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1db37e284a515479356cf5d737e09737	Are forward curves useful tools for trading decisions and which informations can be gathered from them?	[ { "docid": "58aaa60f7b423dfdbf5740a3a3153ced", "text": "As far as trading is concerned, these forward curves are the price at which you can speculate on the future value of the commodity. Basically, if you want to speculate on gold, you can either buy the physical and store it somewhere (which may have significant costs) or you can buy futures (ETFs typically hold futures or hold physical and store it for you). If you buy futures, you will have to roll your position every month, meaning you sell the current month's futures and buy the next month's. However, these may not be trading at the same price, so each time you roll your position, you face a risk. If you know you want to hold gold for exactly 1 year, then you can buy a 1-year future, which in this case according to your graph will cost you about $10 more than buying the front month. The forward curve (or sometimes called the futures term structure) represents the prices at which gold can be bought or sold at various points in the future.", "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": "8b16542ff6aa0d91ed303490a3691bc1", "text": "You could use the Gordon growth model implied expected return: P = D/(r-g) --> r = D/P (forward dividend yield) + g (expected dividend growth). But obviously there is no such thing as a good market return proxy.", "title": "" }, { "docid": "31be2354e66b8c8d907fe6f1052f9a87", "text": "Yes, exactly. VaR is just a single tailed confidence interval. To go from model to strategy, you need to design some kind of indicator (i.e. when to buy and when to short or stay out). In practice, this will look like a large matrix with values ranging from -1 to 1 (corresponding to shorting and holding respectively) for each security and each day (or hour, or minute, or tick, etc.), which you then just multiply with the matrix of the stock returns. The resulting matrix will be your daily returns for each stock, you can then just row sum for daily returns of a portfolio, or calculate a cumulative product for cumulative returns. A simple example of an indicator would be something like a value of 1 when the price of the stock is below the 30 day moving average, and 0 otherwise. You can use a battery of econometric models to design these indicators, but the rest of the strategy design is essentially the same, and it's relatively easy to build a one-size-fits-all back-testing code. I'll try to edit this post later and link a blog that goes through some of the code. Edit: [Here](http://www.signalplot.com/simple-machine-learning-model-trade-spy/) is a post that discusses implementing a simple ML strategy. You can ignore most of the content but if you go through the github, you'll see how the ML model is implemented as a strategy. An even easier example can be found from [the github connected to this post](http://www.signalplot.com/how-to-measure-the-performance-of-a-trading-strategy/), where the author is just using a totally arbitrary signal. As you can see, deriving a signal can be a ton of work, but once you have, actually simulating the strategy can be done in just a few lines of code. Hopefully the author won't mind me linking his page here, but I find his coding style to be very clean and good for educational purposes.", "title": "" }, { "docid": "81c016998574efc6dbf2244659066d3b", "text": "\"Strategy would be my top factor. While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like \"\"Stock Screeners\"\" that will let you filter based on various criteria to use each analysis in a mix. There are various strategies one could use. Wikipedia under Stock Speculator lists: \"\"Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.\"\" Thus, I'd advise research what approach are you wanting to use as the \"\"Make it up as we go along losing real money all the way\"\" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water.\"", "title": "" }, { "docid": "18fce050e0c4f56603652a1fe3692f0b", "text": "I'll just add this: In the best hedge funds and proprietary trading funds, stock selection is approached very scientifically in order to minimize losses/maximize gains. Researchers think of a trading idea and carefully test it to see which methods of stock selection work and how well, and finally they combine them. Every day researchers update their models based on the past performance of each indicator. All this is just too much work to be done manually. Firms use machine learning methods to understand markets. They try to figure out what is normal, what did not happen correctly at a specific time, what will happen in future. For instance, they use deep learning networks to look at unlabeled data, and figure out what is normal and what is not. These networks can analyze an unstructured haystack of noise, and separate out the signal. This is very relevant to finance and markets because finding the patterns and anomalies in market data has been the bread and butter of traders for decades. Deep learning networks give us applications like feature learning. By 'features,' I'm referring to certain attributes in data that indicate an event. By anticipating them, we can help predict future price movements. New technology is allowing us to break new ground in managing risk, to be a-typical and manage risk in ever-improving ways. It's the responsibility of every trader, whether working for themselves or others, to take advantage of this technology to improve the collective investing experience. I care very deeply about this. I have many close friends, in the finance world and without, who have lost large amounts of money to poor trade tools and lack of transparency.", "title": "" }, { "docid": "55f332da2bc6737a330b520c90586811", "text": "The portion of a stock movement not correlated with stocks in general is called Alpha. I don't know of any online tools to graph alpha. Keep in mind that a company like Apple is so huge right now that any properly weighted index will have to correlate with it to some degree.", "title": "" }, { "docid": "be1b32a07b443f30339d679ae66b7750", "text": "There are the EDHEC-risk indices based on similar hedge fund types but even then an IR would give you performance relative to the competition, which is not useful for most hf's as investors don't say I want to buy a global macro fund, vs a stat arb fund, investors say I want to pay a guy to give me more money! Most investors don't care how the OTHER funds did or where the market went, they want that NAV to go always up , which is why a modified sharpe is probably better.", "title": "" }, { "docid": "057082b5885da5dc1df7c391596501ef", "text": "I have been looking into CMEs trading tool. I might just play around with futures on it. You make a good point on that though. I am reading Hull's book on options, futures and derivatives, and so far so good. Only thing I would want to test is options on futures, which is missing :( .", "title": "" }, { "docid": "38bdbd4c2225ed3344f2d36eb24aa6d8", "text": "You can use a tool like WikiInvest the advantage being it can pull data from most brokerages and you don't have to enter them manually. I do not know how well it handles dividends though.", "title": "" }, { "docid": "c156209751f676df4da54f3b864594b3", "text": "You can likely use bollinger band values to programmatically recognize sideways trending stocks. Bollinger band averages expand during periods of volatility and then converge on the matched prices the longer there is little volatility in the asset prices. Also, look at the bollinger band formula to see if you can glean how that indicator does it, so that you can create something more custom fit to your idea.", "title": "" }, { "docid": "1e090411bf34d3e1a21c664640f3d881", "text": "Graphs are nothing but a representation of data. Every time a trade is made, a point is plotted on the graph. After points are plotted, they are joined in order to represent the data in a graphical format. Think about it this way. 1.) Walmart shuts at 12 AM. 2.)Walmart is selling almonds at $10 a pound. 3.) Walmart says that the price is going to reduce to $9 effective tomorrow. 4.) You are inside the store buying almonds at 11:59 PM. 5.) Till you make your way up to the counter, it is already 12:01 AM, so the store is technically shut. 6.) However, they allow you to purchase the almonds since you were already in there. 7.) You purchase the almonds at $9 since the day has changed. 8.) So you have made a trade and it will reflect as a point on the graph. 9.) When those points are joined, the curves on the graph will be created. 10.) The data source is Walmart's system as it reflects the sale to you. ( In your case the NYSE exchange records this trade made). Buying a stock is just like buying almonds. There has to be a buyer. There has to be a seller. There has to be a price to which both agree. As soon as all these conditions are met, and the trade is made, it is reflected on the graph. The only difference between the graphs from 9 AM-4 PM, and 4 PM-9 AM is the time. The trade has happened regardless and NYSE(Or any other stock exchange) has recorded it! The graph is just made from that data. Cheers.", "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": "0d008a892deb44faa5fcc7a59cdb2cb0", "text": "\"I'll give the TLDR answer. 1) You can't forecast the price direction. If you get it right you got lucky. If you think you get it right consistently you are either a statistical anomaly or a victim of confirmation bias. Countless academic studies show that you can not do this. 2) You reduce volatility and, importantly, left-tail risk by going to an index tracking ETF or mutual fund. That is, Probability(Gigantic Loss) is MUCH lower in an index tracker. What's the trade off? The good thing is there is NO tradeoff. Your expected return does not go down in the same way the risk goes down! 3) Since point (1) is true, you are wasting time analysing companies. This has the opportunity cost of not earning $ from doing paid work, which can be thought of as a negative return. \"\"With all the successful investors (including myself on a not-infrequent basis) going for individual companies directly\"\" Actually, academic studies show that individual investors are the worst performers of all investors in the stock market.\"", "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": "" }, { "docid": "d3b2860b2a0cb99380d086fe2d4ba081", "text": "Still working on exact answer to question....for now: (BONUS) Here is how to pull a graphical chart with the required data: Therefore: As r14 = the indicator for RSI. The above pull would pull Google, 6months, line chart, linear, large, with a 50 day moving average, a 200 day exponential moving average, volume, and followed up with RSI. Reference Link: Finance Yahoo! API's", "title": "" }, { "docid": "ec061af2503da47982f1223823b2236d", "text": "From my understanding by paying your bills more than 5 days late will not lead you into bankruptcy or stop you from getting a new loan in the future, however it may mean that lenders offer you credit at a higher interest rate. This of course would not help you as you are already struggling with your finances. However, no matter how bad you think things might be for you financially, there are always things you can do to improve your situation. Set a Budget The first thing you must do is to set a budget. List down all sources of income you receive each month, including any allowances. Then list all your sources of expenses and spending. List all your bills such as rent, telephone, electricity, car maintenance, credit card and other loans. Keep a diary for a month for all your discretionary spending - including coffees, lunches, and other odd bits and ends. You can also talk with your existing lenders and come to some agreement on reducing you interest rates on your debts and the repayments. But remember any reduction in repayments may increase your repayment period and the total interest you have to pay in the long term. If you need help setting up your budget here are some links to resources you can download to help you get started: Once you set up your budget you want your total income to be more than your total expenses. If it isn't you will be getting further and further behind each month. Some things you can do are to increase your income - get a job/second job, sell some unwanted items, or start a small home business. Some things you can do to reduce your expenses - make coffees and lunches at home before going out and buying these, pay off higher interest debts first, consolidate all your debts into a lower interest rate loan, reduce discretionary spending to an absolute minimum, cancel all unnecessary services, etc. Debt Consolidation In regards to a Debt Consolidation for your existing personal loans and credit cards into a single lower interest rate loan can be a good idea, but there are some pitfalls you should consider. Manly, if you are taking out a loan with a lower interest rate but a longer term to pay it off, you may end up paying less in monthly repayments but will end up paying more interest in the long run. If you do take this course of action try to keep your term to no longer than your current debt's terms, and try to keep your repayments as high as possible to pay the debt off as soon as possible and reduce any interest you have to pay. Again be wary of the fine print and read the PDS of any products you are thinking of getting. Refer to ASIC - Money Smart website for more valuable information you should consider before taking out any debt consolidation. Assistance improving your skills and getting a higher paid job If you are finding it hard to get a job, especially one that pays a bit more, look into your options of doing a course and improving your skills. There is plenty of assistance available for those wanting to improve their skills in order to improve their chances of getting a better job. Check out Centrelink's website for more information on Payments for students and trainees. Other Action You Can Take If you are finding that the repayments are really getting out of hand and no one will help you with any debt consolidation or reducing your interest rates on your debts, as a last resort you can apply for a Part 9 debt agreement. But be very careful as this is an alternative to bankruptcy, and like bankruptcy a debt agreement will appear on your credit file for seven years and your name will be listed on the National Personal Insolvency Index forever. Further Assistance and Help If you have trouble reading any PDS, or want further information or help regarding any issues I have raised or any other part of your financial situation you can contact Centrelink's Financial Information Service. They provide a free and confidential service that provides education and information on financial and lifestyle issues to all Australians. Learn how to manage your money so you can get out of your debt and can lead a much more comfortable and less stressful life into the future.", "title": "" } ]	fiqa
8f880a2f8e2f923bd89319f39e000cec	Why does my car loan interest go up despite making payments on-time?	[ { "docid": "228a966b42e8fb98215b502c9cd1a61a", "text": "Interest is calculated daily. Doing the math: Between 6-17 and 7-25 are 38 days, 200.29 / 38 = 5.27 interest per day. Between 7-25 and 8-17 are 23 days. 120.02 / 23 = 5.22 interest per day. The minimal difference is because the principal has already gone down a little bit. So you should expect ~5.20 x number of days for the next interest number coming up; slowly decreasing as the remaining principal debt decreases. Note that this is equivalent of an annual interest rate of over 20 %, which is beyond acceptable. In the current economy, this is ridiculously high. I recommend trying to get a refinancing with another provider; you should be able to get it for a third of that.", "title": "" }, { "docid": "a486ff999cb653fb447d21de2087218a", "text": "The interest probably accrues daily, regardless of whether your payments are on time.", "title": "" } ]	[ { "docid": "8ac5cffbd419a4f21a5789c2b9dc010d", "text": "Here is another way to look at it. Does this debt enable you to buy more car than you can really afford, or more car than you need? If so, it's bad debt. Let's say you don't have the price of a new car, but you can buy a used car with the cash you have. You will have to repair the car occasionally, but this is generally a lot less than the payments on a new car. The value of your time may make sitting around waiting while your car is repaired very expensive (if, like me, you can earn money in fine grained amounts anywhere between 0 and 80 hours a week, and you don't get paid when you're at the mechanic's) in which case it's possible to argue that buying the new car saves you money overall. Debt incurred to save money overall can be good: compare your interest payments to the money you save. If you're ahead, great - and the fun or joy or showoff potential of your new car is simply gravy. Now let's say you can afford a $10,000 car cash - there are new cars out there at this price - but you want a $30,000 car and you can afford the payments on it. If there was no such thing as borrowing you wouldn't be able to get the larger/flashier car, and some people suggest that this is bad debt because it is helping you to waste your money. You may be getting some benefit (such as being able to get to a job that's not served by public transit, or being able to buy a cheaper house that is further from your job, or saving time every day) from the first $10,000 of expense, but the remaining $20,000 is purely for fun or for showing off and shouldn't be spent. Certainly not by getting into debt. Well, that's a philosophical position, and it's one that may well lead to a secure retirement. Think about that and you may decide not to borrow and to buy the cheaper car. Finally, let's say the cash you have on hand is enough to pay for the car you want, and you're just trying to decide whether you should take their cheap loan or not. Generally, if you don't take the cheap loan you can push the price down. So before you decide that you can earn more interest elsewhere than you're paying here, make sure you're not paying $500 more for the car than you need to. Since your loan is from a bank rather than the car dealership, this may not apply. In addition to the money your cash could earn, consider also liquidity. If you need to repair something on your house, or deal with other emergency expenditures, and your money is all locked up in your car, you may have to borrow at a much higher rate (as much as 20% if you go to credit cards and can't get it paid off the same month) which will wipe out all this careful math about how you should just buy the car and not pay that 1.5% interest. More important than whether you borrow or not is not buying too much car. If the loan is letting you talk yourself into the more expensive car, I'd say it's a bad thing. Otherwise, it probably isn't.", "title": "" }, { "docid": "de45ba78caece33cee1171e59931e8ce", "text": "maybe everyone who has responded needs to look closer at the income base repayment plan for student loans. What this means is he payment does not even cover his interest rate so each month he makes his payment the loan grows, does not decrease. This is not a simple interest loan which is irritating because car dealerships do not even use a non-simple interest loan any longer. So, well your suggestions are well intended what is your suggestion now knowing that his monthly payments is not reducing his loan but actually his loan is growing exponentially each month. I also like the comment where the average student loan is $30,000, I would like to know in what state that is. That may work for a community college or a student who is reliant on parents to supplement their income so they can go to classes, however for someone who is working and going to school that person must opt out for night classes and online classes which definitely increases the cost of your classes. Right now the cost per credit hour is in the $550- 585 range.", "title": "" }, { "docid": "4b27fe4787eb6e07ed71131bc7357766", "text": "\"There are other good answers to the general point that the essence of what you're describing exists already, but I'd like to point out a separate flaw in your logic: Why add more complications so that \"\"should I call this principal or interest\"\" actually makes a difference? Why's the point (incentive) for this? The incentive is that using excess payments to credit payments due in the future rather than applying it to outstanding principal is more lucrative for the lender. Since it's more lucrative and there's no law against it most (all) lenders use it as the default setting.\"", "title": "" }, { "docid": "042f8e55c75b6d2ffa8b5a61201fb7ec", "text": "Well typically you're borrowing a shit ton of money for 30 years so yeah you're paying a lot in interest over that period. But your situation sounds especially bad, that's over a 10% constant assuming 80% LTV. What are you being quoted, like >9% interest?", "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": "" }, { "docid": "55c6a70dc07cee2d9521fb386f8a4a85", "text": "\"they apply it to my next payment That's what my bank did with my auto loan. I got so far ahead that once I was able to skip a payment and use the money I would have sent the bank that month for something else. Still, though, I kept on paying extra, and eventually it was paid off faster than \"\"normal\"\". EDIT: what does your loan agreement say is supposed to happen to extra payments?\"", "title": "" }, { "docid": "cf47890f17a70e7c12db0bdeeb0ffff5", "text": "\"In addition to all the points made in other answers, in some jurisdictions (including the UK where I live) the consumer credit laws require the lender to allow the borrower to pay off the loan at any time. If the lender charges interest and the borrower pays off the loan early then the lender loses the interest that would have been paid during the rest of the loan period. However if the actual interest is baked into the sale price of an item and the loan to pay for it is nominally \"\"0%\"\" then the borrower still pays all the interest even if they pay off the loan immediately. If you think this game is being played then you can ask for a \"\"cash discount\"\" (or similar wording: I once had problems with a car salesman who thought I meant a suitcase full of used £20s), meaning you want to avoid paying the interest as you are not taking a loan.\"", "title": "" }, { "docid": "77c9635ad1324e547c59fc9eeb3af439", "text": "Depending on who you have the loan through and how they figure the interest charges (whether daily, monthly, bi-monthly, etc. normally monthly I would assume), your interest is probably figured either daily or once a month. Let's assume that it is figured daily, otherwise it wouldn't make sense to make bi-weekly payments. At 4% Annual Interest on a $150,000 home loan the interested added each day is about $16.44, but it doesn't stop there because it is compounding interest daily so the next day it becomes 4% of 150,0016.44 (which is negligibly larger amount) and they will tack on another $16.44. So what will happen is that the amount of interest you owe grows rather quickly, especially if you miss a monthly payment. Everyone knows that the faster you pay something off the less interest you pay, but not everyone knows the formula for compounding interest. a quick Google search rendered this site with a simple explanation Compound Interest Formula unfortunately this formula doesn't take into account the payments being made. The big thing with making your payments bi-weekly rather than a bigger payment once a month is that you pay off some of that principle right away and it won't collect interest for 14 more days. if the interest is only calculated once a month, make your full payment before the interest is calculated, the same goes for your credit cards.", "title": "" }, { "docid": "8fb4ed771f66e236487e2f709666e10e", "text": "Just call your credit union and ask if they will let you refinance at the lower rate. If they won't, then just increase your payment every month so that your car is paid off early (in 36 months instead of 60). You won't get the lower rate, but since your loan will be paid early, you'll be saving interest anyway.", "title": "" }, { "docid": "a8749a180a0d266d8ec2a05865e9af19", "text": "\"The real answer is to talk to the bank. In the case of the last car loan I got, the answer is \"\"no\"\". When I asked them about rates, they gave me a printed sheet that listed the loan rates they offered based on how old the car was, period. I forget the exact numbers but it was like: New car: 4%, 1 year old: 4.5%, 2-3 years old 5%, etc. I suspect that at most banks these days, it's not up to the loan officer to come up with what he considers reasonable terms for a loan based on whatever factors you may bring up and he agrees are relevant. The bank is going to have a set policy, under these conditions, this is the rate, and that's what you get. So if the bank includes the size of the down payment in their calculations, then yes, it will be relevant. If they don't, than it won't. The thing to do would be to ask your bank. If you're only borrowing $2000, and you've managed to save up $11,000, I'd guess you can pay off the $2,000 pretty quickly. So as Keshlam says, the interest rate probably isn't all that important. If you can pay it off in a year, then the difference between 5% and 1% is only $80. If you're buying a $13,000 car, I can't imagine you're going to agonize over $80. BTW I've bought two cars in the last few years with about half the cost in cash and putting the rest on my credit card. (One for me and one for my daughter.) Then I paid off the credit card in a couple of months. Sure, the interest rate on a credit card is much higher than a car loan, but as it was only for a few months, it made very little real difference, and it took zero effort to arrange the loan and gave me total flexibility in the repayment schedule. Credit card companies often offer convenience checks where you pay like 3% or so transaction fee and then 0% interest for a year or more, so it would just cost the 3% up front fee.