fairly similar pace. Thus, you'd be able to buy more house - or, perhaps a better idea, save more money for a house that you can then buy a few years down the road when rates drop. Ultimately, the advice here is to not worry too much about interest rates. Buy a house when you're ready, and buy the house you're ready for. Interest rates may rise, but if so it's likely due to an increase in inflation and thus wage growth; and it would take a major shift in the economy for rates to rise to the 10-11% level. If that did happen, housing prices (or at least growth in prices) would likely drop significantly. Some further references:", "title": "" }, { "docid": "0529fea655ebbbcfb237deaa9dd0dd6f", "text": "tl;dr: I think you can find a much better deal. Doing a strait refi will cost you some amount of money. However, a 2.5% fee ont top of closing costs seems really high. You can get a quote from Quicken loans pretty quick and compare their fee. Also I would check with a local bank, preferably one you already do business with. The 2.5% is probably their commission for originating the loan. If you are in the Southeast I have had great luck with Regions bank. They are large enough, but also small enough. Please know that I have no affiliation with either company. BTW the rate also seems high. Doing a quick search of Bank Rate, it seems you can get 3.25% with zero fee as of this writing. The worse deal they show is 3.46 with a .75% fee, much better than you were quoted. If you can afford it I would also encourage you to think outside the box. A client of mine was able to obtain a Home Equity Loan (not line of credit) to replace their mortgage. They went for a 7 year pay off, with the loan in first position, at a rate about .75 below the then current 15 year rate. The key was there was zero closing costs. It saved them quite a bit of money. Also look at a 10 year fixed. It might not be much more than you are paying now.", "title": "" }, { "docid": "c616c83c92d8a682a7fd0f2424c8ecb8", "text": "If you are a subprime borrower, that may not be an unreasonable rate given the risk they are accepting. In any case, it's what you agreed to. As others have said, you could/should have shopped elsewhere for the loan. In fact, you can still shop elsewhere for a loan to refinance that vehicle and thus lower the rate, unless the existing loan has equally obnoxious rules about that.", "title": "" }, { "docid": "b3e94cc42dcf1f9e62f72f804069018e", "text": "Seems like a bad deal to me. But before I get to that, a couple of points on your expenses: Onward. You value a property by calculating its CAP rate. This is what you're calculating, except it does NOT include interest like you did -- that's a loan to you, and has no bearing on whether the unit itself is a good investment. It also includes estimations of variable expenses like maintenance and lack of income from vacancies. People argue vociferously on exactly how much to calculate for those. Maintenance will vary by age of the building and how damaging your tenets are. Vacancies vary based on how desirable the location is, how well you've done the maintenance, and how low the rent is. Doing the math based on your numbers, with just the fixed expenses: 8400 rent - 2400 management fee - 100 insurance = 5900/year income. 5900/150000 = 0.0393 = 3.9% CAP rate. And that's not even counting the variable expenses yet! So, what's a good CAP rate? Generally, 10% CAP rate is a good deal, and higher is a great deal. Below that you have to start to get cautious. Some places are worth a lower rate, for instance when the property is new and in a good location. You can do 8% on these. Below 6% CAP rate is usually a really bad investment. So, unless you're confident you can at least double the rent right off the bat, this is a terrible deal. Another way to think about it You're looking to buy with your finances in just about the best position possible -- a huge down payment and really low interest. Plus you haven't accounted for maintenance, taxes (if any), and vacancies. And still you'd make only a measly 1.2% profit? Would you buy a bond that only pays out 1.2%? No? What about a bond that only pays 1.2%, but also from time to time can force YOU to pay into IT a much larger amount every month?", "title": "" }, { "docid": "bd00e7e46a43efa0feb2741b202746a8", "text": "Interesting thing is not all of this analysis is typically done by the person you are speaking with re: your mortgage. Likely there is an economic team (at some institution or another, as many many loans are sold/distributed in some fashion), finance team, and all of them are looking at various rates etc. Typically what is offered is matching an offsetting liability somewhere else. So there may be cases where the spread someone is looking to pick up might be tighter or looser within institutions or types of institutions vs others, even though the overall market is at one place. (e.g. banks vs. insurance companies). So you may have negotiating room at a certain term, but not another, or the reverse at another firm. One firm might have lots of 10 year money, while another might be limited, so will be picky in what they choose. Either more conservative loan terms/ltv, or a higher spread, for example. So many things go into the ultimate rate someone can get, but in theory the blog did a decent job.", "title": "" }, { "docid": "fda38f2836f6ffc43aba5c23742f35a5", "text": "\"The simple answer is that, even though mortgages can go for 10, 15, 20 and 30 year terms in the U.S., they're typically backed by bonds sold to investors that mature in 10 years, which is the standard term for most bonds. These bonds, in the open market, are compared by investors with the 10-year Treasury note, which is the gold standard for low-risk investment; the U.S. Government has a solid history of always paying its bills (though this reputation is being tested in recent years with fights over the debt ceiling and government budgets). The savvy investor, therefore, knows that he or she can make at least the yield from the 10-year T-note in that time frame, with virtually zero risk. Anything else on the market is seen as being a higher risk, and so investors demand higher yields (by making lower bids, forcing the issuer to issue more bonds to get the money it needs up front). Mortgage-backed securities are usually in the next tier above T-debt in terms of risk; when backed by prime-rate mortgages they're typically AAA-rated, making them available to \"\"institutional investors\"\" like banks, mutual funds, etc. This forms a balancing act; mortgage-backed securities issuers typically can't get the yield of a T-note, because no matter how low their risk, T-debt is lower (because one bank doesn't have the power to tax the entire U.S. population). But, they're almost as good because they're still very stable, low-risk debt. This bond price, and the resulting yield, is in turn the baseline for a long-term loan by the bank to an individual. The bank, watching the market and its other bond packages, knows what it can get for a package of bonds backed by your mortgage (and others with similar credit scores). It will therefore take this number, add a couple of percentage points to make some money for itself and its stockholders (how much the bank can add is tacitly controlled by other market forces; you're allowed to shop around for the lowest rate you can get, which limits any one bank's ability to jack up rates), and this is the rate you see advertised and - hopefully - what shows up on your paperwork after you apply.\"", "title": "" }, { "docid": "a81f6d01bbf7f9836f6b5bbd2aa93e7b", "text": "\"add the interest for the next 5 payments and divide that by how much you paid on the principal during that time Let's see - on a $200K 6% loan, the first 5 months is $4869. Principal reduction is $1127. I get 4.32 or 432%. But this is nonsense, you divide the interest over the mortgage balance, and get 6%. You only get those crazy numbers by dividing meaningless ratios. The fact that early on in a mortgage most of the payment goes to interest is a simple fact of the the 30 year nature of amortizing. You are in control, just add extra principal to the payment, if you wish. This idea sounds like the Money Merge Account peddled by UFirst. It's a scam if ever there was one. I wrote about it extensively on my site and have links to others as well. Once you get to this page, the first link is for a free spreadsheet to download, it beats MMA every time and shows how prepaying works, no smoke, no mirrors. The second link is a 65 page PDF that compiles nearly all my writing on this topic as I was one of the finance bloggers doing what I could to expose this scam. I admit it became a crusade, I went as far as buying key word ads on google to attract the search for \"\"money merge account\"\" only to help those looking to buy it find the truth. In the end, I spent a few hundred dollars but saved every visitor the $3500 loss of this program. No agent who dialoged with me in public could answer my questions in full, as they fell back on \"\"you need to believe in it.\"\" I have no issue with faith-based religion, it actually stands to reason, but mortgages are numbers and there's order to them. If you want my $3500, you should know how your system works. Not one does, or they would know it was a scam. Nassim Taleb, author of \"\"The Black Swan\"\" offered up a wonderful quote, \"\"if you see fraud, and do not say 'fraud,' you are a fraud.\"\" The site you link to isn't selling a product, but a fraudulent idea. What's most disturbing to me is that the math to disprove his assertion is not complex, not beyond grade school arithmetic. Update 2015 - The linked \"\"rule of thumb\"\" is still there. Still wrong of course. Another scam selling software to do this is now promoted by a spin off of UFirst, called Worth Unlimited. Same scam, new name.\"", "title": "" }, { "docid": "638bd4fa6dd303bacc352bbf00a7f5bc", "text": "\"Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit. The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be \"\"other than house debt\"\" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment. PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering. I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low. By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?\"", "title": "" }, { "docid": "3d6b8a35ba4189a3ce1559f37365820f", "text": "All of the answers given so far are correct, but rather narrow. When you buy a 30-year-mortgage, you are buying the right to pay off the debt in as long as 30 years. What you pay depends on the interest rate and how long you actually take to pay it off (and principal and points and so on). Just as you are buying that right, the mortgager is selling you that right, and they usually charge something for it, typically a higher rate. After all, they, and not you, will be exposed to interest risk for 30 years. However, if some bank has an aneurism and is willing to give you a 30-year loan for the same price as or lower than any other bank is willing to go for a 15-year loan, hey, free flexibility. Might as well take it. If you want to pay the loan off in 15 year, or 10 or 20, you can go ahead and do so.", "title": "" }, { "docid": "ef6251beb395b3ce7201d8f108e1c6cc", "text": "Whether applying for a job or buying a house, Offer a more specific price like $72,500, which tells them you thought hard about the price. $70K is too 'round' of a number. Additionally, your financial ability/condition can be a factor too. If you have 20% down, and your Realtor assures the seller that your transaction will go down without a hitch, and you'll be approved for a mortgage, they may accept your offer of $72,500 over the other guys $78K offer if [s]he has less desirable finances. Good Luck!", "title": "" } ]	fiqa
526f497c5ea76468a4f4c78bd29e9b3e	Why would a bank take a lower all cash offer versus a higher offer via conventional lending?	[ { "docid": "993f127732c2a230ca27b60f7f4b927e", "text": "It's because financing can fall through, and then the time between offer and closing is wasted. Often buyers will include preapprovals and other evidence of financing eligibility with their offer for this reason.", "title": "" }, { "docid": "c42356825e1930c1b9567f36ff43d5a3", "text": "One other point to consider is that cash offers often include no contingencies. That is, the offer comes in and if the seller signs then the deal is done, without any chance that the buyer backs out. As you can imagine, this is an attractive option in some situations.", "title": "" }, { "docid": "b74742b32b99f9bd32cd60cc84d3206f", "text": "\"Often the counter-party has obligations with respect to timelines as well -- if your buying a house, the seller probably is too, and may have a time-sensitive obligation to close on the deal. I'm that scenario, carrying the second mortgage may be enough to make that deal fall through or result in some other negative impact. Note that \"\"pre-approval\"\" means very little, banks can and do pass on deals, even if the buyer has a good payment history. That's especially true when the economy is not so hot -- bankers in 2011 are worried about not losing money... In 2006, they were worried about not making enough!\"", "title": "" }, { "docid": "2254b39e5790220d2c9a52fce32b4daa", "text": "@OP: It's all about risk. With a cash buyer the decision is left up to one person. With a financed buyer it adds another approval process (the lender). It's another opportunity for the deal to fall through. If the bank is the lender then there's even more risk. They've already taken back the property once and incurred cost and they're setting themselves up to do it all over again. The discount price can depend on a lot of factors. Maybe it's a bad area and they need to get rid of it. Maybe the appraisals for the area are low because of foreclosures and they know it will be hard for a Buyer to get a loan. Lots of reasons as to what price they'd take. @Shawn: Every deal has contingencies unless it's a foreclosure bought at auction. Even if you are getting a steal from the bank in terms of price you're always going to have an inspection period. If a Buyer doesn't need an inspection then he will just go to an auction and buy a property for an even cheaper price.", "title": "" }, { "docid": "bc869a65f4d468b2b752447d3f61113f", "text": "A bank selling a foreclosed property would negotiate a lower cash deal, I doubt it would be that extreme, 130 vs 100. An individual seller may give up $10K to save time and get his next home closed as well, but again, I suspect it would be rare to find that large a delta.", "title": "" }, { "docid": "a4fbdc6fb725647d5a2aa9ab359f388c", "text": "Also keep in mind that with an all-cash offer, they get their money now and not spread over X-many years, which means they can reinvest it now rather than piece meal across the term of whatever the loan would be. (Presuming the bank would be financing the house themselves.) Additionally, with an all-cash offer, there end to be fewer lawyers at the table, fewer parties total, so the process can generally proceed faster.", "title": "" } ]	[ { "docid": "c83cb56616d8571256d05b256e2b3475", "text": "The mortgages were pooled with other mortgages and sold off to other firms, in theory mitigating the risk. However, the reason lenders searched out these types of deals was because they could use the lack of credit rating etc as an excuse to charge much higher interest rates. Chase and most lenders made their money by borrowing their funds from some other institution and then lender it out to these borrowers so they were always looking for a large yield spread. Account Executives made more money on sub prime because everyone made more money on those deals. That is of course, until the pools hit a percentage rate of foreclosures, forcing a buy back of the pool. Then all of the small time players, like New Century went bust when their investors called them to buy the pools of mortgages back.", "title": "" }, { "docid": "dda689fe18a19bdbc9586d6aa371b21c", "text": "Capital requirements for a de novo bank, as opposed to an established one, are a real bitch. Basically the government wont let you loan nearly as much of your money out. You can't skirt this by buying an existing bank. Regulators don't want upstarts making stupid loans and thus encouraging lower credit criteria systemwide. Also Incumbents don't want more competition and they have lobbyists so I don't see this changing soon.", "title": "" }, { "docid": "868e0d42a9b2ef712f073f431628059d", "text": "I don't know that FHA loans have better rates than conventional loans. I've never heard that and some quick googling didn't yield anything (please correct me if I'm wrong). So if you have the necessary down payment to get a conventional loan, I'm not sure I see any benefit for looking at FHA loans. I think the only benefit outside of a low down payment is the ability to (possibly) get a loan with a lower credit score.", "title": "" }, { "docid": "d1c518e8ea450af1759d301a37bb17aa", "text": "This bit of marketing, like the zero-percent introductory rates some banks offer, is intended to make you more willing to carry a balance, and they're hoping you'll continue that bad habit after the rate goes back up. If you don't think you'll be tempted by the lower rate, yhere's no reason not to accept (unless there's something in the fine print that changes your agreement in other ways; read carefully). But as you say, there's no reason to accept ir either. I'd ignore it.", "title": "" }, { "docid": "0d1d469cc51a072ff59814c81a1d8b36", "text": "The tight lending standards such as elimination of low-documentation and sub-prime mortgages and requirements for lower loan to value, contribute to keeping all but those with pristine credit and cash reserves out of the market. Some might consider this good for long term stability in the market. I just went through doing a 20% down mortgage plus had to have one year extra liquidity in reserve.", "title": "" }, { "docid": "096170c37df016df0c8c20d376a4258a", "text": "It is in the bank's interest to sell the property for as much as they can (although it is doubtful they will put as much effort/time into selling it as the owner might). They will certainly not sell it for $1. The main reason for this is that the bank would prefer to own $100k, than a loan to them from a customer for $100k. Banks have to discount the value of loans to take into account the likelihood of the loan not being repaid. They classify certain loans as riskier than others, and these are discounted more heavily. An unsecured home loan to a customer that has already defaulted, has no collateral, and now needs to pay rent AND loan repayments would count as an extremely risky loan.", "title": "" }, { "docid": "a6d66922dcd3d2189c4d20eef7cc9223", "text": "I've had all my account with the same bank for all my life. Generally, the disadvantage is that if I want some kind of product like a credit extension or a mortgage, I have the one bank to go to and if they don't want to help me I'm out of luck. However, occasionally there are also perks like the bank spontaneously offering you increased credit or even a whole line of credit. They can do this because they have your whole history and trust you.", "title": "" }, { "docid": "21f64d842f1eb7ad89242646cba6366d", "text": "Imagine the bank loaning 100% of the sum of money you needed to buy a house, if the valuation of the house decreases to 90% of the original price after 3 months, would it be unfair for them to ask them for 10% of the original price from you immediately? I suppose the rationale for loaning 80% is so that you will fork our 20% first, and so your property is protected from fluctuations in the market, that they do not need to collect additional money from you as your housing valuation rarely drops below 80% of the original price. Banks do need to make money too, as they run as a business.", "title": "" }, { "docid": "8d9a776d08c206dacd7cec3133072133", "text": "\"With (1), it's rather confusing as to where \"\"interest\"\" refers to what you're paying and where it refers to what you're being paid, and it's confusing what you expect the numbers to work out to be. If you have to pay normal interest on top of sharing the interest you receive, then you're losing money. If the lending bank is receiving less interest than the going market rate, then they're losing money. If the bank you've deposited the money with is paying more than the going market rate, they're losing money. I don't see how you imagine a scenario where someone isn't losing money. For (2) and (3), you're buying stocks on margin, which certainly is something that happens, but you'll have to get an account that is specifically for margin trading. It's a specific type of credit with specific rules, and you if you want to engage in this sort of trading, you should go through established channels rather than trying to convert a regular loan into margin trading. If you get a personal loan that isn't specifically for margin trading, and buy stocks with the money, and the stocks tank, you can be in serious trouble. (If you do it through margin trading, it's still very risky, but not nearly as risky as trying to game the system. In some cases, doing this makes you not only civilly but criminally liable.) The lending bank absolutely can lose if your stocks tank, since then there will be nothing backing up the loan.\"", "title": "" }, { "docid": "18dd4413b7bca1d8c9e8b9184dc88942", "text": "You must consider the different levels of risk associated with each loan. When the bank loans you money, it does so based on a high degree of information about your financial situation (through your credit report + additional information gathered at the time of granting your request). It feels quite confident that you will repay them, and therefore considers you to be low risk. In order to make a profit off of all its low risk clients, the bank only needs to charge a small rate of interest - competitive with the market but enough to cover the losses from clients who will default. When you loan money through a peer-to-peer program, you are at two distinct disadvantages from the bank: (1) Your loan portfolio will not be diversified; that is, you may have only a single person or a small handful of people owing you money. Any catastrophic event in their lives may wipe out their loan to you. Whereas the bank can play the averages with a broader client base. (2) You have less information, and ultimately less (effective) power to reclaim your losses. Would you feel confident walking behind the desk at a bank today, and deciding whether to approve someone's loan based on the information that the bank's back-end has already determined is necessary to make that decision? Now how about when you are doing it on your own? Because of this, you take on more risk from a peer-to-peer loan than a bank takes on from you. That's why the person is willing (or, required due to market availability) to pay a higher rate; they know they are higher risk. That doesn't mean this is a bad idea, just that there is a specific reason that the difference in rates exists, and it implies that you should consider carefully whether the risks outweigh the benefits. Note that the concept of taking a buy/sell position on two theoretically identical assets while earning a net profit at no risk is known as 'arbitrage'. Arbitrage situations rarely exist, and never for long. Whenever you see a position that appears to be arbitrage, consider what might make it not so. ie: you could buy inventory in location A, and sell it at 10% higher margin in location B - but have you considered transportation, carrying costs, and interest for the period that you physically held the inventory? The appearance of arbitrage may (in my opinion) be a sign that you have incomplete information.", "title": "" }, { "docid": "a700d981d7b7f554ebfc2ae104ebd4f2", "text": "\"As RonJohn points out, direct deposit is something very different. What's going on here is that they are trying to exclude the \"\"customers\"\" that open the account simply for the premium and then close it again as soon as the terms of the offer have been met. Most people have only one regular source of direct deposit money, either their paycheck or a retirement check. This acts to make it hard for them to simply take the offer and run.\"", "title": "" }, { "docid": "766fd3959c0bc333c6d1b38ca1f96812", "text": "\"All cash deals basically mean that the acquiring company isn't going to offer you shares in itself, but only the cash equivalent. Mechanically, the acquiring company will find out who the shareholders are, then use electronic means to send money to the shareholders of the target company through their brokerage accounts (slightly oversimplifying here but it's the essence). As you've pointed out, using physical cash is impractical - they would have to send these amounts of cash to each shareholder of WFM, who will easily number in the tens or hundreds of thousands. As for AMZN, how it raises this amount of cash is not addressed when we say the deal is \"\"all cash\"\". Essentially, it's AMZN's problem to figure out where to get this cash, be it through internal operations, bank borrowings, or issuing new equity.\"", "title": "" }, { "docid": "1d230a2d06ba1335477e38e1e5697000", "text": "Banks consider investment mortgages (and any mortgage where you don't live in the property), as a riskier investment than an owner occupied, home collateral mortgage. The sources of increased risk range from concerns that you will screw up as a landlord, your tenants will destroy the place, you won't have tenants and can't afford to pay the bank, and/or you'll take out several other investment mortgages and over extend yourself. All of these risks are compounded by the fact that it is harder for the bank to convince you to pay when they can't put you out on the street if you default. Banks lend and invest in money, not real estate, so they would much rather have a paying loan than a foreclosed house, especially with the modern foreclosure glut. The increased risk means the bank will charge higher interest for the loan, may require a higher downpayment, and will require higher lending standards before issuing the loan. A new housing investor can get around these higher prices by living in the home for a few years before renting it out (though your lender could possibly require you to renegotiate the loan if you move out too soon).", "title": "" }, { "docid": "c69d09b34eabd583b8c1df493606605c", "text": "Assuming that the financial system broke down, not enough supply of essential commodities or food but there is political and administrative stability and no such chaos that threatens your life by physical attacks. The best investment would then be some paddy fields, land, some cows, chickens and enough clothing , a safe house to stay and a healthy life style that enables you to work for food and some virtue at heart and management skills to get people work for you on your resources so that they can survive with you (may be you earn some profit -that is up to your moral standards to decide, how much). It all begins to start again; a new Financial System has to be in place….!", "title": "" }, { "docid": "ef6251beb395b3ce7201d8f108e1c6cc", "text": "Whether applying for a job or buying a house, Offer a more specific price like $72,500, which tells them you thought hard about the price. $70K is too 'round' of a number. Additionally, your financial ability/condition can be a factor too. If you have 20% down, and your Realtor assures the seller that your transaction will go down without a hitch, and you'll be approved for a mortgage, they may accept your offer of $72,500 over the other guys $78K offer if [s]he has less desirable finances. Good Luck!", "title": "" } ]	fiqa
76680ef92dfc257747f1440e339e5bf9	Upward Spike in US Treasuries despite S&P Downgrade in August 2011	[ { "docid": "e35d9bac3a2820b0e39181db4f9718ec", "text": "The only resources or references you need are a chart showing you what happened in those months. The exuberance for US treasuries comes from the fact that there are no better options than them for putting cash. There are better sovereign debt instruments around the world depending on your goals, but they do not offer the same liquidity. US dollars and US Treasuries are equivalents in this context, so no matter if the wealthy speculator removed their cash from the stock market and put it in a bank or directly bought US treasuries (or their futures), this would increase the demand for treasuries. S&P Downgraded US treasures due to political instability in the United States, since inefficiencies in the country's political structure can prevent the Treasury from paying treasury holders (aka a default). Speculators know that this doesn't effect the United States resources and revenue collection schemes, as there is ample wealth public and private available to back the treasury bonds.", "title": "" }, { "docid": "9cbde01cf5e466b8f1a6ee6fca714dfb", "text": "US government bonds are where money goes when the markets are turbulent and investors are fleeing from risk, and that applies even if the risk is a downgrade of the US credit rating, because there's simply nowhere else to put your money if you're in search of safety. Most AAA-rated governments have good credit ratings because they don't borrow much money (and most of them also have fairly small economies compared with the US), meaning that there's poor liquidity in their scarce bonds.", "title": "" } ]	[ { "docid": "36972b22967fcffdfc75b52853522acf", "text": "Too expand on /u/stoneeus, mortgage rates were/are also heavily influenced by the FED QE program, which holds about $4.5T in mortgage-backed securities and treasuries on the FED's balance sheet. The FED has been holding this balance steady since it ended the QE program a couple years ago, purchasing new securities as old ones mature. However, the FED has started signalling that they are going to end these purchases and let their portfolio wind down. Once that happens, you'll start to see mortgage rates rise.", "title": "" }, { "docid": "5596b89a7503739bfe1ed3ba97b4b993", "text": "Robert Shiller has an on-line page with links to download some historical data that may be what you want here. Center for the Research in Security Prices would be my suggestion for another resource here.", "title": "" }, { "docid": "1d5900f07a22f9469a20c83d55e0302f", "text": "Your quote from the CBO is talking about a actual subsidy. As stated, there was a cash value difference between what the Treasury purchased troubled assets from banks at and what the market value of those securities were. This (the point mentioned in the article) is not an actual subsidy. As a counter argument to your first paragraph, look at Lehman Brothers and Bear Stearns.", "title": "" }, { "docid": "693722f1798694bccfe5812befd2db5d", "text": "That's exactly why they should have tightened faster. A recession now is more likely than it was in 2011-2012 and they can't drop rates of that happens because they never raised them. They're basically buying time before the debt catches up, but they're doing it with more debt so they're treating the immediate symptom and ignoring the long term disease.", "title": "" }, { "docid": "9c52167af80856de1ae5995c89bb1e1d", "text": "\"This is a speculative question and there's no \"\"correct\"\" answer, but there are definitely some highly likely outcomes. Let's assume that the United States defaults on it's debt. It can be guaranteed that it will lose its AAA rating. Although we don't know what it will drop to, we know it WILL be AA or lower. A triple-A rating implies that the issuer will never default, so it can offer lower rates since there is a guarantee of safety there.People will demand a higher yield for the lower perceived security, so treasury yield will go up. The US dollar, or at least forex rates, will almost certainly fall. Since US treasuries will no longer be a safe haven, the dollar will no longer be the safe currency it once was, and so the dollar will fall. The US stock market (and international markets) will also have a strong fall because so many institutions, financial or otherwise, invest in treasuries so when treasuries tumble and the US loses triple-A, investments will be hurt and the tendency is for investors to overreact so it is almost guaranteed that the market will drop sharply. Financial stocks and companies that invest in treasuries will be hurt the most. A notable exception is nations themselves. For example, China holds over $1 trillion in treasuries and a US default will hurt their value, but the Yuan will also appreciate with respect to the dollar. Thus, other nations will benefit and be hurt from a US default. Now many people expect a double-dip recession - worse than the 08/09 crisis - if the US defaults. I count myself a member of this crowd. Nonetheless, we cannot say with certainty whether or not there will be another recession or even a depression - we can only say that a recession is a strong possibility. So basically, let's pray that Washington gets its act together and raises the ceiling, or else we're in for bad times. And lastly, a funny quote :) I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection. - Warren Buffett\"", "title": "" }, { "docid": "ccf3cfb9666a458cc7a5f694e8138135", "text": "[Japan] had been for some time, but during the recession, China went strongly for US debt as a hedge against a depression occurring. Now that the world economy is rebounding, China can get a bit more aggressive and will probably back off on treasuries.", "title": "" }, { "docid": "38aa011258eb268a60e1affa22392333", "text": "No. If you have to ignore a price spike, obviously its value is not constant. Gold is a commodity, just like every other commodity.", "title": "" }, { "docid": "682b9e5c188daf75f671e05c6215d32c", "text": "In regards to your title, it's based on product. Rates based products had a late 2016 early 2017 run. It's now summer time and the fed is acting as expected. Clients have already positioned themselves going into the slow season. Distressed bonds and HY loans are still moving. After the latest fed increase and the yield curve flattening, HY loans took a hit. Par loans were trading at a discount. The market has moved back to paying a premium. However, HY bonds have been slowing down since June. New issue has dropped off, and equities have slowed as well. It's summer time. I wouldn't say that traders have it tough as the tittle suggests, it's just that it was a very active first quarter and now volatility has subsided. It's just the quiet season.", "title": "" }, { "docid": "2732e9c4c38806c0e89bb2edd6272924", "text": "Supply and demand for a particular bond may be such that the market price exceeds the par value for the bond at maturity. This is when you get a negative yield. Especially when volatility is high, people will actually pay money to park it in treasuries for an amount of time. But when compared to a > 25% vol in the equities market over that same period, taking a 5% or less hit doesn't sound nearly as bad!", "title": "" }, { "docid": "9b5482cbff8fcd2891bf54fedfd90023", "text": "The math that works at the nation-scale doesn't work the same for an individual or even smaller companies (even though larger companies actually dwarf many whole countries). So while US Treasuries are a good investment for many foreign governments, that isn't universally true for all investors.", "title": "" }, { "docid": "a22ef484a4de1dc8991ea87a4a86c9fd", "text": "\"The difference between me and Uncle Sam is that Uncle Sam gets the lowest interest rates in the world. If I could borrow money at 1.7% for 10 years you bet your ass I'd do it! Also, the notion that \"\"Uncle Sam is running out of people to borrow from, and is having trouble paying those loans back (and the interest)\"\" is just false. US treasuries are the most sought after debt in the world. If anyone had any doubt uncle sam would pay them back, interest rates would be skyrocketing, not at historic lows. After that quote I turned it off, about two minutes in. This is just more FUD designed to get you to buy gold or whatever. Ignore it.\"", "title": "" }, { "docid": "52ef53da2268a37f8563da3280b54011", "text": "Many of the major indices retreated today because of this news. Why? How do the rising budget deficits and debt relate to the stock markets? The major reason for the market retreating is the uncertainty regarding the US Dollar. If the US credit rating drops that will have an inflationary effect on the currency (as it will push up the cost of US Treasuries and reduce confidence in the USD). If this continues the loss of USD confidence could bring an end to the USD as the world's reserve currency which could also create inflation (as world banks could reduce their USD reserves). This can make US assets appear overvalued. Why is there such a large emphasis on the S&P rating? S&P is a large trusted rating agency so the market will respond to their analysis much like how a bank would respond to any change in your rating by Transunion (Consumer Credit Bureau) Does this have any major implications for the US stock markets today, in the short term and in July? If you are a day-trader I'm sure it does. There will be minor fluctuations in the market as soon as news comes out (either of its extension or any expected delays in passing that extension). What happens when the debt ceiling is reached? Since the US is in a deficit spending situation it needs to borrow more to satisfy its existing obligations (in short it pays its debt with more debt). As a result, if the debt ceiling isn't raised then eventually the US will be unable to pay its existing obligations. We would be in a default situation which could have devastating affects on the value of the USD. How hard the hit will depend on how long the default situation lasts (the longer we go without an increased ceiling after the exhaustion point the more we default on). In reality, Congress will approve a raise, but they will drag it out to the last possible minute. They want to appear as if they are against it, but they understand the catastrophic effects of not doing so.", "title": "" }, { "docid": "7fd0e843fca80da2dcfa715ff3d71960", "text": "The US Treasury is not directly/transactionally involved, but can affect the junk bond market by issuing new bonds when rates rise. Since US bonds are considered completely safe, changes in yield will affect low quality debt. For example, if rates rose to levels like 1980, a 12% treasury bond would drive the prices of junk bonds issued today dramatically lower. Another price factor is likelihood of default. Companies with junk credit ratings have lousy balance sheets, so negative economic conditions or tight short term debt markets can result in default for many of these companies. Whether bonds in a fund are new issues or purchased on the secondary market isn't something that is very relevant to the individual investor. The current interest rate environment is factored into the market already via prices of bonds.", "title": "" }, { "docid": "bb27312cdf3703a383fa28960ac1908a", "text": "This directly relates to the ideas behind the yield curve. For a detailed explanation of the yield curve, see the linked answer that Joe and I wrote; in short, the yield curve is a plot of the yield on Treasury securities against their maturities. If short-term Treasuries are paying higher yields than long-term debt, the yield curve has a negative slope. There are a lot of factors that could cause the yield curve to become negatively sloped, or at least less steep, but in this case, oil prices and the effective federal funds rate may have played a significant role. I'll quote from the section of the linked answer that describes the effect of oil prices first: a rise in oil prices may increase expectations of short-term inflation, so investors demand higher interest rates on short-term debt. Because long-term inflation expectations are governed more by fundamental macroeconomic factors than short-term swings in commodity prices, long-term expectations may not rise nearly as much as short term expectations, which leads to a yield curve that is becoming less steep or even negatively sloped. As the graph shows, oil prices increased dramatically, so this increase may have increased expectations of short-term inflation expectations substantially. The other answer describes an easing of monetary policy, e.g. a decrease in the effective federal funds rate (FFR), as a factor that could increase the slope of the yield curve. However, a tightening of monetary policy, e.g. an increase in the FFR, could decrease the slope of the yield curve because a higher FFR leads investors to demand a higher rate of return on shorter-term securities. Longer-term Treasuries aren't as affected by short-term monetary policy, so when short-term yields increase more than long-term yields, the yield curve becomes less steep and/or negatively sloped. The second graph shows the effective federal funds rate for the period in question, and once again, the increase is significant. Finally, look at a graph of inflation for the relevant period. Intuitively, the steady increase in inflation from 1975 onward may have increased investors expectations of short-term inflation, therefore increasing short-term yields more than long-term yields (as described above and in the other answer). These reasons aren't set in stone, and just looking at graphs isn't a substitute for an actual analysis of the data, but logically, it seems plausible that the positive shock to oil prices, increases in the effective federal funds rate, and increases in inflation and expectations of inflation contributed at least partially to the inversion of the yield curve. Keep in mind that these factors are all interconnected as well, so the situation is certainly more complex. If you approve of this answer, be sure to vote up the other answer about the yield curve too.", "title": "" }, { "docid": "9c4877759badd49c65120dde596c39fc", "text": "The people who bought when interest rates were higher, do they get anything out of it? The present value just went up of their Bonds just went up, but it probably evened out to the 3% they were going to get right? Do they make more money selling the bond now, or holding on to it till maturity in PV terms?", "title": "" } ]	fiqa
b79251710e2cdf7dfa476d4dc6a7615f	What are the top “market conditions” to follow?	[ { "docid": "58d36651cc5f1d4b3e8327bc4833378a", "text": "\"If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following \"\"market conditions\"\" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska). Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about.\"", "title": "" }, { "docid": "61458cd28cd3bcf03264667e2ce9f79a", "text": "The best advice I've heard regarding market conditions is: Buy into fear, and sell into greed. That is, get in when everyone is a bear and predicting economic collapse. Start selling when you hear stock picks at parties and family functions. That said. You are better off in the long term not letting emotion (of you or the market) control your investing decisions). Use dollar cost averaging to put a fixed amount in at fixed intervals and you will most likely end up better off for it.", "title": "" }, { "docid": "7a239311eb2a819b7aadbbc3c95fa014", "text": "The very term 'market conditions' is subjective and needs context. There are 'market conditions' that favor buying (such as post crash) or market conditions that favor selling (such as the peak of a bubble). Problem with mutual funds is you can't really pick these points yourself; because you're effectively outsourcing that to a firm. If you're tight on time and are looking for weekly update on the economy a good solution is to identify a reputable economist (with a solid track record) and simply follow their commentary via blog or newsletter.", "title": "" }, { "docid": "baf902ec82b5b3d1b38e87d825b8541a", "text": "Check out http://garynorth.com if you have $15/month. Or at least subscribe to his free newsletters (Tip of the Week, Reality Check). Well worth it. He doesn't pay much attention to the US market indicators, except to note that people are about 20% poorer than they were 10 years ago. He looks at more basic indicators like M1, treasury rates, unemployment figures, etc. He recommended buying gold in 2001. He changed his recommended investment portfolio most recently about a couple of years ago (!) and it's done quite well.", "title": "" } ]	[ { "docid": "8accfe15c696a664fe3605ddf9390c52", "text": "Most likely economics then. What I'm looking to gain is an understanding of how the market works so that I may take that knowledge and use it to make investments, buy stocks, or possibly start a business. I have a very large amount of time between my studies for my classes and I think it would be a waste to not learn these tools (to give you a reason for my interest in this).", "title": "" }, { "docid": "691d30be5ea3ac2d0d01dfe13974d43d", "text": "For economics I recommend mises or these videos to get you started. For daily critical analysis of financial markets, keynesian government policies, and other interesting reading I recommend zerohedge. I've learned more about financial markets and government regulations by reading the comments section on zerohedge articles than anywhere else on the internet. The comment section is very raw (i.e. lots of fucking cursing) but there are some jewels of information in there. For daily critical thinking I suggest lewrockwell.", "title": "" }, { "docid": "66c2e069c3503182b76c10aac73e22e5", "text": "Thanks to the other answers, I now know what to google for. Frankfurt Stock Exchange: http://en.boerse-frankfurt.de/equities/newissues London Stock Exchange: http://www.londonstockexchange.com/statistics/new-issues-further-issues/new-issues-further-issues.htm", "title": "" }, { "docid": "733bdfd0269c974184d15a1ad82c5f9a", "text": "For a non-technical investor (meaning someone who doesn't try to do all the various technical analysis things that theoretically point to specific investments or trends), having a diverse portfolio and rebalancing it periodically will typically be the best solution. For example, I might have a long-term-growth portfolio that is 40% broad stock market fund, 40% (large) industry specific market funds, and 20% bond funds. If the market as a whole tanks, then I might end up in a situation where my funds are invested 30% market 35% industry 35% bonds. Okay, sell those bonds (which are presumably high) and put that into the market (which is presumably low). Now back to 40/40/20. Then when the market goes up we may end up at 50/40/10, say, in which case we sell some of the broad market fund and buy some bond funds, back to 40/40/20. Ultimately ending up always selling high (whatever is currently overperforming the other two) and buying low (whatever is underperforming). Having the industry specific fund(s) means I can balance a bit between different sectors - maybe the healthcare industry takes a beating for a while, so that goes low, and I can sell some of my tech industry fund and buy that. None of this depends on timing anything; you can rebalance maybe twice a year, not worrying about where the market is at that exact time, and definitely not targeting a correction specifically. You just analyze your situation and adjust to make everything back in line with what you want. This isn't guaranteed to succeed (any more than any other strategy is), of course, and has some risk, particularly if you rebalance in the middle of a major correction (so you end up buying something that goes down more). But for long-term investments, it should be fairly sound.", "title": "" }, { "docid": "944a5ceec3dac91f2ea8eca4388f30a3", "text": "\"Sorry as mentioned, totally new to all of this and this Subreddit's description fit my interests: \"\"Topics of Interest Market and Economy News Business Earnings and Releases Investor and Trader Tips News that Moves the Markets Long Term and Short Term Investment Ideas Economic Related Humor Most Anything Related to the Economy And, most EVERYTHING is Related to the Economy\"\" However, I appreciate your info and will test out the other pages subscribers knowledge :)\"", "title": "" }, { "docid": "577d32a6386ae00278c2b00cdf53fbc9", "text": "\"I would change that statement to \"\"very few people can CONSISTENTLY beat the market \"\". Successful strategies will get piled into and reduce returns. Markets will pick up inefficiencies, but at the same time they do exists. Tons of interesting reading especially in regards to value. Is there a risk premium that we don't know for value? Or is it a market behavior thing?\"", "title": "" }, { "docid": "45724a41c9c9b9b669681753c6a5cf5e", "text": "Look for unsustainable policies and actions by policy makers, both before and possibly during, when looking at the ForEx markets. Consider some examples: Each of those events could be seen in the growing unsustainability of local policies. ForEx markets and local policies can appear to stay on an unsustainable path for a long time, but equilibrium will force itself on everything in the long run. In two of the above cases, the initial response wasn't enough to offset the mess, and more and more intervention had to be done, only making matters worse. When you know how unsustainable policies are and how big the corrections need to be, you can quickly ascertain whether an action by policy makers will be enough.", "title": "" }, { "docid": "a38877baeb397e6c9892d20f6f17f828", "text": "\"First, I would like to use a better chart. In my opinion, a close of day line chart obscures a lot of important information. Here is a daily OHLC log chart: The initial drop from the 1099.23 close on Oct 3 was to 839.8 intraday, to close at 899.22 on Oct 10. After this the market was still very volatile and reached a low of 747.78 on Nov 20, closing only slightly higher than this. It traded as high as 934.70 on Jan 6, 2009, but the whole period of Nov 24 - Feb 13 was somewhat of a trading range of roughly 800-900. Despite this, the news reports of the time were frequently saying things like \"\"this isn't going to be a V shaped recovery, it is going to be U shaped.\"\" The roughly one week dip you see Feb 27 - Mar 9 taking it to an intraday low of 666.79 (only about 11% below the previous low) on first glance appears to be just a continuation of the previous trend. However... The Mar 10 uptrend started with various news articles (such as this one) which I recall at the time suggested things like reinstating the parts of the Glass–Steagall Act of 1933 which had been repealed by the Gramm–Leach–Bliley Act. Although these attempts appear to have been unsuccessful, the widespread telegraphing of such attempts in the media seemed to have reversed a common notion which I saw widespread on forums and other places that, \"\"we are going to be in this mess forever, the market has nowhere to go but down, and therefore shorting the market is a good idea now.\"\" I don't find the article itself, but one prominent theme was the \"\"up-tick\"\" rule on short selling: source From this viewpoint, then, that the last dip was driven not so much by a recognition that the economy was really in the toilet (as this really was discounted in the first drop and at least by late November had already been figured into the price). Instead, it was sort of the opposite of a market top, where now you started seeing individual investors jump on the band-wagon and decide that now was the time for a foray into selling (short). The fact that the up-tick rule was likely to be re-instated had a noticeable effect on halting the final slide.\"", "title": "" }, { "docid": "4ae8356a75da091b6aa090a39dd63e3c", "text": "\"Do not be worried. Read \"\"The Millionaire Next Door\"\" -it's dated, but the fundamentals are precisely correct. Blue-collar entrepreneurship is the gateway to prosperity. Gratian wrote that knowledge and the will to act are the two elements of greatness. Each man is only as much as he knows, but that knowledge without the will to act upon it is sterile and impotent. Intellectualism is not being sidelined. We -meaning the Market, really- are simply demanding that the intellect apply itself.\"", "title": "" }, { "docid": "7758c3023162cce1343902f8f79088b2", "text": "You don't say why you want to move. Without knowing that, it is hard to recommend a course of action. Anyway... The sequence of events for an ECONOMICAL outcome in a strong market is as follows: (1) You begin looking for a new house (2) You rent storage and put large items into storage (3) You rent an apartment and move into the apartment (4) The house now being empty you can easily do any major cleaning and renovations needed to sell it (5) You sell the house (and keep looking for a new house while you do so). Since the house is empty it will sell a lot more easily than if you are in it. (6) You invest the money you get from selling the house (7) You liquidate your investment and buy the new house that you find. If you are lucky, the market will have declined in the meantime and you will get a good deal on the new house in addition to the money you made on your investment. (8) You move your stuff out of storage into the new house. There are other possibilities that involve losing a lot of money. The sequence of events above will make money for you, possibly a LOT of money.", "title": "" }, { "docid": "b4a81575af3a87fdd228d31a9cb7c732", "text": "To add a bit to Daniel Anderson's great answer, if you want to 'peek' at what a the set of bid and ask spreads looks like, the otc market page could be interesting (NOTE: I'm NOT recommending that you trade Over The Counter. Many of these stocks are amusingly scary): http://www.otcmarkets.com/stock/ACBFF/quote You can see market makers essentially offering to buy or sell blocks of stock at a variety of prices.", "title": "" }, { "docid": "16e7501c9ae0531f21f66a8cb46cfa3e", "text": "\"In general economic theory, there are always two markets created based on a need for a good; a spot market (where people who need something now can go outbid other people who need the same thing), and a futures market (where people who know they will need something later can agree to buy it for a pre-approved price, even if the good in question doesn't exist yet, like a grain crop). Options exist as a natural extension of the futures market. In a traditional future, you're obligated, by buying the contract, to execute it, for good or ill. If it turns out that you could have gotten a lower price when buying, or a higher price when selling, that's tough; you gave up the ability to say no in return for knowing, a month or three months or even a year in advance, the price you'll get to buy or sell this good that you know you need. Futures thus give both sides the ability to plan based on a known price, but that's their only risk-reduction mechanism. Enter the option. You're the Coors Brewing Company, and you want to buy 50 tons of barley grain for delivery in December in order to brew up for the Super Bowl and other assorted sports parties. A co-op bellies up to close the deal. But, since you're Coors, you compete on price with Budweiser and Miller, and if you end up paying more than the grain's really worth, perhaps because of a mild wet fall and a bumper crop that the almanac predicts, then you're going to have a real bad time of it in January. You ask for the right to say \"\"no\"\" when the contract falls due, if the price you negotiate now is too high based on the spot price. The co-op now has a choice; for such a large shipment, if Coors decided to leave them holding the bag on the contract and instead bought it from them anyway on a depressed spot market, they could lose big if they were counting on getting the contract price and bought equipment or facilities on credit against it. To mitigate those losses, the co-op asks for an option price; basically, this is \"\"insurance\"\" on the contract, and the co-op will, in return for this fee (exactly how and when it's paid is also negotiable), agree to eat any future realized losses if Coors were to back out of the contract. Like any insurance premium, the option price is nominally based on an outwardly simple formula: the probability of Coors \"\"exercising\"\" their option, times the losses the co-op would incur if that happened. Long-term, if these two figures are accurate, the co-op will break even by offering this price and Coors either taking the contract or exercising the option. However, coming up with accurate predictions of these two figures, such that the co-op (or anyone offering such a position) would indeed break even at least, is the stuff that keeps actuaries in business (and awake at night).\"", "title": "" }, { "docid": "77ecf212f4efc907eee18d547f3912ca", "text": "No career advice or homework help (unless your homework is some kind of big project and you need an explanation on a concept). I want to see financial news, legislation concerning the markets and regulation, self posts about financial concepts, opinion articles about finance from reputable sources, etc.", "title": "" }, { "docid": "fe192eac78f69f00f6b5bd131a07d348", "text": "Since you mention the religion restriction, you should probably look into the stock market or funds investing in it. Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit. If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run. As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path.", "title": "" }, { "docid": "b76696d67db305603bb641ac789dbae7", "text": "Wouldn't this just have the same effect as student loans (ie: rising tuition costs)? If I'm a for-profit school and my students are now getting paid $X per semester for attending, why not just raise tuition by $X?", "title": "" } ]	fiqa
4a988cb18d6ce701dd8a5bb9d05ca6ce	Why does quantitative easing negatively affect stocks?	[ { "docid": "993793d6dcee694fa8034a12ea35d61e", "text": "Can you isolate the market impact to just the Fed's quantitative easing? Can you rule out the future economic predictions of low growth and that there are reasons why the Fed has kept rates low and is trying its best to stimulate the economy? Just something to consider here. The key is to understand what is the greater picture here as well as the question of which stock market index are you looking at that has done so badly. Some stocks may be down and others may be up so it isn't necessarily bad for all equally.", "title": "" }, { "docid": "729c5aedd5093e6ba46e0c0a70f6ab49", "text": "The stock market in general likes monetary easing. With lower interest rates and easy cheap money freely available, companies can borrow at reduced cost thus improving profits. As profits increase share prices generally follow. So as John Benson said Quantitative Easing usually has a positive effect on stocks. The recent negativity in the stock markets was partly due to the possibility of QE ending and interest rates being raised in the future.", "title": "" } ]	[ { "docid": "935cd924ed52f16c8409aaec99f643b2", "text": "Not really my field but this is how I see the impact Disadvantages for banks : not being able to chose where they park assets/cash they have been trusted with which mean lower income from investing those disadvantage for banks shareholders : less earnings disadvantage for the economy : harder criteria to lend, lower loan growth advantage for the economy : (theoretically) less risks of liquidity crunch and financial crisis", "title": "" }, { "docid": "233ea902448875e6343af9b6290c5305", "text": "Investopedia has this note where you'd want the contrapositive point: The interest rate, commonly bandied about by the media, has a wide and varied impact upon the economy. When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment. As for evidence, I'd question that anyone could really take out all the other possible economic influences to prove a direct co-relation between the Federal Funds rate and the stock market returns. For example, of the dozens of indices that are stock related, which ones would you want that evidence: Total market, large-cap, small-cap, value stocks, growth stocks, industrials, tech, utilities, REITs, etc. This is without considering other possible investment choices such as direct Real Estate holdings, compared to REITs that is, precious metals and collectibles that could also be used.", "title": "" }, { "docid": "1de24d75080643ec1433ec639cffd061", "text": "The severity of wealth inequality- more so than its existence- is what I'm getting at when I talk about the Fed. The cantillon effect is a theory that essentially states that the first recipients of stimulus are far better off than those 2 or 3 degrees of separation later. So if you look at Fed policies, where monetary stimulus is directed only towards the financial system and credit markets, certain parties will benefit disproportionately first before others later. In this case, that would be those employed by the industry (bankers, investors, etc), institutions in that industry (banks, hedge funds, pension/mutual funds), and owners of securities (the wealthy). Spillover effects impact the stock market, real estate, art, etc. and they are not a result of fundamentals, but rather of mis-allocated capital. What I'm getting at is we don't need central planners (i.e. the Fed) to make decisions regarding the market for money - interest rates - or pursue dubious financial experiments at best to somehow fix problems that they themselves caused in the past (through extended low interest rate environments). Central banking could take a very serious hit if cryptocurrencies become mainstream- which I do not expect for a long time- but it's the best emergent challenger to the existing paradigm.", "title": "" }, { "docid": "8953063491a0162c87cdf123213b6f1a", "text": "I think it's because there are people who build entire wealth-gain strategies around certain conditions. When those conditions change, their mechanism of gaining wealth is threatened and they may take a short term loss as they transform their holdings to a new strategy.", "title": "" }, { "docid": "fe9921a7843fe5fe58cfc9155f83a271", "text": "\"Modern portfolio theory dramatically underestimates the risk of the recommended assets. This is because so few underlying assets are in the recommended part of the curve. As investors identify such assets, large amounts of money are invested in them. This temporarily reduces measured risk, and temporarily increases measured return. Sooner or later, \"\"the trade\"\" becomes \"\"crowded\"\". Eventually, large amounts of money try to \"\"exit the trade\"\" (into cash or the next discovered asset). And so the measurable risk suddenly rises, and the measured return drops. In other words, modern portfolio theory causes bubbles, and causes those bubbles to pop. Some other strategies to consider:\"", "title": "" }, { "docid": "99a35d8a21693b605106176989414fed", "text": "This is Rob Bennett, the fellow who developed the Valuation-Informed Indexing strategy and the fellow who is discussed in the comment above. The facts stated in that comment are accurate -- I went to a zero stock allocation in the Summer of 1996 because of my belief in Robert Shiller's research showing that valuations affect long-term returns. The conclusion stated, that I have said that I do not myself follow the strategy, is of course silly. If I believe in it, why wouldn't I follow it? It's true that this is a long-term strategy. That's by design. I see that as a benefit, not a bad thing. It's certainly true that VII presumes that the Efficient Market Theory is invalid. If I thought that the market were efficient, I would endorse Buy-and-Hold. All of the conventional investing advice of recent decades follows logically from a belief in the Efficient Market Theory. The only problem I have with that advice is that Shiller's research discredits the Efficient Market Theory. There is no one stock allocation that everyone following a VII strategy should adopt any more than there is any one stock allocation that everyone following a Buy-and-Hold strategy should adopt. My personal circumstances have called for a zero stock allocation. But I generally recommend that the typical middle-class investor go with a 20 percent stock allocation even at times when stock prices are insanely high. You have to make adjustments for your personal financial circumstances. It is certainly fair to say that it is strange that stock prices have remained insanely high for so long. What people are missing is that we have never before had claims that Buy-and-Hold strategies are supported by academic research. Those claims caused the biggest bull market in history and it will take some time for the widespread belief in such claims to diminish. We are in the process of seeing that happen today. The good news is that, once there is a consensus that Buy-and-Hold can never work, we will likely have the greatest period of economic growth in U.S. history. The power of academic research has been used to support Buy-and-Hold for decades now because of the widespread belief that the market is efficient. Turn that around and investors will possess a stronger belief in the need to practice long-term market timing than they have ever possessed before. In that sort of environment, both bull markets and bear markets become logical impossibilities. Emotional extremes in one direction beget emotional extremes in the other direction. The stock market has been more emotional in the past 16 years than it has ever been in any earlier time (this is evidenced by the wild P/E10 numbers that have applied for that entire time-period). Now that we are seeing the losses that follow from investing in highly emotional ways, we may see rational strategies becoming exceptionally popular for an exceptionally long period of time. I certainly hope so! The comment above that this will not work for individual stocks is correct. This works only for those investing in indexes. The academic research shows that there has never yet in 140 years of data been a time when Valuation-Informed Indexing has not provided far higher long-term returns at greatly diminished risk. But VII is not a strategy designed for stock pickers. There is no reason to believe that it would work for stock pickers. Thanks much for giving this new investing strategy some thought and consideration and for inviting comments that help investors to understand both points of view about it. Rob", "title": "" }, { "docid": "c0c0d39f8df8c4b635315554a55d549e", "text": "\"Sure, it doesn't, but realistically they can't/shouldn't do anything about it in their index funds, because then they're just another stock picker, trying to gauge which companies are going to do best. Their funds not all being indexes is what I was getting at with my original question. How much leeway do they have in their definitions of other funds? IE, if they had a dividend fund that included all large cap dividend paying stocks above 3% yield, they couldn't take out Shell just because of climate risk without fundamentally changing what the fund is. But if it's just \"\"income fund\"\" then they can do whatever in that space.\"", "title": "" }, { "docid": "9d9444595e7e45564762ff58a6c29bc5", "text": "\"While this figure is a giant flashing-red beacon of inflation, it should be noted that this has been happening during a period of unprecedented writedowns and deleveraging of \"\"hypothetical\"\" assets -- assets that exist on paper only. The result, given the way QE funds have been injected into the market (eg TAF), is that people who should've lost money get to tread water, and the inflation is not apparent in the rest of the economy (unless you are actually aware of the severe repercussions which should've happened but didn't). Also, and separately, I'm not so sure another round of QE is coming.\"", "title": "" }, { "docid": "32f15a8afc23a2b007d6f89f30eef936", "text": "\"Right, as I stated I agree that it will cause greater variance from the true intrinsic value for individual equities. To take this example to an extreme, traders can throw darts at a board of ticker symbols, purchase them, and still diversify away most firm specific risk. You're correct in stating that such a strategy will eventually cause systematic market failures if everyone does it, but the herd goes where they can make the most profit, and right now that is with ETFs. When fund managers prove they have foresight enough to exploit any systematic failures that this causes, or can start beating ETF returns, the herd will flock back to them. I only meant to point out the reasoning behind why this is happening, not advocating one over the other, and also to point out that Paul Singer shouldn't whine. To re-purpose an old saying, \"\"Don't get mad, get even (by making your investors rich).\"\"\"", "title": "" }, { "docid": "b1c0b5404ada37840f0298a7d05c7c80", "text": "My view is that hedge funds and high-frequency traders tend to create this correlation because they're making directional bets on individual stocks, grouped as a whole, and then share these ideas with so many other funds (who, in turn, do the same thing). I think Beta and inflated share prices are related to this effect, but are not the cause of this effect.", "title": "" }, { "docid": "f1688c0affff288ef6402d045731b746", "text": "The answer would depend on the equities held. Some can weather inflation better than others (such as companies that have solid dividend growth) and even outpace inflation. Some industries are also safer against inflation than others, such as consumer staples and utilities since people usually have to purchase these regardless of how much $ they have. In looking over the data comparing S&P 500 returns, dividends, and inflation, the results are all over the map. In the 50's the total return was 19.3% with inflation at 2.2%. Then in the 70's returns were 5.8% with inflation at 7.4 percent, leading one to think that inflation diminished returns. But then in the 80's inflation was 5.1%, yet the return on the S&P was up to 17.3% Either way, aside from the 70's every other decade since 1950 has outpaced inflation (as long as you are including dividends; hence my first paragraph). S&P 500: Total and Inflation-Adjusted Historical Returns Also, the 7% average stock appreciation you mention is just that, an average. You are comparing a year-over-year number (7% inflation) with an aggregated one (stock performance over x number of years) and that is a misrepresentation and is not being weighted for the difference in what those numbers mean. Finally, there are thousands of things that have an effect on the stock market and stocks. Some are controllable and others are not. The idea that any one of them, such as inflation, has any sort of long-term, everlasting effect on prices that they cannot outmaneuver is improbable. This is where researching your stocks comes in...and if done prudently, who cares what the inflation rate is?", "title": "" }, { "docid": "a07a5f80321b3163b20fe5c79bd464ed", "text": "I don't think that's the case. I mean, of course some of the new money supply is making it into the stock market, but I think it's because of the factors I listed. The money supply isn't growing faster now than it has in the past. Here is M2 since 1980 on a log scale (because a percent change is more relevant than a change in raw dollars, just like stock market returns). https://fred.stlouisfed.org/graph/?g=fxeb (I am using M2 because it's a more complete measure of liquidity) Here is the percent change over time in M2, just to show that the QE isn't really doing anything out of the ordinary. https://fred.stlouisfed.org/graph/?g=fxek Here you can see the inflation rate: https://fred.stlouisfed.org/graph/?g=fxes What quantitative easing has done is drive bond prices lower, which I already mentioned. It can also be argued that QE has expanded wealth inequality, but I already mentioned that as well. https://www.forbes.com/sites/jonhartley/2015/06/25/how-federal-reserve-quantitative-easing-expanded-wealth-inequality/#1f7528a321eb", "title": "" }, { "docid": "0c82877a4d1d2abf54cc72ef42d48358", "text": "Although I have tried to read as much as I can about whether HFT is good or bad for the market, I am not an expert and I am not very confident in my own opinion. Nevertheless, here's my take: Let's say a pension plan buys a huge block of stock all at once and the market price moves against it. That's what is supposed to happen, and has always happened. HFT are able to offer tight spreads largely because they get picked off less then the market makers in earlier eras. I don't see that as HFT exploiting pension plans, I see it as them preventing themselves from being exploited. I will acknowledge that some HFT shops have been caught doing actual market manipulation, but I believe that the vast majority of what they do is provide market making for cheaper than its ever been. FWIW the SEC [mostly agrees](http://www.bloombergview.com/articles/2014-06-05/sec-will-keep-thinking-about-high-frequency-trading) with me.", "title": "" }, { "docid": "0d597d62750eca680f64b993c1ceebf3", "text": "Some economist please ELI5 what I’m missing here. In the equities market, it is considered an economic benefit when exchanges settle trades in smaller increments. When we went from eighths to decimal, for example. How is that direction into smaller divisible units different from facilitating trade with pennies for economic goods?", "title": "" }, { "docid": "aa55c3cb435280518b78c56250134b53", "text": "QE is really interesting. I don't think there were ever any negative repercussions. We basically found a way to print money and use it in a way that doesn't cause massive inflation (i.e. Swapping assets out for cash, resulting in zero net value added into the economy). Is it ridiculous to assume we will just do this everytime there's a massive toxic asset bust?", "title": "" } ]	fiqa
a542e41b4249222d9fd841bbfddb3eec	Why would I buy a bond with a negative yield?	[ { "docid": "23ddebd118921642b4fde7d7b52a8693", "text": "It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a mutually exclusive event. An individual may have personal reasons or a desire to contribute to the activity the bond is financing. To an entity, the negative yield bond may be part of a cost averaging plan, diversification strategy, a single leg of a multi-leg transaction, or possibly to aid certainty as a hedge in a pairs trade. And of course there may be other unique situations specific to the entity. Said another way, is the Queen of Spades a good card? It depends on the game being played and what is in your hand.", "title": "" }, { "docid": "48c01e8025f37a2255ffd3c048d8b06a", "text": "Perhaps something else comes with the bond so it is a convertible security. Buffett's Negative-Interest Issues Sell Well from 2002 would be an example from more than a decade ago: Warren E. Buffett's new negative-interest bonds sold rapidly yesterday, even after the size of the offering was increased to $400 million from $250 million, with a possible offering of another $100 million to cover overallotments. The new Berkshire Hathaway securities, which were underwritten by Goldman, Sachs at the suggestion of Mr. Buffett, Berkshire's chairman and chief executive, pay 3 percent annual interest. But they are coupled with five-year warrants to buy Berkshire stock at $89,585, a 15 percent premium to Berkshire's stock price Tuesday of $77,900. To maintain the warrant, an investor is required to pay 3.75 percent each year. That provides a net negative rate of 0.75 percent.", "title": "" }, { "docid": "34665581461e0a8d5d33457ae25d7895", "text": "The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.", "title": "" } ]	[ { "docid": "14a36d998327e07c3acbbdcfcdb766fe", "text": "\"leverage amplifies gains and losses, when returns are positive leverage makes them more positive, but when returns are negative leverage makes them more negative. since most investments have a positive return in \"\"the long run\"\", leverage is generally considered a good idea for long term illiquid investments like real estate. that said, to quote keynes: in the long run we are all dead. in the case of real estate specifically, negative returns generally happen when house prices drop. assuming you have no intention of ever selling the properties, you can still end up with negative returns if rents fall, mortgage rates increase or tax rates rise (all of which tend to correlate with falling property values). also, if cash flow becomes negative, you may be forced to sell during a down market, thereby amplifying the loss. besides loss scenarios, leverage can turn a small gain into a loss because leverage has a price (interest) that is subtracted from any amplified gains (and added to any amplified losses). to give a specific example: if you realize a 0.1% gain on x$ when unleveraged, you could end up with a 17% loss if leveraged 90% at 2% interest. (gains-interest)/investment=(0.001x-0.020.9x)/(x/10)=-0.01710=-0.17=17% loss one reason leveraged investments are popular (particularly with real estate), is that the investor can file bankruptcy to \"\"erase\"\" a large negative net worth. this means the down side of a leveraged investment is limited for the highly leveraged investor. this leads to a \"\"get rich or start over\"\" mentality common among the self-made millionaire (and failed entrepreneurs). unfortunately, this dynamic also leads to serious problems for the banking sector in the event of a large nation-wide devaluation of real estate prices.\"", "title": "" }, { "docid": "88eb05212e390eb6b77372ec51fdc3ee", "text": "\"Even though the article doesn't actually use the word \"\"discount\"\", I think the corresponding word you are looking for is \"\"premium\"\". The words are used quite frequently even outside of the context of negative rates. In general, bonds are issued with coupons close to the prevailing level of interest rates, i.e. their price is close to par (100 dollar price). Suppose yields go up the next day, then the price moves inversely to yields, and that bond will now trade at a \"\"discount to par\"\" (less than 100 dollar price). And vice versa, if yields went down, prices go up, and the bond is now at a \"\"premium to par\"\" (greater than 100 dollar price)\"", "title": "" }, { "docid": "e03ffaa92d15930d884ee78fd0f02558", "text": "Those are the expected yields; they are not guaranteed. This was actually the bread and butter of Graham Newman, mispriced bonds. Graham's writings in the Buffett recommended edition of Securities Analysis are invaluable to bond valuation. The highest yielder now is a private subsidiary of Société Générale. A lack of financial statements availability and the fact that this is the US derivatives markets subsidiary are probably the cause of the higher rates. The cost is about a million USD to buy them. The rest will be similar cases, but Graham's approach could find a diamond; however, bonds are big ticket items, so one should expect to pay many hundreds of thousands of USD per trade.", "title": "" }, { "docid": "f04c95fbe25c806a926f738494f09406", "text": "\"It makes sense if the NPV is positive. But what rate should you use at determining the NPV? A textbook might say \"\"market rate\"\".... and by definition the market rate to use in bond calculations like yours will mean that your NPV will be zero. How can this be? Well it's a bit of a circular definition. You take less capital to earn a higher return. The value of your capital spread over the period of the bond's maturity is the net difference... but the money in your pocket from selling the bond and not purchasing also has value. Banks and traders do this exact swap every day, many many times. The rate at which you can execute this swap is what defines the market rate. Therefore, by definition, the NPV will be zero. Now, this doesn't mean it's a bad idea for you. You can, on your own accord, decide the value you place on the capital versus the yield and make the decision. Do you expect rates to rise or fall? Do you expect higher or lower inflation? In reality you can form whatever opinion you like for your own circumstance, but the market is the net aggregation of formative opinion. You only get to decide whether or not you agree with the market.\"", "title": "" }, { "docid": "a098f01bc8fa47e3f9160a018b52c89b", "text": "There are a few other factors possible here: Taxes - Something you don't mention is what are the tax rates on each of those choices. If the 4% gain is taxed at 33% while the 3% government bond is taxed at 0% then it may well make more sense to have the government bond that makes more money after taxes. Potential changes in rates - Could that 4% rate change at any time? Yield curves are an idea here to consider where at times they can become inverted where short-term bonds yield more than long-term bonds due to expectations about rates. Some banks may advertise a special rate for a limited time to try to get more deposits and then change the rate later. Beware the fine print. Could the bond have some kind of extra feature on it? For example, in the US there are bonds known as TIPS that while the interest rate may be low, there is a principal adjustment that comes as part of the inflation adjustment that is part how the security is structured.", "title": "" }, { "docid": "fe87a107006a1c915292432f35ec1d5c", "text": "Virtually zero risk of default; safety; diversification; guaranteed fixed income albeit very low; portfolio diversifier so it reduces total volatility; plus yields might drop even lower thus increasing the price of the bond. Very unlikely given how obscenely low yields already are but still possible. I thought nobody would ever buy a 10yr @ 3% and now look, rates are almost half as much and those 3% bonds are worth a lot more now on the secondary market. Timing the bond market is really hard.", "title": "" }, { "docid": "5a6ecc93aaeca700b59696c9e2c3c3d8", "text": "As well as credit risk there's also interest risk. If a bond has a face value of $100, pays 1% and matures in 20 years' time then you expect to receive a total of $120 from buying it now -- $1 per year for 20 years and $100 at the end. But if you can get a 3% return elsewhere, then if you invest your $80 there instead you will get $2.40 per year for 20 years and then $80 at the end, making a total of $128 (and you also get more of the money sooner). So even $80 for the $100 bond is a bad buy, and you should invest elsewhere.", "title": "" }, { "docid": "de4312884f19663ad7e0d0e07b86898f", "text": "You're talking about floating rate loans. It's so that the bond is marked back to market every 90 days. Any more often would be a hassle to deal with for everyone involved, any less often and they would be significant variance from LIBOR vs. the loan's specific rate.", "title": "" }, { "docid": "25642445db62867fabedea609cea9f71", "text": "Long-term bonds -- any bonds, really -- can be risky for two main reasons: return on principal, or return of principal. The former is a problem if interest rates are low (which they are now in the US) because existing bonds will fall in price if interest rates rise. The second is a problem if the lender defaults: IOU nothing. No investment is riskless. Short-term bonds command a lower interest rate than long-term bonds (usually) because of their quicker maturity, but short-term bonds carry risk just like long-term bonds (though the interest rate risk is lower, sometimes quite a bit lower, than for long-term bonds).", "title": "" }, { "docid": "2fafdfc536de79a7ae3d9e9234c7c5d3", "text": "Ponder this. Suppose that a reputable company or government were to come out and say hey, we are going to issue some 10 year bonds at 6.4%. Anyone interested in buying some? Assume that the company or government is financially solid and there is zero chance that they will go bankrupt. Think those bonds would sell? Would you be interested in buying such a bond? Well, I would wager that these bonds would sell like hotcakes, despite the fact that the long term stock market return beats it by a half percent. Heck, vanguard's junk bond fund is hot right now. It only yields 4.9% and those are junk bonds, not rock solid companies (see vanguard high yield corporate bond fund) Every time you make an extra principal payment on your student loan, you are effectively purchasing a investment with a rock solid, guaranteed 6.4% return for 10 years (or whatever time you have left on the loan if make no extra payments). On top of that, paying off a loan early builds your credit reputation, improves your monthly cash flow once the loan is paid, may increase your purchasing power for a house or car, and if nothing else, it frees you from being a slave to that debt payment every month. Edit Improved wording based on Ross's comment", "title": "" }, { "docid": "55a7bd36c545fb5229e6d80425af33a9", "text": "This is a perfect example of why bonds are confusing at first glance. Think about it this way... You buy a 30-year Russian Bond at 4%. An event happens that makes Russia risky to invest in. You want to buy another bond but fuck 4%, you and the rest of the market want 6% to compensate you for the risk. Now let's say you want to sell your 4% bond... Well you're going to have to drop the price of that bond in order for it to appeal to an investor that could go out and get a 6%. On a 30-year bond of that kind, you're looking at about 75% of what you bought it for. So to wrap it up, high bond yields are great for buyers that don't already own them, but bad for sellers who want to get rid of their old ones. It is the opposite intuition as stocks and almost everything else.", "title": "" }, { "docid": "ecfa6bb9c8b37781cfa02cab7521ce22", "text": "Negative coupons are not the same as a negative yield. A $1000 bond that you purchase, at a premium, for $2100 that produces 10 annual coupons of $100 and a redemption of $1000 has a real, positive coupon ($100). The holder of the bond gets this coupon, and the maturity value However, you get back less than your initial investment. There is no growth; the original investment shrinks, or has a negative growth rate. Most mortgage or bond calculators choke on this situation...", "title": "" }, { "docid": "1a215235050247865d3e2f2c75a3b8eb", "text": "From my blog's discussion on 2017 tax rates. This is the final set of numbers. So, if you currently have, say $120K taxable income, every dollar above that starts getting taxed at 25%, until $153K, then 28%. In other words, forecast your taxes based on the day job, but then the 1099 goes on top of that.", "title": "" }, { "docid": "972cce8568cc0e5fb62e7e6a4a2e76a8", "text": "The fact that the option is deep in the money will be reflected in the market price of the option so you can just sell it at a profit. If there's a (n almost) guaranteed profit to be had, however, you can always find someone who will lend you the money to cover the exercise... they'll charge you interest, however!", "title": "" } ]	fiqa
f0b9dceb6f4c560fe6b6c2c9e223fc01	Should I pay off my student loan before buying a house?	[ { "docid": "9cb0f6c838269bfc3c64b6fc3bc121c0", "text": "Paying off your student loan before buying a house is certainly a great risk reduction move for you. It will lower your debt to income ratio allowing your mortgage approval to go easier and it will free up more of your dollars to pay for the many miscellaneous projects that come with buying a house. I think that if you are considering paying off your student loan before buying a house that means that your student loans are an amount you can fathom paying off and that you are motivated to be rid of your student loan debt. Go for it and pay off your student loan.", "title": "" }, { "docid": "5c4552d9a151aba8324f246f5b6d05e0", "text": "It depends on the terms. Student loans are often very low interest loans which allow you to spread your costs of education over a long time without incurring too much interest. They are often government subsidized. On the other hand, you often get better mortgage rates if you can bring a down payment for the house. Therefore, it might be more beneficial for you to use money for a down payment than paying off the student load.", "title": "" }, { "docid": "94be5f3d5cab78067d6b98a9936ae9c7", "text": "There may be specific answers that can be determined based on the interest rates, amounts, tax provisions, etc. But I'm here to tell you... It is much easier (i.e., less stressful) to own a home when you have less debt. Pay off any and every debt you can before purchasing a home because there will always be something requiring you to spend money once you own one.", "title": "" }, { "docid": "1d0d5a349ea3ab744085df42a4a35759", "text": "It might be a good idea, because later in life if a large expense shows up or an income source disappears, you will only have the mortgage payment, rather than a mortgage AND a student loan payment.", "title": "" }, { "docid": "b35b8287eb0a1f8cad71238509d3ee0c", "text": "One extremely important aspect that must be taken into consideration is the state of the housing market. If prices are rising it will probably be a false economy to delay your house purchase. Say you pay off a £5,000 student loan, thus delaying your house purchase another year you could well end up forking out an extra £10,000 on the mortgage due to the rise in house prices. Of course, if the housing market is falling then, without a doubt, pay off the student debt.", "title": "" }, { "docid": "6de6830ca2a32ae3fda25b350ee7088c", "text": "IMO student loans are junk debt that should be dealt with as soon as possible. Buying a house comes with risks and expenses (repairs, maintenance, etc) and dealing with a student loan at the same time just makes it tougher. Personally, I would try to pay off at least a few of the loans first.", "title": "" } ]	[ { "docid": "8bf4ac7a8a2c2e17452db55d4558d105", "text": "The hard and fast rule is to pay off high interest loans first, but each individual's situation is different so there are some things to consider. Student loan interest is tax deductible up to $2,500. Will your student loan interest exceed $2,500 for the year? If so I would try to pay down the student loan first to bring down the total interest for the year so that you get as much interest back as possible on your tax return. Also, it may be beneficial to pay off the car first to close that account so that you are only left with the 1 loan. Once you have the car loan payment out of the way you can dedicate that amount to paying off the student loan. I'm in almost the same situation as you. I currently have a mortgage and car payment. In 6 months my grace period will be over, and my student loan payments will start. I have $100k in student loan debt. So I will have a $1,100 mortgage payment, $1,100 student loan payment, and $700 car payment (car loan is 0%). I don't want to have 3 loans active so I will pay off my car loan in a 2-3 months to get that out of the way. Then I will pay down my student loan by paying $700 extra every month.", "title": "" }, { "docid": "00484e8e9c8d6d544eb2c3b16a4e22a2", "text": "It isn't always clear cut that you should pay off a debt at all, particularly a mortgage. In simple terms, if you are making a better return than what the bank is charging you, and the investment meets your risk criteria, then you should not pay back the debt. In the UK for example, mortgage rates are currently quite low. Around 2.5 - 3% is typical at the moment. On the other hand, you might reasonably expect a long run average return of around 9 - 11% on property (3 - 5% rental yield, and the rest on capital gains). To make the decision properly you need take into account the following:", "title": "" }, { "docid": "dbb1a5aaa7bc8c7f62db10fa77815473", "text": "Based on your numbers, it sounds like you've got 12 years left in the private student loan, which just seems to be an annoyance to me. You have the cash to pay it off, but that may not be the optimal solution. You've got $85k in cash! That's way too much. So your options are: -Invest 40k -Pay 2.25% loan off -Prepay mortgage 40k Play around with this link: mortgage calculator Paying the student loan, and applying the $315 to the monthly mortgage reduces your mortgage by 8 years. It also reduces the nag factor of the student loan. Prepaying the mortgage (one time) reduces it by 6 years. (But, that reduces the total cost of the mortgage over it's lifetime the most) Prepaying the mortgage and re-amortizing it over thirty years (at the same rate) reduces your mortgage payment by $210, which you could apply to the student loan, but you'd need to come up with an extra $105 a month.", "title": "" }, { "docid": "4cc449161a017138e7d63961ad07a965", "text": "Should I use the money to pay off student loans and future grad expenses for me? Yes. The main drawback to student loans is that they cannot be gotten rid of except by paying them off (other than extreme circumstances such as death or complete disability). A mortgage, car loan, or other collateralized loans can be dealt with by selling the underlying collateral. Credit card loans can be discharged in bankruptcy. Stop borrowing for college, pay for it in cash, then decide what to do with the rest. Make sure you have a comfortable amount saved for emergencies in a completely liquid account (not a retirement account or CDs), and continue to pay off with the rest. You might also consider putting some away for your kids' college, so I want to get my older son into a private middle school for 2 years. They have a hardy endowment and may offer us a decent need based scholarship if we look worthy on paper I have a hard time getting behind this plan with a 238K mortgage. If you want to apply for scholarships that's great - but don't finagle your finances to look like you're poor when you have a quarter-million-dollar house. If you want to save some for private school then do that out of what you have. Otherwise either rearrange your priorities so you can afford it or private school might not be in the cards for you. That said- while it was a blessing to be able to pay off the second mortgage and credit cards, your hesitancy to pay off the student loans makes me wonder if you will start living within your means after the loans are paid off. My concern is that your current spending levels that got you in this much debt in the first place will put you back in debt in the near future, and you won't have another inheritance to help pull you out. I know that wasn't your question, but I felt like I needed to add that to my answer as well.", "title": "" }, { "docid": "326da0a0c278ca89edbf77cc0da4b4ac", "text": "Something else to consider, even if your friend is on the up and up and never misses a payment: Until the house is paid off, any time you apply for credit banks will count the mortgage payment on your friends house against your ability to pay all your existing debts in addition to whatever new loan you're applying for. If you're renting a home now, this will likely mean that you'll be unable to buy one until your friends house is paid off.", "title": "" }, { "docid": "7319e7d344e18f21491dba0ebe7e93f6", "text": "All of RonJohn's reasons to say no are extremely valid. There are also two more. First, the cost of a mortgage is not the only cost of owning a house. You have to pay taxes, utilities, repairs, maintenence, insurance. Those are almost always hundreds of dollars a month, and an unlucky break like a leaking roof can land you with a bill for many thousands of dollars. Second owning a house is a long term thing. If you find you have to sell in a year or two, the cost of making the sale can be many thousands of dollars, and wipe out all the 'savings' you made from owning rather than renting. I would suggest a different approach, although it depends very much on your circumstances and doesn't apply to everybody. If there is someone you know who has money to spare and is concerned for your welfare (your mention of a family that doesn't want you to work for 'academic reason' leads me to believe that might be the case) see if they are prepared to buy a house and rent it to you. I've known families do that when their children became students. This isn't necessarily charity. If rents are high compared to house prices, owning a house and renting it out can be very profitable, and half the battle with renting a house is finding a tenant who will pay rent and not damage the house. Presumably you would qualify. You could also find fellow-students who you know to share the rent cost.", "title": "" }, { "docid": "9bcc0c9036c690555368b96512ef7ed8", "text": "\"A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage. The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI. Clearly, I had a specific situation to address, which ultimately becomes part of the list for \"\"pay off student loan? Pro / Con\"\" Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled. Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach.\"", "title": "" }, { "docid": "186632702891b096cb961029a47ca4d5", "text": "Of course, I know nothing about real estate or owning a home. I would love to hear people's thoughts on why this would or would not be a good idea. Are there any costs I am neglecting? I want the house to be primarily an investment. Is there any reason that it would be a poor investment? I live and work in a college town, but not your college town. You, like many students convinced to buy, are missing a great many costs. There are benefits of course. There's a healthy supply of renters, and you get to live right next to campus. But the stuff next to campus tends to be the oldest, and therefore most repair prone, property around, which is where the 'bad neighborhood' vibe comes from. Futhermore, a lot of the value of your property would be riding on government policy. Defunding unis could involve drastic cuts to their size in the near future, and student loan reform could backfire and become even less available. Even city politics comes into play: when property developers lobby city council to rezone your neighborhood for apartments, you could end up either surrounded with cheaper units or possibly eminent domain'd. I've seen both happen in my college town. If you refuse to sell you could find yourself facing an oddly high number of rental inspections, for example. So on to the general advice: Firstly, real estate in general doesn't reliably increase in value, at best it tends to track inflation. Most of the 'flipping' and such you saw over the past decade was a prolonged bubble, which is slowly and reliably tanking. Beyond that, property taxes, insurance, PMI and repairs need to be factored in, as well as income tax from your renters. And, if you leave the home and continue to rent it out, it's not a owner-occupied property anymore, which is part of the agreement you sign and determines your interest rate. There's also risks. If one of your buddies loses their job, wrecks their car, or loses financial aid, you may find yourself having to eat the loss or evict a good friend. Or if they injure themselves (just for an example: alcohol poisoning), it could land on your homeowners insurance. Or maybe the plumbing breaks and you're out an expensive repair. Finally, there are significant costs to transacting in real estate. You can expect to pay like 5-6 percent of the price of the home to the agents, and various fees to inspections. It will be exceedingly difficult to recoup the cost of that transaction before you graduate. You'll also be anchored into managing this asset when you could be pursuing career opportunities elsewhere in the nation. Take a quick look at three houses you would consider buying and see how long they've been on the market. That's months of your life dealing with this house in a bad neighborhood.", "title": "" }, { "docid": "039cc579a85a6ad914607b922112d2e7", "text": "A point that hasn't been mentioned is whether paying down the mortgage sooner will get you out of unnecessary additional costs, such as PMI or a lender's requirement that you carry flood insurance on the outstanding mortgage balance, rather than the actual value/replacement cost of the structures. (My personal bugbear: house worth about $100K, while the bare land could be sold for about twice that, so I'm paying about 50% extra for flood insurance.) May not apply to your loan-from-parents situation, but in the general case it should be considered. FWIW, in your situation I'd probably invest the money.", "title": "" }, { "docid": "f110db33d3b9354719dd74a4d5c4671d", "text": "Having a loan also represents risk. IMHO you should retire the loan as soon as feasible in most cases. JoeTaxpayer, as usual, raises a good point. With numbers as he is quoting, it is tolerable to have a loan around on a asset such as a home. While he did not mention it, I am sure that his rate is fixed. If the interest rate is variable: pay it off. If it is a student loan: pay it off. If you can have it retired quickly: pay it off and get the bank off your payroll. If it is consumer debt: pay it off.", "title": "" }, { "docid": "7856213a10310d10734defe41d41f977", "text": "Congratulations on your bonus may many more come your way. I am having a bit of trouble following your numbers but it seems you are considering PMI for the life of your loan. Once you get below 20% loan to value, you can petition the mortgage company to remove the PMI (with conventional loans; VA and FHA have lifetime PMI). If it was me, I'd do one of two things. Both involve paying off the student loan now. The savings from the student loan payment will assist you in helping you meet one of the two goals below. Also both involve getting a 15 year fixed. The first would be to buy the house now, and work like crazy to get rid of the PMI. My goal would be to get rid of this within 18 months. The second would be to save up enough cash for the 20% down and then buy the house. You'd miss out on the house you are looking at, which is kind of heartbreaking. Who is to say that a better home does not come along at the same price? My goal would be to have the downpayment in 9 months, and really try to have it in 6 months. Being an old guy that has experience how much of a virtue patience is, I'd recommend the second option.", "title": "" }, { "docid": "305961f1031f30c9caf1ae48720be01e", "text": "You didn't answer my questions above, but the biggest factor if the two interest rates are similar is what it will cost you for mortgage insurance if you do not include a 20% down-payment on your next house purchase. I would take the extra money from the proceeds of the other sale to get to a 15-year loan on your next house, then put all of your extra money into paying down the student loans ahead of the 7 year schedule.", "title": "" }, { "docid": "98436d927ef8f40a37a2a7e660ec9003", "text": "I don't like paying a house off early. Houses are quite illiquid investments. Lose your job, you can't get the money out. Housing prices go down, can't get your money out. Etc. You are in a better state owing 50k more on a house and with 50k in the bank, and if that money gets you in the habit of savings and investing, all the better.", "title": "" }, { "docid": "29b6e8b978e35dbb47d436dd1d9cd0c4", "text": "Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments... EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest) for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage:", "title": "" }, { "docid": "348332ebd12750fb19b0752caded06c2", "text": "\"If I were you I would pay off these loans today. Here are the reasons why I would do this: Car Loan For car loans in particular, it's much better to not pay interest on a loan since cars lose value over time. So the longer you hold the debt, the more you end up paying in interest as the car continues to lose value. This is really the opposite of what you want to do in order to build wealth, which is to acquire assets that gain value over time. I would also recommend that once you pay the loan, that you set aside the payment you used to make on the loan as savings for your next car. That way, you will be able to pay cash for your next car, avoiding thousands of dollars of interest. You will also be able to negotiate a better price by paying cash. Just by doing this you will be able to either afford to buy a nicer car with the same amount of money, or to put the extra money toward something else. Student Loan For the student loan, 3% is a very low rate historically. However, the reason I would still pay these off is that the \"\"return\"\" you are getting by doing so is completely risk free. You can't often get this type of return from a risk-free investment instrument, and putting money in the stock market carries risk. So to me, this is an \"\"easy\"\" way to get a guaranteed return on your money. The only reason I might not pay this down immediately is if you have any other debt at a rate higher than 3%. General Reasons to Get out of Debt Overall, one of the basic functions of lifetime financial planning is to convert income into assets that produce cash flow. This is the reason that you save for retirement and a house, so that when your income ends when you're older these assets will produce cash, or in the case of the house, that you will no longer have to make rent payments. Similarly, paying off these debts creates cash flow, as you no longer have to make these payments. It also reduces your overall financial risk, as you'd need less money to live on if you lost your job or had a similar emergency (you can probably reduce your emergency fund a bit too). Discharging these loans will also improve your debt-to-income ratio if you are thinking of buying a house soon. I wonder whether as someone who's responsible with money, the prospect of cutting two large checks feels like \"\"big spending\"\" to you, even though it's really a prudent thing to do and will save you money. However, if you do pay these off, I don't think you'll regret it.\"", "title": "" } ]	fiqa