\"", "title": "" }, { "docid": "12846ee71ec9c5769954964fdc8c2f01", "text": "\"Patience has never been my strong suit Unfortunately this is what you need to build up credit. The activities that increase your credit score are paying your bills on time and not using too much of the available credit that you do have. The rest (age of accounts, recent pulls, etc.) are short-term indicators that indicate changes in behavior that will make lenders pause and understand what the reasons behind the events are. Also keep in mind that your credit score shouldn't run your life. It should be a passive indicator of your financial habits - not something that you actively manipulate. Is there anything I can do to raise my score without having to take out a loan with interest? Pay your bills on time, and don't take out more credit than you need. You're already in the \"\"excellent\"\" category, so there's no reason to panic or try to manipulate it. Even if you temporarily dip below, if you need to make a big purchase (house), your loan-to-value and debt/income ratio will be much bigger factors in what interest rate you can get. As far as the BofA card goes, if you don't need it, cancel it. It might cause a temporary dip in your credit, but it will go away quickly, and you're better off not having credit cards that you don't need.\"", "title": "" }, { "docid": "0d6eaeb4ba54c786c2800de434892ca9", "text": "\"I'm going to give a simpler answer than some of the others, although somewhat more limited: the complicated loan parameters you describe benefit the lender. I'll focus on this part of your question: You should be able to pay back whenever; what's the point of an arbitrary timeline? Here \"\"you\"\" refers to the borrower. Sure, yes, it would be great for the borrower to be able to do whatever they want whenever they want, increasing or decreasing the loan balance by paying or not paying arbitrary amounts at their whim. But it doesn't benefit the lender to let the borrower do this. Adding various kinds of restrictions and extra conditions to the loan reduces the lender's uncertainty about when they'll be receiving money, and also gives them a greater range of legal recourse to get it sooner (since they can pursue the borrower right away if they violate any of the conditions, rather than having the wait until they die without having paid their debt). Then you say: And if you want, you can set a legal deadline. But the mere deadline in the contract doesn't affect how much interest is paid—the interest is only affected by how much money is borrowed and how long has passed. I think in many cases that is in fact how it works, or at least it is more how it works than you seem to think. For instance, you can take out a 30-year loan but pay it off in less than 30 years, and the amount you pay will be less if you pay it off sooner. However, in some cases the lender will charge you a penalty for doing so. The reason is the same as above: if you pay off the loan sooner, you are paying less interest, which is worse for the lender. Again, it would be nice for the borrower if they could just pay it off sooner with no penalty, but the lender has no reason to let them do so. I think there are in fact other explanations for these more complicated loan terms that do benefit the borrower. For instance, an amortization schedule with clearly defined monthly payments and proportions going to interest and principal also reduces the borrower's uncertainty, and makes them less likely to do risky things like skip lots of payments intending to make it up later. It gives them a clear number to budget from. But even aside from all that, I think the clearest answer to your question is what I said above: in general, it benefits the lender to attach conditions and parameters to loans in order to have many opportunities to penalize the borrower for making it hard for the lender to predict their cash flow.\"", "title": "" }, { "docid": "4c0ad5c834bc207b3f756d7ce3c6ed65", "text": "\"You won't be able to sell the car with a lien outstanding on it, and whoever the lender is, they're almost certain to have a lien on the car. You would have to pay the car off first and obtain a clear title, then you could sell it. When you took out the loan, did you not receive a copy of the finance contract? I can't imagine you would have taken on a loan without signing paperwork and receiving your own copy at the time. If the company you're dealing with is the lender, they are obligated by law to furnish you with a copy of the finance contract (all part of \"\"truth in lending\"\" laws) upon request. It sounds to me like they know they're charging you an illegally high (called \"\"usury\"\") interest rate, and if you have a copy of the contract then you would have proof of it. They'll do everything they can to prevent you from obtaining it, unless you have some help. I would start by filing a complaint with the Better Business Bureau, because if they want to keep their reputation intact then they'll have to respond to your complaint. I would also contact the state consumer protection bureau (and/or the attorney general's office) in your state and ask them to look into the matter, and I would see if there are any local consumer watchdogs (local television stations are a good source for this) who can contact the lender on your behalf. Knowing they have so many people looking into this could bring enough pressure for them to give you what you're asking for and be more cooperative with you. As has been pointed out, keep a good, detailed written record of all your contacts with the lender and, as also pointed out, start limiting your contacts to written letters (certified, return receipt requested) so that you have documentation of your efforts. Companies like this succeed only because they prey on the fact many people either don't know their rights or are too intimidated to assert them. Don't let these guys bully you, and don't take \"\"no\"\" for an answer until you get what you're after. Another option might be to talk to a credit union or a bank (if you have decent credit) about taking out a loan with them to pay off the car so you can get this finance company out of your life.\"", "title": "" }, { "docid": "bc62090f22d1078f7f51c9926b2899ac", "text": "There is a reason - your credit score. If you ever take out a mortgage, you might pay dearly for your behavior. The bank where you have the credit card reports the amount on the bill to the credit rating agencies. If you pay before the bill date, they will always report zero. You should wait at least till the day after the billing cycle ends, and then pay off (you don't need to have the paper bill in your hands - you can see online when the cycle closed). Depending on your other financial behavior, this will have between zero and significant effect, on the percentages you get offered for car loans, mortgages, etc.", "title": "" }, { "docid": "736c6ffbfac68ce8ac555222faef9224", "text": "I think this has to do with the fact that the interest is charged to your balance and grows everyday. As a result, the computer broke it down so that it can capitalize on that remaining balance. If your regular student loan payment was $500 a month at 5% interest, but your balance became $499, spreading out the $499, they can make more money off you. It might not be a lot, or in your case essentially 0, but it could be better than nothing.", "title": "" } ]	fiqa
b103afc1c3e718e2d67204b6c31fd3ed	How do I figure out the market value of used books?	[ { "docid": "64a9c4b0039ace289ff8cdba95b38b0c", "text": "Half of original MSRP at Amazon is a good option for books that are in good condition. Another option would be to use eBay, specifically Half.com.", "title": "" }, { "docid": "9cb67b41fee650936cc6c7cc95c0eed7", "text": "Regarding the textbooks and technical books, it might be worth checking out sites like Chegg.com or other textbook rental websites. They might buy it from you directly versus trying to sell it on an ebay or amazon. For fiction or nonfiction, amazon and ebay can be tough, but probably worth a look. See what comparables are for your books or similar titles, and if it works, try selling a few. The big problem is that so many sellers are on Amazon these days, that major discounts are commonplace. I've bought hardback 1st editions for less than the cost of economy shipping, so the profit margin is dwindling at best if it's an unpopular or low demand book.", "title": "" }, { "docid": "75c9253a244592dfd74e8e91698516a3", "text": "Text Book values drop rather rapidly and fluctuate quite a bit based on when you are selling (January and August-September when semesters generally start) them. I generally sell my old text books on Amazon for 10-15% less than the peak price over the last 6 months or a year if that much data is available (I use camelcamelcamel.com to get historical data). They generally sell pretty quick so I would say it is a fair price.", "title": "" } ]	[ { "docid": "de3dd9ff566f4e4440c3035ea0f73ece", "text": "\"For those on a budget, check if your local library has access to / or a copy of the \"\"Standard & Poor's Daily Stock Price Record\"\". Access to that or a similar service may be available as part of your library patronage. If not available it may be available at your metropolitan central library. Comprehensive stock pricing data which provides adjustments for splits, mergers, capital distributions and other relevant events is still a premium product. External link to New York Public Library blog post on subject: http://www.nypl.org/blog/2012/04/09/finding-historical-stock-prices\"", "title": "" }, { "docid": "dfe42c873491ca1cefe0d3f986e96815", "text": "\"I'm not an economist, but I understand the idea of value or \"\"price\"\" is purely \"\"what people agree it to be\"\". The quants and analysts I've worked with always talk about \"\"discovering the price\"\" - it's an unknown until someone says \"\"I will pay X\"\". Are my 2nd hand Nikes worth $20? Put em on ebay to find out. If someone buys them, then yes, 2nd hand Nikes are worth $20. If they don't sell then they're not worth $20. Obviously ebay is not the most efficient market out there. The exchanges attempt to be that with prices varying by fractions of cent in fractions of seconds (milliseconds). EDIT* Perhaps another way to look at it is \"\"What is the 'correct' value of a computer game, say 'Skyrim'?\"\" Your idea of the value of labour and production costs produces some figure. But in the real world, what actually happens? On release day the game is priced at, say, $60. And lots of people say \"\"I will pay $60\"\". Many people don't, but many people do. Months later, Steam has a sale and they suggest Skyrim is now worth $30. Lot's of people who didn't think it was worth $60 do think it is worth $30. The amount of labour that went into is hasn't changed. So what it the true or 'correct' value/price of the game? What is the correct value/price of amything? It is what people will pay for it.\"", "title": "" }, { "docid": "ebb41def0224a718e83f9f53e5a8e812", "text": "\"The textbook answer would be \"\"assets-liabilities+present discounted value of all future profit\"\". A&L is usually simple (if a company has an extra $1m in cash, it's worth $1m more; if it has an extra $1m in debt, it's worth $1m less). If a company with ~0 assets and $50k in profit has a $1m valuation, then that implies that whoever makes that valuation (wants to buy at that price) really believes one of two things - either the future profit will be significantly larger than $50k (say, it's rapidly growing); or the true worth of assets is much more - say, there's some IP/code/patents/people that have low book value but some other company would pay $1m just to get that. The point is that valuation is subjective since the key numbers in the calculations are not perfectly known by anyone who doesn't have a time machine, you can make estimates but the knowledge to make the estimates varies (some buyers/sellers have extra information), and they can be influenced by those buyers/sellers; e.g. for strategic acquisitions the value of company is significantly changed simply because someone claims they want to acquire it. And, $1m valuation for a company with $500m in profits isn't appropriate - it's appropriate only if the profits are expected to drop to zero within a couple years; a stagnant but stable company with $500m profits would be worth at least $5m and potentially much more.\"", "title": "" }, { "docid": "35ff05e2d5c742c8cf523afc69864cb9", "text": "Conservative = erring on the side of ascribing a higher EV to the business. Because if you're someone looking to acquire the business, for example, and let's say we're talking about a business that has debt which trades at a discount, it's more conservative to assume that the debt can't necessarily be restructured. To use an extreme example, as you're valuing the business, would it be conservative or aggressive to assume that the debt got magically wiped out altogether? So that's why I'm saying that it's more conservative to use the book value of the debt.", "title": "" }, { "docid": "cdccd9264950fda9d11e48e23df2b0d9", "text": "What if Kirtsaeng were only acting as a foreign agent of the purchaser? Seems like that would be an easy work around. Instead of selling the book, he could charge a service fee for making the purchase for someone else.", "title": "" }, { "docid": "3ed36d63a9b925c315ab217b16467959", "text": "Have you looked at what is in that book value? Are the assets easily liquidated to get that value or could there be trouble getting the fair market value as some assets may not be as easy to sell as you may think. The Motley Fool a few weeks ago noted a book value of $10 per share. I could wonder what is behind that which could be mispriced as some things may have fallen in value that aren't in updated financials yet. Another point from that link: After suffering through the last few months of constant cries from naysayers about the company’s impending bankruptcy, shareholders of Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) can finally look toward the future with a little optimism. Thus, I'd be inclined to double check what is on the company books.", "title": "" }, { "docid": "487f70fefde2260535df8ddd74de4414", "text": "NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.", "title": "" }, { "docid": "59c4d3ea50aad7d39d3a7495aa8e3924", "text": "Book value = sell all assets and liquidate company . Then it's the value of company on book. Price = the value at which it's share gets bought or sold between investors. If price to book value is less than one, it shows that an 100$ book value company is being traded at 99$ or below. At cheaper than actually theoretical price. Now say a company has a production plant . Situated at the most costliest real estate . Yet the company's valuation is based upon what it produces, how much orders it has etc while real estate value upon which plant is built stays in book while real investors don't take that into account (to an extend). A construction company might own a huge real estate inventory. However it might not be having enough cash flow to sustain monthly expense. In this scenario , for survival,i the company might have to sell its real estate at discount. And market investors are fox who could smell trouble and bring price way below the book value Hope it helps", "title": "" }, { "docid": "9a52969d6de27e78057142e53b34db9c", "text": "You're realizing the perils of using a DCF analysis. At best, you can use them to get a range of possible values and use them as a heuristic, but you'll probably find it difficult to generate a realistic estimate that is significantly different than where the price is already.", "title": "" }, { "docid": "77eace4c4744e927720c62b309b3214e", "text": "Certainly sounds worthwhile to get a CPA to help you with setting up the books properly and learning to maintain them, even if you do it yourself thereafter. What's your own time worth?", "title": "" }, { "docid": "c019cab98369192a419c76fde2604a04", "text": "\"I'm not sure what the situation is in Canada, but in the US, the IRS does not look kindly on people overvaluing donations of used goods. The rule is obviously abused quite a bit, but that doesn't mean it's legal! Different used books have different values, usually depending on supply and demand, and there are online databases that make it easy to check the value of a book using a barcode scanner. If you took a book to a used bookstore and they didn't want to buy it, that's because supply greatly exceeds demand... it might be last year's bestseller, for example. In this situation, donating the book to charity and claiming that the book is \"\"worth\"\" more than it's actually worth is really nothing more than cheating on your taxes. You may or may not get caught, but it's certainly not the intent of any tax code to give people a break on their taxes for donating worthless books to a charity which will inevitably just have to recycle or shred them.\"", "title": "" }, { "docid": "f1b7f7147ecf4016b8209d50d31f589d", "text": "I have sold a few items on ebay. The biggest issue I have with ebay is all of the fees. I am not sure how much has changed recently, but when I was selling stuff it felt like ebay and paypal took a large chunk of the money. I could be wrong, but it seemed like they were getting around 35% or more of my 'profits'. Of course, you then have the shipping fees on top of that, which will run a few bucks on common items. For items that sell for around $20 on ebay, I felt like I was ending up with about $5 in my pocket. I have used Amazon to sell used books, though I haven't done that for about a year or so. They had no fees for listing items, and the item remains listed for about 90 days. If it sells, they process the payment and can deposit it into your bank account or provide an Amazon gift certificate. I forget Amazon's fees, but I remember that it didn't seem to be as frustrating as the ebay/paypal price structure.", "title": "" }, { "docid": "4b6f090327ec6cce7d14b1a6d77924e4", "text": "Discrepancies between what the book value is reported as and what they'd fetch if sold on the open market. Legal disputes in court.", "title": "" }, { "docid": "0fb6df68bbd3c28f9396ec52c362d2fa", "text": "If you're willing to pay a fee, you can probably just get a commercial appraiser to give you a valuation. In Australia I think it's around $100-200.", "title": "" }, { "docid": "02b8a662668832af66709dbeb39365ad", "text": "To determine the value of one's life, instead of rating happiness from 1 to 10 every day in pink ink in a secret diary, use the concept of mercantile exchange to determine the value of your existence. First, offer your time for some initial price ($10) to some investors (Bob). Then, create an order book where anyone can make a bid or ask for your time. For example, Bob creates a sell order for 10 min of your time for $20. Mary creates a buy order for 10 min of your time for $20--Bob sells 10 min of your time to Mary for $20. Based on the supply and demand for your time, you could determine the value of your existence. Obviously, your time would no longer be yours, but it's interesting to consider nontheless and precisely equivalent to the process that determines stock price. (Ignoring the minutiae of order books and IPOs.)", "title": "" } ]	fiqa
bc821cd342f1977a6739092329148a9e	Are precious metals/collectibles a viable emergency fund?	[ { "docid": "bfde7f9b43df2af566599c0879099552", "text": "\"If it were me, I would convert it to cash and keep it in a liquid account. The assumption that silver will increase in value is misguided. From 1985 to 2002, it was flat. It's gone up and been far more volatile since then, and there has been significant declines which could eat at the stability of an emergency fund. Precious metals are speculation, not investing. They do not create wealth. Investing is typically considered too volatile for an emergency fund, more so keeping the money in metals. Making it more difficult to get to, like keeping it in a separate account might also fight against frivolous or accidental spending. Also there tends to be high transaction costs when liquidating metals. I found the best way is to use eBay. After some further comments and clarification here I suspect you are dealing with something else. Namely, the \"\"white picket fence\"\". Again, this is supposition, but perhaps she envisions the two of you married and hosting a dinner party using the passed down silver. This could be a strong emotional bond, and as such it could trump the logical arguments. Keeping it as an emergency fund: foolish. You helping her keep it because you are planning a life together: smart.\"", "title": "" }, { "docid": "c5f6eaba86351787a2d8128549b67dd8", "text": "\"If you were asking if you should buy silver for an emergency fund, I'd say no. But, you already have it... Note: I wrote most of the below under the assumption that this is silver bullion coins/bars; it didn't occur to me till the end that it could be jewelry. Both of you have good arguments for your points of view. Breaking it down: Her points 1. A very good point. And while she may not be irresponsible, maybe the invisibility of it is good for her psychology? It's her's, so her comfort is important here. 2. Good. Make sure it's explicitly listed on the policy. 3. Bad. I think it will as well, at least the long run. But, this is not a good reason for an emergency fund -- the whole point of which is to be stable in case of emergencies. 4. Good. Identity theft is a concern, though unless her info is already \"\"out there\"\", it's insufficient for the emergency fund. And besides, she could keep cash. Your points 1. Iffy. On the one hand, you're right. On the other hand, Cyprus. It is good to remember that money in accounts is in someone else's control, not yours, as the Cypriots found out to their chagrin. And of course, it can't happen here, but that's what they thought too. There is value in having some hard assets physically in your control. Think of it as an EMERGENCY emergency fund. Cash works too, but precious metals are better for these mega-upheaval scenarios. Again, find out how having such an EMERGENCY fund would make her feel. Does having that give her some comfort? A gift from a family member of this much silver leads me to assume that her family might have a little bit of a prepper culture. If so, then even if she is not a prepper herself, she may derive some comfort from having it, just in case -- it'll be baked into her background. Definitely a topic to discuss with her. 2. Excellent point. This is precisely why you want your emergency fund in some form of cash. 3. Bad. You can walk into any pawn shop and sell it in a heartbeat. Or you can send it in to a company and have cash in days. 4. Bad. If you know a savings account that pays 3%-4%, please, please, please tell me where it is so I can get one. Fact is, all cash instruments pay negligible interest now, and all such savings are being eroded by inflation. 5. Maybe. There is value to looking at your net worth this way, but my experience has been that those that do take it way too far. I think there's more value at looking at allocation within a few broad \"\"buckets\"\" -- emergency fund, savings (car, house, college, etc), and retirement fund. If this is to be an EMERGENCY fund, as per point #1, then you should look at it as its own bucket (and maybe add a little cash too). Another thought to add: This is a gift from a family member -- they gave her a lot of silver. Of course it's your SO's now, and she can do whatever she wants with it, but how would the family member react if she did liquidate it? If that family member is a prepper, and gave her this with the emotional desire to see her prepped, they may be upset if she sold it. It just occurred to me this may be jewelry. Your SO may not have sentimental attachment to it, but what about the family member's sentiments? They may not like to see family silver they loving maintained and passed on casually discarded for mere cash by your SO. Another thing to discuss with her. Wrap up Generally, you are right about not keeping a 6 month emergency fund in silver. But there are other factors to consider here. There's also the fact that it's already bought -- the cost of buying (paying over market) has already been taken. Edit -- so it's silverware Ah, so it's silverware. Well, scratch everything, except how the family member feels about, which now looms large. This doesn't have much value as an emergency fund. Nor really as an investment. If you did keep it as an investment, think of it as an investment in collectibles/art, less so in precious metals. If no one will get upset, I'd say pick out the nicest set to keep for special occasions, and sell the rest. Find out first if it has collectible or historical value. It may be worth far more than the pure weight in silver. Ebay might be the way to go to sell it.\"", "title": "" }, { "docid": "e81aa566018fd11d9e87cd86713783ee", "text": "People normally hold precious metals as a protection against the whole system going down: massive inflation, lawlessness, etc. If our whole government and financial system broke completely and we returned to a barter economy, then holding silver would likely turn out to be a good thing. However, precious metals are not very good hedges against individual calamity, like losing your job. They are costly and inconvenient to sell and the price of these metals fluctuates wildly, so you could end up wanting to sell just when the metal isn't worth much. I'd say having some precious metal isn't unreasonable, but it should not make up a major portion of one's total net worth. If you want protection against normal problems, especially as a person of limited means, start with an emergency savings account and paying down debt. That way fixed costs will be less likely to turn an unfortunate turn of events into a personal catastrophe.", "title": "" } ]	[ { "docid": "2c367ceba9490ae54dce5a02b9fc2171", "text": "\"You're talking about money in a savings account, and avoiding the risks posed by an ongoing crisis, and avoiding risk. If you are risk-averse, and likely to need your money in the short term, you should not put your money in the stock market, even in \"\"safe\"\" stocks like P&G/Coca-Cola/etc. Even these safe stocks are at risk of wild price swings in the short- to intermediate-term, especially in the event of international crises such as major European debt defaults and the like. These stocks are suitable for long-term growth objectives, but they are not as a replacement for a savings account. Coca-Cola lost a third of its value between 2007 and 2009. (It's recovered, and is currently doing better than ever.) P&G went from $74/share to $46/share. (It's partially recovered and back at $63). On the other hand, these stocks may indeed be suitable as long-term investments to protect you against local currency inflation. And yes, they even pay dividends. If you're after this investment, a good option is probably a sector-specific exchange-traded fund, such as a consumer-staples ETF. It will likely be more diversified and safer than anything you could come up with using a list of individual stocks. You can also investigate recommendations that show up when you search for a \"\"defensive ETF\"\". If you do not wish to buy the ETF directly, you can also look at listings of the ETF's holdings. Read the prospectus for an idea of the risks associated with these funds. You can buy these funds with any brokerage that gives you access to US stock exchanges.\"", "title": "" }, { "docid": "ad53a673e51687e957147a328395e9c7", "text": "\"There are exactly zero experts in the field of Personal Finance that would advise having an \"\"emergency fund\"\" (liquid assets available to meet sudden obligations like illness, car accident, AC breaks, etc.) that is sub $1,000. If you have less than $1k in liquid assets you either A. must live at home with your parents, B. very broke or C. being very irresponsible. I think an emergency fund of $10k is really the sweet spot. I can't imagine anyone reasonable funding the shit out of their 401k, IRA, etc. and having less than $1k cash.\"", "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": "a82d6bb88b2c6a69e9ca89ed9c8692a7", "text": "\"Generally speaking, so-called \"\"hard assets\"\" (namely gold or foreign currency), durable goods, or property that produces income is valuable in a situation where a nation's money supply is threatened. Gold is the universal hard asset. If you have access to a decent market, you can buy gold as bullion, coins and jewelry. Small amounts are valuable and easy to conceal. The problem with gold is that it is often marked up alot... I'm not sure how practical it is in a poor developing nation. A substitute would be a \"\"harder\"\" currency. The best choice depends on where you live. Candidates would be the US Dollar, Euro, Australian Dollar, Yen, etc. The right choice depends on you, the law in your jurisdiction, your means and other factors.\"", "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": "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": "ccdfb95bba9a39dd154f1bfddbefe85b", "text": "How much money do you have in your money market fund and what in your mind is the purpose of this money? If it is your six-months-of-living-expenses emergency fund, then you might want to consider bank CDs in addition to bond funds as an alternative to your money-market fund investment. Most (though not necessarily all, so be sure to check) bank CDs can be cashed in at any time with a penalty of three months of interest, and so unless you anticipate being laid off very soon, you might get a slightly better rate of interest, FDIC insurance (which mutual funds do not have), and with any luck you may never have to break a CD and lose the interest. Building a ladder of CDs with one maturing each month might be another way to reduce the risk of loss. On the other hand, bond mutual funds are a risky bet now because your investment will lose value if interest rate go up, and as JohnFx points out, interest rates have nowhere to go but up. Finally, the amount of the investment is something that you might want to consider before making changes. If you have $50K put away as your six-month fund, you are talking of $500 versus $350 per annum in changing to a riskier investment with a 1% yield from a safer investment with a 0.7% yield. Whether bragging rights at neighborhood parties are worth the trouble is something for you to decide.", "title": "" }, { "docid": "b951581481716127c2df5bc1a90db315", "text": "Emergency funds, car funds etc tend to have to be accessible quickly (which tends to rule out CDs unless you have the patience to work something like a monthly CD ladder, an I don't) and you'll want your principal protected. The latter pretty much rules out any proper investment (ETFs, mutual funds, stock market directly, Elbonian dirt futures etc). It's basically a risk-vs-return calculation. Not much risk, not much return but at least you're not losing from a nominal standpoint). Another consideration is that you normally aren't able to decide freely if and when you want to pull money out of an emergency fund. If it is an emergency, waiting three weeks to see if the stock market goes up a little further isn't an option so you might end up having to take a hit that would be irrelevant if you were investing long term but might hurt badly because you're left with no choice. I'd stick that sort of money into a money market account and either add to it if necessary to keep up with inflation or make sure that my non-retirement investments over and above these funds are performing well, as those will and should become a far bigger part of your wealth in the longer run.", "title": "" }, { "docid": "282a19e1d7ad4b6cbbb606ae59f137c0", "text": "\"I'm not a fan of using cash for \"\"emergency\"\" savings. Put it in a stable investment that you can liquidate fairly quickly if you have to. I'd rather use credit cards for a while and then pay them off with investment funds if I must. Meanwhile those investments earn a lot more than the 0.1 percent savings or money market accounts will. Investment grade bond funds, for example, should get you a yield of between 4-6% right now. If you want to take a longer term view put that money into a stock index fund like QQQ or DIA. There is the risk it will go down significantly in a recession but over time the return is 10%. (Currently a lot more than that!) In any event you can liquidate securities and get the money into your bank is less than a week. If you leave it in cash it basically earns nothing while you wait for that rainy day which many never come.\"", "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": "99132ead7c0318b28479f3d0e3cb6555", "text": "A CD ladder is an ideal way to hold your emergency funds and eke out a few more percentage points of return. Buy CDs in denominations close to one month's expenses, and ladder 1 per month with 3, 6 or 12 month CDs (depending on your total cash allocation to emergency funds). By using a frequency that matches your available funds, in a best case scenario, you can perpetually roll over (or as your savings increase, extend to a longer frequency). If you have an emergency, you have a month's expenses in cash or cash coming in within a month.", "title": "" }, { "docid": "bab6ea73a159b162acf0efe1a8be6b24", "text": "\"The answer to your question depends very much on your definition of \"\"long-term\"\". Because let's make something clear: an investment horizon of three to six months is not long term. And you need to consider the length of time from when an \"\"emergency\"\" develops until you will need to tap into the money. Emergencies almost by definition are unplanned. When talking about investment risk, the real word that should be used is volatility. Stocks aren't inherently riskier than bonds issued by the same company. They are likely to be a more volatile instrument, however. This means that while stocks can easily gain 15-20 percent or more in a year if you are lucky (as a holder), they can also easily lose just as much (which is good if you are looking to buy, unless the loss is precipitated by significantly weaker fundamentals such as earning lookout). Most of the time stocks rebound and regain lost valuation, but this can take some time. If you have to sell during that period, then you lose money. The purpose of an emergency fund is generally to be liquid, easily accessible without penalties, stable in value, and provide a cushion against potentially large, unplanned expenses. If you live on your own, have good insurance, rent your home, don't have any major household (or other) items that might break and require immediate replacement or repair, then just looking at your emergency fund in terms of months of normal outlay makes sense. If you own your home, have dependents, lack insurance and have major possessions which you need, then you need to factor those risks into deciding how large an emergency fund you might need, and perhaps consider not just normal outlays but also some exceptional situations. What if the refrigerator and water heater breaks down at the same time that something breaks a few windows, for example? What if you also need to make an emergency trip near the same time because a relative becomes seriously ill? Notice that the purpose of the emergency fund is specifically not to generate significant interest or dividend income. Since it needs to be stable in value (not depreciate) and liquid, an emergency fund will tend towards lower-risk and thus lower-yield investments, the extreme being cash or the for many more practical option of a savings account. Account forms geared toward retirement savings tend to not be particularly liquid. Sure, you can usually swap out one investment vehicle for another, but you can't easily withdraw your money without significant penalties if at all. Bonds are generally more stable in value than stocks, which is a good thing for a longer-term portion of an emergency fund. Just make sure that you are able to withdraw the money with short notice without significant penalties, and pick bonds issued by stable companies (or a fund of investment-grade bonds). However, in the present investment climate, this means that you are looking at returns not significantly better than those of a high-yield savings account while taking on a certain amount of additional risk. Bonds today can easily have a place if you have to pick some form of investment vehicle, but if you have the option of keeping the cash in a high-yield savings account, that might actually be a better option. Any stock market investments should be seen as investments rather than a safety net. Hopefully they will grow over time, but it is perfectly possible that they will lose value. If what triggers your financial emergency is anything more than local, it is certainly possible to have that same trigger cause a decline in the stock market. Money that you need for regular expenses, even unplanned ones, should not be in investments. Thus, you first decide how large an emergency fund you need based on your particular situation. Then, you build up that amount of money in a savings vehicle rather than an investment vehicle. Once you have the emergency fund in savings, then by all means continue to put the same amount of money into investments instead. Just make sure to, if you tap into the emergency fund, replenish it as quickly as possible.\"", "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": "f694ed0f5dd14110332cd21255788977", "text": "From a budgeting perspective, the emergency fund is a category in which you've budgeted funds for the unexpected. These are things that weren't able to be predicted and budgeted for in advance, or things that exceeded the expected costs. For example you might budget $150 per month for car maintenance, and typically spend some of it while the rest builds up over time for unexpected repairs, so you have a few hundred available for that. But this month your transmission died and you have a $3,000 bill. You'll then fund most of this out of your emergency fund. This doesn't cover where to store that money though, which leads me to my next point. Emergencies are emergencies because they come without warning, without you having a chance to plan. Thefore the primary things you want in an emergency fund account are stability and quick access. You can structure investments to be whatever you think of as safe or stable but you don't want to be thinking about whether it's a good time to sell when you need the money right now. But the bigger problem is access. When you need the funds on a weekend, holiday, anytime outside of market hours, you're not going to be able to just sell some stocks and go to an ATM. This is the reason why it's recommended to have these funds in a checking or savings account usually. The reason I mentioned the budgeting side first is because I wanted to point out that if you're budgeting well, most of the unexpected expenses you have should have been expected in a sense; you can still plan for something without knowing when or if it will happen. So in the example of a car repair, ideally you're already budgeting for possible repairs, if you own a home you're budgeting for things that would go wrong, budgeting for speeding tickets, for surprise out of pocket medical costs, etc. These then become part of your normal budget: they aren't part of the emergency fund anymore. The bright side about budgeting for something unexpected is that you know what that money is for, and do you likely also know how quickly you'll need it. For example you know if you have unexpected medical costs that happen very quickly, you're not likely you need a bag of cash on a moment's notice. So those last two points lead to the fact that your actual emergency fund, the dollars that are for things you simply could not foresee, will be relatively small. A few thousand dollars or so in most cases. If you've got things structured like this, you'll be happy to have a few grand available at a moment's notice. The bulk of the money you would use for other surprise expenses (or things like 6 months of living expenses) is represented in other specific categories and you already know the timeframe in which you need it (probably enough time that it could be invested, risk to taste). In short: by expecting the unexpected, you can sidestep this issue and not worry so much about missed returns on the emergency fund.", "title": "" }, { "docid": "a73a32e9c0c175cc10a1014387ee433f", "text": "\"Your are mixing multiple questions with assertions which may or may not be true. So I'll take a stab at this, comment if it doesn't make sense to you. To answer the question in the title, you invest in an IRA because you want to save money to allow you to retire. The government provides you with tax incentives that make an IRA an excellent vehicle to do this. The rules regarding IRA tax treatment provide disincentives, through tax penalties, for withdrawing money before retirement. This topic is covered dozens of times, so search around for more detail. Regarding your desire to invest in items with high \"\"intrinsic\"\" value, I would argue that gold and silver are not good vehicles for doing this. Intrinsic value doesn't mean what you want it to mean in this context -- gold and silver are commodities, whose prices fluctuate dramatically. If you want to grow money for retirement over a long period, of time, you should be invested in diversified collection of investments, and precious metals should be a relatively small part of your portfolio.\"", "title": "" } ]	fiqa
a94aeabe69ba44a08d378be5ae6cb003	Will a small investment in a company net a worthwhile gain?	[ { "docid": "d5a298afce83af0d8164f0633e8051c1", "text": "If the shares rise in value 50% over the next few years, you will have the same return that I would see if I bought 100 or 1000 shares. The only issue with a small purchase is that even a $5 commission is a high percent. But the rest of the math is the same.", "title": "" }, { "docid": "0a25be21ae1f082eaa8de2b1ee66c756", "text": "If you bought 5 shares @ $20 each that would cost you $100 plus brokerage. Even if your brokerage was only $10 in and out, your shares would have to go up 20% just for you to break even. You don't make a profit until you sell, so just for you to break even your shares need to go up to $24 per share. Because your share holding would be so small the brokerage, even the cheapest around, would end up being a large percentage cost of any overall profits. If instead you had bought 500 shares at $20, being $1000, the $20 brokerage (in and out) only represents 2% instead of 20%. This is called economies of scale.", "title": "" } ]	[ { "docid": "d10eb268437ac3cb2c275b49b796db2d", "text": "From Dimson, Elroy, Paul Marsh, and Mike Staunton. Triumph of the Optimists: 101 Years of Global Investment Returns. Princeton, N.J: Princeton University Press, 2002: Disappointingly, the small firm effect has not proved the road to great riches since soon after its discovery, the US size premium went into reverse. This was repeated in the United Kingdom and virtually all other markets around the world. Despite their disappointing performance in recent years, the very long-run record of small-caps remains one of outperformance in both the United States and the United Kingdom. Furthermore, mid- and small-size companies are still an important asset class. Their differential performance over long periods of history shows that there is useful scope for investors to reduce risk by diversifying across the “large” and the “small” capitalization sectors of the market. Furthermore, given the pervasiveness of the size effect across the entire size spectrum, it is important to all investors since the size tilt of any portfolio will strongly influence its short- and long-run performance. This holds true whether there is a size premium or a size discount. The size effect has certainly proved persistent and robust. What is at issue is whether we should continue to expect a size premium over the longer haul. And accompanying charts: And one chart from BlackRock:", "title": "" }, { "docid": "a0b4faa62bdcfa18c2e8cb9c42b88f0e", "text": "\"You are correct that, barring an equity capital raise, your money doesn't actually end up in the company. However, interest in their stock can help a company in other ways; Management/board members hopefully own shares or options themselves, thus knowing that \"\"green\"\" policies are favorable for the stock price (as your fund might buy shares) can be quite an incentive for them to go green(er). Companies with above average company share performance are also often viewed as financially healthy and so creditors tend to charge lower interest for companies with good share performance. Lastly, a high share price makes a company difficult to take over (as all those shares have to be acquired) and at the same time makes it easier for the company to perform takeovers themselves as they can finance such acquisitions by issuing more of their own shares. There is also the implication that money flowing towards such green companies is money flowing out of/away from polluting companies, for these \"\"dirty\"\" companies the inverse of the previous points can hold true. Of course on the other hand there is quite an argument to be made that large enough \"\"green\"\" funds should actually buy substantial positions in companies with poor environmental records and steer the company towards greener policies but that might be a hard sell to investors.\"", "title": "" }, { "docid": "764624b0e84789c70bc3f1b715a280c3", "text": "Shares in a company represent a portion of a company. If that company takes in money and doesn't pay it out as a dividend (e.g. Apple), the company is still more valuable because it has cold hard cash as an asset. Theoretically, it's all the same whether your share of the money is inside the company or outside the company; the only immediate difference is tax treatment. Of course, for large bank accounts that means that an investment in the company is a mix of investment in the bank account and investment in the business-value of the company, which may stymie investors who aren't particularly interested in buying larve amounts of bank accounts (known for low returns) and would prefer to receive their share of the cash to invest elsewhere (or in the business portion of the company.) Companies like Apple have in fact taken criticism for this. Your company could also use that cash to invest in itself (growing the value of its profits) or buy other companies that are worth money, essentially doing the job for you. Of course, they can do the job well or they can do it poorly... A company could also be acquired by a larger company, or taken private, in exchange for cash or the stock of another company. This is another way that the company's value could be returned to its shareholders.", "title": "" }, { "docid": "32a0d87b28f8b8554b0c9302b8b5f6ff", "text": "\"No, an entrepreneur actually adds value, whereas stock ownership does not. Buying stocks is akin to gambling, except with different rules and an average positive return over time, whereas normal casino gambling always has a net negative result on average. To put it shortly: If it doesn't make a difference whether its you or John from across the corner doing the action, then its basically a speculation with \"\"investment\"\" as an alias. You're merely the purse. If you are involved in the running of the project, taking decisions, organizing, putting your time and creativity in, then you're an entrepreneur. In this case, its clear to see that different persons will have different results, so they matter as persons and not just as purses. Note that if you buy enough stock to actually have a say in the running of the company, then you're crossing the threshold there.\"", "title": "" }, { "docid": "1c984b3ec76abda18d2df1676240ad13", "text": "its the best investment you can have specially with the company you work for and IPO, if i was you i would invest in more then just the minimum since its IPO. ask you your manager or supervisor how much are they buying the stocks for if they are doing it the go for it you'll be okay just keep track of it regular sometime you can invest more as time go by. You can get the idea by how much production your company is doing, if your company's profit going up chances are you need to buy more.", "title": "" }, { "docid": "abe1bdfd75ae3be1ffe8588abac21765", "text": "This situation sounds better than most, the company it seems likely to be profitable in the future. As such it is a good candidate to have a successful IPO. With that your stock options are likely to be worth something. How much of that is your share is likely to be very small. The workers that have been their since the beginning, the venture capitalist, and the founders will make the majority of profits from an IPO or sale. Since you and others hired at a similar time as you are assuming almost no risk it is fair that your share of the take is small. Despite being 1/130 employees expect your share of the profits to be much smaller than .77%. How about we go with .01%? Lets also assume that they go public in 2.5 years and that revenues during that time continue to increase by about 25M/year. Profit margins remains the same. So revenues to 112M, profits to 22.5M. Typically the goal for business is to pay no more than 5 times profits, that could be supplanted by other factors, but let's assume that figure. So about 112M from the IPO. So .01% of that is about 11K. That feels about right. Keep in mind there would be underwriting fees, and also I would discount that figure for things that could go wrong. I'd be at about 5K. That would be my expected value figure, 5K. I'd also understand that there is a very small likelihood that I receive that amount. The value received is more likely to be zero, or enough to buy a Ferarri. There might also be some value in getting to know these people. If this fails will their next venture be a success. In my own life, I went to work for a company that looked great on paper that just turned out to be a bust. Great concept, horrible management, and within a couple of years of being hired, the company went bust. I worked like a dog for nothing.", "title": "" }, { "docid": "c6cb4a956263e8a41ee3791e633b372f", "text": "Would you consider the owner of a company to be supporting the company? If you buy stock in the company you own a small part of that company. Your purchase also increases the share price, and thus the value of the company. Increased value allows the company to borrow more money to say expand operations. The affect that most individuals might have on share price is very very small. That doesn't mean it isn't the right thing for you to do if it is something you believe in. After all if enough people followed those same convictions it could have an impact on the company.", "title": "" }, { "docid": "576f7d951a779bdf0f9e1097102fbb92", "text": "There is nothing fair / unfair in such deals. It is an art than a science. what kind of things should be considered, to work out what would be a fair percentage stake A true fair value is; take the current valuation of the company [This can be difficult if it is small and does not maintain proper records]. Divide by number of shares, that is the value of share and you should 20K worth of such shares. But then there is risk premium. You are taking a risk that an small start-up may do exceedingly well ... or it may close off. This risk premium is what is negotiated. It depends on how desperate the owner of the small company is; who all are interested in this specific deal ... if you want 30% share; someone else is ready to offer 20K for 15% of share. Or there is no one willing to lend 20K as they don't believe it will make money ... and the owner is desperate, you may even get 50%.", "title": "" }, { "docid": "302c61b590ca3faf629e6dea9041552a", "text": "isn't it still a dilution of existing share holder stock value ? Whether this is dilution or benefit, only time will tell. The Existing value of Facebook is P, the anticipated value after Watsapp is P+Q ... it may go up or go down depending on whether it turns out to be the right decision. Plus if Facebook hadn't bought Watsapp and someone else may have bought and Facebook itself would have got diluted, just like Google Shadowed Microsoft and Facebook shadowed Google ... There are regulations in place to ensure that there is no diversion of funds and shady deals where only the management profits and others are at loss. Edit to littleadv's comments: If a company A is owned by 10 people for $ 10 with total value $100, each has 10% of the share in the said company. Now if a Company B is acquired again 10 ea with total value 100. In percentage terms everyone now owns 5% of the new combined company C. He still owns $10 worth. Just after this acquisition or some time later ...", "title": "" }, { "docid": "f70e9b1546375e881102b39de8ec53ba", "text": "Whether it's wise or not depends on what you think and what you should consider are the risks both ways. What are the risks? For Let's say that the company produces great value and its current price and initial price are well below what it's worth. By investing some of your money in the company, you can take advantage of this value and capitalize off of it if the market recognizes this value too, or when the market does (if it's a successful company it will be a matter of when). Other reasons to be for it are that the tech industry is considered a solid industry and a lot of money is flowing into it. Therefore, if this assumption is correct, you may assume that your job is safe even if your investment doesn't pay off (meaning, you don't lose income, but your investment may not be a great move). Against Let's say that you dump a lot of money into your company and invest in the stock. You're being paid by the company, you're taking some of that money and investing it in the company, meaning that, depending on how much you make outside the company, you are increasing your risk of loss if something negative happens to the company (ie: it fails). Other reasons to be against it are just the opposite as above: due to the NSA, some analysts (like Mish, ZeroHedge, and others) think that the world will cut back on doing IT business with the United States, thus the tech industry will take a major hit over the next decade. In addition to that, Jesse Colombo (@TheBubbleBubble) on Twitter is predicting that there's another tech bubble and it will make a mess when it pops (to be fair to Colombo, he was one of analysts who predicted the housing bubble and his predictions on trading are often right). Finally, there is a risk of lost money and there is also a risk of lost opportunity. Looking at your past investments, which generally hurt more? That might give you a clue what to do.", "title": "" }, { "docid": "52d826b925842aa604e0b295fcd54608", "text": "\"No, the stock market is not there for speculation on corporate memorabilia. At its base, it is there for investing in a business, the point of the investment being, of course, to make money. A (successful) business earns money, and that makes it valuable to its owners since that money can be distributed to them. Shares of stock are pieces of business ownership, and so are valuable. If you knew that the business would have profit of $10,000,000 every year, and would distribute that to the owners of each of its 10,000,000 shares each year, you would know to that each share would receive $1 each year. How much would such a share be worth to you? If you could instead put money in a bank and get 5% a year back, to get $1 a year back you would have to put $20 into the bank. So maybe that share of stock is worth about $20 to you. If somebody offers to sell you such a share for $18, you might buy it; for $23, maybe you pass up the offer. But business is uncertain, and how much profit the business will make is uncertain and will vary through time. So how much is a share of a real business worth? This is a much harder call, and people use many different ways to come up with how much they should pay for a share. Some people probably just think something like \"\"Apple is a good company making money, I'll buy a share at whatever price it is being offered at right now.