1954dde568e2482e3e8b9531b492ae1c	Advice on preserving wealth in a volatile economic/political country	[ { "docid": "83d9ae6ad60870a09c431cbe4c9498a1", "text": "\"I suggest that you're really asking questions surrounding three topics: (1) what allocation hedges your risks but also allows for upside? (2) How do you time your purchases so you're not getting hammered by exchange rates? (3) How do you know if you're doing ok? Allocations Your questions concerning allocation are really \"\"what if\"\" questions, as DoubleVu points out. Only you can really answer those. I would suggest building an excel sheet and thinking through the scenarios of at least 3 what-ifs. A) What if you keep your current allocations and anything in local currency gets cut in half in value? Could you live with that? B) What if you allocate more to \"\"stable economies\"\" and your economy recovers... so stable items grow at 5% per year, but your local investments grow 50% for the next 3 years? Could you live with that missed opportunity? C) What if you allocate more to \"\"stable economies\"\" and they grow at 5%... while SA continues a gradual slide? Remember that slow or flat growth in a stable currency is the same as higher returns in a declining currency. I would trust your own insights as a local, but I would recommend thinking more about how this plays out for your current investments. Timing You bring up concerns about \"\"timing\"\" of buying expensive foreign currencies... you can't time the market. If you knew how to do this with forex trading, you wouldn't be here :). Read up on dollar cost averaging. For most people, and most companies with international exposure, it may not beat the market in the short term, but it nets out positive in the long term. Rebalancing For you there will be two questions to ask regularly: is the allocation still correct as political and international issues play out? Have any returns or losses thrown your planned allocation out of alignment? Put your investment goals in writing, and revisit it at least once a year to evaluate whether any adjustments would be wise to make. And of course, I am not a registered financial professional, especially not in SA, so I obviously recommend taking what I say with a large dose of salt.\"", "title": "" }, { "docid": "e92a5e3cfe7db5a782b9931710ff389d", "text": "\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \"\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\"\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\"", "title": "" }, { "docid": "20ed40524961487a130ef6c674b35799", "text": "US Treasury securities are the safest investment. You can buy short term by buying T-Bills. You buy T-bills at a discount to face. For example, to buy a four week T-bill the treasury will take $99.98 out of your account. In four weeks the treasury will deposit $100 into your account. The $0.02 difference is your Intrest on the loan. Compounded over a year (13 four week periods) you get a 0.24% interest. But (presumably) more importantly (to you) you get your original $99.98 back. Your government cannot nationalize money that you have on loan to the United States Government. Edit : oops, I dropped a decimal position in my original calculation of compounded rate of interest. It is now corrected.", "title": "" } ]	[ { "docid": "c14b4881f89e813dcec5a551b30856b2", "text": "2 very viable options. Real Estate is cheap now and if you hold a few properties for the long term the price should rise. You can use them as rental properties to supplement your income. In addition agriculture is also very viable. How else you gunna feed 7 billion? Might as well cash in on that.", "title": "" }, { "docid": "f6b490195aee0c5351658b1edfd90ba3", "text": "If you're referring to investment hedging, then you should diversify into things that would profit if expected event hit. For example alternative energy sources would benefit greatly from increased evidence of global warming, or the onset of peak oil. Preparing for calamities that would render the stock market inaccessible, the answer is quite different. Simply own more of things that people would want than you need. A list of possibilities would include: Precious metals are also a way to secure value outside the financial markets, but would not be readily sellable until the immediate calamity had passed. All this should be balanced on an honest evaluation of the risks, including the risk of nothing happening. I've heard of people not saving for retirement because they don't expect the financial markets to be available then, but that's not a risk I'm willing to take.", "title": "" }, { "docid": "34cd5a23fbe463b0ccd510681344e33d", "text": "As observed above, 1.5% for 3 years is not attractive, and since due to the risk profile the stock market also needs to be excluded, there seems about 2 primary ways, viz: fixed income bonds and commodity(e,g, gold). However, since local bonds (gilt or corporate) are sensitive and follow the central bank interest rates, you could look out investing in overseas bonds (usually through a overseas gilt based mutual fund). I am specifically mentioning gilt here as they are government backed (of the overseas location) and have very low risk. Best would be to scout out for strong fund houses that have mutual funds that invest in overseas gilts, preferably of the emerging markets (as the interest is higher). The good fund houses manage the currency volatility and can generate decent returns at fairly low risk.", "title": "" }, { "docid": "2ebd49168456a4ffc4b7f3ccd5ef1f1a", "text": "\"There's not nearly enough information here for anyone to give you good advice. Additionally, /r/personalfinance will probably be a bit more relevant and helpful for what you're asking. Aside from that, if you don't know what you're doing, stay out of currency trading and mutual funds. If you don't care about losing your money, go right ahead and play in some markets, but remember there are people paid millions of dollars/year who don't make consistent profit. What are the chances a novice with no training will perform well? My $.02, pay your debt, make a general theory about the economy a year from now (e.g. \"\"Things will be worse in Europe than they are now\"\") and then invest your money in an index fund that matches that goal (e.g. Some sort of Europe-Short investment vehicle). Reassess a year from now and don't stress about it.\"", "title": "" }, { "docid": "fe192eac78f69f00f6b5bd131a07d348", "text": "Since you mention the religion restriction, you should probably look into the stock market or funds investing in it. Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit. If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run. As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path.", "title": "" }, { "docid": "6c2b6ce53f3c3f98d525ff6c730df800", "text": "[Nope] (https://blogs.wsj.com/wealth/2010/07/13/worlds-rich-are-hording-10-trillion-in-cash/). It's all hoarded in various index accounts, mostly off-shore for obvious reasons. They want to protect their wealth, which is fine. But if you want to protect wealth you don't invest it all in means of production or real-state, which are both vulnerable to heavy crashes. You keep it protected interest-yielding accounts, in places like the Cayman Islands, or Switzerland.", "title": "" }, { "docid": "f700e0dd68358d02092e7bada926aa0d", "text": "\"Even if the price of your home did match inflation or better — and that's a question I'll let the other answers address — I propose that owning a home, by itself, is not a sufficient hedge against inflation. Consider: Inflation will inflate your living expenses. If you're lucky, they'll inflate at the average. If you're unlucky, a change in your spending patterns (perhaps age-related) could result in your expenses rising faster than inflation. (Look at the sub-indexes of the CPI.) Without income also rising with inflation (or better), how will you cope with rising living expenses? Each passing year, advancing living expenses risk eclipsing a static income. Your home is an illiquid asset. Generally speaking, it neither generates income for you, nor can you sell only a portion. At best, owning your principal residence helps you avoid a rent expense and inflation in rents — but rent is only one of many living expenses. Some consider a reverse-mortgage an option to tap home equity, but it has a high cost. In other words: If you don't want to be forced to liquidate [sell] your home, you'll also need to look at ways to ensure your income sources rise with inflation. i.e. look at your cash flow, not just your net worth. Hence: investing in housing, as in your own principal residence, is not an adequate hedge against inflation. If you owned additional properties to generate rental income, and you retained pricing power so you could increase the rent charged at least in line with inflation, your situation would be somewhat improved — except you would, perhaps, be adopting another problem: Too high a concentration in a single asset class. Consequently, I would look at ways other than housing to hedge against inflation. Consider other kinds of investments. \"\"Safe as houses\"\" may be a cliché, but it is no guarantee.\"", "title": "" }, { "docid": "5affdedc6246219e3093477fd999126e", "text": "Reddit doesn't have a ton of resources to offer you as you learn about where to invest, you want to start reading up on actual investing sites. You might start with Motley Fool, StockTwits, Seeking Alpha, Marketwatch, etc. I agree with hipster's take, if all countries are going to keep printing money and expanding their debts and craziness, gold has a bright future. Land, petroleum, commodities, and precious metals have an intrinsic worth that will still be there regardless of what currencies are doing, versus bonds which are merely promises to pay, which will be paid off in devalued money, or stocks which are just promises of future earnings. Think about spreading your risk in a few different places, one chunk here, one chunk there. Some people in the US now are big on dividend paying stocks in lieu of bonds which only pay a percent, which is negative return after inflation. Some people buy 'royalty trust' units, which throw off income from oil leases as dividends. You might want to park a portion in a different currency, but dollar funds aren't going to pay interest and Switzerland plans to keep devaluing its currency as people keep bidding the price up. I don't know if you are allowed to buy CEF, a bullion-backed fund out of Canada in your country, but that's one way to own gold & silver. But with the instability out there, you might prefer a bit of the real thing stashed in a safe place. Or if you have a bit of family land, maybe just be sure you can pay the taxes to keep it; or pursue any other way to own 'real stuff' that will still be worth something after all hell breaks loose.", "title": "" }, { "docid": "1e758473b1265a4258993587b6d485ba", "text": "It could be a a way to preserve the value of your money, but depends upon various factors. If a country defaults, and it leads to hyper-inflation, by definition that means that money loses its purchasing power. In even simpler terms, it cannot buy as much tomorrow as I could today. Therefore people can be incented to either hoard physical goods, or other non-perishable items. Real-estate may well be such an item. If you are resident in the country, you have to live somewhere. It is possible that a landlord might try to raise rent beyond what your job is willing to pay. Of course, in a house, you might have a similar situation with utilities like electricity... Assuming some kind of re-stabilization of the economy and currency, even with several more zeros on the end, it is conceivable that the house would subsequently sell for an appropriately inflation adjusted amount, as other in-demand physical goods may. Lots of variables. Good Luck.", "title": "" }, { "docid": "a3d4e2f50066dd7f36ddafc743b62f23", "text": "Don't try because it's a moving target. A thriving economy on paper can be entirely valuation based. It tells you nothing about distribution of wealth in the economy. The majority would be destitute and we could still be talking of booming times if speculative markets can find creative ways of growing valuations of existing assets with credi growth. All that is needed is for two people to bid a painting to 100 million for the painting to have contributed positively to a growth in the value of goods and services in the economy. The same is done with intellectual property and corporate valuations. Good times are times when capital gains can be seized on account of expansionin of credit or government spending. Recessions are closer when governments try and pull in more than they spend and when lending can't expand. Government spending is increaasing these days despite talk of the contrary.", "title": "" }, { "docid": "530ba3f0e8050cdfe11a9e3dfe48a39f", "text": "In theory, anything can happen, and the world could end tomorrow. However, with a reasonably sane financial plan you should be able to ride this out. If the government cannot or won't immediately pay its debt in full, the most immediate consequence is that people are going to be unwilling to lend any more money in future, except at very high rates to reflect the high risk of future default. Presumably the government has got into this state by running a deficit (spending more than they collect in tax) and that is going to have to come to an abrupt end. That means: higher taxes, public service retrenchments and restrictions of service, perhaps cuts to social benefits, etc. Countries that get into this state typically also have banks that have lent too much money to risky customers. So you should also expect to see some banks get into trouble, which may mean customers who have money on deposit will have trouble getting it back. In many cases governments will guarantee deposits, but perhaps only up to a particular ceiling like $100k. It would be very possible to lose everything if you have speculative investments geared by substantial loans. If you have zero or moderate debt, your net wealth may decrease substantially (50%?) but there should be little prospect of it going to zero. It is possible governments will simply confiscate your property, but I think in a first-world EU country this is fairly unlikely to happen to bank accounts, houses, shares, etc. Typically, a default has led to a fall in the value of the country's currency. In the eurozone that is more complex because the same currency is used by countries that are doing fairly well, and because there is also turbulence in other major currency regions (JPY, USD and GBP). In some ways this makes the adjustment harder, because debts can't be inflated down. All of this obviously causes a lot of economic turbulence so you can expect house prices to fall, share prices to gyrate, unemployment to rise. If you can afford it and come stomach the risk, it may turn out to be a good time to buy assets for the long term. If you're reasonably young the largest impact on you won't be losing your current savings, but rather the impact on your future job prospects from this adjustment period. You never know, but I don't think the Weimar Republic wheelbarrows-of-banknotes situation is likely to recur; people are at least a bit smarter now and there is an inflation-targeting independent central bank. I think gold can have some room in a portfolio, but now is not the time to make a sudden drastic move into it. Most middle class people cannot afford to have enough gold to support them for the rest of their life, though they may have enough for a rainy day or to act as a balancing component. So what I would do to cope with this is: be well diversified, be sufficiently conservatively positioned that I would sleep at night, and beyond that just ride it out and try not to worry too much.", "title": "" }, { "docid": "5d779cf9b522dace5934e0ee2a3dc591", "text": "\"These days almost all risky assets move together, so the most difficult criterion to match from your 4 will be \"\"not strongly correlated to the U.S. economy.\"\" However, depending on how you define \"\"strongly,\"\" you may want to consider the following: Be careful, you are sort of asking for the impossible here, so these will all be caveat emptor type assets. EDIT: A recent WSJ article talks about what some professional investors are doing to find uncorrelated bets. Alfredo Viegas, an emerging-markets strategist for boutique brokerage Knight Capital Group, is encouraging clients to bet against Israeli bonds. His theory: Investors are so focused on Europe that they are misjudging risks in the Middle East, such as a flare-up in relations between Israel and Iran, or greater conflict in Egypt and Syria. Once they wake up to those risks, Israeli bonds are likely to tumble, Mr. Viegas reasons. In the meantime, the investment isn't likely to be pushed one way or another by the European crisis, he says.\"", "title": "" }, { "docid": "c5e0d911af62091f18a6573283d3b230", "text": "would you say it's advisable to keep some of cash savings in a foreign currency? This is primarily opinion based. Given that we live in a world rife with geopolitical risks such as Brexit and potential EU breakup There is no way to predict what will happen in such large events. For example if one keeps funds outside on UK in say Germany in Euro's. The UK may bring in a regulation and clamp down all funds held outside of UK as belonging to Government or tax these at 90% or anything absurd that negates the purpose of keeping funds outside. There are example of developing / under developed economics putting absurd capital controls. Whether UK will do or not is a speculation. If you are going to spend your live in a country, it is best to invest in country. As normal diversification, you can look at keep a small amount invested outside of country.", "title": "" }, { "docid": "d51a448fad7717083cd1dff308d57a4c", "text": "\"I agree with Grade 'Eh' Bacon's answer, but there are a couple of ideas that are relevant to your particular situation: If I were you, I would invest at least half of the cash in growth ETFs because you're young enough that market variability doesn't affect you and long term growth is important. The rest should be invested in safer investments (value and dividend ETFs, bonds, cash) so that you have something to live off in the near term. You said you wanted to invest ethically. The keyword to search is \"\"socially responsible ETFs\"\". There are many, and if this is important to you, you'll have to read their prospectus to find one that matches your ethics. Since you're American, the way I understand it, you need to file taxes on income; selling stocks at a gain is income. You want to make sure that as your stocks appreciate, you sell some every year and immediately rebuy them so that you pay a small tax bill every year rather than one huge tax bill 20 years from now. Claiming about $20600 of capital gains every year would be tax free assuming you are not earning any other money. I would claim a bit more in years where you make a lot. You can mitigate your long term capital gains tax exposure by opening a Roth IRA and maxing that out. Capital gains in the Roth IRA are not taxable. Even if you don't have income from working, you can have some income if you invest in stocks that pay dividends, which would allow you to contribute to a Roth IRA. You should figure where you're going to be living because you will want to minimize the currency risk of having your money in USD while you're living abroad. If the exchange rate were to change by a lot, you might find yourself a lot poorer. There are various hedging strategies, but the easiest one is to invest some of your money in securities of the country you'll be living in. You should look into how you'll be converting money into the foreign currency. There are sometimes way of minimizing the spread when converting large amounts of money, e.g., Norbert's gambit. Shaving off 1.5% when exchanging $100k saves $1500.\"", "title": "" }, { "docid": "4f90586bfcfdc4185d30d01836631f40", "text": "The easiest route for you to go down will be to consult wikipedia, which will provide a comprehensive list of all US stock exchanges (there are plenty more than the ones you list!). Then visit the websites for those that are of interest to you, where you will find a list of holiday dates along with the trading schedule for specific products and the settlement dates where relevant. In answer to the other part of your question, yes, a stock can trade on multiple exchanges. Typically (unless you instruct otherwise), your broker will route your order to the exchange where it can be matched at the most favorable price to you at that time.", "title": "" } ]	fiqa
42b4a8c14b10e98bfadb701a71c80faa	How to invest in the Russian oil market?	[ { "docid": "ef645f42987334b9c26907ac1352dd25", "text": "The Russian ETFs may be broad, but a quick glance at ERUS and RBL's sector breakdown shows they're 45% and 47% energy sector, and their top holding is Gazprom comprising 9% and 14% of each ETF respectively, with plenty more oil and gas companies in their top 10 too. A harder question would be how to invest in Russia and avoid oil I think (and even then, the economy is thoroughly bound up in it). To rework a meme... In Soviet Russia, oil invest YOU!", "title": "" } ]	[ { "docid": "8cdf3cf83db6707a1df4e274dd39081f", "text": "What is the best way that I can invest money so that I can always get returns? If you want something that doesn't require any work on your end, consider having a fee-only financial planner make a plan so that your investments can be automated to generate a cash flow for you or get an annuity as the other classic choices here as most other choices will require some time commitment in one form or other. Note that for stock investments there could be rare instances like what happened for a week in September in 2001 where the markets were closed for 5 days straight that can be the hiccup in having stocks. Bonds can carry a risk of default where there have been municipalities that defaulted on debt as well as federal governments like Russia in the 1990s. Real estate may be subject to natural disasters or other market forces that may prevent there always being a monthly payment coming as if you own a rental property then what happens if there aren't tenants because there was an evacuation of the area? There may be some insurance products to cover some of these cases though what if there are exceptionally high claims all at once that may have an insurance company go under? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? What investment of your own time do you plan on making here? Both in terms of understanding what your long-term strategy is and then the maintenance of the plan. If you put the money in the bank, are you expecting that the interest rate will always be high enough to give you sufficient cash to live as well as having no financial crisis with the bank or currency you are using? Are there any better investments? You may want to reconsider what assumptions you want to make and what risks you want to accept as there isn't likely to be a single solution here that would be perfect.", "title": "" }, { "docid": "fed470fd16f9984959a9e9b43592c87d", "text": "\"If the OP is saving 33% if his/her current income, he/she doesn't want or need yet more income from investments right now. The advice on \"\"diversifying\"\" in the other answers is the standard \"\"investment advisor\"\" response to beginner's questions, and has two advantages for the advisor: (1) they won't get sued for giving bad advice and (2) they can make a nice fat commission selling you some very-average-performance products (and note they are selling you \"\"investment industry products,\"\" not necessarily \"\"good investment opportunities\"\" - advisors get paid commission and bonuses for selling more stuff, not for selling good stuff). My advice would be to drip-feed some of your excess income into the emerging market sector (maybe 1/3 or 1/4 of the excess), with the intention of leaving it there untouched for up to 20 or 30 years, if need be. At some unknown future time, it is almost certain there will be another EM \"\"boom,\"\" if only because people have short memories. When that happens, sell up, take your profits, and do something less risky with them. You might consider putting another slice of your excess income into the commodities sector. I don't know when the oil price will be back at $150 or $200 a barrel, but I would be happy to bet it will happen sometime in the OP's lifetime... Since you apparently have plenty of income and are relatively young, that is the ideal time to adopt a risky investment strategy. Even if you lose your entire investment over the next 5 years, you still have another 20 years to recover from that disaster. If you were starting to invest at age 56 rather than 26, the risk/reward situation would be very different, of course.\"", "title": "" }, { "docid": "ffc8f0633f8b405fbcf04b373537fdbc", "text": "Depending on your broker, you can buy these stocks directly at the most liquid local exchanges. For instance, if you are US resident and want to to buy German stocks (like RWE) you can trade these stocks over InteractiveBrokers (or other direct brokers in the US). They offer direct access to German Xetra and other local markets.", "title": "" }, { "docid": "317721c16afa000cc9c084a0484496f7", "text": "You can buy the exchange traded fund ETFS WTI Crude Oil (CRUD), amongst other ETFS products. http://funds.ft.com/uk/Tearsheet/Summary?s=CRUD:LSE:USD Note these funds do not 'jump' when the crude oil futures contracts are in contango (e.g. June contract is priced higher than May) and the futures roll-over, as they do monthly. When this happens the EFTS continues with no movement. Currently May is $52.85 and June is $54.15 (so in contango). LSE:CRUD is $13.40 and if the crude oil futures rolled-over it would carry straight on at that value. For this reason one should be cautious buying and holding LSE:CRUD longterm.", "title": "" }, { "docid": "9aacb0fcfba729270213c796ce604bd8", "text": "\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-06-19/oil-s-slide-stalls-as-investors-weigh-stockpiles-against-libya) reduced by 70%. (I'm a bot) *** > The amount of oil stored in tankers reached a 2017 high of 111.9 million barrels earlier this month, according to Paris-based tracking company Kpler SAS. Oil has slipped below $45 a barrel as supplies in the U.S. remain plentiful and drillers continue to add rigs, raising concerns output cuts by the Organization of Petroleum Exporting Countries and allies including Russia won&#039;t succeed in draining bloated stockpiles. > Crude stockpiles remain more than 100 million barrels above the five-year average, according to data from the EIA. American production has climbed to 9.33 million barrels a day through June 9, near the highest since August 2015. > Libya is pumping about 900,000 barrels a day, according to a person with direct knowledge of the matter, who asked not to be identified for lack of authority to speak to the media. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6ietvj/oil_prices_are_tumbling_more_than_2_toward_43/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~148648 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: barrel^#1 percent^#2 August^#3 U.S.^#4 Oil^#5\"", "title": "" }, { "docid": "27cc736ffe6c7cde05e5c1d051879a58", "text": "A friend from Shell (Indian by blood/South African by nationality) told me a couple of months ago that China, India, and Russia had a long term plan cooking to run crude through to China from Russia; thence to India via pipeline. This is a real showstopper deal. When I looked it up online, there is evidence it is coming. Who knew about the big gas deal with China? Who knew about this one with Iran? Carnegie.ru (Dmitri Simes) says this whole thing is about control of and regime change of Russia by the US through State Department policy. Notsomuch Ukraine as Russia! Given the US' record with regime changes, if Carnegie is right, this is a huge FAIL. DOOMED!!", "title": "" }, { "docid": "0e13766577494aa94187cd83b3db3068", "text": "EU and North America long term strategy is to tell Russia that it doesn't get to do whatever the hell it feels like (I.e. taking crimea). EU and North America long term strategy is to lower EU dependence on Russian gas, and possibly fond a way to increase imports of Canadian or US gas. Now, I'm not saying this whole thing isn't stupid. In many ways it is. Indeed Ukraine should have stuck with Russia (they are not in the position to join EU). However, due to circumstances it happened. I fully agree that it will hurt everyone, but it's going to (and has) hit Russia much harder than many Russians care to admit.", "title": "" }, { "docid": "b696977ed0be24dcb70a0a0d1312c22f", "text": "TOCOM Crude is a cash-settled blend of Oman and Dubai crude oil, both quoted in USD. The daily settlement price is mark to market, but the final settlement price is based on reported prices from Dubai and Oman (or calculated in some cases with a known procedure), averaged and then converted to Yen using monthly average exchange rates as published by a reference bank (see Detailed Rules) You're trying to go all the way back and unfuddle quotes into a blend of USD-quoted oils. The correct procedure here would be to go with the Oman and Dubai prices in the first place (unless you're trying to arbitrage the TOCOM market). As to why they do it this way? It's a service. TOCOM takes on all the challenges to provide customers with a steady and consistent way of trading cash-oil. For physical oil, all you'd have to do is buy the blend on Dubai's and Oman's spot market. You trust TOCOM's price finding process, i.e. there will be no discrepancies between your TOCOM cash-oil and the Middle East physical oil. Edit: As to why Japan isn't buying WTI directly: There's a considerable cost of carry. WTI delivery location is Cushing, OK; there are pipelines but it's still a logistics act to get the oil to a port on the West Coast and then have it shipped to Japan. Dubai's delivery is at Jebel Ali (Persian Gulf), Omani crude can be shipped straight from Mina Al Fahal. Not only is it a shorter trip but also there are more shipping companies specialised in oil deliveries to the Asian hotspots. Why they pay in USD? Persian oil is highly sought after in nearly all of Asia's economies but there's little other exported goods from there. So naturally the market for currency crosses (AEDJPY, OMRJPY, AEDINR, OMRINR, etc.) is not that liquid. At least not as liquid as to make buying Persian oil a smooth deal. Anyway, both Dubai and Oman chose to follow Western practice to quote their contracts in USD and (maybe because of liquidity concerns) also to accept USD for payment only.", "title": "" }, { "docid": "f96226fef1fc2c7e038db5af95bb68dc", "text": "\"This is the best tl;dr I could make, [original](https://www.dawn.com/news/1361897/saudi-arabia-to-buy-russian-s-400-defence-systems-other-arms) reduced by 86%. (I'm a bot) *** > Saudi Arabia signed on Thursday preliminary agreements to buy S-400 air defence systems and receive &quot;Cutting edge technologies&quot; from Russia during King Salman&#039;s landmark visit to Moscow, the Saudi military industries firm said. > Under the agreements, Saudi Arabia is set to buy S-400 air defence systems, Kornet anti-tank guided missile systems and multiple rocket launchers. > &#039;Positive cooperation&#039; Citing Russia&#039;s energy minister Alexander Novak, the Financial Times reported that Russia and Saudi Arabia were expected to sign deals worth over $3 billion, including a $1bn energy investment fund and a $1.1bn agreement for Russia&#039;s petrochemicals giant Sibur to build a plant in Saudi Arabia. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/74h8c5/saudi_arabia_to_buy_russian_s400_defence_systems/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~222658 tl;drs so far.\"\") \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: Saudi^#1 Russia^#2 agreement^#3 Salman^#4 Arabia^#5\"", "title": "" }, { "docid": "d513872a89d3375d7b33660846180649", "text": "Buffet is in a different league from other value investors. He looks for stable companies with no debt and good management. Then he looks to deeply understand the industries of candidate companies, and looks for companies that are not in commodity businesses or sell commodities that can be bought for 25% of the valuation that he believes reflects the true value of the company. Deeply understanding the market is really the key. Consider the Burlington Northern Santa Fe Railroad, which Buffet purchased last year. Railroads benefit from higher oil prices, as they can transport cargo much cheaper than trucks. They also tend to have natural monopolies in the regions they operate in. Buffet bought the railroad just as production of oil and natural gas in North Dakota started picking up. Since pipeline capacity between North Dakota and refineries in Texas/Oklahoma is very limited, the railroad is making alot of money transporting crude.", "title": "" }, { "docid": "9085115d4565e6e825472228dc3bf8c1", "text": "Canadian food exports to Russia last year, mostly pork, amounted to only $260 million. So I think Canadian farmers will be able to find alternate markets without too much difficulty.considering total pork exports last years were over $3.2 billion http://www.cbc.ca/news/world/russia-sanctions-show-putin-s-short-sighted-desperation-canada-says-1.2729821", "title": "" }, { "docid": "61ae5201d687b57dd6c41eb223c5a1d5", "text": "\"As others have alluded to but haven't said due to the lack of reputation points to spare, you can take advantage of oil prices by leveraging up and using as much credit and margin as the banks and brokerages (respectively) will lend you. People assume that the correct answer on this forum has to masquerade as conservative financial advice, and this is not advice nor conservative. Futures contracts are readily available, but they are expensive to obtain (like a minimum entry of $4,450). But if this expense is no such object to you then you can then obtain this contract which is actually worth 20x that and experience the price appreciation and depreciation of the whole contract. The concept is similar to a downpayment on a mortgage. You assume \"\"rock bottom\"\" oil prices, but fortunately for you, futures contracts will allow you to quickly change your bets from future price appreciation and allow you to speculate on future price depreciation. So although the union workers will be protesting full time after the drilling company lays them off, you will still be getting wealthier. Long Options. These are the best. The difference with options, amongst other speculation products, is that options require the least amount of capital risk for the greatest reward. With futures, or with trading shares of an ETF (especially on margin), you have to put up a lot of capital, and if the market does not go your desired direction, then will lose a lot. And on margin products you can lose more than you put in. Being long options does not come with these dilemmas. A long march 2015 call option on USO ETF can currently be bought for less than $200 of actual cash (ie. the trading quote will be less than $2.00, but this will cost you less than $200), and will be worth $1000 on a very modest rebound in prices. The most you can lose is the $200 for the contract. Compared to $4450 on the futures, or $100,000 (that you don't have) in the futures market if oil really moves against you, or compared to whatever large amount of cash needed to actually buy shares of an ETF needed to make any decent return. These are the most lucrative (and fun and exhilarating and ) ways to take advantage of rock bottom oil prices, as an individual.\"", "title": "" }, { "docid": "c05926a5cd70e78245f8f52bec13e4d2", "text": "\"As user quid states in his answer, all you need to do is open an account with a stock broker in order to gain access to the world's stock markets. If you are currently banking with one of the six big bank, then they will offer stockbroking services. You can shop around for the best commission rates. If you wish to manage your own investments, then you will open a \"\"self-directed\"\" account. You can shelter your investments from all taxation by opening a TFSA account with your stock broker. Currently, you can add $5,500 per year to your TFSA. Unused allowances from previous years can still be used. Thus, if you have not yet made any TFSA contributions, you can add upto $46,500 to your TFSA and enjoy the benefits of tax free investing. Investing in what you are calling \"\"unmanaged index funds\"\" means investing in ETFs (Exchange Traded Funds). Once you have opened your account you can invest in any ETFs traded on the stock markets accessible through your stock broker. Buying shares on foreign markets may carry higher commission rates, but for the US markets commissions are generally the same as they are for Canadian markets. However, in the case of buying foreign shares you will carry the extra cost and risk of selling Canadian dollars and buying foreign currency. There are also issues to do with foreign withholding taxes when you trade foreign shares directly. In the case of the US, you will also need to register with the US tax authorities. Foreign withholding taxes payable are generally treated as a tax credit with respect to Canadian taxation, so you will not be double taxed. In today's market, for most investors there is generally no need to invest directly in foreign market indices since you can do so indirectly on the Toronto stock market. The large Canadian ETF providers offer a wide range of US, European, Asian, and Global ETFs as well as Canadian ETFs. For example, you can track all of the major US indices by trading in Toronto in Canadian dollars. The S&P500, the Dow Jones, and the NASDAQ100 are offered in both \"\"currency hedged\"\" and \"\"unhedged\"\" forms. In addition, there are ETFs on the total US Market, US Small Caps, US sectors such as banks, and more exotic ETFs such as those offering \"\"covered call\"\" strategies and \"\"put write\"\" strategies. Here is a link to the BMO ETF website. Here is a link to the iShares (Canada) ETF website.\"", "title": "" }, { "docid": "b66b61ad11cadb30ca1d30f219290326", "text": "UNG United States Natural Gas Fund Natural Gas USO United States Oil Fund West Texas Intermediate Crude Oil UGA United States Gasoline Fund Gasoline DBO PowerShares DB Oil Fund West Texas Intermediate Crude Oil UHN United States Heating Oil Fund Heating Oil I believe these are as close as you'd get. I'd avoid the double return flavors as they do not track well at all. Update - I understand James' issue. An unmanaged single commodity ETF (for which it's impractical to take delivery and store) is always going to lag the spot price rise over time. And therefore, the claims of the ETF issuer aside, these products will almost certain fail over time. As shown above, When my underlying asset rises 50%, and I see 24% return, I'm not happy. Gold doesn't have this effect as the ETF GLD just buys gold, you can't really do that with oil.", "title": "" }, { "docid": "71cc81f950ab08f4457fb8f094df23fa", "text": "\"Donate buttons are meaningless with regards to taxes. This is payment for something you provided, and you cannot claim that you've received a gift. Any money you receive in this way is payment for your software. Remember, for gifts - no consideration should have been provided to the donor. Anything for which a consideration was provided - cannot be a gift. In your case the consideration is the software, and it's value is the amount you were paid. Since every person can decide how much to pay you on his own - any payment is for the software, not a gift. Any money you get is taxable to you, and you cannot claim it as \"\"gifts\"\" without exposing yourself to risks of making fraudulent claims. Consult a licensed tax adviser (EA/CPA licensed in your State) for a qualified tax advice.\"", "title": "" } ]	fiqa
91f2e0e9370a20ef90b9555d2123de51	Are you preparing for a possible dollar (USD) collapse? (How?)	[ { "docid": "de65cacded988a766e4187cca6904dd6", "text": "There are two basic ways you can separate your investments from the dollar (or any other currency).", "title": "" }, { "docid": "f49d5510429dbbfe5c6ef3a85a18ec30", "text": "I am not preparing for a sudden, major, catastrophic collapse in the US dollar. I am, however, preparing for a significant but gradual erosion of its value through inflation over the space of several years to a decade. To that end, I've invested most of my assets in the stock market (roughly 80%) through major world index funds, and limited my bond exposure (maintaining a small stake in commodity ETFs: gold, silver, platinum and palladium) due to both inflation risk and the inevitability of rising interest rates. I don't think most companies mind overmuch if the dollar falls gradually, as the bulk of their value is in their continuing income stream, not in a dollar-denominated bank account. I also try to keep what I can in tax-deferred accounts: If, after several years, your stocks were up 100% but inflation reduced the dollar's value by 50%, you're still stuck paying taxes on the entire gain, even though it was meaningless. I'm also anticipating tax hikes at some point (though not as a result of the dollar falling). It helps that I'm young and can stand a lot of investment risk.", "title": "" }, { "docid": "d4f9b66d1aa4508cfeffa190848a6514", "text": "Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US.", "title": "" }, { "docid": "61d4dc5d0d5d24072fd42eeb5e6639bc", "text": "I've thought of the following ways to hedge against a collapsing dollar:", "title": "" }, { "docid": "d075b1385612a26e2689c8319ed4177e", "text": "I recently finished reading a book that you may be interested in based on your question, The Ultimate Suburban Survivalist Guide. The author begins with a discussion of why he thinks the US economy and currency could collapse. It gets a little scary. Then he goes into great detail on commodities, specifically gold. The rest of the book is about what you can be doing to prepare yourself and your family to be more self sufficient. To answer your question, I do anticipate problems with US currency in the future and plan to put some money in gold if the price dips.", "title": "" }, { "docid": "a8f1abe5d6acad4a5681cbee71690432", "text": "\"Invest in other currencies and assets that have \"\"real\"\" value. And personally I don't count gold as something of real value. Of course its used in the industry but besides that its a pretty useless metal and only worth something because everybody else thinks that everybody thinks its worth something. So I would buy land, houses, stocks, ...\"", "title": "" }, { "docid": "070013f599d17cefeb53cdaa8e8ce532", "text": "I'd like to provide ideas other than gold, stocks, property, bonds on how to prepare for a severe crisis. My suggestions below may even make your life more happy now.", "title": "" }, { "docid": "b72db17639d8369ec3dcb5b7f060b69f", "text": "\"Buying gold, silver, palladium, copper and platinum. The first two I am thinking about new currencies. The last three for the perpetual need for the metals in industry. I also have invested in Numismatic coins. They are small portable and easy to hide around the house. I only collect silver coins, so even if the world really blows up and numismatics goes out the window, I can depend on them forming a barter system through the content value of the silver. The problem with collectable items is that they are easy to see. For example, a nice painting just shouts out \"\"steal me!\"\". I don't buy large gold coins. As long as the coin is below 1/4 Oz gold I collect it. If the dollar does finaly collapse, to be honest it will be so bad that I think weapons will be order of the day. Do I think it will collapse...nah never.\"", "title": "" }, { "docid": "30152e0feec6c0a9cef953d3c3199026", "text": "The collapse of the US economic system is one of the many things I am preparing for. To answer the how, me personally I am doing some investing in gold and silver. However I am investing more in the tools, goods and gear that will help me be independent of the system around me. In short nothing will change for me if the US dollar goes belly up. A book I recommend is Possum Living (http://www.possumliving.net/). Other than that I am investing in trade goods such as liquor, cigarettes, medical supplies.", "title": "" }, { "docid": "1e1a355598fe228c3a2011f9a52fdfd1", "text": "\"I think it's apt to remind that there's no shortcuts, if someone thinks about doing FX fx: - negative sum game (big spread or commissions) - chaos theory description is apt - hard to understand costs (options are insurance and for every trade there is equivalent option position - so unless you understand how those are priced, there's a good chance you're getting a \"\"sh1tty deal\"\" as that Goldman guy famously said) - averaging can help if timing is bad but you could be just getting deeper into the \"\"deal\"\" I just mentioned and giving a smarter counterparty your money could backfire as it's the \"\"ammo\"\" they can use to defend their position. This doesn't apply to your small hedge/trade? Well that's what I thought not long ago too! That's why I mentioned chaos theory. If you can find a party to hedge with that is not hedging with someone who eventually ends up hedging with JPM/Goldman/name any \"\"0 losing days a year\"\" \"\"bank\"\".. Then you may have a point. And contrary to what many may still think, all of the above applies to everything you can think of that has to do with money. All the billions with 0-losing days need to come from somewhere and it's definitely not coming just from couple FX punters.\"", "title": "" } ]	[ { "docid": "db7a27bf0afb30d12a004f760578f6a8", "text": "\"is there anything I can do now to protect this currency advantage from future volatility? Generally not much. There are Fx hedges available, however these are for specialist like FI's and Large Corporates, traders. I've considered simply moving my funds to an Australian bank to \"\"lock-in\"\" the current rate, but I worry that this will put me at risk of a substantial loss (due to exchange rates, transfer fees, etc) when I move my funds back into the US in 6 months. If you know for sure you are going to spend 6 months in Australia. It would be wise to money certain amount of money that you need. So this way, there is no need to move back funds from Australia to US. Again whether this will be beneficial or not is speculative and to an extent can't be predicted.\"", "title": "" }, { "docid": "0d97f0121812448b1da034da9f68ef43", "text": "While it's possible that the dollar could lose its grip as the global currency, it's unlikely that it will be quickly supplanted by another. The world might simply see a a paradigm shift towards the use of whatever currency suits whichever counterparty at any given moment.", "title": "" }, { "docid": "71f9d8edc596046cff8cea31387f42ab", "text": "Gold is money. If fiat money fails, only physical assets will count. Gold has been an historic store of wealth. Silver is also historically a good thing to possess when governmental systems fail. Don't buy paper gold, it is based on illusion. No one knows what will happen this time, but fiat money will likely fail again, as it has many times. Good luck to you for at least trying to prepare, you are an inspiriation.", "title": "" }, { "docid": "86516c0d3489f7e5c5913e2155b60eb1", "text": "But then why wouldn't that be their primary mode to control their currency now/are they starting/hinting at doing so to move away from US treasuries? There must be benefits to Treasury purchasing that seems better to them, maybe that QE can't do alone? And I have to imagine with the tenuous nature of their financial system, the shock alone from losing access to the Dollar (and before they could use QE to devalue the currency back down) would be a major issue.", "title": "" }, { "docid": "50b52264b9409f57b1b597876e96528a", "text": "Technically, you could improve your odds in this hypothetical pre-apocolyptic economy by diversifying your digital and tangible precious-metal-commodity portfolio by going in with gold, silver, platinum, palladium, and others. That being said I'm not sure if one can access tangible stores of all these metals...", "title": "" }, { "docid": "71973b471b6779c847e78549ccae7fb6", "text": "Rather than screwing around with foreign currencies, hop over to Germany and open an account at the first branch of Deutsche or Commerzbank you see. If the euro really does disintegrate, you want to have your money in the strongest country of the lot. Edit: and what I meant to say is that if the euro implodes, you'll end up with deutschmarks, which, unlike the new IEP, will not need to devalue. (And in the meantime, you've still got euros, so you have no FX risk.)", "title": "" }, { "docid": "2fc3014e53ce66c2041906e87955ae2e", "text": "The ruble was, is and will be very unstable because of unstable political situation in Russia and the economy strongly dependent of the export of raw resources. What you can do? I assume, you want to minimize risk. The best way to achieve that is to make your savings in some stable currency. Euro and Swiss Franc are currently very stable currencies, so storing your surpluses in them is a very good option if you want to keep your money safe. To prevent political risk, you should keep your money in countries with stable political regime, which are unlikely to 'nationalize' the savings of the citizens in predictable future. As for your existing savings in rubles, it's a hard deal. I assume, as the web developer, you have a plenty of money, which have lost a lot of value. If you convert them to euro or francs, you will preserver the current value (after the loss). You'll safe them agaist ruble falling down, but in case the ruble will return to previous value, you'll loose. Keeping savings in instable currencies is, however, speculation, like investing in gold etc. So if you can mentally accept the loss and want to sleep good, convert them. You have also option to invest in properties, for example buy an extra appartment. It's a good way to deal with financial surplus in Europe in US, however you should be aware, in Russland it's connected with the political risk. The real estates can be confiscated in any moment by the state and you can't run away with it (the savings can also be confiscated, but there's a fair chance you'll manage to rescue them if you act quickly).", "title": "" }, { "docid": "9f0df3b976c5c95311470cb1c41604f2", "text": "They wont let it collapse, they will devalue it over time to some effect via bailouts and borrowing. Invest in commodities so your cash retains its value, physical gold is always strong. Other currencies are an option but this is more of a gamble.", "title": "" }, { "docid": "0f7e3492cf4cc9b19031d374d516784f", "text": "You have currency risk either way. The only question is deal with it now or later. No one can tell you which action is better until we look at it in hindsight. You could hedge and move some now, some later. Invest your USD in US equities and move some to EUR and invest that in EUR companies. I'd suggest having your money in the same currency as where you are living, since for the most part, you'll be in the same boat as your peers and neighbors. If you have high inflation, so will your friends and neighbors and you won't feel so bad. And if your currency gets stronger, then so will the currency of the people you are hanging out with. It's similar to betting on Don't Pass in craps. If you bet against the rest of the table, you could win when they lose, but then all your friends will be sad and you'll be happy. And vice versa, when your friends are high-fiving, you'll be in the dumps. I'd say it's better to be in the same boat as your peers since that's usually how we judge our happiness when we compare our situation to others.", "title": "" }, { "docid": "57904482f79435e2e4f514c6c20f95a3", "text": "They're not going to do anything about it. Washington needs the debt wheel to keep spinning, or the Dollar will lose its position as the Reserve Currency. Then all hell would break loose. Powerful countries like Japan are going to have to take the initiative. And apparently they are starting to. It has to be countries like Japan because if a weak country tries this, they'll get invaded.", "title": "" }, { "docid": "3e62c2011d876ce75d484627e68e34ac", "text": "as long as US bonds will keep their status of a safe haven and the dollar will continue to be the world reserve currency the bond rates will stay low. hell, after S&P downgraded the US credit rating, the bond yields actually dropped, indicating an influx on money. the shock will come. sooner or more probably later.. it won't be the end of the world, just another nasty downturn.", "title": "" }, { "docid": "e120a8aa8686f6e32f4e42440d7ee222", "text": "I'm the equivalent of the FED at ROBLOX. I run a virtual economy there worth millions of dollars. Even though we are in the business of printing our own money, we've seen much more stability in our currency than in the USD. It actually appreciates over time. I don't think it would make a good investment though, nor would any of the online virtual currencies that I am aware of.", "title": "" }, { "docid": "cdb07168dd6bdbfa4ab1f3183deb7b9f", "text": "\"i hate to say it, and i will probably be downvoted to oblivion, but i don't think you can do anything. i'm not an expert, so i might be wrong, but if greece (or any euro country, for that matters) decides to exit the euro, the currency will be dead within the week. that, from what i've read in various newspapers, will be an incredibly bad news for the european economy. which will collapse in a very short period of time. then the collapse would propagate (more or less slowly, more or less significantly) to other economies, especially china and US, possibly middle east, too. at that point, you (well, we) have a major economic cataclysm. would it really matter if you had a tiny bit more money than your neighbour, if production stops, goods don't move that much anymore, and your country is generally in such a deep shit that the potato famine will look like a day in eurodisney? i agree with what other people are saying: they will not allow the euro to fall. \"\"they\"\" sounds like hidden conspiracies, but even if european leaders have taught us that we can expect the worse from them (2 world wars in the last centuries are just the quicker reminder of their stupidity), there's the americans, the chineses, and so on. i think the worst thing you, or anyone else in europe, can do is panicking and moving their money around. if the exchange rate with the euro is not fixed (and nothing is) you still have a chance to lose a significant amount of money in the short-medium run, in a worst case scenario. chill. relax. if you're really desperate and think that things will go bad, try turning a hobby into another job, especially if you can do it online and can bring you a steady income eventually. TL; DR: if the world economy collapse, you will still lose money. live happy. chill.\"", "title": "" }, { "docid": "ddfbde9085a0e2ad770f2767da803855", "text": "> At some point we are going to have abused our global reserve status to the point the world doesn't want to extend it to us anymore. This will happen as soon as there is someplace better to go. This, in turn, will require: * Someone running sound economics * Those sound economics not being dependant on US/dollar hegemony * The US not blowing them up These are not impossible criteria, and absolutely will eventually be met, but I don't think it's unreasonable to argue that that point is a long way away at this point. We have a lot of time, and much of it will be tumultuous & uncertain in many ways- but the dollar & US treasuries will still be the thinnest kid at fat camp until it ends.", "title": "" }, { "docid": "31389a73cfb89b48bea2c20e060166c5", "text": "Imagine how foolish the people that bought Apple at $100 must have felt. It was up tenfold for the $10 it traded at just years prior, how could it go any higher? Stocks have no memory. A stock's earnings may grow and justify the new higher price people are willing to pay. When FB came public, I remarked how I'd analyze the price and felt it was overvalued until its earnings came up. Just because it's gone down ever since, doesn't make it a buy, yet.", "title": "" } ]	fiqa
c76c1514260b83325d451b5a494295ed	What should a 21 year old do with £60,000 ($91,356 USD) inheritance?	[ { "docid": "30feb5a4ba881b67248e3400ceb0ad70", "text": "\"What a lovely position to find yourself in! There's a lot of doors open to you now that may not have opened naturally for another decade. If I were in your shoes (benefiting from the hindsight of being 35 now) at 21 I'd look to do the following two things before doing anything else: 1- Put 6 months worth of living expenses in to a savings account - a rainy day fund. 2- If you have a pension, I'd be contributing enough of my salary to get the company match. Then I'd top up that figure to 15% of gross salary into Stocks & Shares ISAs - with a view to them also being retirement funds. Now for what to do with the rest... Some thoughts first... House: - If you don't want to live in it just yet, I'd think twice about buying. You wouldn't want a house to limit your career mobility. Or prove to not fit your lifestyle within 2 years, costing you money to move on. Travel: - Spending it all on travel would be excessive. Impromptu travel tends to be more interesting on a lower budget. That is, meeting people backpacking and riding trains and buses. Putting a resonable amount in an account to act as a natural budget for this might be wise. Wealth Managers: \"\"approx. 12% gain over 6 years so far\"\" equates to about 1.9% annual return. Not even beat inflation over that period - so guessing they had it in ultra-safe \"\"cash\"\" (a guaranteed way to lose money over the long term). Give them the money to 'look after' again? I'd sooner do it myself with a selection of low-cost vehicles and equal or beat their return with far lower costs. DECISIONS: A) If you decided not to use the money for big purchases for at least 4-5 years, then you could look to invest it in equities. As you mentioned, a broad basket of high-yielding shares would allow you to get an income and give opportunity for capital growth. -- The yield income could be used for your travel costs. -- Over a few years, you could fill your ISA allowance and realise any capital gains to stay under the annual exemption. Over 4 years or so, it'd all be tax-free. B) If you do want to get a property sooner, then the best bet would to seek out the best interest rates. Current accounts, fixed rate accounts, etc are offering the best interest rates at the moment. Usual places like MoneySavingExpert and SavingsChampion would help you identify them. -- There's nothing wrong with sitting on this money for a couple of years whilst you fid your way with it. It mightn't earn much but you'd likely keep pace with inflation. And you definitely wouldn't lose it or risk it unnecessarily. C) If you wanted to diversify your investment, you could look to buy-to-let (as the other post suggested). This would require a 25% deposit and likely would cost 10% of rental income to have it managed for you. There's room for the property to rise in value and the rent should cover a mortgage. But it may come with the headache of poor tenants or periods of emptiness - so it's not the buy-and-forget that many people assume. With some effort though, it may provide the best route to making the most of the money. D) Some mixture of all of the above at different stages... Your money, your choices. And a valid choice would be to sit on the cash until you learn more about your options and feel the direction your heart is pointing you. Hope that helps. I'm happy to elaborate if you wish. Chris.\"", "title": "" }, { "docid": "3a46df1e59911cde4014915fbe13d480", "text": "Myself I am in a similar position. I've had a few good conversations about this with people in the financial services industry. It all depends how much time you want to spend on yielding your profits and how much risk you would like to take. High time and high risk obviously means higher expected gain, but also has a high chance of creating a loss. Option 1: You could buy a home now and take out a mortgage with a high down payment (thus lower interest rates) and rent it out. By the time you are ready to have your own house, you can decide to either take out a mortgage on your second house and make money off your first house, and keep renting it out. Or you could move in there yourself. If you use an asset-back mortgage (i'm not sure if that is the term, but a mortgage where in the worst case you give your home back to the bank), you generally carry least risk. If you keep doing this you can have 2 houses paid off if everything goes well. Option 2: You could also invest in stocks. This all depends on the risk you want to take and the time you want to put in it. Option 3: You could also put the money in a savings account. Some banks will give you better interest rates if you lock the money for a set amount of years. Option 4: You could buy a foreclosure and try to flip it, though this is very risky and requires a lot of time. Also, it is important to also have some sort of emergency fund, so whatever you do, don't spend all your money. Save some for a rainy day :-) Hope it helps..", "title": "" }, { "docid": "2a7709617ec944e39c48a0a1bdb20146", "text": "It's important to consider your Investor Profile when deciding the right kind of vehicle for your finances. You are a young guy, with a considerable earned income and no dependents (sorry, this was not clear from the question.) This means that you are able to take a lot of risks that people who also have a family to think about, might not. == high risk tolerance You should definitely not put your money in a Wealth Management fund or Mutual Fund or any other 'hands-off' vehicle. These typically have worse returns than the FTSE itself. Their popularity is due to an amazing marketing job and the fact that people in general want to believe there is an easy way to grow their money. Probably the best vehicle for your money is property, so the first thing you should do with the money is hire a competent accountant and solicitor.", "title": "" }, { "docid": "349a3561ddf1d2e33e7b2cc439bb17e1", "text": "\"Depending on where you live in the UK, buying a house sooner might be a better option. I would echo the advice about putting some money away into a \"\"rainy day\"\" fund etc. above but I know that in my area house prices are going up by around 7% per year. I bought a house two years ago and I'm paying 4% interest on my mortgage so I'm effectively making money by owning my house. Given that you want to buy a house soonish, if your money sits in an account somewhere making no interest, you're effectively losing 7% of your cash each year by not keeping up with house prices, meaning you'll be able to afford a smaller house with the same money. Do bear in mind though that buying a house costs around £4k in lawyers fees, surveys, mortgage setup fees etc. and selling a house can be more since estate agents will take a % of the sale cost. If you live somewhere where house prices are not increasing as quickly then this will not be as good an option than if you live in e.g. London where house prices are currently skyrocketing. If you don't want to live in the house, you may be able to do a buy-to-let as an investment. Generally the rent will cover the mortgage payments and probably a letting agent/property management company's fees, so while you won't see any actual net income, the people renting will be paying the mortgage off and you'll be building equity on the home. It's not entirely without risk though as tenants can trash homes etc.\"", "title": "" }, { "docid": "de1c3f369648d07b5b08720b0545286d", "text": "\"The above answers are great. I would only add to the \"\"rainy day\"\" part, that even though the cash provides a good cushion, \"\"a stormy day\"\" could mean even losing those emergency savings to the unignorable randomness that governs the world economy. Though unlikely, what happened to the russian ruble and the latest decision of the swiss cental bank are just two recent reminders that uncertainty must be treated as a constant. I would therefore advise you to invest some of the money in land capable of agriculture. How expensive is land over there in the UK?\"", "title": "" }, { "docid": "05a2138741e77745d300937c6e2e859a", "text": "\"I assume you've no debt - if you do then pay that off. I'd be tempted to put the money into property. If you look at property prices over the past 20 years or so, you can see returns can be very good. I bought a house in 1998 and sold it in 2003 for about 110% of the purchase price. Disclaimer, past performance is no guarantee of future returns! It's a fairly low risk option, property prices appear to be rising currently and it's always good to get your foot on the housing ladder as quickly as you can as prices can rise to the stage where even those earning quite a good salary cannot afford to buy. Of course you don't have to live in the house, a rental income can be very handy without tying you down too much. There are plenty of places in the UK where £60k will buy you a reasonable property with a rental income of £400-£500, it doens't have to be near where you live currently. Just to put a few more figures in - if you get a house for £50k and rent it for £400 a month (perfectly feasible where I live) then that's very close to a 10% return year on year. Plus any gains made by the price of the house. The main downside is you won't have easy access to the money and you will have to look after a tenant if you decide to rent it out. Also if you do buy a property make sure it is in a good state of repair, you don't want to have to pay for a new roof for example in a couple of years time. Ideally you would then sell the house around the time property prices peak and buy another when they bottom out again. Not easy to judge though! I'd review the Trust Fund against others if you decide to keep it there as 12% over 6 years isn't great, although the stock market has been depressed so it may compare favouribly. Keep some \"\"rainy day\"\" money spare if you can.\"", "title": "" } ]	[ { "docid": "2fdec604dd5e9480eddf84d91e08b92d", "text": "\"The pension is indeed the clear winner and you haven't missed anything. It's easiest to just compare everything in current numbers as you've done and ignore investment opportunities. Given you expect to pay off your student loan in full, you should consider the repayment as a benefit for you too, so the balance is between £580 after tax and £1138 in your pension. As you say under the current tax regime you'd probably end up with £968 in your pocket from the pension. Some harder to value considerations: You might consider there's political risk associated with the pension, as laws may change over the years - but the government has so far not shown any inclination to penalise people who have already saved under one set of assumptions, so hopefully it's reasonably safe (I'm certainly taking that view with my own money!) Paying more towards your student loan or your mortgage is equivalent to investing at that interest rate (guaranteed). If you do the typical thing of investing your pension in the stock market, the investment returns are likely higher but more risky. In today's interest rate environment, you'd struggle to get a \"\"safe\"\" return that's anywhere near the mortgage rate. So if you're very risk averse, that would tilt the balance against the pension, but I doubt it would be enough to change the decision. Your pension might eventually hit the lifetime allowance of £1mn, after contributions and investment growth. If that's a possibility, you should think carefully about the plan for your contributions. If you do go over, the penalties are calibrated to cancel out the difference between higher-rate and basic-rate tax - i.e. cancelling out the tax benefits you outlined, but not the national insurance benefits. But if you do go over, the amount of money you'd have mean that you might also find yourself paying higher-rate tax on some of your pension income, at which point you could lose out. The lifetime allowance is really complicated, there's a Q+A about it here if you want to understand more.\"", "title": "" }, { "docid": "90a3c2df6bd596f6abcd66c5ada17777", "text": "I'd put as much of it as possible into an ISA that pays a decent amount of interest so you get the benefit of the money accruing interest tax free. For the rest, I'd shop around for notice accounts, but would also keep an eye out for no-notice accounts. The latter might be beneficial if you expect interest rates to rise and are willing to shop around and move the money into accounts paying better interest every few months. Just make sure you're also factoring in the loss of interest when moving the money. You could look into fixed term savings bonds but I don't think they currently pay enough to make it worthwhile locking away your money.", "title": "" }, { "docid": "d0d0e81aa21e392f24788edd720dc46c", "text": "If you take out a personal loan, rather than a mortgage or car loan or hire-purchase agreement or other loan that's for making a specific purchase, then you can do whatever you want with the money. Send it abroad, burn it, spend it on expensive whisky -- it's up to you. The country you want to send the money to might have rules on transferring money into the country, but there will be no impediment at the UK end.", "title": "" }, { "docid": "605842993bf7c451b0f12c45806e8a78", "text": "First, I would point you to this question: Oversimplify it for me: the correct order of investing With the $50k that you have inherited, you have enough money to pay off all your debt ($40k), purchase a functional used car ($5k), and get a great start on an emergency fund with the rest. There are many who would tell you to wait as long as possible to pay off your student loans and invest the money instead. However, I would pay off the loans right away if I were you. Even if it is low interest right now, it is still a debt that needs to be paid back. Pay it off, and you won't have this debt hanging over your head anymore. Your grandmother has given you an incredible gift. This money can make you completely debt free and put you on a path for success. However, if you aren't careful, you could end up back in debt quickly. Learn how to make a budget, and commit to never spending money that you don't have again.", "title": "" }, { "docid": "bbe09b887ad9d055b33d437d3cc8b65f", "text": "At 22yo, unless you have a terminal illness, you have many years to earn and save a lot more that you will have in your 401k right now (unless you have already been extremely lucky in the market with your 401k investments). This means that even if you lost everything in your 401k right now, it probably wouldn't hurt you that much over the long term. The net present value of all your future savings should far exceed the net present value of your 401k, if you plan to earn and save responsibly. So take as much risk as you want with it right now. There is no real benefit to playing safe with investments at your age. If you were asking me how much risk should you be taking with a $10m inheritance and no income or much prospects of an income, then I'd be giving you a very different answer.", "title": "" }, { "docid": "0e509a6832eed10fe457a8ba15858363", "text": "Since the question asked for options, rather than advice, I’ll offer a few. And you can ignore the gratuitous advice that may sneak in. There are countries that will happily give you citizenship for a fee. And others where an investment of far less than your million will get you well on your way. Having citizenship and a passport from another country can be handy if your current one is or becomes unpopular or unstable. From data at numbeo.com, I estimate that my lifestyle would cost me $3300 (US) in Geneva, Switzerland, and that everywhere else on the planet would be less. I haven’t been to Geneva, but I have spent only $2500 (average) per month in eleven countries over three years, and could have been comfortable on far less. $2500/month will go through 1.2 million in only forty years, but if you use it to generate income, and are less wasteful than me, ... With the first few dollars you get, you might take steps to hedge the possibility of not actually getting it all. Appeals can take a long time, and if the defendant runs out of money or figures out how to hide, the size of the judgment is irrelevant. Believe strongly enough in something to donate money for/to it? I’ll leave the investment options to others.", "title": "" }, { "docid": "0389623253cb6f8a8a3159d1cc27d2ba", "text": "Consider consulting a fee-only Certified Financial Planner. It will be worth the money to have your game-plan looked at by somebody who is trained and experienced in such matters, helping you avoid big mistakes and making the right decision for your personal situation. It should cost only a relatively small percentage of the overall inheritance.", "title": "" }, { "docid": "010f909268669b49b39dba8403b72e70", "text": "Firstly, there is also a lifetime gift+estate tax allowance. If the father's estate, including other gifts given in his lifetime, is unlikely to exceed that allowance, it might be simplest simply to give the whole amount now and count it against the allowance. Right now the allowance is $5.34M, but that seems quite a big political football and it's the allowance when you die that matters. Looking back at past values for the allowance, $1M seems like a pretty safe amount to bet on. If you want to avoid/minimize the use of that allowance, I would make a loan structured as a mortgage that will have $14K payments each year (which can then be forgiven). The points in Rick Goldstein's answer about an appropriate rate, and being able to give more if more notional donors and recipients can be used, also apply. So for example in the first year hand over $200K at 3.5% and immediately forgive $14K. The next year, forgive the interest charge of $6.5K and capital of $7.5K. Given the age of the daughter, I guess the father might well die before its all paid off that way, leaving some residue to be forgiven by the estate (and thus potentially incurring estate taxes). There might also be state gift/estate taxes to consider. Edited to reflect 2014 gift and lifetime exclusion limits.", "title": "" }, { "docid": "ca428c4ae49ef766ae9176b7c2efa90a", "text": "I won't make any assumptions about the source of the money. Typically however, this can be an emotional time and the most important thing to do is not act rashly. If this is an amount of money you have never seen before, getting advice from a fee only financial adviser would be my second step. The first step is to breathe and promise yourself you will NOT make any decisions about this money in the short term. Better to have $100K in the bank earning nearly zero interest than to spend it in the wrong way. If you have to receive the money before you can meet with an adviser, then just open a new savings account at your bank (or credit union) and put the money in there. It will be safe and sound. Visit http://www.napfa.org/ and interview at least three advisers. With their guidance, think about what your goals are. Do you want to invest and grow the money? Pay off debt? Own a home or new large purchase? These are personal decisions, but the adviser might help you think of goals you didn't imagine Create a plan and execute it.", "title": "" }, { "docid": "0835861d6f6acedf689b48ce7c979ef1", "text": "\"Are there other options I haven't thought of? Mutual funds, stocks, bonds. To buy and sell these you don't need a lawyer, a real-estate broker and a banker. Much more flexible than owning real estate. Edit: Re Option 3: With no knowledge of investing the first thing you should do is read a few books. The second thing you should do is invest in mutual funds (and/or ETFs) that track an index, such as the FTSE graph that was posted. Index funds are the safest way to invest for those with no experience. With the substantial amount that you are considering investing it would also be wise to do it gradually. Look up \"\"dollar cost averaging.\"\"\"", "title": "" }, { "docid": "5315e3f67e1da9662c3d0fca2c638700", "text": "The UK doesn't tax gifts or wealth, so you don't have to pay any tax on your existing savings or the money your parents transfer you. If your parents lived in the UK then you might be potentially liable to inheritance tax on the money if they died less than seven years after giving it to you, but if they live in Japan this won't be relevant. In theory you might have to pay tax on any interest received in the bank account while you live in the UK. However this is likely to be very small, and if you don't have any other income then it's highly unlikely this would apply, as you can get up to £16,000 of interest without paying tax: https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-tax-you-pay", "title": "" }, { "docid": "6b95b3fce2acbc010beeff2f59722420", "text": "In addition to the other excellent answers here, check out Mr. Money Mustache's site, it's based in the US but the basics still hold here in the UK. Another great site is the Monevator which is UK based and gives some great information on passive investing. Well done on getting to this point at your age - you've got plenty of time for the miracle of compound interest to work for you. EDIT: Once you have any existing debts paid off, take a look at passive/index investing. This could be a good way to make your £150 work for you by capturing the gains of the stock market. Invest it long-term (buy and hold) to make the most of the compound interested effect and over time that money will become something substantial - especially if you can increase payments over time as your income increases. You could also look at reducing your outgoings as recommended on the Mustache site linked above so you can increase your monthly investment amount.", "title": "" }, { "docid": "c98a5c8300417523b204cbdc5c8d80be", "text": "As per JohnFx's comment above, consider whether it's worth more to you to just write this off. If not, if you feel that your son will be able to consider this without taking it personally, or you're willing to risk that relationship, then talk to him about it. Lay out the reasons why you need the money. If there are other children, it might be a simple matter of fairness to them. Based on your idea of deducting the money from his inheritance, I assume that the value you're docking from his inheritance will go somewhere else. Offer alternatives. You say that you can't take any money from him now, but letting him know that he can pay you in the future in lieu of loss of inheritance might be worthwhile. Be prepared with an idea of what to suggest if he says he can pay you some amount of money. Figure out what might be an acceptable payment plan and how to handle it if, at some point, he can't make payments for a time. This is a potentially ugly situation, and I can't guarantee that it will turn out better, but the more you prepare for the questions he's going to ask, the better off you're going to be.", "title": "" }, { "docid": "460ebdb56d37f72732e2748e258714c7", "text": "1) You parents will have to pay tax on the gain as it wasn't their primary home. You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply: As I look at it, it is your parents are the ones who own the property and they will have to pay on £60000. But as you say you pay part of the mortgage, I would go to a tax advisor/accountant to confirm if they will only pay on the £15000. I couldn't find any guidance on that matter on gov.uk 2) Inheritance tax will not be levied on it as it is below £325000, but tax will be levied on £325000, less £3000 annual gift allowance. Two articles for further information - GOV.UK's Tax when you sell your home Money.co.UK's Gifting money to your children: FAQs", "title": "" }, { "docid": "bcb9c673102c9c0c5a082e93216e0cb7", "text": "\"Of course CDs are worth it compared to the stock market. In fact, most institutional investors are envious of the CDs you have access to as an individual investor that are unavailable to them. You just need to be competent enough to shop around for the best rates and understand your time horizon. There are several concepts to understand here: Banks give out CDs with competitive rates projecting future interest rates. So while the Federal funds rate is currently extremely low, banks know that in order to get any takers on their CDs they have to factor in the public expectation that rates will rise, so if you lock in a longer term CD you get a competitive rate. Institutional investors do not have access to FDIC insured CDs and the closest analog they participate in are the auctions and secondary markets of US Treasuries. These two types of assets have equivalent default (non-)risk if held to maturity: backed by the full faith and credit of the U.S. Here are the current rates (as of question's date) taken from Vanguard that I can get on CDs versus Treasuries (as an individual investor). Notice that CDs outperform Treasuries across any maturity timescale! For fixed-income and bond allocations, institutional investors are lining up for buying treasuries. And yet here you are saying \"\"CDs are not worth it.\"\" Might want to rethink that. Now going into the stock market as an investor with expectations of those high returns you quote, means you're willing to stay there for the long-term (at least a decade) and stay the course during volatility to actually have any hope of coming up with the average rate of return. Even then, there's the potential downside of risk that you still lose principal after that duration. So given that assumption, it's only fair to compare against >= 10 year CDs which are currently rated at 2 percent APY. In addition, CDs can be laddered -- allowing you to lock-in newer (and potentially higher) rates as they become available. You essentially stagger your buyin into these investments, and either reinvest upon the stilted maturity dates or use as income. Also keep in mind that while personal emergencies requiring quick access to cash can happen at any time, the most common scenario is during the sudden change from a bull market into a recession -- the time when stocks plummet. If you need money right away, selling your stocks at these times would lock in severe losses, whereas with CDs you still won't lose principal with an early exit and the only penalty is usually a sacrifice of a few months of potential interest. It's easy to think of the high yields during a protracted bull market (such as now), but personal finance has a huge behavioral component to it that is largely ignored until it's too late. One risk that isn't taken care of by either CDs or Treasuries is inflation risk. All the rates here and in the original question are nominal rates, and the real return will depend on inflation (or deflation). There are other options here besides CDs, Treasuries, and the stock market to outpace inflation if you'd like to hedge that risk with inflation protection: Series I Savings Bonds and TIPS.\"", "title": "" } ]	fiqa
7ad934159fc648a13e32e2ef4c597cbb	Should I get a personal loan to pay on my mortgage to go “above water” to qualify for a refinance?	[ { "docid": "f7f844f13bbe8794629c48811ecb040c", "text": "It depends on how long it will take you to pay off the personal loan, the rate for the personal loan, the refi rate you think you can get, how much principal you will have to add to get the refi (may have gone up since then). Since you did not provide all the necessary details, the general answer is to sketch out your total payments (mortgage + personal loan) with and without the refi over the life of the mortgage and see if you end up with more money in your pocket with the refi. My overall impression based on the details you did provide is that you will probably find it worthwhile to do the refi.", "title": "" }, { "docid": "995ef1b1bf6ddd14a9d3fe8709374f0b", "text": "Let's say you owe $200K (since you didn't mention balance. If you do, I'd edit my response), and can get 4.5%. You'd save 1.5% or about $3K/yr the first few years. If a $12K paydown is all that's between you and and refi I'd figure out a way. There are banks that are offering refi's under the HARP program if your current mortgage is owned by FNMA or FMAC which permit even if under water. So, the first step is research to see if you can refi exactly what's owed, failing that, shop around. A 401(k) loan will not appear as a loan on your credit report, that may be one way to raise the $12K. The best thing you can do is put all the savings into the 401(k) to really get it going.", "title": "" }, { "docid": "e6542d8053a93d899954a12fd42ec1e2", "text": "If you have a mortgage backed by FHA, Fannie, or Freddie I would hold off. There is talk of a new plan that would allow refi's on mortages that were underwater. I would expect rates to stay about the same for the forseeable future. Take that money you would spend each month on the personal loan and stick it into your mortgage payment to bring down your debt on it. Your home may be underwater on paper but once the economy comes back, or hyperinflation sets in (one of the 2 will happen) you will have equity in your home again soon after.", "title": "" }, { "docid": "2d0225acd76cf1bdfbb716b6bf62df7e", "text": "Does it cost money to refi? I know there are quite a few deals out there, I refi'd in June for $500, not bad. But sometimes can cost couple grand. If so, you have up front costs, plus the cost of the personal loan, that probably would break even at some point after your refi, but at what point? Will you sell before then, or even think about it? Or would you break even next year, then its a no brainer. As mentioned by others, do the numbers.", "title": "" } ]	[ { "docid": "89f1ade5a5d1facb184bb496ca30acfd", "text": "I would not take this personal loan. Let's look closer at your options. Currently, you are paying $1100 a month in rent, and you have all the money saved up that you need to be able to pay cash for school. That's a good position to be in. You are proposing to take out a loan and buy an apartment. Between your new mortgage and your new personal loan payment, you'll be paying $1500 a month, and that is before you pay for the extra expenses involved in owning, such as property taxes, insurance, etc. Yes, you'll be gaining some equity in an apartment, but in the short term over the next two years, you'll be spending more money, and in the first two years of a 30 year mortgage, almost all of your payment is interest anyway. In two years from now, you'll have a master's degree and hopefully be able to make more income. Will you want to get a new job? Will you be moving to a new city? Maybe, maybe not. By refraining from purchasing the apartment now, you are able to save up more cash over the next two years and you won't have an apartment tying you down. With the money you save by not taking the personal loan, you'll have enough cash for a down payment for an apartment wherever your new master's degree takes you.", "title": "" }, { "docid": "58d0d217c99d6926134267f306746b27", "text": "Check your mortgage paper work. Most mortgages have clauses requiring you to maintain the property, keep it in good repair, and to prevent spoilage. The property is the mortgagee's security for the loan, so it's reasonable that they have a voice in keeping the property in good shape. You can tell them to pound sand, and then they can call the loan due in full.", "title": "" }, { "docid": "8f92ce53db50ec532e8395af9da6f0bb", "text": "I think you are running into multiple problems here: All these together look like a high risk to a bank, especially right now with companies being reluctant to hire full-time employees. Looking at it from their perspective, the last thing they need right now is another potential foreclosure on their books. BTW, if it is a consolation, I had to prove 2 years of continuous employment (used to be a freelancer) before the local credit union would consider giving me a mortgage. We missed out on a couple of good deals because of that, too.", "title": "" }, { "docid": "828d65f2a6078dcbc1e404f18aebdec2", "text": "It may be possible to get more cash than you currently have. For example, If you have $200,000, you could buy a distressed property for $150,000, spend $50,000 on renovations, get it appraised for $300,000 and then cash out refi $240,000 (keeping 20% equity to avoid MIPs) to invest. This would be analogous to flipping a house for yourself. Normally flippers buy a house for cheap, then sell it to someone else for way more than their total outlay in purchase + improvements. The only difference here is there's no 3rd party - you stay in the house and essentially buy it from yourself with the mortgage.", "title": "" }, { "docid": "6455bd38ac1aa5b7697a271199af76a3", "text": "Questions regarding loans, refinancing, mortgages, credit cards, investing and anything else that may be related to personal finance should be directed towards the subreddit r/personalfinance. We have provided the link to that subreddit below. [----> Over there on the sidebar.](http://www.reddit.com/r/personalfinance/) Jus' say'in.", "title": "" }, { "docid": "359f122d6d4d0d34ad6b2e80ef5a9e87", "text": "First, check with your lender to see if the terms of the loan allow early payoff. If you are able to payoff early without penalty, with the numbers you are posting, I would hesitate to refinance. This is simply because if you actually do pay 5k/month on this loan you will have it paid off so quickly that refinancing will probably not save you much money. Back-of-the-napkin math at 5k/month has you paying 60k pounds a year, which will payoff in about 5 years. Even if you can afford 5k/month, I would recommend not paying extra on this debt ahead of other high-interest debt or saving in a tax-advantaged retirement account. If these other things are being taken care of, and you have liquid assets (cash) for emergencies, I would recommend paying off the mortgage without refinancing.", "title": "" }, { "docid": "feb21810230b9f43fca6b46a596cab28", "text": "\"I am lucky enough to have chosen a flexible mortgage that allows me to change payment amounts at certain, very lenient intervals (to a minimum amount). So when I was laid off, the first thing I did was call my bank to lower my payments to a level that allowed me some breathing room, at my new, lower income. If and when my family's income increases, I'll re-adjust my payments to a higher amount. But if you're concerned about the \"\"what if\"\"s in this economy, I'd definitely choose a mortgage that allows for flexibility so that you don't lose your house if you don't have to, particularly if your situation is temporary.\"", "title": "" }, { "docid": "b22c2489d586e3c1cfc01bb3f21219c3", "text": "If you intend to flip this property, you might consider either a construction loan or private money. A construction loan allows you to borrow from a bank against the value of the finished house a little at a time. As each stage of the construction/repairs are completed, the bank releases more funds to you. Interest accrues during the construction, but no payments need to be made until the construction/repairs are complete. Private money works in a similar manner, but the full amount can be released to you at once so you can get the repairs done more quickly. The interest rate will be higher. If you are flipping, then this higher interest rate is simply a cost of doing business. Since it's a private loan, you ca structure the deal any way you want. Perhaps accruing interest until the property is sold and then paying it back as a single balloon payment on sale of the property. To find private money, contact a mortgage broker and tell them what you have in mind. If you're intending to keep the property for yourself, private money is still an option. Once the repairs are complete, have the bank reassess the property value and refinance based on the new amount. Pay back the private loan with equity pulled from the house and all the shiny new repairs.", "title": "" }, { "docid": "13fa1c989dd678763aa97e221da8e5f0", "text": "The PMI rate is calculated at the time your mortgage is underwritten to be terminated at the point where you have 20% equity in your home. It is calculated based off of default risks based on your current equity value at the time of the loan. So if you got your mortgage before the banking crisis those risk charts have changed dramatically and not in your favor. So lets say you have a 100k home which you put 10k down so you have a mortgage of 90k. Since you have accumulated an additional 5k equity so payoff value is now 85k. If you refinance your mortgage and the home values in your area have dropped 15% you now are borrowing 100% of the value of your home. So you have higher risk from being at 100% as opposed to 90%. And the PMI is for the 20% of equity you do not have that the bank can not expect to recover. So when you originally bought the house your PMI pay out was 10k. At 85K value and 100% borrowed the PMI payout will be closer to 18k. While you may still be able to sell your home for the original value when they do the refinance calculations they use what your area has trended. If that is the case you maybe be able get an actual appraisal to use but that will come out of your pocket. Disclaimer: These are simplifications of how the whole complex process works if you call the banker they can explain exactly why, show you the numbers, and help you understand your specific circumstances. ", "title": "" }, { "docid": "94a328fb4d66e6c70eb432f767427d76", "text": "First step, pull a copy of your credit report, and score. You should monitor that score and do what you can to bring it up. Your chances are far better if (a) you first save a sizable downpayment, and (b) go with a local bank that doesn't just write the mortgage and sell it. Better still, go to that local bank and inquire about REO (real estate owned by the bank) property. These are properties they foreclosed on and depending how they are carrying them, you might find decent opportunities. As a matter of logic, a local bank that owns these specific properties (as compared to debt pools where big banks have piles of paper owned fractionally) are more willing to get a new owner in and paying a new loan. Congrats on the new, higher, income. I'd suggest you first build the emergency fund before the downpayment fund. Let us know how it goes.", "title": "" }, { "docid": "b11a00537c257f650ed6a54ae8d0c128", "text": "I'm not sure about your first two options. But given your situation, a variant of option three seems possible. That way you don't have to throw away your appraisal, although it's possible that you'll need to get some kind of addendum related to the repairs. You also don't have your liquid money tied up long term. You just need to float it for a month or two while the repairs are being done. The bank should be able to preapprove you for the loan. Note that you might be better off without the loan. You'll have to pay interest on the loan and there's extra red tape. I'd just prefer not to tie up so much money in this property. I don't understand this. With a loan, you are even more tied up. Anything you do, you have to work with the bank. Sure, you have $80k more cash available with the loan, but it doesn't sound like you need it. With the loan, the bank makes the profit. If you buy in cash, you lose your interest from the cash, but you save paying the interest on the loan. In general, the interest rate on the loan will be higher than the return on the cash equivalent. A fourth option would be to pay the $15k up front as earnest money. The seller does the repairs through your chosen contractor. You pay the remaining $12.5k for the downpayment and buy the house with the loan. This is a more complicated purchase contract though, so cash might be a better option. You can easily evaluate the difficulty of the second option. Call a different bank and ask. If you explain the situation, they'll let you know if they can use the existing appraisal or not. Also consider asking the appraiser if there are specific banks that will accept the appraisal. That might be quicker than randomly choosing banks. It may be that your current bank just isn't used to investment properties. Requiring the previous owner to do repairs prior to sale is very common in residential properties. It sounds like the loan officer is trying to use the rules for residential for your investment purchase. A different bank may be more inclined to work with you for your actual purchase.", "title": "" }, { "docid": "9bd6bda9140bf2f5ef97c1cf52d2369f", "text": "Keep in mind that if you choose a loan for the boat, you may be required by the lender to maintain a minimum coverage of insurance during the term of the loan. Further, some states require you to carry some level of liability insurance on your boat, and some entities require liability insurance when using certain bodies of water within their jurisdiction. If neither apply to you, and if you could suffer the loss of the boat itself, could you similarly suffer the damages caused by your boat if you lose control? Let's say you hit a much larger, more expensive boat, or your boat breaks free from it's dock and damages the dock well beyond the cost of your boat. Are you also able to withstand these costs? If not, you may want to invest in minimum liability insurance. If, at this point, you are still convinced that you are not at financial risk due to the boat, I'd strongly suggest a plan of self insurance. Take the money you would normally spend on insurance, and invest it in low risk investments that can be liquidated in a matter of months. If you do have a problem with the boat, your risk is mitigated by the self-insurance. If you don't, then you have not only saved that money, but increased its value.", "title": "" }, { "docid": "f4337f65c2c443100a3f1bce1ce7805c", "text": "Your wealth will go up if your effective rate after taxes is less than the inflation rate. That is, if your interest rate is R and marginal tax rate is T, then you need R*(1-T) to be less than inflation to make a loan worth it. Lately inflation has been bouncing around between 1% and 1.8%. Let's assume a 25% tax rate. Is your interest rate lower than between 1.3% and 2.4%? If not, don't take out a loan. Another thing to consider: when you take out a loan you have to do a ton of extra stuff to make the lender happy (inspections, appraisals, origination charges, etc.). These really add up and are part of the closing costs as well as the time/trouble of buying a house. I recently bought my house using 100% cash. It was 2 weeks between when I agreed to a price to when the deal was sealed and my realtor said I probably saved about $10,000 in closing costs. I think she was exaggerating, but it was a lot of time and money I saved. My final closing costs were only a few hundred, not thousands, of dollars. TL;DR: Loans are for suckers. Avoid if possible.", "title": "" }, { "docid": "4d9a2bfbfea31ab21add6a7ef8ff322d", "text": "Yes. You can request for additional loan and it would be given as cash. You are free to do whatever you like with it. This does not mean Bank will automatically grant you loan. They would ask you purpose, check your ability to make additional repayments, verify if the property has actually appreciated before deciding. Note this is not savings. This makes sense only if you can generate returns greater than the cost of loan.", "title": "" }, { "docid": "6a29624539cee4872470d0de9f470bde", "text": "what are my options for raising the funds? Assuming you have decent credit, you can either mortgage your home or apply for a land loan in order to purchase the land. Since both your home and the land have value, either one can act as collateral in case you default on your loan. Land loans tend to have a higher interest rate and down payment, however. This is because banks see land loans as a riskier investment since it's easier for you to walk away from an empty plot of land than your own home.", "title": "" } ]	fiqa