\"\" Others look at every number available, build models of the company and the economy and the risks, all to estimate what a share might be worth, more or less. There is no indisputable value for a share of a successful business. So, what effect does a company's earnings have on the price of its stock? You can only say that for some of the people who might buy or sell shares, higher earnings will, all other thing being equal, have them be willing to spend more to buy it or demand more when selling it. But how much more is not quantifiable but depends on each person's approach to the problem. Higher earnings would tend to raise the price of the stock. Yet there are other factors, such as people who had expected even higher earnings, whose actions would tend to lower the price, and people who are OK with the earnings now, but suspect trouble for the business is appearing on the horizon, whose actions would also tend to lower the price. This is why people say that a stock's price is determined by supply and demand.\"", "title": "" }, { "docid": "81d3eb9c34cca8052b7e5312e0a28964", "text": "If that condition is permanent -- the stock will NEVER pay dividends and you will NEVER be able to sell it -- then yes, it sounds to me like this is a worthless piece of paper. If there is some possibility that the stock will pay dividends in the future, or that a market will exist to sell it, then you are making a long-term investment. It all depends on how likely it is that the situation will change. If the investment is small, maybe it's worth it.", "title": "" }, { "docid": "d69f5e6cf8b569f776788242ee66c6a8", "text": "\"Chris - you realize that when you buy a stock, the seller gets the money, not the company itself, unless of course, you bought IPO shares. And the amount you'd own would be such a small portion of the company, they don't know you exist. As far as morals go, if you wish to avoid certain stocks for this reason, look at the Socially Responsible funds that are out there. There are also funds that are targeted to certain religions and avoid alcohol and tobacco. The other choice is to invest in individual stocks which for the small investor is very tough and expensive. You'll spend more money to avoid the shares than these very shares are worth. Your proposal is interesting but impractical. In a portfolio of say $100K in the S&P, the bottom 400 stocks are disproportionately smaller amounts of money in those shares than the top 100. So we're talking $100 or less. You'd need to short 2 or 3 shares. Even at $1M in that fund, 20-30 shares shorted is pretty silly, no offense. Why not 'do the math' and during the year you purchase the fund, donate the amount you own in the \"\"bad\"\" companies to charity. And what littleadv said - that too.\"", "title": "" }, { "docid": "915e6ec3c328a2e4c2e8506fe7bc97cb", "text": "\"This is several questions wrapped together: How can I diplomatically see the company's financial information? How strong a claim does a stockholder or warrantholder have to see the company's financials? What information do I need to know about the company financials before deciding to buy in? I'll start with the easier second question (which is quasi implicit). Stockholders typically have inspection rights. For example, Delaware General Corporate Law § 220 gives stockholders the right to inspect and copy company financial information, subject to certain restrictions. Check the laws and corporate code of your company's state of incorporation to find the specific inspection right. If it is an LLC or partnership, then the operating agreement usually controls and there may be no inspection rights. If you have no corporate stock, then of course you have no statutory inspection rights. My (admittedly incomplete) understanding is that warrantholders generally have no inspection rights unless somehow contracted for. So if you vest as a corporate stockholder, it'll be your right to see the financials—which may make even a small purchase valuable to you as a continuing employee with the right to see the financials. Until then, this is probably a courtesy and not their obligation. The first question is not easy to answer, except to say that it's variable and highly personal for small companies. Some people interpret it as prying or accusatory, the implication being that the founders are either hiding something or that you need to examine really closely the mouth of their beautiful gift horse. Other people may be much cooler about the question, understanding that small companies are risky and you're being methodical. And in some smaller companies, they may believe giving you the expenses could make office life awkward. If you approach it professionally, directly, and briefly (do not over-explain yourself) with the responsible accountant or HR person (if any), then I imagine it should not be a problem for them to give some information. Conversely, you may feel comfortable enough to review a high-level summary sheet with a founder, or to find some other way of tactfully reviewing the right information. In any case, I would keep the request vague, simple, and direct, and see what information they show you. If your request is too specific, then you risk pushing them to show information A, which they refuse to do, but a vague request would've prompted them to show you information B. A too-specific request might get you information X when a vague request could have garnered XYZ. Vague requests are also less aggressive and may raise fewer objections. The third question is difficult to say. My personal understanding is some perspective of how venture capitalists look at the investment opportunity (you didn't say how new this startup is or what series/stage they are on, so I'll try to stay vague). The actual financials are less relevant for startups than they are for other investments because the situation will definitely change. Most venture capital firms like to look at the burn rate or amount of cash spent, usually at a monthly rate. A high burn rate relative to infusions of cash suggests the company is growing rapidly but may have a risk of toppling (i.e. failing before exit). Burn rate can change drastically during the early life of the startup. Of course burn rate needs the context of revenues and reserves (and latest valuation is helpful as a benchmark, but you may be able to calculate that from the restricted share offer made to you). High burn rate might not be bad, if the company is booming along towards a successful exit. You might also want to look at some sort of business plan or info sheet, rather than financials alone. You want to gauge the size of the market (most startups like to claim 9- or 10-figure markets, so even a few percentage points of market share will hit revenue into the 8-figures). You'll also have to have a sense for the business plan and model and whether it's a good investment or a ridiculous rehash (\"\"it's Twitter for dogs meets Match.com for Russian Orthodox singles!\"\"). In other words, appraise it like an investor or VC and figure out whether it's a prospect for decent return. Typical things like competition, customer acquisition costs, manufacturing costs are relevant depending on the type of business activity. Of course, I wouldn't ignore psychology (note that economists and finance people don't generally condone the following sort of emotional thinking). If you don't invest in the company and it goes big, you'll kick yourself. If it goes really big, other people will either assume you are rich or feel sad for you if you say you didn't get rich. If you invest but lose money, it may not be so painful as not investing and losing out the opportunity. So if you consider the emotional aspect of personal finance, it may be wise to invest at least a little, and hedge against \"\"woulda-shoulda\"\" syndrome. That's more like emotional advice than hard-nosed financial advice. So much of the answer really depends on your particular circumstances. Obviously you have other considerations like whether you can afford the investment, which will be on you to decide. And of course, the § 83(b) election is almost always recommended in these situations (which seems to be what you are saying) to convert ordinary income into capital gain. You may also need cash to pay any up-front taxes on the § 83(b) equity, depending on your circumstances.\"", "title": "" }, { "docid": "23f2a228c3c25affe0b9da5c43a3fc75", "text": "\"BigCo is selling new shares and receives the money from Venturo. If Venturo is offering $250k for 25% of the company, then the valuation that they are agreeing on is a value of $1m for the company after the new investment is made. If Jack is the sole owner of one million shares before the new investment, then BigCo sells 333,333 shares to Venturo for $250k. The new total number of shares of BigCo is 1,333,333; Venturo holds 25%, and Jack holds 75%. The amount that Jack originally invested in the company is irrelevant. At the moment of the sale, the Venturo and Jack agree that Jack's stake is worth $750k. The value of Jack's stake may have gone up, but he owes no capital gains tax, because he hasn't realized any of his gains yet. Jack hasn't sold any of his stake. You might think that he has, because he used to hold 100% and now he holds 75%. However, the difference is that the company is worth more than was before the sale. So the value of his stake was unchanged immediately before and after the sale. Jack agrees to this because the company needs this additional capital in order to meet its potential. (See \"\"Why is stock dilution legal?\"\") For further explanation and another example of this, see the question \"\"If a startup receives investment money, does the startup founder/owner actually gain anything?\"\" Your other scenario, where Venturo purchases existing shares directly from Jack, is not practical in this situation. If Jack sells his existing shares, you are correct that the company does not gain any additional capital. An investor would not want to invest in the company this way, because the company is struggling and needs new capital.\"", "title": "" } ]	fiqa
bc5d5fc5502cea49877e0da2d0a1b296	Why are wire transfers and other financial services in Canada so much more expensive than in Europe?	[ { "docid": "2d08a71e70cc24b74d048f9240257fd4", "text": "I don't believe there is any particular structural or financial reason that outgoing wire transfers cost so much in Canada, their costs are no higher than other countries (and lower than many). Wires seem to be an area where the Canadian banks have decided people don't comparison shop, so it's not a competitive advantage to offer a better price. The rates you quoted are on the low side: $80 for a largish international wire is not unusual, and HSBC charges up to $150! There are several alternative ways to transfer money domestically in Canada. If the recipient banks at the same bank, it's possible to go into a branch and transfer money directly from your own account to their account (I've never been charged for this). The transfer is immediate. But it couldn't be done online, last time I checked. For transfers where you don't know the recipients bank account, you can pay online with Interac E-Transfers, offered by most Canadian banks. It's basically e-mailing money. It usually costs $1 to $1.50 per transfer, and has limits on how much you can send per day/week. Each of the banks also have a bill-pay service, but unlike similar services in the US (where they mail a paper check if the recipient isn't on their system), each Canadian bank has a limited number of possible payees (mostly utilities, governments, major stores).", "title": "" }, { "docid": "7473ce484f68f1295a7f4e0a770daffc", "text": "\"because bankers are crooks is a very close answer. Just accept the truth that financial industry is the only service industry that could turn into giant parasite chopping pieces from real economy. I am not anti-financial, because greed is not banker's fault, but just one significant part of human nature. Every human being has greed and fear built in it. But financial industry is the only one which is built on exploiting greed and fear. Governments are throwing gasoline canister into that fire in desperate extinguish attempts, trying to \"\"regulate\"\" but only making it worse. With all that \"\"counter-cybercrime\"\", \"\"counter-terrorism\"\" and \"\"counter-everything\"\" efforts, ordinary people will be hurt as always.\"", "title": "" }, { "docid": "6117285b4f91fa403a869d9aae1f0b06", "text": "Transaction fees are part of the income for banks, and as we know they are profit making corporations just like any other Company. The differene is that instead of buying and packing and Selling groceries, they buy and package and sell Money. Within the rules and the market they will try to maximize their profit, exactly like Apple or GM or Walmart and so on. Sweden and Holland are part of the European union and the leaders of the union has defined (by law) that certain types of transactions should be done without fees. In order to transfer Money from your Swedish account to the Dutch account you do what is called a SEPA transaction, which should be done in one day without cost to you as a customer. Reference: https://en.wikipedia.org/wiki/Single_Euro_Payments_Area Gunnar", "title": "" } ]	[ { "docid": "737584b1df2438d3c2880417457d2498", "text": "Many of the Financial intermediaries in the business, have extraordinary high requirements for opening an account. For example to open an account in Credit Suisse one will need 1 million US dollars.", "title": "" }, { "docid": "f29b80c81442469dd8dbda70c25622d5", "text": "There are so many ways to transfer money from Canada to US, so the only problem choosing the most reliable, cheap, and fast way. PS: Interac e-Transfer is unfortunately only available inside Canada. I know nothing about XE.com, so I can't recommend it. There should be other ways to transfer money.", "title": "" }, { "docid": "ac8abccf51bd6ddeaff31ce498e4be7b", "text": "\"You are right in insisting upon a proper B2B contract in any business relationship. You wish to reduce your risk and be compensated fairly. In addition to the cost and complexity of international wire transfers, the US companies may also be considering the fact that as an international contractor in a relatively hard-to-reach jurisdiction, payments to you place the company at higher risk than payments to a domestic contractor. By insisting upon PayPal or similar transmitters, they are reducing their internal complexity and reducing their financial exposure to unfulfilled/disputed contract terms. Therefore, wire payments are \"\"hard\"\" in an internal business sense, as well as in a remittance transfer reporting sense. The internal business procedure will likely be the hardest to overcome--changing risk management is harder than filling out forms.\"", "title": "" }, { "docid": "1bd13694ea76c3b61a2bc7bcd5ddfef6", "text": "Many European countires allow you to an account for non-residents. You have to appear in the bank personally to open it, some of them even to get your own tax number for non-residents from the local government. I'm not sure if you get a Visa (Electron) chip card immediatelly or you have to wait for like 3 months before being issued one. I've heard that getting a tax number for non-residents and opening a bank account is easily done in one day in Brezice, Republic of Slovenia. They seem to have agile local bureaucracy and banks, since many pople from neighbouring (non-EU) countries (used to) come there to open an EU bank account. Funds can be transfered via Internet banking - US banks have that, do they? SWIFT and IBAN codes are used for international money transfer. But it takes some time (days!) for it to arrive to destination. Tansfers below $20000 per month or per transaction are considered normal, but for amouts above that the destination bank might ask you to explain the purpose, to prove it is not illegal. Some of them accept the explanaiton in writing (they forward it to the regulator that tracks such large transfers), some of them ask you to appear there in person for an interview and to sign a statement. Can't believe US banks are still issuing paing magnet stripe cards like it's still 1980s. I'd expect Europe to be 10 years behind USA in technology, but this seems to be a weird reverse. I've beed using Internet banking with one-time passwd tokens and TAN lists for almost 10 years, and chip cards exclusivley for over 5y. Can't remeber the last time I've seen mag stripe card only. American Express (event the regular green one) got the chip at least 5 years ago. And it is accepted regularly in Europe. Alegedly it's more popular in Europe (although Mastercard is a definite #1, with Visa close to that) that in USA.", "title": "" }, { "docid": "d9147fcc19c40f60defcb41b243f3364", "text": "\"Wire transfers are not the same as ACH transfers. I regular transfer money between Chase, Ally, Capital One 360 and Fidelity and have never been charged a fee because I never do wire transfers. (The default for all these banks is ACH; you must explicitly choose wire transfers.) EDIT: to answer the modified question. https://www.depositaccounts.com/blog/difference-between-wire-transfer-and-ach.html \"\"One of the fastest ways to send money is via wire transfer. Although a wire transfer can take days, in most cases a wire transfer takes place within minutes. It is a direct bank-to-bank transaction that allows you to move money from your account directly into the account of someone else.\"\" \"\"While it may seem similar to a wire transfer, a transaction accomplished with the help of an automated clearing house (ACH) is not the same thing. ... When you arrange for the electronic transfer of funds, all of the information is included in a batch, which is then sent to the clearing house. All of the transactions in the batch are then handled by the clearing house, rather than as a direct bank-to-bank transaction. ... As a result, your money is not available as quickly as it often is with a wire transfer. The ACH process can be more convenient and is less expensive, but it also takes a little bit longer.\"\"\"", "title": "" }, { "docid": "4f03a5a32f7df5a49a93eb16e4e7bd82", "text": "Because the standard contract is for 125,000 euros. http://www.cmegroup.com/trading/fx/g10/euro-fx_contractSpecs_futures.html You don't want to use Microsoft as an analogy. You want to use non financial commodities. Most are settled in cash, no delivery. But in the early 80's, the Hunt brothers caused a spectacular short squeeze by taking delivery sending the spot price to $50. And some businesses naturally do this, buying metal, grain, etc. no reason you can't actually get the current price of $US/Euro if you need that much.", "title": "" }, { "docid": "0fa6c81a8ef6708e1285d62e7d01d454", "text": "\"The \"\"hidden\"\" fees in any transfer are usually: Foreign exchange transfer services are usually the cheapest option for sending money abroad when a conversion is involved. They tend to offer ways to get the money to or from them cheaply or for free and they typically offer low or no fees plus much better exchange rates than the alternatives. My preferred foreign exchange service is XE Trade. It looks like they support CAD to ZAR transfers so you might check them out. In my experience, they have not set a minimum on the amount I send although it does impact the exchange rate they will offer. The rate is still better than other alternatives available to me though. Note that for large enough transfers, the exchange rate difference will dominate all other costs. For example, if you transfer $10,000 and you pay $100 for the transfer plus $50 in wire fees ($150 in fees) but get a 2% better exchange rate than a \"\"free\"\" service, you would save $50 by choosing the non free service.\"", "title": "" }, { "docid": "0a7ace8f106dc0b13a9d2fc529f507e6", "text": "I doubt you're going to find anywhere that will give you free outgoing wires unless you're depositing a huge amount of money like $500K or more. An alternative would be to find a bank that offers everything else you want and use XETrade for very low cost online wires. I've used them in the past and can recommend their services. Most banks won't charge for incoming wires. I have accounts at ETrade Bank that don't charge any fees and I can do everything online. You might want to check them out. ETrade also offers global trading accounts which allow you to have accounts denominated in a few foreign currencies (EUR, JPY, GBP, CAD and HKD I think). I don't think there is a fee for moving money between the different currencies. If your goal is simply to diversify your money into different currencies, you could deposit money there instead of wiring it to other banks.", "title": "" }, { "docid": "08779e8c2ebc378095806f40072fea64", "text": "Well, I know why the Rabobank in the Netherlands does it. I can go back around one year and a half with my internet banking. But I can only go further back (upto 7 years) after contacting the bank and paying €5,- per transcript (one transcript holds around a month of activities). I needed a year worth of transcripts for my taxes and had to cough up more than €50. EDIT It seems they recently changed their policy in a way that you can request as many transcripts as you like for a maximum cost of €25,- so the trend to easier access is visible.", "title": "" }, { "docid": "afbb0d017059f0ed498dfe39c919d4e2", "text": "For the first part of your question, I think the answer is a combination of three things: (1) Bigger companies have leverage to negotiate better deals due to volume. (2) Some of these companies are also taking bookings from outside the US for people traveling to the US (either directly or through affiliates). This means that they also have income in other currencies, so they may not actually be making as many wire transfers as you think. They simply keep a bank account in Europe, for example, in Euros to receive and send money in the Eurozone as needed. They balance the exchange on their books internally in this case, without actually sending funds through the international banking system. Similarly in other parts of the world. (3) These companies are not going to make a wire transfer for every transaction, in any case. They are going to transfer big sums of money to an account abroad to balance things on a longer-term basis (weekly, month, etc.) Then they will make individual payments to service providers out of the overseas account in between these larger, international transfers. For the second part of your question, I think there's probably no way for a new business to get the advantages of scale unless you've got significant capital backing your endeavor that would make it plausible that you'll be transferring in scale. I don't see any reason in principle that the new company could not establish bank accounts abroad and try to execute the plan outlined in #2 above except that it would require some set-up costs to do the proper paperwork in each country, probably to travel, and to initially fund the various accounts.", "title": "" }, { "docid": "fc8a52d8f9465b44b6cbc258d26b4af2", "text": "\"Owning any sort of business is an absolute nightmare for a \"\"US Person\"\" not on US soil. It has nothing to do with money, but the fact that compliance costs are huge and it's only getting worse with the whole fatca nonesense.\"", "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": "d75920d84097b33a1bc7c02b04354336", "text": "\"At this point, a great deal of the world's wealth exists only in electronic form, and just as you can write a check or pay by debit card and trust the banks will handle it, banks can conduct wire transfers\"\" through higher-level banking networks. In the US, when there is a need to convert physical money to electronic or vice versa, it is typically handled by armored car and armed guard transfer between a bank and the local Federal Reserve Bank office. Physical money is moved around only when necessary, and for as short a distance as possible, to the most secure facilities possible, to minimize risk. I can't vouch for how it's managed elsewhere in the world, where the networks and repository banks may not be as available. I would presume (I would hope!) that the same general concepts and approaches are followed.\"", "title": "" }, { "docid": "acd5b147c0a42ce678536ffaa6a0db0b", "text": "Canadians can email or text each other money through Interac. It is fast - the longest it's ever taken for me is 20 minutes, often it's less - and secure. You don't need to know each other's banking details or even real names. I've used this to send money to my children, each of whom uses a different bank than I do, and they've used it to send money to friends to pay for concert tickets and the like. You add a security question so if someone else got to the email or text first, they wouldn't get the money. I also get an email once the transfer has gone through, so I know they got it. Some banks limit this to $1000 a day, mine to $3000. Typically there is no fee for the recipient and $1 or $2 for the sender. A dollar on $1000 is way better than a 2 or 3% cc processing fee. But even for $30, a dollar is like 3% and you didn't need to apply for anything or set anything up, and your customers don't need a credit card or to trust you with their credit card details. I keep meeting people who don't know about this. Everyone with a Canadian bank account and an email address or smartphone should know about it.", "title": "" }, { "docid": "d80dc46153b70c74eb54261f370d06aa", "text": "My current favorite service for this kind of transfer is Transferwise. The fees are quite low when compared to the 2.5-3% by high-street banks for currency conversion, to which you need to add the international wire transfer fee, and it's often a lot faster, as they split it into two domestic transfers while the international part + currency conversion happens internally to Transferwise.", "title": "" } ]	fiqa
980fbd693b80e62058bd38f50c71d800	Is it safe to take a new mortgage loan in Greece?	[ { "docid": "273ef3ca22682b8150cbe34e9946a2fb", "text": "The safest financial decisions that you can make in Greece involve getting your money out of Greece. That said, it depends. If the economy is going to implode and you'll be out of the job with devalued savings -- you'll be bankrupt anyway. You didn't mention enough about your situation for anyone to really answer the question. In a high-inflation environment, ifyou have the assets to weather the storm, holding debt on real property and durable goods is a good thing. The key considerations are: If you have the means, times of crisis are great opportunities.", "title": "" }, { "docid": "9d13317e05a8af7c1f3434e289ddfff6", "text": "\"While I would be very leery of making any Investments in Greece, and if I lived there might want to strongly consider a larger than average investment in 'international' funds (such as an index fund on the US, UK, or German exchanges) Having debt in Greece might not be such a bad thing... if only it was denominated in local currency. The big issue is that right now, you'd be taking out a loan on property in greece, that would be denominated in Euros. If worse comes to worse, and Greece is kicked out of the EU and forced to go back to the drachma, then you might be in a situation where the bank says \"\"this loan is in Euros, we want payment in the same\"\" and if the drachma is plummeting vs the Euro, you could find your earning power (presuming you were then paid in drachma) greatly diminished.. And since you'd be selling the house for drachma, you might be way under-water in terms of the value of the house (due to currency exchange) vs what you owed. Now, if Greece were currently on the drachma, and you were talking about a mortgage in the same, I'd say go for it. Since what tends to happen when a government has way overspent is they just print more money rather than default.. that tends to lead to inflation, and a falling currency value vs other countries. None of which is bad for someone with a debt which would be rapidly shrinking due to the effect of inflation. but right now, safer to rent.\"", "title": "" }, { "docid": "779300a60e57ff333c291551940b1bbd", "text": "\"Please clarify your question. What do you mean by \"\"..loan in Greece\"\"? If you are referring to taking a mortgage loan to purchase residential property in Greece, there are two factors to consider: If the loan originates from a Greek bank, then odds are likely that the bank will be nationalized by the government if Greece defaults. If the loan is external (i.e. from J.P. Morgan or some foreign bank), then the default will certainly affect any bank that trades/maintains Euros, but banks that are registered outside of Greece won't be nationalized. So what does nationalizing mean for your loan? You will still be expected to pay it according to the terms of the contract. I'd recommend against an adjustable rate contract since rates will certainly rise in a default situation. As for property, that's a different story. There have been reports of violence in Greece already, and if the country defaults, imposes austerity measures, etc, odds are there will be more violence that can harm your property. Furthermore, there is a remote possibility that the government can attempt to acquire your private property. Unlikely, but possible. You could sue in this scenario on property rights violations but things will be very messy from that point on. If Greece doesn't default but just exits the Euro Zone, the situation will be similar. The Drachma will be weak and confidence will be poor, and unrest is a likely outcome. These are not statements of facts but rather my opinion, because I cannot peek into the future. Nonetheless, I would advise against taking a mortgage for property in Greece at this point in time.\"", "title": "" }, { "docid": "172847e4ae7acf0ba694e561857fc838", "text": "No it is not safe to take out a new mortgage - loan or anything credit related or any investment - in greece. Growing political risk, bonds have junk credit rating. You will be underwater on your mortgage the day you apply for it. And you better believe that the buyers will be dry once you realize that it doesn't make sense to keep paying the mortgage. If you want to have some assets, there are more liquid things you can own, in your case: paper gold. Just rent.", "title": "" } ]	[ { "docid": "5a86f8a46f42233c11e7ebf54dfaf9ac", "text": "Regarding the mortgage company, they will want to know where the down payment came from, and as long as you are honest about it, there is no fraud. It's possible that the mortgage company may have some reservations about the deal now that they know where the down payment came from, but that will depend on the size of the deal and other factors. If everyone involved has decent credit, and this is a fairly standard mortgage, it will probably have no impact at all.", "title": "" }, { "docid": "661faa4d48f96d63ec1a4467fefc9842", "text": "The catch is that you're doing a form of leveraged investing. In other words, you're gambling on the stock market using money that you've borrowed. While it's not as dangerous as say, getting money from a loan shark to play blackjack in Vegas, there is always the chance that markets can collapse and your investment's value will drop rapidly. The amount of risk really depends on what specific investments you choose and how diversified they are - if you buy only Canadian stocks then you're at risk of losing a lot if something happened to our economy. But if your Canadian equities only amount to 3.6% of your total (which is Canada's share of the world market), and you're holding stocks in many different countries then the diversification will reduce your overall risk. The reason I mention that is because many people using the Smith Maneuver are only buying Canadian high-yield dividend stocks, so that they can use the dividends to accelerate the Smith Maneuver process (use the dividends to pay down the mortgage, then borrow more and invest it). They prefer Canadian equities because of preferential tax treatment of the dividend income (in non-registered accounts). But if something happened to those Canadian companies, they stand to lose much of the investment value and suddenly they have the extra debt (the amount borrowed from a HELOC, or from a re-advanceable mortgage) without enough value in the investments to offset it. This could mean that they will not be able to pay off the mortgage by the time they retire!", "title": "" }, { "docid": "8ea2160b4af6fd3438b8a6b916d1322d", "text": "There is a subprime loaning bubble in the auto loan sector which is growing; while it's not in the $1 trillion range or as hidden as the real estate one was, it could cause issues down the road if it continues. The use of derivatives or specifically, CDS, is continuing for other suspect investments. It was used about 4 years ago to help hide Greece's sovereign default and like in 2008, it allowed the bad debt to be hidden and thrive to dangerous levels. The use isn't widespread and limited to several firms so far, but its return as an instrument of choice so soon after the financial crisis is a little worrying that it may be a cyclical crisis.", "title": "" }, { "docid": "99cc24666a7edbd24d598e9a9a0bfd1e", "text": "I never received any bad treatment as a foreigner. I have dinner with my landlord once a month, and go to the bar with the guy that sold me the plan. Why the fuck would you take out a loan in a foreign country? If you need to so badly, then you obviously don't have the collateral to do so and that's why they are turning you away. Homogenous countries are naturally xenophobic, get over it.", "title": "" }, { "docid": "a13a3d909a8a8d15a3b73e158a461de0", "text": "I can't comment about your tax liability in Greece. You will have to pay tax on interest in the UK. If you are earning massive amounts of interest, unlikely with the current interest policies from Merv, then you might be bumped up a tier. The receiving bank may ask for proof of the source of the funds, particularly if it is a fair chunk of change.", "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": "015c6c76c36152915629eb35adf9d72a", "text": "In the UK I believe the first £50,000 in each bank are secured by the government, so are very safe but one has to check what 'each bank' means as some are members of the same 'group'. See the FSCS", "title": "" }, { "docid": "c138391e73776ca0eda4e01fa2c3c5ac", "text": "\"No you should not borrow money at 44.9%. I would recommend not borrowing money except for a home with a healthy deposit (called down payment outside UK). in December 2016, i had financial crisis So that was like 12 days ago. You make it sound like the crisis was a total random event, that you did nothing to cause it. Financial crises are rarely without fault. Common causes are failure to understand risk, borrowing too much, insuring too little, improper maintenance, improper reserves, improper planning, etc... Taking a good step or two back and really understanding the cause of your financial crisis and how it could be avoided in the future is very useful. Talk to someone who is actually wealthy about how you could have behaved differently to avoid the \"\"crisis\"\". There are some small set of crises that are no fault of your own. However in those cases the recipe to recovery is patience. Attempting to recover in 12 days is a recipe for further disaster. Your willingness to consider borrowing at 44% suggests this crisis was self-inflicted. It also indicates you need a whole lot more education in personal finance. This is reinforced by your insatiable desire for a high credit score. Credit score is no indication of wealth, and is meaningless until you desire to borrow money. From what I read, you should not be borrowing money. When the time comes for you to buy a home with a mortgage, its fairly easy to have a high enough credit score to borrow at a good rate. You get there by paying your bills on time and having a sufficient deposit. Don't chase a high credit score at the expense of building real wealth.\"", "title": "" }, { "docid": "1071e9190b18e5acb8ee47ab1a7007b8", "text": "It's always a good move for risk-averse person, expecially in Europe. Because houses are not represented by number in an index. Therefor if you are risk-adverse, you will suffer less pain when house prices go down because you won't have a number to look at everyday like the S&P500 index. Because houses in Europe (Germany, Italy, Spain) are almost all made by concrete and really well done (string real marble cover, hard ceramic covers, copper pipes, ...) compared to the ones in US. The house will still be almost new after 30 years, it will just need a repaint and really few/cheap fixings. Because on the long run (20/30 years) hosues are guaranteed to rise in price, expecially in dense places like big city, NY, San Francisco, etc. The reason is simple: the number of people is ever growing in this world, but the quantity of land is always the same. Moreover there is inflation, do you really think that 30 years from now building a concrete house will be less expensive than today??? Do you think the concrete will cost less? Do you think the gasoline that moves the trucks that bring the concrete will be less expensive than now? Do you think the labour cost will be less expensice than now? So, 30 years from now building an house will be much more expensive than today, and therefor your house wil be more expensive too. On the lomng run stock market do not guarantee you to always increase. The US stock market have always been growing in the long run, but Japan stock market today is at the same level of 30 years ago. Guess what happened to you if you invested your money in the Japan stock market, 30 years ago, whilest your friend bought an hosue in Japan 30 years ago. He would now be rich, and you would now be poor.", "title": "" }, { "docid": "95c7c1e5a083176a72a3d76e28a88ef8", "text": "Definitely, check if they are regulated by the Finnish financial regulatory board. Google FIN-FSA regulation. It can also be that they are regulated off-shore, no matter just find it out. Besides try to find the terms of you're contract, if cant find ask the broker to point out. Wonder what will happen, following this thread", "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": "57c466f2f25afac249a67fe39378fde3", "text": "No, 401(k) and IRA accounts are not at risk when you default on a mortgage, even in states that aren't non-recourse. In states where mortgages are non-recourse loans, the bank isn't allowed to go after you at all. They get the keys and whatever they recover from the house sale is it.", "title": "" }, { "docid": "7e6110b72db7be0364dfa70f0f2309bf", "text": "\"Condensed to the essence: if you can reliably get more income from investing the cost of the house than the mortgage is costing you, this is the safest leveraged investment you'll ever make. There's some risk, of course, but there is risk in any financial decision. Taking the mortgage also leaves you with far greater flexibility than if you become \"\"house- rich but cash-poor\"\". (Note that you probably shouldn't be buying at all if you may need geographic flexibility in the next five years or so; that's another part of the liquidity issue.) Also, it doesn't have to be either/or. I borrowed half and paid the rest in cash, though I could have taken either extreme, because that was the balance of certainty vs.risk that I was comfortable with. I also took a shorter mortgage than I might have, again trading off risk and return; I decided I would rather have the house paid off at about the same time that I retire.\"", "title": "" }, { "docid": "2df00d72437669b65c71a5bda02b87fd", "text": "\"I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house. Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your \"\"balance\"\" will go down as \"\"payments\"\" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings. It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy. Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings.\"", "title": "" }, { "docid": "4f7bac9cf0e5b85b734555a1a2147f61", "text": "I have used turbo tax for years. Apart from the snafu in 2014, I have had no problem using deluxe, and I have lots of asset sales to report. I prefer form mode anyway. I can import the data from my broker, and I can e-file with no problem. So the only thing I'm missing is the support. I can usually find answers to questions on the web, anyway.", "title": "" } ]	fiqa
a40790b2d490d0dedc0bbd7d1fda4944	How should I interpret this industry research?	[ { "docid": "7c81dbb5bcf9de91c3000669d11ebe0d", "text": "As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you.", "title": "" } ]	[ { "docid": "a3d0faea96982b5a5ffaa1971f1df44c", "text": "No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.", "title": "" }, { "docid": "40f4a7e8f99e698206c773969beac93b", "text": "I've tried to argue this to some close friends who bought homes, pre/post-crisis, if the crisis ever ended, they thought it was ridiculous. There is a clear fulcrum where renting makes more sense than buying, when appropriate inputs of data are entered into the model. I think Khan Academy did a good 10-minute run down on the subject and used a relatively good model, as well. Further than that, I read the first few paragraphs and stopped reading, it was a commercial. I was shocked. The entire thing up till' 2 paragraphs in is literally a commercial. The supposed 'antagonist', explicitly implied by the title isn't actually an antagonist, it's a click-bait commercial -article posing as a real article, (imitation), that actually might have some real science below the commercial, as you've indicated, but that part also sounds like junk finance; to sell the idea to consumers that they should in fact buy homes (instead of rent), and get loans from banks (preferably this one), and do anything to achieve that, if need be, even move in with their parents. This financial institution appears to have a sophisticated public relations marketing team doing their commercials-posing-as-news campaign(s). Very interesting to see the marketing beast morph itself into something so sophisticated, as to contain such clear imitation, junk science, and click-bait. I wonder what kind of penetration they are getting with this model, and what percentage of those see it for what it is. I suppose that would be a big-data question, answerable through analytics.", "title": "" }, { "docid": "20900f7a5bd31bbc74a885b9f07dfb6d", "text": "\"Hey there - thanks for your input. The internet can be a confusing place sometimes, especially when you don't know what to look for. I've subscribed to usenet (for the \"\"white papers\"\") but so far to no avail. I'll definitely search for the Moody's paper!\"", "title": "" }, { "docid": "ed7e7d07942b3b313119a9a8f15276f7", "text": "Did you read your own link? It lists a lot of conflicting studies and concludes that there is no consensus as a result of those. Even if you were to cherry pick and select the worst case study, the difference is still less than 5 points, which is too small to be really meaningful.", "title": "" }, { "docid": "0c254be71c248736eb32b012f17e5736", "text": "\"The paper’s findings are preliminary and have not yet been subjected to peer review. >\"\"The paper’s findings are preliminary and have not yet been subjected to peer review. And the authors stressed that even if their results hold up, their research leaves important questions unanswered, particularly about how the minimum wage has affected individual workers and businesses. The paper does not, for example, address whether displaced workers might have found jobs in other cities or with companies such as Uber that are not included in their data.\"\"\"", "title": "" }, { "docid": "b648eff366f6e5637857115c7754cff1", "text": "Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe.", "title": "" }, { "docid": "ba49ca39544368ecad8cf6654975c449", "text": "I think many of you are making unrelated comments and taking unjustified conclusions from the news, without reading the research. Many of the mentioned share provisions are not exclusive to Silicon Valley, technology firms, or the rest of Private Equity (i.e. ex-VC). The paper says: >These generous terms are not necessarily evidence of active post-money valuation manipulation and could simply be due to a difficult fund raising environment. And: >Importantly, our discussion does not imply that these terms were given for the purpose of manipulating SpaceX’s value. That is not to say that I am not skeptical of many of the business models and valuations of the companies in the sample, but that is off the research topic. What the authors suggests is that valuation is often miscalculated by many people in the industry, and provides some relevant cases: from mutual funds who market those shares at the value of the most recent funding round, regardless of share provisions; to employees that wrongly perceive their wealth. I have some trouble accepting Brownian Motion to model exit prices (or pretty much anything else), it seems a bit off from reality, but nevertheless I think the paper is worth the read.", "title": "" }, { "docid": "e1c310dd0d067d351747c3cdf07f7ded", "text": "\"What you're thinking of is more market making kind of activity, HFT algo's thrive on this; having information faster than anyone else. This type of activity could also likely be lumped into what is considered top-down analysis as opposed to bottom-up (which is what most mutual fund equity research involves). Again, the more important aspect is, what does the company you are applying to use! Top-down analysis means that you are forecasting the revenue drivers for a company using macro-economic analysis. For example, let's say I'm investing in Chinese cement manufacturer's, what implications does Chinese interest rate policy have on infra-structure expansion and how does that drive revenue for this specific company. I might then look at margins, etc. to get an EPS estimate. Part of this could fall into secular investing, too. Let's say I like LCD panel glass because of this consortium, I might take a look at 5 companies and then find the ones I think would benefit most from this. The problem with top-down is it tends not to be as much of a deep-dive, and its hard to pick individual companies because of it. Bottom-up tends to be more analytical and is what most pitches would be based around. The most important thing I'm not saying one is right or wrong, they are just different, and every investor has their own style. Bottom-up analysis, which would be closer to what an equity research analyst would be doing on the sell-side, is analyzing what bottom-line indicators drive revenue and how are those expanding. For example, lets say I'm looking at search providers (i.e. Baidu, Google, Yahoo, etc.) I'd be looking at Cost-Per-Thousand-Clicks (CPTC) and number of clicks on the website. Multiply the two and I get revenue (very simplified version) for clicks business. I might then also forecast other revenue driving segments and try to understand how they are growing/pricing at an individual segment level (i.e. business services or mobile advertising). I'd then break down costs/margins for each segment and forecast those out. I could then get a forward EPS, get a range of multiples I believe it could trade in (i.e. I think the multiple will trade up/down), to get a target price. Also, I would likely do a DCF analysis on forward earnings to get a \"\"fair market value,\"\" and then try to triangulate a price. I would also be looking at stuff like management teams and industry trends, too, but bottom line, I'm pitching a company because I think it is undervalued and will outperform competitors in the long run. This type of work tends to be more research oriented and is what most (not all) mutual funds use when analyzing companies. Since mutual funds tend to have longer holding periods (2-10 years), as opposed to short-term, it's harder to justify investing in a company only because it has a short-term catalyst. Anecdotally, it's also easier to present in a written thesis because the numbers tend to be more concrete and easier to forecast than top-down (which have wider target ranges). Your thought process that catalyst + industry context = market beating returns isn't wrong, it's just that every company thinks about investing differently, and it's important to tailor the report to that group's style.