7a5acc9bce4481841585da0c24b62656	How to invest in a currency increasing in value relative to another?	[ { "docid": "ed60840adabb35f50fbe3ecac6904235", "text": "\"What you're looking for are either FX Forwards or FX Futures. These products are traded differently but they are basically the same thing -- agreements to deliver currency at a defined exchange rate at a future time. Almost every large venue or bank will transact forwards, when the counterparty (you or your broker) has sufficient trust and credit for the settlement risk, but the typical duration is less than a year though some will do a single-digit multi-year forward on a custom basis. Then again, all forwards are considered custom contracts. You'll also need to know that forwards are done on currency pairs, so you'll need to pick the currency to pair your NOK against. Most likely you'll want EUR/NOK simply for the larger liquidity of that pair over other possible pairs. A quote on a forward will usually just be known by the standard currency pair ticker with a settlement date different from spot. E.g. \"\"EUR/NOK 12M\"\" for the 12 month settlement. Futures, on the other hand, are exchange traded and more standardized. The vast majority through the CME (Chicago Mercantile Exchange). Your broker will need access to one of these exchanges and you simply need to \"\"qualify\"\" for futures trading (process depends on your broker). Futures generally have highest liquidity for the next \"\"IMM\"\" expiration (quarterly expiration on well known standard dates), but I believe they're defined for more years out than forwards. At one FX desk I've knowledge of, they had 6 years worth of quarterly expirations in their system at any one time. Futures are generally known by a ticker composed of a \"\"globex\"\" or \"\"cme\"\" code for the currency concatenated with another code representing the expiration. For example, \"\"NOKH6\"\" is 'NOK' for Norwegian Krone, 'H' for March, and '6' for the nearest future date's year that ends in '6' (i.e. 2016). Note that you'll be legally liable to deliver the contracted size of Krone if you hold through expiration! So the common trade is to hold the future, and net out just before expiration when the price more accurately reflects the current spot market.\"", "title": "" }, { "docid": "1036b5a2d57545cec61d53dda57b458c", "text": "On international stock exchanges, they trade Puts and Calls, typically also for currencies. If for example 1 NOK is worth 1 $ now, and you buy Calls for 10000 NOK at 1.05 $ each, and in a year the NOK is worth 1.20 $ (which is what you predict), you can execute the Call, meaning 'buying' the 10000 NOK for the contracted 1.05 $ and selling them for the market price of 1.20 $, netting you 12000 - 10500 = 1500 $. Converting those back to NOK would give you 1250 NOK. Considering that those Calls might cost you maybe 300 NOK, you made 950 NOK. Note that if your prediction is common knowledge, Calls will be appropriately priced (=expensive), and there is little to make on them. And note also that if you were wrong, your Calls are worth less than toilet paper, so you lost the complete 300 NOK you paid for them. [all numbers are completely made up, for illustration purposes] You can make the whole thing easier if you define the raise of the NOK against a specific currency, for example $ or EUR. If you can, you can instead buy Puts for that currency, and you save yourself converting the money twice.", "title": "" }, { "docid": "8e5cfe6aa28b8ba5a6e5a16b739cd3c3", "text": "Forex trading contracts are generally fairly short dated as you mention. Months to weeks. Professional forex traders often extend the length of their bet by rolling monthly or quarterly contracts. Closing a contract out a few days before it would expire and reopening a new contract for the next quarter/month. This process can be rather expensive and time consuming for a retail investor however. A more practical (but also not great) method would be to look into currency ETFs. The ETFs generally do the above process for you and are significantly more convenient. However, depending on the broker these may not be available and when available can be illiquid and/or expensive even in major currency pairs. It's worth a bunch of research before you buy. Note, in both cases you are in a practical sense doubling your NOK exposure as your home currency is NOK as well. This may be riskier than many people would care to be with their retirement money. An adverse move would, at the same time you would lose money, make it much to buy foreign goods, which frankly is most goods in a small open country like Norway. The most simple solution would be to overweight local NOK stocks or if you believe stocks are overvalued as you mention NOK denominated bonds. With this you keep your NOK exposure (a currency you believe will appreciate) without doubling it as well as add expected returns above inflation from the stock growth/dividends or bond real interest rates.", "title": "" }, { "docid": "6229feba27ae1feef6060f1841996634", "text": "The increase of currency value in relation to another is a critical determinant of the economic health. It plays an important part in the level of trade and affects the world’s free market economy. But, they also effect on smaller scale as they create an impact on the portfolio of investors. So, it is suggested that the investors should make their trades wisely keeping in mind the value of other currencies that might your trade. Also, you should check the news daily to get regular updates and be well-informed of any changes happening in the market", "title": "" } ]	[ { "docid": "19e63ae5bc64b1b6708549f389a6c615", "text": "International exchange rates are arbitraged. If I exchange A for B for C and then back to A again, I'll end up with the same amount ex trade fees. Assume this isn't the case. Clearly if I'd gain, someone else loses and I'd make millions by rapidly exchanging. Now assume that I'd lose money on that route. That must be because the reverse route, A->C->B->A gains money. (Again, assuming no fees) So in this case you'd just look at fees. (And as Ganesh points out, that may include future fees)", "title": "" }, { "docid": "1a5261fd35e60a67b52827496240db6b", "text": "\"Like Jeremy T said above, silver is a value store and is to be used as a hedge against sovereign currency revaluations. Since every single currency in the world right now is a free-floating fiat currency, you need silver (or some other firm, easily store-able, protect-able, transportable asset class; e.g. gold, platinum, ... whatever...) in order to protect yourself against government currency devaluations, since the metal will hold its value regardless of the valuation of the currency which you are denominating it in (Euro, in your case). Since the ECB has been hesitant to \"\"print\"\" large amounts of currency (which causes other problems unrelated to precious metals), the necessity of hedging against a plummeting currency exchange rate is less important and should accordingly take a lower percentage in your diversification strategy. However, if you were in.. say... Argentina, for example, you would want to have a much larger percentage of your assets in precious metals. The EU has a lot of issues, and depreciation of hard assets courtesy of a lack of fluid currency/capital (and overspending on a lot of EU governments' parts in the past), in my opinion, lessens the preservative value of holding precious metals. You want to diversify more heavily into precious metals just prior to government sovereign currency devaluations, whether by \"\"printing\"\" (by the ECB in your case) or by hot capital flows into/out of your country. Since Eurozone is not an emerging market, and the current trend seems to be capital flowing back into the developed economies, I think that diversifying away from silver (at least in overall % of your portfolio) is the order of the day. That said, do I have silver/gold in my retirement portfolio? Absolutely. Is it a huge percentage of my portfolio? Not right now. However, if the U.S. government fails to resolve the next budget crisis and forces the Federal Reserve to \"\"print\"\" money to creatively fund their expenses, then I will be trading out of soft assets classes and into precious metals in order to preserve the \"\"real value\"\" of my portfolio in the face of a depreciating USD. As for what to diversify into? Like the folks above say: ETFs(NOT precious metal ETFs and read all of the fine print, since a number of ETFs cheat), Indexes, Dividend-paying stocks (a favorite of mine, assuming they maintain the dividend), or bonds (after they raise the interest rates). Once you have your diversification percentages decided, then you just adjust that based on macro-economic trends, in order to avoid pitfalls. If you want to know more, look through: http://www.mauldineconomics.com/ < Austrian-type economist/investor http://pragcap.com/ < Neo-Keynsian economist/investor with huge focus on fiat currency effects\"", "title": "" }, { "docid": "07e19c760a476464c617d8cdf8002f85", "text": "At the time of writing, the Canadian dollar is worth roughly $0.75 U.S. Now, it's not possible for you to accurately predict what it'll be worth in, say, ten years. Maybe it'll be worth $0.50 U.S. Maybe $0.67. Maybe $1.00. Additionally, you can't know in advance if the Canadian economy will grow faster than the U.S., or slower, or by how much. Let's say you don't want to make a prediction. You just want to invest 50% of your money in Canadian stocks, 50% in U.S. Great. Do that, and don't worry about the current interest rates. Let's say that you do want to make a prediction. You are firmly of the belief that the Canadian dollar will be worth $1.00 U.S. dollar in approximately ten years. And furthermore, the Canadian economy and the U.S. economy will grow at roughly equal rates, in their local currencies. Great. You should put more of your money in Canadian stocks. Let's say that you want to make a prediction. The Canadian economy is tanking. It's going to be worth $0.67 or less in ten years. And on top of that, the U.S. economy is primed for growth. It's going to grow far faster than the Canadian economy. In that case, you want to invest mostly in U.S. stocks. Let's get more complicated. You think the Canadian dollar is going to recover, but boy, maple syrup futures are in trouble. The next decade is all about Micky Mouse. Now what should you do? Well, it depends on how fast the U.S. economy expands, compared to the currency difference. What should you do? I can't tell you that because I can't predict the future. What did I do? I bought 25% Canadian stocks, 25% U.S. stocks, 25% world stocks, and 25% Canadian bonds (roughly), back when the Canadian dollar was stronger. What am I doing now? Same thing. I don't know enough about the respective economies to judge. If I had a firm opinion, though, I'd certainly be happy to change my percentages a little. Not a lot, but a little.", "title": "" }, { "docid": "3df65e68c8633ccfc01a4496253623f3", "text": "How can I calculate my currency risk exposure? You own securities that are priced in dollars, so your currency risk is the amount (all else being equal) that your portfolio drops if the dollar depreciates relative to the Euro between now and the time that you plan to cash out your investments. Not all stocks, though, have a high correlation relative to the dollar. Many US companies (e.g. Apple) do a lot of business in foreign countries and do not necessarily move in line with the Dollar. Calculate the correlation (using Excel or other statistical programs) between the returns of your portfolio and the change in FX rate between the Dollar and Euro to see how well your portfolio correlated with that FX rate. That would tell you how much risk you need to mitigate. how can I hedge against it? There are various Currency ETFs that will track the USD/EUR exchange rate, so one option could be to buy some of those to offset your currency risk calculated above. Note that ETFs do have fees associated with them, although they should be fairly small (one I looked at had a 0.4% fee, which isn't terrible but isn't nothing). Also note that there are ETFs that employ currency risk mitigation internally - including one on the Nasdaq 100 . Note that this is NOT a recommendation for this ETF - just letting you know about alternative products that MIGHT meet your needs.", "title": "" }, { "docid": "e8fb271efafbf0a477901f22bb9c94d3", "text": "\"The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are \"\"weak\"\" and some \"\"strong\"\". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona.\"", "title": "" }, { "docid": "ffed5c7119959ba1d41c3d6541485cca", "text": "You could buy some call options on the USD/INR. That way if the dollar goes up, you'll make the difference, and if the dollar goes down, then you'll lose the premium you paid. I found some details on USD/INR options here Looks like the furthest out you can go is 3 months. Note they're european style options, so they can only be exercised on the expiration date (as opposed to american style, which can be exercised at any time up to the expiration date). Alternatively, you could buy into some futures contracts for the USD/INR. Those go out to 12 months. With futures if the dollar goes up, you get the difference, if the dollar goes down, you pay the difference. I'd say if you were going to do something like this, stick with the options, since the most you could lose there is the premium you put up for the option contracts. With futures, if it suddenly moved against you you could find yourself with huge losses. Note that playing in the futures and options markets are an easy way to get burned -- it's not for the faint of heart.", "title": "" }, { "docid": "1045b2db53cd0bc42ef37ebd4f8aad91", "text": "About the inflation or low interest rates in both the countries is out of the equation especially since rupee is always a low currency compared to Euro. You cannot make profit in Euros using rupee or vice-versa. It all depends on where you want to use the money, in India or Europe? If you want use the money from fixed deposit in Europe, then buy fixed deposit in euros from Europe. If you want to use the money in India, then convert the euros and buy FD in India.", "title": "" }, { "docid": "28e02a87e6118dfc2685339589467995", "text": "The best way to do this would be to exchange the funds into USD and wire the funds to your bank account in the US. It is up to you whether you want to hold USD or Euros. Depends if you plan to invest money in the US.", "title": "" }, { "docid": "615d936fbe8731c2a40bba364141b151", "text": "A currency that is strong right now is one that is expensive for you to buy. The perfect one would be a currency that is weak now but will get stronger; the worst currency is one that is strong today and gets weak. If a currency stays unchanged it doesn't matter whether it is weak or strong today as long as it doesn't get weaker / stronger. (While this advice is correct, it is useless for investing since you don't know which currencies will get weaker / stronger in the future). Investing in your own currency means less risk. Your local prices are usually not affected by currency change. If you safe for retirement and want to retire in a foreign country, you might consider in that country's currency.", "title": "" }, { "docid": "71973b471b6779c847e78549ccae7fb6", "text": "Rather than screwing around with foreign currencies, hop over to Germany and open an account at the first branch of Deutsche or Commerzbank you see. If the euro really does disintegrate, you want to have your money in the strongest country of the lot. Edit: and what I meant to say is that if the euro implodes, you'll end up with deutschmarks, which, unlike the new IEP, will not need to devalue. (And in the meantime, you've still got euros, so you have no FX risk.)", "title": "" }, { "docid": "662b45191a81ec12d18ed274f126065a", "text": "If you are confident that the US Dollar will recover compared to the Australian Dollar then you could use your Australian dollars (assuming you have some) to buy an ETF that tracks the value of the USD. Then after the USD makes its run (or after the Australian dollar falls) you can cash out and claim victory. If that's not quite your situation, or if you want to learn more Investopedia has a great article that talks more about investing in currency ETFs and mentions a couple other options out there.", "title": "" }, { "docid": "40f4b295402b38de190ba9198138eea9", "text": "\"Currency, like gold and other commodities, isn't really much of an investment at all. It doesn't actually generate any return. Its value might fluctuate at a different rate than that of the US dollar or Euro, but that's about it. It might have a place as a very small slice of a basket of global currencies, but most US / European households don't actually need that sort of basket; it's really more of a risk-management strategy than an investment strategy and it doesn't really reflect the risks faced by an ordinary family in the US (or Europe or similar). Investments shouldn't generally be particularly \"\"exciting\"\". Generally, \"\"exciting\"\" opportunities mean that you're speculating on the market, not really investing in it. If you have a few thousand dollars you don't need and don't mind losing, you can make some good money speculating some of the time, but you can also just lose it all too. (Maybe there's a little room for excitement if you find amazing deals on ordinary investments at the very bottom of a stock market crash when decent, solid companies are on sale much cheaper than they ordinarily are.)\"", "title": "" }, { "docid": "cdacd159176e301372a26a6f8d7cb14d", "text": "\"No, this is not solid advice. It's a prediction with very little factual basis, since US interest rates are kept just as low and debt levels are just as high as in the Eurozone. The USD may rise or fall against the EUR, stay the same or move back and forth. Nobody can say with any certainty. However, it is not nearly as risky as \"\"normal forex speculation\"\", since that is usually very short term and highly leveraged. You're unlikely to lose more than 20-30% of your capital by just buying and holding USD. Of course, the potential gains are also limited.\"", "title": "" }, { "docid": "b6f1845980e14e2a771a1640c2189af8", "text": "\"A general principle in finance is that you shouldn't stick with an investment or situation just because it's how you're currently invested. You can ask yourself the following question to help you think it through: If, instead, I had enough GBP to buy 20000 CHF, would I think it was a good idea to do so? (I'm guessing the answer is probably \"\"no.\"\") This way of thinking assumes you can actually make the exchange without giving someone too big of a cut. With that much money on the line, be sure to shop around for a good exchange rate.\"", "title": "" }, { "docid": "f438b208b5a03c5a2b060e3b1ec50e4c", "text": "If the intention is after maturing to convert back the Rupees into Euro, its not a good idea. Generally the interest rate in Euro and the interest rate in Rupee are offset by the predicted exchange rate. i.e. the Rupee will fall compared to Euro by similar rate. The point at Step 5 is generally what is expected to happen. At times this can be less or more depending on the local / global factors. So on average you will not make money, some times you will loose and sometimes you will gain. Plus I have shown flat conversion rates, typically there is a Buy Rate and a Sell Rate for a pair of currencies. There is a difference / spread that is the margins of Bank. Typically in the range of 2 to 4% depending on the currency pairs.", "title": "" } ]	fiqa
d7acd37f6579017f1b6c8020ae916007	Why does a stock's price fluctuate so often, even when fresh news isn't available?	[ { "docid": "afc87e138f5ad7836364c72b04e864f2", "text": "News about a company is not the only thing that affects its stock's price. There is also supply and demand. That, of course, is influenced by news, but it is not the only actor. An insider, with a large position in their company's stock, may want to diversify his overall portfolio and thus need to sell a large amount of stock. That may be significant enough to increase supply and likely reduce the stock's price somewhat. That brings me to another influence on stock price: perception. Executives, and other insiders with large positions in their company's stock, have to be careful about how and when they sell some of that stock as to not worry the markets. Many investors watch insider selling to gauge the health of the company. Which brings me to another important point. There are many things that may be considered news which is material to a certain company and its stock. It is not just quarterly filings, earnings reports and such. There is also news related to competitors, news about the economy or a certain sector, news about some weather event that affects a major supplier, news about a major earthquake that will impact the economy of a nation which can then have knock-on effects to other economies, etc... There are also a lot of investors with varying needs which will influence supply and demand. An institutional investor, needing to diversify, may reduce their position in a stock and thus increase supply enough that it impacts the stock's price. Meanwhile, individual investors will make their transactions at varying times during the day. In the aggregate, that may have significant impacts on supply and demand. The overall point being that there are a lot of inputs and a lot of actors in a complicated system. Even if you focus just on news, there are many things that fall into that category. News does not come out at regular intervals and it does not necessarily spread evenly. That alone could make for a highly variable environment.", "title": "" }, { "docid": "092b192a49e4d84bb612fc2f63c5ff2f", "text": "\"In addition to what @George Marian said, a very large portion of trades are from computer programs trained to make trades when certain apparent patterns are observed. Since these programs are not all designed in the same way, much of the supply and demand is a result of different algorithms with different \"\"opinions\"\" on what the stock is doing.\"", "title": "" }, { "docid": "8d7340d23e5f571dc750165921c2e144", "text": "It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons. They may have to send a child to college, or fix a roof, etc. Or they may be technical traders looking for signals. All kinds of reasons.", "title": "" }, { "docid": "8cb8c260e0aa71f1a449689c970c47d6", "text": "\"Investors are \"\"forever\"\" comparing the prices of stocks to other stocks. As others have pointed out, this is done faster and more frequently nowadays with high-speed computer programs. There may be no \"\"fresh\"\" news on stock A, but if there is fresh news on stock B (as there usually is), the news on B affects the COMPARISON with stock A. That could be what causes trading in stock A that has \"\"no news.\"\"\"", "title": "" }, { "docid": "fc1bf4de61c4935ba16ddaa14ac96f2f", "text": "according to me it's the news about a particular stock which makes people to buy or sell it mostly thus creates a fluctuation in price . It also dependents on the major stock holder.", "title": "" } ]	[ { "docid": "64b54d4e4ecc2bbf9acb2240ed62c300", "text": "Large volume just means a lot of market participants believe they know where the stock price will be (after some amount of time). The fact that the price is not moving just means that about 50% of those really confident traders think the stock will be moving up, and about 50% of those really confident traders think the stock will be moving down.", "title": "" }, { "docid": "7b42364f8eb819cf045e88bb58afbaca", "text": "Besides overnight news events and auction mechanisms there is a more fundamental reason the price of a stock is always moving. Theoretically the stock price will move slightly even in the unlikely scenario that absolutely nothing of interest happens during the entire night. Let me go into that in some more detail: Stock valuation using Discounted Cash FLow One of the fundamental reasons that stock value is constantly changing is because underneath every stock there is a company that expects to make some kind of profit or loss in the future. We have to go into the fundamentals of stock value to understand why this is important: One popular way to determine the value of a stock is by looking into the future and summing up all the earnings (or cashflows) it has yet to produce. You have to reduce each amount by a certain factor that gets larger for payments that are farther into the future. Think of it this way: a dollar in hand now is better than a dollar that you get tomorrow. This method of valuation is called Discounted Cash Flow (abbr. DCF; see the wikipedia article on DCF) Time's effect on stock value Now take the Close price C, and the open price O. Let's assume that since there has been no news, the expectations for future earnings are the same for C and O. Remember that the discounting factor for these earnings is dependent on the time until the cashflow occurs? For O, this time is slightly shorter than for C, and therefore the value will be slightly higher (or lower, when the company is expected to incur losses). So now you can see that even without all the external forces that continuously push and pull on the stock price, a stock still changes in value over time. Hope this helps.", "title": "" }, { "docid": "879c0735767dce73815b86de9e6871b6", "text": "\"This is a classic correlation does not imply causation situation. There are (at least) three issues at play in this question: If you are swing- or day-trading then the first and second issues can definitely affect your trading. A higher-price, higher-volume stock will have smaller (percentage) volatility fluctuations within a very small period of time. However, in general, and especially when holding any position for any period of time during which unknowns can become known (such as Netflix's customer-loss announcement) it is a mistake to feel \"\"safe\"\" based on price alone. When considering longer-term investments (even weeks or months), and if you were to compare penny stocks with blue chip stocks, you still might find more \"\"stability\"\" in the higher value stocks. This is a correlation alone — in other words, a stable, reliable stock probably has a (relatively) high price but a high price does not mean it's reliable. As Joe said, the stock of any company that is exposed to significant risks can drop (or rise) by large amounts suddenly, and it is common for blue-chip stocks to move significantly in a period of months as changes in the market or the company itself manifest themselves. The last thing to remember when you are looking at raw dollar amounts is to remember to look at shares outstanding. Netflix has a price of $79 to Ford's $12; yet Ford has a larger market cap because there are nearly 4 billion shares compared to Netflix's 52m.\"", "title": "" }, { "docid": "01dc0a97e9737837fc1a151aacdca3fe", "text": "If the period is consistent for company X, but occurs in a different month as Company Y, it might be linked to the release of their annual report, or the payment of their annual dividend. Companies don't have to end their fiscal year near the end of the Calendar year, therefore these end of year events could occur in any month. The annual report could cause investors to react to the hard numbers of the report compared to what wall street experts have been predicting. The payment of an annual dividend will also cause a direct drop in the price of the stock when the payment is made. There will also be some movement in prices as the payment date approaches.", "title": "" }, { "docid": "61dda950b48e704bbd339e847c67df77", "text": "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.", "title": "" }, { "docid": "0c8ebeab922a88a6568179e1480ad73d", "text": "\"Prices reflect all available information. (Efficient markets hypothesis) A lot can happen between the time a stock closes on one day and opens on another. Particularly in a heavily traded stock such as IBM. Basically, you have a different \"\"information set\"\" the following day, which implies a different price. The instances where you are most likely to have a stock where the price opens at the same price is at the previous close is a thinly traded stock on which you have little information, meaning that the \"\"information set\"\" changes less from day to day.\"", "title": "" }, { "docid": "5c58577f473a1dd7cc724c15df133583", "text": "Yes, but only in a relatively short term. False news or speculations can definitely change the stock price, sometimes even significantly. However, the stock price will eventually (in the long-term) correct itself and head to the right direction.", "title": "" }, { "docid": "7432ecb42e62b915bdadef23c4d37402", "text": "I think it's because there are a lot of retail investors in this stock. They are the ones that tend to overreact on news cycles, so creating bad press or over-hyping bad press really makes the stock price swing.", "title": "" }, { "docid": "79761ea709f02e044c94985e3211cab4", "text": "\"The fallacy in your question is in this statement: \"\"The formulas must exist, because prices can be followed real time.\"\" What you see are snapshots of the current status of the stock, what was the last price a stock was traded at, what is the volume, is the price going up or down. People who buy and hold their stock look at the status every few days or even every few months. Day traders look at the status every second of the trading day. The math/formula comes in when people try to predict where the stock is going based on the squiggles in the line. These squiggles move based on how other people react to the squiggles. The big movements occur when big pieces of news make large movements in the price. Company X announces the release of the key product will be delayed by a year; the founder is stepping down; the government just doubled the order for a new weapon system; the insiders are selling all the shares they can. There are no formulas to determine the correct price, only formulas that try to predict where the price may go.\"", "title": "" }, { "docid": "d21510e020a4614e78e632825b4328fa", "text": "It does sometimes open one day the same as it closed the previous day. Take a look at ESCA, it closed October 29th at 4.50, at opened November 1st at 4.50. It's more likely to change prices overnight than it is between two successive ticks during the day, because a lot more time passes, in which news can come out, and in which people can reevaluate the stock.", "title": "" }, { "docid": "018634fe9681150c8817969ad44b3afd", "text": "During the 12 plus hours the market was closed news can change investors opinion of the stock. When the market reopens that first trade could be much different than the last trade the day before.", "title": "" }, { "docid": "555be60b1c7c421fc2d3104626e6fa19", "text": "\"Most likely because they don't know what they're talking about. They all have a belief without evidence that information set X is internalised into the price but information set Y is not. If there is some stock characteristic, call it y, that belongs to set Y, then that moves the gauge towards a \"\"buy\"\" recommendation. However, the issue is that no evidence has been used to determine the constituents of X and Y, or even whether Y exists in any non-trivial sense.\"", "title": "" }, { "docid": "4c0181979f92ee71a72352910947e00d", "text": "\"The \"\"random walk\"\" that you describe reflects the nature of the information flow about the value of a stock. If the flow is just little bits of relatively unimportant information (including information about the broader market and the investor pool), you will get small and seemingly random moves, which may look like a meander. If an important bit of information comes out, like a merger, you will see a large and immediate move, which may not look as random. However, the idea that small moves are a meander of search and discovery and large moves are immediate agreements is incorrect. Both small moves and large moves are instantaneous agreements about the value of a stock in the form of a demand/supply equilibrium. As a rule, neither is predictable from the point of view of a single investor, but they are not actually random. They look different from each other only because of the size of the movement, not because of an underlying difference in how the consensus price is reached.\"", "title": "" }, { "docid": "e0390cad631ad3320497385f845dbf1c", "text": "\"At any moment, the price is where the supply (seller) and demand (buyer) intersect. This occurs fast enough you don't see it as anything other than bid/ask. What moves it? News of a new drug, device, sandwich, etc. Earning release, whether above or below expectations, or even dead-on, will often impact the price. Every night, the talking heads try to explain the day's price moves. When they can't, they often report \"\"profit taking\"\" for a market drop, or other similar nonsense. Some moves are simple random change.\"", "title": "" }, { "docid": "8338b9c259879c606314f208ab3d4d19", "text": "\"Firstly, if a stock costs $50 this second, the bid/ask would have to be 49/50. If the bid/ask were 49/51, the stock would cost $51 this second. What you're likely referring to is the last trade, not the cost. The last trading price is history and doesn't apply to future transactions. To make it simple, let's define a simple order book. Say there is a bid to buy 100 at $49, 200 at $48, 500 at $47. If you place a market order to sell 100 shares, it should all get filled at $49. If you had placed a market order to sell 200 shares instead, half should get filled at $49 and half at $48. This is, of course, assuming no one else places an order before you get yours submitted. If someone beats you to the 100 share lot, then your order could get filled at lower than what you thought you'd get. If your internet connection is slow or there is a lot of latency in the data from the exchange, then things like this could happen. Also, there are many ECNs in addition to the exchanges which may have different order books. There are also trades which, for some reason, get delayed and show up later in the \"\"time and sales\"\" window. But to answer the question of why someone would want to sell low... the only reason I could think is they desire to drive the price down.\"", "title": "" } ]	fiqa
2985b76ea8ca1ad63c67a83bc74a3b85	If USA defaults on its debt, will the T bond holder get back his money	[ { "docid": "d23059a1030f57f11c292f802661466c", "text": "\"The only party that can pay back a government bond is the government that issued it itself. In the case of Argentina, US vulture funds have won cases against it, but it has yet to pay. The best one can do to collect is to sue in a jurisdiction that permits and hope to seize the defaulted government's assets held in such jurisdiction. One could encourage another state to go to war to collect, but this is highly unlikely since a state that doesn't repay is probably a poor state with nothing much to loot; besides, most modern governments do not loot the conquered anymore. Such a specific eventuality hasn't happened in at least a lifetime, anyways. It is highly unlikely that any nation would be foolish enough to challenge the United States considering its present military dominance. It is rare for nations with medium to large economies to spurn their government obligations for long with Argentina as the notable exception. Even Russia became current when they spontaneously disavowed their government debt during the oil collapse of 1998. Countries with very small economies such as Zimbabwe are the only remaining nations that try to use their central banks to fund debt repayments if they even repay at all, but they quickly see that the destruction caused by hyperinflation neither helps with government debt nor excessive government expenditure. Nevertheless, it could be dangerous to assume that no nation would default on its debt for any period of time, and the effects upon countries with defaulted government debt show that it has far reaching negative consequences. If the US were to use its central bank to repay its government obligations, the law governing the Federal Reserve would have to be changed since it is currently mandated to \"\"maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.\"\" The United States Treasury has no power over the Federal Reserve thus cannot force the Federal Reserve to betray its mandate by purchasing government debt. It should be noted that while Japan has a government debt twice its GDP, it also has a persistent slight deflation which has produced incredibly low interest rates, allowing it to finance government debt more easily, a situation the US does not enjoy. For now, the United States seems to be able to pay expenditures and finance at low interest rates. At what ratio of government debt to GDP that would cause interest rates to climb thus put pressure on the US's ability to repay does not seem to be well known.\"", "title": "" }, { "docid": "ecbce6fb051a2cb6791038ba17979cbf", "text": "There is no situation one can imagine in which the US defaults (beyond a day or three) on its obligations. The treasury can print money, and while it would be disastrous, 'monetizing' the debt would simply eliminate all outstanding debt at the risk of devaluing the dollar to hyperinflation levels.", "title": "" } ]	[ { "docid": "0d7882c298cb26a09da949ad3a233ca7", "text": "\"Its definitely not a stupid question. The average American has absolutely no idea how this process works. I know this might be annoying, but I'm answering without 100% certainty. The Fed would increase the money supply by buying back government bonds. This increased demand for bonds would raise their price and therefore lower the interest return that they deliver. Since U.S. treasury bonds are considered to be the very safest possible investment, their rate is the \"\"risk free\"\" rate upon which all other rates are based. So if the government buys billions of these bonds, that much money ends up in the hands of whoever sold them. These sellers are the large financial organizations that hold all of our money (banks and large investment vehicles). Now, since bond rates are lower, they have an incentive to put that money somewhere else. It goes into stocks and investment in business ventures. I'm less certain about how this turns into inflation that consumers will recognize. The short answer is that there is only a finite number of goods and services for us to buy. If the amount of money increases and there are still the same number of goods and services, the prices will increase slightly. Your question about printing money to pay off debts is too complex for me to answer. I know that the inflation dynamic does play a role. It makes debts easier to pay off in the future than they seem right now. However, causing massive inflation to pay off debts brings a lot of other problems.\"", "title": "" }, { "docid": "b6b44c3e9f0f7b02c284a23f945e7de1", "text": "This is a extremely complicated subject, but I assume you want a very simple answer (otherwise I'm not qualified to answer). The value of most currencies is closely tied to the economy of the county, so if China were to print a huge amount of yuan, then since the value of their economy has not really changed, the international currency markets would devalue the yuan to compensate. (This is rather like, if have shares in, say Apple, and they were to issue an extra billion shares, then the value of your shares would fall (by half), rather than for Apple to be suddenly be worth twice as much) Print too many notes and your currency basically becomes almost worthless, which is what happened to the Zimbabwean dollar. I like the idea of China skipping crate loads of actual yuan or dollars notes to America, but in practice, the borrowing is just a paper exercise, rather like an IOU. As to whether America owes Yuan or dollars, the answer is whatever has been agreed. Assuming the currencies are fairly stable, then since each country has more control over their own currency, it is natural for them to prefer their own currency. However, if America believes the value of the dollar will increase, they may prefer to pay back in Yuan (costing them less dollars), and if China believes the value of the dollar will decrease they may agree to that.", "title": "" }, { "docid": "8dd0398ca01677625934f73a4fcc29ac", "text": "\"> So you are saying down the road the FED might cancel out the amount of T-Bills and MBS they hold with the Treasury? I'm saying they don't have to, for the US government will never have difficulty servicing its entirely USD-denominated debt. So if you think doing so would confuse/anger foreign nations, fine, don't do it. I would however advise that the government stops issuing 10yr bonds in favour of funding itself off no more than say 28 day T-Bills. The reason being is that the latter's basically just creating a whole unneeded industry of speculators providing an entirely unneeded service of \"\"locking in\"\" interest rates for the government 10yrs at a time. Waste of time, waste of resources. The goverment shouldn't be subsidising that kind of activity.\"", "title": "" }, { "docid": "5916d0641665dba5b9bd44c1ea6d82c8", "text": "It's all about risk. In 1990, expressing the idea of the US defaulting on debt payments would result in you being labelled as a crank. Yet in 2011, the President and Speaker of the House played chicken with the credit of the United States, and have a date to do it again in December 2011.", "title": "" }, { "docid": "0f3cc07afc72563ecf7740e84bc54c8f", "text": "Well, if someone who owes me money defaults, I lose the money he promised to pay me. To me that would be a huge moral obstacle for declaring myself bankrupt. I was raised in believing that you keep your promises.", "title": "" }, { "docid": "f6a9e39151c6a3052c0bdb72b2424316", "text": "\"In 2001, Argentina defaulted on it's debt, and started negotiating a \"\"haircut\"\" with it's debtors. As a result, a lot of the debtors sold the bonds they had a fire-sale prices, thinking better get some back than nothing. One of the guys that bought those cheap bonds was Paul Singer AKA \"\"Mr. Vulture Hedge-fund\"\". I'll speculate here saying that Mr. Singer saw that the bond conditions gave him a way to force Argentina to pay the full value of the bonds notwithstanding it's default or negotiated haircut. Argentina did negotiate a haircut with about 97% of it's bond-holders. This meant that although they would lose out on some of the money, they would still get some back, and Argentina could work its way back to its feet eventually. Mr. Singer and friends were the 3% that did not accept the haircut, and took the country to court to get 100% of the bond value back. Now, the plot thickens. I don't understand if Mr. Singer knew this or not, but the bonds also had a post-2001 condition that said that no bond-holder would be worst-off than the highest bond deal Argentina offered anyone. Which basically means, if they pay Mr. Singer 100%, they have to pay everybody else 100%. Now, it was well established that Argentina could not pay 100%, and is not able to pay 100% of the debt, hence the 2001 default. Meanwhile, Argentina was paying out the hair-cut bonds, but holding out on Mr. Singer and friends as they still didn't agree to pay 100%. The courts ruled that they could not do this, and had to pay everybody. Since Argentina cannot pay everybody 100%, it is defaulting on the debt.\"", "title": "" }, { "docid": "3183eaf434c9e5a766a8bacab88329e0", "text": "In principle, a default will have no effect on your bank account. But if the US's credit rating is downgraded, the knock-on effects might cause some more bank failures, and if the debt ceiling is still in place then the FDIC insurance might not be able to pay out immediately.", "title": "" }, { "docid": "660685a194380c93505c1f1b31e091ec", "text": "> Your preferred answer: It's not debt, it's magic. It never has to be paid back. It's certainly not magic, but it is both a debt and an asset. It adds a net amount of 0 to the balance sheet, while providing a little under 100 billion dollars of income to the US Treasury. You don't seem to know what QE is.", "title": "" }, { "docid": "d48578895b425cd15eff32ed8cc1d594", "text": "\"This is a hard question to answer. Government debt and mortgages are loosely related. Banks typically use yields on government bonds to determine mortgage interest rates. The banks must be able to get higher rates from the mortgage otherwise they would buy government bonds. Your question mentions default so I'm assuming a country has reneged on its promise to pay either the principal or interest on government bonds. The main thing to consider is \"\"Who does not get their money?\"\". In other words, who does the government decide not to pay. This is the important part. The government will have some money so they could pay some bond holders. They must decide who to shaft. For example, let's look at who holds Greek government debt. Around 70% of Greek government debt is held outside Greece. See table below. The Greek government could decide to default only on the debt to foreign holders. In that case the banks in France and Switzerland would take the loss on their bonds. This could cause severe problems in France and Switzerland depending on the percentage of Greek bonds that make up the banks' assets. Greek banks would still face losses, however, since the price of their Greek bond holdings would drop sharply when the government defaults. Interestingly, the losses for the Greek banks may be smaller than the losses faced by the French and Swiss banks. This is usually the favored option chosen by government since the French and Swiss don't vote in Greece. Yields on Greek government bonds would rise dramatically. If your Greek mortgage is an adjustable rate mortgage then you could see some big adjustments upward. If you live in France or Switzerland then the bank that owns your mortgage may go under if Greece defaults. During liquidation the bank will sell their assets which includes mortgages and you will probably not notice any difference in your mortgage. As I stated earlier: this is a hard question to answer since the two financial instruments involved (bonds and mortgages) are similar but may or may not be related.\"", "title": "" }, { "docid": "e7ef5250d5231352ccfe61ce9ffb9660", "text": "\"Sovereigns cannot go bankrupt. Basically, when a sovereign government (this includes nations and US States, probably political subdivisions in other countries as well) becomes insolvent, they default. Sovereigns with the ability to issue new currency have the option to do so because it is politically expedient. Sovereigns in default will negotiate with creditor committees to reduce payments. Creditors with debt backed by the \"\"full faith and credit\"\" of the sovereign are generally first in line. Creditors with debt secured by revenue may be entitled to the underlying assets that provide the revenue. The value of your money in the bank in a deposit account may be at risk due to currency devaluation or bank failure. A default by a major country would likely lock up the credit markets, and you may see yourself in a situation where money market accounts actually fall in value.\"", "title": "" }, { "docid": "b8f6e63d5633a6b93d55ac418d50aa71", "text": "Typically the debt is held by individuals, corporations and investment funds, not by other countries. In cases where substantial amounts are held by other countries, those countries are typically not in debt themselves (e.g. China has huge holdings of US Treasuries). If the debts were all cancelled, then the holders of the debt (as listed above) would lose out badly and the knock-on effects on the economy would be substantial. Also, governments that default tend to find it harder to borrow money again in the future.", "title": "" }, { "docid": "2928f152a15e3605c3079368d91b69d3", "text": "The issuer pays (negative money in this case) to the holder. The person you sold your borrowed bond to gets this (negative) amount. The person who you lent you the bond is eligible for that (negative) payment, they were the original holder of the bond. When you return the bond you thus have to compensate the original holder. Now turn around the cash flows and you're there. The new holder pays the issuer, the original holder pays you.", "title": "" }, { "docid": "3bfca67c5764c321162f28e2f725a737", "text": "The picture talks is about assets on the Fed's balance sheet, which is very different than US government debt. Nor is there anything in the picture about corporate bottom lines, just US equities. The implication of the picture is that the Fed's QE program is propping up US equity prices, and it is not a comment on the US debt or corporate earnings. You're reading things that simply aren't there.", "title": "" }, { "docid": "4bc4149facdd396eff188dbc9a9af5be", "text": "As I'm sure you are reading in Hull's classic, the basic valuation of bonds depends on the chance of entity defaulting on those bonds. Let's start with just looking at the US. The United States has a big advantage over corporations in issuing debt as it also prints the same currency that the debt is denominated in. This makes it much easier not to default on your debt as you can always print more money to pay it. Printing too much currency would cause inflation lowering the value of debt, but this would also lower the value of US corporate debt as well. So you can think of even the highest rated corporate bonds as having the same rate as government debt plus a little extra due to the additional default risk of the corporation. The situation with other AA rated governments is more complicated. Most of those governments have debt denominated in their local currency as well so it may seem like they should all have similar rates. However, some governments have higher and some actually have lower rates than the United States. Now, as above, some of the difference is due to the possible need of printing too much currency to cover the debt in crisis and now that we have more than one country to invest in the extra risk of international money flowing out of the country's bonds. However, the bigger difference between AA governments rates depends more on money flow, central banks and regulation. Bonds are still mostly freely traded instruments that respond to supply and demand, but this supply and demand is heavily influenced by governments. Central banks buy up large portions of the debt raising demand and lowering rates. Regulators force banks to hold a certain amount of treasuries perhaps inflating demand. Finally, to answer your question the United States has some interesting advantages partially just due to its long history of stability, controlled inflation and large economy making treasuries valuable as one of the lowest risk investments. So its rates are generally on the low end, but government manipulation can still mean that it is not necessarily the lowest.", "title": "" }, { "docid": "bc3566ab57f88d8d038aa825c268d2a6", "text": "I always find this funny. How can government bonds be in attractive and currency be attractive? With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash. So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands. Fools.", "title": "" } ]	fiqa
4f01908312fa65c70e10e202a8b03547	How can I predict which way mortgage rates are moving?	[ { "docid": "df2f4da41104a279d24c1f9062983c1e", "text": "Obviously you can't predict the future too much, but it's not too hard to figure out what is going to happen to mortgage rates in the short term. Mortgage rates are heavily influenced by 10 year treasury yields. You can find the daily 10 year rates here. It's easy to see the direction they've been moving recently. It usually takes a few days for mortgage rates to follow if the 10 year treasury yield is dropping (although if it's going up, mortgage rates will go up faster than they will fall). Here's a sample of all the 10 year treasury yields for the past 10 years. Looks like a good time to get a mortgage or refinance! You can also take a look at movements in mortgage backed securities. Here you can find a chart for Fannie Mae 3.0% mortgages. As the price goes up, mortgage rates go down. Think of it this way. Right now people are will to pay $103 for $100 worth of 3.0% mortgages. That doesn't really make sense because I could just loan you $100 at 3.0% and turn around and sell it for $103 immediately, pocketing the $3 profit. The reason is because right now, no one would willingly borrow money at 3.0%. Rates have fallen so much that if a bank has a customer paying them 3.0% on a mortgage, other people are willing to pay a premium on that mortgage. New mortgages are probably being written for 2.0%. (There is no current mortgage backed security for 2.0% fannie maes because rates have never been this low before).", "title": "" }, { "docid": "9870fc6c5cb390e8cbeca543fbef2f65", "text": "Mortgage rates generally consist of two factors: The risk premium is relatively constant for a particular individual / house combination, so most of the changes in your mortgage rate will be associated with changes in the price of money in the world economy at large. Interest rates in the overall economy are usually tied to an interest rate called the Federal Funds rate. The Federal Reserve manipulates the federal funds rate by buying and/or selling bonds until the rate is something they like. So you can usually expect your interest rate to rise or fall depending on the policies of the Federal Reserve. You can predict this in a couple of ways: The way they have described their plans recently indicates that will keep interest rates low for an extended period of time - probably through 2014 or so - and they hope to keep inflation around 2%. Unless inflation is significantly more than 2% between now and then, they are extremely unlikely to change that plan. As such, you should probably not expect mortgage interest rates in general to change more than infinitesimally small amounts until 2014ish. Worry more about your credit score.", "title": "" }, { "docid": "584de925e50869048ed428309b9d453b", "text": "If economic conditions are weakening, i.e. unemployment rising, business and consummer confidence dropping, etc., you can expect interest rates and thus mortgage rates to drop. If economic conditions are strengthening you can expect interest rates and thus mortgage rates to start rising. As you are in the US, and with official interest rates there at 0.25% there is not much room for these rates to fall further. I am in Australia, with official interest rates at 3.75%, and with the economic weakness in the US and Europe and with China slowing down, we can expect our rates to fall further over the next year. Regarding your timeframe of one to two weeks, unless there is a decision on rates in the US in the next week I don't think there would be much change, especially with rates there at record lows. You are probably best to shop around for the best rates now and refinance once you have found one you are happy with.", "title": "" } ]	[ { "docid": "f595b1e50b0683b20aa07a69001c969c", "text": "\"One way to think of the typical fixed rate mortgage, is that you can calculate the balance at the end of the month. Add a month's interest (rate times balance, then divide by 12) then subtract your payment. The principal is now a bit less, and there's a snowball effect that continues to drop the principal more each month. Even though some might object to my use of the word \"\"compounding,\"\" a prepayment has that effect. e.g. you have a 5% mortgage, and pay $100 extra principal. If you did nothing else, 5% compounded over 28 years is about 4X. So, if you did this early on, it would reduce the last payment by about $400. Obviously, there are calculators and spreadsheets that can give the exact numbers. I don't know the rules for car loans, but one would actually expect them to work similarly, and no, you are not crazy to expect that. Just the opposite.\"", "title": "" }, { "docid": "fc630ecd66dc499dc67deceaf82681ed", "text": "\"In addition to the information in the other answer, I would suggest looking at an economic calendar. These provide the dates and values of many economic announcements, e.g. existing home sales, durable orders, consumer confidence, etc. Yahoo, Bloomberg, and the Wall Street Journal all provide such calendars. Yahoo provides links to the raw data where available; Bloomberg and the WSJ provide links to their article where appropriate. You could also look at a global economic calendar; both xe.com and livecharts.co.uk provide these. If you're only interested in the US, the Yahoo, Bloomberg, and WSJ calendars may provide a higher signal-to-noise ratio, but foreign announcements also affect US markets, so it's important to get as much perspective as possible. I like the global economic calendars I linked to above because they rate announcements on \"\"priority\"\", which is a quick way to learn which announcements have the greatest effect. Economic calendars are especially important in the context of an interview because you may be asked a follow-up question. For example, the US markets jumped in early trading today (5/28/2013) because the consumer confidence numbers exceeded forecasts (from the WSJ calendar, 76.2 vs 2.3). As SRKX stated, it's important to know more than the numbers; being able to analyze the numbers in the context of the wider market and being aware of the fundamentals driving them is what's most important. An economic calendar is a good way to see this information quickly and succinctly. (I'm paraphrasing part of my answer to another question, so you may or may not find some of that information helpful as well; I'm certainly not suggesting you look at the website of every central bank in the morning. That's what an economic calendar is for!)\"", "title": "" }, { "docid": "bbb5cf86b6ab4784bc588a20e2d96659", "text": "Regardless of how long the mortgage has left, the return you get on prepayments is identical to the mortgage rate. (What happens on your tax return is a different matter.) It's easier to get a decent financial calculator (The TI BA-35 is my favorite) than to construct spreadsheets which may or may not contain equation errors. When I duplicate John's numbers, $100K mortgage, 4% rate, I get a 60 mo remaining balance of 90,447.51 and with $50 extra, $87132.56, a diff of $3314.95. $314.95 return on the $3000. $315 over 5yrs is $63/yr, over an average $1500 put in, 63/1500 = 4.2%. Of course the simple math of just averaging the payment creates that .2% error. A 60 payment $50 returning $314.95 produces 4.000%. @Peter K - with all due respect, there's nothing for me about time value of money calculations that can be counter-intuitive. While I like playing with spreadsheets, the first thing I do is run a few scenarios and double check using the calculator. Your updated sheet is now at 3.76%? A time vaule of money calculation should not have rounding errors that larger. It's larger than my back of envelope calculation. @Kaushik - if you don't need the money, and would buy a CD at the rate of your mortgage, then pay early. Nothing wrong with that.", "title": "" }, { "docid": "50c29401d0ad5c19a05ba7f906e56cbe", "text": "I was typing up a long response and lost it to a backspace.. so, I apologize but I don't intend on rewriting it all. You'll have to use a method called bootstrapping to get the forward rates. Essentially you're looking at the spot rate today, and the forward rates, then filling in what must be the rate to make them equal out in the end. Sorry I'm not more help!", "title": "" }, { "docid": "a562465e788a271ee8be89b8ddf16870", "text": "This website is based around Ontario mortgage rates trends are similar to the trends in all Canadian provinces. To make the best choice you need to be aware of the best mortgage rates available and of their details. The access to statistics is really beneficial as it provides you with information how rates change over the years... It is the perfect presence for your Business.", "title": "" }, { "docid": "c7b5e49eac72c5c8079a6d70519277a2", "text": "how do these margins vary over time Depends on a lot of factors. The bank's financial health, bank's ongoing business activities, profits generated from it's other businesses. If it is new to mortgages, it mightn't take a bigger margin to grow its business. If it is in the business for long, it might not be ready to tweak it down. If the housing market is down, they might lower their margin's to make lending attractive. If their competitors are lowering their margins, the bank in question might also. Do they rise when the base rate rises, or fall, or are they uncorrelated? When rates rise(money is being sucked out to curb spending), large amount of spending decreases. So you can imagine margins will need to decrease to keep the mortgage lending at previous levels. Would economic growth drive them up or down? Economic growth might make them go up. Like in case 1, base rates are low -> people are spending(chances are inflation will be high) -> margins will be higher(but real value of money will be dependent on inflation) Is there any kind of empirical or theoretical basis to guess at their movement? Get a basic text book on macroeconomics, the rates and inflation portion will be there. How the rates influence the money supply and all. It will much more sense. But the answer will encompass a mixture of all conditions and not a single one in isolation. So there isn't a definitive answer. This might give you an idea of how it works. It is for variable mortgage but should be more or less near to what you desire.", "title": "" }, { "docid": "6d0b1d2bbd775a5706e0adc420aefddc", "text": "Taking the help of experts is the best possible offer that an individual can look forward to. In that case calculating the current mortgage interest rates in MN becomes more important. Best home refinancing company, MN offers you the scope to deal with mortgage calculators. These are modern and tech savvy tools that take into consideration various factors related to the same.", "title": "" }, { "docid": "a7ead60eedc175f97ee396c2785e16e2", "text": "You can have a pretty good guess by looking at price pattern and order flow (size of the trades) a) price should be traded in a range b) relatively large size orders, speed.", "title": "" }, { "docid": "5887589fd2f004e5ffadf2a922b01929", "text": "Im creating a 5-year projection on Profit and loss, cash flow and balance sheet and i\\m suppose to use the LIBOR (5 year forward curve) as interest rate on debt. This is the information i am given and it in USD. Thanks for the link. I guess its the USD LIBOR today, in one year, in two years, three years, four years and five years", "title": "" }, { "docid": "6b949e7c4d790bedfd8add9e42eca3b2", "text": "Generically, interest rates being charged are driven in large part by the central bank's rate and competition tends to keep similar loans priced fairly close to each other. Interest rates being paid are driven by what's needed to get folks to lend you their money (deposit in bank, purchase bonds) so it's again related. There certainly isn't very direct coupling, but in general interest rates of all sorts do tend to swing (very) roughly in the same direction at (very) roughly the same time... so the concept that interest rates of all types are rising or falling at any given moment is a simplification but not wholly unreasonable. If you want to know which interest rates a particular person is citing to back up their claim you really need to ask them.", "title": "" }, { "docid": "ccb71fa99e07c304004b78e7c1b9e1a2", "text": "There are few different types of MI you can choose from, they are: Borrower-Paid Monthly (this is what most people think of when they think MI) Borrower-Paid Single Premium (you may have QM issues on this) Lender Paid Single Premium Split Up-front and Monthly The only way to determine which option will ultimately cost you less is to come up with a time estimate or range for how long you anticipate you will hold this mortgage, then look at each option over that time, and see where they fall. To answer your question about the single-premium being added to your loan, this typically does not happen (outside of FHA/VA). The reason for that is you would now have 90%+ financing and fall into a new pricing bracket, if not being disqualified altogether. What is far more typical is the use of premium pricing to pay this up-front premium. Premium pricing is where you take a lender credit in exchange for an elevated rate; it is the exact opposite of paying points to buy down your rate. For example: say a zero point rate is 4.25%, and you have monthly MI of say .8%. Your effective rate would be 5.05%. It may be possible to use premium pricing at an elevated rate of say 4.75% to pay your MI up front--now your effective rate is the note rate of 4.75%. This is how a single premium can save you money. Keep in mind though, the 4.75% will be your rate for the life of the loan, and in the other scenario, once the MI drops off, the effective rate will go back down from 5.05% to 4.25%. This is why it is critical to know your estimated length of financing.", "title": "" }, { "docid": "05fa12e18a0cfd27bb2b305be522e2f2", "text": "There's a few things going on here. If we fixed rates (and terms) over time we'd expect a pretty tight chart of home prices to income, almost lockstep. Add a layer of growth above that in boom times due to the wealth effect (when stocks are way up, we have extra money to blow on bigger houses) and the opposite when markets are down. Next, the effect of rates. With long term rates dropping from 14% in 1985 to 5% in 2003, the amount that can be bought for the same monthly payment rises dramatically as rates fall. Easy to lose site of that and the fact that the average size house has increased about 1.5% per year over the last 40 years, surely that can't continue. When you normalize all these factors, houses cost fewer hours-worked almost at the peak of the market than 25 years ago. Mike's logical example of extrapolating out is very clever, I like it. In the short term, we'll see periods that are booms and busts, but actual prices will straddle the line representing the borrowing power of a week's pay.", "title": "" }, { "docid": "a8ab10fa53729a333b3bbac5f5281fc0", "text": "As of now in 2016, is is safe to assume that mortgage rates would/should not get back to 10%? What would the rates be in future is speculation. It depends on quite a few things, overall economy, demand / supply, liquidity in market etc ... Chances are less that rates would show a dramatic rise in near future. Does this mean that one should always buy a house ONLy when mortgage rates are low? Is it worth the wait IF the rates are high right now? Nope. House purchase decision are not solely based on interest rates. There are quite a few other aspects to consider, the housing industry, your need, etc. Although interest rate do form one of the aspect to consider specially affordability of the EMI. Is refinancing an option on the table, if I made a deal at a bad time when rates are high? This depends on the terms of current mortgage. Most would allow refinance, there may be penal charges breaking the current mortgage. Note refinance does not always mean that you would get a better rate. Many mortgages these days are on variable interest rates, this means that they can go down or go up. How can people afford 10% mortgage? Well if you buy a small cheaper [Less expensive] house you can afford a higher interest rate.", "title": "" }, { "docid": "9f6b2fead994df1c89e1119432a9e5d9", "text": "\"I think the closest you can come is to buy health insurance, which had the company's bet on trends in healthcare costs already built into it. But as you've posed the question, I agree that the answer is \"\"no\"\" -- at best you might find someone willing to give you short odds that the rate increases over 20% or long odds that it doesn't go up at all, or something of that sort... and that isn't a bet the markets are designed to handle.\"", "title": "" }, { "docid": "bd585fa26eeb5e188fb1aad4503d3bda", "text": "Since 1971, mortgage interest rates have never been more than .25% below current rates (3.6%). Even restricting just to the last four years, rates have been as much as .89% higher. Overall, we're much closer to the record low interest rate than any type of high. We're currently at a three-year low. Yes, we should expect interest rates to go up. Eventually. Maybe when that happens, bonds will fall. It hasn't happened yet though. In fact, there remain significant worries that the Fed has been overly aggressive in raising rates (as it was around 2008). The Brexit side effects seem to be leaning towards an easing in monetary policy rather than a tightening.", "title": "" } ]	fiqa
d1052cdde778ace6ce0fc10bcfe933a6	What is the cause of sudden price spikes in the FOREX market?	[ { "docid": "625c51b04a0f46376f261af653ae8fa1", "text": "If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].", "title": "" }, { "docid": "9440f6a0c8c21dafac732d0fc850d408", "text": "It depends on the currency pair since it is much harder to move a liquid market like Fiber (EURUSD) or Cable (GBPUSD) than it is to move illiquid markets such as USDTRY, however, it will mostly be big banks and big hedge funds adjusting their positions or speculating (not just on the currency or market making but also speculating in foreign instruments). I once was involved in a one-off USD 56 million FX trade without which the hedge fund could not trade as its subscriptions were in a different currency to the fund currency. Although it was big by their standards it was small compared with the volumes we expected from other clients. Governments and big companies who need to pay costs in a foreign currency or receive income in one will also do this but less frequently and will almost always do this through a nominated bank (in the case of large firms). Because they need the foreign currency immediately; if you've ever tried to pay a bill in the US denominated in Dollars using Euros you'll know that they aren't widely accepted. So if I need to pay a large bill to a supplier in Dollars and all I have is Euros I may move the market. Similarly if I am trying to buy a large number of shares in a US company and all I have is Euros I'll lose the opportunity.", "title": "" }, { "docid": "455e88e38b7b8e116700e28d7c6186c6", "text": "Forex is really not that volatile compared to other major asset classes like stocks and commodities. But still markets are generally unencumbered in the major pairs and therefore spikes in volatility can happen. Take what happened with the Swiss Franc a few years ago for example, or GBPUSD recently with news of Brexit. This is less the case with highly regulated currencies like the Chinese Yuan (CNY) Volatility is caused by excessive buy or sell pressure in relation to the available liquidity at the current price. This is usually caused by large buy or sell orders placed with interbank desks by institutions (often including other banks) and central banks. News can also sometimes have a dramatic impact and cause traders to adjust their prices significantly and very quickly.", "title": "" } ]	[ { "docid": "be25c00709dc2f9ad36703697f9aa7c0", "text": "The volume required to significantly move the price of a security depends completely on the orderbook for that particular security. There are a variety of different reasons and time periods that a security can be halted, this will depend a bit on which exchange you're dealing with. This link might help with the halt aspect of your question: https://en.wikipedia.org/wiki/Trading_halt", "title": "" }, { "docid": "bdeff7d8ea58b2abda76c4781c153ec6", "text": "I'm not an economics expert or anything, but what seems strange to me is the randomising part. Everything else looks fine but why does it randomly select the next item for price increase, wouldn't this depend on supply/demand and the players in the game?", "title": "" }, { "docid": "abe4a232f283d9d04afaebe8eee9c613", "text": "\"No one is quite sure what happened (yet). Speculation includes: The interesting thing is that Procter & Gamble stock got hammered, as did Accenture. Both of which are fairly stable companies, that didn't make any major announcements, and aren't really connected to the current financial instability in Greece. So, there is no reason for there stock prices to have gone crazy like that. This points to some kind of screw up, and not a regular market force. Apparently, the trades involved in this event are going to be canceled. Edit #1: One thing that can contribute to an event like this is automatic selling triggered by stop loss orders. Say someone at Citi makes a mistake and sells too much of a stock. That drives the stock price below a certain threshold. Computers that were pre-programmed to sell at that point start doing their job. Now the price goes even lower. More stop-loss orders get triggered. Things start to snowball. Since it's all done by computer these days something like this can happen in seconds. All the humans are left scratching their heads. (No idea if that's what actually happened.) Edit #2: IEEE Spectrum has a pretty concise article on the topic. It also includes some links to follow. Edit #3 (05/14/2010): Reuters is now reporting that a trader at Waddell & Reed triggered all of this, but not through any wrongdoing. Edit #4 (05/18/2010): Waddell & Reed claims they didn't do it. The House Financial Services Subcommittee investigated, but they couldn't find a \"\"smoking gun\"\". I think at this point, people have pretty much given up trying to figure out what happened. Edit #5 (07/14/2010): The SEC still has no idea. I'm giving up. :-)\"", "title": "" }, { "docid": "055049ff07087e73c9e065bffc2b48a0", "text": "\"On a longer time scale, the plot thickens: It almost looks random. A large drop in real rates in the mid-70s, a massive spike in the early 80s, followed by a slow multi-decade decline. The chaos doesn't seem to be due to interest rates. They steadily climbed and steadily fell: All that's left is inflation: First, real rates should be expected to pay a moderate rate, so nominal rates will usually be higher than inflation. However, interest rates are very stable over long time periods while inflation is not. Economists call this type of phenomenon \"\"sticky pricing\"\", where the price, interest rates in this case, do not change much despite the realities surrounding them. But the story is a little more complicated. In the early 1970s, Nixon had an election to win and tried to lessen the impacts of recession by increasing gov't spending, not raising taxes, and financing through the central bank, causing inflation. The strategy failed, but he was reelected anyways. This set the precedent for the hyperinflation of the 1970s that ended abruptly by Reagan at the beginning of his first term in the early 1980s. Again, interest rates remained sticky, so real rates spiked. Now, the world is not growing, almost stagnating. Demand for equity is somewhat above average, but because corporate income is decelerating, and the developed world's population is aging, demand for investment income is skyrocketing. As demand rises, so does the price, which for an investor is a form of inverse of the interest rate. Future demand is probably best answered by forecasters, and the monetarist over and undertones still dominating the Federal Reserve show that they have finally learned after 100 years that inflation is best kept \"\"low and stable\"\": But what happens if growth in the US suddenly spikes, inflation rises, and the Federal Reserve must sell all of the long term assets it has bet so heavily on quickly while interest rates rise? Inflation may not be intended, but it is not impossible.\"", "title": "" }, { "docid": "dc21709e61f35e1dabf585879d691d0b", "text": "Contrary to Muro's answer which strangely shows a graph of the Fed's balance sheet and not the money supply, the supply of US dollars has never doubled in a few days. This graph from Wikipedia shows M2, which is the wider measure of money supply, to have doubled over approximately 10 years, http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg The answer to whether gold has a higher chance of experiencing big devaluation has to do with forces outside anyone's control, if a big new mine of gold is discovered that could affect prices, but also if the economy turns around it could lead investors to pull out of gold and back into the stock markets. The USD, on the other hand, is under control of the policy makers at the Fed who have a dual mandate to keep inflation and unemployment low. The Fed seems to have gotten better over the last 30 years at controlling inflation and the dollar has not experienced big inflation since the 70s. Inflation, as measured by Core CPI, has been maintained at less than 4% for the last 20 years and is currently coming off record low levels below 1%.", "title": "" }, { "docid": "08f30ae13d4446f5989046359125f7c2", "text": "One interpretation of the above is that Pound (alongside US Dollar, Euro and other major curriencies), which forms the Forex basket of countries has dropped to less than 10% weightage in case of China's Forex holding. Now the question is where did this money go, this money probably have gone into Forex market to buy Yuan against Pound/Dollar etc. to bolster or strengthen Yuan. The currency reserve management is the 'wealth' management part and the 'currency' management part is what is known as 'central bank intervention' to stabilize the currency.", "title": "" }, { "docid": "f03e476b7d6e3fe770b7bf1b5e8cc65d", "text": "A market correction has been expected for several weeks. It happens all the time, but people need an excuse to panic. Sometimes, I think panic is their usual state and they just look for fuel to keep it going because they can't handle boredom.", "title": "" }, { "docid": "4571bbf2ec41f30bc870081d15d4d138", "text": "Summarized article: On Friday, the Dow Jones Industrial Average dropped almost 275 points and wiped out the last of the index's gains for the year. Friday's massive selloff was triggered by a dismal US jobs report and data indicating a European and Chinese economic slowdown. Friday was the worst day of the year for the market. Worried investors moved cash to the US Treasury bond market which also dragged the yield to a record low. Some analysts believe the panic in the market may cause the Federal Reserve to plan for additional stimulus. Federal Reserve Chairman Ben Bernanke is scheduled to speak next week. For more summarized news, subscribe to the [/r/SkimThat](http://www.reddit.com/r/SkimThat) subreddit", "title": "" }, { "docid": "fc7af8a1f81a09998e3d6cc4ed623a59", "text": "If you didn't have a stop loss set (or trailing stop loss) then an equally random spike in the other direction could have obliterated your account and put you in debt to the broker, depending on the terms of that broker, as these are highly leveraged positions. Market anomaly? If your currency bet was unrelated to the fed's interest rate decision today, then you should probably just stop trading.", "title": "" }, { "docid": "b6865746a57c26decfbbe0d0e5b5866d", "text": "Because you are new to forex trading, you would be wise to trade long-term and not short-term. For example, watch the Daily and Weekly charts for trends, not the 15 Minute and 1 Hour. Doing this, there is little concern for the best time of day. You will ideally have trades setup many days in advance, just waiting for them to be triggered. It doesn't really matter if you're present or not.", "title": "" }, { "docid": "afab503ca68534f325de3e443e8290a1", "text": "If I understand you correctly, you are noticing that a stock's price can change drastically when the time changes from pre-market trading hours to open market hours. This could occur because a much smaller pool of investors make trades during pre-market and after-market hours. When the regular market opens there is a large influx of trades, causing the prices to jump.", "title": "" }, { "docid": "006c2bb9d3880cc1d341159d8214249a", "text": "Slippage is tied to volatility, so when volatility increases the spread will also increase. There is no perfect formula to figure out slippage but from observations, it might make sense to look at the bar size in relation to previous bars to determine slippage (assuming fixed periods). This is because when there is a sudden spike in price, it's usually due to stop order triggering or a news event and those will increase the volatility dramatically in seconds.", "title": "" }, { "docid": "037bd36d6a0e050c19db6fd3b888dfae", "text": "My guess is that both the blue and pinkish lines are hand drawn by someone. The blue line indicates 'higher lows' while the pinkish line represents 'higher highs'. Together they form a trading channel in which you can expect future prices to be (unless there is some unanticipated event that occurs). Edit: since the price broke out above the trading channel at the start of the year (and is verified by the increase in volume at that time) something must have occurred to increase the value of the stock. Edit2: this news likely explains the breakout in price. Edit3: this chart shows that the stock price is now 'seeking equilibrium'. The price will, likely, be volatile over the next few days or weeks.", "title": "" }, { "docid": "cf007fd1605768bee01daa28fa6f97bb", "text": "The market is simply gapping at these times, some news may have come out that makes the market gap on the open from its previous close. Being FX, the market in one country might be trading and then at the start of the hour trading in a different country may commence, causing a small gap in price. Generally many things could cause the price to gap up or down, and these gaps sometime can occur at the start of a new hour or other timeframe you are using. They do tend to happen more often at the start of a new day's trading on a daily chart, especially with stocks.", "title": "" }, { "docid": "003e10251585cd7b5cdf6042ae837ae0", "text": "Step 1: Get a part-time job in sales. Perhaps selling appliances at Sears. Step 2: If you are great at that, then look into becoming a stock broker/investment adviser in Boise ... which is a sales job. Step 3: If you are great at that, then you might be able to become a portfolio manager, perhaps a hedge fund manager for the clients you collected as a stock broker/ investment consultant. That seems to be the steps I have seen from reading the bios of a number of professional investors. The other method seems to be an MBA from a top 10 business school.", "title": "" } ]	fiqa
955606b4a9f406c2d90f1988500dc618	What is a good way to save money on car expenses?	[ { "docid": "c2e88035f3a8ad9f0e8fc2b7ce71cb25", "text": "Apparently, if you keep your tires' air filled to the recommended level, your car will burn less gas. I loved this article at WikiHow, which confirmed what I had heard about air in tires, and had others to suggest, such as removing unnecessary items from inside and on your car (such as bike racks, trailer balls) as they can add to your car's overall weight, causing more drag and using more gas.", "title": "" }, { "docid": "f29a2d2fb25a537a3b56738b23287499", "text": "Ride a bicycle or walk for short trips (< 5mi–10mi, depending on your level of comfort). Nothing saves as much on car expenses as simply driving less.", "title": "" }, { "docid": "376ee1f75e2e83cfae1588c1c185958c", "text": "It is almost always cheaper to do regular maintenance then to fix problems because you didn't change the oil or check the transmission fluid.", "title": "" }, { "docid": "f66c18cd048d06dfb1c6f977dfd9bf64", "text": "Do your own oil change! If you are a hands-on person, you could also avoid the cost of the semi-annual oil change, by doing it yourself. Edmunds.com has a great how-to to help you accomplish this. Be prepared for dirty fingernails! But savings, you will realize, as an oil change will run you anywhere from $20 - $200 (if you drive a European car and require a specialized filtre).", "title": "" }, { "docid": "058226d180197297fd1e207f5578b069", "text": "Keep up on routine maintenance. That's the best way to prolong the life of your car, and it'll save you money in the long run because you won't have to replace your car as often. Accelerate gently. The harder you push the gas pedal, the more gas you use. Coast to a stop rather than using your brakes. If you can avoid stopping by slowing down well before a red light so that by the time you actually get to the light it is green again, do so. Avoid high-speed driving. At highway speeds, wind resistance plays a big part in how much gas your car uses. If you can plan your trips to take slower routes, do so. Don't be the guy driving 55 in the left lane on the highway, though. Avoid stop-and-go traffic. Keeping to a constant speed is the most efficient. Plan your trips to avoid areas with lots of traffic, lots of curb-cuts and intersections, etc. Leave lots of space in front of you so you have time to anticipate other drivers intentions and slow down rather than having to slam on your brakes at the last second. Avoid short trips. Cars work best when they can get all the way up to operating temperature, and stay there for a while. If you're just going two miles, ride your bike. Live close to work and a grocery store, so you can walk or ride your bike rather than driving. Use your car for road trips and your quarterly trips to CostCo to restock the larder. If you can get away with not owning a car, sell it. Ride your bike, use public transit, or walk. If you can share a car with a significant other and only one of you has a long car commute, there's no sense in you both owning a car.", "title": "" }, { "docid": "de68c5797c748d69617b3d7425db2cda", "text": "Can you tell I'm having fun with this question? Here's another great list, from Finally Frugal, which includes the above items, but also these gems: Avoid idling. Now, this just annoys me. Walking past a line of idling cars at the transit center waiting for their human 'pickup', makes me crazy! It makes me want to knock on the window, shake my finger, and give 'em a piece of my mind. I don't do it, because I don't have a death wish. Turn the car off when you're not driving it. Combine trips. I used to be one of those people who would run to Target, go home, remember something I needed at the grocery store and go out for that, come home again, then run out to the library. All of these places are within a two mile radius of my house. Making lists before leaving the house has helped me to group my errands within one trip, meaning fewer back and forth trips. Slow down. Your parents were right. Slow is better. Not only is it safer to drive the speed limit, you'll be increasing your car's efficiency and reducing the amount of fuel your vehicle uses.", "title": "" }, { "docid": "fdcfa8f11caa5fd97eeb64f62b24e106", "text": "Manage the fuel consumption price: check the pattern of fuel prices if you can for your area. Some areas have weekly changes which are somewhat predictable and some sites will even predict the minimum price for the next day. Some other areas will have a discount fuel day. Switch to diesel: fuel consumption by diesel engines are much better than standard combustion engines. Downside is not as many refueling stations. Switch to a hybrid: fuel consumption is better than comparable combustion engines alone but the downside is that the technology is new and still maturing. Check out this site for more information.", "title": "" }, { "docid": "83228c4ed01f9215a3f9ea83f50f81b3", "text": "Don't buy the first model year of a new model unless the fuel economy is much better in the latest model. Buying a car in later years just before the changeover will result in a slightly higher quality vehicle or in some cases dramatically higher quality. Find the best forum for your make/model/year of car. Join the forum, check the FAQ, sticky threads and post questions when you have trouble. Do NOT rely passively on the dealer or even private mechanics as they do not drive the car every day. You are in the best position to identify problems but only if you have some help. Preventive maintenance is the best if you intend to keep the car for a really long time. Forums are a really good place to find the typical problems of a particular model and potentially head them off.", "title": "" }, { "docid": "013ee744b8eb09a45a08e55ae44c0c02", "text": "The obvious answer for savings costs with a car is not to have a car. Of course that must be balanced against other expenses (bicycle, taxi, public transport) to do things. Generally speaking, if you need a car, ways to contain expense are to buy the least expensive vehicle with the most economical engine that meets your needs, keep it undercover (reduces damage or wear due to exposure), proactively maintain it (maintenance is cheaper in the long run than the costs of dealing with a breakdown and cost of repairs, and lack of maintenance accelerates depreciation), and shop around for a good mechanic who will maintain it at a fair price. If you do a lot of milage, or do a lot of towing, or drive under load, consider a diesel. A diesel engine often costs more each service, sometimes has a shorter service interval, but it also gets greater milage. There may be a differential cost of fuel (diesel is often a bit more expensive per volume). For towing, a diesel is often more economical, due to low end power (greater torque at lower revs) which does result in better fuel economy. It is no accident that most large transport vehicles consume diesel. Do the sums based on your usage before you buy. Accelerate as gently as possible to get to speed within traffic conditions (less fuel to get to a speed). Change up to higher gears as soon as possible as - at a given speed - economy will be better, as long as the engine has enough oomph to handle it (so don't try to start from stationary in a high gear). Don't drive faster than necessary, as drag increases with speed, and hurts economy. Similarly, reduce speed gradually, to reduce undue wear on breaks and reduce fuel consumption (sharp breaking with power assisted breaks does affect fuel economy). Drive close to legal limits if conditions permit. This reduces chances of annoying other drivers (who if they get impatient may throw rocks at your car, or collide, or subject you to road rage - which contribute to damage and insurance costs). It also reduces chances of being pulled over by police and fined for obstructing other traffic. Don't tailgate. This both consumes fuel in keeping up, and means needing to slow sharply. And increases chance of accident. Don't idle more than necessary. Allow stop/start systems on your car to operate - particularly if you're in stop/start traffic. However, there is a break-even point where stopping and restarting consumes more fuel than idling, so get to know your vehicle. That depends on how much the engine needs cranking to restart - which is affected both by engine design and maintenance. Maintain it yourself if you have the skills, but account for the cost of parts and equipment, to be sure it is cost effective (modern cars are software driven, so equipment to diagnose and maintain can be expensive). Combine trips (don't get into the car for every little thing - wait until you can do a few things during a single drive) and car pool. If fuel prices vary (e.g some places have regular cycles) try to refuel near the bottom of a pricing cycle. Take unnecessary weight out of the vehicle. Don't load it up with tools unless you need them frequently.", "title": "" }, { "docid": "2f210ce212ace38ee3318f391070f412", "text": "Replace your own brake pads Disc brake pads are usually snap-in replacement parts. YouTube has tons of videos showing how to do it. Find one with a car similar to your own. And it cannot be over-emphasized... Keep up on the routine maintenance. You can look up the schedule on your car manufacturer's website.", "title": "" }, { "docid": "93ab66b3bb15e75adc771a300fd44d12", "text": "\"These cars are generally considered out of date and are less prone to be victims of car theft while being reasonably safe. Make sure you pick a model with a good reliability reputation, see what comes up at your local junk yard (the common old models have survived long enough to not end up there until now). Servicing your car takes some effort and some initial investments, but learning how to fix simple problems by yourself will save you a lot of money in the long run. Start by learning how to locate some simple faults. Diagnosing issues is a very costly process if done professionally, but some you may be able to find by yourself. All cars sold in USA from 1996 are required to have this connection below the steering rack. As a consequence most cars manufactured 1995 will have this connector world wide. If you connect your OBD2 adapter to this port your car will be able to tell you what's wrong through an app on your phone and you will be able to clear fault codes by yourself to make sure the problem really is solved. This is what you mechanic should use when servicing your car. While a new print can be expensive you can find used manuals getting thrown out of service centers or at yard sales. These will include service notes and sometimes had-written notes to help you out. The majority of parts on scrapped cars are still in working condition and may not ever see significant wear and tear. If you put some time into removing the part yourself you will have a good idea of how difficult it is to replace the part on your car and outsource the work to a professional if needed. This of course assumes you bring good parts. The main income should come from the work performed on your car, not the markup of spare parts. Generally speaking specialized mechanics working with one or few brands of cars are preferable as these will not only be familiar with your car but are also more likely to get original spare parts (not \"\"pirate\"\" parts made to be compatible at a cheaper price). This will make sure the part works as intended and not cause wear and tear of other parts. For example you'd much rather replace a broken fuse instead of cleaning up the aftermath of fried electronics. Turn off the AC when it's not needed. There should be a button labeled \"\"ECON\"\" or similar which will disable the AC compressor while keeping the rest of the systems running. The compressor is usually driven by a belt from the crankshaft and will eat up some of the power your engine produces. Just remember that while it saves gas, uncomfortable driving conditions may shorten your patience and reduces your attention. Accelerate up to speed quickly. Contrary to popular belief, this saves more gas than accelerating slowly because the time your engine is under increased load is shorter combined with higher efficiency at medium engine speeds. Allow your speed to decline on uphills, you will regain that speed once the road levels out. Unless you're in heavy traffic driving a bit slower shouldn't harm the flow. Don't let go of the gas pedal, just avoid compensating as much. Your target should be to not lose more than 20% of your speed over the entire ascent and have a constant deceleration or you will start interfering with traffic. Make sure your car is healthy. As obvious as it may sound, worn out parts may harm your mileage. Increased friction in bearings due to broken protective covers or reduced pressure from a broken exhaust are just examples if things that will ruin the efficiency of you driveline. By themselves they may not do much but they add up into both gas consumption and reliability issues. Really do read your owners manual. Nobody knows your car better than the people who built it. What's best for my car may not be best for your car and the best way to make sure your car is working as intended is to take an afternoon with your manual and a cup of your favorite beverage. Afterwards you will know how all the features of your car works. \"\"Take care of your car and it takes care of you\"\" is the principle I'm working with. A car you're happy with will make you more calm behind the wheel and leads to higher quality of your driving decisions. Both you and your fellow commuters will benefit from this, even if they may never take the time to thank you.\"", "title": "" } ]	[ { "docid": "1a22b4e9f1b2e4f1d55da6cf1109009d", "text": "I'll read between the lines: you're (justifiably) feeling smart about how you manage your money: debt-free, smart about your spending, saving for retirement, etc. But you're looking at all those fancy cars and feeling a little left out. And Americans especially have a love for automobiles -- it's not just transportation, a car is a status symbol. Yes, some of those people afford their cars just fine. But a lot of people out there are AWFUL about saving and spend recklessly. Americans are notoriously bad at saving for retirement, for example. So if they aren't saving, where does that money go? They buy stuff they don't need. They live paycheck-to-paycheck. They run up debt. They buy cars. Overspending on cars is so easy to do: leases have low payments, or you can get a 6 year loan. There are many financial tricks for people that think only in terms of monthly payments. So instead of lamenting that the grass is greener as all those BMWs whiz by, smile deeply and enjoy that feeling of sleeping well at night instead of stressing out about the next credit card bill and car payment waiting for you in the mailbox. (And at the same time, if you really want a luxury car and want that to be a priority, you can make it happen and not go broke. Get a late model year certified pre-owned vehicle just out of lease, for example. Saves a ton of money, is still under warranty, and satisfies the lust for luxury.)", "title": "" }, { "docid": "86044438cd8e8eda0053178579e091ae", "text": "\"My wife and I have been car-free since 2011. We spent about $3500 on car shares and rentals last year (I went through it recently to flag trips that were medical transportation and unreimbursed work related for taxes). This compares favorably with the last year of car ownership. I had reached a point I started needing $200+ repairs every couple of months and the straw that broke the camels back was a (dealer mechanic estimate but still) $3000 estimate to pass emissions inspection. Over 11 years the value went from $24000 to $3600, so it depreciated about 2k per year. I was easily spending $40 per week on gasoline on my last commute. I now use transit with the IRS commuter benefit so I do have a base after tax transportation expense of 1200 per year. We use weekend rentals about 2x per month (and do use a warehouse club) She uses rentals for her job about 12 times per year, and the medical transportation came in an intense burst. Access: Our nearest carshare pod is 0.22 miles (3 blocks); there are two hotels with full service rental car desks about half a mile from our house and every brand at the Amtrak station a mile away. There are concrete benefits to density, take every advantage. Insurance: I always take the rental company SLI daily insurance for $15 per day. Certain no annual fee credit cards automatically include CDW. Every time an insurance agent cold calls me, I ask for a quote for a \"\"named non owner\"\" policy, I'd probably take it if the premium was $300 or less per 6 months. Tips and tricks: a carshare minivan or truck rate is probably higher than a carshare car, but compared to a full service rental, may be much lower . The best value I spend no time in my life looking for a parking spot, and spend \"\"this hour\"\" tapping away on SE on a train instead of driving.\"", "title": "" }, { "docid": "aec159d832b416596b4ba5e39324d200", "text": "An expense is an expense. You can deduct your lease payment subject to some limitations, but you don't make out by having more expenses. Higher expenses mean lower profit. Is leasing better than owning? It depends on the car you'd buy. If your business doesn't benefit from flashiness of your car, then buying a quality used car (a few years old at most) would probably be a wiser decision financially. I'd think hard about whether you really need an up-to-date car.", "title": "" }, { "docid": "06401fa62af7f32b1642d8d2ea6771fc", "text": "\"Looking at your numbers, I would definitively consider selling the car, and use the public transportation instead. You could easily save $450 month, plus gas and maintenance. As you mentioned, public transportation will be only a fraction of this amount, so you might end up saving around $400 monthly. If you decide to keep the car, the amount that you will spent monthly is easily a payment for a brand-new car. What if, God forbid, for any kind of reason, you get a traffic ticket that can increase your insurance premium? What if the engine stops working, and you will need to spent thousands of dollars fixing the car? With this, and all of the other expenses pilled up, you might be unable to afford all this at some point. If you decide to sell the car, the money that you will save monthly can be put in a savings account (or in any other sort of \"\"safe\"\" investment instrument). In this way, if your situation changes where you need a car again, you will be able to easily afford a new car. Regarding your need to visit your friends on the suburbs every other weekend, I think you can just talk with them, and meet on places where public transportation is available, or ask them to pick you up in the nearest station to the suburbs. In conclusion, based on what you said, I do not think the \"\"little\"\" convenience that you get in owning the car outweighs the big savings that you get monthly, if you decide to sell the car.\"", "title": "" }, { "docid": "c2e80c349518ee93dd52768ec917fa84", "text": "I would take each of these items and any others and consider how you would count it as an expense in the other direction. If you have an account for parking expenses or general transportation funds, credit that account for a refund on your parking. If you have an account for expenses on technology purchases, you would credit that account if you sell a piece of equipment as you replace it with an upgrade. If you lost money (perhaps in a jacket) how would you account for the cash that is lost? Whatever account would would subtract from put a credit for cash found.", "title": "" }, { "docid": "23fc1e0f6012f54c0331ebef7ee3bf7b", "text": "Buying a used car can be risky. It can be easy to make a mistake that would lead you to buying a lemon. Suddenly, your cost-saving tactic to buy a car is costing you more than you thought. This is why before you put down the money to buy your chosen car, there are a few things you should do.", "title": "" }, { "docid": "af223850d5c390d6a986d4bdb93cfedf", "text": "Establish good saving and spending habits. Build up your savings so that when you do buy a car, you can pay cash. Make spending decisions, especially for housing, transportation and entertainment, that allow you to save a substantial portion of your income. The goal is to get yourself to a place where you have enough net worth that the return on your assets is greater than the amount you can earn by working. (BTW, this is basically what I did. I put my two sons through top colleges on my dime and retired six years ago at the age of 56).", "title": "" }, { "docid": "372d7bd635cc1c27a9062e554bf2b2c0", "text": "\"If you want to be really \"\"financially smart,\"\" buy a used good condition Corolla with cash (if you want to talk about a car that holds re-sale value), quit renting and buy a detached house close to the city a for about $4,000/month (to build equity. It's NYC the house will appreciate in value). Last but not the least, DO NOT get married. Retire at 50, sell the house (now paid after 25-years). Or LEASE a nice brand new car every year and have a good time! You're 25 and single!\"", "title": "" }, { "docid": "76f84e708a51517019013542f87d9de6", "text": "On paper the whole 6 months living costs sounds (and is) great, but in real life there are a lot of things that you need to consider. For example, my first car was constantly falling apart and was an SUV that got 16MPG. I have to travel for work (about 300 miles per week) so getting a sedan that averages close to 40MPG saves me more in gas and maintenance than the monthly payment for the new car costs. When our apartment lease was up, the new monthly rent would have been $1685 per month, we got a 30 year mortgage with a monthly payment of $1372. So buying a house actually let us put aside more each month. We have just under 3 months of living expenses set aside (1 month in liquid assets, 2 months in a brokerage account) and I worry about it. I wish we had a better buffer, but in our case the house and car made more sense as an early investment compared to just squirreling away all our savings. Also, do you have any debt? Paying off debt (student loans, credit card debt, etc.) should often take top priority. Have some rainy day funds, of course, but pay down debts, and then create a personal financial plan for what works best in your situation. That would be my suggestion.", "title": "" }, { "docid": "121b78600c056243d50d16e83fcf7327", "text": "\"Personally, I would: a) consider selling the car and replacing it with a 'cheaper' one. If you only drive it once a month, you are probably not getting much 'value' from owning a nice car. b) move the car (either current or replacement) out to your parent's place. The cost of a plane ticket is about the same as the cost of the garage, and your parents would likely hold on to it for free (assuming they live in the suburbs, and parking is not an issue) option b should lower your insurance costs (very low annual mileage) and at least you'll get some frequent flier miles out of your $350 a month. That being said: this is a \"\"quality of life\"\" issue, which means that there isn't going to be a firm answer. If you are 25, have little debt, which you are paying off on time, have an emergency fund, and you are making regular contributions to your 401k, you are certainly NOT \"\"being seriously irresponsible\"\" by owning a nice car. But you may decide that the $1000 a month could be better spent somewhere else.\"", "title": "" }, { "docid": "33471b338e365b742e7811253db3b8f5", "text": "\"I have a slightly different take on this, compared to the other answers. In general, I think your emergency fund should always be at least 3K, especially if you own a used car that is out of warranty. Any number of unlucky auto repairs could easily cost over 2K. So, if you have 7K in savings, I would personally buy a car that is 4K or less or finance any amount of the car over 4K (if you can get a relatively low interest rate). Then I would pay down the financed portion of the car as quickly as possible while maintaining at least a 3K emergency fund. That being said, notice I mentioned \"\"In general\"\". Your situation may actually be quite different. If you don't have much debt, with your income you might be able to build up a couple of thousand in savings in a single month, and if so the above doesn't really apply. Even if you spent the entire 7K on a car, you'd likely have at least 3K in your emergency fund within 60-90 days. As for what's responsible, there are too many factors to dictate that. If you don't have many other expenses, you could possibly afford a $40K car, and I don't think anyone here could fairly call that \"\"irresponsible\"\" if you spent that much, though surely no one would call it \"\"responsible\"\" either. Perhaps the best advice is to buy the least expensive car you will be happy with. Many people regret overspending on a vehicle, but few regret underspending (unless they got a lemon that requires lots of repairs). Finally, you could also consider another option. You could get a very cheap car for 1K or less and drive it for a year. By then you may have closer to 20K saved up for a much nicer car than you can afford today.\"", "title": "" }, { "docid": "02b0ae2add091e42b8d2135798eb3bc5", "text": "Prior to having children we did exactly what you describe. We would visit my mother in law about four to six times a year, a 350-mile-each-way trip for a weekend. We'd simply rent a car, drive down, drive back, return it, out $150 or so for the weekend, a total of under $1000 a year; far cheaper than owning. You should factor in whether you will save money, though, on things you might not immediately consider. Will you spend less on groceries, in particular, if you can drive to Costco or Sam's Club (or even just to a regular grocery store)? I doubt you'll save the cost of the car ($2000/year as you say), but it's possible it will factor into the mix. I definitely would discourage purchasing a new car, if you're considering the financial side primarily. I suspect you can get a used car - maybe the $10k car you would've sold - and spend more like $1000 a year on it, or less. I don't know if I'd go to the $5000 level as those in comments suggested, as if you're doing long trips you want something with higher than average reliability; but even a car like a 5 year old mid-level sedan, easily costing you less than $10k, would be fine and likely sell in 5 years for $5k itself while hopefully not having too much maintenance (especially if you choose something with lower mileage; shop around!). But even with those assumptions, 20 days a year of rental which you can probably get less than $50 rates on (particularly if you look at some of the car sharing options, Zipcar and Enterprise both allow you to do longer term rentals for reasonable prices) seems like a fine deal compared to the hassle of owning.", "title": "" }, { "docid": "ee6c38fd143f2637083b440ec48fbf01", "text": "I like Nathan's answer some, but am horribly curious as to why you have not made payments on a $3500 student loan? If you are wealthy enough to afford a new car, this should be paid off next week. IMHO. Above all else your financial goals should dictate if you buy a new car. What are they for you? If the goal is to build wealthy quickly then Nathan's advice may be to unfrugal for you. If your goal is to impress people with the car you drive and accumulate very little real wealth then purchasing or leasing a car should be a top priority. So to answer your question correctly one must understand your goals. For 2016, the average car payment is $479 per month. If you invested that in a decent growth stock mutual fund in 40 years you'll have around 2.6 million. However, you do need something to drive now. If you can cut your car expense to $200 per month, and save the other $279 you will still end up with about 1.5 million in that same 40 years. Personally I attempt to shoot for $200 ownership cost per car per month. Its a bit difficult as I drive a lot. Also I would not purchase a new car until my net worth exceeded 2 million. At that point my investments could mitigate the steep depreciation costs of owning a new car.", "title": "" }, { "docid": "0dde5983c3293f42747f39062339274b", "text": "Which way would save the most money? Paying of the car today would save the most money. Would you borrow money at 20% to put it in a savings account? That's effectively what she is doing by not paying off the car. If it were me, I would pay off the car today, and add the car payment to my savings account each month. If the car payment is $400, that's $1,500 a month that can be saved, and the $12k will be back in 8 months. That said - remember that this is your GIRLFRIEND, not a spouse. You are not in control (or responsible for) her finances. I would not tell her that she SHOULD do this - only explain it to her in different ways, and offer advice as to what YOU would do. Look together at how much has been paid in principal and interest so far, how much she's paying in interest each month now, and how much she'll pay for the car over the life of the loan. (I would also encourage her not to buy cars with a 72-month loan, which I'm guessing is how she got here). In the end, though, it's her decision.", "title": "" }, { "docid": "f3796ebab3370b9916c28dc5d95cf556", "text": "An option that no one has yet suggested is selling the car, paying off the loan in one lump sum (adding cash from your emergency sum, if need be), and buying an old beater in its place. With the beater you should be able to get a few years out of it - hopefully enough to get you through your PhD and into a better income situation where you can then assess a new car purchase (or more gently-used car purchase, to avoid the drive-it-off-the-lot income loss). Even better than buying another car that you can afford to pay for is if you can survive without that car, depending on your location and public transit options. Living car free saves you not only this payment but gas and maintenance, though it costs you in public transit terms. Right now it looks as if this debt is hurting you more than the amount in your emergency fund is helping. Don't wipe out your emergency fund completely, but be willing to lower it in order to wipe out this debt.", "title": "" } ]	fiqa