\"", "title": "" }, { "docid": "536ea8d6b0e4f7dd151fac547fee08e0", "text": "TL;DR for those who don't want to waste their time: Uber didn't do anything special. Also, you should follow unethical laws and not try to change or challenge the system. While I was reading the piece I thought it was the work of a sophomore, but it turns out this was written by a professor.", "title": "" }, { "docid": "31b0b7d909da60becd8d824cb46ac088", "text": "Yes, it's true (from a BB perspective). This isn't the 80's where M&A's are the money makers. This isn't the 90's where IPO's are the cash cows. Going forward the new products, especially the OTC derivatives market and FI are going to be where a lot of resources are pooled and where revenues are generated. Ask yourself the question, why do you want to go into equity research as opposed to another product?", "title": "" }, { "docid": "e6490424e5263580f16ebbb1e729d423", "text": "Despite a fair number of views, no one besides @mbhunter answered, so I'll gather the findings of my own research here. Hopefully, this will help others in similar situations. If you spot any errors, please let me know!", "title": "" }, { "docid": "6c228b923306614c984e13541acecbf3", "text": "My company has a dashboard that basically does this. We select industries / companies we want to be notified of and we get an email in outlook when a new analyst note, research report, or SEC filing is posted on that industry or company.", "title": "" }, { "docid": "229054e33508fbf929dbb10d15cdcee7", "text": "\"One of the things I have enjoyed about consulting is the exposure to multiple companies and multiple business units within those companies. In the year I have been at The Gunter Group, I have already worked with multiple clients on projects that span across the respective organizations. It has been very interesting to contrast the clients and more specifically the corporate cultures that exist within those companies. I have participated in and watched various projects being driven in different parts of a client's business and it is interesting to see which projects have been, are, and will be successful. The other day I was reading a report of some analysis done by one of the world's largest and most respected consulting firms. The analysis was essentially outlining a path for success for a broad spectrum of projects of varied scopes and complexities. The analysis, which was very good by the way, touched on a lot of elements of the business that would impact the likelihood of project success. Elements like governance, data analysis, process design, etc. The analysis and the accompanying recommendations were undoubtedly sound given the caliber of the firm, the background research done to support the report, and my own confirmation based on what I have picked up about the client. I try and get my hands on these types of reports whenever possible to see how \"\"the big boys\"\" are doing it, to shape my own thinking, and to have examples of successful presentations. I am, however, always surprised that these reports fail to mention what I consider to be a very big influence on the success of a project and ultimately the success of the organization as a whole. At their core, companies are merely people. A group of people with a collective identity; a corporate culture if you will. Reflecting back on my many interactions with the people that make up these organizations it has become very evident to me that a collaborative corporate culture is a huge discriminator in determining the success of any project. Although it is a macro factor, the collaborative spirit of an organization transcends everything that the company does and/or attempts to do. Here is an example to give context of the premise I am talking about. At client A, the project team I worked with was designing an extremely innovative, complex, and challenging system that has the potential to alter the way they do business. Without going into too much detail, it was a massive undertaking with relatively limited resourcing. At client B, the scope of work I was involved in was relatively straightforward and mirrored business practices at other organizations. The bulk of the effort on my part was driving the creation and adoption of a framework to promote cross functional interaction amongst project teams. A very realistic undertaking with appropriate resourcing. Below are vignettes that illustrate typical exchanges in both organizations. In both organizations I have been directed to connect with a particular individual or group of individuals as it was thought that our respective works may be related in some fashion. Client A: Me - \"\"Let me give you a brief overview of the project I am working on. John Doe recommended I connect with you as your project may intersect with mine in some manner. We may be able to help each other.\"\" (Continue with my overview) Other Party - \"\"Wow, this is great. I actually have really in depth knowledge of X and would love to get involved in the work you are doing. I am actually simultaneously driving Y effort and it would be great if we were aligned. At a high level we are both supporting strategy A so connecting now would really set us up for success. Feel free to include me on your future meetings and I will pass along our high level overview. Also, have you thought about connecting with So and So? They are working in the Z space on a project and it may help to drive your project forward as well.\"\" Client B: Me - \"\"Let me give you a brief overview of the project I am working on. John Doe recommended I connect with you as your project may intersect.......\"\" Other Party - (Interrupts) \"\"Well we have already gotten our project approved at such and such level and we have found that we really don't have any interdependencies with your project.\"\" Me - \"\"Oh, OK. Well I am not really looking to create additional work for anyone. I am just looking to leverage the work we are both already doing. We may be able to help each other.\"\" Other Party - (Interrupts again) \"\"Our project team is really busy and we are on a tight deadline. We don't have the resources we need. I have told John Doe time and again we need more help but until we get it I just really need to focus on X.\"\" Me - \"\"OK. Well how about I jump in to what it is we are actually doing and if there aren't any opportunities for collaboration or any synergies to be gained from working together that is fine. I just wanted to be proactive about connecting the dots across the organization. (Continue with my overview) Other Party - \"\"...........crickets...........\"\" (Meeting concludes.....) These aren't depictions of a single event. They are aggregations of month's of interactions that give a good representation of single events in a variety of contexts on a daily basis. Of course, there are exceptions. However, I have found that exceptions within both cultures are extremely rare based on my personal experience. This only furthers my point. Can you begin to see why a collaborative corporate culture is so foundational to the success of any endeavor regardless of scope, complexity, etc? The other aspect that adds to the importance of a sound corporate culture is the self fulfilling nature of culture. Which organization do you think inspires future collaborative behavior? Even those people that want to collaborate within client B are consistently met with resistance. Those in client A are inspired by the positive interactions, enhanced results, and they are more likely to actively seek out others to help and work with. Both trajectories are accelerated in opposite directions just by the nature of the prevailing culture. So how do you create and engender a culture that embodies collaboration? That my friends is a question I don't pretend to have all the answers too. Maybe I'll be so lucky to figure that one out someday......\"", "title": "" }, { "docid": "9c8154fe3cddb90294b0889e483b1f0a", "text": "Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal", "title": "" }, { "docid": "c4e4d18eeb2f79ae8f96b4938e906628", "text": "\"all the other answers are spot on, but look at it this way. really all you mean when you say \"\"building equity\"\" is \"\"accumulating wealth\"\". if that is the goal, then having her invest the money in a brokerage (e.g. ira) account makes a lot more sense. if you can't afford the apartment without her, then you can't afford to pay out her portion of the equity in the future. which means she is not building equity, you are just borrowing money from her. the safest and simplest thing for you to do is to agree on a number that does not include \"\"equity\"\". to be really safe, you might want to both sign something in writing that says she will never have an equity stake unless you agree to it in writing. it doesn't have to be anything fancy. in fact, the shorter the better. i am thinking about 3 sentences should do the trick. if you feel you absolutely have to borrow money from her on a monthly basis to afford your mortgage, then i recommend you make it an unsecured loan. just be sure to specify the interest rate (even if it is zero), and the repayment terms (and ideally, late payment penalties). again, nothing fancy, 10 sentences maybe. e.g. \"\"john doe will borrow x$ per month, until jane doe vacates the apartment. after such time, john doe will begin repaying the loan at y$ per month....\"\" that said, borrowing money from friends and family almost never turns out well. at the very least, you need to save up a few months of rent so that if you do break up, you have time to find another roommate. disclaimer: i do not have any state-issued professional licenses.\"", "title": "" } ]	fiqa
4b4d65d82260a0b9b571aa5c47ba441d	Does the USA have a Gold reserve?	[ { "docid": "21ab43bfb0013f6bec2b5d2c53dbfb29", "text": "The US does have a gold reserve. The main reserves are held at Fort Knox but there is even more gold, mostly owned by other countries, stored in the basement of the New York Federal Reserve Bank (Think Die Hard 3). The United States Bullion Depository, often known as Fort Knox, is a fortified vault building located adjacent to Fort Knox, Kentucky, used to store a large portion of United States official gold reserves and occasionally other precious items belonging or entrusted to the federal government. The United States Bullion Depository holds 4,578 metric tons (5046 tons) of gold bullion (147.2 million oz. troy). This is roughly 2.5% of all the gold ever refined throughout human history. Even so, the depository is second in the United States to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds 7,000 metric tons (7716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations. Source: Wikipedia", "title": "" }, { "docid": "828994998ff09473195549c23b5df865", "text": "According to the US Mint, the Government does still have a gold reserve stored mostly in Fort Knox in Kentucky, but there is some in New York and Colorado too. Some facts from their site: That last point is an interesting one. They are basically saying, yes we have it, and no you can't see it. Some conspiracy buffs claim no one has been allowed in there to audit how much they have in over 50 years leading them to speculate that they are bluffing. Although the dollar is no longer tied to the gold standard, throwing that much gold into the market would definitely add fuel the volatility of the finance world, which already has it's share of volatility and isn't hungry for more.The impact on the price of the dollar would be quite complicated and hard to predict.", "title": "" }, { "docid": "7e87e09f896a04c14120e70119a514d9", "text": "The United States is no longer on a gold standard, and the value of its currency is solely founded on the productivity of its economy. So I don't think there's any practical reason for the United States government to explicitly sell off a lot of gold to force the price to crash. In fact I would expect that the price of gold has very little interest for the Fed, or anyone else in a position of economic power in the government. I believe that we still have large reserves of it, but I have no idea what they are intended for, aside from being a relic of the gold standard. Best guess is that they'll be held on to just in case of an international trend back towards the gold standard, although that is unlikely on any time frame we would care about.", "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": "6407700d341665ee6d2a59a127258980", "text": "The U.S. economy has seen some very difficult economic times centered around poor fiscal policies and fiscal irresponsibility. The Great Depression represents a good example and is a reminder to us of where the U.S. and the world can end up. In this exclusive article we revisit the policies and economic indicators that led to the Great Depression and whether we are in the midst of its return. Register Today for all the exciting news and discussion groups we have to offer! @ http://www.igoldpost.com/register-today/", "title": "" }, { "docid": "00de82c29af68d86c8cb0534db11653f", "text": "I can see a long-term existence for it. I doubt it will replace national currencies but I also think there is some value. Gold is purely speculative as well but it's thrived for a very long time. I see this as basically a digital version of gold.", "title": "" }, { "docid": "27e877e4cec6ea2b87a40717500396bc", "text": "Silver and gold are money. They always have been. When the Euro collapses (soon) and dollar inflation enters the steep part of the parabolic curve of death please remember this conversation. Please remember that by trying to look smart you didn't invest in gold and silver.", "title": "" }, { "docid": "90bde0cc066745cdff7035c91c4165a8", "text": "\"[There's about 10 trillion in gold](http://en.wikipedia.org/wiki/Gold_reserve) and about [2.8 trillion of US cash](http://visualeconomics.creditloan.com/the-value-of-united-states-currency-in-circulation/) in the world. Neither of these is anywhere large enough to be used for all the transactions in the world. For example, about [4 trillion a day](http://en.wikipedia.org/wiki/Foreign_exchange_market) changes hands in the currency markets alone - if that were required to be cash or gold it would be impossible to do so, and you'd suffer from more poorly priced goods since markets could not adjust as quickly, so vendors would charge more premium to handle the risk. Yes, there is not (and has not been) enough cash in circulation to run the world economy. There is also vastly too little gold, unless you want to strangle commerce due to not being enough money to trade. > \"\"posing as the money supply\"\" All money is debt, and always has been. Money is a placeholder that you can trade for goods later meaning someone owes you a thing. The value of that money is the debt they (or society) owes you for something you already did to get that money. So there is no posing, just most don't understand money, how it originated, why it exists, or why it works. They never ask the question \"\"how does money come into existance\"\". > Does defaulting on ones debt create inflation since that money is still in the system and not being paid off? Probably not much. Loans are made expecting some default, so the interest others pay on their loans helps offset the defaulted ones. If loans become riskier, the interest demanded increases, so the lender still (if they do their risk analysis well and no external events break their expectations) makes money. When you pay off a debt, that money, as you're paying it, is likely being lent in other loans, so paying it off does not do much. If you could pay off about 100 trillion in debt into the US economy in one payment you might break some things :)\"", "title": "" }, { "docid": "7c929cdb48a6133d869cb321149f52eb", "text": "This is exactly what they are doing. Examples would be the BRICS trading bloc and the ASEAN equivalent. Along with the trade agreements that many countries have made with Iran, all of which completely bypass the American Dollar. America needs to recognize that for many countries in the world, dumping their excess reserves in US Treasury Bonds is not in their best interest any longer. Especially considering the fiscal situation in the US, and the policies that are used to manipulate bond rates. (These policies are cross aisle, this is not a political statement) American Imperial might is finite. Americans ignore this at their own peril. Edit: I would also add the regulatory and legal uncertainty in the US is also a problem. By that I mean things like MF Global, Peregrine Financial, Knight Capital among others.", "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": "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": "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": "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": "19d03eebdf58ccc4e40479277b793021", "text": "> Arguably, the dollar today is essentially backed by oil i.e. as economists say the 'petrodollar'. This isn't really true. The exchange rate between USD and a barrel of oil floats with the market whereas it was fixed with gold. Also by the nature of the way oil is consumed it doesn't make sense to think of it this way - gold retains state when used whereas oil is burnt up never to be seen again.", "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": "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": "c50535de07c8f797874aeba24ee0a569", "text": "Yes it is. The government already controls the banks. The fed sets reserve amounts. It is about 20% but they can make it 99% if they wanted. A bank that doesn't meet its reserves loses its charter and is seized. I believe it is Office of Thrift Supervision or something. The president appoints the Fed chairman and congress oversees the Fed. The Fed gives 90%+ profits to the Treasury.", "title": "" }, { "docid": "e81aa566018fd11d9e87cd86713783ee", "text": "People normally hold precious metals as a protection against the whole system going down: massive inflation, lawlessness, etc. If our whole government and financial system broke completely and we returned to a barter economy, then holding silver would likely turn out to be a good thing. However, precious metals are not very good hedges against individual calamity, like losing your job. They are costly and inconvenient to sell and the price of these metals fluctuates wildly, so you could end up wanting to sell just when the metal isn't worth much. I'd say having some precious metal isn't unreasonable, but it should not make up a major portion of one's total net worth. If you want protection against normal problems, especially as a person of limited means, start with an emergency savings account and paying down debt. That way fixed costs will be less likely to turn an unfortunate turn of events into a personal catastrophe.", "title": "" } ]	fiqa
938571539e0be874f22caf4a3f2d2753	The life cycle of money	[ { "docid": "098e64e96d7dd1c31b2ff439252141e5", "text": "I'll answer but avoiding discussion of M1, M2 etc, too pedantic. I don't believe you are asking about the lifetime of either coins or paper money. I think you are referencing the fractional reserve system, and how a good portion of the total money supply is created by the banks lending out their deposits in effect 'creating' money. My answer to you is that if all loans were simply paid off, no mortgages, no car loans, etc, the total money in the system would collapse to some reasonable fraction of what it is today, 10% or a bit less. This comes from the fact that the reserve requirement for most large banks is 10%. I'm referencing money, but not bills or coins. Think about what you make in a year. How much do you touch as paper money? For my wife and me, it's no more than a few percent. Most goes from a direct deposit to online payments. So this would be the subject of a different question altogether. Let me know if this addresses your question.", "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": "a01f19253636d70f7448bdbe93a6ee4b", "text": "Correct, kept orange demand in a microcosm to simplify. In the example, ~1 or 2 people would have been highly paid to build the machine, and the house would have created temp jobs for 2 or 3, or the money would have flowed to another tree owner and put into a bigger house. Point is the new inflow of money hasnt cycled through the economy fast enough to have an effect on consumptive demand. New money has a slower velocity with net effect on inflating asset prices up.", "title": "" }, { "docid": "b8c496b8418a2435236fe53580cbf46f", "text": "\"Another important commodity necessary to life is money, which is why when vast sums of it go missing or get locked into long-term investments into which one was grossly misled, it's very upsetting. One such long-term investment is Zurich Vista, which the OP is intimately familiar with. Another type of fund into which money can strangely disappear, is the now ubiquitous \"\"off-shore fund\"\". One should also be very wary of land-banking schemes that boast of high rates of return (15%-20%) and short maturation dates (4-5 years).\"", "title": "" }, { "docid": "7a6ba1e93a0f371e5f794e5c9bf0dc41", "text": "what are you talking about, the wealthy are not just tied to money. Alot of it is assets, physical metals, and properties currency switches happen every 40 years or so btw, which is the case lately in the past couple of centuries.", "title": "" }, { "docid": "fc2c03f56b9573df37e0b93d383d7a0a", "text": "\"There's a lot wrong with your explanation and analogy. I believe you are trying to refute otherwiseyep but you haven't really. You have described the \"\"work\"\" or the \"\"step in the money-building process,\"\" that was happening before otherwiseyep's scenario. otherwiseyep's scenario begins at \"\"the apple farmer wants to get some meat but the orchard hasn't matured yet,\"\" implying that apples have in fact been traded for meat in real time. Secondly, I would much prefer a person build their own explanation and analogy than build onto someone else's while thinking it insightful in any way. Lastly, you went all Paul Krugman on us and used the word \"\"costs of production\"\" which I think you mean to be \"\"work\"\" but you did not build that analogy. When you went \"\"Paul Krugman,\"\" you jumped a HUGE boat. Krugman talks about very advanced economics and some of his stuff is political in nature. At no point did you build any specific analogies to Paul Krugman's many theories. You so completely lost me with that, I almost went into negative integers. Edit: otherwiseyep had been misspelled as otherwiseyes. Slightly laughable.\"", "title": "" }, { "docid": "38ec88789f05704d7abac8502e45ca4a", "text": "Tulip madness was likely a result of an expansion of money supply. Dutch govt initiated a subsidy program of gold minting before the bubble, attracting a lot of money into country and expanding the money supply(despite being on gold standard). See Doug French's free book on mises.org on this. Similar stuff happened in Spain when the american gold hauls were imported. And it matches the idea - banking system getting money first creates illusion of more credit being available than what savers are actually putting aside so the seeds for an unsustainable bubble are sewn.", "title": "" }, { "docid": "c882b1c6d2f6c22c7c58d1c0f9538892", "text": "When coming to that conclusion, you only consider half of the facts. Yes, all money is debt. But what you miss is that there are other values and assets out there, not just money. These actually match each other to some degree. If the value of all these other assets grow at the same pace as the money supply, then there will be a balance. If one grows faster than the other, there will be inflation or deflation. At least there should be, which is the problem not understood.", "title": "" }, { "docid": "52a78bae0d5dc569d24b41e2b75400c1", "text": "I don't think that there's a specific number or index that gives you what you're looking for. I think the closest thing to it would be the velocity of money, which is a measure of how often money changes hands. Also, for what it's worth, I believe that this concept is controversial in some circles.", "title": "" }, { "docid": "077b58d58cfab328dc6add4c9be152d9", "text": "But how can you have continued growth? Nothing is perpetual at least not in real life - maybe in theory :) I'm guessing you're talking about growth in the money supply right? Well how can you keep growing your money supply indefinitely if doing so requires the creation of a larger amount of debt than the amount that already exists? Think of it in rounds. If each round of debt requires that new debt to the amount of 105% of the old debt is created, how long can you keep that running for? You've essentially got the principle of compound interest working against you. I'm obviously missing something really big because this seems ridiculous to me...", "title": "" }, { "docid": "53bb45d891a7bec4bad44ba09a8080bb", "text": "\"I'm just trying to visualize the costs of trading. Say I set up an account to trade something (forex, stock, even bitcoin) and I was going to let a random generator determine when I should buy or sell it. If I do this, I would assume I have an equal probability to make a profit or a loss. Your question is what a mathematician would call an \"\"ill-posed problem.\"\" It makes it a challenge to answer. The short answer is \"\"no.\"\" We will have to consider three broad cases for types of assets and two time intervals. Let us start with a very short time interval. The bid-ask spread covers the anticipated cost to the market maker of holding an asset bought in the market equal to the opportunity costs over the half-life of the holding period. A consequence of this is that you are nearly guaranteed to lose money if your time interval between trades is less than the half-life of the actual portfolio of the market maker. To use a dice analogy, imagine having to pay a fee per roll before you can gamble. You can win, but it will be biased toward losing. Now let us go to the extreme opposite time period, which is that you will buy now and sell one minute before you die. For stocks, you would have received the dividends plus any stocks you sold from mergers. Conversely, you would have had to pay the dividends on your short sales and received a gain on every short stock that went bankrupt. Because you have to pay interest on short sales and dividends passed, you will lose money on a net basis to the market maker. Maybe you are seeing a pattern here. The phrase \"\"market maker\"\" will come up a lot. Now let us look at currencies. In the long run, if the current fiat money policy regime holds, you will lose a lot of money. Deflation is not a big deal under a commodity money regime, but it is a problem under fiat money, so central banks avoid it. So your long currency holdings will depreciate. Your short would appreciate, except you have to pay interest on them at a rate greater than the rate of inflation to the market maker. Finally, for commodities, no one will allow perpetual holding of short positions in commodities because people want them delivered. Because insider knowledge is presumed under the commodities trading laws, a random investor would be at a giant disadvantage similar to what a chess player who played randomly would face against a grand master chess player. There is a very strong information asymmetry in commodity contracts. There are people who actually do know how much cotton there is in the world, how much is planted in the ground, and what the demand will be and that knowledge is not shared with the world at large. You would be fleeced. Can I also assume that probabilistically speaking, a trader cannot do worst than random? Say, if I had to guess the roll of a dice, my chance of being correct can't be less than 16.667%. A physicist, a con man, a magician and a statistician would tell you that dice rolls and coin tosses are not random. While we teach \"\"fair\"\" coins and \"\"fair\"\" dice in introductory college classes to simplify many complex ideas, they also do not exist. If you want to see a funny version of the dice roll game, watch the 1962 Japanese movie Zatoichi. It is an action movie, but it begins with a dice game. Consider adopting a Bayesian perspective on probability as it would be a healthier perspective based on how you are thinking about this problem. A \"\"frequency\"\" approach always assumes the null model is true, which is what you are doing. Had you tried this will real money, your model would have been falsified, but you still wouldn't know the true model. Yes, you can do much worse than 1/6th of the time. Even if you are trying to be \"\"fair,\"\" you have not accounted for the variance. Extending that logic, then for an inexperienced trader, is it right to say then that it's equally difficult to purposely make a loss then it is to purposely make a profit? Because if I can purposely make a loss, I would purposely just do the opposite of what I'm doing to make a profit. So in the dice example, if I can somehow lower my chances of winning below 16.6667%, it means I would simply need to bet on the other 5 numbers to give myself a better than 83% chance of winning. If the game were \"\"fair,\"\" but for things like forex the rules of the game are purposefully changed by the market maker to maximize long-run profitability. Under US law, forex is not regulated by anything other than common law. As a result, the market maker can state any price, including prices far from the market, with the intent to make a system used by actors losing systems, such as to trigger margin calls. The prices quoted by forex dealers in the US move loosely with the global rates, but vary enough that only the dealer should make money systematically. A fixed strategy would promote loss. You are assuming that only you know the odds and they would let you profit from your 83.33 percentage chance of winning. So then, is the costs of trading from a purely probabilistic point of view simply the transaction costs? No matter what, my chances cannot be worse than random and if my trading system has an edge that is greater than the percentage of the transaction that is transaction cost, then I am probabilistically likely to make a profit? No, the cost of trading is the opportunity cost of the money. The transaction costs are explicit costs, but you have ignored the implicit costs of foregone interest and foregone happiness using the money for other things. You will want to be careful here in understanding probability because the distribution of returns for all of these assets lack a first moment and so there cannot be a \"\"mean return.\"\" A modal return would be an intellectually more consistent perspective, implying you should use an \"\"all-or-nothing\"\" cost function to evaluate your methodology.\"", "title": "" }, { "docid": "6057489b63d4a6078034e2f58b3fe5f7", "text": "I'm not sure, but I think the monetary system of Second Life or World of Warcraft would correspond to what you are looking for. I don't think they are independent of the dollar though, since acquiring liquidity in those games can be done through exchange for real dollars. But there can be more closed systems, maybe Sim type games where this is not the case. I hope this helps.", "title": "" }, { "docid": "2909bd6926ceb9028f6b06402e3604f7", "text": "\"It's like the lady said, \"\"It's not the size that counts, honey -- it's the wiggle behind it.\"\" Or to be more precise in application of metaphor, it's not the amount of money but where it goes that matters. Currency is like blood: It's supposed to circulate, but when it pools into large pockets, well, that's a good sign you're dead.\"", "title": "" }, { "docid": "1c4cddfa7819f326c1e6f00a215b9b96", "text": "\"No, it's not a closed loop. Most currency in circulation is bank credit, meaning money that originates from loans that originated from a bank. Once the loans are repaid, the \"\"money\"\" that was created by the loan disappears - freeing up the bank to make more loans. This is how fractional reserve banking works. [Check this out](http://www.youtube.com/watch?v=W3hLKpKv3ME) for more info (it's really interesting actually). Not to say that the rich aren't \"\"sopping up\"\" too much cash. It definitely is a problem...\"", "title": "" }, { "docid": "4c79095ed9f562fd20db7f3b2f769ef2", "text": "\"The Ponzi/Madoff schemes were closed loops, so the only source of the so-called \"\"interest\"\" on the money was the contributions of future investors. The economy is more like a living thing, and the availability of capital allows people to develop new ways to do things in a more productive way. Agriculture is a great example -- for most of human history the overwhelming majority of human labor was dedicated to producing food. Now that proportion is dramatically smaller -- the descendants of farmers 100 years ago are doctors and computer programmers... professions that could not exist. Fractional reserve banking makes the economy more efficient by putting capital that would otherwise be hoarded in circulation. Money is a medium of exchange, so the more it turns over, the better it is. Genoa and Britain pioneered this concept centuries ago, and were able to defeat larger rivals in large part because of the economic advantages that the practice brought to bear. That's not to say that banking doesn't come with its warts as well. I'd suggest reading \"\"A Free Nation Deep in Debt\"\", which does a good job of explaining how we got to where we are today.\"", "title": "" }, { "docid": "3d69235e46bfcc2f54fe6f17e127582b", "text": "\"Cycle of poverty In economics, the cycle of poverty is the \"\"set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention\"\". The cycle of poverty has been defined as a phenomenon where poor families become impoverished for at least three generations, i.e. for enough time that the family includes no surviving ancestors who possess and can transmit the intellectual, social, and cultural capital necessary to stay out of or change their impoverished condition. In calculations of expected generation length and ancestor lifespan, the lower median age of parents in these families is offset by the shorter lifespans in many of these groups. *** ^[ [^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) ^\| [^Source](https://github.com/kittenswolf/WikiTextBot) ^] ^Downvote ^to ^remove ^\| ^v0.27\"", "title": "" }, { "docid": "8a979a73f77054a714c784cc7b2ad6e0", "text": "The value of money is not only in the earning and saving of it but also in the discipline in spending it. Any approach to teaching children about money must ensure a balance between the two otherwise they will either become fearful of spending (and so never actually learn that money is but a tool and can be enjoyed) or irresponsible (spending with abandon with all that concomitant misery): Teaching kids about money is a wonderful opportunity to instil discipline and values. Any strategy must be structured to suite the child's age and abilities as well. Trying to teach compound interest to too young a child will just become needlessly confusing and worrying for them. Hope this gives a few ideas.", "title": "" } ]	fiqa
9fe328d07b58b4bf61a44fa3bbc5ec4a	Stocks vs. High-yield Bonds: Risk-Reward, Taxes?	[ { "docid": "d41d8cd98f00b204e9800998ecf8427e", "text": "", "title": "" }, { "docid": "a49db2e2d205b37bb8e4240e6f249904", "text": "When credit locks up, junk bond prices fall rapidly, and you see more defaults. The opportunity to make money with junk is to buy a diversified collection of them when the market declines. Look at the charts from some of the mutual funds or ETFs like PIMCO High Yield Instl (PHIYX), or Northeast Investors (NTHEX). Very volatile stuff. Keep in mind that junk bonds are not representative of the economy as a whole -- they cluster in certain industries. Retail and financials are big industry segments for junk. Also keep in mind that the market for these things is not as liquid as the stock market. If your investment choice is really a sector investment, you might be better served by investing in sector funds with stocks that trade every day versus bonds whose market price may be difficult to determine.", "title": "" } ]	[ { "docid": "564005dc162c72c98e107c637b036256", "text": "For bonds bought at par (the face value of the bond, like buying a CD for $1000) the payment it makes is the same as yield. You pay $1000 and get say, $40 per year or 4%. If you buy it for more or less than that $1000, say $900, there's some math (not for me, I use a finance calculator) to tell you your return taking the growth to maturity into account, i.e. the extra $100 you get when you get the full $1000 back. Obviously, for bonds, you care about whether the comp[any or municipality will pay you back at all, and then you care about how much you'll make when then do. In that order. For stocks, the picture is abit different as some companies give no dividend but reinvest all profits, think Berkshire Hathaway. On the other hand, many people believe that the dividend is important, and choose to buy stocks that start with a nice yield, a $30 stock with a $1/yr dividend is 3.3% yield. Sounds like not much, but over time you expect the company to grow, increase in value and increase its dividend. 10 years hence you may have a $40 stock and the dividend has risen to $1.33. Now it's 4.4% of the original investment, and you sit on that gain as well.", "title": "" }, { "docid": "f6ac2bcc59fee8f3220b9dbae3fc484a", "text": "\"A few points that I would note: Call options - Could the bond be called away by the issuer? This is something to note as some bonds may end up not being as good as one thought because of this option that gets used. Tax considerations - Are you going for corporate, Treasury, or municipals? Different ones may have different tax consequences to note if you aren't holding the bond in a tax-advantaged account,e.g. Roth IRA, IRA or 401k. Convertible or not? - Some bonds are known as \"\"convertibles\"\" since the bond comes with an option on the stock that can be worth considering for some kinds of bonds. Inflation protection - Some bonds like TIPS or series I savings bonds can have inflation protection built into them that can also be worth understanding. In the case of TIPS, there are principal adjustments while the savings bond will have a change in its interest rate. Default risk - Some of the higher yield bonds may have an issuer go under which is another way one may end up with equity in a company rather than getting their money back. On the other side, for some municipals one could have the risk of the bond not quite being as good as one thought like some Detroit bonds that may end up in a different result given their bankruptcy but there are also revenue bonds that may not meet their target for another situation that may arise. Some bonds may be insured though this requires a bit more research to know the credit rating of the insurer. As for the latter question, what if interest rates rise and your bond's value drops considerably? Do you hold it until maturity or do you try to sell it and get something that has a higher yield based on face value?\"", "title": "" }, { "docid": "9ed4fcf38b6b750eddd20aed017cac45", "text": "\"The two are not incompatible. This is particularly true of Glaxo and Pfizer, two drug companies operating in roughly the same markets with similar products. Many \"\"good\"\" companies offer a combination of decent yields and growth. Glaxo and Pfizer are both among them. There is often (not always), a trade-off between high yield and high growth. All other things being equal, a company that pays out a larger percentage of its profits as dividends will exhibit lower growth. But a company may have a high yield because of a depressed price due to short term problems. When those problems are fixed, the company and stock grows again, giving you the best (or at least the better) of both worlds.\"", "title": "" }, { "docid": "07840ca3531beffb6cc1cd5266218a0c", "text": "\"In the US, dividends are presently taxed at the same rates as capital gains, however selling stock could lead to less tax owed for the same amount of cash raised, because you are getting a return of basis or can elect to engage in a \"\"loss harvesting\"\" strategy. So to reply to the title question specifically, there are more tax \"\"benefits\"\" to selling stock to raise income versus receiving dividends. You have precise control of the realization of gains. However, the reason dividends (or dividend funds) are used for retirement income is for matching cash flow to expenses and preventing a liquidity crunch. One feature of retirement is that you're not working to earn a salary, yet you still have daily living expenses. Dividends are stable and more predictable than capital gains, and generate cash generally quarterly. While companies can reduce or suspend their dividend, you can generally budget for your portfolio to put a reliable amount of cash in your pocket on schedule. If you rely on selling shares quarterly for retirement living expenses, what would you have done (or how much of the total position would you have needed to sell) in order to eat during a decline in the market such as in 2007-2008?\"", "title": "" }, { "docid": "d6a0cddee37083f56a9630e1a143bc67", "text": "This is subject to some amount of opinion, but I think that Treasury Inflation Protected Securities (TIPS) are closest to what you describe. These are issued by the US Treasury like a treasury bond, but the rate is adjusted for inflation. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm I see your comment about taxes. TIPS are exempt from state and local taxes, but they are subject to federal tax on the income and on the growth of the principal.", "title": "" }, { "docid": "67a8f8a83db55a5a110890deeebbdcf3", "text": "\"You have a high risk tolerance? Then learn about exchange traded options, and futures. Or the variety of markets that governments have decided that people without high income are too stupid to invest in, not even kidding. It appears that a lot of this discussion about your risk profile and investing has centered around \"\"stocks\"\" and \"\"bonds\"\". The similarities being that they are assets issued by collections of humans (corporations), with risk profiles based on the collective decisions of those humans. That doesn't even scratch the surface of the different kinds of asset classes to invest in. Bonds? boring. Bond futures? craziness happening over there :) Also, there are potentially very favorable tax treatments for other asset classes. For instance, you mentioned your desire to hold an investment for over a year for tax reasons... well EVERY FUTURES TRADE gets that kind of tax treatment (partially), whether you hold it for one day or more, see the 60/40 rule. A rebuttal being that some of these asset classes should be left to professionals. Stocks are no different in that regards. Either educate yourself or stick with the managed 401k funds.\"", "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": "ac97477afe8baf421d2bcf1b23bf05dd", "text": "You have a misunderstanding about what it is. Absent differential tax treatment buybacks and dividens are the exact same. period. You're saying it yourself, not buying back stock so they can pay out dividends. What the impetus might be is irrelevant. Dividends are a use of funds competing equally with investments or higher salary.", "title": "" }, { "docid": "1de019cd6cceea000d667a6014036f01", "text": "Series I Savings Bonds would be another option that have part of their return indexed to inflation though currently they are yielding 1.64% through April 30, 2016 though some may question how well is that 3% you quote as an inflation rate. From the first link: Series I savings bonds are a low-risk savings product. While you own them they earn interest and protect you from inflation. You may purchase electronic I bonds via TreasuryDirect or paper I bonds with your IRS tax refund. As a TreasuryDirect account holder, you can purchase, manage, and redeem I bonds directly from your web browser. TIPS vs I Bonds if you want to compare these products that are rather safe in terms of avoiding a nominal loss. This would be where a portion of the funds could go, not all of them at once.", "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": "bffcf4ef1809546937edf2f201fc6711", "text": "Distributions of interest from bonds are taxable as income by the Federal, state and municipal (if applicable) government. End of year fund distributions are subject to capital gains taxes as well. You can minimize taxation by: Note that the only bonds that are guaranteed safe are US Government obligations, as the US government has unlimited taxation powers and the ability to print money. Municipal obligations are generally safe, but there is a risk that municipal governments will default. You can also avoid taxation by not realizing gains. If you buy individual stocks or tax-efficient mutual funds, you will have minimal tax liability until you sell. Also, just wanted to point out that bonds do not equal safety and money markets do not pay sufficient interest to offset inflation, you need a diversified portfolio. Five year treasury notes are only paying 1.3% now, and bond prices drop when interest rates go up. Given the level of Federal spending and the wind-down of the war, its likely that rates will rise.", "title": "" }, { "docid": "59e762b8f5ee752485d2454dd9fec47d", "text": "You can buy and sell stocks, if you like. You'll have to pay taxes on any profits. And short-term is speculating, not investing, and has high risk", "title": "" }, { "docid": "a634c15180a16af1d8b1f91c2d4ef48e", "text": "Not sure how this has got this far with no obvious discussion about the huge tax advantages of share buy backs vs dividend paying. Companies face a very simple choice with excess capital - pay to shareholders in the form of a taxable dividend, invest in future growth where they expect to make more than $1 for every $1 invested, or buy back the equivalent amount of stock on the market, thus concentrating the value of each share the equivalent amount with no tax issues. Of these, dividends are often by far the worst choice. Virtually all sane shareholders would just rather the company put the capital to work or concentrate the value of their shares by taking many off the market rather than paying a taxable dividend.", "title": "" }, { "docid": "c9a3c0c2284554ce69d0c8db28dcfdcc", "text": "\"Remember that risk should correlate with returns, in an investment. This means that the more risk you take on, the more return you should be receiving, in an efficient marketplace. That's why putting your money in a savings account might earn you <1% interest right now, but putting money in the stock market averages ~7% returns over time. You should be very careful not to use the word 'interest' when you mean 'returns'. In your post, you are calling capital gains (the increase in value of owned property) 'interest'. This may be understating in your head the level of risk associated with property ownership. In the case of the bank, they are not in the business of home construction. Rather than take that risk themselves, they would rather finance many projects being done by construction companies that know the business. The bank has a high degree of certainty of getting its money back, because its mortgages are protected by the value of the property. Part of the benefit of an efficient marketplace is that risk gets 'bought' by individuals who want it. This means that people with a low-risk tolerance (such as banks, people on fixed incomes, seniors, etc.) can avoid risk, and people with a high risk tolerance (stock investors, young people with high income, etc.) can take on that risk for higher average returns. The bank's reasoning should remind you of the risk associated with property ownership: increases in value are not a sure thing. If you do not understand the risk of your investment, you cannot be certain that you are being well compensated for that risk. Note also that most countries place regulations on their banks that limit the amount of their funds that can be placed in 'higher risk' asset classes. Typically, this something along the lines of \"\"If someone places a deposit with your bank, you can only invest that deposit in a low-risk debt-based asset [ie: you can take money deposited by customer A and use it to finance a mortgage for customer B]\"\". This is done in an attempt to prevent collapse of the financial sector, if risky investments start failing.\"", "title": "" }, { "docid": "a67e97c315357cc1ac6335a6f29b8e79", "text": "\"There are tax free bonds in the United States. They are for things like public housing and other urban projects. They are tax free for everyone but only rich people buy them. Why? The issue is that the tax free nature of the bond is included in its yield. So rather than yielding say a 5% return, they figure that the owner is getting 20% off due to not paying taxes. As a result, they only give a 4% return but are as risky as a 5% return investment. Net result, only rich people invest in tax free bonds. \"\"Rich\"\" is defined here to mean people paying a 20% tax on long term investment returns. Or take the State and Local Tax (SALT) deduction, which has been in the news recently. Again, it is technically open to everyone. But there is also a standard deduction that is open to everyone. For the typical family, state and local taxes might be 5% of income. So for a family making $100k a year, that's $5k. The same family can take a $13k or so standard deduction instead of itemizing. So why would they take the smaller deduction? As a practical matter, two groups take the SALT deduction. People rich enough to pay more than $13k in state and local taxes and people who also take the mortgage interest deduction. So it helps a lot of people who are rich quite a bit. And it helps a few middle class people some. But if you are lower middle class with a $30k mortgage on a tiny house and paying 4% interest, then that's only $1200 a year. Add in property taxes of $3000 and SALT of $2.8k and that's only $7k. Even if the person gives $3k to charity, the $13k deduction is a lot better and requires less paperwork. Contrast that with someone who has $500k mortgage at 3.6% interest. That's $18k in interest alone. Add in a SALT of $7k and property taxes of $50k, and there's $75k of itemized deductions, much better than $13k. Now a $7k donation to charity is entirely deductible. And even after the mortgage interest deduction goes away, the other $64k remains.\"", "title": "" } ]	fiqa