6135c4270951d4240a3ed171c8e7f7bd	Fractional Reserve Banking and Insolvency	[ { "docid": "4afc923685e57164cffc5f03708ccb5f", "text": "You bet if it was so simple. This is when financial acumen comes into its true form. The bank would never ever want to go insolvent. What it does is, take insurance against the borrower defaulting. Remember the financial crisis of 2008 which was the outcome of borrowers defaulting. The banks had created derivatives based on the loans distributed. CDO, CDS are some of the simple derivatives banks sell to cover their backs in case of defaults. There are derivatives using these derivatives as underlyings which they then sold it across to other buyers including other banks. Google for Fabrice Tourre and you would realise how much deep the banks go to save themselves from defaulters. If everything fails then go to the government for help. That was what happened when the US government doled out $600 billion to save the financial sector.", "title": "" }, { "docid": "377325cebf2c506a6b72c4a93072c639", "text": "It certainly is possible for a run on the bank to drive it into insolvency. And yes, if the bank makes some bad loans, it can magnify the problem. Generally, this does not happen, though. Remember that banks usually have lots of customers, and people are depositing money and making mortgage payments every day, so there is usually enough on-hand to cover average banking withdrawl activity, regardless of any bad loans they have outstanding. Banks have lots of historical data to know what the average withdrawl demands are for a given day. They also have risk models to predict the likelihood of their loans going into default. A bank will generally use this information to strike a healthy balance between profit-making activity (e.g. issuing loans), and satisfying its account holders. In the event of a major withdrawl demand, there are some protections in place to guard against insolvency. There are regulations that specify a Reserve Requirement. The bank must keep a certain amount of money on hand, so they can't take huge risks by loaning out too much money all at once. Regulators can tweak this requirement over time to reflect the current economic situation. If a bank does run into trouble, it can take out a short-term loan. Either from another bank, or from the central bank (e.g. the US Federal Reserve). Banks don't want to pay interest on loans any more than you do, so if they are regularly borrowing money, they will adjust thier cash reserves accordingly. If all else fails and the bank can't meet its obligations (e.g. the Fed loan fell through), the bank has an insurance policy to make sure the account holders get paid. In the US, this is what the FDIC is for. Worst case, the bank goes under, but your money is safe. These protections have worked pretty well for many decades. However, during the recent financial crisis, all three of these protections were under heavy strain. So, one of the things banking regulators did was to put the major banks through stress tests to make sure they could handle several bad financial events without collapsing. These tests showed that some banks didn't have enough money in reserve. (Not long after, banks started to increase fees and credit card rates to raise this additional capital.) Keep in mind that if banks were unable to use the deposited money (loan it out, invest it, etc), the current financial landscape would change considerably.", "title": "" }, { "docid": "b86c1cbdb17f2e81ad4cf75f52432758", "text": "A bank is insolvent when it can no longer meet its short-term obligations. In this example, the bank is insolvent when depositors withdraw more cash than the bank can pay out. In this case, it's probably something in the range of $600-700k, because the bank can borrow money from other banks using assets as collateral. In the US, we manage this risk in a few ways. First, FDIC insurance provides a level of assurance that in a worst-case scenario, most depositors will have access to their money guaranteed by the government. This prevents bank panics and reduces the demand for cash. The risk that remains is the risk that you brought up in your scenario -- bad debt or investments that are valued inappropriately. We mitigate this risk by giving the Federal Reserve and in some instances the US Treasure the ability to provide nearly unlimited capital to get over short/mid-term issues brought on by the market. In cases of long-term, structural issues with the bank balance sheets, regulators like the FDIC, Federal Reserve and others have the ability to assume control of the bank and sell off its assets to other, stronger institutions. The current financial regime has its genesis in the bank panics of the 1890's, when the shift from an agricultural based economy (where no capital is available until the crops come in!) to an industrial economy revealed the weakness of the unregulated model where ad hoc groups of banks backed each other up. Good banks were being destroyed by panics until a trusted third party (JP Morgan) stepped in, committed capital and make personal guarantees.", "title": "" }, { "docid": "b2209ec17ae74b846904e8454b57f5aa", "text": "\"Your question points out how most fractional reserve banks are only a couple of defaults away from insolvency. The problem arises because of the terms around the depositors' money. When a customer deposits money into a bank they are loaning their money to the bank (and the bank takes ownership of the money). Deposit and savings account are considered \"\"on-demand\"\" accounts where the customer is told they can retrieve their money at any time. This is a strange type of loan, is it not? No other loan works this way. There are always terms around loans - how often the borrower will make payments, when will the borrower pay back the loan, what is the total time frame of the loan, etc.. The bank runs into problems because the time frame on the money they borrowed (i.e. deposits) does not match the time frame on the money they are lending.\"", "title": "" } ]	[ { "docid": "d7a78554226f07c7c8ed4a01314b6a78", "text": "Doesnt mean that equity or even debt holders wouldn't lose their investment. Those money and banking texts are presently useless post GFC given the incredible moral hazard and how all of the traditional bankruptcy rules were ignored.", "title": "" }, { "docid": "55a5fffb10cf9df7ac41237661486a45", "text": "Yeah, and what blows my mind most is that there was a very easy out for regulatory relief that would have actually brought us closer to compliance with BCBS rules. In the US the threshold for Basel rules is $50B in assets, while under Basel III and in most of the world its €250B. Just adopting this standard would give small banks relief. As an aside, the new law would also make it harder for the Fed to adopt the Basel III finalization rules, which are incredibly advantageous to US banks and which we fought hard for.", "title": "" }, { "docid": "02668115560817ac77fa337dcad84799", "text": "This article talks about State controlled banking, before 1913 - the power of printing money and all that was under control of the State (Congress). If they shut down the Federal Reserve, they would then be able to eliminate the fractional reserve banking method and government wouldn't have to pay intertest to borrow in their own currency.", "title": "" }, { "docid": "82c00090f214fc6bc97bcd13ce058905", "text": "If thats how you feel (its how I feel ) then the last thing you want bankers doing is accepting deposits from people who think their money is not being risked, then making loans with it (fractional reserve banking). And fdic is not an answer to that fundamental problem.", "title": "" }, { "docid": "79e9fe577e26289e04753433d58d0e6a", "text": "How can banks be expected to make good decisions when they are not responsible for creating their own reserve? Do you think that the banking system could run without FDIC? And why? And what is your opinion on local banking vs. big corp banking?", "title": "" }, { "docid": "cb3bbbf3c817b7a173fbd0fcbf065452", "text": "Your question contains two different concepts: fractional reserve banking and debt-based money. When thinking of these two things I think it is important to analyze these items separately before trying to understand how the whole system works. Fractional Reserve Banking As others have pointed out fractional reserve banking is not a ponzi scheme. It can be fraudulent, however. If a bank tells all its depositors that they can withdrawal their money at any time (i.e. on demand) and the bank then proceeds to loan out some portion of the depositors' money then the bank has committed fraud since there is no way they could honor the depositors' requests for their money if many of them came for their money at one time. This is true regardless of what type of money is deposited - dollars, gold, etc.. This is how most modern banks operate. Debt-based money Historically, the Fed would introduce new money by buying US Treasuries. This means Federal Reserve Notes (FRN) are backed by US Treasuries. I agree that this seems strange. Does this mean if I take my FRNs to the Fed I could redeem them for US Treasuries? But US Treasuries are promises to pay FRNs in the future. This makes my head hurt. Reminds me of the definition for recursion: see recursion. Here is an experiment. What if we wanted to recreate FRNs today and none existed? The US government would offer a note to pay 100 FRNs in one year and pay 5% interest on the note. The Fed would print up its first 100 FRNs to buy the note from the US government. The US government would spend the FRNs. The first 100 FRNs have now entered into circulation. At the end of the note's term the Fed should have 105 FRNs since the government agreed to pay 5% interest on the note. But how is the US government going to pay the interest and principal on the note when only 100 FRNs exist? I think this is the central point to your question. I can come up with only two answers: 1) the Fed must purchase some assets that are not debt based 2) the US government must continue to issue debt that is purchased by newly printed FRNs in order to pay back older debt and interest. This is a ponzi scheme. The record debt levels seem to indicate the ponzi scheme option was chosen.", "title": "" }, { "docid": "4564d6f769069cac51d5d90d0287226f", "text": "as in, the person you made the agreement with can no longer fulfill the contract's requirements. It's the same thing as if they went bankrupt, you would have to pursue legal channels to recover your dues. Granted in an FX forward you would only have to deliver your part at expiration, so you could hold out if you know the counterparty is dead/bankrupt.", "title": "" }, { "docid": "30036900c61f555fd1276bf5e10425c8", "text": "\"Why would a bank buy government bonds? Why couldn't they just deposit their money in another bank instead? Generally, banks are limited by laws and regulations about how much they must set aside as reserves. Of the money they receive as deposits, they may loan a certain amount, but must keep some as a reserve (this is called \"\"fractional reserve banking\"\"). Different countries have a different amount that they must set aside in reserves. In countries where bank deposits are guaranteed, there is almost always some upper limit to how much is guaranteed. The amount of money that a bank would deposit in another bank would be far greater than the guarantee.\"", "title": "" }, { "docid": "2e43e02d84c8a9e61a23e3cd4dc8d3f8", "text": "Everyone understands the necessity of those bailouts today. But I still contest that they were a net negative for the common man and a HUUUUUUUUUGE positive for the bank executives. In fact, the fallout from it - the conceptualisation of TBTF and GSIB etc - is basically a blank check for these banks. Oh yes, so many stringent regulations that we know for a fact that these banks will flout at the first opportunity available to them. And then, assuming it doesn't bring the global economy to its knees, someone will slap a billion dollar fine on them and let them go on their merry way.", "title": "" }, { "docid": "4c05196cadb750e8859fb1537cd59459", "text": "I don't know much about the convertible debt space, but it seems like this regulation may be a positive sign that the government is being proactive in preventing financial institutions from developing overly complex debt structures (at least on an on-going basis) that get the global economy back into trouble. Does anyone with a more informed opinion than my own have something to share?", "title": "" }, { "docid": "a97a55ff1d603849bb7ca369e42394b4", "text": "\"SIPC is a corporation - a legal entity separate from its owners. In the case of SIPC, it is funded through the fees paid by its members. All the US brokers are required to be members and to contribute to SIPC funds. Can it go bankrupt? Of course. Any legal entity can go bankrupt. A person can go bankrupt. A country can go bankrupt. And so can anything in between. However, looking at the history of things, there are certain assumptions that can be made. These are mere guesses, as there's no law about any of these things (to the best of my knowledge), but seeing how things were - we can try and guess that they will also be like this in the future. I would guess, that in case of a problem for the SIPC to meet its obligation, any of the following would happen (or combinations): Too big to fail - large insurance companies had been bailed out before by the governments since it was considered that their failure would be more destructive to the economy than the bailout. AIG as an example in the US. SIPC is in essence is an insurance company. So is Lloyd's of London. Breach of trust of the individual investors that can lead to a significant market crash. That's what happened in the US to Fannie Mae and Freddie Mac. They're now \"\"officially\"\" backed by the US government. If SIPC is incapable of meeting its obligation, I would definitely expect the US government to step in, even though there's no such obligation. Raising funds through charging other members. If the actuary calculations were incorrect, the insurance companies adjust them and raise premiums. That is what should happen in this case as well. While may not necessarily solve a cashflow issue, in the long term it will allow SIPC to balance, so that bridge loans (from the US government/Feds/public bonds) could be used in between. Not meeting obligations, i.e.: bankruptcy. That is an option, and insurance companies have gone bankrupt before. Not unheard of, but from the past experience - again, I'd expect the US government to step in. In general, I don't see any significant difference between SIPC in the US and a \"\"generic\"\" insurance coverage elsewhere. Except that in the US SIPC is mandatory, well regulated, and the coverage is uniform across brokerages, which is a benefit to the consumer.\"", "title": "" }, { "docid": "3a6335622f8a3acaa31061005b25dd52", "text": "Cyprus could be forced into such a position because the deposits are euro-denominated and the issuing central bank sits outside the sovereign authority of Cyprus. So they could go, hat in hand, to the ECB asking them to backstop deposits. A lender of last resort function that is more or less a given in countries with their own sovereign currencies. In a country like the US, where deposits are denominated in US dollars and the US is the issuer of the dollar, there would always be a option. Bail-ins are certainly possible as a political choice but they'd never be the only option. Which is why you didn't see them or depositor losses of any kind in spite of hundreds of bank failures in the wake of the 2008 crisis.", "title": "" }, { "docid": "362edb20d7add179442507d6e995c2da", "text": "Most national banks are required by the regulations of their host countries to hold significant reserves in the form of government debt. A default would likely wipe out their capital and your common stock would become worthless. The common stock only has positive value today because of the option value based on the possibility the host country will evade a default.", "title": "" }, { "docid": "e07966fa3664bfae6491a7c6683b71bc", "text": "\"It's helpful to remember that Charles Ponzi started with a legitimate arbitrage (international postal remittances). Once purveyors of arbitrage reach a certain scale, there's a natural tendency to become lazy and just forgo the arbitrage and just use new investor money to pay off previous investors. Banks wouldn't be any different if it weren't for central banks and government participation. Indeed, the primary reason that the FedResInk came into existence is because of ponzi-like bank failures (bankers call them \"\"a run on the bank\"\"). Neoclassical economics is about using the synthesis of state sovereignty and central bank monetary theory to keep the system they've developed intact. ...and, as fun as it might be to sit back and calculate just how much debt can be created from a life-time of labor proceeds (a couple million for the average person-- completely hypothetical back of the envelope inflation excluded, 4.5x10^14, which is still in middle of the trillions), it would be wise to keep in mind that the last banking crisis, while fundamentally caused by the inability to collect future labor proceeds, was precipitated, not by individuals, but by repurchase agreements propping up extremely leveraged positions made by and between massive investment banks. So, the thing to remember is that fractional reserve debt issuance banking is like a 10 to 1 transistor that has a fundamental tolerance requirement on the source signal, but that when the source signal fades, it can draw from the surplus signal created by the 10 to 1 amplification (up to a certain point and then the transistor goes up in a puff of smoke).\"", "title": "" }, { "docid": "ea509faa7610649e8b47f1a783e5df83", "text": "Have you ever considered how much faith and confidence play a role in the financial sector? The calling in of swaps could cause issues similar to a Bank Run, which may or may not involve others coming into play. While this is cleaning up the mess from a few years ago, there is something to be said for how complicated are various financial instruments in this situation. If you want something similar to ponder, what would make any institution be considered major and would this be agreed by various countries given how connected things are within the world? What makes an institution major in the United States may not be quite the same standards in Brazil and this where one has to consider how to maintain faith in the system that could unravel rather badly if everyone tries to cash out at the same time. The Bank Run link above is something to consider that could cause a bank that appears fine to suddenly have speculators cause more disruptions which isn't likely to help. The global credit markets aren't likely to freeze overnight and thus there can be the question how does this get handled if another mess could arise. The idea here is to set up the framework to prevent the panic that could lead to a global depression. The idea is to create for derivatives something similar to the stock market's trading curbs that exist to contain panic on a macro level. The psychology is quite important in figuring out how to handle the obligations of a company that was perceived to be infallible as well as making sure what is agreed works across various cultures and currencies.", "title": "" } ]	fiqa
e55f8717906b52b71fe7f5badc68250d	When is it better to rent and when is better buy in a certain property market?	[ { "docid": "2669fc66733ed6fbfa361a18d255cba9", "text": "Besides the long-term concern about which is cheaper, which has already been addressed by other answers, consider your risk exposure. Owning property has financial risks associated with it, just like owning stocks or bonds. The risk-related downsides of owning a home as an asset include: The risk-related upsides of owning a home as an asset include: Taking on some risk can save you (or earn you) money in the long run (that's why people buy risky stocks, after all) but consider how well you're equipped to handle that risk before you rush out to buy on a naive analysis of what's cheaper.", "title": "" }, { "docid": "d8b7786c9df393ebf88eb4238d98e569", "text": "\"For US punters, the Centre for Economic and Policy Research has a Housing Cost Calculator you can play with. The BBC provides this one for the UK. For everyone else, there are a few rules of thumb (use with discretion and only as a ball-park guide): Your example of a Gross Rental Yield of 5% would have to be weighed up against local investment returns. Read Wikipedia's comprehensive \"\"Real-estate bubble\"\" article. Update: spotted that Fennec included this link at the NY Times which contains a Buy or Rent Calculator.\"", "title": "" }, { "docid": "20da5e3454724a069f2da9ac07b7cca3", "text": "The Motley Fool suggested a good rule of thumb in one of their articles that may be able to help you determine if the market is overheating. Determine the entire cost of rent for a piece of property. So if rent is $300/month, total cost over a year is $3600. Compare that to the cost of buying a similar piece of property by dividing the property price by the rent per year. So if a similar property is $90,000, the ratio would be $90,000/$3600 = 25. If the ratio is < 20, you should consider buying a place. If its > 20, there's a good chance that the market is overheated. This method is clearly not foolproof, but it helps quantify the irrationality of some individuals who think that buying a place is always better than renting. Additionally, Alex B helped me with two additional sources of information for this: Real Estate is local, all the articles here refer to the US housing market. Bankrate says purchase price / annual rate in the US has a long term average of 16.0. Fool says Purchase Price/Monthly Rent: 150 is good buy, 200 starts to get expensive This answer is copy pasted from a similar question (not the same so I did not vote to merge) linked here..", "title": "" }, { "docid": "fe01cf783517851190e850c782fee163", "text": "The first question is low long will you wish to stray there? It costs of lot in legal changes other changes plus taxes to buy and sell, so if you are not going to wish to live somewhere for at least 5 years, then I would say that renting was better. Do you wish to be able to make changes? When you rent, you can’t change anything without getting permission that can be a pain. Can you cope with unexpected building bills? If you own a home, you have to get it fixed when it breaks, but you don’t know when it will break or how much it will cost to get fixed. Would you rather do a bit of DIY instead of phone up a agent many times to get a small problem fixed? When you rent, it can often take many phone calls to get the agent / landlord to sort out a problem, if own your home, out can do yourself. Then there are the questions of money that other people have covered.", "title": "" }, { "docid": "18cb1c1a05f67853bb594568740c7fa2", "text": "\"No magic answers here. Housing is a market, and the conditions in each local market vary. I think impact on cash flow is the best way to evaluate housing prices. In general, I consider a \"\"cheap\"\" home to cost 20% or less of your income, \"\"affordable\"\" between 20-30% and \"\"not affordable\"\" over 30%. When you start comparing rent vs. buy, there are other factors that you need to think about: Renting is an easy transaction. You're comparing prices in a market that is usually pretty stable, and your risk and liability is low. The \"\"cost\"\" of the low risk is that you have virtually no prospects of recouping any value out of the cash that you are laying out for your home. Buying is more complex. You're buying a house, building equity and probably making money due to appreciation. You need to be vigilant about expenses and circumstances that affect the value of your home as an investment. If you live in a high-tax state like New York, an extra $1,200 in property taxes saps over $16,000 of buying (borrowing) power from a future purchaser of your home. If your HOA or condo association is run by a pack of idiots, you're going to end up paying through the nose for their mistakes. Another consideration is your tastes. If you tend to live above your means, you're not going to be able to afford necessary maintenance on the house that you paid too much for.\"", "title": "" } ]	[ { "docid": "5a7975f7b904e476239cf8f0dc1eb4de", "text": "\"If I buy property when the market is in a downtrend the property loses value, but I would lose money on rent anyway. So, as long I'm viewing the property as housing expense I would be ok. This is a bit too rough an analysis. It all depends on the numbers you plug in. Let's say you live in the Boston area, and you buy a house during a downtrend at $550k. Two years later, you need to sell it, and the best you can get is $480k. You are down $70k and you are also out two years' of property taxes, maintenance, insurance, mortgage interest maybe, etc. Say that's another $10k a year, so you are down $70k + $20k = $90k. It's probably more than that, but let's go with it... In those same two years, you could have been living in a fairly nice apartment for $2,000/mo. In that scenario, you are out $2k * 24 months = $48k--and that's it. It's a difference of $90k - $48k = $42k in two years. That's sizable. If I wanted to sell and upgrade to a larger property, the larger property would also be cheaper in the downtrend. Yes, the general rule is: if you have to spend your money on a purchase, it's best to buy when things are low, so you maximize your value. However, if the market is in an uptrend, selling the property would gain me more than what I paid, but larger houses would also have increased in price. But it may not scale. When you jump to a much larger (more expensive) house, you can think of it as buying 1.5 houses. That extra 0.5 of a house is a new purchase, and if you buy when prices are high (relative to other economic indicators, like salaries and rents), you are not doing as well as when you buy when they are low. Do both of these scenarios negate the pro/cons of buying in either market? I don't think so. I think, in general, buying \"\"more house\"\" (either going from an apartment to a house or from a small house to a bigger house) when housing is cheaper is favorable. Houses are goods like anything else, and when supply is high (after overproduction of them) and demand is low (during bad economic times), deals can be found relative to other times when the opposite applies, or during housing bubbles. The other point is, as with any trend, you only know the future of the trend...after it passes. You don't know if you are buying at anything close to the bottom of a trend, though you can certainly see it is lower than it once was. In terms of practical matters, if you are going to buy when it's up, you hope you sell when it's up, too. This graph of historical inflation-adjusted housing prices is helpful to that point: let me just say that if I bought in the latest boom, I sure hope I sold during that boom, too!\"", "title": "" }, { "docid": "8235e95dbdf4a3ee49fa95b34de43948", "text": "The main point to consider is that your payments toward your own home replace your rent. Any house or apartment you buy will have changes in value; the value is generally going slowly up, but there is a lot of noise, and you may be in a low phase at any time, and for a long time. So seeing it as an investment is not any better than buying share or funds, and it has a much worse liquidity (= you cannot as easily make it to cash when you want to), and not in parts either. However, if you buy for example a one-room apartment for 80000 with a 2% mortgage, and pay 2% interest = 1600 plus 1% principal = 800, for a total of 2400 per year = 200 per month, you are paying less than your current rent, plus you own it after 30 years. Even if it would be worth nothing after 30 years, you made a lot of money by paying half only every month, and it probably is not worthless. You need to be careful not to compare apples with oranges - if you buy a house for 200000 instead, your payments would be higher than your rent was, but you would be living in your house, not in a room. For most people, that is worth a lot. You need to put your own value to that; if you don't care to have a lot more space and freedom, the extra value is zero; if you like it, put a price to it. With current interest rates, it is probably a good idea for most people to buy a house that they can easily afford instead of paying rent. The usual rules should be considered - don't overstretch yourself, leave some security, etc. Generally, it is rather difficult to buy an affordable house instead of renting today and not saving a lot of money in the process, so I would say go for it.", "title": "" }, { "docid": "cf50c055b7f7ddb663a5590ce31ba4b3", "text": "Be very careful about buying property because it has been going up quickly in recent years. There are some fundamental factors that limit the amount real-estate can appreciate over time. In a nutshell, the general real-estate market growth is supported by the entry-level property market. That is, when values are appreciating, people can sell and use the capital gains to buy more valuable property. This drives up the prices in higher value properties whose owners can use that to purchase more expensive properties and so on and so forth. At some point in a rising market, the entry-level properties start to become hard for entry-level buyers to afford. The machine of rising prices throughout the market starts grinding to a halt. This price-level can be calculated by looking at average incomes in an area. At some percentage of income, people cannot buy into the market without crazy loans and if those become popular, watch out because things can get really ugly. If you want an example, just look back to the US in 2007-2009 and the nearly apocalyptic financial crisis that ensued. As with most investing, you want to buy low and sell high. Buying into a hot market is generally not very profitable. Buying when the market is abnormally low tends to be a more effective strategy.", "title": "" }, { "docid": "9bd43553a329e765a2368198373ddf5c", "text": "\"This is a comment, not an answer. -- but it needs saying and doesn't fit in the comment boxes. Owning is not always cheaper than renting. Houses don't always appreciate, and in the early years of a loan you're mostly paying interest. -- so that too is \"\"lost money \"\". The time to buy a house is when you are reasonably sure you aren't going to move in the next five years or so, you need something a rental can't give you, you have at least 20% to put down so you avoid the pmi rip-off, you've run a full budget including upkeep and insurance costs and are sure you can carry the house worst-case ... including if you're out of work for an extended time... (I've seen people lose a job and discover that they can't keep the house, and can't unload it quickly. Good route toward bankruptcy. Houses are not a liquid asset, and being \"\"house-rich, cash-poor\"\" is potentially dangerous. ) If you really hate apartments, remember that sometimes you can rent houses too, often at lower cost per square foot. Basically, don't be stampeded into buying. I rented for two decades before I bought. And by/while doing so I was able to put aside enough investments that I could have bought a half-million-dollar house for cash, and was able to change cities several times without the stress of having to sell and re-buy. I missed out on the insane housing bubble, but I also avoided being hit when that crashed.\"", "title": "" }, { "docid": "4baef5a14ff7cef472938983fe51ce2e", "text": "More leverage means more risk. There is more upside. There is also more downside. If property prices and/or rents fall then your losses are amplified. If you leverage at 90% then a 5% fall means you've lost half your money.", "title": "" }, { "docid": "145e74fa3efcff20e658426555ae1a21", "text": "In most cases my preference would be to buy. However, if you intend to sell after just one year I would maybe lean towards renting. You haven't included buying and selling cost into your equation nor any property taxes, and as John Bensin suggests, maintenance costs. If you were looking to hold the property for at least 5 years, 10 years or more, then if the numbers stood up, I would defiantly go with the buy option. You can rent it out after you move out and if the rent is higher than your total expenses in holding the property, you could rely on some extra passive income.", "title": "" }, { "docid": "12b393f48f29a67fb2145c2685cdab24", "text": "\"Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property? If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is \"\"too good to not get into\"\" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio! However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks. In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets. So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon. In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund.\"", "title": "" }, { "docid": "48afeed212c2d44d7878e3a0f08b085b", "text": "\"I'd probably say \"\"buy\"\" for most situations. Unless you have a long-term lease, you're going to be saddled with elastic/rising rents if the market tightens up, while with a purchase you usually have fixed expenses (with the exception of property taxes/condo fees) and you are gaining equity. As I've gotten older, the prospect of moving is more and more daunting. The prospect of being essentially kicked out of my home when the landlord decides to sell the property or raise the rent is a turn-off to me.\"", "title": "" }, { "docid": "57d66880aced300bb4bcaf0bfbcd4e8d", "text": "\"I think the claim is that you shouldn't buy a house expecting it to increase in value as you would a stock portfolio. OTOH if you are looking at it from the stand point of \"\"I need housing, mortgage payments and rent are comparable and I build equity if I buy a house rather then rent\"\" that's potentiality a very different situation (that I'm not qualified to judge).\"", "title": "" }, { "docid": "d7efcc9ce455dbede53c896dffa0d409", "text": "Buying is not always better than renting, even if you aren't mobile! That depends on local market conditions. If you're investing the money reasonably you may do as well as or better than the house-buyer, and your funds will be tremendously more liquid.", "title": "" }, { "docid": "aca780c795d9f52a405b9d044e55a285", "text": "Economically, you would say that purchased and rented real estate are not perfect substitutes--they are largely separate markets. Only a few people are able to easily switch from one to the other and that choice is sticky--for example, once you buy a house, prices would have to rise a lot for it to be worth it to sell it and move into an apartment. In both markets there is a supply and demand curve, but the slope of the demand curve for houses to purchase is much steeper than the demand curve for rentals. The market for new housing fluctuates rapidly because it requires a large change in housing prices to change the number of people looking to buy a house. Most decisions to buy a house are not driven by the state of the housing market. This describes a supply/demand graph with a very steep demand curve. Additionally, because of the leverage provided by mortgages, the demand for houses depends critically on relatively small changes in the interest rate and availability of loans. Thus the steep demand curve shifts all over the place as borrowing conditions change. On the other hand, apartment prices are more stable because people easily move from one apartment to another and people living in their parent's basements easily move into apartments if prices change. A small change in the price or quantity of rentals brings about reasonable response in quantity demanded. This is the situation where the demand curve is shallow. In addition, rentals are not tied to interest rates tightly, nor are they as strongly tied to economic conditions (in a recession, people avoid buying but renters continue to rent).", "title": "" }, { "docid": "111f74c4834d4b8adee65a1ad58c9d5f", "text": "There are many different reasons to buy property and it's important to make a distinction between commercial and residential property. Historically owning property has been part of the American dream, for multiple reasons. But to answer your questions, value is not based on the age of the building (however it can be in a historic district). In addition the price of something and it's value may or may not be directly related for each individual buyer/owner (because that becomes subjective). Some buildings can lose there value as time passes, but the depends on multiple factors (area, condition of the building, overall economy, etc.) so it's not that easy to give a specific answer to a general question. Before you buy property amongst many things it's important to determine why you want to buy this property (what will be it's principal use for you). That will help you determine if you should buy an old or new property, but that pales in comparison to if the property will maintain and gain in value. Also if your looking for an investment look into REIT (Real Estate Investment Trust). These can be great. Why? Because you don't actually have to carry the mortgage. Which makes that ideal for people who want to own property but not have to deal with the everyday ins-and-outs of the responsibility of ownership....like rising cost. It's important to note that the cost of purchase and cost of ownership are two different things but invariably linked when buying anything in the material strata of our world. You can find publicly traded REITs on the major stock exchanges. Hope that helps.", "title": "" }, { "docid": "219825e9f65a262e7eeab06b83097b17", "text": "The banks see small apartments as a higher risk because usually very small apartments are harder to sell, especially during a falling market when there is an oversupply of these apartments. The price of small apartments will also fall a lot quicker in a falling market. Regarding yield vs capital growth - the emphasis here is manly on high yielding properties in small country towns with small populations. How many properties can you buy with cash? Properties with good growth will enable you to build equity quicker and enable you to build a larger portfolio. In my opinion you need a combination of good yield and reasonable growth, because without yield you cannot replace your earned income with passive income, but without growth you can't expand your portfolio. So a combination of good yield with reasonable growth will give the best outcome.", "title": "" }, { "docid": "20740f5842204ad615cd3309fc8cd602", "text": "Will buying a flat which generates $250 rent per month be a good decision? Whether investing in real estate is a good decision or not depends on many things, including the current and future supply/demand for rental units in your particular area. There are many questions on this site about this topic, and another answer to this question which already addresses many risks associated with owning property (though there are also benefits to consider). I just want to focus on this point you raised: I personally think yes, because rent adjusts with inflation and the rise in the price of the property is another benefit. Could this help me become financially independent in the long run since inflation is getting adjusted in it? In my opinion, the fact that rental income general adjusts with 'inflation' is a hedge against some types of economic risk, not an absolute increase in value. First, consider buying a house to live in, instead of to rent: If you pay off your mortgage before your retire, then you have reduced your cost of accommodations to only utilities, property taxes, and repairs. This gives you a (relatively) known, fixed requirement of cash outflows. If the value of property goes up by the time you retire - it doesn't cost you anything extra, because you already own your house. If the value of property goes down by the time you retire, then you don't save anything, because you already own your house. If you instead rent your whole life, and save money each month (instead of paying off a mortgage), then when you retire, you will have a larger amount of savings which you can use to pay your monthly rental costs each month. By the time you retire, your cost of accommodations will be the market price for rent at that time. If the value of property goes up by the time you retire - you will have to pay more on rent. If the value of property goes down by the time you retire, you will save money on rent. You will have larger savings, but your cash outflow will be a little bit less certain, because you don't know what the market price for rent will be. You can see that, because you need to put a roof over your own head, just by existing you bear risk of the cost of property rising. So, buying your own home can be a hedge against that risk. This is called a 'natural hedge', where two competing risks can mitigate each-other just by existing. This doesn't mean buying a house is always the right thing to do, it is just one piece of the puzzle to comparing the two alternatives [see many other threads on buying vs renting on this site, or on google]. Now, consider buying a house to rent out to other people: In the extreme scenario, assume that you do everything you can to buy as much property as possible. Maybe by the time you retire, you own a small apartment building with 11 units, where you live in one of them (as an example), and you have no other savings. Before, owning your own home was, among other pros and cons, a natural hedge against the risk of your own personal cost of accommodations going up. But now, the risk of your many rental units is far greater than the risk of your own personal accommodations. That is, if rent goes up by $100 after you retire, your rental income goes up by $1,000, and your personal cost of accommodations only goes up by $100. If rent goes down by $50 after you retire, your rental income goes down by $500, and your personal cost of accommodations only goes down by $50. You can see that only investing in rental properties puts you at great risk of fluctuations in the rental market. This risk is larger than if you simply bought your own home, because at least in that case, you are guaranteeing your cost of accommodations, which you know you will need to pay one way or another. This is why most investment advice suggests that you diversify your investment portfolio. That means buying some stocks, some bonds, etc.. If you invest to heavily in a single thing, then you bear huge risks for that particular market. In the case of property, each investment is so large that you are often 'undiversified' if you invest heavily in it (you can't just buy a house $100 at a time, like you could a stock or bond). Of course, my above examples are very simplified. I am only trying to suggest the underlying principle, not the full complexities of the real estate market. Note also that there are many types of investments which typically adjust with inflation / cost of living; real estate is only one of them.", "title": "" }, { "docid": "c2e3c7f5fb105ce3e747adffa80e6961", "text": "American options (like those on ADBE) can be exercised by the holder anytime before expiration. They will be exercised automatically at expiration if they are in the money. However, if there is still time before expiration (as in this case), and they are not extremely in the money, there is probably extrinsic value to the option, and you should sell it, not exercise it. European options are only automatically exercised at expiration, and only if they are in the money. These are usually cash settled on products like SPX or VIX. They can not be exercised before expiration, but can be sold anytime.", "title": "" } ]	fiqa
faf74d6a6b8978ed831911accbcf0f7e	What traditionally happens to bonds when the stock market crashes?	[ { "docid": "e06513ea6682d175b2be99e6ede27c69", "text": "The short answer is if you own a representative index of global bonds (say AGG) and global stocks (say ACWI) the bonds will generally only suffer minimally in even the medium large market crashes you describe. However, there are some caveats. Not all bonds will tend to react the same way. Bonds that are considered higher-yield (say BBB rated and below) tend to drop significantly in stock market crashes though not as much as stock markets themselves. Emerging market bonds can drop even more as weaker foreign currencies can drop in global crashes as well. Also, if a local market crash is caused by rampant inflation as in the US during the 70s-80s, bonds can crash at the same time as markets. There hasn't been a global crash caused by inflation after countries left the gold standard, but that doesn't mean it can't happen. Still, I don't mean to scare you away from adding bond exposure to a stock portfolio as bonds tend to have low correlations with stocks and significant returns. Just be aware that these correlations can change over time (sometimes quickly) and depend on which stocks/bonds you invest in.", "title": "" }, { "docid": "68379ec96b414de08349c1d219ab07ad", "text": "It depends. Very generally when yields go up stocks go down and when yields go down stocks go up (as has been happening lately). If we look at the yield of the 10 year bond it reflects future expectations for interest rates. If the rate today is very low but expectations are that the short term rates will go up that would be reflected in a higher yield simply because no one would buy the longer term bond if they could simply wait out and get a better return on shoter term investments. If expectations are that the rate is going down you get what's called an inverted yield curve. The inverted yield curve is usually a sign of economic trouble ahead. Yields are also influenced by inflation expectations as @rhaskett is alluding in his answer. So. If the stock market crashes because the economy is doing poorly and if interest rates are relatively high then people would expect the rates to go down and therefore bonds will go up! However, if there's rampant inflation and the rates are going up we can expect stocks and bonds to move in opposite directions. Another interpretation of that is that one would expect stock prices to track inflation pretty well because company revenue is going to go up with inflation. If we're just talking about a bump in the road correction in a healthy economy I wouldn't expect that to have much of an immediate effect though bonds might go down a little bit in the short term but possibly even more in the long term as interest rates eventually head higher. Another scenario is a very low interest rate environment (as today) with a stock market crash and not a lot of room for yields to go further down. Both stocks and bonds are influenced by current interest rates, interest rate expectations, current inflation, inflation expectations and stock price expectation. Add noise and stir.", "title": "" }, { "docid": "2d4595c4e33035d108c772b10d26fa5b", "text": "It depends on why the stocks crashed. If this happened because interest rates shot up, bonds will suffer also. On the other hand, stocks could be crashing because economic growth (and hence earnings) are disappointing. This pulls down interest rates and lifts bonds.", "title": "" } ]	[ { "docid": "678321dc324d785df27ed89d68c40fdc", "text": "The price of a bond goes up when yields go down. For example, you purchase a 5% bond today for $100 and the very next day the same bond is being offered with a rate of 10%. Will you be able to sell you bond for the $100 you paid? No, you must compete with the 10% bonds being sold so you will have to sell your bond for less than the $100 you paid to compete with the new bonds being sold. Thus, bond prices are inversely related to bond yields. The 20-year index you cited tracks bond prices and bond prices have gone up over the last 10 years which means bond yields have gone down. Why have bond prices gone up? Demand. More investors are moving their savings into bonds. Why? I believe there a couple of reasons. One, US Treasuries are thought to be one of the safest investments. With the financial crisis and increased stock market volatility (see chart below) more investors are allocating more of their portfolios to safer investments. Two, a large portion of the US population is approaching retirement (see chart below). These folks are not interested in watching their retirement portfolios potentially shrink in the stock market so they move into bonds.", "title": "" }, { "docid": "253f08c693065cd6257f4a858016434d", "text": "The only purpose the ILS market fills is directly lining up capital to pay for potential cats. Unless you're doing directly that you don't really have a way to participate, long or short. The cat bond market really isn't liquid or developed enough for derivatives to exist at this point. Due to the losses this year the cat bond market could shrink significantly too because all the existing catastrophe models have seemed to be inadequate to model these occurrences and investors are losing their shirts. There are questions of the extent to which the alternative capital in the reinsurance market will reload in the wake of 2017.", "title": "" }, { "docid": "f5f8e55a69c763efd9c32592762998ef", "text": "When the market moves significantly, you should rebalance your investments to maintain the diversification ratios you have selected. That means if bonds go up and stocks go down, you sell bonds and buy stocks (to some degree), and vice versa. Sell high to buy low, and remember that over the long run most things regress to the mean.", "title": "" }, { "docid": "7678d76e4983abfebdf8c18da0f8280e", "text": "The only reason I can think of is that the bonds are bought automatically by some investment pools, groups or institutions. That will stop very quickly once the management finds some other place to put the money.", "title": "" }, { "docid": "7755f8c87469a7bce12e478865efa8ef", "text": "When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.", "title": "" }, { "docid": "5fc6449416d4cd15fa5c851bc0040ca0", "text": "If the equity market in the USA crashed, its very likely equity markets everywhere else would crash. The USA has a high number of the world's largest businesses and there are correlations between equity markets. So you need to think of equities as a global asset class, not regional. Your question is then a question about the correlation between equity markets and currency markets. Here's a guess: If equity markets crashed, you would see a lot of panic selling of stocks denominated in many currencies, but probably the most in USD, due to the large number of the world's largest businesses trading on US stock exchanges. Therefore, when the rest of the world sells US equities they receive cash USD, which they might sell for their local currency. That selling pressure would cause USD to fall. But, when equity markets crash there's a move to safety of the bond markets. The world's largest bond markets are denominated in which currency? Probably USD. So those who receive USD for their equities are going to spend that USD on bonds. In which case there is probably no correlation between equity markets and currency markets at all. A quick google search shows this kind of thing", "title": "" }, { "docid": "fa55bd0e31d67abbb38aa62b2b55f7e1", "text": "Investopedia has a good explanation of the term shorting which is what this is. In the simplest of terms, someone is borrowing the bond and selling it with the intent to replace the security and any dividends or coupons in the end. The idea is that if a bond is overvalued, one may be able to buy it back later for a cheaper price and pocket the difference. There are various rules about this including margin requirements to maintain since there is the risk of the security going up in price enough that someone may be forced into a buy to cover in the form of a margin call. If one can sell the bond at $960 now and then buy it back later for $952.38 then one could pocket the difference. Part of what you aren't seeing is what are other bonds doing in terms of their prices over time here. The key point here is that brokers may lend out securities and accrue interest on loaned securities for another point here.", "title": "" }, { "docid": "e03ffaa92d15930d884ee78fd0f02558", "text": "Those are the expected yields; they are not guaranteed. This was actually the bread and butter of Graham Newman, mispriced bonds. Graham's writings in the Buffett recommended edition of Securities Analysis are invaluable to bond valuation. The highest yielder now is a private subsidiary of Société Générale. A lack of financial statements availability and the fact that this is the US derivatives markets subsidiary are probably the cause of the higher rates. The cost is about a million USD to buy them. The rest will be similar cases, but Graham's approach could find a diamond; however, bonds are big ticket items, so one should expect to pay many hundreds of thousands of USD per trade.", "title": "" }, { "docid": "95c440a3ea760230e65be9f6b8d00d70", "text": "\"In general, yes. If interest rates go higher, then any existing fixed-rate bonds - and hence ETFs holding those bonds - become less valuable. The further each bond is from maturity, the larger the impact. As you suggest, once the bonds do mature, the fund can replace them at a market price, so the effect tails off. The bond market has a concept known as \"\"duration\"\" that helps reason about this effect. Roughly, it measures the average time from now to each payout of the bond, weighted by the payout. The longer the duration, the more the price will change for a given change in interest rates. The concept is just an approximation, and there are various slightly different ways of calculating it; but very roughly the price of a bond will reduce by a percentage equal to the duration times the increase in interest rates. So a bond with a duration of 5 years will lose 5% of its value for a 1% rise in interest rates (and of course vice-versa). For your second question, it really depends on what you're trying to achieve by diversifying - this might be best as a different question that gives more detail, as it's not very related to your first question. Short-term bonds are less risky. But both will lose value if the underlying company is in trouble. Gilts (government bonds) are less risky than corporate bonds.\"", "title": "" }, { "docid": "c07159e245303172793305c3a1d8a2be", "text": "While debt increases the likelihood and magnitude of a crash, speculation, excess supply and other market factors can result in crashes without requiring excessive debt. A popular counter example of crashes due to speculation is 16th century Dutch Tulip Mania. The dot com bubble is a more recent example of a speculative crash. There were debt related issues for some companies and the run ups in stock prices were increased by leveraged traders, but the actual crash was the result of failures of start up companies to produce profits. While all tech stocks fell together, sound companies with products and profits survive today. As for recessions, they are simply periods of time with decreased economic activity. Recessions can be caused by financial crashes, decreased demand following a war, or supply shocks like the oil crisis in the 1970's. In summary, debt is simply a magnifier. It can increase profits just as easily as can increase losses. The real problems with crashes and recessions are often related to unfounded faith in increasing value and unexpected changes in demand.", "title": "" }, { "docid": "b3867acb1c21ff31986b19e85a766421", "text": "While JB King says some useful things, I think there is another fundamental reason why stock markets go down after disasters, either natural or man-made. There is a real impact on the markets - in the case of something like 9/11 due to closed airport, higher security costs, closer inspections on trade goods, tighter restrictions on visas, real payments for the rebuilding of destroyed buildings and insurance payouts for killed people, and eventually the cost of a war. But almost as important is the uncertainty and risk. Nobody knew what was going to happen in the days and weeks after an attack like that. Is there going to be another one a week later, or every week for the next year? Will air travel become essentially impractical? Will international trade be severely restricted? All those would have a huge, massive effect on the economy. You may argue that those things are very unlikely, even after something like 9/11. But even a small increase in the likelihood of a catastrophic economic crash is enough to start people selling. There is another thing that drives the market down. Even if most people are sure that there won't be a catastrophic economic crash, they know that other people think there might be and so will sell. That will drive the market down. If they know the market is going down, then sensible traders will start to sell, even if they think there is zero risk of a crash. This makes the effect worse. Eventually prices will drop so far that the people who don't think there is a crash will start to buy, so they can make a profit on the recovery. But that usually doesn't happen until there has been a substantial drop.", "title": "" }, { "docid": "69d52c5b1de2ac2f383d5cc2b8f189c9", "text": "Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments. Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with.", "title": "" }, { "docid": "1f0cc6bb61f9c5b56558eef57ce1ed1a", "text": "\"You ask two questions - First - the market value can drop for two reasons (that I know), the company itself may have issues, and investors don't trust they'll be paid, or a general rise in interest rates. In the latter case, there's little to worry about, but for the former, well, that's your decision, you say \"\"the company is in trouble\"\" yet you believe they'll pay. Tough call. Second - yes, when a bond matures, the money appears in your account.\"", "title": "" }, { "docid": "448e3bbfec8eca4a4454abef042cc878", "text": "Why does the rising price of a bond pushes it's yield down? The bond price and its yield are linked; if one goes up, the other must go down. This is because the cash flows from the bond are fixed, predetermined. The market price of the bond fluctuates. Now what if people are suddenly willing to pay more for the same fixed payments? It must mean that the return, i.e. the yield, will be lower. Here we see that risk associated with the bonds in question has skyrocketed, and thus bonds' returns has skyrocketed, too. Am I right? The default risk has increased, yes. Now, I assume that bonds' price is determined by the market (issued by a state, traded at the market). Is that correct? Correct, as long as you are talking about the market price. Then who determines bonds' yields? I mean, isn't it fixed? Or - in the FT quote above - they are talking about the yields for the new bonds issued that particular month? The yield is not fixed - the cash flows are. Yield is the internal rate of return. See my answer above to your first question.", "title": "" }, { "docid": "e92639dfe3b96ba834caa1456ea2c9d2", "text": "Cash would be the better alternative assuming both stocks take a major hit in ALL categories AND the Fed raise rates at the same time for some reason. Money market funds that may have relatively low yields at the moment would likely be one of the few securities not to be repriced downward as interest rates rising would decrease bond values which could be another crash as I could somewhat question how broad of a crash are you talking here. There are more than a few different market segments so that while some parts may get hit really hard in a crash, would you really want to claim everything goes down? Blackrock's graphic shows in 2008 how bonds did the best and only it and cash had positive returns in that year but there is something to be said for how big is a crash: 20%, 50%, 90%?", "title": "" } ]	fiqa
f4151ed38160732e8d1c7f9715973574	Is there any way to know how much new money the US is printing?	[ { "docid": "8819f266d5577cb5fa4dbb17623ebbec", "text": "\"The Fed doesn't exactly have a specific schedule when they decide to create a new dollar. Instead, they engage in open market operations, creating and destroying money as is necessary to preserve a certain interest rate for lending and borrowing. It's an ongoing process. When the Fed meets periodically and they see that inflation is getting out of hand, they will raise that rate; when they see that the economy is weak, they will lower it. They change the target rate from time to time, but they seldom tell people exactly what they'll do in advance, aside from them recently saying that rates will remain incredibly low \"\"for an extended period of time\"\". There are people who trade futures contracts based on what they think these rates will be, and the Fed does publish information on what the market thinks the probabilities are. That's probably the closest thing to telling you \"\"how much and when\"\". If you want to know about the size of the money supply, ask the Federal Reserve; you probably want series H.6, Money Stock Measures. For an explanation of what the data series there means, ask Wikipedia: you're probably interested in M2, because that's what actually affects the economy, though M0 is closer to what they actually \"\"print\"\" (currency, bills and coins, and deposits at the central bank). If you're concerned about the actual real value of your dollar dropping, the actual value drop is better understood by looking at either the inflation rate, or an exchange rate against a foreign currency (and depending on what you were hoping to use that dollar for, there are a couple of different inflation rates). The standard inflation rate which measures what happens in your day to day life is the consumer price index, published by the BLS. There are a variety of forecasts of this, but I'm not aware of any official government-agency forecasts.\"", "title": "" }, { "docid": "901f2c8cb32f9bbb3b3737c43cd6f6fd", "text": "\"The Federal Reserve is not the only way that money can be \"\"printed.\"\" Every bank does fractional reserve banking, thereby increasing the money supply every time they make a new loan. There's a number called the reserve requirement which limits how much money each bank can create. Lowering the reserve requirement allows banks to create more money. Raising it will destroy money. But banks can also destroy money by calling in loans or being less willing to make new loans. So when you look at the number of banks in the US, and the number of loans they all have, it's impossible to figure out exactly how much the money supply is expanding or contracting.\"", "title": "" }, { "docid": "382ff86e0a2e64b85a2ea9b159e7acb3", "text": "\"This chart summarizes the FED's balance sheet (things the FED has purchased - US treasuries, mortgage backed securities, etc.) nicely. It shows the massive level of \"\"printing\"\" the FED has done in the past two years. The FED \"\"prints\"\" new money to buy these assets. As lucius has pointed out the fractional reserve banking process also expands the money supply. When the FED buys something from Bank A, then Bank A can take the money and start lending it out. This process continues as the recipients of the money deposit the newly printed money in other fractional reserve banks. FYI....it took 95 years for the FED to print the first $900 billion. It took one year to print the next $900 billion.\"", "title": "" } ]	[ { "docid": "8b2553ca379034c58a9b65547529cb50", "text": "\"Amount is the closest single word. \"\"Amount in dollars\"\" would be the easiest way to specify information you are requesting. \"\"Amount and currency\"\" if you ware in an area using multiple currencies. An accountant might be able to give you a more technical term, but it would be accountancy jargon. Amount due, credit amount, debit amount, amount deposited, amount credited, amount withdrawn, or amount included. If you're writing instructions and want to specify that the person following the instructions needs to indicate the currency, you'll probably have to simply state that requirement. Based on US centric thinking, inside the US, money is dollars, dollars is money. For US citizens outside the country, we would always tack on the currency. 100 dollars, or 100 Euro. There is a segment of Americans who do not understand geography, and that other countries exist, and that they use different currencies, might not realize that other countries have currencies named dollars, and that USD means US Dollars. So for U.S. citizens, be specific and clear. Bottom line, if this is written for US residents, and they need to specify the currency, you need to explicitly require them to \"\"List the amount and currency.\"\"\"", "title": "" }, { "docid": "b4e87a814da9242f7855873f3fdeff89", "text": "I believe there are two ways new money is created: My favorite description of this (money creation) comes from Chris Martenson: the video is here on Youtube. And yes, I believe both can create inflation. In fact this is what happened in the US between 2004 and 2007: increasing loans to households to buy houses created an inflation of home prices.", "title": "" }, { "docid": "90f3ac4042a941d61e7a35f1938326dc", "text": "\"The Securities Industry and Financial Markets Association (SIFMA) publishes these and other relevant data on their Statistics page, in the \"\"Treasury & Agency\"\" section. The volume spreadsheet contains annual and monthly data with bins for varying maturities. These data only go back as far as January 2001 (in most cases). SIFMA also publishes treasury issuances with monthly data for bills, notes, bonds, etc. going back as far as January 1980. Most of this information comes from the Daily Treasury Statements, so that's another source of specific information that you could aggregate yourself. Somewhere I have a parser for the historical data (since the Treasury doesn't provide it directly; it's only available as daily text files). I'll post it if I can find it. It's buried somewhere at home, I think.\"", "title": "" }, { "docid": "9a6362547ac6859733c2e74e823f56da", "text": "Japan printed 11 trillion yen on Monday. They do this by monetizing their own debt. The increase in the supply of yen affects the value of the currency. Strange thought, I know. Greece has an economic crisis because they were borrowing at rates that AAA rated countries do. Someone noticed that they weren't exactly a AAA country when they needed to ask for bailout money. Since all government debt is considered risk free and same as cash, this came as a shock to most 'investors' hence the 'crisis' edit: my bad, was 11 trillion, not 9 trillion", "title": "" }, { "docid": "119a3ad16226b55f87fc67344cc171f8", "text": "\"> but the buying power of that money can be significantly reduced to the point where it's fundamentally useless, i.e. inter-war Germany and many countries in South and Central America. That's true, but how does that come about? The effect on buying power stems from the level of spending in the present period. Too little leaves you anywhere from outright deflation and contraction to weaker growth falling short of capacity. Too much reaches capacity and keeps spending, bidding up prices and driving down purchasing power. It has nothing to do with debt:GDP or interest payments. > Germany managed to skate by by creating a new Deutschmark in a confidence trick, and it worked because Germany is a solid, iron clad manufacturing powerhouse of a lot of stuff. There are two important differences between inter-war Germany and the US. First is that inter-war Germany lost a war. This real shock is kind of important. When you're talking about buying power of money, one side of it is the amount of money in circulation but the other side of it is how much real output there is to buy and German real output capacity collapsed after the war. Their most productive regions were occupied territory and they were no longer a powerhouse manufacturing a lot of stuff, driving down the value of their currency. So lesson number one from Germany: real output collapse harms your currency. The second problem is that losing a war left Germany saddled with war reparations denominated in foreign currency. When you're on the hook for something you don't print you're in a situation where you can run out of money and that's exactly what happened to them. They tried printing more of their own currency to buy the foreign stuff with but that quickly drove down the value of German currency. So lesson number two from Germany is you don't want to be on the hook for a currency you don't issue. Put the two together and you have a real supply shock + foreign-denominated debt eviscerating the buying power of German currency. It wasn't debt:GDP but the real basis for their economy collapsing out from under them pushed along by a need for foreign currency. >My question is, at what point do we engage Washington's unlimited money printing presses until we reach that point? In answer to your question, the printing presses are what funds the real economy. The worry in terms of avoiding \"\"that point\"\" is in making sure we keep that real economy productive and fully funded. Ironically, taking our eye off the ball to focus on budget balance at the expense of real output pushes the economy in the direction you're afraid of going. See also: the euro zone today.\"", "title": "" }, { "docid": "065475f898aa9b5dc117c58149a7a8b6", "text": "Im gonna make up some numbers for this teaching moment. 2011: $60,000 2012: $50,000 2013: $100,000 2014: $70,000 2015: $60,000 2016: $75,000 2017: $90,000 2017 is the highest number since 2013. But before we had 2017 data, we only had up to 2016 data. In 2016, 2016 was the highest number since 2013. We couldn't say the same about 2015 though. In 2015, 2014 was the highest number since 2013. Such short timetables are kinda ridiculous to even claim. This type of number is only meaningful if its a big number of years like biggest deficit since 1953 (60ish years ago)", "title": "" }, { "docid": "de76dd8be879644dd6aff119fe53a486", "text": "Money itself has no value. A gold bar is worth (fuzzy rushed math, could be totally wrong on this example figure) $423,768.67. So, a 1000 dollars, while worthless paper, are a token saying that you own %.2 of a gold bar in the federal reserve. If a billion dollars are printed, but no new gold is added to the treasury, then your dollar will devalue, and youll only have %.1 percent of that gold bar (again, made up math to describe a hypothetical). When dollars are introduced into the economy, but gold has not been introduced to back it up, things like the government just printing dollars or banks inventing money out of debt (see the housing bubble), then the dollar tokens devalue further. TL;DR: Inflation is the ratio of actual wealth in the Treasury to the amount of currency tokens the treasury has printed.", "title": "" }, { "docid": "75dd423db9fa528737a4fe446df58da4", "text": "\"Although there are some good points made here as to the cause of inflation (mostly related to supply and demand), azcoastal does head in a different direction, one which I myself was going to take. Let me give a different angle, however. Another cause of inflation is the printing of money by the government (not simply replacing old money with new, but adding to the total money in circulation). If the government doubles the amount of currency in circulation (for the sake of argument and easy math), the value of all money decreases by a factor of 2. That's inflation, and the way G. Edward Griffin in The Creature From Jekyll Island puts it, it's really tantamount to a hidden tax. In a nutshell, the federal government wants to buy some cool stuff like new tanks or planes, or they want to give a bunch of food stamps to poor people, or they want to fly their private jets around, but they don't have enough money from taxes. So, they print money and spend it and buy their stuff. Because they've just increased the money in circulation, however, money loses its value. For example, your savings has dropped in value by half, despite the fact that the same number of dollars is in your savings account. This is just a way the government can tax you without taxing you. They buy stuff and you now have less money (i.e., your retirement is worth less) and you don't even know you just got taxed. Makes me sick that we let our \"\"leaders\"\" get away with this.\"", "title": "" }, { "docid": "7d58c18122108c3d3689c8b85ab9e2ac", "text": "\"You can do a lot of deduction FINRA keeps a \"\"REG-SHO\"\" list created daily that tells what the daily short volume is. March 26th 2014's list: http://regsho.finra.org/FNSQshvol20140326.txt If you are talking about the United States, this answer may be better ;)\"", "title": "" }, { "docid": "c49716a0538758168f596a785f54f5f0", "text": "From Indian context, there are a number of factors that are influencing the economic condition and the exchange rate, interest rate etc. are reflection of the situation. I shall try and answer the question through the above Indian example. India is running a budget deficit of 4 odd % for last 6-7 years, which means that gov.in is spending more than their revenue collection, this money is not in the system, so the govt. has to print the money, either the direct 4% or the interest it has to pay on the money it borrows to cover the 4% (don't confuse this with US printing post 2008). After printing, the supply of INR is more compared to USD in the market (INR is current A/C convertible), value of INR w.r.t. USD falls (in simplistic terms). There is another impact of this printing, it increases the money supply in domestic market leading to inflation and overall price rise. To contain this price rise, Reserve Bank of India (RBI) increases the interest rates and increases Compulsory Reserve Ratio (CRR), thus trying to pull/lock-up money, so that overall money supply decreases, but there is a limit to which RBI can do this as overall growth rate keeps falling as money is more expensive to borrow to invest. The above (in simplistic term) how this is working. However, there are many factors in economy and the above should be treated as it is intended to, a simplistic view only.", "title": "" }, { "docid": "9607983f55e26db7ca05e1f721a96fee", "text": "What a joke. The world economy would have collapsed without Goldman Sachs and Citibank? That is blatant propaganda and you're deluded if you believe it. Government intervention caused the housing bubble, and government intervention is what those huge banks relied on when they made 30:1 securities swaps wagers. Those bankers acted like criminals and the government cheered them on and made it easier. There is absolutely zero incentive for either the bankers or the politicians to be fiscally responsible, that is the problem. Printing money has not caused harm? Are you mental? Printing money is outright theft from every working man. It is the epitome of corruption and the hallmark of a failing government slipping into fascism and plutocracy. They won't even tell us how much money is on the books anymore. It is an arbitrary amount which changes at their discretion. There is more debt in the system than actual value, and the debt gains interest faster than the value appreciates. The entire currency system is designed to transfer money to the wealthy and carry a debt which can never be paid off. Those dollars that you and I work for every day are just a means to control us.", "title": "" }, { "docid": "c743e2b0aae682b2668a1394df2d6d16", "text": "\"Many years ago, I worked on software that had to print the date, payee, and amounts on pre-printed checks. Other than the MICR line (which had a particular placement with respect to the bottom edge and required a particular font in a particular point size), most aspects of the check layout and format were up to the particular check provider. Then there was a desire to start using optical character recognition to further automate check handling. A standard came out, that most checks I see now seem to follow. The standard dictated the exact dollar sign glyph to be printed to the left of the amount box. This glyph was used by the OCR to locate the amount. There were specific tolerances for where you could print/write the amount relative to that dollar sign. There were also some requirements for the box containing the amount to have some clearance from the noisy backgrounds pre-printed on many checks. But what font you used inside the amount box was, as far as I could tell, unspecified. After all, customers could always hand-write the amount. Interestingly, the part of the check where you spell out the amount is known as the \"\"legal amount.\"\" If the amount in numerals and the amount in words don't match, the spelled version takes precedence, legally. (The theory being that it's easier to doctor the numerals to change the apparent value of the check than it is to change the words.) I always found it ironic that the layout standard to enable OCR standard was focused on reading the numerals rather than the legal amount. OCR has come a long way since then, so I wouldn't be surprised if, nowadays, both amounts are read, even on hand-written checks. A little search shows that current (voluntary) standards are put out by the ANSI X9 group.\"", "title": "" }, { "docid": "d8d1a7ed650bccb30e84e1f254b57628", "text": "\"Currencies that are pegged or fixed require that foreign currencies are held by the central issuer at a proportional amount. This is analogous to having a portfolio of currencies that the central bank issues shares from - in the form of its own currency. We will continue with this analogy, if the central bank says these \"\"shares\"\" are worth $1, but the underlying components of the portfolio are worth $0.80 and decreasing, then it is expensive for the central bank to maintain its peg, and eventually they will have to disregard the peg as people start questioning the central bank's solvency. (People will know the $1 they hold is not really worth what the central bank says it is, because of the price changes people experience in buying goods and services, especially when it comes to imports. Shadow economies will also trade using a currency more reflective of labor, which happens no matter what the government's punishments are for doing so). Swiss National Bank (central bank) did this in early 2015, as it experienced volatility in the Euro which it had previously been trying to keep it's currency pegged to. It became too expensive for it to keep this peg on its own. The central bank can devalue its currency by adjusting the proportions of the reserve, such as selling a lot of foreign currency X, buying more of currency Y. They can and do take losses doing this. (Swiss National Bank is maintaining a large loss) They can also flood their economy with more of their currency, diluting the value of each individual 1 dollar equivalent. This is done by issuing bonds or monetizing goods and services from the private sector in exchange for bonds. People colloquially call this \"\"printing money\"\" but it is a misnomer in this day and age where printers are not relevant tools. The good and service goes onto the central bank's balance book, and the company/entity that provided the service now has a bond on its book which can be immediately sold to someone else for cash (another reading is that the bond is as good as cash). The bond didn't previously exist until the central bank said it did, and central banks can infinitely exchange goods and services for bonds. Bond monetization (also called Quantitative Easing) is practiced by the Federal Reserve in the United States, Bank of Japan, European Central Bank and now the Central Bank of the Republic of China\"", "title": "" }, { "docid": "1979927d31a02180125fb2ab9be92ef5", "text": "I'm not sure that the deflation will occur regardless of policy choice. There is a clear choice: inflation through printing or some sort of sustained deflation/deleveraging. I'd actually venture to guess that the powers-that-be are clearly on the side of printing.", "title": "" }, { "docid": "5122cc28fe6878ce5ddc769dc0c2c792", "text": "The federal reserve loans the US government dollars. The Federal reserve is NOT owned by the government, it is a private banking institution. So the US has to get capital from investor to borrow those dollars. Printing more dollars makes the dollars less valuable, and at the same time the investments less attractive unless there is a higher rate of interest attached to it.", "title": "" } ]	fiqa
df6cf504eba5c7dfbf136ce2b8aab49a	Is there a general guideline for what percentage of a portfolio should be in gold?	[ { "docid": "a39e6c7e315edaca02de2944834706e6", "text": "I think most financial planners or advisors would allocate zero to a gold-only fund. That's probably the mainstream view. Metals investments have a lot of issues, more elaboration here: What would be the signs of a bubble in silver? Also consider that metals (and commodities, despite a recent drop) are on a big run-up and lots of random people are saying they're the thing to get in on. Usually this is a sign that you might want to wait a bit or at least buy gradually. The more mainstream way to go might be a commodities fund or all-asset fund. Some funds you could look at (just examples, not recommendations) might include several PIMCO funds including their commodity real return and all-asset; Hussman Strategic Total Return; diversified commodities index ETFs; stuff like that has a lot of the theoretical benefits of gold but isn't as dependent on gold specifically. Another idea for you might be international bonds (or stocks), if you feel US currency in particular is at risk. Oh, and REITs often come up as an inflation-resistant asset class. I personally use diversified funds rather than gold specifically, fwiw, mostly for the same reason I'd buy a fund instead of individual stocks. 10%-ish is probably about right to put into this kind of stuff, depending on your overall portfolio and goals. Pure commodities should probably be less than funds with some bonds, stocks, or REITs, because in principle commodities only track inflation over time, they don't make money. The only way you make money on them is rebalancing out of them some when there's a run up and back in when they're down. So a portfolio with mostly commodities would suck long term. Some people feel gold's virtue is tangibility rather than being a piece of paper, in an apocalypse-ish scenario, but if making that argument I think you need physical gold in your basement, not an ETF. Plus I'd argue for guns, ammo, and food over gold in that scenario. :-)", "title": "" }, { "docid": "a45d86720144171e1b19179224fec645", "text": "It depends on what your goals are, your age, how much debt you have, etc. Assuming -- and we all know what happens when you assume -- that your financial life is otherwise in order, the 5% to 10% range you're talking about isn't overinvesting. You won't have a lot of company; most people don't own any. One comment on this part: I have some gold (GLD), but not much ... Gold and GLD are not the same thing at all. Owning shares of the SPDR Gold Trust is not the same thing as owning gold coins or bars. You're achieving different ends by owning GLD shares as opposed to the physical yellow metal. GLD will follow the spot price of gold pretty closely, but it isn't the same thing as physical ownership.", "title": "" }, { "docid": "fdc8b26879a2340e97a9b043f7e3f155", "text": "My personal gold/metals target is 5.0% of my retirement portfolio. Right now I'm underweight because of the run up in gold/metals prices. (I haven't been selling, but as I add to retirement accounts, I haven't been buying gold so it is going below the 5% mark.) I arrived at this number after reading a lot of different sample portfolio allocations, and some books. Some people recommend what I consider crazy allocations: 25-50% in gold. From what I could figure out in terms of modern portfolio theory, holding some metal reduces your overall risk because it generally has a low correlation to equity markets. The problem with gold is that it is a lousy investment. It doesn't produce any income, and only has costs (storage, insurance, commissions to buy/sell, management of ETF if that's what you're using, etc). The only thing going for it is that it can be a hedge during tough times. In this case, when you rebalance, your gold will be high, you'll sell it, and buy the stocks that are down. (In theory -- assuming you stick to disciplined rebalancing.) So for me, 5% seemed to be enough to shave off a little overall risk without wasting too much expense on a hedge. (I don't go over this, and like I said, now I'm underweighted.)", "title": "" }, { "docid": "4d7d32aa6bacabb609be5bda2008d0c4", "text": "By mentioning GLD, I presume therefore you are referring to the SPRD Gold Exchange Traded Fund that is intended to mirror the price of gold without you having to personally hold bullion, or even gold certificates. While how much is a distinctly personal choice, there are seemingly (at least) three camps of people in the investment world. First would be traditional bond/fixed income and equity people. Gold would play no direct role in their portfolio, other than perhaps holding gold company shares in some other vehicle, but they would not hold much gold directly. Secondly, at the mid-range would be someone like yourself, that believes that is in and of itself a worthy investment and makes it a non-trivial, but not-overriding part of their portfolio. Your 5-10% range seems to fit in well here. Lastly, and to my taste, over-the-top, are the gold-gold-gold investors, that seem to believe it is the panacea for all market woes. I always suspect that investment gurus that are pushing this, however, have large positions that they are trying to run up so they can unload. Given all this, I am not aware of any general rule about gold, but anything less than 10% would seem like at least a not over-concentration in the one area. Once any one holding gets much beyond that, you should really examine why you believe that it should represent such a large part of your holdings. Good Luck", "title": "" }, { "docid": "fce119d437797fae452a931d307b949c", "text": "10% is way high unless you really dedicate time to managing your investments. Commodities should be a part of the speculative/aggressive portion of your portfolio, and you should be prepared to lose most or all of that portion of your portfolio. Metals aren't unique enough to justify a specific allocation -- they tend to perform well in a bad economic climate, and should be evaluated periodically. The fallacy in the arguments of gold/silver advocates is that metals have some sort of intrinsic value that protects you. I'm 32, and remember when silver was $3/oz, so I don't know how valid that assertion is. (Also recall the 25% price drop when the CBOE changed silver's margin requirements.)", "title": "" }, { "docid": "701044a51a7f47011eb598f92c1ca560", "text": "Gold's valuation is so stratospheric right now that I wonder if negative numbers (as in, you should short it) are acceptable in the short run. In the long run I'd say the answer is zero. The problem with gold is that its only major fundamental value is for making jewelry and the vast majority is just being hoarded in ways that can only be justified by the Greater Fool Theory. In the long run gold shouldn't return more than inflation because a pile of gold creates no new wealth like the capital that stocks are a claim on and doesn't allow others to create new wealth like money lent via bonds. It's also not an important and increasingly scarce resource for wealth creation in the global economy like oil and other more useful commodities are. I've halfway-thought about taking a short position in gold, though I haven't taken any position, short or long, in gold for the following reasons: Straight up short-selling of a gold ETF is too risky for me, given its potential for unlimited losses. Some other short strategy like an inverse ETF or put options is also risky, though less so, and ties up a lot of capital. While I strongly believe such an investment would be profitable, I think the things that will likely rise when the flight-to-safety is over and gold comes back to Earth (mainly stocks, especially in the more beaten-down sectors of the economy) will be equally profitable with less risk than taking one of these positions in gold.", "title": "" }, { "docid": "0c8627953291d60451d67d6a78b00468", "text": "\"The \"\"conventional wisdom\"\" is that you should have about 5% of your portfolio in gold. But that's an AVERAGE. Meaning that you might want to have 10% at some times (like now) and 0% in the 1980s. Right now, the price of gold has been rising, because of fears of \"\"easing\"\" Fed monetary policy (for the past decade), culminating in recent \"\"quantitative easing.\"\" In the 1980s, you should have had 0% in gold given the fall of gold in 1981 because of Paul Volcker's monetary tightening policies, and other reasons. Why did gold prices drop in 1981? And a word of caution: If you don't understand the impact of \"\"quantitative easing\"\" or \"\"Paul Volcker\"\" on gold prices, you probably shouldn't be buying it.\"", "title": "" } ]	[ { "docid": "f047a86a26ffe9decad612ab2b5ed4e0", "text": "Note the above is only for shares. There are different rules for other assets like House, Jewellery, Mutual Funds, Debt Funds. Refer to the Income Tax guide for more details.", "title": "" }, { "docid": "ce9537c51f2349ef3b2921eeeec8a658", "text": "It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail.", "title": "" }, { "docid": "aa90a5bbfd6d0baf7ace26b24986c434", "text": "\"The topic you are apparently describing is \"\"safe withdrawal rates\"\", more here. Please, note that the asset allocation is crucial decision with your rates. If you continue to keep a lot in cash, you cannot withdraw too much money \"\"to live and to travel\"\" because the expected return from cash is too low in the long run. In contrast, if you moved to more sensible decision like 30% bonds and 70% world portfolio -- the rates will me a lot different. As you are 30 years old, you could pessimist suppose to live next 100 years -- then your possible withdrawal rates would be much lower than let say over 50 years. Anyway besides deciding asset allocation, you need to estimate the time over which you need your assets. You have currently 24% in liquid cash and 12% in bonds but wait you use the word \"\"variety of funds\"\" with about 150k USD, what are they? Do you have any short-term bonds or TIPS as inflation hedge? Do you miss small and value? What is your sector allocation between small-med-large and value-blend-growth? If you are risk-averse, you could add some value small. Read the site, it does much better job than any question-answer site can do (the link above).\"", "title": "" }, { "docid": "71e043e167ce5c8f12c06fbd1e32f7b6", "text": "\"I was able to find a fairly decent index that trades very close to 1/10th the actual price of gold by the ounce. The difference may be accounted to the indexes operating cost, as it is very low, about 0.1%. The index is the ETFS Gold Trust index (SGOL). By using the SGOL index, along with a Standard Brokerage investment account, I was able to set up an investment that appropriately tracked my gold \"\"shares\"\" as 10x their weight in ounces, the share cost as 1/10th the value of a gold ounce at the time of purchase, and the original cost at time of purchase as the cost basis. There tends to be a 0.1% loss every time I enter a transaction, I'm assuming due to the index value difference against the actual spot value of the price of gold for any day, probably due to their operating costs. This solution should work pretty well, as this particular index closely follows the gold price, and should reflect an investment in gold over a long term very well. It is not 100% accurate, but it is accurate enough that you don't lose 2-3% every time you enter a new transaction, which would skew long-term results with regular purchases by a fair amount.\"", "title": "" }, { "docid": "08cec8c13d6cc51c6f85f6b481c17691", "text": "Owning physical gold (assuming coins): Owning gold through a fund:", "title": "" }, { "docid": "b814e2e4f943f77864610939f302e619", "text": "\"I find it interesting that you didn't include something like [Total Bond Market](http://stockcharts.com/freecharts/perf.html?VBMFX), or [Intermediate-Term Treasuries](http://stockcharts.com/freecharts/perf.html?VBIIX), in your graphic. If someone were to have just invested in the DJI or SP500, then they would have ignored the tenants of the Modern Portfolio Theory and not diversified adequately. I wouldn't have been able to stomach a portfolio of 100% stocks, commodities, or metals. My vote goes for: 1.) picking an asset allocation that reflects your tolerance for risk (a good starting point is \"\"age in bonds,\"\" i.e. if you're 30, then hold 30% in bonds); 2.) save as if you're not expecting annualized returns of %10 (for example) and save more; 3.) don't try to pick the next winner, instead broadly invest in the market and hold it. Maybe gold and silver are bubbles soon to burst -- I for one don't know. I don't give the \"\"notion in the investment community\"\" much weight -- as it always is, someday someone will be right, I just don't know who that someone is.\"", "title": "" }, { "docid": "2865984a64db25a71c7b3f2c57f1afc5", "text": "\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\"", "title": "" }, { "docid": "100c16089b98c6da4bdec9e3d52ba91b", "text": "\"The raw question is as follows: \"\"You will be recommending a purposed portfolio to an investment committee (my class). The committee runs a foundation that has an asset base of $4,000,000. The foundations' dual mandates are to (a) preserve capital and (b) to fund $200,000 worth of scholarships. The foundation has a third objective, which is to grow its asset base over time.\"\" The rest of the assignment lays out the format and headings for the sections of the presentation. Thanks, by the way - it's an 8 week accelerated course and I've been out sick for two weeks. I've been trying to teach myself this stuff, including the excel calculations for the past few weeks.\"", "title": "" }, { "docid": "f5fb93b7a5cd0209d2b227983b37eb21", "text": "Most people carry a diversity of stock, bond, and commodities in their portfolio. The ratio and types of these investments should be based on your goals and risk tolerance. I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for. If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs). Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k. You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds. If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money.", "title": "" }, { "docid": "54d0a04493a4b5b0306b714af1d5f04c", "text": "\"I think Swenson's insight was that the traditional recommendation of 60% stocks plus 40% bonds has two serious flaws: 1) You are exposed to way too much risk by having a portfolio that is so strongly tied to US equities (especially in the way it has historically been recommend). 2) You have too little reward by investing so much of your portfolio in bonds. If you can mix a decent number of asset classes that all have equity-like returns, and those asset classes have a low correlation with each other, then you can achieve equity-like returns without the equity-like risk. This improvement can be explicitly measured in the Sharpe ratio of you portfolio. (The Vanguard Risk Factor looks pretty squishy and lame to me.) The book the \"\"The Ivy Portfolio\"\" does a great job at covering the Swenson model and explains how to reasonably replicate it yourself using low fee ETFs.\"", "title": "" }, { "docid": "1ea028386d7b77f54bba0eb3c5e18b8c", "text": "With gold at US$1300 or so, a gram is about $40. For your purposes, you have the choice between the GLD ETF, which represents a bit less than 1/10oz gold equivalent per share, or the physical metal itself. Either choice has a cost: the commission on the buy plus, eventually, the sale of the gold. There may be ongoing fees as well (fund fees, storage, etc.) GLD trades like a stock and you can enter limit orders or any other type of order the broker accepts.", "title": "" }, { "docid": "159fd918e0c65f68e6529b8c7b2f5907", "text": "I found a comparison of stock and bond returns. The relevant portion here is that bonds went up by 10% in 2007 and 20% in 2008 (32% compounded). Stocks were already recovering in 2009, going up almost 26%. You don't mention what you were hoping to get from your gold investment, but bonds gave a very good return for those two years.", "title": "" }, { "docid": "2fa005e6b96c5bef7f326c418e9c9f03", "text": "Putting 64% of a portfolio in gold and silver is pretty reckless from an investing standpoint. That being said, if he really did buy most of the stocks in 2002, he's probably made a good deal of money off these picks.", "title": "" }, { "docid": "7e769761effd1d77533856624ea79940", "text": "If you have 100% of your money in one security that is inherently more risky than splitting your money 50/50 between two securities, regardless of the purported riskiness of the two securities. The calculations people use to justify their particular breed of diversification may carry some assumptions related risk/reward calculations. But these particular justifications don't change the fact that spreading your money across different assets protects your money from value variances of the individual assets. Splitting your $100 between Apple and Microsoft stock is probably less valuable (less well diversified) than splitting your money between Apple and Whole Foods stock but either way you're carrying less risk than putting all $100 in to Apple stock regardless of the assumed rates of return for any of these companies stock specifically. Edit: I'm sure the downvotes are because I didn't make a big deal about correlation and measuring correlation and standard deviations of returns and detailed portfolio theory. Measuring efficacy and justifying your particular allocations (that generally uses data from the past to project the future) is all well and good. Fact of the matter is, if you have 100% of your money in stock that's more stock risk than 25% in cash, 25% in bonds and 50% in stock would be because now you're in different asset classes. You can measure to your hearts delight the effects of splitting your money between different specific companies, or different industries, or different market capitalizations, or different countries or different fund managers or different whatever-metrics and doing any of those things will reduce your exposure to those specific allocations. It may be worth pointing out that currently the hot recommendation is a plain vanilla market tracking S&P 500 index fund (that just buys some of each of the 500 largest US companies without any consideration given to risk correlation) over standard deviation calculating actively managed funds. If you ask me that speaks volumes of the true efficacy of hyper analyzing the purported correlations of various securities.", "title": "" }, { "docid": "1e9cebde4465fbb20cb434e8b71958d4", "text": "First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?", "title": "" } ]	fiqa
e29c29094b0a06e5222f50eb686c9160	Does the common advice about diversification still hold in times of distress	[ { "docid": "5f1566f3bcced560b9b1cdda113c0d40", "text": "The common advice you mentioned is just a guideline and has little to do with how your portfolio would look like when you construct it. In order to diversify you would be using correlations and some common sense. Recall the recent global financial crisis, ones of the first to crash were AAA-rated CDO's, stocks and so on. Because correlation is a statistical measure this can work fine when the economy is stable, but it doesn't account for real-life interrelations, especially when population is affected. Once consumers are affected this spans to the entire economy so that sectors that previously seemed unrelated have now been tied together by the fall in demand or reduced ability to pay-off. I always find it funny how US advisers tell you to hold 80% of US stocks and bonds, while UK ones tell you to stick to the UK securities. The same happens all over the world, I would assume. The safest portfolio is a Global Market portfolio, obviously I wouldn't be getting, say, Somalian bonds (if such exist at all), but there are plenty of markets to choose from. A chance of all of them crashing simultaneously is significantly lower. Why don't people include derivatives in their portfolios? Could be because these are mainly short-term, while most of the portfolios are being held for a significant amount of time thus capital and money markets are the key components. Derivatives are used to hedge these portfolios. As for the currencies - by having foreign stocks and bonds you are already exposed to FX risk so you, again, could be using it as a hedging instrument.", "title": "" } ]	[ { "docid": "59682cb6af50a150a5bbb76308efceec", "text": "the SP500 is all in the US, though. if you plan to buy and hold long index, you will probably be fine. i would recommend to diversify into different assets for a number of reasons. but if you invest without an advisor, you need to stick to a savings and investment plan without question. if you start thinking about what sector you think the next big break is going to be, or if you should be buying in right now, or if now is a good time to sell, it is more likely than not you will be doing yourself a great disservice.", "title": "" }, { "docid": "9a5cf3a2fd33fa3133a080553d9310d0", "text": "The Fools have a range of advice from common-sense to speculative, aimed at different audiences (one hopes). As always, don't take anyone's word for it; think it through and decide whether the risk/reward ratio is really in your favor and how much you can afford to risk. They're good on the basics, but the more advanced they get, the more risk there is that they've got it wrong. That last is true of any advisor unless they have information that the rest of us don't. You can learn some things from their explanations of their reasoning without necessarily taking their conclusions as gospel.", "title": "" }, { "docid": "5103c63d89644a428f070da7464eb105", "text": "\"Ah ok, I can appreciate that. I'm fluent in English and Mr. Graham's command of English can be intimidating (even for me). The edition I have has commentary by Mr. Jason Zweig who effectively rewrites the chapters into simpler English and updates the data (some of the firms listed by Mr. Graham don't exist either due to bankruptcy or due to consolidation). But I digress. Let's start with the topics you took; they're all very relevant, you'd be surprised, the firm I work for require marketing for certain functions. But not being good at Marketing doesn't block you from a career in Finance. Let's look at the other subjects. You took high level Maths, as such I think a read through Harry Markowitz's \"\"Portfolio Selection\"\" would be beneficial, here's a link to the paper: https://www.math.ust.hk/~maykwok/courses/ma362/07F/markowitz_JF.pdf Investopedia also has a good summary: http://www.investopedia.com/walkthrough/fund-guide/introduction/1/modern-portfolio-theory-mpt.aspx This is Mr. Markowitz's seminal work; while it's logical to diversify your portfolio (remember the saying \"\"don't put all your eggs in one basket\"\"), Mr. Markwotiz presented the relationship of return, risk and the effects of diversification via mathematical representation. The concepts presented in this paper are taught at every introductory Finance course at University. Again a run through the actual paper might be intimidating (Lord knows I never read the paper from start to finish, but rather read text books which explained the concepts instead), so if you can find another source which explains the concepts in a way you understand, go for it. I consider this paper to be a foundation for other papers. Business economics is very important and while it may seem like it has a weak link to Finance at this stage; you have to grasp the concepts. Mr. Michael Porter's \"\"Five Forces\"\" is an excellent link between industry structure (introduced in Microeconomics) and profit potential (I work in Private Equity, and you'd be surprised how much I use this framework): https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy There's another text I used in University which links the economic concept of utility and investment decision making; unfortunately I can't seem to remember the title. I'm asking my ex-classmates so if they respond I'll directly send you the author/title. To finish I want to give you some advice; a lot of subjects are intimidating at first, and you might feel like you're not good enough but keep at it. You're not dumber than the next guy, but nothing will come for free. I wasn't good at accounting, I risked failing my first year of University because of it, I ended up passing that year with distinction because I focused (my second highest grade was Accounting). I wasn't good in economics in High School, but it was my best grades in University. I wasn't good in financial mathematics in University but I aced it in the CFA. English is your second language, but you have to remember a lot of your peers (regardless of their command of the language) are being introduced to the new concepts just as you are. Buckle down and you'll find that none of it is impossible.\"", "title": "" }, { "docid": "941015e84438966b1e5c5e4d8195dfc8", "text": "\"For diversification against local currency's inflation, you have fundamentally 3 options: Depending on how sure you are on your prediction, and what amount of money you're willing to bet to \"\"short the country\"\", you might also consider a mix of approaches from the above. Good luck.\"", "title": "" }, { "docid": "2dd39879140aabf6d2f9a8c931c16aee", "text": "\"I would like to first point out that there is nothing special about a self-managed investment portfolio as compared to one managed by someone else. With some exceptions, you can put together exactly the same investment portfolio yourself as a professional investor could put together for you. Not uncommonly, too, at a lower cost (and remember that cost is among the, if not the, best indicator(s) of how your investment portfolio will perform over time). Diversification is the concept of not \"\"putting all your eggs in one basket\"\". The idea here is that there are things that happen together because they have a common cause, and by spreading your investments in ways such that not all of your investments have the same underlying risks, you reduce your overall risk. The technical term for risk is generally volatility, meaning how much (in this case the price of) something fluctuates over a given period of time. A stock that falls 30% one month and then climbs 40% the next month is more volatile than one that falls 3% the first month and climbs 4% the second month. The former is riskier because if for some reason you need to sell when it is down, you lose a larger portion of your original investment with the former stock than with the latter. Diversification, thus, is reducing commonality between your investments, generally but not necessarily in an attempt to reduce the risk of all investments moving in the same direction by the same amount at the same time. You can diversify in various ways: Do you see where I am going with this? A well-diversed portfolio will tend to have a mix of equity in your own country and a variety of other countries, spread out over different types of equity (company stock, corporate bonds, government bonds, ...), in different sectors of the economy, in countries with differing growth patterns. It may contain uncommon classes of investments such as precious metals. A poorly diversified portfolio will likely be restricted to either some particular geographical area, type of equity or investment, focus on some particular sector of the economy (such as medicine or vehicle manufacturers), or so on. The poorly diversified portfolio can do better in the short term, if you time it just right and happen to pick exactly the right thing to buy or sell. This is incredibly hard to do, as you are basically working against everyone who gets paid to do that kind of work full time, plus computer-algorithm-based trading which is programmed to look for any exploitable patterns. It is virtually impossible to do for any real length of time. Thus, the well-diversified portfolio tends to do better over time.\"", "title": "" }, { "docid": "fda874738f68f83b73d40aa1db1d01f1", "text": "You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely. Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad. Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations.", "title": "" }, { "docid": "9195bb2a2faa4f1aa9f86cdf0eb07809", "text": "If your gut told you to buy during the depths of '09, your gut might be well-calibrated. The problem is stock market declines during recessions are frequently not that large relative to the average long run return of 9%: A better strategy might be hold a percentage in equities based upon a probability distribution of historical returns. This becomes problematic because of changes in the definition of earnings and the recent inflation stability which has encouraged high valuations: Cash flow has not been as corrupted as earnings now, and might be a better indicator: This obviously isn't perfect either, but returns can be improved. Since there is no formulaic way yet conventionally available, the optimal primary strategy is still buy & hold which has made the most successful investor frequently one of the richest people on the planet for decades, but this could still be used as an auxiliary for cash management reserves during recessions once retired.", "title": "" }, { "docid": "f87db8d477d31f9aafafbeeae7a91cd3", "text": "\"One approach is to invest in \"\"allocation\"\" mutual funds that use various methods to vary their asset allocation. Some examples (these are not recommendations; just to show you what I am talking about): A good way to identify a useful allocation fund is to look at the \"\"R-squared\"\" (correlation) with indexes on Morningstar. If the allocation fund has a 90-plus R-squared with any index, it probably isn't doing a lot. If it's relatively uncorrelated, then the manager is not index-hugging, but is making decisions to give you different risks from the index. If you put 10% of your portfolio in a fund that varies allocation to stocks from 25% to 75%, then your allocation to stocks created by that 10% would be between 2.5% to 7.5% depending on the views of the fund manager. You can use that type of calculation to invest enough in allocation funds to allow your overall allocation to vary within a desired range, and then you could put the rest of your money in index funds or whatever you normally use. You can think of this as diversifying across investment discipline in addition to across asset class. Another approach is to simply rely on your already balanced portfolio and enjoy any downturns in stocks as an opportunity to rebalance and buy some stocks at a lower price. Then enjoy any run-up as an opportunity to rebalance and sell some stocks at a high price. The difficulty of course is going through with the rebalance. This is one advantage of all-in-one funds (target date, \"\"lifecycle,\"\" balanced, they have many names), they will always go through with the rebalance for you - and you can't \"\"see\"\" each bucket in order to get stressed about it. i.e. it's important to think of your portfolio as a whole, not look at the loss in the stocks portion. An all-in-one fund keeps you from seeing the stocks-by-themselves loss number, which is a good way to trick yourself into behaving sensibly. If you want to rebalance \"\"more aggressively\"\" then look at value averaging (search for \"\"value averaging\"\" on this site for example). A questionable approach is flat-out market-timing, where you try to get out and back in at the right times; a variation on this would be to buy put options at certain times; the problem is that it's just too hard. I think it makes more sense to buy an allocation fund that does this for you. If you do market time, you want to go in and out gradually, and value averaging is one way to do that.\"", "title": "" }, { "docid": "cbcdc3ea9bf228d4bf12f852eef8e693", "text": "If the ship is sinking, switching cabins with your neighbor isn't necessarily a good survival strategy. Index funds have sucked, because frankly just about everything has sucked lately. I still think it is a viable long term strategy as long as you are doing some dollar cost averaging. You can't think about long term investing as a steady climb up a hill, markets are erratic, but over long periods of time trend upwards. Now is your chance to get in near the ground floor. I can completely empathize that it is painful right now, but I am a believer in market efficiency and that over the long haul smart money is just more expensive (in terms of fees) than set-it-and-forget it diversified investments or target funds.", "title": "" }, { "docid": "e2a054405fb83d902a7776b9cb3ec8a2", "text": "\"Diversification is the only real free lunch in finance (reduction in risk without any reduction in expected returns), so clearly every good answer to your question will be \"\"yes.\"\" Diversification is good.\"\" Let's talk about many details your question solicits. Many funds are already pretty diversified. If you buy a mutual fund, you are generally already getting a large portion of the gains from diversification. There is a very large difference between the unnecessary risk in your portfolio if you only hold a couple of stocks and if you hold a mutual fund. Should you be diversified across mutual funds as well? It depends on what your funds are. Many funds, such as target-date funds, are intended to be your sole investment. If you have funds covering every major asset class, then there may not be any additional benefit to buying other funds. You probably could not have picked your \"\"favorite fund\"\" early on. As humans, we have cognitive biases that make us think we knew things early on that we did not. I'm sure at some point at the very beginning you had a positive feeling toward that fund. Today you regret not acting on it and putting all your money there. But the number of such feelings is very large and if you acted on all those, you would do a lot of crazy and harmful things. You didn't know early on which fund would do well. You could just as well have had a good feeling about a fund that subsequently did much worse than your diversified portfolio did. The advice you have had about your portfolio probably isn't based on sound finance theory. You say you have always kept your investments in line with your age. This implies that you believe the guidelines given you by your broker or financial advisor are based in finance theory. Generally speaking, they are not. They are rules of thumb that seemed good to someone but are not rigorously proven either in theory or empirics. For example the notion that you should slowly shift your investments from speculative to conservative as you age is not based on sound finance theory. It just seems good to the people who give advice on such things. Nothing particularly wrong with it, I guess, but it's not remotely on par with the general concept of being well-diversified. The latter is extremely well established and verified, both in theory and in practice. Don't confuse the concept of diversification with the specific advice you have received from your advisor. A fund averaging very good returns is not an anomaly--at least going forward it will not be. There are many thousand funds and a large distribution in their historical performance. Just by random chance, some funds will have a truly outstanding track record. Perhaps the manager really was skilled. However, very careful empirical testing has shown the following: (1) You, me, and people whose profession it is to select outperforming mutual funds are unable to reliably detect which ones will outperform, except in hindsight (2) A fund that has outperformed, even over a long horizon, is not more likely to outperform in the future. No one is stopping you from putting all your money in that fund. Depending on its investment objective, you may even have decent diversification if you do so. However, please be aware that if you move your money based on historical outperformance, you will be acting on the same cognitive bias that makes gamblers believe they are on a \"\"hot streak\"\" and \"\"can't lose.\"\" They can, and so can you. ======== Edit to answer a more specific line of questions =========== One of your questions is whether it makes sense to buy a number of mutual funds as part of your diversification strategy. This is a slightly more subtle question and I will indicate where there is uncertainty in my answer. Diversifying across asset classes. Most of the gains from diversification are available in a single fund. There is a lot of idiosyncratic risk in one or two stocks and much less in a collection of hundreds of stocks, which is what any mutual fund will hold. Still,you will probably want at least a couple of funds in your portfolio. I will list them from most important to least and I will assume the bulk of your portfolio is in a total US equity fund (or S&P500-style fund) so that you are almost completely diversified already. Risky Bonds. These are corporate, municipal, sovereign debt, and long-term treasury debt funds. There is almost certainly a good deal to be gained by having a portion of your portfolio in bonds, and normally a total market fund will not include bond exposure. Bonds fund returns are closely related to interest rate and inflation changes. They are also exposed to some market risk but it's more efficient to get that from equity. The bond market is very large, so if you did market weights you would have more in bonds than in equity. Normally people do not do this, though. Instead you can get the exposure to interest rates by holding a lesser amount in longer-term bonds, rather than more in shorter-term bonds. I don't believe in shifting your weights toward nor away from this type of bond (as opposed to equity) as you age so if you are getting that advice, know that it is not well-founded in theory. Whatever your relative weight in risky bonds when you are young is should also be your weight when you are older. International. There are probably some gains from having some exposure to international markets, although these have decreased over time as economies have become more integrated. If we followed market weights, you would actually put half your equity weight in an international fund. Because international funds are taxed differently (gains are always taxed at the short-term capital gains rate) and because they have higher management fees, most people make only a small investment to international funds, if any at all. Emerging markets International funds often ignore emerging markets in order to maintain liquidity and low fees. You can get some exposure to these markets through emerging markets funds. However, the value of public equity in emerging markets is small when compared with that of developed markets, so according to finance theory, your investment in them should be small as well. That's a theoretical, not an empirical result. Emerging market funds charge high fees as well, so this one is kind of up to your taste. I can't say whether it will work out in the future. Real estate. You may want to get exposure to real estate by buying a real-estate fund (REIT). Though, if you own a house you are already exposed to the real estate market, perhaps more than you want to be. REITs often invest in commercial real estate, which is a little different from the residential market. Small Cap. Although total market funds invest in all capitalization levels, the market is so skewed toward large firms that many total market funds don't have any significant small cap exposure. It's common for individuals to hold a small cap fund to compensate for this, but it's not actually required by investment theory. In principle, the most diversified portfolio should be market-cap weighted, so small cap should have negligible weight in your portfolio. Many people hold small cap because historically it has outperformed large cap firms of equal risk, but this trend is uncertain. Many researchers feel that the small cap \"\"premium\"\" may have been a short-term artifact in the data. Given these facts and the fact that small-cap funds charge higher fees, it may make sense to pass on this asset class. Depends on your opinion and beliefs. Value (or Growth) Funds. Half the market can be classed as \"\"value\"\", while the other half is \"\"growth.\"\" Your total market fund should have equal representation in both so there is no diversification reason to buy a special value or growth fund. Historically, value funds have outperformed over long horizons and many researchers think this will continue, but it's not exactly mandated by the theory. If you choose to skew your portfolio by buying one of these, it should be a value fund. Sector funds. There is, in general, no diversification reason to buy funds that invest in a particular sector. If you are trying to hedge your income (like trying to avoid investing in the tech sector because you work in that sector) or your costs (buying energy because you buy use a disproportionate amount of energy) I could imagine you buying one of these funds. Risk-free bonds. Funds specializing in short-term treasuries or short-term high-quality bonds of other types are basically a substitute for a savings account, CD, money market fund, or other cash equivalent. Use as appropriate but there is little diversification here per se. In short, there is some value in diversifying across asset classes, and it is open to opinion how much you should do. Less well-justified is diversifying across managers within the same asset class. There's very little if any advantage to doing that.\"", "title": "" }, { "docid": "425ec9ddb284573f7994bc58bb78b7c5", "text": "Diversification is a good method of risk management. Different types of investments do better in different situations and economic climates. Invest all your money at the wrong time in a single product and you could lose everything. You could also technically make a great deal of money, but actions such as these are the actions of speculators, not investors. Spreading your investments appropriately lets you maximize your growth opportunities while limiting your risk.", "title": "" }, { "docid": "ea509faa7610649e8b47f1a783e5df83", "text": "Have you ever considered how much faith and confidence play a role in the financial sector? The calling in of swaps could cause issues similar to a Bank Run, which may or may not involve others coming into play. While this is cleaning up the mess from a few years ago, there is something to be said for how complicated are various financial instruments in this situation. If you want something similar to ponder, what would make any institution be considered major and would this be agreed by various countries given how connected things are within the world? What makes an institution major in the United States may not be quite the same standards in Brazil and this where one has to consider how to maintain faith in the system that could unravel rather badly if everyone tries to cash out at the same time. The Bank Run link above is something to consider that could cause a bank that appears fine to suddenly have speculators cause more disruptions which isn't likely to help. The global credit markets aren't likely to freeze overnight and thus there can be the question how does this get handled if another mess could arise. The idea here is to set up the framework to prevent the panic that could lead to a global depression. The idea is to create for derivatives something similar to the stock market's trading curbs that exist to contain panic on a macro level. The psychology is quite important in figuring out how to handle the obligations of a company that was perceived to be infallible as well as making sure what is agreed works across various cultures and currencies.", "title": "" }, { "docid": "dabc7412a6bb3aa6b04232e77185d57a", "text": "\"The June 2014 issue of Barclays Wealth's Compass magazine had a very nice succinct article on this topic: \"\"Value investing – does a rules-based approach work?\"\". It examines the performance of value and growth styles of investment in the MSCI World and S&P500 arenas for a few decades back, and reveals a surprisingly complicated picture, depending on sector, region and time-period. Their summary is basically: A closer look however shows that the overall success of value strategies derives mainly from the 1970s and 1980s. ... in the US, value has underperformed growth for over 25 years since peaking in July 1988. Globally, value experienced a 30% setback in the late 1990s so that there are now periods with a length of nearly 13 years over which growth has outperformed. So the answer to \"\"does it beat the market?\"\" is \"\"it depends...\"\". Update in response to comment below: the question of risk adjusted returns is interesting. To quote another couple of fragments from the piece: Since December 1974, [MSCI world] value has outperformed growth by 2.6% annually, with lower risk. This outperformance on a risk-adjusted basis is the so-called value premium that Eugene Fama and Kenneth French first identified in 1992... and That outperformance has, however, come with more risk. Historical volatility of the pure style indices has been 21-22% compared to 16% for the market. ... From a maximum drawdown perspective, the 69% drop of pure value during the financial crisis exceeded the 51% drop of the overall market.\"", "title": "" }, { "docid": "3f9e5de579b5f93a6f62a45d4bce105d", "text": "\"You should establish a strategy -- eg a specific mix of investments/funds which has the long-term tradeofv of risk, returns, and diversification you want -- and stick to that strategy, rebalancing periodically to maintain your strategic ratios betwedn those investments. Yes, that means you will somettimes sell things that have been doing well and buy others that have been doing less well -- but that's to be expected; it's exactly what happens when you \"\"buy low, sell high\"\".\"", "title": "" }, { "docid": "74d7ad4cb9f02118401ae5f419d3de31", "text": "\"I'm 39 and have been investing since my very early 20's, and the advice I'd like to go back and give myself is the following: 1) Time is your friend. Compounding interest is a powerful force and is probably the most important factor to how much money you are going to wind up with in the end. Save as much as you possibly can as early as you can. You have to run twice as hard to catch up if you start late, and you will still probably wind up with less in the end for the extra effort. 2) Don't invest 100% of your investment money It always bugged me to let my cash sit idle in an investment account because the niggling notion of inflation eating up my money and I felt I was wasting opportunity cost by not being fully invested in something. However, not having enough investable cash around to buy into the fire-sale dips in the market made me miss out on opportunities. 3) Diversify The dot.com bubble taught me this in a big, hairy painful way. I had this idea that as a technologist I really understood the tech bubble and fearlessly over-invested in Tech stocks. I just knew that I was on top of things as an \"\"industry insider\"\" and would know when to jump. Yeah. That didn't work out so well. I lost more than 6 figures, at least on paper. Diversification will attenuate the ups and downs somewhat and make the market a lot less scary in the long run. 4) Mind your expenses It took me years of paying huge full-service broker fees to realize that those clowns don't seem to do any better than anyone else at picking stocks. Even when they do, the transaction costs are a lead weight on your returns. The same holds true for mutual funds/ETFs. Shop for low expense ratios aggressively. It is really hard for a fund manager to consistently beat the indexes especially when you burden the returns with expense ratios that skim an extra 1% or so off the top. The expense ratio/broker fees are among the very few things that you can predict reliably when it comes to investments, take advantage of this knowledge. 5) Have an exit strategy for every investment People are emotional creatures. It is hard to be logical when you have skin in the game and most people aren't disciplined enough to just admit when they have a loser and bail out while they are in the red or conversely admit when they have a winner and take profits before the party is over. It helps to counteract this instinct to have an exit strategy for each investment you buy. That is, you will get out if it drops by x% or grows by y%. In fact, it is probably a good idea to just enter those sell limit orders right after you buy the investment so you don't have to convince yourself to press the eject button in the heat of a big move in the price of that investment. Don't try to predict tops or bottoms. They are extremely hard to guess and things often turn so fast that you can't act on them in time anyway. Get out of an investment when it has met your goal or is going to far in the wrong direction. If you find yourself saying \"\"It has to come back eventually\"\", slap yourself. When you are trying to decide whether to stay in the investment or bail, the most important question is \"\"If I had the current cash value of the stock instead of shares, would I buy it today?\"\" because essentially that is what you are doing when you stick with an investment. 6) Don't invest in fads When you are investing you become acutely sensitive to everyone's opinions on what investment is hot and what is not. If everyone is talking about a particular investment, avoid it. The more enthusiastic people are about it (even experts) the MORE you should avoid it. When everyone starts forming investment clubs at work and the stock market seems to be the preferred topic of conversation at every party you go to. Get out! I'm a big fan of contrarian investing. Take profits when it feels like all the momentum is going into the market, and buy in when everyone seems to be running for the doors.\"", "title": "" } ]	fiqa
94cdb709264dd8748426012b156f5139	Is keeping old credit cards and opening new credit cards with high limits and never using an ideal way to boost credit scores?	[ { "docid": "507f0484eeed35cce069afeba03b1ac3", "text": "Problems with your plan (in no particular order) there is a limit, once they have decided that you have enough credit they won't offer any more. If the economy changes (like it did in 2008) they can reduce the limit on existing accounts. If you don't use them, they may decide to close them. Using existing cards will encourage the bank to increase the limit on that card. opening cards can make some lenders nervous. Having a new card close to when you are applying for a mortgage or a car loan can make them less likely to lend you the max. You have to decide: Are you trying to buildup your credit limit? or your credit score?", "title": "" }, { "docid": "312d32a49042514a7405bb87a35c97c5", "text": "I disagree with the reply. Your both impressions are correct. - Do not close old credit cards because they keep your credit rating high (fico score) - Also low utilization that credit cards report to credit rating companies, improves your rating.", "title": "" }, { "docid": "4e12985a2b089ca2dbf9acd99f2efcad", "text": "Your plan will work to increase your total credit capacity (good for your credit score) and reduce your utilization (also good). As mentioned, you will need to be careful to use these cards periodically or they will get closed, but it will work. The question is whether this will help you or not. In addition to credit capacity and utilization, your credit score looks at things like These factors may hurt you as you continue to open accounts. You can easily get to the stage where your score is not benefitting much from increased capacity and it is getting hurt a lot by pulls and low average age. BTW you are correct that closing accounts generally hurts your score. It probably reduces average age, may reduce maximum age, reduces your capacity, and increases your utilization.", "title": "" } ]	[ { "docid": "cafbe9188cfb9191ff583501456891b8", "text": "The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted. This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble. You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score.", "title": "" }, { "docid": "ce31e7752ac62c2cb7cf8c6e0c236329", "text": "Simply staying out of debt is not a good way of getting a good credit score. My aged aunt has never had a credit card, loan or mortgage, has always paid cash or cheque for everything, never failed to pay her utility bills on time. Her credit score is lousy because she has never had any debts to pay off so there is no credit history data for her. To the credit checking agencies she barely exists. To get a good score (UK) then get a few debts and pay them off on time.", "title": "" }, { "docid": "06bf8bf93411127d8d15780505471b29", "text": "I have found that between the Discover card and a Visa/Master Card a person has everything covered. In my case the Discover card had the best deal (cash back) and the Visa/Master Card took care of those times a vendor didn't take Discover. One big Box store (Costco) did trip us up, so we did end up getting an American Express card. But Costco is dropping that requirement in 2016. One advantage of only having a few cards is that the increase in your total credit line will be split among fewer cards. In your question the highest max limit on one card is $2500, what will you do if you have to take a flight at the last minute and the Airline ticket is more than that? If you need a higher limit, ask for one of your existing cards to raise it; don't go out and get another card. If you see that one of the companies that you already have a card with has a better card, you can ask them to convert your account to that better card. Yes higher total limit does help your utilization ratio portion of the score. But there is some opinion that they also look at the utilization ratio per card. So hitting one card to nearly the max can hurt your score. Three caveats about the number of cards:", "title": "" }, { "docid": "02438e9bb394de18945773d7b7842e30", "text": "The only drawback is if you spend more than you can with the new limit and end up having to pay interest if you can't pay the balance in full. Other than that, there are no drawbacks to getting a credit increase. On the flip side, it's actually good for you. It shows that the banks trust you with more credit, and it also decreases your credit utilization ratio (assuming you spend the same).", "title": "" }, { "docid": "87fc1ee3130e6d1f7b2378deb7fb8c8c", "text": "Credit scoring has changed recently and the answer to this question will have slightly changed. While most points made here are true: But now (as of July 2017) it is possible having a large available credit balance can negatively effect your credit score directly: ... VantageScore will now mark a borrower negatively for having excessively large credit card limits, on the theory that the person could run up a high credit card debt quickly. Those who have prime credit scores may be hurt the most, since they are most likely to have multiple cards open. But those who like to play the credit card rewards program points game could be affected as well. source", "title": "" }, { "docid": "c04766bd3dd7726caf75ff1eeab53a63", "text": "\"Your use of the term \"\"loan\"\" is confusing, what you're proposing is to open a new card and take advantage of the 0% APR by carrying a balance. The effects to your credit history / score will be the following:\"", "title": "" }, { "docid": "71e65b915ad5bd6b5e9fba34bd64e114", "text": "The whole point of a credit report and, by extension, a credit score, is to demonstrate (and judge) your ability to repay borrowed funds. Everything stems from that goal; available credit, payment history, collections, etc all serve to demonstrate whether or not you personally are a good investment for lenders to pursue. Revolving credit balances are tricky because they are more complicated than fixed loans (for the rest of this answer, I'll just talk about credit cards, though it also applies to lines of credit such as overdraft protection for checking accounts, HELOCs, and other such products). Having a large available balance relative to your income means that at any time you could suddenly drown yourself in debt. Having no credit cards means you don't have experience managing them (and personal finances are governed largely by behavior, meaning experience is invaluable). Having credit cards but carrying a high balance means you know how to borrow money, but not pay it back. Having credit cards but carrying no balance means you don't know how to borrow money (or you don't trust yourself to pay it back). Ideally, lenders will see a pattern of you borrowing a portion of the available credit, and then paying it down. Generally that means utilizing up to 30% of your available credit. Even if you maintain the balance in that range without paying it off completely, it at least shows that you have restraint, and are able to stop spending at a limit you personally set, rather than the limit the bank sets for you. So, to answer your question, 0% balance on your credit cards is bad because you might as well not have them. Use it, pay it off, rinse and repeat, and it will demonstrate your ability to exercise self control as well as your ability to repay your debts.", "title": "" }, { "docid": "b7ebf0118a25197053642a73d8a221f2", "text": "Credit Score is rather misleading, each provider of credit uses their own system to decide if they wish to lend to you. They will also not tell you how the combine all the factoring together. Closing unused account is good, as it reduced the risk of identity theft and you have less paperwork to deal with. It looks good if a company that knows you will agrees to give you more credit, as clearly they think you are a good risk. Having more total credit allowed on account is bad, as you may use it and not be able to pay all your bills. Using all your credit is bad, as it looks like you are not in control. Using a “pay day lender” is VERY bad, as only people that are out of control do so. Credit cards should be used for short term credit paying them off in full most months, but it is OK to take advantage of some interest free credit.", "title": "" }, { "docid": "baa1e82b41268f3df7d3fc799c8edb6d", "text": "Would opening a second credit card contribute in any meaningful way to my credit mix or no, since it's the same type of credit? Yes, multiple lines of credit help your credit score, even if they are all credit cards. There are experts on both sides of this argument though. For example, Fico says that you shouldn't open a new credit card just for the credit boost, while NerdWallet cautiously recommends it. My recommendation is that if you're disciplined with your credit spending, it will help a little. If yes, is it worth it to take the hit to my average account age sooner rather than later by opening a new credit card? If you want to build up your number of credit lines, do so well before you need to use your credit to take out a loan. Not only will your credit score take a hit from the average age dropping, but you'll also have a hard pull on your credit report. As Fixed Point points out, though, you will see a larger improvement to your credit score by adding another type of credit, such as a home loan, to your credit mix. If you are already limited your credit utilization to 10%-30% then you probably won't be able to reach your goal by just adding a credit card.", "title": "" }, { "docid": "3c586acc7130c1efd832fbf1d1d35042", "text": "Closing the card will be fine. The consequences are related to your available credit and actual/potential utilization. If you have less total credit, any credit you actually use will be a greater percentage of your total credit, manipulating your score downwards more greatly. The next consequence will be related to the age of your credit history, which is an average of your credit lines. This seems negligible and also beneficial for you, since your credit history is so young to begin with.", "title": "" }, { "docid": "f00d60fd18e51707b25dbad4667ba28b", "text": "See the accepted answer for this question. What effect will credit card churning for frequent flyer miles have on my credit score? This does not directly answer 'how often...' that you asked, but it states that the answerer opens 5-15 accounts per year. So the answer to your question is, as often as you want, as long as you manage your account ages. The reason for this is that there are two factors in opening a new account that affect your credit card score. One is average age of accounts. The other is credit inquiries. That answerer, with FICO in high 700s, sees about a 5% swing based on new cards and closing old ones. You'll have to manage average age of accounts. I assume this is done by keeping some older ones open to prop up the average, and by judiciously closing the churn accounts. Finally, if you choose to engage in churning, and you intend to apply for a large loan and want a good credit score, simply pause the account open/close part of the churn a couple of months ahead of time. Your score should recover from the temporary hits of the inquiries. The churning communities really do have how to guides which discuss the details of this. Key phrase: credit card churning.", "title": "" }, { "docid": "60f197fcd24ac4a0004f929ef51fa4a2", "text": "This strategy will have long lasting effects since negative items can persist for many years, making financing a home difficult, the primary source of household credit. It is also very risky. You can play hard, but then the creditor may choose you to be the one that they make an example out of by suing you for a judgement that allows them to empty your accounts and garnish your wages. If you have no record of late payments, or they are old and/or few, your credit score will quickly shoot up if you pay down to 10% of the balance, keep the cards, and maintain that balance rate. This strategy will have them begging you to take on more credit with offers of lower interest rates. The less credit you take on, the more they'll throw at you, and when it comes time to purchase a home, more home can be bought because your interest rates will be lower.", "title": "" }, { "docid": "4e39f2aa66c02a22a9eb53c52ff636bd", "text": "A credit balance can happen any time you have a store return, but paid the bill in full. It's no big deal. Why not just charge the next gas purchase or small grocery store purchase, to cycle it through? Yes - unused cards can get canceled by the bank, and that can hurt your credit score. In the US anyway. I'm guessing it's the same system or similar in Canada.", "title": "" }, { "docid": "ca4efa920bc59cb71bee8163139124a8", "text": "I think you are interpreting their recommended numbers incorrectly. They are not suggesting that you get 13-21 credit cards, they are saying that your score could get 13-21 points higher based on having a large number of credit cards and loans. Unfortunately, the exact formula for calculating your credit score is not known, so its hard to directly answer the question. But I wouldn't go opening 22+ credit cards just to get this part of the number higher!", "title": "" }, { "docid": "01264d3bf1b37ab9fb671b8d57b01293", "text": "I've read multiple times that the way to rebuild the credit score is to get a credit card and then have some minor charges on it every month and have them paid in full every month. Old negative events age and this disciplined activity rebuild the score to some not to horrible levels. Now it's true that it's hard to get reasonably good credit cards when your credit score is poor. Yet it's not necessary to have a good credit card for this case - such things as large credit limit are not needed. All that's needed is a long grace period so that there's no interest between the moment a charge is done and a moment the bill is paid in full at the end of the month. Yes, the card may have rather high interest and rather low credit limit, but it doesn't really matter. I've read once on MSN Money that people are offered credit even while they're in the middle of bankruptcy, so it's not impossible to get a credit card in the described situation. Goes without saying that a lot of discipline will be needed to have all this implemented.", "title": "" } ]	fiqa
466f7d0fd6b8684306a911157e2581aa	I'm 20 and starting to build up for my mortgage downpayment, where should I put my money for optimal growth?	[ { "docid": "4c05a709056f6da4dbcf85676d000157", "text": "Good job. Assuming that you are also contributing to retirement, you are bound to be a wealthy person. I'm not really sure how Australia works as far as retirement, but I am pretty sure you are taking care of that too. Given your time frame (more than 5 years) I would consider investing at least a portion of the money. If I was you, I would tend to make that amount significant, say 75% in mutual funds, 25% in your high interest savings. The ratio you choose is up to you, but I would be heavier in the investment than savings side. As the time for home purchase approaches, you may want more in savings and less in investments. You may want to look at a mutual fund with a low beta. Beta is a measure of the price volatility. I did a google search on low beta funds, and came up with a number of good articles that explains this further. Having a fund with a low beta insulates you, a bit, from radical swings in the market allowing you to count more on the money being there when needed. One way to get to the proper ratio, is to contribute all new money to the mutual fund until it is in proper balance. This way you don't lower your interest rate for a month. Given your time frame, salary, and sense of responsibility you may be able to do the 100% down plan. Again, good work!", "title": "" }, { "docid": "f9e8f42cad8fe877bf8d85961940ffd8", "text": "The big question is whether you will be flexible about when you'll get that house. The overall best investment (in terms of yielding a good risk/return ratio and requiring little effort) is a broad index fund (mutual or ETF), especially if you're contributing continuously and thereby take advantage of cost averaging. But the downside is that you have some volatility: during an economic downturn, your investment may be worth only half of what it's worth when the economy is booming. And of course it's very bad to have that happening just when you want to get your house. Then again, chances are that house prices will also go down in such times. If you want to avoid ever having to see the value of your investment go down, then you're pretty much stuck with things like your high-interest savings account (which sounds like a very good fit for your requirements.", "title": "" }, { "docid": "8bb0f3a31bb989b3f98d72cfb04cc62e", "text": "You should never take advice from someone else in relation to a question like this. Who would you blame if things go wrong and you lose money or make less than your savings account. For this reason I will give you the same answer I gave to one of your previous similar questions: If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. What ever you decide to do, get yourself educated first. Don't put any money down unless you know what your potential risks are and have a risk management strategy in place, especially if it is from advice provided by someone else. The first rule before starting any new investment is to understand what your potential risks are and have a plane to manage and reduce those risks.", "title": "" }, { "docid": "d24cb9f4769b32ce990e3c75882230d5", "text": "The highest growth for an investment has historically been in stocks. Investing in mature companies that offer dividends is great for you since it is compound growth. Many oil and gas companies provide dividends.", "title": "" } ]	[ { "docid": "028fcc6ae27f514d32d83e49aaf40a33", "text": "The only problem that I see is that by not giving the 20% right away, you might need to pay PMI for a few months. In addition, in the case of conventional loans, I heard that banks will not remove the PMI after reaching 80% LTV without doing an appraisal. In order to be removed automatically, you need to reach 78% LTV. Finally, I think you can get a better interest by giving 20% down, and you can get a conventional loan instead of a FHA loan, which offers the option to avoid the PMI altogether (on FHA, you have two PMIs: one upfront and one monthly, and the monthly one is for the life of the loan if you give less than 10%).", "title": "" }, { "docid": "9bd0f3fe069b9d41b6a0d7cbd12c89bf", "text": "I am currently in the process of purchasing a house. I am only putting 5% down. I see that some are saying that the traditional 20% down is the way to go. I am a first time homebuyer, and unfortunately we no longer live in the world where 20% down is mandatory, which is part of the reason why housing prices are so high. I feel it is more important that you are comfortable with what your monthly payments are as well as being informed on how interest rates can change how much you owe each month. Right now interest rates are pretty low, and it would almost be silly to put 20% down on your home. It might make more sense to put money in different vehicle right now, if you have extra, as the global economy will likely pick up and until it does, interest rates will likely stay low. Just my 2 cents worth. EDIT: I thought it would not be responsible of me not to mention that you should always have extra's saved for closing costs. They can be pricey, and if you are not informed of what they are, they can creep up on you.", "title": "" }, { "docid": "ed893d39f25d0a5035f55fa5810fbbfe", "text": "Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential.", "title": "" }, { "docid": "682598e4f8164d7fdfb67a3925b2324c", "text": "The long term growth is not 6.5%, it's 10% give or take. But, that return comes with risk. A standard deviation of 14%. Does the 401(k) have a match? And are you getting the full match? If no match, or you already top it off, the 6.5% is a rate that I'd be happy to get on my money. So, I would pay it off faster. My highest rate debt is my 3.5% mortgage, which is 2.5% after tax. At 2.5%, I prefer to be a borrower, as that gap 2.5%-10% is pretty appealing, long term.", "title": "" }, { "docid": "fe9b717b496e0c08bb2428b618d1502d", "text": "If you already have the money, put the 20% down but here is another option: You can put whatever you want down...Let's say 10%. For the other 10%, take out a 2nd mortgage. This enables you to avoid PMI. The rate you will get on the second mortgage will be higher than the first but the combination of 2 mortgages may be less than 1 plus PMI. When you get to 20% equity you can refinance and consolidate to one lower rate mortgage without PMI.", "title": "" }, { "docid": "c68d769428eb86677848174ed88fdd4a", "text": "\"I think the basic question you're asking is whether you'd be better off putting the $20K into an IRA or similar investment, or if your best bet is to pay down your mortgage. The answer is...that depends. What you didn't share is what your mortgage balance is so that we can understand how using that money to pay down the mortgage would affect you. The lower your remaining balance on the mortgage, the more impact paying it down will affect your long-term finances. For example, if your remaining principal balance is more than $200k, paying down $20k in principal will not have as significant an effect as if you only have $100k principal balance and were paying down $20k of that. To me, one option is to put the $20k toward mortgage principal, then perhaps do a refinance on your remaining mortgage with the goal of getting a better interest rate. This would double the benefit to you. First, your mortgage payment would be lower by virtue of a lower principal balance (assuming you keep the same term period in your refinanced mortgage as you have now. In other words, if you have a 15-year now, your new mortgage should be 15 years also to see the best effect on your payment). Further, if you can obtain a lower interest rate on the new loan, now you have the dual benefit of a lower principal balance to pay down plus the reduced interest cost on that principal balance. This would put money into your pocket immediately, which I think is part of your goal, although the question does hinge on what you'd pay in points and fees for a refinance. You can invest, but with that comes risk, and right now may not be the ideal time to enter the markets given all of the uncertainties with the \"\"Brexit\"\" issue. By paying down your mortgage principal, even if you do nothing else, you can save yourself considerable interest in the long term which might be more beneficial than the return you'd get from the markets or an IRA at this point. I hope this helps. Good luck!\"", "title": "" }, { "docid": "513293e3d919d4f98426df907777bc61", "text": "I want to start investing money, as low risk as possible, but with a percentage growth of at least 4% over 10 - 15 years. ...I do have a mortgage, Then there's your answer. You get a risk-free return of the interest rate on your mortgage (I'm assuming it's more than 4%). Every bit you put toward your mortgage reduces the amount of interest you pay by the interest rate, helping you to pay it off faster. Then, once your mortgage is paid off, you can look at other investments that fit your risk tolerance and return requirements. That said, make sure you have enough emergency savings to reduce cash flow interruptions, and make sure you don't have any other debts to pay. I'm not saying that everyone with a mortgage should pay it off before other investments. You asked for a low-risk 4% investment, which paying your mortgage would accomplish. If you want more return (and more risk) then other investments would be appropriate. Other factors that might change your decision might be:", "title": "" }, { "docid": "c124b0a7949c26904fa381882841a086", "text": "You are correct that 20% has an impact on your interest rate, although it is not always hugely significant. You would have to do your own shopping around to find that information out. However 20% has an impact that I consider to be far more important than your monthly payment, and that is in your equity. If the DC market tanks, which I know it has not really done like much of the country but none of us have crystal balls to know if it will or not, then you will be more easily underwater the less you put down. Conversely putting 20% or more down makes you an easy sell to lenders [i]and[/i] means that you don't have to worry nearly so much about having to do a short sale in the future. I would never buy a house with less than 20% down personally and have lived well below my means to get there, but I am not you. With regards to mortgages, the cheapskate way that I found information that I needed was to get books from the library that explained the mortgage process to me. When it came time to select an actual broker I used my realtor's recommendation (because I trusted my realtor to actually have my interests at heart because he was an old family friend - you can't usually do that so I don't recommend it) and that of others I knew who had bought recently. I compared four lenders and competed them against each other to get the best terms. They will give you estimate sheets that help you weigh not only rates but costs of different fees such as the origination fee and discount points. Make sure to know what fees the lender controls and what fees (s)he doesn't so that you know which lines to actually compare. Beyond a lender make sure that before closing you have found a title company that you think is a good choice (your realtor or lender will try to pick one for you because that's the way the business is played but it is a racket - pick one who will give you the best deal on title), a settlment company (may be title company, lender, or other) that won't charge you an excessive amount, a survey company that you like if required in DC for your title insurance, and homeowner's insurance coverage that you think is a good deal. The time between contract and closing is short and nobody tells you to research all the closing costs that on a $500,000 place run to in excess of $10,000, but you should. Also know that your closing costs will be about 2% of the purchase price and plan accordingly. In general take some time to educate yourself on homebuying as well as neighborhoods and price ranges. Don't rush into this process or you will lose a lot of money fast.", "title": "" }, { "docid": "5efb6240c4f3e22fb6f64f933cf1d4dc", "text": "\"I put about that down on my place. I could have purchased it for cash, but since my investments were returning more interest than the loan was costing me (much easier to achieve now!), this was one of the safest possible ways of making \"\"leverage\"\" work for me. I could have put less down and increased the leverage, but tjis was what I felt most comfortable with. Definitely make enough of a down payment to avoid mortgage insurance. You may want to make enough of a down payment that the bank trusts you to handle your property insurance and taxes yourself rather than insisting on an escrow account and building that into the loan payments; I trust myself to mail the checks on time much more than I trust the bank. Beyond that it's very much a matter of personal preference and what else you might do with the money.\"", "title": "" }, { "docid": "754593853a3d3ca40ec2b931011429f9", "text": "I'm surprised nobody else has suggested this yet: before you start investing in stocks or bonds, buy a house. Not just any house, but the house you want to live in 20 years from now, in a place where you want to live 20 years from now - but you also have to be savvy about which part of the country or world you buy in. I'm also assuming that you are in the USA, although my suggestion tends to apply equally anywhere in the world. Why? Simple: as long as you own a house, you won't ever have to pay rent (you do have to pay taxes and maintenance, of course). You have a guaranteed return on investment, and the best part is: because it's not money you earn but money you don't have to spend, it's tax free. Even if the house loses value over time, you still come out ahead. And if you live abroad temporarily, you can rent out the house and add the rent to your savings (although that does make various things more complicated). You only asked for options, so that is mine. I'll add some caveats. OK, now here are the caveats:", "title": "" }, { "docid": "a92073afad23a27fb936bf7bdc9d0f55", "text": "Whenever you put less than 20% down, you are usually required to pay private mortgage insurance (PMI) to protect the lender in case you default on your loan. You pay this until you reach 20% equity in your home. Check out an amortization calculator to see how long that would take you. Most schedules have you paying more interest at the start of your loan and less principal. PMI gets you nothing - no interest or principal paid - it's throwing money away in a very real sense (more in this answer). Still, if you want to do it, make sure to add PMI to the cost per month. It is also possible to get two mortgages, one for your 20% down payment and one for the 80%, and avoid PMI. Lenders are fairly cautious about doing that right now given the housing crash, but you may be able to find one who will let you do the two mortgages. This will raise your monthly payment in its own way, of course. Also remember to factor in the costs of home ownership into your calculations. Check the county or city website to figure out the property tax on that home, divide by twelve, and add that number to your payment. Estimate your homeowners insurance (of course you get to drop renters insurance, so make sure to calculate that on the renting side of the costs) and divide the yearly cost by 12 and add that in. Most importantly, add 1-2% of the value of the house yearly for maintenance and repair costs to your budget. All those costs are going to eat away at your 3-400 a little bit. So you've got to save about $70 a month towards repairs, etc. for the case of every 10-50 years when you need a new roof and so on. Many experts suggest having the maintenance money in savings on top of your emergency fund from day one of ownership in case your water heater suddenly dies or your roof starts leaking. Make sure you've also estimated closing costs on this house, or that the seller will pay your costs. Otherwise you loose part of that from your down payment or other savings. Once you add up all those numbers you can figure out if buying is a good proposition. With the plan to stay put for five years, it sounds like it truly might be. I'm not arguing against it, just laying out all the factors for you. The NYT Rent Versus Buy calculator lays out most of these items in terms of renting or buying, and might help you make that decision. EDIT: As Tim noted in the comments below, real monthly cost should take into account deductions from mortgage interest and property tax paid. This calculator can help you figure that out. This question will be one to watch for answers on how to calculate cost and return on home buying, with the answer by mbhunter being an important qualification", "title": "" }, { "docid": "d1fe91bd871e5aa41bb2604ae5b2023e", "text": "\"Trying to determine what the best investment option is when buying a home is like predicting the stock market. Not likely to work out. Forget about the \"\"investment\"\" part of buying a home and look at the quality of life, monthly/annual financial burden, and what your goals are. Buy a home that you'll be happy living in and in an area you like. Buy a home with the plan being to remain in that home for at least 6 years. If you're planning on having kids, then buy a home that will accommodate that. If you're not planning on living in the same place at least 6 years, then buying might not be the best idea, and certainly might not be the best \"\"investment\"\". You're buying a home that will end up having emotional value to you. This isn't like buying a rental property or commercial real estate. Chances are you won't lose money in the long run, unless the market crashes again, but in that case everyone pretty much gets screwed so don't worry about it. We're not in a housing market like what existed in decades past. The idea of buying a home so that you'll make money off it when you sell it isn't really as reliable a practice as it once was. Take advantage of the ridiculously low interest rates, but note that if you wait, they're not likely to go up by an amount that will make a huge difference in the grand scheme of things. My family and I went through the exact same thought process you're going through right now. We close on our new house tomorrow. We battled over renting somewhere - we don't have a good rental market compared to buying here, buying something older for less money and fixing it up - we're HGTV junkies but we realized we just don't have the time or emotional capacity to deal with that scenario, or buying new/like new. There are benefits and drawbacks to all 3 options, and we spent a long time weighing them and eventually came to a conclusion that was best for us. Go talk to a realtor in your area. You're under no obligation to use them, but you can get a better feel for your options and what might best suit you by talking to a professional. For what it's worth, our realtor is a big fan of Pulte Homes in our area because of their home designs and quality. We know some people who have bought in that neighborhood and they're very happy. There are horror stories too, same as with any product you might buy.\"", "title": "" }, { "docid": "e469606ed367da67077be8954d5324b4", "text": "\"If you're looking for a well-rounded view into what it's like to actually own/manage real-estate investments, plus how you can scale things up & keep the management workload relatively low, have a look at the Bigger Pockets community. There are blogs, podcasts, & interviews there from both full-time & part-time real estate investors. It's been a great resource for me in my investments. More generally, your goal of \"\"retiring\"\" within 20 years is very attainable even without getting extravagant investment returns. A very underrated determinant in how quickly you build wealth is how much of your income you are contributing to investments. Have a look at this article: The Shockingly Simple Math Behind Early Retirement\"", "title": "" }, { "docid": "ade1a70a1ee0761e9bad174726ff779e", "text": "\"I've heard that the bank may agree to a \"\"one time adjustment\"\" to lower the payments on Mortgage #2 because of paying a very large payment. Is this something that really happens? It's to the banks advantage to reduce the payments in that situation. If they were willing to loan you money previously, they should still be willing. If they keep the payments the same, then you'll pay off the loan faster. Just playing with a spreadsheet, paying off a third of the mortgage amount would eliminate the back half of the payments or reduces payments by around two fifths (leaving off any escrow or insurance). If you can afford the payments, I'd lean towards leaving them at the current level and paying off the loan early. But you know your circumstances better than we do. If you are underfunded elsewhere, shore things up. Fully fund your 401k and IRA. Fill out your emergency fund. Buy that new appliance that you don't quite need yet but will soon. If you are paying PMI, you should reduce the principal down to the point where you no longer have to do so. That's usually more than 20% equity (or less than an 80% loan). There is an argument for investing the remainder in securities (stocks and bonds). If you itemize, you can deduct the interest on your mortgage. And then you can deduct other things, like local and state taxes. If you're getting a higher return from securities than you'd pay on the mortgage, it can be a good investment. Five or ten years from now, when your interest drops closer to the itemization threshold, you can cash out and pay off more of the mortgage than you could now. The problem is that this might not be the best time for that. The Buffett Indicator is currently higher than it was before the 2007-9 market crash. That suggests that stocks aren't the best place for a medium term investment right now. I'd pay down the mortgage. You know the return on that. No matter what happens with the market, it will save you on interest. I'd keep the payments where they are now unless they are straining your budget unduly. Pay off your thirty year mortgage in fifteen years.\"", "title": "" }, { "docid": "ae20a73a57469e8a6781b4deec5cc182", "text": "You're being too hard on yourself. You've managed to save quite a bit, which is more than most people ever do. You're in a wonderful position, actually -- you have savings and time! You don't mention how long you want/need to continue working, but I'll assume 20 years or so? You don't have to invest it all at once. Like Pete B says, index funds (just read what Mr. Buffett said in recent news: he'd tell his widow to invest in the S&P 500 Index and not Berkshire Hathaway!) should be a decent percentage. You can also pick a target fund from any of the major investment firms (fees are higher than an Index, but it will take care of any asset allocation decisions). Put some in each. Also look at retirement accounts to take advantage of tax-deferred or tax-free growth, but that's another question and country-specific. In any case, don't even blink when the market goes down. And it will go down. If you're still working, earning, and saving, it'll just be another opportunity to buy more at lower prices. As for the house, no reason you can't invest and save for a house. Invest some for the long term and set aside the rest for the house in 1-5 years. If you don't think you'll ever really buy the house, though, invest the majority of it for the long-term: I have a feeling from the tone of your question that you tend to put off the big financial decisions. So if you won't really buy the house, just admit it to yourself now!", "title": "" } ]	fiqa
1e7d25e0f6bd1e59156b611bcd1290cf	Why do stock prices of retailers not surge during the holidays?	[ { "docid": "c189277f36f28c2d2c117dbfbf90c88c", "text": "\"Systemic and well know patterns in sales are priced in to the security. Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range. These expected earnings are priced in before the earnings are actually booked. If a company meets these expectations the stock will likely stay relatively flat. If the company misses this expectation, the stock, generally, will get slammed. This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric. The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been \"\"priced in.\"\" If the well known expected event doesn't occur, maybe it's a new normal.\"", "title": "" }, { "docid": "346b198ab7c74c1c973a368b27f5de5b", "text": "\"The expected holiday sales are \"\"known\"\" or actually guessed at beforehand, and stock prices move in line with these expectations before the holiday. If the actual post holiday sales are more or less in line with the \"\"guess,\"\" little stock price movement takes place. It's when the actual sales differ (materially) from the \"\"guessed\"\" sales that prices move up or down in the appropriate direction. What happens is that the market \"\"anticipates\"\" or \"\"guesses\"\" first and \"\"reacts\"\" later, if necessary.\"", "title": "" }, { "docid": "71752390575b4a5bc86085914073912b", "text": "\"I think the question can be answered by realizing that whoever is buying the stock is buying it from someone who can do the same mathematics. Ask your son to imagine that everyone planned to buy the stock exactly one week before Christmas. Would the price still be cheap? The problem is that if everyone knows the price will go up, the people who own it already won't want to sell. If you're buying something from someone who doesn't really want to sell it, you have to pay more to get it. So the price goes up a week before Christmas, rather than after Christmas. But of course everyone else can figure this out too. So they are going to buy 2 weeks before, but that means the price goes up 2 weeks before rather than 1 week. You play this game over and over, and eventually the expected increased Christmas sales are \"\"priced in\"\". But of course there is a chance people are setting the price based on a mistaken belief. So the winner isn't the person who buys just before the others, but rather the one who can more accurately predict what the sales will be (this is why insider trading is so tempting even if it's illegal). The price you see right now represents what people anticipate the price will be in the future, what dividends are expected in the future, how much risk people think there is, and how that compares with other available investments.\"", "title": "" }, { "docid": "ea6d1cf4d269e3f9ed2721df920f0f01", "text": "If you look at S&P 500's closing price for the first trading day on December and January for the last 20 years, you will see that for 10 of these years, stocks did better overall and for 10 others they did worse. Thus you can see that the price of stocks do no necessarily increase. You can play around with the data here", "title": "" }, { "docid": "e941cb541e58965fe42c58d6e05ec09e", "text": "\"That's a pretty good question for a six-year-old! In addition to the good answers which point out that expectations are priced in, let's deny the premises of the question: Sales do not increase the value of a company; a company could be, for example, losing money on every sale. Share prices are (at least in theory) correlated with profits. So let's suppose that company X is unprofitable 320 days a year and is relying upon sales in late November and December to be in the black for the year. (Hence \"\"black Friday\"\".) Carefully examine the supposition of this scenario: we have a company that is so unprofitable that it must gamble everything on successfully convincing bargain hunting consumers in a weak economy to buy stuff they don't actually need from them and not a competitor. Why would this inspire investor confidence? There are plenty of companies that fail to meet their sales targets at Christmas, for plenty of reasons.\"", "title": "" }, { "docid": "3d468a0e6187ebb28e046806b9f0ccf5", "text": "\"Your explanation is nearly perfect and not \"\"hand wavy\"\" at all. Stock prices reflect the collective wisdom of all participating investors. Investors value stocks based on how much value they expect the stock to produce now and in the future. So, the stability of the stock prices is a reflection of the accuracy of the investors predictions. Investor naivity can be seen as a sequence of increasingly sophisticated stock pricing strategies: If investors were able to predict the future perfectly, then all stock prices would rise at the same constant rate. In theory, if a particular investor is able to \"\"beat the market\"\", it is because they are better at predicting the future profits of companies (or they are lucky, or they are better at predicting the irrational behavior of other investors......)\"", "title": "" }, { "docid": "424a44f66cdf909c40a09b33e5f9b38a", "text": "\"I used to be in research department for big financial data company. Tell your son that there are three factors: Most people think that net sales vs. expectations is the only factor. It might not even be the biggest. It is simply how much money did company make. Note that this is not how many units they sold. For most companies they will have adjustable pricing and incentives in their sector. For example let's talk about a new company selling Superman Kid's Bikes (with a cape the flips out when you hit a certain speed). The company has it in Walmart at one price, Target at another, Toys R' Us even cheaper, Amazon (making more profit there), and other stores. They are doing \"\"OK\"\" come Dec. 1 but holiday season being half way over they slash price from $100 to $80 because they have tons of inventory. What are looking at her is how much money did they make. Note that marketing, advertising, legal (setting up contracts) are a bit fixed. In my opinion consumer sentiment is the #1 thing for a company that sells a product. Incredible consumer sentiment is like millions of dollars in free advertising. So let's say Dec. 15th comes and the reviews on the Superman Bike are through the roof. Every loves it, no major defects. Company can't even supply the retailers now because after slashing the price it became a great buy. A common investor might be pissed that some dummy at the company slashed the prices so they could have had a much better profit margin, but at the same time it wouldn't have led to an onslaught of sales and consumer sentiment. And the last area is product sell-off. This doesn't apply to all product but most. Some products will only have a technology shelf life, some will actually go bad or out of fashion, and even selling Superman bikes you want to get those to the store because the product is so big. So ignoring making a profit can a company sell off inventory at or around cost. If they can't, even if they made a profit, their risk factor goes up. So let's get back to Superman Bikes. This is the only product company ABC has. They had expected holiday sales at 100 million and profits at 40 million. They ended up at 120 million and 44 million. Let's say their stock was $20 before any information was gathered by the public (remember for most companies info is gathered daily now so this is rather simplistic). So you might expect that the stock would rise to maybe $24 - to which if you were an investor is a great profit. However this company has a cult consumer following who are waiting for the Captain America Bike (shoots discs) and the Hulk Bike (turns green when you go fast). Let's say consumer sentiment and projections base off that put next holiday sales at $250 million. So maybe the company is worth $40 a share now. But consumer sentiment is funny because not only does it effect future projections but it also effects perceived present value of company - which may have the stock trading at $60 a share (think earnings and companies like Google). Having a company people feel proud owning or thinking is cool is also a indicator or share worth. I gave you a really good example of a very successful company selling Superman Bikes... There are just as many companies that have the opposite happening. Imagine missing sales goals by a few million with bad consumer feedback and all of a sudden your company goes from $20 to $5 a share.\"", "title": "" }, { "docid": "af1179f9ecef6167221f32226a1cb8a6", "text": "Excellent question for a six year old! Actually, a good question for a 20 year old! One explanation is a bit more complicated. Your son thinks that after the Christmas season the company is worth more. For example, they might have turned $10 million of goods into $20 million of cash, which increases their assets by $10 million and is surely a good thing. However, that's not the whole picture: Before the Christmas season, we have a company with $10 million of goods and the Christmas season just ahead, while afterwards we have a company with $20 million cash and nine months of slow sales ahead. Let's say your son gets $10 pocket money every Sunday at 11am. Five minutes to 11 he has one dollar in his pocket. Five minutes past 11 he has 11 dollars in his pocket. Is he richer now? Not really, because every minute he gets a bit closer to his pocket money, and five past eleven he is again almost a week away from the next pocket money On the other hand... on Monday, he loses his wallet with $10 inside - he is now $10 poorer. Or his neighbour unexpectedly offers him to wash his car for $10 and he does it - he is now $10 richer. So if the company got robbed in August with all stock gone, no insurance, but time to buy new stock for the season, they lose $10 million, the company is worth $10 million less, and the share price drops. If they get robbed just before Christmas sales start, they don't make the $20 million sales, so they are $10 million poorer, but they are $20 million behind where they should be - the company is worth $20 millions less, and the share price drops twice as much. On the other hand, if there is a totally unexpected craze for a new toy going on from April to June (and then it drops down), and they make $10 million unexpectedly, they are worth $10 million more. Expected $10 million profit = no increase in share price. Unexpected $10 million profit - increase in share price. Now the second, totally different explanation. The share price is not based on the value of the company, but on what people are willing to pay. Say it's November and I own 100 shares worth $10. If everyone knew they are worth $20 in January, I would hold on to my shares and not sell them for $10! It would be very hard to convince me to sell them for $19! If you could predict that the shares will be worth $20 in January, then they would be worth $20 now. The shareprice will not go up or down if something good or bad happens that everyone expects. It only goes up or down if something happens unexpectedly.", "title": "" }, { "docid": "b05473247a4a23f270cd87f3c9d5db88", "text": "While there are lots of really plausible explanations for why the market moves a certain way on a certain day, no one really knows for sure. In order to do that, you would need to understand the 'minds' of all the market players. These days many of these players are secret proprietary algorithms. I'm not quibbling with the specifics of these explanations (I have no better) just pointing out that these are just really hypotheses and if the market starts following different patterns, they will be tossed into the dust bin of 'old thinking'. I think the best thing you can explain to your son is that the stock market is basically a gigantic highly complex poker game. The daily gyrations of the market are about individuals trying to predict where the herd is going to go next and then after that and then after that etc. If you want to help him understand the market, I suggest two things. The first is to find or create a simple market game and play it with him. The other would be to teach him about how bonds are priced and why prices move the way they do. I know this might sound weird and most people think bonds are esoteric but there are bonds have a much simpler pricing model based on fundamental financial logic. It's much easier then to get your head around the moves of the bond markets because the part of the price based on beliefs is much more limited (i.e. will the company be able pay & where are rates going.) Once you have that understanding, you can start thinking about the different ways stocks can be valued (there are many) and what the market movements mean about how people are valuing different companies. With regard to this specific situation, here's a different take on it from the 'priced in' explanation which isn't really different but might make more sense to your son: Pretend for a second that at some point these stocks did move seasonally. In the late fall and winter when sales went up, the stock price increased in kind. So some smart people see this happening every year and realize that if they bought these stocks in the summer, they would get them cheap and then sell them off when they go up. More and more people are doing this and making easy money. So many people are doing it that the stock starts to rise in the Summer now. People now see that if they want to get in before everyone else, they need to buy earlier in the Spring. Now the prices start rising in the Spring. People start buying in the beginning of the year... You can see where this is going, right? Essentially, a strategy to take advantage of well known seasonal patterns is unstable. You can't profit off of the seasonal changes unless everyone else in the market is too stupid to see that you are simply anticipating their moves and react accordingly.", "title": "" } ]	[ { "docid": "8d7340d23e5f571dc750165921c2e144", "text": "It's the buying and selling of the stock that causes the fluctuation in prices, not the news. People buy and sell all the time, and not just for newsworthy reasons. They may have to send a child to college, or fix a roof, etc. Or they may be technical traders looking for signals. All kinds of reasons.", "title": "" }, { "docid": "af985c110e87b9fc2117bba813b62cc5", "text": "\"No it does not. Candlesticks really have nothing to do with this, a stock price can open different then the previous day's close. Examining the chart of TSLA provides an example it closed on 1/18 at 238.8 it opened on 1/19 at 243.7 In candlestick parlance is is known as a \"\"gap up\"\".\"", "title": "" }, { "docid": "224b2adcaf210e11107ae36c6a1e6b3e", "text": "\"Vitalik has mentioned this in a comment but I think it ought to be expanded upon: Companies that aren't already penny stocks really don't stand to gain anything from trying to prevent short interest. Short selling does not inherently lower the stock price - not any more so than any other kind of selling. When somebody shorts a stock, it's simply borrowed from another investor's margin; as long as it's not a naked short resulting in an FTD (Failure To Deliver) then it does not add any \"\"artificial\"\" selling pressure. In fact, shorting can actually drive the price up in the long term due to stops and margin calls. Not a guarantee, of course, but if a rally occurs then a high short interest can cause a cascade effect from the short \"\"squeeze\"\", resulting in an even bigger rally than what would have occurred with zero short interest. Many investors actually treat a high short interest as a bullish signal. Compare with margin buying - essentially the opposite of short selling - which has the opposite effect. If investors buy stocks on margin, then if the value of that stock decreases too rapidly they will be forced to sell, which can cause the exact same cascade effect as a short interest but in the opposite direction. Shorting is (in a sense) evening out the odds by inflating the buying pressure at lower stock prices when the borrowers decide to cover and take profits. Bottom line is that, aside from (illegal) insider trading, it doesn't do businesses any good to try to manipulate their stock price or any trading activity. Yes, a company can raise capital by selling additional common shares, but a split really has no effect on the amount of capital they'd be able to raise because it doesn't change the actual market cap, and a dilution is a dilution regardless of the current stock price. If a company's market cap is $1 billion then it doesn't matter if they issue 1 million shares at $50.00 each or 10 million shares at $5.00 each; either way it nets them $50 million from the sale and causes a 5% dilution, to which the market will react accordingly. They don't do it because there'd be no point.\"", "title": "" }, { "docid": "afab503ca68534f325de3e443e8290a1", "text": "If I understand you correctly, you are noticing that a stock's price can change drastically when the time changes from pre-market trading hours to open market hours. This could occur because a much smaller pool of investors make trades during pre-market and after-market hours. When the regular market opens there is a large influx of trades, causing the prices to jump.", "title": "" }, { "docid": "9f13f012d9bf0efab9c65032daf5648b", "text": "My guess would be in the short term, local small businesses around these big-boxers get squeezed from rising wages, but in the long-run, they're still playing Amazon's game. And yet, it's the small retailers that don't have to get caught up in the Amazon race.", "title": "" }, { "docid": "fb4662dbbb78fcfdf7d4f2c5a9341614", "text": "Are you sure you're not just looking at prices that are adjusted for the split, e.g. Yahoo? For example, Gilead Sciences (GILD) split a few months ago, but if you look at a price chart, there isn't an interruption even though the split is clearly marked. (Look in the past six months; it split in January). However, you could also simply be watching companies that happen to not split, for a variety of reasons. This isn't a criticism, but rather just a consequence of whatever stocks you happen to be watching. However, a quick search for information on stock splits yields a few articles (mainly from the Motley Fool) that argue that fewer companies are performing stock splits in recent years; the articles mainly talk about tech companies, and they make the argument that even though the shares in Google and Apple have a high stock price: Google and Apple aren't all that expensive by traditional valuation metrics. Google trades at just 15 times next year's projected profitability. Apple fetches a mere 13 times fiscal 2012's bottom-line estimates. These articles are a bit dated in terms of the stock prices, but the rationale is probably still good. Similar logic could apply for other companies; for example, since May 2009, Panera's stock price has climbed by almost a factor of 4 without splitting. The articles also make the point that stock splits were traditionally seen as bullish signs because: Companies splitting to bring their share prices back down to more accessible levels were optimistic in building those sand castles back up. One could make a fair argument that the overall economic climate isn't as bullish as it used to be, although I would only be convinced that this was affecting stock splits if data could be gathered and tested. A stock split can also raise the price of a stock because if small investors feel the stock is suddenly more accessible to them, they purchase more of it and might therefore drive up the price. (See the Investopedia article on stock splits for more information). Companies might not see the necessity in doing this because their stock price isn't high enough to warrant a split or because the price isn't high enough to outprice smaller investors. One interesting point to make, however, is that even though stock splits can drive small investors to buy more of the stock, this isn't always a gain for the company because professional investors (firms, institutions, etc.) have a tendency to sell after a split. The paper is a bit old, but it's still a very neat read. It's possible that more and more companies no longer see any advantage to splitting because it might not affect their stock price in the long run, and arguably could even hurt it. Considering that large/professional investors likely hold a higher percentage of a company's shares than smaller investors, if a stock split triggers a wave of selling by the former, the increasing propensity to buy of the latter may not be enough to offset the decline in price. Note: My answer only refers to standard stock splits; the reasons above may not apply to a decrease in the number of reverse stock splits (which may not be a phenomenon; I don't know).", "title": "" }, { "docid": "f74107c60db39d730e328f977ebdf010", "text": "The NYSE publishes a list of holidays at its website. New link: https://www.nyse.com/markets/hours-calendars Old link in the original answer that doesn't work now: http://www.nyse.com/about/newsevents/1176373643795.html Hope that helps!", "title": "" }, { "docid": "bc0e8da639dc1e73363d45aa6c5efce5", "text": "Volatility typically decreases when stocks rise except pending news events or fast markets. It has a great impact of the premium of the option.", "title": "" }, { "docid": "6b0353eb5873769de175d7620734fdfe", "text": "A stock's price does not move in a completely continuous fashion. It moves in discrete steps depending on who is buying/selling at given prices. I'm guessing that by opening bell the price for buying/selling a particular stock has changed based on information obtained overnight. A company's stock closes at $40. Overnight, news breaks that the company's top selling product has a massive defect. The next morning the market opens. Are there any buyers of the stock at $40? Probably not. The first trade of the stock takes place at $30 and is thus, not the same as the previous day's close.", "title": "" }, { "docid": "1a391300cbd24b967851a40af75af143", "text": "\"Institutions may be buying large quantities of the stock and would want the price to go up after they are done buying all that they have to buy. If the price jumps before they finish buying then they may not make as great a deal as they would otherwise. Consider buying tens of thousands of shares of a company and then how does one promote that? Also, what kind of PR system should those investment companies have to disclose whether or not they have holdings in these companies. This is just some of the stuff you may be missing here. The \"\"Wall street analysts\"\" are the investment banks that want the companies to do business through them and thus it is a win/win relationship as the bank gets some fees for all the transactions done for the company while the company gets another cheerleader to try to play up the stock.\"", "title": "" }, { "docid": "7432ecb42e62b915bdadef23c4d37402", "text": "I think it's because there are a lot of retail investors in this stock. They are the ones that tend to overreact on news cycles, so creating bad press or over-hyping bad press really makes the stock price swing.", "title": "" }, { "docid": "992b3d565cc24fabd08e53b19d812338", "text": "Most stocks are not actively trades by lots of people. When you buy or sell a stock the price is set by the “order book” – that is the other people looking to trade in the given stock at the same time. Without a large number of active traders, it is very likely the pricing system will break down and result in widely changing prices second by second. Therefore for the market to work well, it need most people to be trading at the same time.", "title": "" }, { "docid": "fc995ec5e7c0691a5351985999c81cc2", "text": "For stock splits, let's say stock XYZ closed at 100 on February 5. Then on February 6, it undergoes a 2-for-1 split and closes the day at 51. In Yahoo's historical prices for XYZ, you will see that it closed at 51 on Feb 6, but all of the closing prices for the previous days will be divided by 2. So for Feb 5, it will say the closing price was 50 instead of 100. For dividends, let's say stock ABC closed at 200 on December 18. Then on December 19, the stock increases in price by $2 but it pays out a $1 dividend. In Yahoo's historical prices for XYZ, you will see that it closed at 200 on Dec 18 and 201 on Dec 19. Yahoo adjusts the closing price for Dec 19 to factor in the dividend.", "title": "" }, { "docid": "09aa5167338e7dd41a1dcf29d5c83272", "text": "It is a zero sum game. If 8 bn dollars are going to be spent over Christmas, that's getting split among those retailers. For every dollar Best buy doesn't get, someone else is getting it instead. There is a limited amount of 'non-zero sum' money being spent, i.e. impulse buys, that if the consumer doesn't buy here, they're just going to go without, however that is dwarfed by the majority shoppers.", "title": "" }, { "docid": "73cb8371016921ef58e4aa8ca47d7116", "text": "1) People aren't always going to be able to do their occupation, or their desired hobby. 2) Government assistance, or whatever you want to call it, is available at a certain age. Some people look forward to this and plan to rely on it, but it isn't really sufficient for living off of and keeping the standard of living you will be used to. Therefore, such situations require you to plan using a variety of other institutions to help you in that time. Finally, more is more: if your retirement funds exceed what you need, you can leave something for your family to help them start at a more stable financial place after you are gone.", "title": "" } ]	fiqa
b37f3268bedc2a23bfd77e4b9dd366ea	How could the 14th amendment relate to the US gov't debt ceiling crisis?	[ { "docid": "52b7ade0d669c383ccde847428fc5906", "text": "It's a disturbing development -- someone is floating the idea that the executive has the ability to issue debt without the consent of congress to measure the public's reaction. Why disturbing? Because people are using language like this: The president, moreover, can move quickly, but court cases take time. “At the point at which the economy is melting down, who cares what the Supreme Court is going to say?” Professor Balkin said. “It’s the president’s duty to save the Republic.” The implication to your personal finances is that we continue to live in interesting times, and you need to be aware of the downside risks that your investments are exposed to. If your portfolio is built around the idea that US government obligations are risk-free, you need to rethink that.", "title": "" }, { "docid": "dfd53d7422443fe7ce9beb33431fdd20", "text": "Section Four of the amendment reads: The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. In other words, if President Obama wants to, he could unilaterally invoke this provision and go ahead and get the money he needs. Good articles describing this in some detail can be found here and here.", "title": "" } ]	[ { "docid": "527ed0927a72d065546cc9c9b44eb994", "text": "Should voters care? What is the scenario in which this debt actually becomes a problem? It seems to me that the money from this debt is largely going into the pockets of US Citizens, so less debt would mean less prosperity for Americans. What are the arguments against this assumption?", "title": "" }, { "docid": "da65d37e11ced3265657280ccf9478aa", "text": "\"For political reasons, almost all governments (including the US) spend more money than they get from taxes etc. There are a number of things a government can do to cover the difference: Most governments opt for selling bonds. The \"\"National Debt\"\" of a country can be thought of as being the sum of all the \"\"Bonds\"\" that are still paying interest, and that the Government hasn't Redeemed. It can all go horribly wrong. If the Government gets into a situation where it cannot pay the interest, or it cannot Redeem the Bonds it has promised to, then it may have to break its promise (\"\"Default\"\" on its payments). This makes the owners of the Bonds unhappy and means potential buyers of future Bond sales are less likely to want to buy the Governments new Bonds - effectively meaning the Government has to promise to pay more interest in the future. Recent examples of this include Argentina; and may include Greece soon. The US is in the fortunate position that not many people believe it will Default. Therefore the new Bonds it sells (which it does on a regular basis) are still in demand, even though its interest payments, and promises to Redeem Bonds are huge.\"", "title": "" }, { "docid": "ecbce6fb051a2cb6791038ba17979cbf", "text": "There is no situation one can imagine in which the US defaults (beyond a day or three) on its obligations. The treasury can print money, and while it would be disastrous, 'monetizing' the debt would simply eliminate all outstanding debt at the risk of devaluing the dollar to hyperinflation levels.", "title": "" }, { "docid": "b87cae29259c5c62ab0fca7e87a9cad6", "text": "This thread has been linked to from elsewhere on reddit. - [/r/bestof] [/u/78fivealive explains the debt crisis in Argentina as &quot;A Streetcar Named Desire.&quot;](http://np.reddit.com/r/bestof/comments/2cb2qi/u78fivealive_explains_the_debt_crisis_in/) ^If ^you ^follow ^any ^of ^the ^above ^links, ^respect ^the ^rules ^of ^reddit ^and ^don't ^vote ^or ^comment. ^Questions? ^Abuse? [^Message ^me ^here.](http://www.reddit.com/message/compose?to=%2Fr%2Fmeta_bot_mailbag)", "title": "" }, { "docid": "1c9c74fa50ed2ed5bcf803fbb7cc7b79", "text": "1. Apple - holding over 100b cash in their vault more than any banks have in their reserves in the world and more than enough to pay off all of the debts of the U.S. There is $14 trillion in US government debt. You're off by a couple of orders of magnitude.", "title": "" }, { "docid": "e3e7ce465f548c6e9267465db1883bc5", "text": "I love the constant denial on this site that mounting debt is an issue. By the way, this is an insult and not an invitation for a discussion. I really don't give a fuck what you or u/geerusell think on the issue. You are both total fucking idiots with your bullshit Keynesian views.", "title": "" }, { "docid": "49086f0c6e406fb9f1ab0e99b5930e04", "text": "\"They also ignored bankruptcy law and gave a large part of the New GM to the unions when it should belong to the bondholders. Or if the bondholders are getting wiped out, it should belong 100% to the US Government. Theoretically you need the legislative or judiciary branches to back such actions, but in practice it doesn't always happen. Or when Obama tanked the Las Vegas tourism industry when he took at shot at the \"\"fat cats\"\" and the next day all the executives cancelled their corporate events in Vegas because they wanted to get out of the line of fire.\"", "title": "" }, { "docid": "61bbfe419b10a8b75e647ebabeaa7088", "text": "\"But do you know about a US state risking to go default now or in the past? In 1847 four states - Mississippi, Arkansas, Michigan, and Florida - failed to pay all or some of their debts. All of these states had issued debt to invest in banks. From the detailed source listed below: \"\"...it should be remembered that all cases of state debt repudiation, as contrasted with mere default, involved banks.\"\" Jackson had killed the federal central bank 10 years earlier and the states were trying to create their own inflationary central banks. Six other states delayed debt payments from three to six years (source, page 103, this source has more details). This is the only case I know of where US states defaulted. US cities default more frequently. I'm very confused do US single states like IOWA have debt and emits obligations on their own like Italy does in EU? Yes. Individual states can issue their own bonds. Oh, and just another little thing I would like to know, is Dollar a fiat currency too like the Euro? Yes, the US dollar is a fiat currency. I think the better question is: \"\"Is there any currency that is not a fiat currency?\"\"\"", "title": "" }, { "docid": "36f0aa576a684067f2caf20a9a3af0f0", "text": "govt debt and money printing is nothing to the amount of debt in circulation in the private sector (41 trillion). it was the private sector that created the inflation and bubbles. giving students 1 trilion to pay off all student loans isn't inflationary, it would be deflationary. because the banks created the credit out of thin air to lend to the students for college, if you pay it back, it closes the circuit. Govt would have 1 trilion in debt, but that's nothing, only a trilion dollars. it can get paid back in tax revenue from economic recovering by the private sector no longer burdened by debt.", "title": "" }, { "docid": "c1ec558b13fb76754d0fdaf49b981640", "text": "Reaching the debt ceiling is an admission that the US can't pay its bills as they come due. Credit rating agencies could cut the US's debt rating, making acquisition of new debt much more difficult. Creditors could file for involuntary bankruptcy, forcing the government to pay back the debt - which, to be clear, it simply is incapable of doing in any kind of reasonable timeframe. The loss of confidence in the US's ability to pay its debts... Given how the US is such a financial and economic center of the world (partially by design, partially by happenstance), it would probably be disastrous worldwide.", "title": "" }, { "docid": "d0639d406a8990b39b5ae168d9ebf638", "text": "There no legal framework that allows states like the US or countries in Europe to default on their debt. Should congress pass a law to default the US supreme court is likely to nullify the law.", "title": "" }, { "docid": "edfaea8b74131376f39df1847e966ad5", "text": "It's misleading news. Comparing debt levels in nominal terms is completely pointless over a period of more than a few months. The article you responded to quite literally quoted extracts from the article you subsequently posted and explained why they were misleading or incorrect.", "title": "" }, { "docid": "e5c88c5babbd9efce0d5539f9d5fa6fc", "text": "Did you read the article? They weren't arguing whether or not the debt could be defaulted on. They were arguing that one side can't unilaterally change the terms of the contract and decide to pay less. Which seems like common sense, but whatever.", "title": "" }, { "docid": "57904482f79435e2e4f514c6c20f95a3", "text": "They're not going to do anything about it. Washington needs the debt wheel to keep spinning, or the Dollar will lose its position as the Reserve Currency. Then all hell would break loose. Powerful countries like Japan are going to have to take the initiative. And apparently they are starting to. It has to be countries like Japan because if a weak country tries this, they'll get invaded.", "title": "" }, { "docid": "ea4474b5df1689eaee2874460986af65", "text": "Millions of Americans are affected by this. Millions of Americans live in debt, through credit cards and other sources that depend on these scumbaggers. Yet, the media picks it up, due to necessity, and drops it faster than a wide receiver with no hands.", "title": "" } ]	fiqa
56d67cc0a4ae98a2c1e6e69d7ada2287	I have an extra 1000€ per month, what should I do with it?	[ { "docid": "666d777385bd1d7382048ddb3963c111", "text": "I'm almost in the same situation as you. Here is what I'm doing. Buy ETFs each time you have above 3000€ saved up. I buy these: HSBC S+P 500 C.S.-MSCI PACIFIC UBS-ETF-MSCI EMERGING MARKETS ISH.STOX.EUROPE 600 They are taxable under Abgeltungssteuer, so no hassle with that, are cheap and cover almost the entire world economy. Don't worry what everyone else is doing. My friends all started buying stuff when they started earning real money. Now everyone has shitloads of stuff piled up somewhere, which never gets used.", "title": "" }, { "docid": "ce67213c02975c72d0ddd432803db58a", "text": "1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/", "title": "" }, { "docid": "31eb14798fa124a9d56118dfc3f58f28", "text": "Lots of good advice on investing already. You may also want to think about two things: A Bausparvertrag. You can set this up for different monthly saving rates. You'll get a modest interest payment, and once you have saved up enough (the contract is zuteilungsreif), you will be eligible for a loan at a low rate. However, you can only use the loan for building, buying or renovating real estate. With interest rates as low as they are right now, this is not overly attractive. However, depending on your salary, you may qualify for subsidies, and these could indeed be rather attractive. This may be helpful (in German). A Riester-Rente. This is a subsidized saving scheme - you save something every year and again get subsidies at the end of the year. I think the salary thresholds where you qualify for a subsidy are a bit higher for the Riester-Rente than for a Bausparvertrag, and even if you don't qualify for a subsidy, your contributions will be deducted from your taxable income. I wouldn't invest all my leftover money in these, considering that you commit yourself for the medium to long term, but they might well be attractive options for at least part of your money, say 20-25% of what you aim at saving every month. Finally, as others have written: banks and insurance companies exist to make money, and they live off their provisions. Get an independent financial advisor you pay by the hour, who doesn't get provisions, and have him help you.", "title": "" }, { "docid": "c141d68ca0b0fec7fc97ce49d4665f8c", "text": "Congratulations on getting started in life! John Malloy's (American) research suggests that you should take some time to get used to living on your own, make some friends, and settle into your community. During this time, you can build up an emergency fund. If/when the stock markets do not seem to be in a bear market, you can follow user3771352's advice to buy stock ETFs. Do you hope to get married and have children in the next few years? If so, you should budget time and money for activities where you make new friends (both men and women). Malloy points out that many Americans meet their spouses through women's networks of friends.", "title": "" }, { "docid": "a15288202efc7737369c6b1b2bf40577", "text": "\"First check: Do you have all the insurances you need? The two insurances everyone should have are: Another insurance you might want to get is a contents insurance (\"\"Hausratsversicherung\"\"). But if you don't own any super-expensive furniture or artworks, you might also opt to self-insure and cover it with: Priority 2: Emergency fund. Due to the excellent healthcare and welfare system in Germany, this is not as important as in many other countries. But knowing that you have a few thousand € laying around in liquid assets in case something expensive breaks down can really help you sleep at night. If you decide not to pay for contents insurance, calculate what it would cost you if there is a fire in your apartment and you would have to replace everything. That's how large your emergency fund needs to be. You also need a larger emergency fund if you are a homeowner, because as a homeowner there might always be an emergency repair you have to pay for. Priority 3: Retirement. Unless there will be some serious retirement reforms in the next 40 years (and I would not bet on that!), the government-provided pension will not be enough to cover your lifestyle cost. If you don't want to suffer from poverty as a senior citizen you will have to build up a retirement plan now. Check which options your company provides (\"\"Betriebliche Altersvorsorge\"\") and what retirement options you have which give you free money from the government (\"\"Riester-Rente\"\"). Getting professional advise to compare all the options with each other can be really beneficial. Priority 4: Save for a home. In the long-run, owning a home is much cheaper than renting one. Paying of a mortgage is just like paying rent - but with the difference that the money you pay every month isn't spent. Most of it (minus interest and building maintenance costs) stays your capital! At one point you will have paid it off and then you never have to pay rent in your life. It even secures the financial future of your children and grandchildren, who will inherit your home. But few banks will give you a good interest rate if you have no own capital at all. So you should start saving money now. Invest a few hundred € every month in a long-term portfolio. You might also get some additional free money for this purpose from your employer (\"\"Vermögenswirksame Leistungen\"\").\"", "title": "" }, { "docid": "95f6f1ef4ca819dafd3029e8a868cdfa", "text": "\"What about getting the saving account - \"\"Bausparen\"\" (~100EUR/month) which you can later use for credit to get better mortgage deal and to buy a flat for renting to others (Anlegerwohnung)?\"", "title": "" }, { "docid": "94e4d5ca28ad25d8016392b2891ba804", "text": "\"As many before me said but will say again for the sake of completeness of an answer: First off provision to have an emergency fund of 6 months living expenses to cover loss of employment, unforeseen medical issues etc. When that is done you re free to start investing. Do remember that putting all your eggs in one basket enable risks, so diversify your portfolio and diversify even within each investment vehicle. Stocks: I would personally stay away from stocks as it's for the most part a bear market right now (and I assume you re not interested day-trading to make any short term return) and most importantly you dont mention any trading experience which means you can get shafted. Mutual Funds: Long story short most of these work; mainly for the benefit for their management and people selling them. Bonds Instead, I would go for corporate bonds where you essentially buy the seller(aka the issuing company) and unlike gambling on stocks of the same company, you dont rely on speculation and stock gains to make a profit. As long as the company is standing when the bond matures you get your payment. This allows you to invest with less effort spent on a daily basis to monitor your investments and much better returns(especially if you find opportunities where you can buy bonds from structurally sound companies that have for reasons you deem irrelevant, purchase prices in the secondary market for cents in the dollar) than your other long term \"\"stable options\"\" like German issued bonds or saving accounts that are low in general and more so like in the current situation for German banks. Cryptocurrency I would also look into cryptocurrency for the long term as that seems to be past its childhood diseases and its also a good period of time to invest in as even the blue chips of that market are down party due to correction from all time highs and partly due to speculation. As Im more knowledgeable on this than German-locale bonds, a few coins I suggest you look into and decide for yourself would be the obvious ETH & BTC, then a slew of newer ones including but not limited to OmiseGO, Tenx(Pay), Augur and IOTA. Beware though, make sure to understand the basics of security and good practices on this field, as there's no central bank in this sector and if you leave funds in an exchange or your wallet's private key is compromised the money are as good as gone.\"", "title": "" }, { "docid": "eb87f734f496f7e34c6823d06400e3c0", "text": "If I were you, I would save 200 euros for retirement each month and another 800 I would stash away with the hope to start investing soon. I think you have to invest a bigger lump sum, then 1000 euros. It makes sense to invest at least 30K to see any tangible results. My acquaintances started from 50K and now see pretty handsome returns. Investing is profitable, as long as you approach it smartly. Also, do not ever hire an overly expensive financial consultant - this expenses will never pay off. Of course, check their credentials and reputation... But never pay much to these guys. Not worth it.", "title": "" } ]	[ { "docid": "add28a96715300773baecd48463ce3ef", "text": "People have asked a lot of good questions about your broader situation, tolerance for risk, etc, but I'm going to say the one-size-fits-most answer is: split some of your monthly savings (half?) into the VEU Vanguard FTSE All-World ex-US ETF and some into VTI Vanguard Total Stock Market ETF. This can be as automatic and hassle-free as the money market deposit and gives a possibility of getting a better return, with low costs and low avoidable risk.", "title": "" }, { "docid": "6d07420bb79af890119995e24bcf52cb", "text": "It depends on your bank and the details in the agreement, but typically, interest is calculated daily. So if you borrow 1000 EUR for 1 day, you pay 15% * 1000 EUR * 1/360 = 42 Cent (41.666667 cent to be exact). You can simply multiply these 42 cent up with the number of days you plan and the number of 1000s EUR. Note that weekend days count too, even if you cannot pay them back on the weekend. The exact value will be very slightly different, as the interest is added monthly to the principal, and there is compound interest on the interest. Banks also often consider all months 30 days long for interest calculations.", "title": "" }, { "docid": "7a3b5dba9f57e8cd65d2b20b9781823e", "text": "\"Frequently selling and buying properties is generally not advisable in Germany due to the high cost for property purchase tax (\"\"Grunderwerbssteuer\"\") and land registration fees (\"\"Grundbucheintrag\"\"). You can generally assume that ever time you trade homes, you pay about 10% extra. So it is likely a good idea to keep your property and rent it out while you don't need it so you can use the rent to pay for your new room. That's especially true if you expect the property to increase in value. Also, due to the low interest rate right now, real estate is practically the only good capital investment. A 85k asset which makes you 4.8k each year is a return of investment of 5.6%. Any financial asset promising you that kind of dividend at the moment is likely equivalent to gambling. yes, I ignored maintenance costs, but it's still a really good deal. If you want to rent out your flat as stress-free as possible, give it to a property management company (\"\"Hausverwalter\"\"). In exchange for a percentage of the monthly rent they will take care of all the small stuff (like hiring handymen to fix broken toilets). You might still have to pay for really expensive investments, though (like replacing a leaking roof). But when something like that happens, you should have no issue to finance it with a loan because you have a real estate as a security. However, keep in mind that the German tenancy law might make it difficult (but not impossible) to get rid of the tenant in case you want to move back into the apartment. Google \"\"Mietrecht Eigenbedarf\"\" for more details. Should you decide after your study that you don't want to move back, you can always sell the flat with the tenant. But rented properties usually get far lower prices on the real estate market than empty ones. Regarding covering your cost of living besides rent during your studies: If you are eligible for BAföG (state-sponsored student loan), you should take it, because it's an offer simply too good to refuse. It's literally free money. But unfortunately you are not, because you own too much real estate wealth you are not living in. But you should ask your bank for a loan backed by said property. That way you will likely pay far less interest than with a regular private student loan which isn't backed by anything except the hope for a relevant degree.\"", "title": "" }, { "docid": "44b8a72d907e3394b395de649fd6c6d4", "text": "\"If you \"\"have no immediate plans for the money and will probably not return to Switzerland for a long time or at all\"\" then it might be best just to exchange the money so then you can use/invest it in the UK. Maybe keep a bill or two for memory-sake - I do that whenever I travel to a foreign country.\"", "title": "" }, { "docid": "4ac2c64ce70259bde39978411a151518", "text": "\"with 150K € to invest to \"\"become a landlord\"\" you have several options: Pay for 100% of one property, and you then will make a significant percentage of the monthly rent as profit each month. That profit can be used to invest in other things, or to save to buy additional properties. At the end of the 21 years in your example, you can sell the flat for return of principal minus selling expenses, or even better make a profit because the property went up in value. Pay 20% down on 5 flats, and then make a much a smaller profit per flat each month due to the mortgage payment for each one. At the end of the 21 years sell the flats. Assuming that a significant portion of the mortgage is paid off each flat will sell for more than the mortgage balance. Thus you will have 5 nice large profits when you sell. something in between 1 and 5 flats. Each has different risks and expenses. With 5 rental properties you are more likely to use a management company, which will add to your monthly cost.\"", "title": "" }, { "docid": "85ef54507d2fada1a6364d888462df4f", "text": "I wouldn't give it a second thought. I'd get rid of the extra car and do everything I could in the following months to repay the emergency fund. Even without the interest payments, I'd consider getting rid of an unused car due to the very nature of a car being a depreciating asset that has insurance expenses and annual registration fees on top of that depreciation. The one exception to the above would be a classic car that was purchased for an investment that is always garaged and doesn't need to be registered for road use. I take it for granted that most people who can afford such investments don't need my advice about when to sell.", "title": "" }, { "docid": "d4b7a84d38a6e0206518d8453f5ea09a", "text": "For one, the startup doesn't exist yet, so until March I will get nothing on hand, though I have enough reserves to bridge that time. I would not take this deal unless the start-up exists in some form. If it's just not yet profitable, then there's a risk/reward to consider. If it doesn't exist at all, then it cannot make a legal obligation to you and it's not worth taking the deal yet. If everything else is an acceptable risk to you, then you should be asking the other party to create the company and formalize the agreement with you. As regards reserves, if you're really getting paid in shares instead of cash, then you may need them later. Shares in a start-up likely are not easy to sell (if you're allowed to sell them at all), so it may be a while before a paycheck given what you've described. For a second, who pays the tax? This is my first non-university job so I don't exactly know, but usually the employer has to/does pay my taxes and some other stuff from my brutto-income (that's what I understood). If brutto=netto, where is the tax? This I cannot answer for Germany. In the U.S. it would depend in part on how the company is organized. It's likely that some or all of the tax will be deferred until you monetize your shares, but you should get some professional advice on that before you move forward. As an example, it's likely that you'd get taxed (in part or in whole) on what we'd call capital gains (maybe Abgeltungsteuer in German?) that would only be assessed when you sell the shares. For third, shares are a risk. If I or any other in the startup screw really, my pay might be a lot less than expected. Of course, if it works out I'm rich(er). This is the inherent risk of a start-up, so there's no getting around the fact that there's a chance that the business may fail and your shares become worthless. Up to you if you think the risk is acceptable. Where you can mitigate risk is in ensuring that there's a well-written and enforceable set of documents that define what rights go with the shares, who controls the company, how profits will be distributed, etc. Don't do this by spoken agreement only. Get it all written down, and then get it checked by a lawyer representing your interests.", "title": "" }, { "docid": "3c9b27a19b0086ba941085e3b3ad0c19", "text": "\"A couple of thoughts and experiences (Germany/Italy): First of all, I recommend talking to the Belgian bank (and possibly to a Dutch bank of your choice). I have similar conditions for my German bank accounts. But even though they talk about it as salary account (\"\"Gehaltskonto\"\") all they really ask for is a monthly inflow of more than xxxx € - which can be satisfied with an automatic direct transfer (I have some money automatically circulating for this reason which \"\"earns\"\" about 4% p.a. by saving fees). In that case it may be a feasible way to have a Belgian and a Dutch bank account and set up some money circulation. Experiences working in Italy (some years ago, SEPA payments were kind of new and the debits weren't implemented then): My guess with your service providers is that they are allowed to offer you contracts that are bound to rather arbitrary payment conditions. After all, you probably can also get a prepaid phone or a contract with a bill that you can then pay by wire transfer - however, AFAIK they are allowed to offer discounts/ask fees for different payment methods. Just like there is no law that forces the store around your corner to accept credit cards or even large EUR denominations as long as they tell you so beforehand. AFAIK, there is EU regulation saying your bank isn't allowed to charge you more for wire transger to foreign country within the SEPA zone than a national wire transfer.\"", "title": "" }, { "docid": "c9e79c3970a82e9d968dd3eaf9229e54", "text": "\"This is the kind of scenario addressed by Reddit's /r/personalfinance Prime Directive, or \"\"I have $X, what should I do with it?\"\" It follows a fairly linear flowchart for personal spending beginning with a budget and essential costs. The gist of the flowchart is to cover your most immediate costs and risks first, while also maximizing your benefits. It sounds like you would fall somewhere around steps 1 and 3. (Step 2 won't apply since this is not pretax income.) If you don't already have at least $1000 reserved in an emergency fund, that's a great place to start. After that, you'll want to use the rest to pay down your debt. Your credit card debt is very high interest and should be treated as a financial emergency. Besides the balance of your gift, you may want to throw whatever other funds you have saved beyond one month's expenses at this problem. As far as which card, since you have multiple debts you're faced with the classic choice of which payoff method to use: snowball (lowest balance first) or avalanche (highest interest rate first). Avalanche is more financially optimal but less immediately gratifying. Personally, since your 26% APR debt is so large and so high interest, I would recommend focusing every available penny on that card until it is paid off, and then never use it again. Again, per the flowchart, that means using everything left over after steps 0-2 are fulfilled.\"", "title": "" }, { "docid": "af738cb9cc41c09d0b1ad2e8d0738a76", "text": "I started this off as a comment to Joe's answer, but it got rather messy in that form so I'll just post it as a separate answer instead. I suggest that you read Joe's answer first. I believe you are overthinking this. First, you really should be discussing the matter with your girlfriend. We can provide suggestions, but only the two of you can decide what feels right for the two of you. Strangers on the Internet can never have as complete a picture of your financial situations, your plans, and your personalities, as the two of you together. That said, here's a starting point that I would use as input to such a discussion: As you can see, a common theme to all of this is transparency and communication. There is a reason for this: a marriage without proper communication can never work out well in the long term. I don't know about Germany specifically, but disagreements about money tends to be a major reason in couples splitting up. By setting your lives up for transparency in money matters from the beginning, you significantly reduce the risk of this happening to you. Scott Hanselman discusses a very similar way of doing things, but phrases it differently, in Relationship Hacks: An Allowance System for Adults.", "title": "" }, { "docid": "2a4101d422ea1202cbc43ffd2a8abbf0", "text": "Are you going to South Africa or from? (Looking on your profile for this info.) If you're going to South Africa, you could do worse than to buy five or six one-ounce krugerrands. Maybe wait until next year to buy a few; you may get a slightly better deal. Not only is it gold, it's minted by that country, so it's easier to liquidate should you need to. Plus, they go for a smaller premium in the US than some other forms of gold. As for the rest of the $100k, I don't know ... either park it in CD ladders or put it in something that benefits if the economy gets worse. (Cheery, ain't I? ;) )", "title": "" }, { "docid": "65b489c3f610de3e3622600f09fb1ab7", "text": "I'm new to this, but how about putting a big part of your money into an MMA? I don't know about your country, but in Germany, some online banks easily offer as much as 2.1% pa, and you can access the money daily. If you want decent profit without risk this is a great deal, much better than most saving accounts.", "title": "" }, { "docid": "838b227c3da49cff164ae00934943043", "text": "Only in terms of inflation Because of inflation, €300 would be worth less in December 2011 than it was in January 2010. Thus, it's to your benefit to pay in monthly installments rather than up-front. Now to calculate the difference in monthly payments of 300 euro using the above webpage what should I do? You'd need to calculate 23 different values: But this is a pointless exercise, since you'd have signed a 24 month lease at a fixed price. Hence, my original comment.", "title": "" }, { "docid": "18d46b9b3ef3841eb491c2010b2fc9d4", "text": "\"If you're looking for ways to turn $1000 into more, don't just think of ways it can make money -- also consider whether there are any ways you can use it to save money. Among the advantages of this approach is that you're not taxed for reducing your expenditures. The good news is that there are a lot more ways to save a little bit of money on a $1000 budget than there are to make a little money on that budget. The bad news is that most of them will require some additional input: labor. Have you taken an economics course? Capital + Labor => output. I don't know what you spend your money on exactly, but some thoughts: You may find more opportunities for things like this as you move out from college and into your own apartment (/house) and the university isn't taking care of as many of your needs. Just don't confuse yourself about where the line is between actually saving money that you were going to spend anyway, and just consuming more. Consumption is fine in and of itself (and ultimately it's what you have money for) but doesn't make you financially better off. Also, when considering what to do with the money, don't just think \"\"I can spend $2000 on this bike and it will ultimately save me gas money\"\" unless you also know how to think \"\"I could spend $200 on a slightly lesser bike and still save all the gas money, or maybe even spend $20 on a yard sale bike.\"\". Consider borrowing kitchen equipment from the parents, instead of buying new stuff, or buy it at a yard sale. Also, make sure you actually will use the things you buy.\"", "title": "" }, { "docid": "b0b2c3803926031441d17b0be5547416", "text": "\"You owe no tax on the option transaction in 2015 in this case. How you ultimately get taxed depends on how you dispose of the position. If it expires, then you will have a short-term capital gain on the option position at expiration. If it is exercised, then the option is \"\"gone\"\" for tax purposes and your basis in the underlying is adjusted. From IRS Publication 550: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. In your case, this will be a long-term capital gain. For completeness, if you buy to cover the option back from the market before expiration or exercise, then it is also a short-term capital gain. Also, keep in mind that this all assumes that this covered call is \"\"qualified\"\" so that it does not count as a straddle. You can find more about that in Pub 550. https://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010630 All of this is for US tax purposes.\"", "title": "" } ]	fiqa
8a3cf82eb57a8cc43d875583b3336e92	What does bank do with “Repaid Principal”?	[ { "docid": "577d5f73127161f709bc21fb685ba8bd", "text": "Does it add to their lending reserves or is it utilized in other ways? It depends on how the economy and the bank in particular are doing. To simplify things greatly, banks get deposits and lend (or otherwise invest) the majority of those deposits. They must keep some percentage in reserve in case depositors want to make withdrawals, and if they get a high percentage of withdrawals (pushing them to be undercapitalized) then they may sell their loans to other banks. Whether they lend the money to someone else or use the money for something else will depend completely on how many reserves they have from depositors and whether they have people lined up to take profitable loans from them. I wrote this answer for the benefit of CQM, I'd vote to close this question if I had 49 more reputation points, since it's not really about personal finance.", "title": "" } ]	[ { "docid": "6a32ab6bf72d834302a6fca7bae388b3", "text": "\"So with any debt, be it a loan or a bond or anything else, you have two parts, the principal and the interest. The interest payment is calculated by applying the interest % to the principal. Most bonds are \"\"bullet bonds\"\" which means that the principle remains completely outstanding for the life of the bond and thus your interest payments are constant throughout the life of the bond (usually paid semi-annually). Typically part of the purpose of these is to be indefinitely refinanced, so you never really pay the principal back, though it is theoretically due at expiration. What you are thinking of when you say a loan from a bank is an amortizing loan. With these you pay an increasing amount of the principal each period calculated such that your payments are all exactly the same (including the final payment). Bonds, just like bank loans, can be bullet, partially amortizing (you pay some of the principle but still have a smaller lump sum at the end) and fully amortizing. One really common bullet structure is \"\"5 non-call 3,\"\" which means you aren't allowed to pay the principle down for the first three years even if you want to! This is to protect investors who spend time and resources investing in you!\"", "title": "" }, { "docid": "c06dd8658a400808f0995c1905f5a6bd", "text": "This depends on the practise and applications available with the Beneficiary Bank. For a corporate customer, the details are show. For Retail customers they are generally not shown.", "title": "" }, { "docid": "c7ea920399694772f15173c6e7867f48", "text": "The money is paid to investors who bought those mortgage backed securities. The company that services those loans is responsible for making sure the money is paid to the right investors", "title": "" }, { "docid": "67ecaeb0dc5c48e630846ae225a8727d", "text": "When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset). When the person who gets the loans spends the money, the bank has to pay it. If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans? Does it borrow the money from the Fed and then pay it back?", "title": "" }, { "docid": "1b4e0eb0641fc8e6dd1a94c8b3a36a1b", "text": "\"You should be able to pay back whenever; what's the point of an arbitrary timeline? Cash flow is the life blood of any business. When banks loan money, they are expecting a steady cash flow back. If you just pay back \"\"whenever\"\" - the bank has no idea what they'll be getting back month-to-month. When they can set the terms of the loan (length, rate, payment amount), they know how much cash flow they expect to get. What does [the term of the loan] even mean and what difference in the world does it make? In addition to the predictable cash flow needs above, setting a term for the loan determines how long their money will be tied up in the loan. The longer a bank has money tied up in a loan, the more risk there is that the borrower will default, so the bank will require a greater return (interest rate) for that extra risk. What you have described is effectively a revolving line of credit. The bank let you borrow money arbitrarily, charges you a certain rate of interest, and you can pay them back at your schedule. If you pay all of the interest for that month, everything else goes to principal. If you don't pay all of the interest, that interest is added to the balance and gets interest compounded on top of it. Both are perfectly viable business models, and bank employ them both, but they meed different needs for the bank. Fixed-term loans help stabilize cash flow, and lines of credit provide convenience for customers.\"", "title": "" }, { "docid": "b3415a1c53a9d79df08c7fa642104a2f", "text": "Simply put, for a mortgage, interest is charged only on the balance as well. Think of it this way - on a $100K 6% loan, on day one, 1/2% is $500, and the payment is just under $600, so barely $100 goes to principal. But the last payment of $600 is nearly all principal. By the way, you are welcome to make extra principal payments along with the payment due each month. An extra $244 in this example, paid each and every month, will drop the term to just 15 years. Think about that, 40% higher payment, all attacking the principal, and you cut the term by 1/2 the time.", "title": "" }, { "docid": "7d4ba7208ee4504c419e95dd85ca7fd8", "text": "\"There are two ways that mortgages are sold: The loan is collateralized and sold to investors. This allows the bank to free up money for more loans. Of course sometime the loan may be treated like in the game of hot potato nobody want s to be holding a shaky loan when it goes into default. The second way that a loan is sold is through the servicing of the loan. This is the company or bank that collects your monthly payments, and handles the disbursement of escrow funds. Some banks lenders never sell servicing, others never do the servicing themselves. Once the servicing is sold the first time there is no telling how many times it will be sold. The servicing of the loan is separate from the collateralization of the loan. When you applied for the loan you should have been given a Servicing Disclosure Statement Servicing Disclosure Statement. RESPA requires the lender or mortgage broker to tell you in writing, when you apply for a loan or within the next three business days, whether it expects that someone else will be servicing your loan (collecting your payments). The language is set by the US government: [We may assign, sell, or transfer the servicing of your loan while the loan is outstanding.] [or] [We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.] [or] [The loan for which you have applied will be serviced at this financial institution and we do not intend to sell, transfer, or assign the servicing of the loan.] [INSTRUCTIONS TO PREPARER: Insert the date and select the appropriate language under \"\"Servicing Transfer Information.\"\" The model format may be annotated with further information that clarifies or enhances the model language.]\"", "title": "" }, { "docid": "c3d8d070a56a01810b48d789ecb1cddf", "text": "With the following variables the periodic (annual) repayment is given by The recurrence equation for the balance b at the end of month x is derived from b[x + 1] = b[x] (1 + r) - d where b[0] = s giving The interest portion of the final payment is b[n - 1] r and the total principal repaid at the end of period n - 1 is s - b[n - 1] Solving simultaneously n = 8.9998 and s = 7240 The principal repaid at the end of the first period is s - b[1] or d - r s = 479.74", "title": "" }, { "docid": "81fb5e49a75af4893288857e2a4fc553", "text": "This is adequately covered by the differential between lending and receiving interest rates. ...and technically, they pay the central bank an interest rate on the money lent as well, which means that they are paying back equity holders (all be it very slowly and very slightly). The equity holders have the ability to will money into existence, so there's no artificial limitation they face with respect to the branch banking system.", "title": "" }, { "docid": "2af792106cc5e769cbe0651e4aa9b4d9", "text": "They offer a coupon that is 40% to 60% the actual amount that it could in theory offer, if not for delinquent cases.... the banks pocket the difference in the name to be able to pay up consistently..... not a pretty picture but it covers their ass", "title": "" }, { "docid": "21563ae3c38cc0680bd7c7e79b7cac5c", "text": "The second choice is a normal payment, just made early. This guards you against forgetting to make the payment later and incurring late payment fees -- which in this kind of loan are added to the balance and themselves accrue compounded interest. The first option is an extra payment, applied entirely to the principal. That lets you avoid years of accrued interest on that portion of the loan, and reduces the loan's actual cost. I think the extra payment is a better investment.", "title": "" }, { "docid": "9968f78004d5d1178a1f058413cc5874", "text": "your money in a bank gets used to fund other investments. So basically you either make money, or you're making money for someone else. Sorry i'm such a dick for not foreseeing 100,000% APR interest in bank accounts with no inflation, god i feel stupid now.", "title": "" }, { "docid": "e055b576bbef8eff4d4cb63859913c6f", "text": "\"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\"\".)\"", "title": "" }, { "docid": "19b4d2108fdfe04446fa062cd311a388", "text": "So if it's a bridge loan they need a lot of money now to keep the trains running but expect to get the actual loan they need in the future at which point they pay off the bridge loan ideally after not having to make too many coupon payments. That's what it sounds like to me. Scenario: I am building a large development, my main funding source is kaput for whatever reason, I need money now to make payroll, buy fuel, pay for that shipment of supplies etc, I don't have time to secure the huge loan I need in the future for the rest of the project so I get a loan to cover me until I secure that deal and put my building site as collateral against it, I get the full funding, pay off the bond in full and move on with the project.", "title": "" }, { "docid": "5912fe013d03f8d669c32cb45c42b042", "text": "I had a car loan through GMAC and extra money was applied to future payments. At one point, I received a statement telling me I had 15 months until my next payment was due because I had not marked extra payments as going to principal.", "title": "" } ]	fiqa
d66f353a4a665150f7ff3d63f2fa517f	What is a good size distribution for buying gold?	[ { "docid": "eddf10b9b6dae95cbbd0441684ab2b0a", "text": "Diversification is an important aspect of precious metals investing. Therefore I would suggest diversifying in a number of different ways:", "title": "" }, { "docid": "3d61a663bcd292e04cf34d962b17e03c", "text": "\"Look at a broader diversification. Something like: For physical gold, I'd look at a mix of gold coins and bullion. Study the pricing model for coins -- you'll probably find that the spreads on small coins make them too expensive. There are a few levels of risk with storing in a vault -- the practical risk is that your government will close banks in the event of a panic, and your money will be inaccessible. You need to balance that risk with the risk to your personal security that comes with having lots of gold or cash in your home. My recommendation is to avoid wasting time on the \"\"Mad Max\"\" scenarios. If the world economy collapses into utter ruin, we're all screwed. A few gold coins won't do much for you.\"", "title": "" }, { "docid": "18d75b8742bef1ec9535145e323209d9", "text": "\"If the \"\"crash\"\" you worry about is a dissolution of the euro, then the main thing you should concern yourself with is liquidity. For that, purchase the most highly liquid gold ETF or futures contract, whichever is more appropriate for the total amount of money involved. Any other way and you will lose a significant chunk of your assets to transaction costs. If, on the other hand, the \"\"crash\"\" you were concerned about were the total collapse of the world economy, and people around the world abandon all paper currencies and resort to barter as a method of trade, then I can see buying several small pieces being a rational strategy, although then I would also question whether you were a sane individual.\"", "title": "" }, { "docid": "0b1b4d9b1b9d014f7d6ce32132da3509", "text": "You are really tangling up two questions here: Q1: Given I fear a dissolution of the Euro, is buying physical gold a good response and if so, how much should I buy? I see you separately asked about real estate, and cash, and perhaps other things. Perhaps it would be better to just say: what is the right asset allocation, rather than asking about every thing individually, which will get you partial and perhaps contradictory answers. The short answer, knowing very little about your case, is that some moderate amount of gold (maybe 5-10%, at most 25%) could be a counterbalance to other assets. If you're concerned about government and market stability, you might like Harry Browne's Permanent Portfolio, which has equal parts stocks, bonds, cash, and gold. Q2: If I want to buy physical gold, what size should I get? One-ounce bullion (about 10 x 10 x 5mm, 30g) is a reasonably small physical size and a reasonable monetary granularity: about $1700 today. I think buying $50 pieces of gold is pointless: However much you want to have in physical gold, buy that many ounces.", "title": "" } ]	[ { "docid": "a43b96a974577a49b2762736aabffc13", "text": "\"As proposed: Buy 100 oz of gold at $1240 spot = -$124,000 Sell 1 Aug 2014 Future for $1256 = $125,600 Profit $1,600 Alternative Risk-Free Investment: 1 year CD @ 1% would earn $1240 on $124,000 investment. Rate from ads on www.bankrate.com \"\"Real\"\" Profit All you are really being paid for this trade is the difference between the profit $1,600 and the opportunity for $1240 in risk free earnings. That's only $360 or around 0.3%/year. Pitfalls of trying to do this: Many retail futures brokers are set up for speculative traders and do not want to deal with customers selling contracts against delivery, or buying for delivery. If you are a trader you have to keep margin money on deposit. This can be a T-note at some brokerages, but currently T-notes pay almost 0%. If the price of gold rises and you are short a future in gold, then you need to deposit more margin money. If gold went back up to $1500/oz, that could be $24,400. If you need to borrow this money, the interest will eat into a very slim profit margin over the risk free rate. Since you can't deliver, the trades have to be reversed. Although futures trades have cheap commissions ~$5/trade, the bid/ask spread, even at 1 grid, is not so minimal. Also there is often noisy jitter in the price. The spot market in physical gold may have a higher bid/ask spread. You might be able to eliminate some of these issues by trading as a hedger or for delivery. Good luck finding a broker to let you do this... but the issue here for gold is that you'd need to trade in depository receipts for gold that is acceptable for delivery, instead of trading physical gold. To deliver physical gold it would likely have to be tested and certified, which costs money. By the time you've researched this, you'll either discover some more costs associated with it or could have spent your time making more money elsewhere.\"", "title": "" }, { "docid": "f6b93d56422824ec67ede47fd8faf611", "text": "Very interesting. I would like to expand beyond just precious metals and stocks, but I am not ready just to jump in just yet (I am a relatively young investor, but have been playing around with stocks for 4 years on and off). The problem I often find is that the stock market is often too overvalued to play Ben Graham type strategy/ PE/B, so I would like to expand my knowledge of investing so I can invest in any market and still find value. After reading Jim Rogers, I was really interested in commodities as an alternative to stocks, but I like to play really conservative (generally). Thank you for your insight. If you don't mind, I would like to add you as a friend, since you seem quite above average in the strategy department.", "title": "" }, { "docid": "701044a51a7f47011eb598f92c1ca560", "text": "Gold's valuation is so stratospheric right now that I wonder if negative numbers (as in, you should short it) are acceptable in the short run. In the long run I'd say the answer is zero. The problem with gold is that its only major fundamental value is for making jewelry and the vast majority is just being hoarded in ways that can only be justified by the Greater Fool Theory. In the long run gold shouldn't return more than inflation because a pile of gold creates no new wealth like the capital that stocks are a claim on and doesn't allow others to create new wealth like money lent via bonds. It's also not an important and increasingly scarce resource for wealth creation in the global economy like oil and other more useful commodities are. I've halfway-thought about taking a short position in gold, though I haven't taken any position, short or long, in gold for the following reasons: Straight up short-selling of a gold ETF is too risky for me, given its potential for unlimited losses. Some other short strategy like an inverse ETF or put options is also risky, though less so, and ties up a lot of capital. While I strongly believe such an investment would be profitable, I think the things that will likely rise when the flight-to-safety is over and gold comes back to Earth (mainly stocks, especially in the more beaten-down sectors of the economy) will be equally profitable with less risk than taking one of these positions in gold.", "title": "" }, { "docid": "f6b679633154acbe373b9083d360bc67", "text": "No. Bonds don't work like that. When you buy a bond, you buy pieces of notional at a price. 1K denotes the amount you would get back at maturity (+ coupons), So the smallest piece size would be 1k. I've even seen 50K plus but thats for more illiquid products....", "title": "" }, { "docid": "8736d56777f6b7edd7ee1522b2e2547d", "text": "It's extremely divisible. The smallest unit is 0.00000001 BTC. This smallest unit is called a satoshi, after the pseudonym of the inventor of Bitcoin. I suggested to my friends and family back in mid 2015 that they invest a little of their money. Nobody did. Back then I bought 21 BTC at around $600 USD/BTC for a total value of slightly less than $13k USD. Currently it's worth over $90k. I can't tell you how many of them say they wish they had listened to me. Then when I tell them they should still buy they think it's too late. It's not.", "title": "" }, { "docid": "250e59e43c4663a659e26028f92aa583", "text": "I would track it using a regular asset account. The same way I would track the value of a house, a car, or any other personal asset. ETA: If you want automatic tracking, you could set it up as a stock portfolio holding shares of the GLD ETF. One share of GLD represents 1/10 ounce of gold. So, if you have 5 ounces of gold, you would set that up in Quicken as 50 shares of GLD.", "title": "" }, { "docid": "a5fc1225abe1e6651a20b3d8eea0eab7", "text": "\"Ok, I think what you're really asking is \"\"how can I benefit from a collapse in the price of gold?\"\" :-) And that's easy. (The hard part's making that kind of call with money on the line...) The ETF GLD is entirely physical gold sitting in a bank vault. In New York, I believe. You could simply sell it short. Alternatively, you could buy a put option on it. Even more risky, you could sell a (naked) call option on it. i.e. you receive the option premium up front, and if it expires worthless you keep the money. Of course, if gold goes up, you're on the hook. (Don't do this.) (the \"\"Don't do this\"\" was added by Chris W. Rea. I agree that selling naked options is best avoided, but I'm not going to tell you what to do. What I should have done was make clear that your potential losses are unlimited when selling naked calls. For example, if you sold a single GLD naked call, and gold went to shoot to $1,000,000/oz, you'd be on the hook for around $10,000,000. An unrealistic example, perhaps, but one that's worth pondering to grasp the risk you'd be exposing yourself to with selling naked calls. -- Patches) Alternative ETFs that work the same, holding physical gold, are IAU and SGOL. With those the gold is stored in London and Switzerland, respectively, if I remember right. Gold peaked around $1900 and is now back down to the $1500s. So, is the run over, and it's all downhill from here? Or is it a simple retracement, gathering strength to push past $2000? I have no idea. And I make no recommendations.\"", "title": "" }, { "docid": "3fbbb410b7ff1fb7eba4f60c84daad3f", "text": "There are several problems with your reasoning: if I buy one share of GOOGLE now for $830, I could have $860 within the end of tonight -- totally possible and maybe even likely. You can do the same thing with 1,000,000 shares of google, and it's just as likely to go down as go up. if I were to invest $1,000.00 in gold to have $1,000.00 worth of gold, it's no different than keeping $1,000.00 in cash It's VERY different. Gold can be just as volatile as stocks, so it certainly is different as just keeping it in cash. Benefits of a larger portfolio:", "title": "" }, { "docid": "831c8f232d1346bee6ed25d4c736aa80", "text": "It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.", "title": "" }, { "docid": "8c5b9db4c3291be7f58d5a8b1126bda4", "text": "Gold is classified as a collectible so the gain rates are as follows: So you'd report a gain of $100 or $1,000 , depending on which coin you sold.", "title": "" }, { "docid": "f87e691cf0d2cbc4dbe43f3e6a856f8b", "text": "\"In addition to the possibility of buying gold ETFs or tradable certificates, there are also firms specializing in providing \"\"bank accounts\"\" of sorts which are denominated in units of weight of precious metal. While these usually charge some fees, they do meet your criteria of being able to buy and sell precious metals without needing to store them yourself; also, these fees are likely lower than similar storage arranged by yourself. Depending on the specifics, they may also make buying small amounts practical (buying small amounts of physical precious metals usually comes with a large mark-up over the spot price, sometimes to the tune of a 50% or so immediate loss if you buy and then immediately sell). Do note that, as pointed out by John Bensin, buying gold gets you an amount of metal, the local currency value of which will vary over time, sometimes wildly, so it is not the same thing as depositing the original amount of money in a bank account. Since 2006, the price of an ounce (about 31.1 grams) of gold has gone from under $500 US to over $1800 US to under $1100 US. Few other investment classes are anywhere near this volatile. If you are interested in this type of service, you might want to check out BitGold (not the same thing at all as Bitcoin) or GoldMoney. (I am not affiliated with either.) Make sure to do your research thoroughly as these may or may not be covered by the same regulations as regular banks, particularly if you choose a company based outside of or a storage location outside of your own country.\"", "title": "" }, { "docid": "e2ad1073731e8909e52ab00388e1e62a", "text": "ETF's are great products for investing in GOLD. Depending on where you are there are also leveraged products such as CFD's (Contracts For Difference) which may be more suitable for your budget. I would stick with the big CFD providers as they offer very liquid products with tight spreads. Some CFD providers are MarketMakers whilst others provide DMA products. Futures contracts are great leveraged products but can be very volatile and like any leveraged product (such as some ETF's and most CFD's), you must be aware of the risks involved in controlling such a large position for such a small outlay. There also ETN's (Exchange Traded Notes) which are debt products issued by banks (or an underwriter), but these are subject to fees when the note matures. You will also find pooled (unallocated to physical bullion) certificates sold through many gold institutions although you will often pay a small premium for their services (some are very attractive, others have a markup worse than the example of your gold coin). (Note from JoeT - CFDs are not authorized for trading in the US)", "title": "" }, { "docid": "b69187cb5be0290794bbdd55916a4d36", "text": "Gold is traded on the London stock exchange (LSE) and the New York stock exchange (NYSE) under various separate asset tickers, mainly denominated in sterling and US dollars respectively. These stocks will reflect FX changes very quickly. If you sold LSE gold and foreign exchanged your sterling to dollars to buy NYSE gold you would almost certainly lose on the spreads upon selling, FX'ing and re-buying. In short, the same asset doesn't exist in multiple currencies. It may have the same International Securities Identification Number (ISIN), but it can trade with different Stock Exchange Daily Official List (SEDOL) identifiers, reflecting different currencies and/or exchanges, each carrying a different price at any one time.", "title": "" }, { "docid": "58449f8023032c3e88340a3a6ff677d6", "text": "Redditors! Buy gold and demand that the financial institution who sold it deliver it. When they try to buy enough gold to cover their short the price will explode, free money. Disclaimer: you all have to do it or it won't work", "title": "" }, { "docid": "afafec3ae79fa797fcb2e00de3988080", "text": "For reporting purposes, I would treat the purchase and sale of gold like a purchase and sale of a stock. The place to do so is Schedule D. (And if it's the wrong form, but you reported it, there is might not be a penalty, whereas there is a penalty for NOT reporting.) The long term gain would be at capital gains rates. The short term gain would be at ordinary income rates. And if you have two coins bought at two different times, you get to choose which one to report (as long as you report the OTHER one when you sell the second coin).", "title": "" } ]	fiqa
a1192545aea54f0f2eda307025b4f281	Trading large volumes with penny profits per share	[ { "docid": "5cb066aec50d4fb9b0b6015505591a1f", "text": "How do you know the shares will go up after you buy? The ultimate risk in your scenario is that you buy at a peak, and then that peak is never reached again. Over time, stock markets go up [more or less because there is a net increase in the overall production of the economy as time goes on]. However, you won't experience much of that gain, because you will be selling only after tiny amounts of profit have been achieved. So your upside is low, your plan is capital-expensive [because it requires you to have significant amount of cash available to make the initial purchase], and your downside [though unlikely] has massive risk.", "title": "" }, { "docid": "b7b6f25f65afb8ead7869956434ca35d", "text": "Currently my online savings account pays an interest rate of 1.25%. With 100K, I can earn about $104 per month in that account. No risk, no timing, no fuss. So in theory you can make money by small changes in the valuations of stock. However there are often better, risk free options for your money; or, there are much better options for returns with much less risk, but more than that of a bank account.", "title": "" } ]	[ { "docid": "e09b473dcb81d2f1f51efcea3d3b24c7", "text": "\"That's like a car dealer advertising their \"\"huge access\"\" to Chevrolet. All brokers utilize dark pools nowadays, either their own or one belonging to a larger financial institution. Why? Because that's a primary source of broker income. Example: Under current US regulations the broker is under no obligation to pass these orders to actual (a.k.a. lit) exchanges. Instead it can internalize them in its dark pool as long as it \"\"improves the price\"\". So: If a broker doesn't run its own dark pool, then it sends the orders to the dark pool run by a larger institution (JPMorgan, Credit Suisse, Getco, Knight Capital) and gets some fraction of the dark pool's profit in return. Are Mom and Pop negatively impacted by this? Not for most order types. They each even got a free penny out of the deal! But if there were no dark pools, that $1.00 difference between their trade prices would have gone half ($0.50) to Mom's counterparty and half ($0.50) to Pop's counterparty, who could be someone else's Mom and someone else's Pop. So ... that's why brokers all use dark pools, and why their advertisement of their dark pool access is silly. They're basically saying, \"\"We're going to occasionally throw you a free penny while making 49 times that much from you\"\"! (Note: Now apply the above math to a less liquid product than AAPL. Say, where the spread is not $0.01, but more like $0.05. Now Mom and Pop still might make a penny each, while the broker can make $4.98 on a 100 share trade!)\"", "title": "" }, { "docid": "cb493ea94dd0fef17315bb6e00b6823b", "text": "There is a misunderstanding somewhere that your question didn't illuminate. You should have lost $0.04 as you say. Assuming the prices are correct the missing $0.02 aren't covered by a reasonable interpretations of the Robinhood fees schedule. For US-listed stocks: $0 plus SEC fees: 0.00221% of principal ($22.10 per $1,000,000 of principal) plus Trading Activity Fee: $0.000119/share rounded to nearest penny plus short/long term capital gains taxes The total fee rate is 0.002329% or 0.00002329*the price of the trade. With you trades totaling around $11, the fee would be ~0.000256 or ~1/40 of a penny. The answer is probably that they charge $0.01 for any fraction of a penny. It's difficult to explain as anything other than avarice, so I won't try.", "title": "" }, { "docid": "56941f61022dfec7fea49b5f306ff12e", "text": "\"You can certainly try to do this, but it's risky and very expensive. Consider a simplified example. You buy 1000 shares of ABC at $1.00 each, with the intention of selling them all when the price reaches $1.01. Rinse and repeat, right? You might think the example above will net you a tidy $10 profit. But you have to factor in trade commissions. Most brokerages are going to charge you per trade. Fidelity for example, want $4.95 per trade; that's for both the buying and the selling. So your 1000 shares actually cost you $1004.95, and then when you sell them for $1.01 each, they take their $4.95 fee again, leaving you with a measly $1.10 in profit. Meanwhile, your entire $1000 stake was at risk of never making ANY profit - you may have been unlucky enough to buy at the stock's peak price before a slow (or even fast) decline towards eventual bankruptcy. The other problem with this is that you need a stock that is both stable and volatile at the same time. You need the volatility to ensure the price keeps swinging between your buy and sell thresholds, over and over again. You need stability to ensure it doesn't move well away from those thresholds altogether. If it doesn't have this weird stable-volatility thing, then you are shooting yourself in the foot by not holding the stock for longer: why sell for $1.01 if it goes up to $1.10 ten minutes later? Why buy for $1.00 when it keeps dropping to $0.95 ten minutes later? Your strategy means you are always taking the smallest possible profit, for the same amount of risk. Another method might be to only trade each stock once, and hope that you never pick a loser. Perhaps look for something that has been steadily climbing in price, buy, make your tiny profit, then move on to the next company. However you still have the risk of buying something at it's peak price and being in for an awfully long wait before you can cash out (if ever). And if all that wasn't enough to put you off, brokerages have special rules for \"\"frequent traders\"\" that just make it all the more complicated. Not worth the hassle IMO.\"", "title": "" }, { "docid": "0d597d62750eca680f64b993c1ceebf3", "text": "Some economist please ELI5 what I’m missing here. In the equities market, it is considered an economic benefit when exchanges settle trades in smaller increments. When we went from eighths to decimal, for example. How is that direction into smaller divisible units different from facilitating trade with pennies for economic goods?", "title": "" }, { "docid": "412af011c70132f78f47a1037f0fc2cd", "text": "Nominal. What you say is true, but I'm guessing it would be too complicated to modelate. Plus, a shareholder of a very large company would not necessarily experience said loss if he/she sells the stock in small chunks at a time.", "title": "" }, { "docid": "879c0735767dce73815b86de9e6871b6", "text": "\"This is a classic correlation does not imply causation situation. There are (at least) three issues at play in this question: If you are swing- or day-trading then the first and second issues can definitely affect your trading. A higher-price, higher-volume stock will have smaller (percentage) volatility fluctuations within a very small period of time. However, in general, and especially when holding any position for any period of time during which unknowns can become known (such as Netflix's customer-loss announcement) it is a mistake to feel \"\"safe\"\" based on price alone. When considering longer-term investments (even weeks or months), and if you were to compare penny stocks with blue chip stocks, you still might find more \"\"stability\"\" in the higher value stocks. This is a correlation alone — in other words, a stable, reliable stock probably has a (relatively) high price but a high price does not mean it's reliable. As Joe said, the stock of any company that is exposed to significant risks can drop (or rise) by large amounts suddenly, and it is common for blue-chip stocks to move significantly in a period of months as changes in the market or the company itself manifest themselves. The last thing to remember when you are looking at raw dollar amounts is to remember to look at shares outstanding. Netflix has a price of $79 to Ford's $12; yet Ford has a larger market cap because there are nearly 4 billion shares compared to Netflix's 52m.\"", "title": "" }, { "docid": "2b76ed1c3867613a61e57eaefd41c793", "text": "You want to sell for 61.15, but the most the best buyer will pay is 61.10? The HFT trader forces you both to trade over a gap of a nickel AND makes a nickel in profit?? How does he do that, with magic?", "title": "" }, { "docid": "9ce676212f9a76f4a1caaaed0e929408", "text": "\"ycharts.com has \"\"Weighted Average PE Ratio\"\" and a bunch of other metrics that are meant to correspond to well known stock metrics. Other websites will have similar ratios.\"", "title": "" }, { "docid": "5143955b19fc35d10f4d972ba0c77714", "text": "I've never heard of such a thing, but seems like if such a product existed it would be easily manipulated by the big trading firms - simply bet that trading volume will go up, then furiously buy and sell shares yourself to artificially drive up the volume. The fact that it would be so easily manipulated makes me think that no such product exists, but I could be wrong.", "title": "" }, { "docid": "7b02b98626fee0603c28741c38a3d1b7", "text": "I wouldn't recommend leveraged dividend fishing. Dividend stocks with such high dividends are highly volatile, you will run out of collateral to cover your trades very quickly", "title": "" }, { "docid": "7da5f2a34222c2803b5973c53d2a3b84", "text": "That's up to you. If you instruct your broker to sell shares purchased in specific lots, they can do that -- but doing so requires that you and/or they track specific fractional lots forever afterwards so you know what is still there to be sold. FIFO simplifies the bookkeeping. And I am not convinced selecting specific lots makes much difference; the government gets its share of your profits sooner or later.", "title": "" }, { "docid": "81672f347fadcd53ec6ff20a2ae9f470", "text": "No, at least not noticeably so. The majority of what HFT does is to take advantage of the fact that there is a spread between buy and sell orders on the exchange, and to instantly fill both orders, gaining relatively risk-free profit from some inherent inefficiencies in how the market prices stocks. The end result is that intraday trading of the non-HFT nature, as well as speculative short-term trading will be less profitable, since HFT will cause the buy/sell spread to be closer than it would otherwise be. Buying and holding will be (largely) unaffected since the spread that HFT takes advantage of is miniscule compared to the gains a stock will experience over time. For example, when you go to buy shares intending to hold them for a long time, the HFT might cost you say, 1 to 2 cents per share. When you go to sell the share, HFT might cost you the same again. But, if you held it for a long time, the share might have doubled or tripled in value over the time you held it, so the overall effect of that 2-4 cents per share lost from HFT is negligible. However, since the HFT is doing this millions of times per day, that 1 cent (or more commonly a fraction of a cent) adds up to HFTs making millions. Individually it doesn't affect anyone that much, but collectively it represents a huge loss of value, and whether this is acceptable or not is still a subject of much debate!", "title": "" }, { "docid": "1d4efbd49673d351688cc4aa7bffe166", "text": "\"One practical application would be to protect yourself from a \"\"flash crash\"\" type scenario where a stock suddenly plunges down to a penny due to transient market glitches. If you had a stop-loss order that executed at a penny (for a non-penny stock) it would be probably be voided by the exchange, but you might not want to take that risk.\"", "title": "" }, { "docid": "64b54d4e4ecc2bbf9acb2240ed62c300", "text": "Large volume just means a lot of market participants believe they know where the stock price will be (after some amount of time). The fact that the price is not moving just means that about 50% of those really confident traders think the stock will be moving up, and about 50% of those really confident traders think the stock will be moving down.", "title": "" }, { "docid": "865f792a3a68b5d9bbfd6cd53f6dab8e", "text": "I think if you are only trading stocks with average volume greater than 1M you should not have any trouble entering a 10,000 size trade. If you are you can try a couple of things: Change your order from a market order to a limit order, however this may potentially reduce the number of shares that are actually traded on that day, and you may miss out on some or all of your order. Limit your trading to more liquid stocks, say average daily volumes above 10M or 100M. Apart from that you might have to just put up with some extra slippage and incorporate it into your trading plan. That is you can reduce your R multiple to allow some slippage.", "title": "" } ]	fiqa
6e519b47ddceab6b05d6f7257734f527	Is the stock market a zero-sum game?	[ { "docid": "c0a22865d3c92a8476bba9a888093840", "text": "No, the stock market and investing in general is not a zero sum game. Some types of trades are zero sum because of the nature of the trade. But someone isn't necessarily losing when you gain in the sale of a stock or other security. I'm not going to type out a technical thesis for your question. But the main failure of the idea that investing is zero sum is the fact the a company does not participate in the transacting of its stock in the secondary market nor does it set the price. This is materially different from the trading of options contracts. Options contracts are the trading of risk, one side of the contract wins and one side of the contract loses. If you want to run down the economic theory that if Jenny bought her shares from Bob someone else is missing out on Jenny's money you're free to do that. But that would mean that literally every transaction in the entire economy is part of a zero sum game (and really misses the definition of zero sum game). Poker is a zero sum game. All players bet in to the game in equal amounts, one player takes all the money. And hell, I've played poker and lost but still sometimes feel that received value in the form of entertainment.", "title": "" }, { "docid": "7f56bfa4b4678efd8cc9806a01578457", "text": "Would you mind adding where that additional value comes from, if not from the losses of other investors? You asked this in a comment, but it seems to be the key to the confusion. Corporations generate money (profits, paid as dividends) from sales. Sales trade products for money. The creation of the product creates value. A car is worth more than General Motors pays for its components and inputs, even including labor and overhead as inputs. That's what profit is: added value. The dividend is the return that the stock owner gets for owning the stock. This can be a bit confusing in the sense that some stocks don't pay dividends. The theory is that the stock price is still based on the future dividends (or the liquidation price, which you could also consider a type of dividend). But the current price is mostly based on the likelihood that the stock price will increase rather than any expected dividends during ownership of the stock. A comment calls out the example of Berkshire Hathaway. Berkshire Hathaway is a weird case. It operates more like a mutual fund than a company. As such, investors prefer that it reinvest its money rather than pay a dividend. If investors want money from it, they sell shares to other investors. But that still isn't really a zero sum game, as the stock increases in value over time. There are other stocks that don't pay dividends. For example, Digital Equipment Corporation went through its entire existence without ever paying a dividend. It merged with Compaq, paying investors for owning the stock. Overall, you can see this in that the stock market goes up on average. It might have a few losing years, but pick a long enough time frame, and the market will increase during it. If you sell a stock today, it's because you value the money more than the stock. If it goes up tomorrow, that's the buyer's good luck. If it goes down, the buyer's bad luck. But it shouldn't matter to you. You wanted money for something. You received the money. The increase in the stock market overall is an increase in value. It is completely unrelated to trading losses. Over time, trading gains outweigh trading losses for investors as a group. Individual investors may depart from that, but the overall gain is added value. If the only way to make gains in the stock market was for someone else to take a loss, then the stock market wouldn't be able to go up. To view it as a zero sum game, we have to ignore the stocks themselves. Then each transaction is a payment (loss) for one party and a receipt (gain) for the other. But the stocks themselves do have value other than what we pay for them. The net present value of of future payments (dividends, buyouts, etc.) has an intrinsic worth. It's a risky worth. Some stocks will turn out to be worthless, but on average the gains outweigh the losses.", "title": "" }, { "docid": "65341cfd9b4397498cdd8102ad2dbd20", "text": "No. Share are equity in companies that usually have revenue streams and/or potential for creating them. That revenue can be used to pay out dividends to the shareholders or to grow the company and increase its value. Most companies get their revenue from their customers, and customers rarely give their money to a company without getting some good or service in exchange.", "title": "" }, { "docid": "3acec19c84a5c8dc5dd30440ec073495", "text": "\"While this seems overall a macroeconomics question and not really personal finance, let me give it a shot: The question of why corporations form in a free or efficient market is why Ronald Coase received the 1991 Nobel Prize in Economics, for his work developing the theory of the firm Corporations organize when there are transaction costs in the free market; corporations form when it is in fact more efficient for a corporation to exist than a number of small producers contracting with one another. To the extent that corporations add efficiency to a total market, they are not \"\"zero sum\"\" at all; the net production is increased over what would exist in a market of sole proprietors who would have costs (such as researching the trust levels in counterparts, regulatory compliance, etc) that they cannot bear to engage in the same level of transactions.\"", "title": "" }, { "docid": "d08431b8e10bd32e0e67c08dfed29fd2", "text": "Suppose everybody stopped all economic activity right now. No more work for others, no payments, no trade in kind or otherwise. Would average wealth stay the same? Of course not. Economic activity is not a zero sum game. Most of our economic activity is organized in the form of companies. If the companies manage to make more profits by doing useful things more efficiently, or when they find new useful things to do for profit, then not only the company's value grows but also the sum total of all useful things produced in the economy. That means it's not zero sum. When stock prices go up, that is often because the companies really have become more valueable.", "title": "" } ]	[ { "docid": "3bfc351c9143b98206dae397687e2531", "text": "\"Some stocks do fall to zero. I don't have statistics handy, but I'd guess that a majority of all the companies ever started are now bankrupt and worth zero. Even if a company does not go bankrupt, there is no guarantee that it's value will increase forever, even in a general, overall sense. You might buy a stock when it is at or near its peak, and then it loses value and never regains it. Even if a stock will go back up, you can't know for certain that it will. Suppose you bought a stock for $10 and it's now at $5. If you sell, you lose half your money. But if you hold on, it MIGHT go back up and you make a profit. Or it might continue going down and you lose even more, perhaps your entire investment. A rational person might decide to sell now and cut his losses. Of course, I'm sure many investors have had the experience of selling a stock at a loss, and then seeing the price skyrocket. But there have also been plenty of investors who decided to hold on, only to lose more money. (Just a couple of weeks ago a stock I bought for $1.50 was selling for $14. I could have sold for like 900% profit. Instead I decided to hold on and see if it went yet higher. It's now at $2.50. Fortunately I only invested something like $800. If it goes to zero it will be annoying but not ruin me.) On a bigger scale, if you invest in a variety of stocks and hold on to them for a long period of time, the chance that you will lose money is small. The stock market as a whole has consistently gone up in the long term. But the chance is not zero. And a key phrase is \"\"in the long term\"\". If you need the money today, the fact that the market will probably go back up within a few months or a year or so may not help.\"", "title": "" }, { "docid": "c9c56d995902fc3696b327adaba6e6d3", "text": "\"Matt Levine's first point here is very interesting as a lens for understanding why so many large hedge funds seem to have difficulty beating the market, while the ones that do tend to be either smaller operations or more independent groups within the giants. If you look at the best firms in the world, like RenTec or TGS, you see a trend where they typically stop taking in outside capital and effectively convert to family offices (at least for the most profitable strategies). Levine's point here is particularly applicable to RenTec; it has famously incredible returns via Medallion, but not so much the other funds. Unsurprisingly, the Medallion fund is entirely employee and owner capital. As extremely profitable strategies scale up to their capacity constraints, fund managers naturally decide to pool greater amounts of their own capital into the firm. Therefore, \"\"skin in the game\"\" is not only effective as an intuitive heuristic for skill (\"\"this manager believes in the fund enough to put most of their personal net worth into it\"\"), but it's also practically effective for showing how likely the firm is to perform based on how much you're able to participate. As the percentage of \"\"skin in the game\"\" increases, the likelihood of outside investors being able to participate decreases, because the fund managers know they no longer need to share risk, and don't want to waste allocations on the way to capacity constraints. If a firm is soliciting capital, it's highly suspect, and managers who go on to become the next Jim Simons or Seth Klarman will mostly be \"\"on the market\"\" for relatively short periods of time.\"", "title": "" }, { "docid": "392d53e0c27b44b922d2b8d50513eb4d", "text": "\"You can think of the situation as a kind of Nash equilibrium. If \"\"the market\"\" values stock based on the value of the company, then from an individual point of view it makes sense to value stock the same way. As an illustration, imagine that stock prices were associated with the amount of precipitation at the company's location, rather than the assets of the company. In this imaginary stock market, it would not benefit you to buy and sell stock according to the company's value. Instead, you would profit most from buying and selling according to the weather, like everyone else. (Whether this system — or the current one — would be stable in the long-term is another matter entirely.)\"", "title": "" }, { "docid": "66e0f00ac4ddfe238ea77d6e34291c88", "text": "Stock markets are supposed to be about investment and providing capital to companies for operations and research. High frequency trading is only about gaming the market and nothing else. Arguments that this provides more capital or liquidity don't make any sense because the speed of trading is such that listed companies cannot take advantage and only high frequency traders are served.", "title": "" }, { "docid": "3564c1649053ad2f0f001e03b5135072", "text": "Pretty sure the null hypothesis here is that trading equities at a high frequency is a zero sum game. The is no gain that isn't someone else's loss. No goods are created, no knowledge is gained, no value is produced. Note, I didn't say value is destroyed either.", "title": "" }, { "docid": "1c39c551f496cf4eb9805d8702548952", "text": "I assert not so. Even if we assume a zero sum game (which is highly in doubt); the general stock market curves indicate the average player is so bad that you don't have to be very good to have better that 50/50 averages. One example: UP stock nosedived right after some political mess in Russia two years ago. Buy! Profit: half my money in a month. I knew that nosedive was senseless as UP doesn't have to care much about what goes on in Russia. Rising oil price was a reasonable prediction; however this is good for railroads, and most short-term market trends behave as if it is bad.", "title": "" }, { "docid": "628369cb9ca588daec470875258edf1e", "text": "In a perfect market, share prices are by definition a perfect reflection of the true value of a share. Hence, you always get $10 for a share that's worth that much. In reality, the market is imperfect. Prices are somewhat of an average of all different estimates, and there's a cost-of-trading margin between sales and buy prices. Hence, in a perfect market it doesn't matter whether you have a stop loss order at $9.00. That just trades your stock worth $9 for cash worth the same $9. In an imperfect market, that trade nets you less. Furthermore, is risk a linear function of money? Perhaps not, if you bought on margin, need to lend extra and your interest rate increases with the extra credit demand.", "title": "" }, { "docid": "a4942354c3082e4093e875fbcf7027a8", "text": "Yes the stock market is 'rigged' to some extent but if you are good at game theory then you can predict the direction of bias and therefore take advantage of the 'rigged' nature of the market. Eventually enough people become aware of the bias and then the people who are manipulating the market have to change their strategy. This is just how the market works though its always worked this way it has just become more and more sophisticated. look at it this way if you control billions of dollars in equities then you have to manipulate the market to give you a favorable price. If you dont manipulate then day traders and speculators will drive up the price of a security before you can even get your money in. So the big players try to manipulate the market and the small fish try to predict the manipulation. Welcome to the jungle", "title": "" }, { "docid": "7f58c8fdc6d38c8d60399ba73aaa64bb", "text": "What the automation mostly does is make short-term trading that much more difficult. Day trading is a zero-sum game, so if they win more, everyone else wins less. Long term trading (years to decades) is a positive-sum game; the market as a whole tends to move upward for fairly obvious reasons (at its basis it's still investing, which in turn is based on lending, and as long as folks make fairly rational decisions about how much return they demand for their investment and the companies are mostly producing profits there will be a share of the profit coming back to the investors as dividends or increased share value or both. Day-to-day churn in individual stocks gets averaged out by diversification and time, and by the assumption that if you've waited that long you can wait a bit longer if necessary for jitters to settle out. Time periods between those will partake of some mix of the two.", "title": "" }, { "docid": "e2d980bfbf8118c595eded6b6b4671af", "text": "Not sure where you got the 296 crores figure. The data on the sheet shows activity by category of investors. In the end NET of all BUY and SELL across all categories will always be Zero. It has no bearing on whether the stock market goes up or goes down. If you compare only activity by certain category, say FII then there could be more SELL compared to BUY or vice-versa.", "title": "" }, { "docid": "8bd6dba8603aef66808526c01453503b", "text": "How can you correlate a company stock's performance with overall market performance. No you can't. There is no simple magic formulae that will result in profits. There are quite a few statistical algorithms that specialists have built, that work most of the times. But they are incorrect most of the times as well.", "title": "" }, { "docid": "c4ca71e0a590bb4c1b1ca7b53795df72", "text": "\"Businesses wouldn't do HFT if it wasn't profitable. So HFT systems must be producing revenue, and quite a bit of it. That money has to come from somewhere. In a zero-sum market, then the money comes from other investors. If the market \"\"creates\"\" wealth then it's diluting the value of the investments. Either way, it's a percentage \"\"cost\"\" to other investors.\"", "title": "" }, { "docid": "bcd6f38df9a8a466e7cc2fa5acde92d6", "text": "\"In general, I think you're conflating a lot of ideas. The stock market is not like a supermarket. With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding. When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives. The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company. \"\"When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.\"\" The statement does have backing. It's backed by the US Judicial system. But there's a difference between owning a company and owning the assets of the company. You own 1/5,480,000,000 of the company and the company owns the company's assets. Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue). Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism. The stock market provides an avenue of financing for companies. Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise. Additionally, the exchanges deliver value via an unbelievable level of liquidity. You don't have to go seek out Joe or Sally when you want to sell your Apple stock. You don't need to put your shares on Craigslist in the hope of finding a buyer. You don't have to negotiate a price with someone who knows you want to sell. You just place an order at an exchange and you're aligned with a buyer. Also understand that anything can move up or down in value without any money actually changing hands. Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after. You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc. Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are).\"", "title": "" }, { "docid": "ea31ddc06a51ed2dd31734c86942e590", "text": "I remember like 20 years ago someone did an experiment where Peter Lynch, elementary school kids, and an ape, all picked stocks in a situation similar to this. The result was almost the same, with the elementary school kids coming out slightly better Picking correct stocks is a craps shoot, as the market is an emotional entity, and in the short run, even educated guesses don't give an edge. People like Peter Lynch eventually win of course because of discipline, long term goals, and knowledge of tools like derivatives", "title": "" }, { "docid": "13bb3594d0833e52ea096698f9bc2d70", "text": "Basically, diversifying narrows the spread of possible results, raising the center of the returns bell-curve by reducing the likelihood of extreme results at either the high or low end. It's largely a matter of basic statistics. Bet double-or-nothing on a single coin flip, and those are the only possible results, and your odds of a disaster (losing most or all of the money) are 50%. Bet half of it on each of two coin flips, and your odds of losing are reduced to 25% at the cost of reducing your odds of winning to 25%, with 50% odds that you retain your money and can try the game again. Three coins divides the space further; the extremes are reduced to 12.5% each, with the middle being most likely. If that was all there was, this would be a zero-sum game and pure gambling. But the stock market is actually positive-sum, since companies are delivering part of their profits to their stockholder owners. This moves the center of the bell curve up a bit from break-even, historically to about +8%. This is why index funds produce a profit with very little active decision; they treat the variation as mostly random (which seems to work statistically) and just try to capture average results of a (hopefully) slightly above-average bucket of stocks and/or bonds. This approach is boring. It will never double your money overnight. On the other hand, it will never wipe you out overnight. If you have patience and are willing to let compound interest work for you, and trust that most market swings regress to the mean in the long run, it quietly builds your savings while not driving you crazy worrying about it. If all you are looking for is better return than the banks, and you have a reasonable amount of time before you need to pull the funds out, it's one of the more reliably predictable risk/reward trade-off points. You may want to refine this by biasing the mix of what you're holding. The simplest adjustment is how much you keep in each of several major investment categories. Large cap stocks, small cap stocks, bonds, and real estate (in the form of REITs) each have different baseline risk/return curves, and move in different ways in response to news, so maintaining a selected ratio between these buckets and adding the resulting curves together is one simple way to make fairly predictable adjustments to the width (and centerline) of the total bell curve. If you think you can do better than this, go for it. But index funds have been outperforming professionally managed funds (after the management fees are accounted for), and unless you are interested in spending a lot of time researching and playing with your money the odds of your doing much better aren't great unless you're willing to risk doing much worse. For me, boring is good. I want my savings to work for me rather than the other way around, and I don't consider the market at all interesting as a game. Others will feel differently.", "title": "" } ]	fiqa
cf19b1c5713d0067c22c51e15c3c8b10	What is inflation?	[ { "docid": "5335ecf49cf360aa289d99ecc552d636", "text": "Inflation is basically this: Over time, prices go up! I will now address the 3 points you have listed. Suppose over a period of 10 years, prices have doubled. Now suppose 10 years ago I earned $100 and bought a nice pair of shoes. Now today because prices have doubled I would have to earn $200 in order to afford the same pair of shoes. Thus if I want to compare my earnings this year to 10 years ago, I will need to adjust for the price of goods going up. That is, I could say that my $100 earnings 10 years ago is the same as having earned $200 today, or alternatively I could say that my earnings of $200 today is equivalent to having earned $100 10 years ago. This is a difficult question because a car is a depreciating asset, which means the real value of the car will go down in value over time. Let us suppose that inflation doesn't exist and the car you bought for $100 today will depreciate to $90 after 1 year (a 10% depreciation). But because inflation does exist, and all prices will be 0.5% higher in 1 years time, we can calculate the true selling price of the car 1 in year as follows: 0.5% of $90 = 0.00590 = $0.45 Therefore the car will be $90 + $0.45 = $90.45 in 1 years time. If inflation is low, then the repayments do not get much easier to pay back over time because wages have not risen by as much. Similarly the value of your underlying asset will not increase in value by as much. However as compensation, the interest rates on loans are usually lower when inflation is lower. Therefore generally it is better to get a loan in times of high inflation rather than low inflation, however it really depends on how the much the interest rates are relative to the inflation rate.", "title": "" }, { "docid": "7aa25f79257a84fcd385258e82e269d4", "text": "When we speak about a product or service, we generally refer to its value. Currency, while neither a product or service, has its own value. As the value of currency goes down, the price of products bought by that currency will go up. You could consider the price of a product or service the value of the product multiplied by the value of the currency. For your first example, we compare two cars, one bought in 1990, and one bought in 2015. Each car has the same features (AC, radio, ABS, etc). We can say that, when these products were new, each had the same value. However, we can deduce that since the 1990 car cost $100, and the 2015 car cost $400, that there has been 75% inflation over 25 years. Comparing prices over time helps identify the inflation (or devaluation of currency) that an economy is experiencing. In regards to your second question, you can say that there was 7% inflation over five years (total). Keep in mind that these are absolute cumulative values. It doesn't mean that there was a 7% increase year over year (that would be 35% inflation over five years), but simply that the absolute value of the dollar has changed 7% over those five years. The sum of the percentages over those five years will be less than 7%, because inflation is measured yearly, but the total cumulative change is 7% from the original value. To put that in perspective, say that you have $100 in 2010, with an expected 7% inflation by 2015, which means that your $100 will be worth $93 in 2015. This means that the yearly inflation would be about 1.5% for five years, resulting in a total of 7% inflation over five years. Note that you still have a hundred dollar bill in your pocket that you've saved for five years, but now that money can buy less product. For example, if you say that $100 buys 50 gallons of gasoline ($2/gallon) in 2010, you will only be able to afford 46.5 gallons with that same bill in 2015 ($2.15/gallon). As you can see, the 7% inflation caused a 7% increase in gasoline prices. In other words, if the value of the car remained the same, its actual price would go up, because the value stayed the same. However, it's more likely that the car's value will decrease significantly in those five years (perhaps as much as 50% or more in some cases), but its price would be higher than it would have been without inflation. If the car's value had dropped 50% (so $50 in original year prices), then it would have a higher price (50 value 1.07 currency ratio = $53.50). Note that even though its value has decreased by half, its price has not decreased by 50%, because it was hoisted up by inflation. For your final question, the purpose of a loan is so that the loaner will make a profit from the transaction. Consider your prior example where there was 7% inflation over five years. That means that a loan for $100 in 2010 would only be worth $93 in 2015. Interest is how loans combat this loss of value (as well as to earn some profit), so if the loaner expects 7% inflation over five years, they'll charge some higher interest (say 8-10%, or even more), so that when you pay them back on time, they'll come out ahead, or they might use more advanced schemes, like adjustable rates, etc. So, interest rates will naturally be lower when forecasted inflation is lower, and higher when forecasted inflation is higher. The best time to get a loan is when interest rates are low-- if you get locked into a high interest loan and inflation stalls, they will make more money off of you (because the currency has more value), while if inflation skyrockets, your loan will be worth less to loaner. However, they're usually really good about predicting inflation, so it would take an incredible amount of inflation to actually come out on top of a loan.", "title": "" }, { "docid": "34060d3921cc0c6976e1142169c5a267", "text": "Inflation refers to the money supply. Think of all money being air in a balloon. Inflation is what happens when you blow more air in the balloon. Deflation is what happens when you let air escape. Inflation may cause prices to go up. However there are many scenarios possible in which this does not happen. For example, at the same time of inflation, there might be unemployment, making consumers unable to pay higher prices. Or some important resource (oil) may go down in price (due to political reasons, war has ended etc), compensating for the money having less value. Similarly, peoples wages will tend to rise over time. They have to, otherwise everyone would be earning less, due to inflation. However again there are many scenarios in which wages do not keep up with inflation, or rise much faster. In fact over the past 40 years or so, US wages have not been able to keep up with inflation, making the average worker 'poorer' than 40 years ago. At its core, inflation refers to the value of the money itself. As all values of other products, services, assets etc are expressed in terms of money which itself also changes value, this can quickly become very complex. Most countries calculate inflation by averaging the price change of a basket of goods that are supposed to represent the average Joe's spending pattern. However these methods are often criticized as they would be 'hiding' inflation. The hidden inflation may come back later to bite us.", "title": "" }, { "docid": "de76dd8be879644dd6aff119fe53a486", "text": "Money itself has no value. A gold bar is worth (fuzzy rushed math, could be totally wrong on this example figure) $423,768.67. So, a 1000 dollars, while worthless paper, are a token saying that you own %.2 of a gold bar in the federal reserve. If a billion dollars are printed, but no new gold is added to the treasury, then your dollar will devalue, and youll only have %.1 percent of that gold bar (again, made up math to describe a hypothetical). When dollars are introduced into the economy, but gold has not been introduced to back it up, things like the government just printing dollars or banks inventing money out of debt (see the housing bubble), then the dollar tokens devalue further. TL;DR: Inflation is the ratio of actual wealth in the Treasury to the amount of currency tokens the treasury has printed.", "title": "" }, { "docid": "c75a8d1f2f8b4a731c590e22495c2513", "text": "I've seen a lot of long and complicated answers here so here is my simple and short answer: Let's say the economy consists of: 10 apples and 10$. Then an apple costs 1$. If you print 10$ more you have: 10 apples and 20$. Then an apple costs 2$. That is it! It's not what Kenshin said: Over time, prices go up! However I would like to add something more on the topic: inflation is theft! If I hack the bank and steal 10% from each account it's obvious that it is theft. It's a bit less obvious when the government prints out money and people loose 10% of the value in their bank accounts but the end result is the same. Final note: some may disagree but I do not consider inflation when 5 of the apples rot and you have: 5 apples and 10$ and an apple now costs 2$. This is a drop in supply and if the demand stays the same prices will rise.", "title": "" } ]	[ { "docid": "1c147ee4797cb064aa705248103a9bd3", "text": "> I fail to see how moderate inflation is a bad thing The purchasing power of the currency slowly erodes, which means people's savings melt away. So people are forced to invest into something they don't really understand and something that is completely rigged, instead of just having their savings in a currency. [USD purchasing power](http://3.bp.blogspot.com/-mAg6FMpNGpM/Ta9ICcEMonI/AAAAAAAABBM/UoQG8vxtBX0/s1600/U.S.%2BDollar%2BPurchasing%2BPower.jpg).", "title": "" }, { "docid": "f5006e159057eb54f759199c5b603f5f", "text": "There's a difference between physical currency and money (For example a bank may only hold only a small percentage of total deposits as cash that it's customers can withdraw). I'm not sure which you're referring to, but either way you should read about inflation.", "title": "" }, { "docid": "685969de8f725ad8bdedd6839e4ee42c", "text": "The general discussion of inflation centers on money as a medium of exchange and a store of value. It is impossible to discuss inflation without considering time, since it is a comparison between the balance between money and goods at two points in time. The whole point of using money, rather than bartering goods, is to have a medium of exchange. Having money, you are interested in the buying power of the money in general more than the relative price of a specific commodity. If some supply distortion causes a shortage of tobacco, or gasoline, or rental properties, the price of each will go up. However, if the amount of circulating money is doubled, the price of everything will be bid up because there is more money chasing the same amount of wealth. The persons who get to introduce the additional circulating money will win at the expense of those who already hold cash. Most of the public measures that are used to describe the economy are highly suspect. For example, during the 90s, the federal government ceased using a constant market basket when computing CPI, allowing substitutions. With this, it was no longer possible to make consistent comparisons over time. The so-called Core CPI is even worse, as it excludes food and energy, which is fine provided you don't eat anything or use any energy. Therefore, when discussing CPI, it is important to understand what exactly is being measured and how. Most published statistics understate inflation.", "title": "" }, { "docid": "2eb573161fb05e0424582e3be1785ea3", "text": "\"There are several causes of inflation. One is called cost push — that is, if the price of e.g. oil goes up sharply (as it did in the 1970s), it creates inflation by making everything cost more. Another is called demand pull: if labor unions bargain for higher wages (as they did in the 1960s), their wage costs push up prices, especially after they start buying. The kind of inflation that the banks cause is monetary inflation. That is, for every dollar of deposits, they can make $5 or $10 of loans. So even though they don't \"\"print\"\" money (the Fed does) it's as if they did. The result could be the kind of inflation called \"\"too much money chasing too few goods.\"\"\"", "title": "" }, { "docid": "2e303c2f2321209f102fd1dbeeba0a4e", "text": "As pointe out by @quid, inflation figures are almost always quoted as a comparison of prices last month, and prices a year ago last month. So 10% inflation in August means that things cost 10% more than they did in August a year ago. This can lead to some perverse conclusions. Consider an imaginary economy where prices stay constant over years. Annualized inflation is zero. Then something happens on January 2nd, 2018. Some crop fails, a foreign cheap source of something becomes unavailable, whatever. Prices rise, permanently, as more expensive sources are used. This is the only disruption to prices. Nothing else goes wrong. So, in February, 2018, the authorities find that prices in January, 2018 rose by 1% over January 2017. Inflation! Politicians pontificate, economists wring their hands, etc. In March, again, prices for February, 2018 are found to be 1% higher than for February, 2017. More wailing... This goes on for months. Every month, inflation (year over year) is unchanged at 1%. Everyone has a theory as to how to stop it... Finally, in February, 2019, there's a change! Prices in January, 2019, were the same as in January 2018. Zero inflation! Everyone takes credit for bringing down inflation...", "title": "" }, { "docid": "213dbbf2fa8d3bf5e88ffd79802cdf75", "text": "https://www.facebook.com/HyperinflatieVenezuela/ we have made a dutch facebook page about the hyper inflation in Venazuela. We would really aprichiate it if you could like it and check it out. even if you're not dutch becaus likes are a part of our grading", "title": "" }, { "docid": "a3bc7cbd264efa6c43b887e57c5fbe64", "text": "\"Curious if anyone has any insight here, but isn't it too soon to tell if this will lead to inflation, and purely speculative that we could \"\"do the same\"\", given that we are in a very different set of circumstances?\"", "title": "" }, { "docid": "0c4147d5a2bd6edd3b1cc6c2f729528f", "text": "Inflation of the type currently experienced in Argentina is particularly hard to deal with. Also, real estate prices in global cities such as Buenos Aires and even secondary cities have grown significantly. There are no full solutions to this problem, but there are a few things that can really help.", "title": "" }, { "docid": "23392efb363ee757969743f316d6ba6d", "text": "\"Currently, the quantity theory of money is widely accepted as an accurate model of inflation in the long run. Consequently, there is now broad agreement among economists that in the long run, the inflation rate is essentially dependent on the growth rate of money supply. However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates - Wikipedia: Inflation causes You also asked \"\"can you give any reference that explains that this [encouraging people to work] is one of the reasons government prints money?\"\" See the list of positive effects of inflation in that article.\"", "title": "" }, { "docid": "a747f397b3e354d4128fc189b485e4c1", "text": "First off, inflation doesn't necessarily imply that goods and services will rise in price. The amount of goods & services increases over time as well, and this is balanced (partly), by an increase in the money supply. Without inflation you lose the incentive to invest, as your dollar would become more valuable over time. Why invest in a risky venture if I know that my dollar will buy more if I just wait it out. Might as well stick the money under the mattress. (This is bad)", "title": "" }, { "docid": "1979927d31a02180125fb2ab9be92ef5", "text": "I'm not sure that the deflation will occur regardless of policy choice. There is a clear choice: inflation through printing or some sort of sustained deflation/deleveraging. I'd actually venture to guess that the powers-that-be are clearly on the side of printing.", "title": "" }, { "docid": "f573cc1a292826d1bce978f3d56e90e9", "text": "\"Sensitive topic ;) Inflation is a consequence of the mismatch between supply and demand. In an ideal world the amount of goods available would exactly match the demand for those goods. We don't live in an ideal world. One example of oversupply is dollar stores where you can buy remainders from companies that misjudged demand. Most recently we've seen wheat prices rise as fires outside Moscow damaged the harvest and the Russian government banned exports. And that introduces the danger of inflation. Inflation is a signal, like the pain you feel after an injury. If you simply took a painkiller you may completely ignore a broken leg until gangrene took your life. Governments sometimes \"\"ban\"\" inflation by fixing prices. Both the Zimbabwean and Venezuelan governments have tried this recently. The consequence of that is goods become unavailable as producers refuse to create supply for less than the cost of production. As CrimonsX pointed out, governments do desperately want to avoid deflation as much as they want to avoid hyperinflation. There is a \"\"correct\"\" level and that has resulted in the monetary policy called \"\"Inflation targetting\"\" where central banks attempt to manage inflation into a target range (usually around 2% to 6%). The reason is simply that limited inflation drives investment and consumption. With a guaranteed return on investment people with cash will lend it to people with ideas. Consumers will buy goods today if they fear that the price will rise tomorrow. If prices fall (as they have done during the two decades of deflation in Japan) then the result is lower levels of investment and employment as companies cut production capacity. If prices rise to quickly (as in Zimbabwe and Venezuela) then people cannot save enough or earn enough and so their wealth is drained away. Add to this the continual process of innovation and you see how difficult it is to manage inflation at all. Innovation can result in increased efficiency which can reduce prices. It can also result in a new product which is sufficiently unique to allow predatory pricing (the Apple iPhone, new types of medicines, and so on). The best mechanism we have for figuring out where money should be invested and who is the best recipient of any good is the price mechanism. Inflation is the signal that investors need to learn how best to manage their efforts. We hide from it at our peril.\"", "title": "" }, { "docid": "af9e3804fe0ba09f7a01b49f444fe670", "text": "\"The classic definition of inflation is \"\"too much money chasing too few goods.\"\" Low rates and QE were intended to help revive a stalled economy, but unfortunately, demand has not risen, but rather, the velocity of money has dropped like a rock. At some point, we will see the economy recover and the excess money in the system will need to be removed to avoid the inflation you suggest may occur. Of course, as rates rise to a more normal level, the price of all debt will adjust. This question may not be on topic for this board, but if we avoid politics, and keep it close to PF, it might remain.\"", "title": "" }, { "docid": "a70568de6258ac4ff20caf60647f630e", "text": "\"First, a clarification. No assets are immune to inflation, apart from inflation-indexed securities like TIPS or inflation-indexed gilts (well, if held to maturity, these are at least close). Inflation causes a decline in the future purchasing power of a given dollar1 amount, and it certainly doesn't just affect government bonds, either. Regardless of whether you hold equity, bonds, derivatives, etc., the real value of those assets is declining because of inflation, all else being equal. For example, if I invest $100 in an asset that pays a 10% rate of return over the next year, and I sell my entire position at the end of the year, I have $110 in nominal terms. Inflation affects the real value of this asset regardless of its asset class because those $110 aren't worth as much in a year as they are today, assuming inflation is positive. An easy way to incorporate inflation into your calculations of rate of return is to simply subtract the rate of inflation from your rate of return. Using the previous example with inflation of 3%, you could estimate that although the nominal value of your investment at the end of one year is $110, the real value is $100(1 + 10% - 3%) = $107. In other words, you only gained $7 of purchasing power, even though you gained $10 in nominal terms. This back-of-the-envelope calculation works for securities that don't pay fixed returns as well. Consider an example retirement portfolio. Say I make a one-time investment of $50,000 today in a portfolio that pays, on average, 8% annually. I plan to retire in 30 years, without making any further contributions (yes, this is an over-simplified example). I calculate that my portfolio will have a value of 50000 (1 + 0.08)^30, or $503,132. That looks like a nice amount, but how much is it really worth? I don't care how many dollars I have; I care about what I can buy with those dollars. If I use the same rough estimate of the effect of inflation and use a 8% - 3% = 5% rate of return instead, I get an estimate of what I'll have at retirement, in today's dollars. That allows me to make an easy comparison to my current standard of living, and see if my portfolio is up to scratch. Repeating the calculation with 5% instead of 8% yields 50000 * (1 + 0.05)^30, or $21,6097. As you can see, the amount is significantly different. If I'm accustomed to living off $50,000 a year now, my calculation that doesn't take inflation into account tells me that I'll have over 10 years of living expenses at retirement. The new calculation tells me I'll only have a little over 4 years. Now that I've clarified the basics of inflation, I'll respond to the rest of the answer. I want to know if I need to be making sure my investments span multiple currencies to protect against a single country's currency failing. As others have pointed out, currency doesn't inflate; prices denominated in that currency inflate. Also, a currency failing is significantly different from a prices denominated in a currency inflating. If you're worried about prices inflating and decreasing the purchasing power of your dollars (which usually occurs in modern economies) then it's a good idea to look for investments and asset allocations that, over time, have outpaced the rate of inflation and that even with the effects of inflation, still give you a high enough rate of return to meet your investment goals in real, inflation-adjusted terms. If you have legitimate reason to worry about your currency failing, perhaps because your country doesn't maintain stable monetary or fiscal policies, there are a few things you can do. First, define what you mean by \"\"failing.\"\" Do you mean ceasing to exist, or simply falling in unit purchasing power because of inflation? If it's the latter, see the previous paragraph. If the former, investing in other currencies abroad may be a good idea. Questions about currencies actually failing are quite general, however, and (in my opinion) require significant economic analysis before deciding on a course of action/hedging. I would ask the same question about my home's value against an inflated currency as well. Would it keep the same real value. Your home may or may not keep the same real value over time. In some time periods, average home prices have risen at rates significantly higher than the rate of inflation, in which case on paper, their real value has increased. However, if you need to make substantial investments in your home to keep its price rising at the same rate as inflation, you may actually be losing money because your total investment is higher than what you paid for the house initially. Of course, if you own your home and don't have plans to move, you may not be concerned if its value isn't keeping up with inflation at all times. You're deriving additional satisfaction/utility from it, mainly because it's a place for you to live, and you spend money maintaining it in order to maintain your physical standard of living, not just its price at some future sale date. 1) I use dollars as an example. This applies to all currencies.\"", "title": "" }, { "docid": "256c4434e61c8a5fab022809c9b13f24", "text": "Inflation hasn't occurred because the banks aren't using the money created by the central bank buying their debt to lend out more money to the economy. If the economy seems to improve to the point where the banks believe they can make money by lending out more, hyperinflation will occur relatively fast like a dam bursting. The US could emulate Japan by also limiting the ability of banks to lend out money while buying their debt, but this kind of playing with the books doesn't really improve the economy for the normal person.", "title": "" } ]	fiqa
c989c3e750b045a3182eeaa861209660	5/1 ARM: Lifetime cap, First Adjustment Cap, Margin, and Annual Cap?	[ { "docid": "c9631c49887bbaaf272e33c1b6a8ed43", "text": "\"I hope this image is clear. A spreadsheet is how I look at these things. Unfortunately, you didn't offer the starting balance so I use $100K which makes it easy to scale. You build a simple spreadsheet and enter the \"\"what if\"\" scenario, this tells me that worse case, an increase of 1% on the rate each year results in a near 60% increase in payments over the 10 years. Of course, this isn't the end of the story, I'd first change the payments to reflect the 5% rate, and see how much that drives the balance down. This would reduce the principal enough that the increase would be much less. On $100K, you'd pay $536.82 based on a 5% rate, regardless of the required payment. At 7.75% the payment is $563.11, not even 5% higher. If you'd like a spreadsheet started for you, I'll put it someplace for you to grab it.\"", "title": "" }, { "docid": "3c944f0464923402c5294503e78efecf", "text": "You quote a rate (2.75%) and then quote a margin (1.75%). The margin is usually an addition to some base rate. How is the margin expressed in the figures you have? Is it included in the rate, or in addition to it? As for the other stuff, it looks like the rate can go up at most 1% per year, up to a maximum of 5% increase. The first adjustment cap is also 1%. That just says that your first rate increase is capped the same as subsequent increases. If the margin is already included, and the increases are based on your initial rate, then this puts you at a maximum of 7.75%. You must verify this. I don't have your loan documents. And again, why would you want to risk an increase at all? You have a decent fixed-rate mortgage already. That still doesn't make sense to me. Going from 2.75% to 7.75% as above can increase your monthly payment by over 40%.", "title": "" }, { "docid": "28501cd5cb256a4222ed10711419d979", "text": "\"Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: \"\"What's the big deal, I'll just refinance!\"\", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years. From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value.\"", "title": "" }, { "docid": "9a4ec519d4fc1faaff8e2bf8dc3c99b5", "text": "If the base rate is USD LIBOR, you can compute this data directly on my website, which uses futures contracts and historical data to create interest rates scenarios for the calculations: http://www.mortgagecalculator3.com/ If your rate index is different, you can still create your own scenarios and check what would happen to your payments.", "title": "" } ]	[ { "docid": "655caf02c7a72345927269b3ff4e2b1a", "text": "It's tough to borrow fixed and invest risk free. That said, there are still some interesting investment opportunities. A 4% loan will cost you 3% or less after tax, and the DVY (Dow high yielders) is at 3.36% but at a 15% favored rate, you net 2.76% if my math is right. So for .5%, you get the fruits of the potential rise in dividends as well as any cap gains. Is this failsafe? No. But I believe that long term, say 10 years or more, the risk is minimal.", "title": "" }, { "docid": "534291474b685dc36e50919879690f79", "text": "Disclaimer: I’m not an expert. This is my basic understanding, which I’m sure someone will be glad to tell is horribly wrong... You need an LLC. Many people in my area create an LLC management company, then create individual LLCs for each investment property. Laws vary by state. YMMV Then you start researching properties. Commercial loans typically require a higher equity position than home ownership. Assume minimum 30%. For ease of this conversation let’s say you’re making the horribly poor decision to put that towards a single property. You’d be looking for a property in the 175-200k value range, because you’ll need to account for settlement expenses (attorney, broker, consultants) and a cash reserve. You’d be also be looking for what the average cap rate is for your market. In simplistic terms cap rate is the expected rate of return after expenses. So if the average market cap rate in that region for comparable properties is 5%, you can expect around 5% return on your investment, after you pay fees, maintenance, taxes, insurance, interest, etc. Buy a property and hold that property for a few years, making money every year, and claiming deductions on your earnings for something called depreciation. Fast forward 5 years and you’re ready to sell, the value of your property went up because you made improvements along the way, brought in some better tenants who are paying higher rents, and now you can offer a better cap rate than your competitors. You sell in the blink of an eye, and double your investment. Say you have $500k now sitting in the bank in you LLC’s name, in cash. You can either choose to cash out 100% and pay capital gains tax on your earnings above your basis (at 15% I think?)... OR you can quickly find a new property with that $500k, purchase it, and file a 1031, which says you don’t have to pay ANY capital gains on those earnings. You just increased income significantly without ever paying taxes on the underlying increase in value of your assets. Rinse and repeat for 25 years, develop a portfolio of properties, create a management company so you can stop paying others a percentage of your earnings, and you too can have the problem of too much money. I welcome anyone with actual knowledge of the topic to please expound on, or correct me.", "title": "" }, { "docid": "1679ed0311b0aed45606aa58c7616453", "text": "You can get really nerdy with the EV calc, but I would just add that it's important to deduct any non-operating, non-consolidated assets in addition to the minority interest adjustment - e.g. unconsolidated subsidiaries, excess real estate, excess working capital, etc.", "title": "" }, { "docid": "656459e97b584bde9d9f9867b0ba41b5", "text": "Go to bankrate dot com. They will have a lot of metrics there that might give you an idea and rate each category. Capitalization and profitability metrics. May not be as granular as what you are looking for though.", "title": "" }, { "docid": "8abab3a7c58f602a64ee42553c53c2d9", "text": "\"I don't think you have your head in the right space - you seem to be thinking of these lifecycle funds like they're an annuity or a pension, but they're not. They're an investment. Specifically, they're a mutual fund that will invest in a collection of other mutual funds, which in turn invest in stock and bonds. Stocks go up, and stocks go down. Bonds go up, and bonds go down. How much you'll have in this fund next year is unknowable, much less 32 years from now. What you can know, is that saving regularly over the next 32 years and investing it in a reasonable, and diversified way in a tax sheltered account like that Roth will mean you have a nice chunk of change sitting there when you retire. The lifecycle funds exist to help you with that \"\"reasonable\"\" and \"\"diversified\"\" bit.They're meant to be one stop shopping for a retirement portfolio. They put your money into a diversified portfolio, then \"\"age\"\" the portfolio allocations over time to make it go from a high risk, (potentially) high reward allocation now to a lower risk, lower reward portfolio as you approach retirement. The idea is is that you want to shoot for making lots of money now, but when you're older, you want to focus more on keeping the money you have. Incidentally, kudos for getting into seriously saving for retirement when you're young. One of the biggest positive effects you can have on how much you retire with is simply time. The more time your money can sit there, the better. At 26, if you're putting away 10 percent into a Roth, you're doing just fine. If that 5k is more than 10 percent, you'll do better than fine. (That's a rule of thumb, but it's based on a lot of things I've read where people have gamed out various scenarios, as well as my own, cruder calculations I've done in the past)\"", "title": "" }, { "docid": "c8eb242062af3deb1b43b4460f7fe2ce", "text": "As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost. Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees. For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.", "title": "" }, { "docid": "369177f0e1f04032be7cb97127ab23d5", "text": "This sounds a lot like an Equity-indexed Annuity. They date from about 1996 (there is a bit of skepticism about them, as they are tricky to understand for the typical investor). For instance, an equity indexed annuity pays a portion of the gain in an index (like S&P 500) when the stock market rises, and guarantees you won't lose if it falls. In an arbitrage sense, it is roughly equivalent to buying a mixture of bonds and index (call) options. There are a lot of complicated 'tweaks' on these, such as annual ratchet/annual reset, interest caps, etc. There is quite a bit of debate about whether they are too good to be true, so I'd read a few articles with pros and cons before buying one. These are also commonly called FIA (Fixed indexed annuities).", "title": "" }, { "docid": "96802f64aee75a2dff0c7b4c113c4323", "text": "John Bogle never said only buy the S&P 500 or any single index Q:Do you think the average person could safely invest for retirement and other goals without expert advice -- just by indexing? A: Yes, there is a rule of thumb I add to that. You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds. As we get older, we have less time to recoup. We have more money to protect and our nervousness increases with age. We get a little bit worried about that nest egg when it's large and we have little time to recoup it, so we pay too much attention to the fluctuations in the market, which in the long run mean nothing. How much to pay Q: What's the highest expense ratio that one should pay for a domestic equity fund? A: I'd say three-quarters of 1 percent maybe. Q: For an international fund? A: I'd say three-quarters of 1 percent. Q: For a bond fund? A: One-half of 1 percent. But I'd shave that a little bit. For example, if you can buy a no-load bond fund or a no-load stock fund, you can afford a little more expense ratio, because you're not paying any commission. You've eliminated cost No. 2....", "title": "" }, { "docid": "57f22c47bf5f9f300b5ec61568a01f88", "text": "\"This type of structured product is called a capital protection product. It's like an insurance product - where you give up some upside for protection against losses in certain cases. From the bank's perspective they take your investment, treat it as an \"\"interest-free loan\"\" and buy derivatives (like options) that give them an expected return greater then They make their money: With this product, you are giving up some potential upside in order to protect against losses (other than catastrophic losses if the lower index drops by 50% or more). What's the catch? There's not really a catch. It's a lot like insurance, you might come out ahead (e.g. if the market goes down less than 50%), but you might also give up some upside. The bank will sell enough of these in various flavors to reduce their risk overall (losses in your product will be covered by gains in another). Note that this product won't necessarily sell for $1,000. You might have to pay $1,100 (or $1,005, or whatever the bank can get people to buy them for) for each note whenever it's released. That's where the gain or loss comes into play. If you pay $1,100 but only get $1,000 back because the index didn't go up (or went down) you'd have a net loss of $100. It's subtle, but it is in the prospectus: The estimated value of the notes is only an estimate determined by reference to several factors. The original issue price of the notes will exceed the estimated value of the notes because costs associated with selling, structuring and hedging the notes are included in the original issue price of the notes. These costs include the selling commissions, the projected profits, if any, that our affiliates expect to realize for assuming risks inherent in hedging our obligations under the notes and the estimated cost of hedging our obligations under the notes.\"", "title": "" }, { "docid": "d417b663cadb6892e2ecd6c42fd9ab36", "text": "\"5-8 years is not quite long term. Until the naughts (the 2001-10 decade), advisors were known to say that the S&P was always positive given a 10 year holding period. Now, we're saying 15 years is always positive looking back. One can easily pull S&P return data which would let you run numbers showing the range of returns for the 5-8 yr period you have in mind. A bit of extra effort and you can include the dollar cost averaging factor. This wouldn't produce a guarantee, but a statistical range of expected returns over your time horizon. Then a decision like \"\"with a 1/4 chance of losing 25% of my money, should I stay with this plan?\"\" This is just an example. The numbers for 1900-2014 look like this - In any 5 year period, an average return of 69.2% (note 1.69 means a 69% gain). Of the 111 5 year periods, 14 were negative with the worst being a 46% loss. I maintain 5 years is not really long term, but the risk is relatively low of being in the red.\"", "title": "" }, { "docid": "50662f953cc4b7404eaf863a01511a40", "text": "The fundamental issue with leverage (of any sort, really) is that the amplified downsides are extremely likely to more than cancel out amplified equivalent upsides. Example without using a major swing: 2x leverage on a 5% decline (so a 10% decline). The 5% decline needs a 5.26% increase to get back level. However, the 2x leverage needs an 5.55% increase to get back. So a cycle for the unleveraged returns of -5%, +5.4% would see the unleveraged asset go up by a net +0.13% but 2x leverage would leave you at -0.28%. Conversely, imagine 0.5x leverage (it's easy to do that: 50% cash allocation): after an underlying -5%, the 0.5x leverage needs only +5.13% to reach par. This is basically the argument for low volatility funds. Of course, if you can leverage an asset that doesn't go down, then the leverage is great. And for an asset with an overall positive compound return, a little leverage is probably not going to hurt, simply because there are likely to be enough upsides to cancel out downsides.", "title": "" }, { "docid": "e579c480f632018d2e79008cd1ccaa4b", "text": "Line one shows your 1M, a return with a given rate, and year end withdrawal starting at 25,000. So Line 2 starts with that balance, applies the rate again, and shows the higher withdrawal, by 3%/yr. In Column one, I show the cumulative effect of the 3% inflation, and the last number in this column is the final balance (903K) but divided by the cumulative inflation. To summarize - if you simply get the return of inflation, and start by spending just that amount, you'll find that after 20 years, you have half your real value. The 1.029 is a trial and error method, as I don't know how a finance calculator would handle such a payment flow. I can load the sheet somewhere if you'd like. Note: This is not exactly what the OP was looking for. If the concept is useful, I'll let it stand. If not, downvotes are welcome and I'll delete.", "title": "" }, { "docid": "8896bbf28ca415182cc04b43e45e9487", "text": "\"A good question -- there are many good tactical points in other answers but I wanted to emphasize two strategic points to think about in your \"\"5-year plan\"\", both of which involve around diversification: Expense allocation: You have several potential expenses. Actually, expenses isn't the right word, it's more like \"\"applications\"\". Think of the money you have as a resource that you can \"\"pour\"\" (because money has liquidity!) into multiple \"\"buckets\"\" depending on time horizon and risk tolerance. An ultra-short-term cushion for extreme emergencies -- e.g. things go really wrong -- this should be something you can access at a moment's notice from a bank account. For example, your car has been towed and they need cash. A short-term cushion for emergencies -- something bad happens and you need the money in a few days or weeks. (A CD ladder is good for this -- it pays better interest and you can get the money out quick with a minimal penalty.) A long-term savings cushion -- you might want to make a down payment on a house or a car, but you know it's some years off. For this, an investment account is good; there are quite a few index funds out there which have very low expenses and will get you a better return than CDs / savings account, with some risk tolerance. Retirement savings -- $1 now can be worth a huge amount of money to you in 40 years if you invest it wisely. Here's where the IRA (or 401K if you get a job) comes in. You need to put these in this order of priority. Put enough money in your short-term cushions to be 99% confident you have enough. Then with the remainder, put most of it in an investment account but some of it in a retirement account. The thing to realize is that you need to make the retirement account off-limits, so you don't want to put too much money there, but the earlier you can get started in a retirement account, the better. I'm 38, and I started both an investment and a retirement account at age 24. They're now to the point where I save more income, on average, from the returns in my investments, than I can save from my salary. But I wish I had started a few years earlier. Income: You need to come up with some idea of what your range of net income (after living expenses) is likely to be over the next five years, so that you can make decisions about your savings allocation. Are you in good health or bad? Are you single or do you have a family? Are you working towards law school or medical school, and need to borrow money? Are you planning on getting a job with a dependable salary, or do you plan on being self-employed, where there is more uncertainty in your income? These are all factors that will help you decide how important short-term and long term savings are to your 5-year plan. In short, there is no one place you should put your money. But be smart about it and you'll give yourself a good head start in your personal finances. Good luck!\"", "title": "" }, { "docid": "5887589fd2f004e5ffadf2a922b01929", "text": "Im creating a 5-year projection on Profit and loss, cash flow and balance sheet and i\\m suppose to use the LIBOR (5 year forward curve) as interest rate on debt. This is the information i am given and it in USD. Thanks for the link. I guess its the USD LIBOR today, in one year, in two years, three years, four years and five years", "title": "" }, { "docid": "1592c7926967d762c261dca26cb01931", "text": "I need to see the policy you are referring to give a more accurate answer. However what could be happening, it’s again the way these instruments are structured; For example if the insurance premium is say 11,000 of which 1000 is toward expenses and Term insurance amount. The Balance 10,000 is invested in growth. The promise is that this will grow max of 9.5% and never below zero. IE say if we are talking only about a year, you can get anything between 10,000 to 10,950. The S & P long-term average return is in the range of 12 -15% [i don't remember correctly] So the company by capping it at 9.5% is on average basis making a profit of 2.5% to 5.5%. IE in a good year say the S & P return is around 18%, the company has pocketed close to 9% more money; On a bad year say the Index gave a -ve return of say 5% ... The Insurance company would take this loss out of the good years. If say when your policy at the S & P for that year has given poor returns, you would automatically get less returns. Typically one enters into Life Insurance on a long term horizon and hence the long term averages should be used as a better reference, and going by that, one would make more money just by investing this in an Index directly. As you whether you want to invest in such a scheme, should be your judgment, in my opinion I prefer to stay away from things that are not transparent.", "title": "" } ]	fiqa
7ff6432d3ed0aa3774e6b2f88b107900	Nanny taxes and payroll service	[ { "docid": "bd73b14f4979fbee1d6a372bb5666977", "text": "For Federal Return, Schedule H and its Instructions are a great start. You are the nanny's employer, and are responsible for FICA (social security and medicare) withholding, and also paying the employer portion. You will offer her a W4 so she can tell you how much federal and state tax to withhold. You'll use Circular E the employer's tax guide to calculate withholding. In January, you'll give her a W-2, and file the information with your own tax return. For State, some of the above applies, but as I recall, in my state, I had to submit withholding quarterly separate from my return. As compared to Federal, where I adjusted my own withholding so at year end the tax paid was correct. Unemployment insurance also needs to be paid, I believe this is state. This issue is non-political - I told my friends at the IRS that (a) the disparity between state and federal to handle the nanny tax was confusing for those of us trying to comply, and (b) even though we are treated as an employer, a 'guide to the nanny tax' would be helpful, a single IRS doc that doesn't mix non-nanny type issues into the mix. In the end, if a service is cost effective, go for it, your time is valuable, and thi is something that only lasts a few years.", "title": "" }, { "docid": "563f7f6f56b95f036aeeef527b3212e5", "text": "Whether to employ a payroll service to handle the taxes (and possibly the payroll itself) is a matter that depends on how savvy you are with respect to your own taxes and with using computers in general. If you are comfortable using programs such as Excel, or Quicken, or TurboTax, or TaxAct etc, then taking care of payroll taxes on a nanny's wages all by yourself is not too hard. If you take a shoebox full of receipts and paystubs to your accountant each April to prepare your personal income tax returns and sign whatever the accountant puts in front of you as your tax return, then you do need to hire a payroll service. It will also cost you a bundle since there are no economies of scale to help you; there is only one employee to be paid.", "title": "" } ]	[ { "docid": "fa9290fe5300a24c04c6f8ab01f18f66", "text": "Sounds you need to read up on S corp structures. I think this would benefit you if you generate income even after you physically stopped working which is incomes from membership fees, royalties % of customer revenue, middle man etc... Under the Scorp, you as the sole member must earn a wage that fair and at current market value. You pay social security and Medicare on this wage. The interesting thing here is that an Scorp can pay out earning dividends without having to pay payroll taxes but the catch is that you, as the sole employee must earn a fair wage. As for paying the other member you may want to look into 1099 contract work plus a finders fee. The 1099 hourly wage does not require you to pay Medicare and SS. The common fee I'm used to is 5% of gross invoice. Then you would pay her an hourly wage. The company then bills these hours multiplied by 2 or 3 (or whatever you think is fair) to the client. Deduct expenses from this and that's your profit. Example. Contractor brings Client A which is estimated as a 100 hour project with $100 cost in supplies and requires 2 hours of your time @ $40/hr. You quote 100 hours @ $50 to client, client agrees and gives you down payment. You then present the contract work to your contractor, they complete the work in 100 hours and bill you at $25. You pay your contractor 2500 plus the 5% ($250) and your company earns $2070 (5000 - 2500 - 100-80) And you'll earn $80 minus the payroll tax. Then at the end of the quarter or year or however you want to do earning payouts your LLC- Scorp will write you a check for $2070 or whatever earning % you want to take. This is then taxed at your income tax bracket. One thing to keep in mind is what is preventing this other person from becoming your competition? A partnership would be great motivation to try and bring in as much work under the LLC. But if you start shafting people then they'll just keep the work and cut you out.", "title": "" }, { "docid": "c999d9b19f351dca287fcaade93b30dd", "text": "\"The translation scheme is detailed in IRS Publication 15, \"\"Employer's Tax Guide\"\". For the 2010 version, the information is in Section 16 on Page 37. There are two ways that employers can calculate the withheld tax amount: wage bracket and percentage. Alternatively, they can also use one of the methods defined in IRS Publication 15-A. I'll assume the person making $60k/yr with 10 allowances is paid monthly ($5000/period) and married. Using the wage bracket method, the amount withheld for federal taxes would be $83 per pay period. Using the percentage method, it would be $81.23 per pay period. I don't recommend that you use this information to determine how to fill out your W-4. The IRS provides a special online calculator for that purpose, which I have always found quite accurate. Note: \"\"allowances\"\" are not the same as \"\"dependents\"\"; \"\"allowances\"\" are a more realistic estimation of your tax deductions, taking into consideration much more than just your dependents.\"", "title": "" }, { "docid": "67b68ecf5c993aeea42bb178987d334d", "text": "Yes, you are the proprietor of the business and your SSN is listed on Schedule C. The information on Schedule C is for your unincorporated business as a contractor; it is a sole proprietorship. You might choose to do this business under your own name e.g. Tim Taylor (getting paid with checks made out to Tim Taylor) or a modified name such as Tim the Tool Man Taylor (this is often referred to as DBA - Doing Business as), under a business name such as Tool Time etc. with business address being your home address or separate premises, and checking accounts to match etc. and all that is what the IRS wants to know about on Schedule C. Information about the company that paid you is not listed on Schedule C.", "title": "" }, { "docid": "45315a7f2e7a30b391efa8918d80a94a", "text": "\"We will bill our clients periodically and will get paid monthly. Who are \"\"we\"\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \"\"Every two months profits get divided 50/50\"\" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional employee (who will not be a shareholder). Will our tax liability go down by doing this? Down in what sense? Payroll is deductible, if that's what you mean. Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc.\"", "title": "" }, { "docid": "60833091fb5f878a8610f7b5990ddb4e", "text": "This is how a consulting engagement in India works. If you are registered for Service Tax and have a service tax number, no tax is deducted at source and you have to pay 12.36% to service tax department during filing (once a quarter). If you do not have Service tax number i.e. not registered for service tax, the company is liable to deduct 10% at source and give the same to Income Tax Dept. and give you a Form-16 at the end of the financial year. If you fall in 10% tax bracket, no further tax liability, if you are in 30%, 20% more needs to be paid to Income Tax Dept.(calculate for 20% tax bracket). The tax slabs given above are fine. If you fail to pay the remainder tax (if applicable) Income Tax Dept. will send you a demand notice, politely asking you to pay at the end of the FY. I would suggest you talk to a CA, as there are implications of advance tax (on your consulting income) to be paid once a quarter.", "title": "" }, { "docid": "554322871514f45b7369eed7c2b5070f", "text": "Using the http://calculators.ato.gov.au/scripts/asp/simpletaxcalc/main.asp calculator and noting all the caveats (Medicare etc) and assuming everything is proportionate you get: You earn: $110,000 less $28,647 tax = $81,353 She earns: $54,000 less $9,097 tax = $44,903 Total net: $126,256 You earn: $88,000 less $20,507 tax = $67,493 She earns: $72,000 less $14,947 tax = $57,053 Total net: $124,546 So, there is about $1,710 in it per annum or $33/week. Long day care will be setting you back $75-185/day so this is pretty small beans. This is all back of the envelope stuff and probably worth paying a few hundred dollars to an accountant to work it all out.", "title": "" }, { "docid": "b7a3cbe87c7d49cdb8cc02b7f7fdec32", "text": "\"You're getting paid by the job, not by the hour, so I don't see why you think the employer is obligated to pay you for the drive time. The only way that might be true, as far as I can see, is if he were avoiding paying you minimum wage by structuring your employment this way. It looks like to me you're over the minimum wage based on what you wrote. At maximum \"\"unpaid\"\" drive time (59 min each way) and maximum length of job (4 hours as you stated it), gives your minimum hourly rate of $8.83/hr. The federal minimum wage is currently $7.25/hr, so you're over that. A quick search online suggests that NV does have a higher minimum at $8.25/hr under some conditions, but you're still over that too. The fact that you're required to pick-up the helpers and that you have a company car at home probably does mean that you're \"\"on the clock\"\" from the moment that you leave your house, but, again, you're not actually being paid by the clock. As long as no other law is being broken (and it appears from your telling that there isn't), then the employer can set any policy for how to compute the compensation that he wants. Regarding taxes, the employer probably has no discretion there. You're making what you're making, and the employer needs to tax it in total. Since you're driving a company vehicle from home, I don't think that you're entitled to any reimbursement (vs. wages) that would not be taxed unless maybe you pay for gas yourself. The gas money, if applicable, should be reimbursable as a business expense and that generally would not be taxed.\"", "title": "" }, { "docid": "b573d3167787931ca68ccd809c08eea9", "text": "PSB taxed at higher rates. PSB is taxed at 39.5% in Ontario, as the article mentioned. But if you pay all the net income to yourself as salary, you expense it and zero it out on the corporate level. So who cares what tax rate it is if the taxable income is zero? No-one. Same goes for the US, by the way. Personal Service Corporations are taxed at flat 35% Federal tax rate. But if you pour all the income into your salary - its moot, because there's no net income to pay tax of. If it's too complicated to figure out, maybe it would be wise to hire a tax accountant to provide counsel to you before you make decisions about your business.", "title": "" }, { "docid": "9c9b09427bf59ac4ea866460fe930c7e", "text": "Very grey area. You can't pay them to run errands, mow the lawn, etc. I'd suggest that you would have to have self employment income (i.e. your own business) for you to justify the deduction. And then the work itself needs to be applicable to the business. I've commented here and elsewhere that I jumped on this when my daughter at age 12 started to have income from babysitting. I told her that in exchange for her taking the time to keep a notebook, listing the family paying her, the date, and amount paid, I'd make a deposit to a Roth IRA for her. I've approaches taxes each year in a way that would be audit-compliant, i.e. a paper trail that covers any and all deductions, donations, etc. In the real world, the IRS isn't likely to audit someone for that Roth deposit, as there's little for them to recover.", "title": "" }, { "docid": "d50f90f0c864294278fa0691bbb3ef40", "text": "You will most likely pay around 30%, between standard income tax and payroll taxes. That is a good place to start. If you live in a state/city with income taxes, add that to the mix.", "title": "" }, { "docid": "9ae88354d918c5f09d1b21baec41180e", "text": "\"Take a look at IRS Publication 15. This is your employer's \"\"bible\"\" for withholding the correct amount of taxes from your paycheck. Most payroll systems use what this publication defines as the \"\"Percentage Method\"\", because it requires less data to be entered into the system in order to correctly compute the amount of withholding. The computation method is as follows: Taxes are computed \"\"piecewise\"\"; dollar amounts up to A are taxed at X%, and then dollar amounts between A and B are taxed at Y%, so total tax for B dollars is AX + (B-A)Y. Here is the table of rates for income earned in 2012 on a daily basis by a person filing as Single: To use this table, multiply all the dollar amounts by the number of business days in the pay period (so don't count more than 5 days per week even if you work 6 or 7). Find the range in which your pay subject to withholding falls, subtract the \"\"more than\"\" amount from the range, multiply the remainder by the \"\"W/H Pct\"\" for that line, and add that amount to the \"\"W/H Base\"\" amount (which is the cumulative amount of all lower tax brackets). This is the amount that will be withheld from your paycheck if you file Single or Married Filing Separately in the 2012 TY. If you file Married Filing Jointly, the amounts defining the tax brackets are slightly different (there's a pretty substantial \"\"marriage advantage\"\" right now; withholding for a married person in average wage-earning range is half or less than a person filing Single.). In your particular example of $2500 biweekly (10 business days/pp), with no allowances and no pre-tax deductions: So, with zero allowances, your employer should be taking $451.70 out of your paycheck for federal withholding. Now, that doesn't include PA state taxes of 3.07% (on $2500 that's $76.75), plus other state and federal taxes like SS (4.2% on your gross income up to 106k), Medicare/Medicaid (1.45% on your entire gross income), and SUTA (.8% on the first $8000). But, you also don't get a refund on those when you fill out the 1040 (except if you claim deductions against state income tax, and in an exceptional case which requires you to have two jobs in one year, thus doubling up on SS and SUTA taxes beyond their wage bases). If you claim 3 allowances on your federal taxes, all other things being equal, your taxable wages are reduced by $438.45, leaving you with taxable income of $2061.55. Still in the 25% bracket, but the wages subject to that level are only $619.55, for taxes in the 25% bracket of $154.89, plus the withholding base of $187.20 equals total federal w/h of $342.09 per paycheck, a savings of about $110pp. Those allowances do not count towards other federal taxes, and I do not know if PA state taxes figure these in. It seems odd that you would owe that much in taxes with your withholding effectively maxed out, unless you have some other form of income that you're reporting such as investment gains, child support/alimony, etc. With nobody claiming you as a dependent and no dependents of your own, filing Single, and zero allowances on your W-4 resulting in the tax withholding above, a quick run of the 1040EZ form shows that the feds should owe YOU $1738.20. The absolute worst-case scenario of you being claimed as a dependent by someone else should still get you a refund of $800 if you had your employer withhold the max. The numbers should only have gotten better if you're married or have kids or other dependents, or have significant itemized deductions such as a home mortgage (on which the interest and any property taxes are deductible). If you itemize, remember that state income tax, if any, is also deductible. I would consult a tax professional and have him double-check all your numbers. Unless there's something significant you haven't told us, you should not have owed the gov't at the end of the year.\"", "title": "" }, { "docid": "2f8b42376ba8f2b9e521913010a6afe2", "text": "Payroll taxes are only paid on salary, so you will be paying SS Tax and Medicare only on the $60,000 you pay yourself. You will still pay income tax on the distribution, of course, but the payroll tax savings seem significant (~$13K according to the calculator below). While tinkering with a new web technology some time ago, I created this JsFiddle application. I can't swear to its correctness, but I'm pretty sure it's solid (use the UI in the bottom right quadrant of the screen): http://jsfiddle.net/psandler/NKAZd/", "title": "" }, { "docid": "a3536cc618e291ed7fa8cd499d035587", "text": "I'm not sure why you're confusing the two unrelated things. 1040ES is your estimated tax payments. 941 is your corporation's payroll tax report. They have nothing to do with each other. You being the corporation's employee is accidental, and can only help you to avoid 1040ES and use the W2 withholding instead - like any other employee. From the IRS standpoint you're not running a LLC - you're running a corporation, and you're that corporation's employee. While technically you're self-employed, from tax perspective - you're not (to the extent of your corporate salary, at least).", "title": "" }, { "docid": "97cbde3c965690a53a5b344eaf7ebe19", "text": "Forms 1099 and W2 are mutually exclusive. Employers file both, not the employees. 1099 is filed for contractors, W2 is filed for employees. These terms are defined in the tax code, and you may very well be employee, even though your employer pays you as a contractor and issues 1099. You may complain to the IRS if this is the case, and have them explain the difference to the employer (at the employer's expense, through fines and penalties). Employers usually do this to avoid providing benefits (and by the way also avoid paying payroll taxes). If you're working as a contractor, lets check your follow-up questions: where do i pay my taxes on my hourly that means does the IRS have a payment center for the tax i pay. If you're an independent contractor (1099), you're supposed to pay your own taxes on a quarterly basis using the form 1040-ES. Check this page for more information on your quarterly payments and follow the links. If you're a salaried employee elsewhere (i.e.: receive W2, from a different employer), then instead of doing the quarterly estimates you can adjust your salary withholding at that other place of work to cover for your additional income. To do that you submit an updated form W4 there, check with the payroll department on details. Is this a hobby tax No such thing, hobby income is taxed as ordinary income. The difference is that hobby cannot be at loss, while regular business activity can. If you're a contractor, it is likely that you're not working at loss, so it is irrelevant. what tax do i pay the city? does this require a sole proprietor license? This really depends on your local laws and the type of work you're doing and where you're doing it. Most likely, if you're working from your employer's office, you don't need any business license from the city (unless you have to be licensed to do the job). If you're working from home, you might need a license, check with the local government. These are very general answers to very general questions. You should seek a proper advice from a licensed tax adviser (EA/CPA licensed in your state) for your specific case.", "title": "" }, { "docid": "e014d35b3f0ff08b6d7e46b48d579fb8", "text": "Payroll is undeniably one of the most important part of any business and it very important that you have a timely payroll every month. To avoid the hassle of payroll processing, it is best to get the service outsourced. We,DHpayroll, will be more than happy to offer you our expert services.", "title": "" } ]	fiqa
9d5c9ab41b96146054dc716cd23e9294	Starting off as an investor	[ { "docid": "61cce25bf7d6e1960d57634868b4996f", "text": "\"You've asked eleven different questions here. Therefore, The first thing I'd recommend is this: Don't panic. Seek answers to your questions systematically, one at a time. Search this site (and others) to see if there are answers to some of them. You're in good shape if for no other reason than you're asking these when you're young. Investing and saving are great things to do, but you also have time going for you. I recommend that you use your \"\"other eight hours per day\"\" to build up other income streams. That potentially will get you far more than a 2% deposit. Any investment can be risky or safe. It depends on both your personal context and that of the larger economy. The best answers will come from your own research and from your advisors (since they will be able to see where you are financially, and in life).\"", "title": "" } ]	[ { "docid": "6ab0591bd0e809fae8e650352223ec80", "text": "I'm going to be a bit off topic and recommend 'The Only Investment Book You'll Ever Need' by Andrew Tobias. It doesn't start with describe the workings of the stock market. Instead, it starts with making sure you have a budget and have your basic finances in order BEFORE going into the stock market. This may not sound like what you are looking for, but it really is a valuable book to read, even if you think you are all set up in that department.", "title": "" }, { "docid": "992d568e9fb89ec12d5ec9d42554e089", "text": "What is your investing goal? And what do you mean by investing? Do you necessarily mean investing in the stock market or are you just looking to grow your money? Also, will you be able to add to that amount on a regular basis going forward? If you are just looking for a way to get $100 into the stock market, your best option may be DRIP investing. (DRIP stands for Dividend Re-Investment Plan.) The idea is that you buy shares in a company (typically directly from the company) and then the money from the dividends are automatically used to buy additional fractional shares. Most DRIP plans also allow you to invest additional on a monthly basis (even fractional shares). The advantages of this approach for you is that many DRIP plans have small upfront requirements. I just looked up Coca-cola's and they have a $500 minimum, but they will reduce the requirement to $50 if you continue investing $50/month. The fees for DRIP plans also generally fairly small which is going to be important to you as if you take a traditional broker approach too large a percentage of your money will be going to commissions. Other stock DRIP plans may have lower monthly requirements, but don't make your decision on which stock to buy based on who has the lowest minimum: you only want a stock that is going to grow in value. They primary disadvantages of this approach is that you will be investing in a only a single stock (I don't believe that can get started with a mutual fund or ETF with $100), you will be fairly committed to that stock, and you will be taking a long term investing approach. The Motley Fool investing website also has some information on DRIP plans : http://www.fool.com/DRIPPort/HowToInvestDRIPs.htm . It's a fairly old article, but I imagine that many of the links still work and the principles still apply If you are looking for a more medium term or balanced investment, I would advise just opening an online savings account. If you can grow that to $500 or $1,000 you will have more options available to you. Even though savings accounts don't pay significant interest right now, they can still help you grow your money by helping you segregate your money and make regular deposits into savings.", "title": "" }, { "docid": "a9175d6a35bb2a1f359699e4473e2b56", "text": "I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.", "title": "" }, { "docid": "69cbc69ac62683bd3f6e8483896dcb81", "text": "\"You can't get started investing. There are preliminary steps that must be taken prior to beginning to invest: Only once these things are complete can you think about investing. Doing so before hand will only likely lose money in the long run. Figure these steps will take about 2.5 years. So you are 2.5 years from investing. Read now: The Total Money Makeover. It is full of inspiring stories of people that were able to turn things around financially. This is good because it is easy to get discouraged and believe all kind of toxic beliefs about money: The little guy can't get ahead, I always will have a car payment, Its too late, etc... They are all false. Part of the book's resources are budgeting forms and hints on budgeting. Read later: John Bogle on Investing and Bogle on Mutual Funds One additional Item: About you calling yourself a \"\"dummy\"\". Building personal wealth is less about knowledge and more about behavior. The reason you don't have a positive net worth is because of how you behaved, not knowledge. Even sticking a small amount in a savings account each paycheck and not spending it would have allowed you to have a positive net worth at this point in your life. Only by changing behavior can you start to build wealth, investing is only a small component.\"", "title": "" }, { "docid": "49183a72c0b15726b887ab56f8c064b5", "text": "\"This is a tough question, because it is something very specific to your situation and finances. I personally started at a young age (17), with US$1,000 in Scottrade. I tried the \"\"stock market games\"\" at first, but in retrospect they did nothing for me and turned out to be a waste of time. I really started when I actually opened my brokerage account, so step one would be to choose your discount broker. For example, Scottrade, Ameritrade (my current broker), E-Trade, Charles Schwab, etc. Don't worry about researching them too much as they all offer what you need to start out. You can always switch later (but this can be a little of a hassle). For me, once I opened my brokerage account I became that much more motivated to find a stock to invest in. So the next step and the most important is research! There are many good resources on the Internet (there can also be some pretty bad ones). Here's a few I found useful: Investopedia - They offer many useful, easy-to-understand explanations and definitions. I found myself visiting this site a lot. CNBC - That was my choice for business news. I found them to be the most watchable while being very informative. Fox Business, seems to be more political and just annoying to watch. Bloomberg News was just ZzzzZzzzzz (boring). On CNBC, Jim Cramer was a pretty useful resource. His show Mad Money is entertaining and really does teach you to think like an investor. I want to note though, I don't recommend buying the stocks he recommends, specially the next day after he talks about them. Instead, really pay attention to the reasons he gives for his recommendation. It will teach you to think more like an investor and give you examples of what you should be looking for when you do research. You can also use many online news organizations like MarketWatch, The Motley Fool, Yahoo Finance (has some pretty good resources), and TheStreet. Read editorial (opinions) articles with a grain of salt, but again in each editorial they explain why they think the way they think.\"", "title": "" }, { "docid": "1cbb06328a871c3e1d8c77ce2996a65a", "text": "\"You seem to have all your financial bases covered, and others have given you good financial advice, so I will try to give you some non-financial ideas. The first and most important thing is that you are investing with a long time friend, so the dynamics are a lot different that if you had recently met a stranger with an \"\"interesting\"\" new idea. The first thing you need to ask yourself is if your friendship will survive if this thing doesn't go well? You've already said you can afford to lose the money so that's not a worry, but will there be any \"\"recriminations?\"\" The flip side is also true; if the venture succeeds, you should be able to go further with it because he's your friend. You know your friend better (back to grade school) than almost anyone else, so here are some things to ask yourself: What does your friend have that will give him a chance to succeed; tech savvy, a winning personality, a huge rolodex, general business savvy, something else? If your guardian angel had told you that one of your friends was planning to embark on an internet/advertising venture, is this the one you would have guessed? Conversely, knowing that your friend was planning to do a start up, is this the kind of venture you would have guessed? How does \"\"internet\"\" and \"\"advertising\"\" fit in with what you are doing? If this venture succeeds, could it be used to help your professional development and career, maybe as a supplier or customer? Can you see yourself leaving your current job and joining your friend's (now established) company as a vice president or acting as a member of its board of directors, the latter perhaps while pursuing your current career path? Are your other mutual friends investing? Are some of them more tech savvy than you and better able to judge the company's prospects of success? To a certain extent, there is \"\"safety in numbers\"\" and even if there isn't, \"\"misery loves company.\"\" On the upside, would you feel left out if everyone in your crowd caught \"\"the next Microsoft\"\" except you?\"", "title": "" }, { "docid": "990d7cea7a0d872a8b50cca148e7d234", "text": "\"This is a common and good game-plan to learn valuable life skills and build a supplemental income. Eventually, it could become a primary income, and your strategic risk is overall relatively low. If you are diligent and patient, you are likely to succeed, but at a rate that is so slow that the primary beneficiaries of your efforts may be your children and their children. Which is good! It is a bad gameplan for building an \"\"empire.\"\" Why? Because you are not the first person in your town with this idea. Probably not even the first person on the block. And among those people, some will be willing to take far more extravagant risks. Some will be better capitalized to begin with. Some will have institutional history with the market along with all the access and insider information that comes with it. As far as we know, you have none of that. Any market condition that yields a profit for you in this space, will yield a larger one for them. In a downturn, they will be able to absorb larger losses than you. So, if your approach is to build an empire, you need to take on a considerably riskier approach, engage with the market in a more direct and time-consuming way, and be prepared to deal with the consequences if those risks play out the wrong way.\"", "title": "" }, { "docid": "b272698e1679609d91d03ae6740f5359", "text": "I started my career over 10 years ago and I work in the financial sector. As a young person from a working class family with no rich uncles, I would prioritize my investments like this: It seems to be pretty popular on here to recommend trading individual stocks, granted you've read a book on it. I would thoroughly recommend against this, for a number of reasons. Odds are you will underestimate the risks you're taking, waste time at your job, stress yourself out, and fail to beat a passive index fund. It's seriously not worth it. Some additional out-of-the box ideas for building wealth: Self-serving bias is pervasive in the financial world so be careful about what others tell you about what they know (including me). Good luck.", "title": "" }, { "docid": "e2fee46231608345a1eb985c0a67d440", "text": "You cannot have off-campus employment in your first year, but investments are considered passive income no matter how much time you put into that effort. Obviously you need to stay enrolled full-time and get good enough grades to stay in good standing academically, so you should be cautious about how much time you spend day trading. If the foreign market is also active in a separate time zone, that may help you not to miss class or otherwise divert your attention from your investment in your own education. I have no idea about your wealth, but it seems to me that completing your degree is more likely to build your wealth than your stock market trades, otherwise you would have stayed home and continued trading instead of attending school in another country.", "title": "" }, { "docid": "ba6dfeb344202e59f5c6b285133567aa", "text": "A couple of good books I enjoyed and found very understandable (regarding the stock market): As for investment information you can get lost for days in Investopedia. Start in the stock section and click around. The tutorials here (free) give a good introduction to different financial topics. Regarding theoretical knowledge: start with what you know well, like your career or your other interests. You'll get a running start that way. Beyond that, it depends on what area of finance you want to start with. If it's your personal finances, I and a lot of other bloggers write about it all the time. Any of the bloggers on my blogroll (see my profile for the link) will give you a good perspective. If you want to go head first into planning your financial life, take a look at Brett Wilder's The Quiet Millionaire. It's very involved and thorough. And, of course, ask questions here.", "title": "" }, { "docid": "a55b948c4865ccff37eec744d416be8e", "text": "\"The first thing you have to do is to decided what area in finance you want to get into. For example, investment banking and quant are very different jobs. Learning all the CFA material is useful, so you might as well take the exams too while you are at it. You may be able to get into financial IT or some type of financial programming job. That is one step closer to your goal because at least you will be at a finance company and you can network with people that are in the field. Also, if you want to go into the buy side like I did, I recommend you invest your own money and manage your own portfolio. That way you would have some intimate familiarity with some companies/strategies. You can't get this from a textbook. There is something a little wrong with someone who wants to manage other people's money when he doesn't manage his own. That is a tough sell. You can't be too picky about where you get in. Getting in the door is the most important. I got a lot of quant interviews because I was an engineer. Those interviews consist of a lot of math and brain teaser type questions. For fundamental analyst positions, they will typically want to figure out how you think about businesses/companies. You can typically steer the interview any way you want, which is why I think it is important that you invest your own money. If you say \"\"the largest position I hold is in XYZ company\"\", you can be 99% certain that they will be asking about that investment for the next 15 minutes (at least). That is your opportunity to show how you can add value. Most companies prefer students for entry level, because why hire a guy who is already working in another field when you can get someone fresh? I stood out in the interviews because I could say \"\"I put $50k into this position because...\"\". It's not the only way to do it, but I can only provide you with my anedoctal experience.\"", "title": "" }, { "docid": "0cedaf444d9364575fc8b93d48e4f984", "text": "This is great. I have a question though. What happens if I have all of the plans for finance mapped out and ready to meet a potential investor, but the idea that I bring with me is not patentable? I certainly would like to get financing and let the investor know what I want to accomplish, but I don't want to give away my idea and have the investor take my idea and run his own company with it. How is this dealt with?", "title": "" }, { "docid": "4753e96b4f548f22698fc5e14c9b76d5", "text": "After looking at your profile, I see your age...28. Still a baby. At your age, and given your profession, there really is no need to build investment income. You are still working and should be working for many years. If I was you, I'd be looking to do a few different things: Eliminating debt reduces risk, and also reduces the need for future income. Saving for, and purchasing a home essentially freezes rent increases. If home prices double in your area, in theory, so should rent prices. If you own a home you might see some increases in taxes and insurance rates, but they are minor in comparison. This also reduces the need for future income. Owning real estate is a great way to build residual income, however, there is a lot of risk and even if you employ a management company there is a lot more hands on work and risk. Easier then that you can build an after tax investment portfolio. You can start off with mutual funds for diversification purposes and only after you have built a sizable portfolio should (if ever) make the transition to individual stocks. Some people might suggest DRIPs, but given the rate at which you are investing I would suggest the pain of such accounts is more hassle then it is worth.", "title": "" }, { "docid": "a12a08c1ab1f090461328b8bd919817b", "text": "\"Your questions seek answers to specifics, but I feel that you may need more general help. There are two things, I feel, that you need to learn about in the general category of personal finance. Your asking questions about investing, but it is not as important, IMHO, as how you manage your day-to-day operations. For example, you should first learn to budget. In personal finance often times \"\"living on a budget\"\" equates to poor, or low income. That is hardly the case. A budget is a plan on how to spend money. It should be refreshed each and every month and your income should equal your expenses. You might have in your budget a $1200 trip into the city to see a concert, hardly what a low income person should have in theirs. Secondly you need to be deliberate about debt management. For some, they feel that having a car payment and having student loans are a necessary part of life and argue that paying them off is foolish as you can earn more from investments. Others argue for zero debt. I fall in the later. Using and carrying a balance on high interest CCs and having high leases or car payments are just dumb. They are also easy to wander into unless you are deliberate. Third you need to prepare for emergencies. Engineers still get laid off and hurt where they are unable to work. They get sued. Having the proper insurance and sufficient reserves in the bank help prevent debt. Now you can start looking into investments. Start off slow and deliberate with investing. Put some in your company 401K or open some mutual funds on the side. You can read about them and talk with advisers, for free, at Fidelity and Vanguard. Read books from the library. Most of all don't get caught up in too much hype. Things like Forex, options, life insurance, gold/silver, are not investments. They are tools for sales people to make fat commissions off the ignorant. You are fortunate in that Engineers are very likely to retire wealthy. They are part of the second largest demographic of first generation rich. The first is small business owners. To start out I would read Millionaire Next Door and Stop Acting Rich. For a debt free approach to life, check out Financial Peace University (FPU) by Dave Ramsey (video course). His lesson on insurance is excellent. I am an engineer, and my wife a project manager we found FPU life changing and regretted not getting on board sooner. Along these lines we have had some turmoil, recently, that became little more than an inconvenience because we were prepared.\"", "title": "" }, { "docid": "81dc5a3ab1f76785932744c1f2a511a9", "text": "\"I get the sense that this is a \"\"the world is unfair; there's no way I can succeed\"\" question, so let's back up a few steps. Income is the starting point to all of this. That could be a job (or jobs), or running your own business. From there, you can do four things with your income: Obviously Spend and Give do not provide a monetary return - they give a return in other ways, such as quality of life, helping others, etc. Save gives you reserves for future expenses, but it does not provide growth. So that just leaves Invest. You seem to be focused on stock market investments, which you are right, take a very long time to grow, although you can get returns of up to 12% depending on how much volatility you're willing to absorb. But there are other ways to invest. You can invest in yourself by getting a degree or other training to improve your income. You can invest by starting a business, which can dramatically increase your income (in fact, this is the most common path to \"\"millionaire\"\" in the US, and probably in other free markets). You can invest by growing your own existing business. You can invest in someone else's business. You can invest in real estate, that can provide both value appreciation and rental income. So yes, \"\"investment\"\" is a key aspect of wealth building, but it is not limited to just stock market investment. You can also look at reducing expenses in order to have more money to invest. Also keep in mind that investment with higher returns come with higher risk (both in terms of volatility and risk of complete loss), and that borrowing money to invest is almost always unwise, since the interest paid directly reduces the return without reducing the risk.\"", "title": "" } ]	fiqa
30fba713162f1a28d5811ec2a1cfcfd1	What choices should I consider for investing money that I will need in two years?	[ { "docid": "ba82c700d659bd913917eb88bae37928", "text": "Never invest money you need in the short term. As already suggested, park your money in CDs.", "title": "" }, { "docid": "fe759125c34bd1657848291aa5f8babc", "text": "\"Books such as \"\"The Pocket Idiot's Guide to Investing in Mutual Funds\"\" claim that money market funds and CDs are the most prudent things to invest in if you need the money within 5 years. More specifically:\"", "title": "" }, { "docid": "2a4101d422ea1202cbc43ffd2a8abbf0", "text": "Are you going to South Africa or from? (Looking on your profile for this info.) If you're going to South Africa, you could do worse than to buy five or six one-ounce krugerrands. Maybe wait until next year to buy a few; you may get a slightly better deal. Not only is it gold, it's minted by that country, so it's easier to liquidate should you need to. Plus, they go for a smaller premium in the US than some other forms of gold. As for the rest of the $100k, I don't know ... either park it in CD ladders or put it in something that benefits if the economy gets worse. (Cheery, ain't I? ;) )", "title": "" }, { "docid": "1d51d9850577a2c4f2e9b8265ad15942", "text": "If you ever need the money in three years, imagine that today is 2006 and you need the money in 2009. Keep it in savings accounts, money-markets, or CDs maturing at the right time.", "title": "" }, { "docid": "f28edc15e301af581cc4338182d9b599", "text": "Investing $100k into physical gold (bars or coins) is the most prudent option; given the state of economic turmoil worldwide. Take a look at the long term charts; they're pretty self explanatory. Gold has an upward trend for 100+ years. http://www.goldbuyguide.com/price/ A more high risk/high reward investment would be to buy $100k of physical silver. Silver has a similar track record and inherent benefits of gold. Yet, with a combination of factors that could make it even more bull than gold (ie- better liquidity, industrial demand). Beyond that, you may want to look at other commodities such as oil and agriculture. The point is, this is troubled times for worldwide economies. Times like this you want to invest in REAL things like commodities or companies that are actually producing essential materials.", "title": "" } ]	[ { "docid": "92147a4cb7713931354d4f210a5cf054", "text": "\"2.47% is a really, really good rate, doubly so if it's a fixed rate, and quadruply so if the interest is tax-deductible. That's about as close to \"\"free money\"\" as you're ever going to get. Heck, depending on what inflation does over the next few years, it might even be cheaper than free. So if you have the risk tolerance for it, it's probably more effective to invest the money in the stock market than to accelerate your student loan payoff. You can even do better in the bond market (my go-to intermediate-term corporate bond fund is yielding nearly 4% right now.) Just remember the old banker's aphorism: Assets shrink. Liabilities never shrink. You can lose the money you've invested in stocks or bonds, and you'll still have to pay back the loan. And, when in doubt, you can usually assume you're underestimating your risks. If you're feeling up for it, I'd say: make sure you have a good emergency fund outside of your investment money - something you could live on for six months or so and pay your bills while looking for a job, and sock the rest into something like the Vanguard LifeStrategy Moderate Growth fund or a similar instrument (Vanguard's just my personal preference, since I like their style - and by style, I mean low fees - but definitely feel free to consider alternatives). You could also pad your retirement accounts and avoid taxes on any gains instead, but remember that it's easier to put money into those than take it out, so be sure to double-check the state of your emergency fund.\"", "title": "" }, { "docid": "2b0f50c6befa43aa0f99833600320dd9", "text": "\"First, you don't state where you are and this is a rather global site. There are people from Canada, US, and many other countries here so \"\"mutual funds\"\" that mean one thing to you may be a bit different for someone in a foreign country for one point. Thanks for stating that point in a tag. Second, mutual funds are merely a type of investment vehicle, there is something to be said for what is in the fund which could be an investment company, trust or a few other possibilities. Within North America there are money market mutual funds, bond mutual funds, stock mutual funds, mutual funds of other mutual funds and funds that are a combination of any and all of the former choices. Thus, something like a money market mutual fund would be low risk but quite likely low return as well. Short-term bond funds would bring up the risk a tick though this depends on how you handle the volatility of the fund's NAV changing. There is also something to be said for open-end, ETF and closed-end funds that are a few types to consider as well. Third, taxes are something not even mentioned here which could impact which kinds of funds make sense as some funds may invest in instruments with favorable tax-treatment. Aside from funds, I'd look at CDs and Treasuries would be my suggestion. With a rather short time frame, stocks could be quite dangerous to my mind. I'd only suggest stocks if you are investing for at least 5 years. In 2 years there is a lot that can happen with stocks where if you look at history there was a record of stocks going down about 1 in every 4 years on average. Something to consider is what kind of downside would you accept here? Are you OK if what you save gets cut in half? This is what can happen with some growth funds in the short-term which is what a 2 year time horizon looks like. If you do with a stock mutual fund, it would be a gamble to my mind. Don't forget that if the fund goes down 10% and then comes up 10%, you're still down 1% since the down will take more.\"", "title": "" }, { "docid": "dd019320e6613b5bc253cc262b746579", "text": "First, as Dheer mentioned above, there is no right answer as investment avenues for a person is dicteted by many subjective considerations. Given that below a few of my thoughts (strictly thoughts): 1) Have a plan for how much money you would need in next 5-7 years, one hint is, do you plan you buy a house, car, get married ... Try to project this requirement 2) Related to the above, if you have some idea on point 1, then it would be possible for you to determine how much you need to save now to achieve the above (possibly with a loan thrown in). It will also give you some indication as to where and how much of your current cash holding that you should invest now 3) From an investment perspective there are many instruments, some more risky some less. The exact mix of instruments that you should consider is based on many things, one among them is your risk apetite and fund requirement projections 4) Usually (not as a rule of thumb) the % of savings corresponding to your age should go into low risk investments and 100-the % into higher risk investment 5) You could talk to some professional invetment planners, all banks offer the service Hope this helps, I reiterate as Dheer did, there is truely no right answer for your question all the answers would be rather contextual.", "title": "" }, { "docid": "ebffd8bf1e0ea4a10737467e7d7903a0", "text": "A quick Excel calculation tells me that, if you are earning a guaranteed post-tax return of 12% in a liquid investment, then it doesn't matter which one you pick. According to the following Excel formula: You would be able to invest ₹2,124 now at 12% interest, and you could withdraw ₹100 every month for 24 months. Which means that the ₹100/month option and the ₹2100/biennium option are essentially the same. This, of course, is depending on that 12% guaranteed return. Where I come from, this type of investment is unheard of. If I was sure I'd still be using the same service two years from now, I would choose the biennial payment option. You asked in the comments how to change the formula to account for risk in the investment. Risk is a hard thing to quantify. However, if you are certain that you will be using this service in two years from now, you are essentially achieving 13% in a guaranteed return by pre-paying your fee. In my experience, a 13% guaranteed return is worth taking. Trying to achieve any more than that in an investment is simply a gamble. That having been said, at the amount we are talking about, each percent difference in return is only about ₹22. The biggest risk here is the fact that you might want to change services before your term is up. If these amounts are relatively small for you, then if there is any chance at all that you will want to drop the service before the 2 years is up, just pay the monthly fee.", "title": "" }, { "docid": "532e53a0fb994835777206b028413f9e", "text": "\"You should certainly look into investments. If you don't expect to need the money until retirement, then I'd put it in an IRA so you get the tax advantages. It makes sense to keep some money handy \"\"just in case\"\", but $23k is a very large amount of money for an emergency fund. Of course much depends on your life situation, but I'm hard pressed to think of an unexpected emergency that would come up that would require $23k. If you're seriously planning to go back to school, then you might want to put the money in a non-retirement fund investment. As I write this -- September 2015 -- the stock market is falling, so if you expect to need the money within the next few months, putting it in the stock market may be a mistake. But long term, the stock market has always gone up, so it will almost certainly recover sooner or later. The question is just when. Investing versus paying off debts is a difficult decision. What is the interest rate on the debt? If it's more than you're likely to make on an investment, then you should pay off the debt first. (My broker recently told me that over the last few decades, the stock market has averaged 7% annual growth, so I'm using that as my working number.) If the interest rate is low, some people still prefer to pay off the debt because the interest is certain while the return on an investment is uncertain, and they're unwilling to take the risk.\"", "title": "" }, { "docid": "70d0648d0d891a395ad640a3a2e267a7", "text": "First, keep about six months' expenses in immediately-available form (savings account or similar). Second, determine how long you expect to hold on to the rest of it. What's your timeframe for buying a house or starting a family? This determines what you should do with the rest of it. If you're buying a house next year, then a CD (Certificate of Deposit) is a reasonable option; low-ish interest reate, but something, probably roughly inflation level, and quite safe - and you can plan things so it's available when you need it for the down payment. If you've got 3-5 years before you want to touch this money, then invest it in something reasonably safe. You can find reasonable funds that have a fairly low risk profile - usually a combination of stock and bonds - with a few percent higher rate of return on average. Still could lose money, but won't be all that risky. If you've got over five years, then you should probably invest them in an ETF that tracks a large market sector - in the US I'd suggest VOO or similar (Vanguard's S&P 500 fund), I'm sure Australia has something similar which tracks the larger market. Risky, but over 5+ years unlikely to lose money, and will likely have a better rate of return than anything else (6% or higher is reasonable to expect). Five years is long enough that it's vanishingly unlikely to lose money over the time period, and fairly likely to make a good return. Accept the higher risk here for the greater return; and don't cringe when the market falls, as it will go up again. Then, when you get close to your target date, start pulling money out of it and into CDs or safer investments during up periods.", "title": "" }, { "docid": "30feb5a4ba881b67248e3400ceb0ad70", "text": "\"What a lovely position to find yourself in! There's a lot of doors open to you now that may not have opened naturally for another decade. If I were in your shoes (benefiting from the hindsight of being 35 now) at 21 I'd look to do the following two things before doing anything else: 1- Put 6 months worth of living expenses in to a savings account - a rainy day fund. 2- If you have a pension, I'd be contributing enough of my salary to get the company match. Then I'd top up that figure to 15% of gross salary into Stocks & Shares ISAs - with a view to them also being retirement funds. Now for what to do with the rest... Some thoughts first... House: - If you don't want to live in it just yet, I'd think twice about buying. You wouldn't want a house to limit your career mobility. Or prove to not fit your lifestyle within 2 years, costing you money to move on. Travel: - Spending it all on travel would be excessive. Impromptu travel tends to be more interesting on a lower budget. That is, meeting people backpacking and riding trains and buses. Putting a resonable amount in an account to act as a natural budget for this might be wise. Wealth Managers: \"\"approx. 12% gain over 6 years so far\"\" equates to about 1.9% annual return. Not even beat inflation over that period - so guessing they had it in ultra-safe \"\"cash\"\" (a guaranteed way to lose money over the long term). Give them the money to 'look after' again? I'd sooner do it myself with a selection of low-cost vehicles and equal or beat their return with far lower costs. DECISIONS: A) If you decided not to use the money for big purchases for at least 4-5 years, then you could look to invest it in equities. As you mentioned, a broad basket of high-yielding shares would allow you to get an income and give opportunity for capital growth. -- The yield income could be used for your travel costs. -- Over a few years, you could fill your ISA allowance and realise any capital gains to stay under the annual exemption. Over 4 years or so, it'd all be tax-free. B) If you do want to get a property sooner, then the best bet would to seek out the best interest rates. Current accounts, fixed rate accounts, etc are offering the best interest rates at the moment. Usual places like MoneySavingExpert and SavingsChampion would help you identify them. -- There's nothing wrong with sitting on this money for a couple of years whilst you fid your way with it. It mightn't earn much but you'd likely keep pace with inflation. And you definitely wouldn't lose it or risk it unnecessarily. C) If you wanted to diversify your investment, you could look to buy-to-let (as the other post suggested). This would require a 25% deposit and likely would cost 10% of rental income to have it managed for you. There's room for the property to rise in value and the rent should cover a mortgage. But it may come with the headache of poor tenants or periods of emptiness - so it's not the buy-and-forget that many people assume. With some effort though, it may provide the best route to making the most of the money. D) Some mixture of all of the above at different stages... Your money, your choices. And a valid choice would be to sit on the cash until you learn more about your options and feel the direction your heart is pointing you. Hope that helps. I'm happy to elaborate if you wish. Chris.\"", "title": "" }, { "docid": "51ba00c23f92bc5cdada42a26cbd229f", "text": "What you choose to invest in depends largely on your own goals and time horizon. You state that your time horizon is a few decades. Most studies have shown that the equity market as a whole has outperformed most other asset types (except perhaps property in some cases) over the long term. The reason that time horizon is important is that equities are quite volatile. Who knows whether your value will halve in the next year? But we hope that over the longer term, things come out in the wash, and tomorrow's market crash will recover, etc. However, you must realize that if your goals change, and you suddenly need your money after 2 years, it might be worth less in two years than you expect.", "title": "" }, { "docid": "237e2795a81504168d57af2169cf34ef", "text": "I would agree with the other answers about it being a bad idea to invest in stocks in the short term. However, do consider also long-term repairs. For example, you should be prepared to a repair happening in 20 years in addition to repairs happening in a couple of months. So, if it is at all possible for you to save a bit more, put 2% of the construction cost of a typical new house (just a house, not the land the house is standing on) aside every year into a long-term repair fund and invest it into stocks. I would recommend a low-cost index fund or passive ETF instead of manually picking stocks. When you have a long-term repair that requires large amounts of money but will be good for decades to come, you will take some money out of the long-term repair fund. Where I live, houses cost about 4000 EUR per square meter, but most of that is the land and building permit cost. The actual construction cost is about 2500 EUR per square meter. So, I would put away 50 EUR per square meter every year. So, for example, for a relatively small 50 square meter apartment, that would mean 2500 EUR per year. There are quite many repairs that are long-term repairs. For example, in apartment buildings, plumbing needs to be redone every 40 years or so. Given such a long time period, it makes sense to invest the money into stocks. So, my recommendation would be to have two repair funds: short-term repairs and long-term repairs. Only the long-term repair fund should be invested into stocks.", "title": "" }, { "docid": "a84b09627540269a6bcb47aed748f4c1", "text": "If you are going to be buying a house in 1-2 years, I would be putting my money into a short term holding area like a high interest (which isn't that high right now) or a CD (also low interest) because of your near-term need. I wouldn't use the Roth option for your down payment money. If you invest in something volatile (and stocks/mutual funds are very volatile in a 1-2 year term) I would consider it too risky for your need and time frame.", "title": "" }, { "docid": "d365b4480c725511653ad90c95226c7f", "text": "1-2 years is very short-term. If you know you will need the money in that timeframe and cannot risk losing money because of a stock market correction, you should stay away from equities (stocks). A short-term bond fund (like VBISX) will pay around 1%, maybe a bit more, and only has a small amount of risk. Money Market funds are practically risk-free (technically speaking they can lose money, but it's extremely rare) but rates of return are dismal. It's hard to get bigger returns without taking on more risk.", "title": "" }, { "docid": "9a02969f1527aa7d249d33a3e8cebb4e", "text": "The stock market, as a whole, is extremely volatile. During any 3 year period, the market could go up or down. However, and this is the important point,the market as a whole has historically been a good long term investment. If you need the money in 5 years, then you want to put it in something less volatile (so there's less chance of losing it). If you need the money in 50 years, put it in the market; the massive growth over those 50 years will more than make up for any short term drops, and you will probably come out ahead. Once you get closer to retirement age, you want to take the money out of stocks and put it in something safer; essentially locking in your profit, and protecting yourself from the possibility of further loss. Something else to consider: everyone lost money in 2008. There were no safe investments (well, ok, there were a few... but not enough to talk about). Given that, why would you choose another investment over stocks? Taking a 50% loss after decades of 10% annual returns is still better than a 50% loss after decades of 5% growth (in fact, after 20 years of growth, it's still 250% better - and that ratio will only improve the longer you leave it in).", "title": "" }, { "docid": "0adcaf91960b5299e36faa85f8a49618", "text": "You'll likely see several more scary market events before your autumn years. Ahhh, everyone has an opinion on this so here is mine :) If you are constrained to picking canned mutual fund products then I would target something with decent yield for two points. The third is to keep some in cash for an 'event'. I would say 65/35 at this point so invest 65% and have some liquidity for an 'opportunity'. Because the next crisis is right around the corner. But stay invested.", "title": "" }, { "docid": "0a05550158e54c1fac6708fe437e2345", "text": "\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \"\"the market\"\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\"", "title": "" }, { "docid": "58796a14b05b5c255a612d4720921fb1", "text": "There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.", "title": "" } ]	fiqa
4f64ee2da9c309989339a6f2b1a5d4a1	Does gold's value decrease over time due to the fact that it is being continuously mined?	[ { "docid": "630bf7c271b0db68bc21431861cb1da8", "text": "\"does it mean uncontrolled severe deflation/inflation is more likely to occur compared to \"\"normal\"\" currencies such as USD, EUR etc? Look at the chart referenced in the link in your question. It took approximately 50 years for annual production of gold to double from 500 tons to 1000 tons. It took approximately 40 years for annual production to double from 1000 tons to 2000 tons. Compare that to the production of US dollars by the Federal Reserve (see chart below obtained from here). US dollar production doubled in DAYS. Which one do you think will lead to uncontrolled inflation/deflation? Update: Why did I include a chart of the FED's balance sheet? Because this is the way newly printed money is introduced - the FED will purchase something from banks (mortgage-backed securities, US treasuries, etc.) with newly printed money. The banks can then loan this money to people who then deposit the money into other banks who loan those deposits to other people and so on. This is how the fractional reserve process expands the money supply. This is why I did not include a chart of the money supply since that is counting the same money multiple times. If I deposited 100 newly minted coins into a bank and that bank proceeded to loan out 80 of my coins where 80 are deposited into another bank who then proceeds to loan out 60 of the coins, and so on....the production of coins only changed by the initial 100 that I minted - not by the fractional reserve multiple. There are historical examples of inflation with gold and silver as duff has pointed out. None of them come close in magnitude to the inflation experienced with government fiat money.\"", "title": "" }, { "docid": "a3441d94495464df9250686f3ee189cf", "text": "As one can see here, the world population is growing. Assuming worldwide demand for gold is a function of population, the question you have to ask is whether gold mining outpaces population growth. Just eyeballing it, I'd say they're about even although annual production is far noisier. Keep in mind that gold extraction is not an easy process though. At the end of the day, gold is only worth what you can trade it for, just like any other store of value.", "title": "" }, { "docid": "861a9d04974ce6c228e125c840a8f454", "text": "Mining/discovery of gold can be inflationary -- the Spanish looting of Central America for a few hundred years or the gold rush in the 19th century US are examples of that phenomenon. The difference between printing currency and mining is that you have to ability to print money on demand, while mining is limited to whatever is available to extract at a given time. The rising price of gold may be contributing to increased production, as low-grade ore that wasn't economically viable to work with in the 1980's are now affordable.", "title": "" }, { "docid": "a9a36dad5328565bc5ddca2e2b3bcdb6", "text": "\"The relative value of Gold (or any other commodity) as measured against any given currency (such as the USD), is not a constant function either. If you have inflationary pressure, the \"\"value\"\" of an ounce of gold (or barrel of oil, etc) may \"\"double\"\", but it's really because the underlying comparator has lost \"\"half\"\" its value.\"", "title": "" }, { "docid": "dc21709e61f35e1dabf585879d691d0b", "text": "Contrary to Muro's answer which strangely shows a graph of the Fed's balance sheet and not the money supply, the supply of US dollars has never doubled in a few days. This graph from Wikipedia shows M2, which is the wider measure of money supply, to have doubled over approximately 10 years, http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg The answer to whether gold has a higher chance of experiencing big devaluation has to do with forces outside anyone's control, if a big new mine of gold is discovered that could affect prices, but also if the economy turns around it could lead investors to pull out of gold and back into the stock markets. The USD, on the other hand, is under control of the policy makers at the Fed who have a dual mandate to keep inflation and unemployment low. The Fed seems to have gotten better over the last 30 years at controlling inflation and the dollar has not experienced big inflation since the 70s. Inflation, as measured by Core CPI, has been maintained at less than 4% for the last 20 years and is currently coming off record low levels below 1%.", "title": "" }, { "docid": "1ecf92a1eef74b790a80f226f77a7c9c", "text": "The previous answers have raised very good points, but I believe one facet of this has been neglected. While it's true that the total accessible supply of gold keeps growing(although rather slowly as was mentioned earlier) the fact remains that gold, like oil, is a non-renewable natural resource. So, at some point, we are going to run out of gold to mine. Due to this fact, I believe gold will always be highly valued. Of course it can certainly always fluctuate in value. In fact, I expect in the reasonably near future to see a decline in the price of gold due to investors selling it en masse to re-enter the stock market when the economy has recovered more substantially.", "title": "" }, { "docid": "cc37e16996cab5779c8b46ce87dd4202", "text": "Does gold's value decrease over time due to the fact that it is being continuously mined? Remember that demand increases and decreases - we've had seven years or so of strong demand increase and the corresponding price increase suggests there is a lack of gold coming into the market rather than too much. Also, bear in mind that mining the stuff on any scale is hazardous and requires massive investment in infrastructure and time. Large mines frequently take seven to ten years to come on-stream - hardly an elastic enterprise.", "title": "" }, { "docid": "206aa24b94ac02bb8cfe0c5fb19932a3", "text": "There is another aspect too for the high prices of GOLD. After the current economical crisis people are no more investing in property and a big chunk of investment has been diverted to GOLD.", "title": "" }, { "docid": "06d32a236f38332d9935e7c8dbab66f6", "text": "\"Like anything else, the price/value of gold is driven by supply and demand. Mining adds about 2% a year to the supply. Then the question is, will the demand in a given year rise by more or less than 2%. ON AVERAGE, the answer is \"\"more.\"\" That may not be true in any given year, and was untrue for whole DECADES of the 1980s and 1990s, when the price of gold fell steadily. On the other hand, demand for gold has risen MUCH more than 2% a year in the 2000s, for reasons discussed by others. That is seen in the six-fold rise in price, from about $300 an ounce to $1800 an ounce over the past ten years.\"", "title": "" } ]	[ { "docid": "5f86975dd87e90730ed4af18e94a1174", "text": "I think part of the confusion is due to the age of the term and how money has changed over time relative to being backed by precious metals vs using central banks etc. Historically: Because historically the coin itself was precious metal, if a change occurred between the 'face value' of the coin and value of the precious metal itself, the holder of the coin was less affected since they have the precious metal already in hand. They could always trade it based on the metal value instead of the face value. OTOH if you buy a note worth an the current price of ounce of gold, and the price of gold goes up, and then the holder wants to redeem the note, they end up with less than an ounce of gold. In the more modern age The main concern is the cost to borrow funds to put money into circulation, or the gain when it goes out of circulation. The big difference between the two is that bills tend stay in circulation until they wear out, have to be bought back and replaced. Coins on the other hand last longer, but have a tendency to drop out of circulation due to collectors (especially with 'collectible series' coins that the mint seems to love to issue lately). This means that bills issued tend to stay in circulation, while only a percentage of coins stays in circulation. So the net effect on the money supply is different for the two, and since modern 'seigniorage' is all about the cost to put money in circulation, it is different in the case of coins where some percentage will not remain circulating.", "title": "" }, { "docid": "f416e822c8eb187414af66b992c6054d", "text": "No, it doesn't matter how powerful the machines are that do the mining. The system balances it out (increases the difficulty) so that one block is mined every 10 minutes, regardless of whether there's 500 miners in the world or 50 million, it will always be around 10 minutes (sometimes 9 and sometimes 11 though). And one block used to be 50BTC, but every 4 years this halves and so in 100 years the supply increase will be almost 0, miners will still get the transaction fees though. This means bitcoin is limited to a supply of less than 21 million. Which creates the scarcity. There's possibly a problem though. Quantum computing might not increase the supply but it could potentially decrypt the encryption, but if that happens the whole internet and digital world will be in trouble and not just bitcoin.", "title": "" }, { "docid": "9178447e3c6b7a4528522f3c1acb7cdc", "text": "If that fraction is really small, then the amount of gold can be thought of as relatively constant. That fraction is very small. After all, people have been mining gold for thousands of years. So the cumulative results of gold mining have been building up the supply for quite some time. Meanwhile, owners of gold rarely destroy it. A little bit of gold is used in some industries as a consumable. This limited consumption of gold offsets some of the production that comes from mining. But truthfully this effect is minuscule. For the most part people either hoard it like its made of gold, or sell it (after all it is worth its weight in gold). If you're interested Wikipedia lists a few more factors that affect gold prices. (If you're not interested Wikipedia lists them anyway.)", "title": "" }, { "docid": "78a404e558f1ea88df99f08429f60464", "text": "It’s an investment and a currency which is also based no less than the value it takes to mine... so yeah you’re right if people who are involved in bitcoin decide it’s not worth the time to have a currency it will become worth less than it take to mine.. but it’s worth 102b do I don’t think it’s gonna happen.", "title": "" }, { "docid": "c3c3f7d8b8ea34d9e2946cdc47094ef5", "text": "What you are seeing is the effects of inflation. As money becomes less valuable it takes more of it to buy physical things, be they commodities, shares in a company's stock, and peoples time (salaries). Just about the only thing that doesn't track inflation to some degree is cash itself or money in an account since that is itself what is being devalued. So the point of all this is, buying anything (a house, gold, stocks) that doesn't depreciate (a car) is something of a hedge against inflation. However, don't be tricked (as many are) into thinking that house just made you a tidy sum just because it went up in value so much over x years. Remember 1) All the other houses and things you'd spend the money on are a lot more expensive now too; and 2) You put a lot more money into a house than the mortgage payment (taxes, insurance, maintenance, etc.) I'm with the others though. Don't get caught up in the gold bubble. Doing so now is just speculation and has a lot of risk associated with it.", "title": "" }, { "docid": "6522950c19c9bdd002c6744ecb57c923", "text": "Gold since the ancient time ( at least when it was founded) has kept its value. for example the french franc currency was considered valuable in the years 1400~ but in 1641 lost its value. However who owned Gold back then still got value. The advantage of having gold is you can convert it to cash easily in the world. it hedges against inflation: it is value rise when inflation happend. Gold has no income,no earnings. its not like a stock or a bond. its an alternative way to store value the Disadvantages of investing in Gold Gold doesnt return income , needs physical storage and insurance, Capital gains tax rates are higher on most gold investments. the best way to invest gold when there is inflation is expected. source", "title": "" }, { "docid": "a05e4b7eb3186e433bee9ebc1234649c", "text": "There is no such thing as intrinsic value. Gold has value because it is rare and has a market. If any of those things decline, the value plunges. The question of whether gold is overvalued or not is complicated and depends on a lot of factors. The key question in my mind is: Is gold more valuable in terms of US dollars because it is becoming more valuable, or because the value of US dollars, the prevailing medium of exchange, is declining?", "title": "" }, { "docid": "9b1252f5c85ef9772c14c3b3d5c5aa05", "text": "Not at the current price. Take a look at historical charts going back five years. When the meltdown occurred in 2008, gold price took a big dip due to deleveraging, etc. I would expect the same to happen again with the current crisis.", "title": "" }, { "docid": "831c8f232d1346bee6ed25d4c736aa80", "text": "It seems that you're interested in an asset which you can hold that would go up when the gold price went down. It seems like a good place to start would be an index fund, which invests in the general stock market. When the gold market falls, this would mainly affect gold mining companies. These do not make up a sizable portion of any index fund, which is invested broadly in the market. Unfortunately, in order to act on this, you would also have to believe that the stock market was a good investment. To test this theory, I looked at an ETF index fund which tracks the S&P 500, and compared it to an ETF which invests in gold. I found that the daily price movements of the stock market were positively correlated with the price of gold. This result was statistically significant. The weekly price movements of the stock market were also correlated with the price of gold. This result was also statistically significant. When the holding period was stretched to one month, there was still a positive relationship between the stock market's price moves and the price of gold. This result was not statistically significant. When the holding period was stretched to one year, there was a negative relationship between the price changes in the stock market and the price of gold. This result was not statistically significant, either.", "title": "" }, { "docid": "f7eb02878e2ec6b0098d0bd28a1bb5d6", "text": "Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.", "title": "" }, { "docid": "b4f88ffe15068a7dd8535b515b44ec41", "text": "I own a gold mine and my cost of producing an ounce of gold is $600. Less than that, I lose money, anything over is profit. Today, at $1500, I sell futures to match my production for the next 2 years. I'm happy to lock in the profit. If gold goes to $3000, well, too bad, but if it drops to $500, I can still sell it for the $1500 as I mine it. I suppose I could also close out the contracts at a profit and still shut the mines down, but the point is illustrated.", "title": "" }, { "docid": "88c1bea5105717ac6d901d758a6518b0", "text": "Cute, but 100 years of market history will show you the fundamentals have persisted for a reason. Every industry in history has tried to pull this “but this is different” thing off (oil, gold, semiconductors) and they have ALL been brought to reality in time. There is no reason to think today is any different. There will be recessions again, there will be market crashes again, either tomorrow or 5 years from now. It always levels out.", "title": "" }, { "docid": "6ba706c8c818d2b2b72005061275a4ff", "text": "\"OK, reading between the lines here it looks like the services offered by your company are of an \"\"adult\"\" (possibly illegal?) nature and that this individual has actually paid you in full for the services rendered up to this point. The wrinkle here is that you say that you've been offered large cash \"\"gifts\"\" in return for unspecified future favours, but that your client hasn't provided a real Paypal account to do so. When you pressed him on it, he sent a fake email and invented a \"\"financial adviser\"\" to fob you off, then hasn't contacted you since. It's pretty clear that he hasn't got any intention of making these payments to you. What you're now proposing to do is to use his known banking details to collect money to cover those verbal promises. In pretty much every part of the world, that's a crime. Without a written agreement to use that payment method for those promises, he could easily call the police and have you arrested for theft of funds. The further wrinkle is that his actions (claiming to have made payment via paypal, forged email headers, etc) strongly suggest that this individual is involved in cyber-crime and may well have used a fake bank account to pay for your initial services. The bottom line here is that you need real legal advice, from an actual lawyer.\"", "title": "" }, { "docid": "a7590aea80f2cd8829cf78274c86e97e", "text": "In general you will take home more in the US than in Canada. There are so many variables that is is impossible to provide a comprehensive answer that will cover all bases: so here are a few hand-waving statements. Two example calculator web sites for Canada and the US (chosen somewhat at random through Google, show that making $50,000 of either currency for the upcoming tax year in Canada you would expect to pay about $9,100 and for the US $5,900. Missing there are the state taxes, however, which also vary wildly. The deductions, adjustment and credits in both countries can really add up, so if you have specific questions, you should consult a tax specialist. Similarly, both countries provide various tax sheltered investment structures that change the game somewhat over the long term.", "title": "" } ]	fiqa
bfce9319f50c36bb954fc53c4ccfd126	What argument(s) support the claim that long-term housing prices trend upward?	[ { "docid": "d292dce30c34660d5c840e8ce5922971", "text": "Several people have mentioned the obvious: inflation. But let's assume we are talking about real (inflation adjusted) prices. One argument is that populations keep rising while the land does not change. So the price of homes in desirable places gets pushed up and people move to second-best locations, pushing those prices up, etc. Similar Malthusian argument holds for raw materials (steel, granite, fine wood, etc.). Another argument is that the economy has a long-term upward trajectory (that's the assumption). So each generation, as a whole, has more disposable real income than the previous. As disposable income increases, people tend to put more and more money into their homes, pushing prices up. True for all goods, of course, but it may be more true for real estate than for other types of goods.", "title": "" }, { "docid": "d6e5ae4073483fc8fe8353bc8a8c31ad", "text": "The Shiller data is inflation adjusted. In effect, a flat line means that long term, housing rises with inflation, no more no less. There's no argument, just the underlying data to support his charts. This, among them. As much as I respect Nobel Prize winning Robert Shiller, his approach and analysis of the boom ignored interest rates. Say we look at a $50K earning couple. This is just below median income. At 9%, they qualify to borrow $145K. As rates fell to 4%, they qualify for $244K. Same fixed 30 term. Ignoring all other factors, the swing in rates will generate an oscillation around the long term trend. And my own data crunching suggests the equilibrium median home price will tend toward the price supported by the median income. A similar, but not identical question - Why can't house prices be out of tune with salaries? In response to Chan-Ho's comment - I'd imagine Shiller understood the interest impact. To clarify, the chart, as presented, ignores it.", "title": "" }, { "docid": "5eb94df80246aae2b4d230cca77cd1f7", "text": "It is supported by inflation and historical values. if you look at real estate as well as the stock market they have consistently increased over a long period of history even with short term drops. It is also based on inflation and the fact that the price of land and building material has increased over time.", "title": "" } ]	[ { "docid": "799a9ee5e202bf0686256b32b8c4a361", "text": "\"As Michael McGowan says, just because gold has gone up lots recently does not mean it will continue to go up by the same amount. This plot: shows that if your father had bought $20,000 in gold 30 years ago, then 10 years ago he would have slightly less than $20,000 to show for it. Compare that with the bubble in real estate in the US: Update: I was curious about JoeTaxpayer's question: how do US house prices track against US taxpayer's ability to borrow? To try to answer this, I used the house price data from here, the 30 year fixed mortgages here and the US salary information from here. To calculate the \"\"ability to borrow\"\" I took the US hourly salary information, multiplied by 2000/12 to get a monthly salary. I (completely arbitrarily) assumed that 25 per cent of the monthly salary would be used on mortgage payments. I then used Excel's \"\"PV\"\" (Present Value) function to calculate the present value of the thirty year fixed rate mortgage. The resulting graph is below. The correlation coefficient between the two plots is 0.93. There are so many caveats on what I've done in ~15 minutes, I don't want to list them... but it certainly \"\"gives one furiously to think\"\" !! Update 2: OK, so even just salary information correlates very well with the house price increases. And looking at the differences, we can see that perhaps there was a spike or bubble in house prices over and above what might be expected from salary-only or ability-to-borrow.\"", "title": "" }, { "docid": "8071a6472c0484cb470020ad36178cfc", "text": "All else constant, yes. It's one more reason rates aren't being raised quickly. The housing market is very delicate. Before the crash, a lot of homes in my area were 25% cheaper than after the rates dropped to historic lows. My area wasn't heavily affected by the recession, but homeowners still greatly benefitted from the increase in housing values which led to a lot more investment, though the houses aren't actually worth anything more. To raise rates dramatically now would be to trap a lot of homebuyers in homes that aren't worth what they owe.", "title": "" }, { "docid": "3a0cb5254e027e8494ff716f719942a4", "text": "In general, prices are inversely proportional to rates; however, accurate interest rate prediction would make one worthy of managing a large credit derivative hedge fund. This is not to say that interest rates cannot go up in Canada since the world is currently undergoing a resource bust, and the United States has begun exporting more oil, even trying to recently open the market to Europe, both of which Canada is relatively dependent upon. Also, to say that Canada currently has the most overpriced real estate is an oversight to say the least considering China currently has entire cities that are empty because prices are too high. A ten to twenty percent drop in real estate prices would probably be a full blown financial crisis, and since mortgage rates are currently around 2.5%, a one to two hundred basis point rise could mean a nearly 50% decrease in real estate prices if interest payments are held constant. Canada would either have to start growing its economy at a much higher rate to encourage the central bank to raise rates to such a height, or oil would have to completely collapse suddenly to cause a speculatively possible collapse of CAD to encourage the same. The easiest relationship to manipulate between prices and rates is the perpetuity: where p is the price, i is the interest payment, and r is the interest rate. In this case, an increase of r from 2.5% to 4.5% would cause a 44.5% decrease in p if i is held constant. However, typical Canadian mortgages seem to mature in ten years at a fixed rate, so i cannot be held constant, and the relationship between r and p is less strong at earlier maturities, thus the most likely way for prices to collapse is for a financial collapse as described above.", "title": "" }, { "docid": "bbbf2a6b23742336462b8913f03a364a", "text": "\"Your argument is biased vastly in favor of the banks: Doesn't the simultaneous growth of the residential and commercial real estate pricing bubbles undermines the case made by yourself that Fannie and Freddie were at the root of the problem? Why does your explanation also leave out predatory lending? Or that during 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchased were not intended as primary residences. Or that housing prices nearly doubled between 2000 and 2006, a vastly different trend from the historical appreciation at roughly the rate of inflation. Or that the proportion of subprime ARM loans made to people with credit scores high enough to qualify for conventional mortgages with better terms increased from 41% in 2000 to 61% by 2006. From wikipedia: So why did lending standards decline? In a Peabody Award winning program, NPR correspondents argued that a \"\"Giant Pool of Money\"\" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast. Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.\"", "title": "" }, { "docid": "d4d01c772c24800876671b6bce4ed6e4", "text": "When over the long term housing costs in a area rise faster than wages rise, the demographic of who lives in the area changes. The size and income parameters change. A region that was full of young singles is now populated with couples with adult children, that means that the businesses and amenities have to change. At a national level it isn't sustainable unless other items change. The portion of monthly income that can be safely allocated to housing would have to change. One adjustment could be the the lengthening of home loan periods, thus dropping the monthly payment. This has been seen with car loans, over the last few decades the length of loans has increased. In interesting related event could be the change in deduction of mortgage interest and property tax. If this was to change abruptly, there could be an abrupt change the estimated value of housing, because the calculus of affordability would change.", "title": "" }, { "docid": "a21425786f2006a557cb879fecabb09b", "text": "\"Meh, not really. While there was some idea that housing prices would continue to rise forever, the packaging of bad loans has nothing to do with optimism, that's outright fraud. If you really want to stretch the definition, you might be able to say they had a fantasy that they weren't going to get caught because...well they hadn't for nearly two decades. Honestly though, just google \"\"fraud housing market\"\" or \"\"mortgage banks\"\" and you'll find more than enough direct proof of fraud and deception.\"", "title": "" }, { "docid": "a5b8ace549a8b68a2fde3f9fff3db873", "text": "Haven't they been predicting this since 2012? The luxury housing market keeps going up due to huge demand, influx of $ from the economic and stock market boom, and technological epicenters of innovation such as the Bay Area. Not a bubble", "title": "" }, { "docid": "5f5fbb6159cba2de341347f02494910e", "text": "I don't buy it. The evidence offered seems weak. Stocks are pretty high, but debt in the US has decreased according to the Federal Reserve statistics concerning debt. It's true there is a little inflation in prices because of low interest rates, but as the Fed starts raising rates, there will be a correction. Not a recession.", "title": "" }, { "docid": "49992736fd22c5c34efdd7992ee2229c", "text": "The logic is that the value of America could be determined by adding up the assets of all Americans. If houses are more expensive then America is richer (we own a large number of more expensive houses), even though no additional real assets have been created (as if more houses were built).", "title": "" }, { "docid": "316aaea6c0c834ddb9550880f0674583", "text": "In any case, for sure, the wages went up... a lot... and most likely wage increases are most of the 30% increase in costs. As for consumers paying more, maybe they will get better quality, maybe they will be able to afford it now with extra income and maybe they will not raise the prices as they already have huge margins, people have choices and the real estate prices is only based on relative price of neighboring houses, used or new.", "title": "" }, { "docid": "0789f2f54cd1d242c521474bc9a7efa3", "text": "The history of the last 100 years has demonstrated that inflation need not be a straight-line advance in price across the board. New technology has delivered productivity gains which have in many cases compensated for inflation. Keep in mind that price changes may be inflationary, but may not attributable to inflation. For example, the massive swing upward in gasoline prices had more to do with the market, specifically Chinese demand for gas than inflation. But increased fuel costs trickle into the prices of other commodities that we need to buy as well!", "title": "" }, { "docid": "9673cb5d7b07b8fa7af7568ef4082cda", "text": "I mentioned in other posts that it's not unreasonable that prices might rise slightly. Demand would go up and some labor costs would as well. To your point, I can say that prices would not go up 1:1, that's an absurd hypothesis that doesn't stand up to even a sniff test.", "title": "" }, { "docid": "0d5aab7d69f4d7dcc600f2e8dffe876e", "text": "\"House prices do not go up. Land prices in countries with growing economies tend to go up. The price of the house on the land generally depreciates as it wears out. Houses require money; they are called money pits for a reason. You have to replace HVAC periodically, roofs, repairs, rot, foundation problems, leaks, electrical repair; and all of that just reduces the rate at which the house (not the land) loses value. To maintain value (of the house proper), you need to regularly rebuild parts of the house. People expect different things in Kitchens, bathrooms, dining rooms, doors, bedrooms today than they do in the past, and wear on flooring and fixtures accumulate over time. The price of land and is going to be highly determined by the current interest rates. Interest rates are currently near zero; if they go up by even a few percent, we can expect land prices to stop growing and start shrinking, even if the economy continues to grow. So the assumption that land+house prices go up is predicated on the last 35 years of constant rigorous economic growth mixed with interest rate decreases. This is a common illusion, that people assume the recent economic past is somehow the way things are \"\"naturally\"\". But we cannot decrease interest rates further, and rigorous economic growth is far from guaranteed. This is because people price land based on their carrying cost; the cost you have to spend out of your income to have ownership of it. And that is a function of interest rates. Throw in no longer expecting land values to constantly grow and second-order effects that boost land value also go away. Depending on the juristiction, a mortgage is a hugely leveraged investment. It is akin to taking 10,000$, borrowing 40,000$ and buying stock. If the stock goes up, you make almost 5x as much money; if it goes down, you lose 5x as much. And you owe a constant stream of money to service the debt on top of that. If you want to be risk free, work out how you'd deal with the value of your house dropping by 50% together with losing your job, getting a job paying half as much after a period of 6 months unemployment. The new job requires a 1.5 hour commute from your house. Interest rates going up to 12% and your mortgage is up for renewal (in 15 years - they climbed gradually over the time, say), optionally. That is a medium-bad situation (not a great depression scale problem), but is a realistic \"\"bad luck\"\" event that could happen to you. Not likely, but possible. Can you weather it? If so, the risk is within your bounds. Note that going bankrupt may be a reasonable plan to such a bit of bad luck. However, note that had you not purchased the house, you wouldn't be bankrupt in that situation. It is reasonably likely that house prices will, after you spend ~3% of the construction cost of the house per year, pay the mortgage on the land+house, grow at a rate sufficient to offset the cost of renting and generate an economically reasonable level of profit. It is not a risk-free investment. If someone tries to sell you a risk-free investment, they are almost certainly wrong.\"", "title": "" }, { "docid": "5899a75c9942cfffea9c6cdb3cbf77ab", "text": "The big problem with your argument is the 10% per year figure, because in the long term (especially if adjusted for inflation) the prices have not been going up nearly that fast. Here is a site with some nice graphs for prices over the last 40 years, and it's pretty clear to see that pretty much just what you were talking about happened, prices outpaced the ability of people to pay, which progressively locked out more and more first time buyers, and eventually that breaks the cycle, pops the bubble, and the prices adjust. There is always of course the choice to NOT buy a house, and just rent, or if you had the feeling that you are near the top of a bubble, SELL and go back to renting. It's interesting to note that in general, rental rates did not increase at nearly the same pace as the prices in the recent bubble. (which of course made it harder for anyone who bought 'investment' properties in the recent 8 years or so to cover their payments via rental revenue.)", "title": "" }, { "docid": "9c0bd52e79978f8c6e0af02469a87a93", "text": "\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\"", "title": "" } ]	fiqa
ae0477f74e680e16814dedc53e12e5e1	Is this investment opportunity problematic?	[ { "docid": "252fb12b2398e3e815babe758c4075bf", "text": "\"It would have to be made as a \"\"gift\"\", and then the return would be a \"\"gift\"\" back to you, because you're not allowed to use a loan for a down payment. This is not to evade taxes. This is to evade a credit check. The problem is that banks don't like people to have too much debt. The bank could void the loan and go after your friends for damages under certain circumstances, as this is a fraud on the bank. Perhaps you might be guilty of conspiracy to commit fraud or similar. I'm willing to assume for the sake of argument that there is zero chance of your friend not paying you back intentionally. But even so, there are still potential problems. What if your friends end up without the money to pay? Worse, what if something happens to them? This is an off-books transaction. You couldn't make a claim against the estate, as there can't be a paper trail. You'd be left out the money in those circumstances. You'd both be safer if your friends saved up for the next opportunity rather than trying to grab this one. An alternative would be to buy a share of their current rental house. That would give them the necessary money and would give you paper showing your money. It's not a gift, it's a purchase. You'd have to pay capital gains tax on the 15% profit that they're promising you. But you'd both be above board and honest.\"", "title": "" }, { "docid": "b068ed80d2622176669138ee89886956", "text": "\"Your Spidey senses are good. A good friend would not put you in such a position. It's simple, to skirt some issue (we'll get to that in a second) you are being asked to lie. All for a 15% return on your $$$$. <<< How much is that? You can easily lend him the money, and have a better paper trail. But the bank is not going to like that, and requires this money from friends or family to be a gift. I've heard mortgage guys at the bank say \"\"It's just a formality, we need this paperwork to sell the loan to the investors.\"\" These bankers belong in jail, or at least fired and barred from the industry. They broke the economy in 2008, and should be stopped from doing it again.\"", "title": "" }, { "docid": "480ec478caaa8b8c37c1ddcd0dd3c218", "text": "If you can separate the following two points, and live with them. I think you are good to go ahead. Otherwise I would seriously recommend you to reconsider. Are you willing to give out this much money help a friend assuming that you will never get it back? This is what it means to give a gift, don't let their current intentions distract you from this. Will you be happy to wait as long as it takes till he is able and willing to give you some money? Is it ok if this moment never occurs, or would you feel like the money belongs to you already? This is what it means to receive the promise of a gift, don't get distracted by the fact that you may have given them something before. I don't have a legal background, but if you actually give the money to him so he can buy a house, without demanding something in return, I would judge that you are at least morally ok. (And if the transaction is in cash and fully deniable, you are probably not going to face legal problems in practice).", "title": "" }, { "docid": "69cf9c7daa08918e2890331a8d1b7f07", "text": "Adding to what others have said, if the mortgage for the new house is backed by the federal government (e.g., through FHA or is to be sold to Fannie Mae/Freddie Mac) you would be violating 18 USC § 1001, which makes making intentionally false statements to any agent or branch of the federal government a crime punishable by up to 5 years' imprisonment. The gift letter you are required to sign will warn you of as much. Don't do it, it's not worth the risk of prison time.", "title": "" }, { "docid": "896be0b7de9735410139e90a43cb3306", "text": "\"As an investment opportunity: NO. As a friendly assist with money you don't mind ever getting back, legal depending on amount. A few years back I was in the housing market myself and researching interest rates and mortgages. For one property I was very interested in, I would need about $4K extra in liquid cash to complete the down-payment. A pair of options I saw were a \"\"combo loan\"\" 15yr 4% interest for the house, 1yr 8% interest for the $4K. Alternately, the \"\"bank of mom and dad\"\" could offer the 4K loan for a much lower rate. The giftable limit where reporting is not required was $12,000 at the time I did the review. IRS requires personal loans to be counted as having interest at the commercial rate. Thus an interest free loan of $10K with commercial interest rate of 1% (for easy math) would be counted as a gift of $10,100 for that calendar year. Disclaimer: Ultimately, I did not use this approach and did not have it subjected to a legal review.\"", "title": "" }, { "docid": "3f7daeb76a5bac2d245bcac8cf109e91", "text": "Every time I have loaned money to family members I have never gotten the money back. If they can't make the down payment, they should not be taking out the loan. It's a bad idea to loan money to friends, because when they can't pay you back (which might be forever) they avoid you. So, you lose both your money and your friends.", "title": "" }, { "docid": "928f578d51d5e2b352fe5022b90e524e", "text": "If they own the old house outright, they can mortgage it to you. In many jurisdictions this relieves you of the obligation to chase for payment, and of any worry that you won't get paid, because a transfer of ownership to the new owner cannot be registered until any charge against a property (ie. a mortgage) has been discharged. The cost of to your friends of setting up the mortgage will be less than the opulent interest they are offering you, and you will both have peace of mind. Even if the sale of the old house falls through, you will still be its mortgagee and still assured of repayment on any future sale (or even inheritance). Complications arise if the first property is mortgaged. Although second mortgages are possible (and rank behind first mortgages in priority of repayment) the first mortgagee generally has a veto on the creation of second mortgages.", "title": "" }, { "docid": "9db2c338b8dbdf5f17823a3a1c9df309", "text": "it seems you have 3 concerns:", "title": "" }, { "docid": "b1e115ac713a46e238a12376ba07844d", "text": "\"It would have to be made as a \"\"gift\"\", and then the return would be a \"\"gift\"\" back to you, because you're not allowed to use a loan for a down payment. I see some problems, but different ones than you do: One more question: is the market really hot right now? It was quite cold for the last few years.\"", "title": "" } ]	[ { "docid": "576946d9e5b614b7760a6fa9ea847863", "text": "3-5 years is long enough of a timeframe that I'd certainly invest it, assuming you have enough (which $10k is). Even conservatively you can guess at 4-5% annual growth; if you invest reasonably conservatively (60/40 mix of stocks/bonds, with both in large ETFs or similar) you should have a good chance to gain along those lines and still be reasonably safe in case the market tanks. Of course, the market could tank at any time and wipe out 20-30% of that or even more, even if you invest conservatively - so you need to think about that risk, and decide if it's worth it or not. But, particularly if your 3-5 year time frame is reasonably flexible (i.e., if in 2019 the market tanks, you can wait the 2-3 years it may take to come back up) you should be investing. And - as usual, the normal warnings apply. Past performance is not a guarantee of future performance, we are not your investment advisors, and you may lose 100% of your investment...", "title": "" }, { "docid": "e469fecddb9bac73a2d315a66af0ca53", "text": "\"There will be many who will judge your proposal on the idea that subsidized loans should be available to those who need them, and should not be used by others who are simply trying to profit from them. Each school has a pool of money available to offer for subsidized and unsubsidized loans. If they are giving you a subsidized loan, they cannot allocate it to someone else who needs it. Once you weigh the investment risks, I agree that it is analogous to investing rather than repaying your mortgage quickly. If you understand the risks, there's no reason why you shouldn't consider other options about what to do with the money. I am more risk averse, so I happen to prefer paying down the mortgage quickly after all other investment/savings goals have been met. Where you fit on that continuum will answer the question of whether or not it is a \"\"bad idea\"\".\"", "title": "" }, { "docid": "7967202b7921329aed481174711eebb7", "text": "Turukawa's answer is quite good, and for your own specific situation, you might begin by being sceptical about what you are getting for investing a few thousand dollars. With the exception of Paul Graham's Y-Combinator, there are very few opportunities to invest at that type of level, and Y-Combinator provides a lot of other assistance besides their modest initial investment. I can tell from your post that you think like an investor. It is highly unlikely that the entrepreneurial programmers that you will be backing will be wired that way. From the modest amount that you are investing, you are unlikely to be the lead investor in this opportunity. If you are interested in proceeding, simply stick along for the ride, examining the terms and documents that more significant investors will be demanding. Remain positive and supportive, but simply wait to sign on the dotted line until others have done the heavy lifting. For more insights into startups themselves, see Paul Graham's essays at www.paulgraham.com. He's the real deal, and his recent essays will provide you with current insights about software startups. Good luck.", "title": "" }, { "docid": "3fd1f453fdf50f3d43731985b8d1c9bb", "text": "Moreover the fact that they're simply invested in two of the biggest emerging market ETFs which preform well with global stability but are overall kinda risky long term goes to show that it's not some unheard of success. As you said, the proving ground will be whether they can make money in a down economy, where it's much harder to find profitable investments. Perhaps they'll switch to bonds and commodities.", "title": "" }, { "docid": "9d917c533e1f467fdc043cc786853554", "text": "The ROI percentage becomes a meaningless figure at that point and would either be infinite or a very large number if you assume an equity investment of $1 or $0.01. At that point it's obviously a lucrative deal as long as it works out so the bigger question is what are the risks of it not working out and what's the ROIC.", "title": "" }, { "docid": "58b4d3e97ef5bd7787febc8e5c69e50a", "text": "Let us consider the risks in the investment opportunities: Now, what are the returns in each of the investment: What are the alternatives to these investments, then?", "title": "" }, { "docid": "c652c2523de64598f681875cf8629f17", "text": "If it's a low margin business and you can get value for it that's higher than the leadership values it, and they have some opportunity in a better margin business but for some reason couldn't acquire debt funding or more investors to fund the new business; then it might be feasible, but unusual and probably not ideal.", "title": "" }, { "docid": "afe6a50f6ffa99608a6aa9f1d64bd178", "text": "Could somebody explain to me exactly why the writer doesn't think this is a win for passive investing? Aren't 'this could happen' statements only relevant to active managers so if you already believe that active investing is more successful than passive then of course you'll just fit this situation to 'there is still potential for major loss, the S&P has tanked x many times' because you believe that there are predictable patterns in markets while the passive investor says that isn't true.", "title": "" }, { "docid": "e2900a922d243bb2b0282f4fcec6579b", "text": "\"no way -- he suggests that if you don't have an edge, no one needs to play the game. He doesn't like the idea of a \"\"lesser bad\"\" way to invest (MPT). If you do decide to get involved in investing, then it's about absolute performance, not relative. He believes that the whole relative performance thing -- beating some arbitrary benchmark -- is just an artificial construct.\"", "title": "" }, { "docid": "80a3941ace08ac4c021617da3e0f6e2b", "text": "\"It sounds like a great opportunity, but like any opportunity you need to do your research and give it a thorough evaluation. Although the current owner may be your friend, don't let emotion get in the way of a fair and honest assessment. Some general things you need to consider: Past financial data of the pizza restaurant - if you are going to invest, you want your investment to pay off and to be profitable. What are the historical earnings?If you take management of the pizza restaurant are there things you can do to cut costs/increase profits? Understand the competition that is around the area, does your pizza restaurant have a competitive edge that will enable to succeed in another location? Do you enjoy working there? Would you enjoy working there more than the prospective work you would do as a welder? Finally if you want to invest, what kind of investment structure? What are your rights as a shareholder? What is your ownership stake? What happens in the case of share dilution? Going back to financials, how long do you estimate conservatively that you will be able to make back the principal investment. Now referring to your other question of \"\"is it worth the risk to give up guaranteed money\"\"... It is harder and harder for younger people like you and I to depend solely on fixed salary jobs. If you want financial success, you want to build assets for yourself that generates income without you expressly there recording your hours on a time-card. No money is ever guaranteed. There are many risks associated with a person's whose only source of income is from his day job. Finally, you don't necessarily have to put up the investment with your own money and give up school. You could look for other investors or take a loan on the business to open a new store. There's nothing wrong leveraging debt - it will help you save tax money. Anyways I'm glad you've found this opportunity. Remember to always think big but be smart about it too! P.S. If you want to pm me any specifics for me to look at in terms of financials or legal stuff I'd be more than happy to help a brother out.\"", "title": "" }, { "docid": "62805ccdb9c6fbf48715ce3709ffaa39", "text": "I think the main question is whether the 1.5% quarterly fee is so bad that it warrants losing $60,000 immediately. Suppose they pull it out now, so they have 220000 - 60000 = $160,000. They then invest this in a low-cost index fund, earning say 6% per year on average over 10 years. The result: Alternatively, they leave the $220,000 in but tell the manager to invest it in the same index fund now. They earn nothing because the manager's rapacious fees eat up all the gains (4*1.5% = 6%, not perfectly accurate due to compounding but close enough since 6% is only an estimate anyway). The result: the same $220,000 they started with. This back-of-the-envelope calculation suggests they will actually come out ahead by biting the bullet and taking the money out. However, I would definitely not advise them to take this major step just based on this simple calculation. Many other factors are relevant (e.g., taxes when selling the existing investment to buy the index fund, how much of their savings was this $300,000). Also, I don't know anything about how investment works in Hong Kong, so there could be some wrinkles that modify or invalidate this simple calculation. But it is a starting point. Based on what you say here, I'd say they should take the earliest opportunity to tell everyone they know never to work with this investment manager. I would go so far as to say they should look at his credentials (e.g., see what kind of financial advisor certification he has, if any), look up the ethical standards of their issuers, and consider filing a complaint. This is not because of the performance of the investments -- losing 25% of your money due to market swings is a risk you have to accept -- but because of the exorbitant fees. Unless Hong Kong has got some crazy kind of investment management market, charging 1.5% quarterly is highway robbery; charging a 25%+ for withdrawal is pillage. Personally, I would seriously consider withdrawing the money even if the manager's investments had outperformed the market.", "title": "" }, { "docid": "46c9f0d3d1b4ccabea1124258eda375c", "text": "\"You're \"\"onto\"\" something. Investing in real estate was not a bad idea about 10-15 years ago, when stocks were high, and real estate was not. On the other hand, by about 2006, BOTH stocks and real estate were high, and should have been avoided. And around 1980, both were LOW, and should have been bought. I expand this construct to include gold and oil. Around 2005, these were relatively low, and should have been bought over stocks and real estate. On the other hand, ALL FOUR are high right now, and offer comparable dangers.\"", "title": "" }, { "docid": "27956ee0d314fb8c8e1a361b3b04ae07", "text": "I would say your decision making is reasonable. You are in the middle of Brexit and nobody knows what that means. Civil society in the United States is very strained at the moment. The one seeming source of stability in Europe, Germany, may end up with a very weakened government. The only country that is probably stable is China and it has weak protections for foreign investors. Law precedes economics, even though economics often ends up dictating the law in the long run. The only thing that may come to mind is doing two things differently. The first is mentally dropping the long-term versus short-term dichotomy and instead think in terms of the types of risks an investment is exposed to, such as currency risk, political risk, liquidity risk and so forth. Maturity risk is just one type of risk. The second is to consider taking some types of risks that are hedged either by put contracts to limit the downside loss, or consider buying longer-dated call contracts using a small percentage of your money. If the underlying price falls, then the call contracts will be a total loss, but if the price increases then you will receive most of the increase (minus the premium). If you are uncomfortable purchasing individual assets directly, then I would say you are probably doing everything that you reasonably can do.", "title": "" }, { "docid": "e97dd86a3520192f5e14722856c990a9", "text": "\"It is not a \"\"riskless\"\" transaction, as you put it. Whenever you own shares in a company that is acquiring or being acquired, you should read the details behind the deal. Don't make assumptions just based on what the press has written or what the talking heads are saying. There are always conditions on a deal, and there's always the possibility (however remote) that something could happen to torpedo it. I found the details of the tender offer you're referring to. Quote: Terms of the Transaction [...] The transaction is subject to certain closing conditions, including the valid tender of sufficient shares, which, when added to shares owned by Men’s Wearhouse and its affiliates, constitute a majority of the total number of common shares outstanding on a fully-diluted basis. Any shares not tendered in the offer will be acquired in a second step merger at the same cash price as in the tender offer. [...] Financing and Approvals [...] The transaction, which is expected to close by the third quarter of 2014, is subject to satisfaction of customary closing conditions, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Act. Both Men’s Wearhouse and Jos. A. Bank are working cooperatively with the Federal Trade Commission to obtain approval of the transaction as soon as possible. [...] Essentially, there remains a small chance that one of these \"\"subject to...\"\" conditions fails and the merger is off. The chance of failure is likely perceived as small because the market price is trading close to the deal price. When the deal vs. market price gap is wider, the market would be less sure about the deal taking place. Note that when you tender your shares, you have not directly sold them when they are taken out of your account. Rather, your shares are being set aside, deposited elsewhere so you can no longer trade them, and later, should the conditions be satisfied, then you will be paid for your shares the deal price. But, should the deal fall apart, you are likely to get your shares deposited back into your account, and by that time their market value may have dropped because the price had been supported by the high likelihood of the transaction being completed. I speculated once on what I thought was a \"\"sure deal\"\": a large and popular Canadian company that was going to be taken private in a leveraged buyout by some large institutional investors with the support of major banks. Then the Global Financial Crisis happened and the banks were let off the hook by a solvency opinion. Read the details here, and here. What looked like a sure thing wasn't. The shares fell considerably when the deal fell apart, and took about four years to get back to the deal price.\"", "title": "" }, { "docid": "5d2b124795bc36a1421cb615e4b3ab19", "text": "\"Can you easily stomach the risk of higher volatility that could come with smaller stocks? How certain are you that the funds wouldn't have any asset bloat that could cause them to become large-cap funds for holding to their winners? If having your 401(k) balance get chopped in half over a year doesn't give you any pause or hesitation, then you have greater risk tolerance than a lot of people but this is one of those things where living through it could be interesting. While I wouldn't be against the advice, I would consider caution on whether or not the next 40 years will be exactly like the averages of the past or not. In response to the comments: You didn't state the funds so I how I do know you meant index funds specifically? Look at \"\"Fidelity Low-Priced Stock\"\" for a fund that has bloated up in a sense. Could this happen with small-cap funds? Possibly but this is something to note. If you are just starting to invest now, it is easy to say, \"\"I'll stay the course,\"\" and then when things get choppy you may not be as strong as you thought. This is just a warning as I'm not sure you get my meaning here. Imagine that some women may think when having a child, \"\"I don't need any drugs,\"\" and then the pain comes and an epidural is demanded because of the different between the hypothetical and the real version. While you may think, \"\"I'll just turn the cheek if you punch me,\"\" if I actually just did it out of the blue, how sure are you of not swearing at me for doing it? Really stop and think about this for a moment rather than give an answer that may or may not what you'd really do when the fecal matter hits the oscillator. Couldn't you just look at what stocks did the best in the last 10 years and just buy those companies? Think carefully about what strategy are you using and why or else you could get tossed around as more than a few things were supposed to be the \"\"sure thing\"\" that turned out to be incorrect like the Dream Team of Long-term Capital Management, the banks that were too big to fail, the Japanese taking over in the late 1980s, etc. There are more than a few times where things started looking one way and ended up quite differently though I wonder if you are aware of this performance chasing that some will do.\"", "title": "" } ]	fiqa
76ac02fcb568a8aae4b9900a12f8be08	How do I hedge properly against inflation and other currency risks?	[ { "docid": "5d94ae385472b5e5bc693de99ac90847", "text": "I apply what you term 'money' to the word 'commodity'. And I agree with littleadv, you are just selling us your perspective on (such things as) precious metals. What I want you to think about is these truths: When used as currency gold just has two values: utility value and currency value. I hold it is better to separate the two. There is not enough gold in the earth to represent the value in aggregate economies of the world. Trying to go back to the gold standard would only induce an unimaginable hyperinflation in gold. Recent years shows that gold does not retain value. See the linked chart.", "title": "" } ]	[ { "docid": "f24297fb61becba24d76ac71c8ec800e", "text": "\"This is an old post I feel requires some more love for completeness. Though several responses have mentioned the inherent risks that currency speculation, leverage, and frequent trading of stocks or currencies bring about, more information, and possibly a combination of answers, is necessary to fully answer this question. My answer should probably not be the answer, just some additional information to help aid your (and others') decision(s). Firstly, as a retail investor, don't trade forex. Period. Major currency pairs arguably make up the most efficient market in the world, and as a layman, that puts you at a severe disadvantage. You mentioned you were a student—since you have something else to do other than trade currencies, implicitly you cannot spend all of your time researching, monitoring, and investigating the various (infinite) drivers of currency return. Since major financial institutions such as banks, broker-dealers, hedge-funds, brokerages, inter-dealer-brokers, mutual funds, ETF companies, etc..., do have highly intelligent people researching, monitoring, and investigating the various drivers of currency return at all times, you're unlikely to win against the opposing trader. Not impossible to win, just improbable; over time, that probability will rob you clean. Secondly, investing in individual businesses can be a worthwhile endeavor and, especially as a young student, one that could pay dividends (pun intended!) for a very long time. That being said, what I mentioned above also holds true for many large-capitalization equities—there are thousands, maybe millions, of very intelligent people who do nothing other than research a few individual stocks and are often paid quite handsomely to do so. As with forex, you will often be at a severe informational disadvantage when trading. So, view any purchase of a stock as a very long-term commitment—at least five years. And if you're going to invest in a stock, you must review the company's financial history—that means poring through 10-K/Q for several years (I typically examine a minimum ten years of financial statements) and reading the notes to the financial statements. Read the yearly MD&A (quarterly is usually too volatile to be useful for long term investors) – management discussion and analysis – but remember, management pays themselves with your money. I assure you: management will always place a cherry on top, even if that cherry does not exist. If you are a shareholder, any expense the company pays is partially an expense of yours—never forget that no matter how small a position, you have partial ownership of the business in which you're invested. Thirdly, I need to address the stark contrast and often (but not always!) deep conflict between the concepts of investment and speculation. According to Seth Klarman, written on page 21 in his famous Margin of Safety, \"\"both investments and speculations can be bought and sold. Both typically fluctuate in price and can thus appear to generate investment returns. But there is one critical difference: investments throw off cash flow for the benefit of the owners; speculations do not. The return to the owners of speculations depends exclusively on the vagaries of the resale market.\"\" This seems simple and it is; but do not underestimate the profound distinction Mr. Klarman makes here. (and ask yourself—will forex pay you cash flows while you have a position on?) A simple litmus test prior to purchasing a stock might help to differentiate between investment and speculation: at what price are you willing to sell, and why? I typically require the answer to be at least 50% higher than the current salable price (so that I have a margin of safety) and that I will never sell unless there is a material operating change, accounting fraud, or more generally, regime change within the industry in which my company operates. Furthermore, I then research what types of operating changes will alter my opinion and how severe they need to be prior to a liquidation. I then write this in a journal to keep myself honest. This is the personal aspect to investing, the kind of thing you learn only by doing yourself—and it takes a lifetime to master. You can try various methodologies (there are tons of books) but overall just be cautious. Money lost does not return on its own. I've just scratched the surface of a 200,000 page investing book you need to read if you'd like to do this professionally or as a hobbyist. If this seems like too much or you want to wait until you've more time to research, consider index investing strategies (I won't delve into these here). And because I'm an investment professional: please do not interpret anything you've read here as personal advice or as a solicitation to buy or sell any securities or types of securities, whatsoever. This has been provided for general informational purposes only. Contact a financial advisor to review your personal circumstances such as time horizon, risk tolerance, liquidity needs, and asset allocation strategies. Again, nothing written herein should be construed as individual advice.\"", "title": "" }, { "docid": "4716c4aba4846bb7b7f17bbdd83f777e", "text": "I will just try to come up with a totally made up example, that should explain the dynamics of the hedge. Consider this (completely made up) relationship between USD, EUR and Gold: Now lets say you are a european wanting to by 20 grams of Gold with EUR. Equally lets say some american by 20 grams of Gold with USD. Their investment will have the following values: See how the europeans return is -15.0% while the american only has a -9.4% return? Now lets consider that the european are aware that his currency may be against him with this investment, so he decides to hedge his currency. He now enters a currency-swap contract with another person who has the opposite view, locking in his EUR/USD at t2 to be the same as at t0. He now goes ahead and buys gold in USD, knowing that he needs to convert it to EUR in the end - but he has fixed his interestrate, so that doesn't worry him. Now let's take a look at the investment: See how the european now suddenly has the same return as the American of -9.4% instead of -15.0% ? It is hard in real life to create a perfect hedge, therefore you will most often see that the are not totally the same, as per Victors answer - but they do come rather close.", "title": "" }, { "docid": "e92a5e3cfe7db5a782b9931710ff389d", "text": "\"You might find some of the answers here helpful; the question is different, but has some similar concerns, such as a changing economic environment. What approach should I take to best protect my wealth against currency devaluation & poor growth prospects. I want to avoid selling off any more of my local index funds in a panic as I want to hold long term. Does my portfolio balance make sense? Good question; I can't even get US banks to answer questions like this, such as \"\"What happens if they try to nationalize all bank accounts like in the Soviet Union?\"\" Response: it'll never happen. The question was what if! I think that your portfolio carries a lot of risk, but also offsets what you're worried about. Outside of government confiscation of foreign accounts (if your foreign investments are held through a local brokerage), you should be good. What to do about government confiscation? Even the US government (in 1933) confiscated physical gold (and they made it illegal to own) - so even physical resources can be confiscated during hard times. Quite a large portion of my foreign investments have been bought at an expensive time when our currency is already around historic lows, which does concern me in the event that it strengthens in future. What strategy should I take in the future if/when my local currency starts the strengthen...do I hold my foreign investments through it and just trust in cost averaging long term, or try sell them off to avoid the devaluation? Are these foreign investments a hedge? If so, then you shouldn't worry if your currency does strengthen; they serve the purpose of hedging the local environment. If these investments are not a hedge, then timing will matter and you'll want to sell and buy your currency before it does strengthen. The risk on this latter point is that your timing will be wrong.\"", "title": "" }, { "docid": "9ae6bb4df00454b020003c9348baf8aa", "text": "QE2 will mean that there are about $500 billion dollars in existence which weren't there before. These dollars will all be competing with the existing dollars for real goods and services, so each dollar will be worth a little less, and prices will rise a little. This is inflation. You can probably expect 1.5%-2% annual inflation for the US dollar over the next several years (the market certainly does in the aggregate, anyway). This is in terms of US-based goods and services. QE2 will also reduce the amount of other currencies you can get for the same dollar amount. The extent to which this will occur is less clear, in part because other currencies are also considering quantitative easing. Your long-term savings should probably not be in cash anyway, because of the low returns; this will probably affect you far more than the impact of quantitative easing. As for your savings which do remain in cash, what you should do with them depends on how you plan to dispose of them. The value of a currency is usually pretty stable in terms of the local economy's output of goods and services - it's the value in international trade which tends to fluctuate wildly. If you keep your savings in the same currency you plan to spend them in, they should be able to maintain their value decently well in the intermediate term.", "title": "" }, { "docid": "625c51b04a0f46376f261af653ae8fa1", "text": "If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are].", "title": "" }, { "docid": "97d606e1bf5eedca0cde9f1fecfc9618", "text": "\"This is basically martingale, which there is a lot of research on. Basically in bets that have positive expected value such as inflation hedged assets this works better over the long term, than bets that have negative expected value such as table games at casinos. But remember, whatever your analysis is: The market can stay irrational longer than you can stay solvent. Things that can disrupt your solvency are things such as options expiration, limitations of a company's ability to stay afloat, limitations in a company's ability to stay listed on an exchange, limitations on your borrowings and interest payments, a finite amount of capital you can ever acquire (which means there is a limited amount of times you can double down). Best to get out of the losers and free up capital for the winners. If your \"\"trade\"\" turned into an \"\"investment\"\", ditch it. Don't get married to positions.\"", "title": "" }, { "docid": "8cbaac28f85c1a41795da8ba70e687a0", "text": "Well, if you only own the option, you are only limited to loosing the premium. With futures, at least with the brokers I talked to, most of the time you need to sign a margin contract just to trade futures. I don't want to go into debt, and I don't think I would do too well to be fairly honest. I am a college student, and want to limit my risk, and so just trading the option would help me get access to the commodity markets without having to get margin like many brokers want me to do. I am not trying to do any hedging or anything (which I am aware you can do). All I want to do is do an inflation trade, and I believe commodities are the best way. To me honest, if I had my way I would just buy and hold, and that is the strategy I want to emulate closest, even though I know I can't hold it forever. Basically, I want to avoid debt, but still trade commodities.", "title": "" }, { "docid": "7c8efa7e30d1a1a11545c2646d55c6bd", "text": "\"If you are concerned about inflation, here are a couple of \"\"TIPS\"\". You can buy a mutual fund or ETF which adjusts for inflation. Here is one link which you may find useful: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2010/12/02/etf-basics-how-to-fight-inflation\"", "title": "" }, { "docid": "4eebea777d8fc8c1f31f729b64e7cd2b", "text": "Now I remember why I don't read zero hedge. Allow me to summarize: 1) lots of people who write articles said so 2) Brazil concluded a currency deal with the Chinese government. Until China is willing to allow relatively free capital flows they just won't be able make it a major reserve currency. If political risk in all major reserve currencies is a problem, gold provides a better option than a country with an even more interventionist streak than the countries you're worried about. The final chart is just absurd. I'll leave it as an exercise to the readeea .", "title": "" }, { "docid": "ff355ec9fab54d9fe94d3a6baa313515", "text": "Let's make a few assumptions: You have several ways of achieving (almost) that, in ascending complexity: Note that each alternative will have a cost which can be small (forwards, futures) or large (CFDs, debit) and the hedge will never be perfect, but you can get close. You will also need to decide whether you hedge the unrealised P&L on the position and at what frequency.", "title": "" }, { "docid": "26319fad3c7c2643b6c4d66d4084a2d5", "text": "1) The risks are that you investing in financial markets and therefore should be prepared for volatility in the value of your holdings. 2) You should only ever invest in financial markets with capital that you can reasonably afford to put aside and not touch for 5-10 years (as an investor not a trader). Even then you should be prepared to write this capital off completely. No one can offer you a guarantee of what will happen in the future, only speculation from what has happened in the past. 3) Don't invest. It is simple. Keep your money in cash. However this is not without its risks. Interest rates rarely keep up with inflation so the spending power of cash investments quickly diminishes in real terms over time. So what to do? Extended your time horizon as you have mentioned to say 30 years, reinvest all dividends as these have been proven to make up the bulk of long term returns and drip feed your money into these markets over time. This will benefit you from what is known in as 'dollar cost averaging' and will negate the need for you to time the market.", "title": "" }, { "docid": "6207d6f6b6c4c84fc02c0153c0fc89f6", "text": "I would strongly recommend investing in assets and commodities. I personally believe fiat money is losing its value because of a rising inflation and the price of oil. The collapse of the euro should considerably affect the US currency and shake up other regions of the world in forex markets. In my opinion, safest investment these days are hard assets and commodities. Real estate, land, gold, silver(my favorite) and food could provide some lucrative benefits. GL mate!", "title": "" }, { "docid": "6d9723d9c0973eba47a049d0c9b17649", "text": "Different risks require different hedges. You won't find a single hedge that will protect you against any risk. The best way to think about this is who would benefit if those events occurred? Those are the people you want to invest in. So if a war broke out, who would benefit? Defense contractors. Security companies. You get the idea. You also need to think about if you really need to hedge against those things now or not. For example, I wouldn't bother to hedge against global warming or peak oil. It's not like one morning you're going to wake up, turn on CNNfn and see that the stock market is down 500 points because global warming or peak oil just hit. These are things that happen gradually and you can react to them gradually as they happen.", "title": "" }, { "docid": "1e1a355598fe228c3a2011f9a52fdfd1", "text": "\"I think it's apt to remind that there's no shortcuts, if someone thinks about doing FX fx: - negative sum game (big spread or commissions) - chaos theory description is apt - hard to understand costs (options are insurance and for every trade there is equivalent option position - so unless you understand how those are priced, there's a good chance you're getting a \"\"sh1tty deal\"\" as that Goldman guy famously said) - averaging can help if timing is bad but you could be just getting deeper into the \"\"deal\"\" I just mentioned and giving a smarter counterparty your money could backfire as it's the \"\"ammo\"\" they can use to defend their position. This doesn't apply to your small hedge/trade? Well that's what I thought not long ago too! That's why I mentioned chaos theory. If you can find a party to hedge with that is not hedging with someone who eventually ends up hedging with JPM/Goldman/name any \"\"0 losing days a year\"\" \"\"bank\"\".. Then you may have a point. And contrary to what many may still think, all of the above applies to everything you can think of that has to do with money. All the billions with 0-losing days need to come from somewhere and it's definitely not coming just from couple FX punters.\"", "title": "" }, { "docid": "fb7d5856aacec43324d7bec156957748", "text": "Evaluating the value of currencies is always difficult because you are usually at the mercy of a central bank that can print new currency on a whim. I am trying to diversify my currency holdings but it is difficult to open foreign bank accounts without actually being in the foreign country. Any ideas here? You don't indicate which currencies you own but I would stick with your diversified portfolio of currencies and add some physical assets as a hedge against the fiat currencies.", "title": "" } ]	fiqa
81a2caffbc15778032f5da61c6a70ec6	Why does gold have value?	[ { "docid": "029604fb1bc4681115e58f3ce904a708", "text": "Gold's value starts with the fact that its supply is steady and by nature it's durable. In other words, the amount of gold traded each year (The Supply and Demand) is small relative to the existing total stock. This acting as a bit of a throttle on its value, as does the high cost of mining. Mines will have yields that control whether it's profitable to run them. A mine may have a $600/oz production cost, in which case it's clear they should run full speed now with gold at $1200, but if it were below $650 or so, it may not be worth it. It also has a history that goes back millennia, it's valued because it always was. John Maynard Keynes referred to gold as an archaic relic and I tend to agree. You are right, the topic is controversial. For short periods, gold will provide a decent hedge, but no better than other financial instruments. We are now in an odd time, where the stock market is generally flat to where it was 10 years ago, and both cash or most commodities were a better choice. Look at sufficiently long periods of time, and gold fails. In my history, I graduated college in 1984, and in the summer of 82 played in the commodities market. Gold peaked at $850 or so. Now it's $1200. 50% over 30 years is hardly a storehouse of value now, is it? Yet, I recall Aug 25, 1987 when the Dow peaked at 2750. No, I didn't call the top. But I did talk to a friend advising that I ignore the short term, at 25 with little invested, I only concerned myself with long term plans. The Dow crashed from there, but even today just over 18,000 the return has averaged 7.07% plus dividends. A lengthy tangent, but important to understand. A gold fan will be able to produce his own observation, citing that some percent of one's holding in gold, adjusted to maintain a balanced allocation would create more positive returns than I claim. For a large enough portfolio that's otherwise well diversified, this may be true, just not something I choose to invest in. Last - if you wish to buy gold, avoid the hard metal. GLD trades as 1/10 oz of gold and has a tiny commission as it trades like a stock. The buy/sell on a 1oz gold piece will cost you 4-6%. That's no way to invest. Update - 29 years after that lunch in 1987, the Dow was at 18448, a return of 6.78% CAGR plus dividends. Another 6 years since this question was asked and Gold hasn't moved, $1175, and 6 years' worth of fees, 2.4% if you buy the GLD ETF. From the '82 high of $850 to now (34 years), the return has a CAGR of .96%/yr or .56% after fees. To be fair, I picked a relative high, that $850. But I did the same choosing the pre-crash 2750 high on the Dow.", "title": "" }, { "docid": "02de874aa4484ea8fc2860b128165f7c", "text": "\"Because people are willing to trade for it. People are willing to trade for Gold because: The value of gold goes up because the demand for it goes up, while the supply has been basically static (or growing at a low static rate) for a long time. The demand is going up because people see it as a safe place to put their money. Another reason Gold's value in dollars goes up, is because the value of the item it's traded against (dollars, euros, yen, etc) goes down, while its own value stays roughly the same. You point out Gold is not as liquid as cash, but gold (both traded on an exchange, and held physically) is easily sold. There is always someone willing to trade you cash for gold. Compare this to some of the bank stocks during the first part of our current recession. People were not willing to give much of anything for your shares. As the (annoying, misleading) advertisements say, \"\"Gold has never been worth zero\"\".\"", "title": "" }, { "docid": "4f8d919b698a86fb35522e60db89d06c", "text": "A lot of people probably don't agree with him, but Warren Buffett has some great quotes on why he doesn't invest in gold: I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon Mobils, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils. And his classic quote: [Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.", "title": "" }, { "docid": "3530792df52e52d0bf8c62ff035e4fc3", "text": "I think the primary reason it is so pricey now is that it is an inflation hedge, and considering how shaky the economies and out of control the spending is in many countries right now, people are running to it as a safe harbor. The increased demand raises the price as it does with any asset. This brings us to the titular question. Why does gold have value? The same reason anything has value. There is someone out there who wants it enough to trade something else of value to get it. It is in the news so much because it is so high right now, which unfortunately is going to cause a lot of people to foolishly invest in it at likely the worst possible time.", "title": "" }, { "docid": "b0e4bd48a4341838e9c01b29e8b6da44", "text": "\"Gold has value because for the most of the history of mankind's use of money, Gold and Silver have repeatedly been chosen by free markets as the best form of money. Gold is durable, portable, homogeneous, fungible, divisible, rare, and recognizable. Until 1971, most of the world's currencies were backed by Gold. In 1971, the US government defaulted on its obligation to redeem US Dollars (by which most other currencies were backed) in Gold, as agreed to by the Bretton Woods agreement of 1944. We didn't choose to go off the Gold Standard, we had no choice - Foreign Central Banks were demanding redeption in Gold, and the US didn't have enough - we inflated too much. I think that the current swell of interest in Gold is due to the recent massive increase in the Federal Reserve's balance sheet, plus the fast growing National debt, plus a looming Social Security / Medicare crisis. People are looking for protection of their savings, and they wish to \"\"opt-out\"\" of the government bail-outs, government deficits, government run health-care, and government money printing. They are looking for a currency that doesn't have a counter-party. \"\"Gold is money and nothing else\"\" - JP Morgan \"\"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.\"\" - Alan Greenspan\"", "title": "" }, { "docid": "5e5271f8049ed19205130dbe8eff245b", "text": "\"Everything is worth what its purchaser will pay for it. --Publilius Syrus. Gold has value because people want to buy it. Electronics manufacturers like the fact that it's conductive. Jewellers like that its shiny. Glenn Beck likes that he's selling it and his audience will buy it. Proponents of gold claim that it has \"\"real\"\" value, as opposed to fiat currency (which has no commodity backing). Opponents of gold claim that all wealth is illusory, and that gold has no more inherent value than the paper we use now. I'm inclined to agree with the latter (money is only money because we agree that it is, and the underlying material is meaningless), however the issue is hotly debated.\"", "title": "" }, { "docid": "e20d35dcd991462583b6f350778cbfaf", "text": "To start with gold has value because it is scarce, durable, attractive and can be made into jewellery. But that does not explain its current value. In the current economic climate, it is difficult for many investors to get a positive return on conventional investments such as equities or bonds. I theorise that, in such conditions, investors decide to park their money in gold simply because there are few other good options. This in itself drives the price of gold up, making it a better investment and causing a speculative boom. As you will see here, here, and here the gold price is negatively correlated with stock market indices.", "title": "" }, { "docid": "9ded3a7c1b081bb1aedfe9475c327af3", "text": "I use to play marbles at school. Marbles were like gold the more you had the richer you were. They were a scarce commodity only a few in circulation. Once I secured a wealth of marbles I realized they were of little real value. They were only of illusory value. As long as we all were deceived into believe they had value they I was rich. Sure marble could be used to make marble floors ;) they were lovely to look at, and every one wanted them. Then one day, I discovered the emperor had no clothes. Wow, the day that everyone sees the true value of gold, what a stock market crash that will be. I tried to avoid gold as much as possible, but this is hard to do in todays stock market. My solace is that we will all be in the same golden (Titanic) boat, only I hope to limit my exposure as much as possible. Anyone want a gold watch for a slice of bread?", "title": "" }, { "docid": "0709d8ba0e52a674eebf56cf4fc4cb0c", "text": "\"It has semantic value (because we culturally believe gold is valuable). There is a very important point here. Gold and many other coin metals. This \"\"semantic value\"\" is enshrined in law through the special tax status of coin metals. You can buy a kilo of gold and not pay sales tax. You can't buy a kilo of iron or tin and do the same. This is the important part because investors shouldn't care about semantics. I read that the taxable status varies by state or nation, so you need to be very careful. It's possible to evade taxes without realizing it. It also doesn't necessarily exempt you from the form of gold. An ingot should be tax exempt. A collector's coin may or may not be, depending on your local laws and the difference between the value of the weight of the gold, and the value of the form of the coin.\"", "title": "" }, { "docid": "8adfda019d784320770ca81ca7ff918d", "text": "\"Why does the value of gold go up when gold itself doesn't produce anything? Why do people invest in gold? Your perception, that the value of gold goes up in the long run, is based on the price of gold measured in your favorite paper currency, for example the US Dollar. An increasing price of gold means that in the visible gold market, market participants are willing to exchange more paper currency units for the same amount of gold. There are many possible reasons for this: While HFT became extremely important for the short term price movements, I will continue with long term effects, excluding HFT. So when - as a simple thought experiment - the amount of available paper currency units (US $ or whatever) doubles, and the amount of goods and services in an economy stay the same, you can expect that the price of everything in this economy will double, including gold. You might perceive that the value of gold doubled. It did not. It stayed the same. The number of printed dollars doubled. The value of gold is still the same, its price doubled. Does the amount of paper currency units grow over time? Yes: https://research.stlouisfed.org/fred2/series/BASE/ In this answer my term \"\"paper currency units\"\" includes dollars that exist only as digits in bank accounts and \"\"printing currency\"\" includes creating those digits in bank accounts out of thin air. So the first answer: gold holds its value while the value of paper currency units shrinks over time. So gold enables you to pass wealth to the next generation (while hiding it from your government). That gold does not produce anything is not entirely true. For those of us mortals who have only a few ounces, it is true. But those who have tons can lease it out and earn interest. (in practice it is leased out multiple times, so multiple that gain. You might call this fraud, and rightfully so. But we are talking about tons of gold. Nobody who controls tons of physical gold goes to jail yet). Let's talk about Fear. You see, the perceived value of gold increases as more paper currency is printed. And markets price in expected future developments. So the value of gold rises, if a sufficient number of wealthy people fear the the government(s) will print too much paper currency. Second Answer: So the price of gold not only reflects the amount of paper currency, it is also a measurement of distrust in government(s). Now you might say something is wrong with my argument. The chart mentioned above shows that we have now (mid 2015) 5 times as much printed currency units than we had 2008. So the price of gold should be 5 times as high as 2008, assuming the amount of distrust in governments stayed the same. There must be more effects (or I might be completely wrong. You decide). But here is one more effect: As the price of gold is a measurement of distrust in governments (and especially the US government since the US Dollar is perceived as the reserve currency), the US government and associated organizations are extremely interested in low gold prices to prove trust. So people familiar with the topic believe that the price of gold (and silver) is massively manipulated to the downside using high frequency trading and shorts in the futures markets by US government and wall street banks to disprove distrust. And wall street banks gain huge amounts of paper currency units by manipulating the price, mostly to the downside. Others say that countries like china and russia are also interested in low gold prices because they want to buy as much physical gold as possible. Knowing of the value that is not reflected by the price at the moment. Is there one more source of distrust in governments? Yes. Since 1971, all paper currencies are debt. They receive their value by the trust that those with debt are willing and able to pay back their debt. If this trust is lost, the downward manipulation (if you think that such a thing exists) of the gold and silver prices in the futures markets might fail some day. If this is the case (some say when this is the case). you might see movements in gold and silver prices that bring them back to equilibrium with the amount of printed paper currencies. In times of the roman empire you got a good toga and a pair of handmade shoes for an ounce of gold. In our days, you get a nice suite and a good pair of shoes for an ounce of gold. In the mean time, the value of each paper currency in the history of each country went to zero and the US $ lost 98% of its initial value. As long as there is not enough distrust, more paper currency is made in equity markets and bond markets on average. (Be aware that you earn that currency only after you were able to sell at this price, not while you hold it) Gerd\"", "title": "" }, { "docid": "cb068a39368323846339508ad7548568", "text": "\"Most of the answers here reflect a misunderstanding of what gold actually is from a financial perspective. I'll answer your question by asking two questions, and I do challenge you to stop and think about what we mean when we say \"\"cash\"\" or \"\"unit of exchange\"\" because without understanding those, you will completely miss this answer. In 1971, the DXY was 110. For people who don't know, the DXY is the US Dollar Index - it weighs the strength of the US Dollar relative to other currencies. Hey look, it's a pretty graph of the DXY's history. In 1971, gold was $35 an ounce. The DXY is 97 today. Gold is $1170 an ounce today. Now the questions: If shares of Company A in 1971 were $10 a share, but now are $100 a share and some of this is because the company has grown, but some of it is because of inflation and the DXY losing value, what would the value of the company be if it was held in grams of gold and not dollars? Benjamin Graham, who influenced Warren Buffett, is a \"\"supposed\"\" critic of gold, yet what percent of his life were we not on a gold standard? In his day, the dollar was backed by gold - why would you buy gold if every dollar represented gold. Finally, consider how many US Dollars exist, and how few metric tonnes of gold exist (165,000). Even Paul Volcker admitted that a new gold standard would be impossible because the value of gold, if we did it today, would put gold in the $5000-$10000 range - which is absurd: To get on a gold standard technically now, an old fashioned gold standard, and you had to replace all the dollars out there in foreign hands with gold, God the price, you buy gold, because the price of gold would have to be enormous. So, you're all left hoping the Federal Reserve figures how to get us all out of this mess without causing trouble, otherwise, let me just kindly say, you WILL realize the value of gold then. As the old saying goes, \"\"A fool and his money are soon parted.\"\" I could be wrong, but I'd say that those who've been buying gold since 1971 for their \"\"cash holdings\"\" (not index funds) aren't the suckers.\"", "title": "" }, { "docid": "94f18051e3c46aff0d139f67e81dc269", "text": "\"Gold has very useful physical properties for some engineering applications. Even tiny amounts of gold can substantially improve products, so it can be worthwhile to pay high prices per ounce for gold. For example: Gold can be \"\"beaten\"\" or electroplated to produce very thin shiny coatings. Entire roofs (of famous buildings) have been covered with \"\"gold leaf\"\", at a cost that was small compared to the supporting structure. A very thin layer of electroplated gold provides better protection against corrosion than a much thicker layer of electroplated nickel. Even if gold costs thousands of times more per ounce than nickel, it is cheaper to use gold as an anti-corrosion layer than nickel (for use in military-grade naval electronics). A thin layer of electroplated gold greatly increases the electrical current-carrying capacity of a thin copper wire.\"", "title": "" }, { "docid": "60abc7a7295934ebd9bde221cdeb023d", "text": "\"Gold can be thought of to have value in one of two ways; (1) as a means and (2) as an end. Means takes the shape of currency. In this form, we value gold in the same way we value the dollar, it allows us to purchase things we want. As a medium of exchange, gold has no definitive value and is only assigned one during the process of an exchange. For example, I would be valuing one ingot of gold to be worth a dog if I traded a dog for one ingot of gold. The value of gold in this sense is subjective as each person decides for themselves what gold is worth during the transaction. Gold as an end is valued for its own sake. A good example of this is a jeweler who purchases gold directly because of the intrinsic property(s) gold possesses. This is closer to the \"\"true value\"\" of gold than using it as a means, but virtually no one in our society views gold in this manor because virtually no one can use gold in this manor. \"\"You know what I could use right now, a block of gold.\"\" - said no one ever. But even if you are one of the select few who value gold for its own sake, this is usually done because gold provides a function. For example, if people no longer want to ware jewelry, then a jeweler will likely have to find a new line of work where he would likely no longer view gold as valuable as an ends. To sum up, gold has a perceived value for most people and an \"\"intrinsic value\"\" to a select few (for the time being).\"", "title": "" } ]	[ { "docid": "98d2744aa08398bbbfb3bacfd6f5d240", "text": "Of course. But then, paper also has utility. So do seashells and pinecones. There is no obvious reason why, even in a perfect world, we would go looking for a malleable, highly-conductive, corrosion-resistant metal as something to peg the value of our banknotes to. The argument in favor of a gold standard is not whether gold is intrinsically more valuable than paper or seal skins or anything else, it's that gold is fairly inelastic in terms of supply, so it limits the ability of central bankers to mess up the value of the currency through interventionist funny business. If you picked up a rock and started going around telling people that we should use it as money because it's highly malleable and conductive and can be used in computer parts, they would look at you like you're a crazy person. That's not why gold is/was/should be a currency. Gold was indisputably the perfect currency for thousands of years, because it was easy to identify, easy to handle, hard to falsify, and rare. Those were important characteristics when strangers had to carry physical money to different places without any ATMs, credit-cards, or paypal accounts. They are somewhat less critical today, but still... The one characteristic that might still argue in favor of a gold standard is rarity: Since the amount of gold in the world is somewhat fixed, forcing the currency supply to be restricted to the gold supply semi-prevents governments and central bankers from getting into too much mischief (or at least, that's the theory). I will leave it to others to argue over whether a return to the gold standard would be a good idea, but the argument has nothing to with the intrinsic utility of gold. I'm sure we can all agree that gold is a fine metal with many good qualities.", "title": "" }, { "docid": "3f5008996d6dec474559349bc2d2a081", "text": "I would imagine (correct me if I'm wrong) that one of the benefits of gold was it was very easy to detect counterfeiting. It had a known weight, easily identified color, and there were many easily accessible ways to verify that it was, in fact, gold. Paper money has been a relatively recent development, monetarily, and it seems like it has matured as methods of preventing false currency have likewise matured. EDIT: Ah, and there it is, in one of your comments further down. Cool.", "title": "" }, { "docid": "eb407f054ab03cb8a94931ab2f94b3b9", "text": "Yes and i told you that bitcoin could also be perceived as valuable too, like seashells did in the past. Personally, i think bitcoin has value because it is a giant money laundering scheme. All the big players are investing into it because they need to funnel their drug money.", "title": "" }, { "docid": "d72158325951e5027d5bfbeec4c607cc", "text": "\"Currencies such as the dollar, the Euro, and most others are no longer tied to gold in any way. They are just paper that is worth what it's worth because everyone agrees to accept it. Previously, currencies used to be commonly tied to gold reserves, and could theoretically be \"\"cashed in\"\" for gold, although not usually as much as the currency denomination (i.e., gold on the open market tended to sell for higher prices than what the government would give you for it).\"", "title": "" }, { "docid": "476b54200809b4ea0520e9c0a3405378", "text": "Mainly because I have it and you don't, I can make you do stuff for it because more of us perceive its value than bother about the paper you are holding. Picture if you will a moment in time, when the paper you are holding, represented the amount of gold you had at home, as time went by you spent all your gold and the amount the paper represented, became less and less and the amount of lunch you could buy with it became less and less. Today the day has arrived, that you have no gold left and what your paper represents is an empty coffer . . Move along . .people who can pay for their lunch are waiting and look, the paper they hold represents gold they have.", "title": "" }, { "docid": "c578c93da22d50ffcb71f8e3c5627bdc", "text": "\"> Value is entirely subjective to individuals. Nothing has \"\"intrinsic value\"\". Question: Water, oxygen -- caveats to intrinsic value because they are that which is consumed by virtue of one's being alive and staying alive and are of limited supply? Can we expand on \"\"value\"\" and how it operates on the barest of essentials to sustain life. To rephrase: [1] That the tripartite nature of the system of money--token (countable), vehicle (exchangeable), and repository (valuable)--depends on life existing ergo exist as conditions necessary for the creation of an economy but yet will be necessarily valued by the economy because of the projected increases in population, that is, future demand rising as function of the earthly supply means that the value of these goods can or cannot be projected and, more broadly, [2] how do economists evaluate the role of money in relation to timing, especially when it pertains to these unproduced or \"\"given\"\" yet essential goods and especially coupled with the knowledge that the population will continue to proliferate? Really, I'm not trying to undermine or debunk or be plain ridiculous; I'm curious as to how economic theory will (or has begun to) try to solve a \"\"singularity\"\" (threshold) problem that has yet to occur but no doubt will? Maybe it's an unfair question but even so, I'm sure someone on this thread might steer us towards a starting point. And I only ask because the economic breakdown by otherwiseyep and the discussion in the thread herein are, say, quite as substantial as they are clear.\"", "title": "" }, { "docid": "de76dd8be879644dd6aff119fe53a486", "text": "Money itself has no value. A gold bar is worth (fuzzy rushed math, could be totally wrong on this example figure) $423,768.67. So, a 1000 dollars, while worthless paper, are a token saying that you own %.2 of a gold bar in the federal reserve. If a billion dollars are printed, but no new gold is added to the treasury, then your dollar will devalue, and youll only have %.1 percent of that gold bar (again, made up math to describe a hypothetical). When dollars are introduced into the economy, but gold has not been introduced to back it up, things like the government just printing dollars or banks inventing money out of debt (see the housing bubble), then the dollar tokens devalue further. TL;DR: Inflation is the ratio of actual wealth in the Treasury to the amount of currency tokens the treasury has printed.", "title": "" }, { "docid": "edf4fba292caeb83937280fef7ca1934", "text": "\"The general argument put forward by gold lovers isn't that you get the same gold per dollar (or dollars per ounce of gold), but that you get the same consumable product per ounce of gold. In other words the claim is that the inflation-adjusted price of gold is more-or-less constant. See zerohedge.com link for a chart of gold in 2010 GBP all the way from 1265. (\"\"In 2010 GBP\"\" means its an inflation adjusted chart.) As you can see there is plenty of fluctuation in there, but it just so happens that gold is worth about the same now as it was in 1265. See caseyresearch.com link for a series of anecdotes of the buying power of gold and silver going back some 3000 years. What this means to you: If you think the stock market is volatile and want to de-risk your holdings for the next 2 years, gold is just as risky If you want to invest some wealth such that it will be worth more (in real terms) when you take it out in 40 years time than today, the stock market has historically given better returns than gold If you want to put money aside, and it to not lose value, for a few hundred years, then gold might be a sensible place to store your wealth (as per comment from @Michael Kjörling) It might be possible to use gold as a partial hedge against the stock market, as the two supposedly have very low correlation\"", "title": "" }, { "docid": "af6fc06890c6a15e9c4c5206ac646982", "text": "Since 2007 the world has seen a period of striking economic and financial volatility featuring the deepest recession since the 1930s despite this gold has performed strongly with its price roughly doubling since the global financial crisis began in mid-2007. 1. Gold and real interest rates: One of the factor that influences gold prices is real interest rate which is to some extent related to inflation. Since gold lacks a yield of its own, the opportunity cost of holding gold increases with a real interest rate increase and decreases with a fall in real interest rates. 2. Gold and the US dollar: The external value of the US dollar has been a significant influence on short-term gold price movements. The IMF estimated6 in 2008 that 40-50% of the moves in the gold price since 2002 were dollar-related, with a 1% change in the effective external value of the dollar leading to a more than 1% change in the gold price (Source). 3. Gold and financial stress: It is a significant and commonly observed influence on the short-term price of gold. In periods of financial stress gold demand may rise for a number of reasons: 4. Gold and political instability: It is another factor that can boost gold prices. Investor concerns about wars, civil conflicts and international tensions can boost demand for gold for similar reasons to those noted above for periods of financial stress. Gold‟s potential function as a „currency of last resort‟ in case of serious system collapse provides a particular incentive to hold it in case the political situation is especially severe. (Source) 5. Gold and official sector activity: The behaviour of central banks and other parts of the official sector can have an important impact on gold prices. One reason for this is that central banks are big holders of gold, possessing some 30,500 metric tons in 2010, which is approximately 15% of all above-ground gold stocks. As a result, central bank policies on gold sales and purchases can have significant effects, and these policies have been subject to considerable shifts over the decades. (Source) (Source of above graphs)", "title": "" }, { "docid": "a05e4b7eb3186e433bee9ebc1234649c", "text": "There is no such thing as intrinsic value. Gold has value because it is rare and has a market. If any of those things decline, the value plunges. The question of whether gold is overvalued or not is complicated and depends on a lot of factors. The key question in my mind is: Is gold more valuable in terms of US dollars because it is becoming more valuable, or because the value of US dollars, the prevailing medium of exchange, is declining?", "title": "" }, { "docid": "6772c658a9ce2de9ba987109f7782764", "text": "\"Gold may have some \"\"intrinsic value\"\" but it cannot be accurately determined by investors by any known valuation techniques. In fact, if you were to apply the dividend discount model of John Burr Williams - a variation of which is the basis of Discounted Cash Flow (DCF) analysis and the basis of most valuation techniques - gold would have zero intrinsic value because it produces no cash flow. Legendary focus investor Warren Buffett argues that investing in gold is pure speculation because of the reason mentioned above. As others have mentioned, gold prices are affected by supply and demand, but the bigger influence on the price of gold is how the economy is. Gold is seen as a store of value because, according to some, it does not \"\"lose value\"\" unlike paper currency during inflation. In inflationary times, demand increases so gold prices do go up, which is why gold behaves similar to a commodity but has far less uses. It is difficult to argue whether or not gold gains or loses value because we can't determine the intrinsic value of gold, and anyone who attempts to justify any given price is pulling blinders over your eyes. It is indisputable that, over history, gold represents wealth and that in the past century and the last decade, gold prices rise in inflationary conditions as people dump dollars for gold, and it has fallen when the purchasing power of currency increases. Many investors have talked about a \"\"gold bubble\"\" by arguing that gold prices are inflated because of inflation and the Fed's money policy and that once interest rates rise, the money supply will contract and gold will fall, but again, nobody can say with any reasonable accuracy what the fair value of gold at any given point is. This article on seeking alpha: http://seekingalpha.com/article/112794-the-intrinsic-value-of-gold gives a quick overview, but it is also vague because gold can't be accurately priced. I wouldn't say that gold has zero intrinsic value because gold is not a business so traditional models are inappropriate, but I would say that gold certainly doesn't have a value of $1,500 and it's propped so high only because of investor expectation. In conclusion, I do not believe you can accurately state whether gold is undervalued or overvalued - you must make judgments based on what you think about the future of the market and of monetary policy, but there are too many variables to be accurate consistently.\"", "title": "" }, { "docid": "11dcc15ec506ffc8bc2c15e086f79915", "text": "\"Gold has no \"\"intrinsic\"\" value. None whatsoever. This is because \"\"value\"\" is a subjective term. \"\"Intrinsic value\"\" makes just as much sense as a \"\"cat dog\"\" animal. \"\"Dog\"\" and \"\"cat\"\" are referring to two mutually exclusive animals, therefore a \"\"cat dog\"\" is a nonsensical term. Intrinsic Value: \"\"The actual value of a company or an asset based on an underlying perception of its true value ...\"\" Intrinsic value is perceived, which means it is worth whatever you, or a group of people, think it is. Intrinsic value has nothing, I repeat, absolutely nothing, to do with anything that exists in reality. The most obvious example of this is the purchase of a copy-right. You are assigning an intrinsic value to a copy-right by purchasing it. However, when you purchase a copy-right you are not buying ink on a page, you are purchasing an idea. Someone's imaginings that, for all intensive purposes, doesn't even exist in reality! By definition, things that do not exist do not have \"\"intrinsic\"\" properties - because things that don't exist, don't have any natural properties at all. \"\"Intrinsic\"\" according to Websters Dictionary: \"\"Belonging to the essential nature or constitution of a thing ... (the intrinsic brightness of a star).\"\" An intrinsic property of an object is something we know that exists because it is a natural property of that object. Suns emit light, we know this because we can measure the light coming from it. It is not subjective. \"\"Intrinsic Value\"\" is the OPPOSITE of \"\"Intrinsic\"\"\"", "title": "" }, { "docid": "fec1087f096889c0e2f7d49d8e0c4ca4", "text": "One possible downside is contribution limit. The 401K contribution limit is $18,000 for 2016, which is more than three times the limit for IRA contributions ($5,500).", "title": "" }, { "docid": "4f852b2dde85d5a0bd328e9ec0f79c75", "text": "Your last sentence is key. If you have multiple accounts, it's too easy to lose track over the years. I've seen too many people pass on and the spouse has a tough time tracking the accounts, often finding a prior spouse listed as beneficiary. In this case, your gut is right, simpler is better.", "title": "" } ]	fiqa

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