b121ef81dbdb41992571752b8d87e8f5	What's behind the long secular bull market in U.S. Treasuries?	[ { "docid": "74fa0dddf06e3dd9017585e8ebc92d6f", "text": "I believe that it's largely irrational, fueled largely by foreign investors that are afraid to invest anywhere else. There are a few people out there right now who are writing about this: http://www.marketwatch.com/story/us-treasuries-largest-bubble-in-world-history-says-nia-2011-08-30 http://articles.businessinsider.com/2010-08-25/markets/30080511_1_fed-first-yields-mbs As to why would you invest in long-dated versus short? Probably to chase yield. The 30 year yields 30x more than the 1 year. It's also easier to buy on the long end if you believe that the economy will remain slow for another decade or two and therefore the central banks will keep rates low for a very long time. Of course, at the moment, long-dated treasury prices are artificially high because of operation twist.", "title": "" }, { "docid": "518fa26daa042201cbe1c0e3e34addc3", "text": "In a secular bull market, strong investor sentiment drives prices higher, as participants, over time, are net buyers. Secular markets are typically driven by large-scale national and worldwide events... demographic/ population shifts, governmental policies... bear market periods occur within the longer interval, but do not reverse the trend. There are still many reasons to buy the long bond, despite the lack of yield (nearly flat term structure of interest rates). Despite the recent credit ratings agency downgrades of U.S. sovereign risk, the T-bond offers greater relative security than many alternatives. If Germany were NOT part of the EU, its government bonds would be issued by the Bundesbank, denominated in Deutsche Marks. German government bonds would probably be a better choice than the U.S. Treasury's 30-year bond. Long-term maturity U.S. Treasuries are in demand by investment and portfolio managers because:", "title": "" } ]	[ { "docid": "37b0fdd14f1ecb48f606ed0d33f56806", "text": "\"I'll tackle number 2. It's one which many academics dismissed as an impossibility; after all, how could that be rational? What could cause negative yields (ie effectively giving an entity cash and paying for the privilege of doing so!) is something we've experiencing currently: fear. Back in the financial crisis, investors were actually paying to store their cash in treasuries, because of the fear that if they left it with a bank they might not get it back. What about the FDIC Insurance you may ask quite logically. The problem is that we're talking about massive entities, like pension funds, asset managers, corporations, who normally would store some (think millions - billions) in cash and cash equivalents (bank accounts, money market funds, short-term paper), they really aren't protected. So, they do what turns out to be the rational thing, which is pay a premium on \"\"safe assets\"\" ie US Gov't bills to guarantee you get most of your money back. The same thing is currently happening with German front-end paper, as Europeans pull their money out of banks/periphery assets and search for safety. Hope that helped.\"", "title": "" }, { "docid": "160c44a324bab3abc239fa3ebc2a53bf", "text": "Yes, the Fed has made a point of buying up longer-term bonds to push down rates on that part of the curve. That's not an indication that they're having problems selling Treasuries, in fact far from it. But apparently there's no demand for Treasuries and Bloomberg is just making up lies to help get Obama reelected? >Investors are plowing into Treasuries (USB2YBC) at a record pace as the supply of the world’s safest securities dwindles, ensuring yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment. Buyers bid $3.19 for each dollar of the $538 billion in notes and bonds sold this year, the most since the government began releasing the data in 1992 and on pace to beat the high of $3.04 in 2011. The net amount of Treasuries available will decline by 30 percent once proceeds from maturing securities are reinvested, according to data from CRT Capital Group LLC. http://www.bloomberg.com/news/2012-04-09/record-treasury-demand-keeps-yields-low-as-supply-shrinks.html", "title": "" }, { "docid": "748cfae2bbfeef912d931c272b2f4c68", "text": "But a textbook liquidity trap means prices fluctuate. We've seen nothing but steady increases in every single possible measurable standard. Liquidity traps occur when there is fear of deflation. There is no such fear. Deflation would be a welcome remedy to today's currency crisis. Your paycheck would be able to purchase more and we would see prices fall, making it easier for the average American to afford their food, gas and housing. Plus, lending is down not because banks are hoarding cash. If anything, banks are trying to lend out more than ever. Standards for borrowing have plummited. Anyone willing to sign a contract can get hundreds of thousands of dollars at the drop of a hat. Lending is down because consumer and business demand for more debt is down. I stopped reading Krugman years ago, but if he is seriously trying to sell a liquidity trap right now, he is horribly misleading people and his advocacy of the Fed's printing and lending policies as of late is just flat out dangerous to the global economy.", "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": "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": "37fe9d23a69b6a0ff5dcad43c1dcf84e", "text": "\">If mounting debt is such an issue, why do all the markets act as though the US is perfectly solvent? They don't. China, Russia and most emerging markets are selling U.S. treasuries faster and faster. They have started doing so a couple years ago and are doing so at a higher pace now. They sold record numbers of U.S. treasuries in June. Many countries are forging trade partnerships with each other to get away from U.S. debt and even the U.N. and IMF are calling for an end to the dollar as the global reserve currency because it no longer deserves that status, largely due to increasing debt. By the way, the Fed is owning a larger and larger portion of U.S. debt these days. >Why is our interest rate so low, and why do investors around the world continue buying Treasury bonds? The federal reserve keeps rates low. Investors speculate about the future of the market all the time, but they are starting to dump them now http://www.bloomberg.com/news/2014-08-15/u-s-investment-outflow-reaches-record-as-china-sells-treasuries.html http://www.reuters.com/article/2014/08/15/usa-economy-capital-idUSL2N0QL0T520140815 http://www.ft.com/intl/cms/s/0/eaccbe18-aea6-11e3-aaa6-00144feab7de.html >The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said. >\"\"This is a disappointment and is a negative for the dollar. Clearly, the United States is having a hard time attracting investments to offset its current account deficit,\"\" said Michael Woolfolk, global market strategist at BNY Mellon in New York. >Central banks sold US Treasury debt at the start of the year, according to the latest official data released on Tuesday, as stress among emerging market countries intensified. Declines in Treasury holdings were seen for Thailand, Turkey and the Philippines, which sold $3.9bn, $3.3bn and $1.5bn respectively during January. Wow look at that. Did you just dismiss all evidence that proves you wrong? I think so!\"", "title": "" }, { "docid": "ab529d74108e9de7c8dac0355282dec1", "text": "Long convexity is achieved by owning long dated low delta options. When a significant move occurs in the underlying the volatility curve will move higher. Instead of a linear relationship between your long position and it's return, you receive a multiple of the linear return. For example: Share price $50 Long 1 (equals 100 shares) contract of a 2 year 100 call Assume this is a 5 delta option If the stock price rises to $70 the delta of the option will rise because it is now closer to the strike. Lets assume it is now a 20 delta option. Then Expected return on a $20 price move higher, 100 shares($20)(.20-.05)=$300 However what happens is the entire volatility surface rises and causes the 20 delta option to be 30 delta option. Then The return on a $20 price move higher, 100 shares($20)(.30-.05)=$500 This $200 extra gain is due to convexity and explains why option traders are willing to pay above the theoretical price for these options.", "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": "8d97bf4bb1460ad297443f840144b63f", "text": "To my knowledge, the only bond ever issued by a notable state into perpetuity was the Bank of England...and it was a miserable mess for all the obvious reasons. Edit : They were called consuls, and it appears i was wrong about them being catastriphic for the BOE. I'm sorry, i guess i must be cruising the permabear backwoods or something. Here's some interesting links i found. http://en.wikipedia.org/wiki/Consols http://www.immediateannuities.com/annuitymuseum/annuitycertificatesofthebankofengland/consolidatedannuities/ http://www.economist.com/blogs/buttonwood/2012/03/debt-crisis-0?fsrc=scn/fb/wl/bl/hundredyearsofsolvency", "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": "1b3e7446fd01d40d7513b4640655a667", "text": "The way it actually works is that low-but-steady inflation (ie: printing of new dollars without any debt behind them) keeps the debts serviceable. In real life, unfortunately, too little of the money supply is printed rather than lent into existence.", "title": "" }, { "docid": "8290de06be4d6255f61a606db30404dd", "text": "\"Both explanations are partly true. There are many investors who do not want to sell an asset at a loss. This causes \"\"resistance\"\" at prices where large amounts of the asset were previously traded by such investors. It also explains why a \"\"break-through\"\" of such a \"\"resistance\"\" is often associated with a substantial \"\"move\"\" in price. There are also many investors who have \"\"stop-loss\"\" or \"\"trailing stop-loss\"\" \"\"limit orders\"\" in effect. These investors will automatically sell out of a long position (or buy out of a short position) if the price drops (or rises) by a certain percentage (typically 8% - 10%). There are periods of time when money is flowing into an asset or asset class. This could be due to a large investor trying to quietly purchase the asset in a way that avoids raising the price earlier than necessary. Or perhaps a large investor is dollar-cost-averaging. Or perhaps a legal mandate for a category of investors has changed, and they need to rebalance their portfolios. This rebalancing is likely to take place over time. Or perhaps there is a fad where many small investors (at various times) decide to increase (or decrease) their stake in an asset class. Or perhaps (for demographic reasons) the number of investors in a particular situation is increasing, so there are more investors who want to make particular investments. All of these phenomena can be summarized by the word \"\"momentum\"\". Traders who use technical analysis (including most day traders and algorithmic speculators) are aware of these phenomena. They are therefore more likely to purchase (or sell, or short) an asset shortly after one of their \"\"buy signals\"\" or \"\"sell signals\"\" is triggered. This reinforces the phenomena. There are also poorly-understood long-term cycles that affect business fundamentals and/or the politics that constrain business activity. For example: Note that even if the markets really were a random walk, it would still be profitable (and risk-reducing) to perform dollar-cost-averaging when buying into a position, and also perform averaging when selling out of a position. But this means that recent investor behavior can be used to predict the near-future behavior of investors, which justifies technical analysis.\"", "title": "" }, { "docid": "bc33b8954e1e7ec0fe149952f8ee1f62", "text": "\"We are exactly where we should be for pricing. We are not over valued. The largest bull market in history is following the longest stagnation in history, we're merely playing catch up. Of course, it was spurred after Trump won because the business sector assumed he would curtail regulation - one thing we're pretty sure he'll accomplish because his business interests are alligned. Recommended reading outlining why we are appropriately valued: Stocks for the Long Run by Jeremy Seigel, Prof of finance at Wharton. I'm all for looking out for people's benefit. As an investment advisor, I have to abide by the fidicuary rule myself. I'm sure there's another side to the argument for them removing the rule. As Robert Shiller, Nobel laureate in economics, put it, \"\"We need the right regulation, not more or less.\"\" Perhaps it's not correct in it's current state. But I'm not a legislative expert, maybe someone can elaborate. We need to be wary about how quick we are to judge on these rulings. Many comments are not experts and our confirmation bias will drive people to misinformation. We judge ourselves on our intentions and others on their actions.\"", "title": "" }, { "docid": "d8b964c197b4e88844b037810b8339df", "text": "There are some important thing you need to understand about bonds, and how they work: * A bond doesn't need an active market - like a stock, for example - to have value. * Nonetheless, there exist active markets for all of these bonds. * The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. * The Fed can hold any and all of these bonds to maturity, while receiving contractual payments all the while, and never sell a single bond back to the market.", "title": "" }, { "docid": "aa4a29677cbaabb9dbf2395e17812b4a", "text": "I mean, at a personal level, I do this all the time. I will absolutely take advantage of low interest financing offers if I know I can make more money with the outstanding balance than will be drawn in interest. It can also make sense from a risk management perspective: I need liquidity even if I can cover the cost, I anticipate needing a large sum of cash over a short interval during the finance period. If I were to pay all upfront the cumulative expenditures would Darwin me too close to my safety threshold for my comfort level, but by financing I can distribute the risk and keep a higher margin for error over the course of the loan.", "title": "" } ]	fiqa
2a1a06ab72700fe07914c144a23240b6	Pros & cons of buying gold directly vs. investing in a gold ETF like GLD, IAU, SGOL?	[ { "docid": "08cec8c13d6cc51c6f85f6b481c17691", "text": "Owning physical gold (assuming coins): Owning gold through a fund:", "title": "" }, { "docid": "e3ee11e77e85eaf369243b040ef882e3", "text": "If you want to speculate on gold price you should always buy an ETF/ETC (Exchange Traded Commodity). The reasons are simple: Easy to buy and sell (one mouse click) Cheap to buy and sell (small bank commission), compared to buy real gold (always 6 to 12% comission to the local shop when you buy and when you sell), see this one it's one cheap gold buy/sell shop I found on the internet But if you sometimes feel unsecure that you might one day loose everything due to a major economy collapse event (like an armageddon), or not to have enough money in bad periods or during retirment, and it makes you feel better to know you buried 999 Gold Sovereign in your house backyard (along with a rifle as suggested in comments), then just buy them and live an happy life (as long as you hide your gold in good ways and write a good treasury map).", "title": "" } ]	[ { "docid": "51f09d8025fb86f43c74dfdb82941039", "text": "\"Two points: One, yes -- the price of gold has been going up. [gold ETF chart here](http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1349467200000&chddm=495788&chls=IntervalBasedLine&q=NYSEARCA:IAU&ntsp=0&ei=PQhvUMjiAZGQ0QG5pQE) Two, the US has confiscated gold in the past. They did it in the 1930s. Owning antique gold coins is stupid because you're paying for gold + the supply / demand imbalance forced upon that particular coin by the coin collector market. If you want to have exposure to gold in your portfolio, the cheapest way is through an ETF. If you want to own physical gold because a) it's shiny or b) you fear impending economic collapse -- you're probably better off with bullion from a reputable dealer. You can buy it in grams or ounces -- you can also buy it in coins. Physical gold will generally cost you a little more than the spot price (think 5% - 10%? -- not really sure) but it can vary wildly. You might even be able to buy it for under the spot price if you find somebody that isn't very bright willing to sell. Buyer beware though -- there are lots of shady folks in the \"\"we buy gold\"\" market.\"", "title": "" }, { "docid": "001bd856c730fa6fc8e49f45937cb647", "text": "Here's a start at a high level: I have a few friends who have made a killing on GLD, and write options to make money off of the investment without incurring the capital gains penalties for selling. That's a little out of my comfort zone though.", "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": "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": "184b192142a08e69ff99c90145a0ef1a", "text": "You're missing the cost-of-carry aspect: The cost of carry or carrying charge is the cost of storing a physical commodity, such as grain or metals, over a period of time. The carrying charge includes insurance, storage and interest on the invested funds as well as other incidental costs. In interest rate futures markets, it refers to the differential between the yield on a cash instrument and the cost of the funds necessary to buy the instrument. So in a nutshell, you'd have to store the gold (safely), invest your money now, i.e. you're missing out on interests the money could have earned until the futures delivery date. Well and on top of that you need to get the gold shipped to London or wherever the agreed delivery place is. Edit: Forgot to mention that of course there are arbitrageurs that make sure the futures and spot market prices don't diverge. So the idea isn't that bad as I might have made it sound but being in the arbitrage business myself I should disclaim that profits are small and arbitraging is highly automated, so before you spot a $1 profit somewhere between any two contracts, you can be quite sure it's been taken by an arbitrageur already.", "title": "" }, { "docid": "9c84d0cd8ba4ce0d23663e0591844911", "text": "Gold is a risky and volatile investment. If you want an investment that's inflation-proof, you should buy index-linked government bonds in the currency that you plan to be spending the money in, assuming that government controls its own currency and has a good credit rating.", "title": "" }, { "docid": "8c507717d9501648c82e19ba942fa209", "text": "This is an excellent question; kudos for asking it. How much a person pays over spot with gold can be negotiated in person at a coin shop or in an individual transaction, though many shops will refuse to negotiate. You have to be a clever and tough negotiator to make this work and you won't have any success online. However, in researching your question, I dug for some information on one gold ETF OUNZ - which is physically backed by gold that you can redeem. It appears that you only pay the spot price if you redeem your shares for physical gold: But aren't those fees exorbitant? After all, redeeming for 50 ounces of Gold Eagles would result in a $3,000 fee on a $65,000 transaction. That's 4.6 percent! Actually, the fee simply reflects the convenience premium that gold coins command in the market. Here are the exchange fees compared with the premiums over spot charged by two major online gold retailers: Investors do pay an annual expense ratio, but the trade-off is that as an investor, you don't have to worry about a thief breaking in and stealing your gold.", "title": "" }, { "docid": "613f34cb917a8d2321c89092453f5ebe", "text": "I think your question is very difficult to answer because it involves speculation. I think the best article describing why or why not to invest in gold in a recent Motley Fool Article.", "title": "" }, { "docid": "e26623e08553c09696cac38fbef44909", "text": "gold is incredibly volatile, I tried spreadbetting on it. During the month of its highest gain, month beginning to month end, I was betting it would go up - and I still managed to lose money. It went down so much, that my stop loss margin would kick in. Don't do things with gold in the short term its a very small and liquid market. My advice with gold, actually buy some physical gold as insurance.", "title": "" }, { "docid": "2b61c5a5c10181068fa87709c6c4ddf5", "text": "Just sticking to equities: If you are investing directly in a share/stock, depending on various factors, you may have picked up a winner or to your dismay a loser. Say you just have Rs 10,000/- to invest, which stock would you buy? If you don't know, then it’s better to buy a Mutual Fund. Now if you say you would buy a few of everything, then even to purchase say Rs 5000/- worth of each stock in the NIFTY Index [50 companies] you would require at least an investment of 250,000/-. When you are investing directly you always have to buy in whole numbers, i.e. you can't buy 1/2 share or 1.6 share of some stock. The way Mutual funds work is they take 10,000 from 250 people and invest in all the stocks. There are fund managers who's job is to pick good stocks, however even they cannot predict winners all the time. Normally a few of the picks become great winners, most are average, and a few are losers; this means that overall your returns are average VS if you had picked the winning stock. The essential difference between you investing on your own and via mutual funds are: It is good to begin with a Mutual Fund, and once you start understanding the stocks better you can invest directly into the equities. The same logic holds true for Debt as well.", "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": "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": "af190e38f4bb8831e73bcc2a214574c2", "text": "\"Gold ownership has been outlawed before in this country. However, if you research it I think you'll find that there are two components in pricing gold coins: * The spot value of gold * The numismatic value of the coin in question. That second point is where you get fucked. There are a whole lot of outfits selling worthless \"\"investment grade\"\" coins that sell for way more than they should based on gold content, and for way more than any coin collector would ever give you for the value of the coin itself. But it's much harder to find a reasonable price for some supposedly rare coin than it is for the metal itself, so it's easier to scam you. So it's in the best interest of the guys that advertise for these firms to say \"\"buying rare coins is awesome, and buying straight gold is stupid.\"\" Me? If I want to buy going coins I'll buy US Gold Eagles for a small percentage over the spot price. They're probably more liquid than some random chunk of goldish metal that says it's 1oz/10oz/100oz of gold.\"", "title": "" }, { "docid": "8d00dd5afb4e0e6968e4d1bf071575e6", "text": "\"ETFs purchases are subject to a bid/ask spread, which is the difference between the highest available purchase offer (\"\"bid\"\") and the lowest available sell offer (\"\"ask\"\"). You can read more about this concept here. This cost doesn't exist for mutual funds, which are priced once per day, and buyers and sellers all use the same price for transactions that day. ETFs allow you to trade any time that the market is open. If you're investing for the long term (which means you're not trying to time your buy/sell orders to a particular time of day), and the pricing is otherwise equal between the ETF and the mutual fund (which they are in the case of Vanguard's ETFs and Admiral Shares mutual funds), I would go with the mutual fund because it eliminates any cost associated with bid/ask spread.\"", "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": "" } ]	fiqa
318f6351b9c0b07d04f1435f84762a0e	Can a non dividend-paying product (say ETF) suddenly start paying dividends?	[ { "docid": "c7dd76f29cf8950aa0e1eeaa822ed576", "text": "Yes, absolutely. Consider Microsoft, Updated Jan. 17, 2003 11:59 p.m. ET Software giant Microsoft Corp., finally bowing to mounting pressure to return some of its huge cash hoard to investors, said it will begin paying a regular annual dividend to shareholders. From Wall Street Journal. Thus, for the years prior to 2003, the company didn't pay dividends but changed that. There can also be some special one-time dividends as Microsoft did the following year according to the Wall Street Journal: The $32 billion one-time dividend payment, which comes to $3 for each share of Microsoft stock, could be a measurable stimulus to the U.S. economy -- and is expected to arrive just in time for holiday shopping. Course companies can also reduce to stop dividends as well.", "title": "" } ]	[ { "docid": "6c9b901dcb208842722dfa2933ce510e", "text": "Stocks aren't just paper -- they're ownership of a company. Getting cash from a stock that doesn't pay dividends basically means reducing your stake in the company. If the stock pays dividends, on the other hand, you still have the same shares, but now you have cash too. You can choose to buy more of the company...or, more importantly, to use it elsewhere if that's what you want to do.", "title": "" }, { "docid": "7823c76fbd14bd9ef51d2e0e19a14119", "text": "The Paragraph talks about dividends given by Mutual Funds. Say a fund has NAV of $ 10, as the value of the underlying security grows, the value of the fund would also grow, lets say it becomes $ 12 in 2 months. Now if the Mutual Fund decides to pay out a dividend of $ 1 to all unit holder, then post the distribution of dividend, the value of the Fund would become to $ 11. Thus if you are say investing on 1-April and know that dividends of $1 would be paid on 5-April [the divided distribution date is published typically weeks in advance], if you are hoping to make $1 in 5 days, that is not going to happen. On 6-April you would get $1, but the value of the fund would now be $11 from the earlier $12. This may not be wise as in some countries you would ending up paying tax on $1. Even in shares, the concept is similar, however the price may get corrected immediately and one may not actually see it going down by $1 due to market dynamics.", "title": "" }, { "docid": "08c3f5e83dd7e845ab352290781bcd70", "text": "Dividends are not paid immediately upon reception from the companies owned by an ETF. In the case of SPY, they have been paid inconsistently but now presumably quarterly.", "title": "" }, { "docid": "5acb6d88c6363d318d1539663550de7f", "text": "An ETF manager will only allow certain financial organisations to create and redeem ETF shares. These are called Authorised Participants (APs). The APs have the resources to bundled up packages of shares that they already own and hold in order to match the ETFs requirements. In the case of the EDEN ETF, this portfolio is the MSCI Denmark Index. Only APs transact business directly with the ETF manager. When ETF shares need to be created, the AP will bundle up the portfolio of shares and deliver them to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding number of shares in the ETF. Note that no cash changes hands here. (These ETF shares are now available for trading in the market via the AP. Note that investors do not transact business directly with the ETF manager.) Similarly, when ETF shares need to be redeemed, the AP will deliver the ETF shares to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding portfolio of shares. Again, no cash changes hands here. Normally, with an established and liquid ETF, investors like you and me will transact small purchases and sales of ETF shares with other small investors in the market. In the event that an AP needs to transact business with an investor, they will do so by either buying or selling the ETF shares. In the event that they have insufficient ETF shares to meet demand, they will bundle up a portfolio deliver them to the ETF provider in return for ETF shares, thus enabling them to meet demand. In the event that a lot of investors are selling and the AP ends up holding an excessive amount of ETF shares, they will deliver unwanted shares to the ETF manager in exchange for a portfolio of the underlying shares. According to this scheme, large liquidations of ETF holdings should not effect the share prices of the underlying portfolio. This is because the underlying shares are not sold in the market, rather they are simply returned to the AP in exchange for the ETF shares (Recall that no cash is changing hands in this type of transaction). The corresponding trail of dividends and distributions to ETF share holders follows the same scheme.", "title": "" }, { "docid": "13741d54162a9c82b58e040a60a81243", "text": "There are two main ways you can make money through shares: through dividends and through capital gains. If the company is performing well and increasing profits year after year, its Net Worth will increase, and if the company continues to beat expectations, then over the long term the share price will follow and increase as well. On the other hand, if the company performs poorly, has a lot of debt and is losing money, it may well stop paying dividends. There will be more demand for stocks that perform well than those that perform badly, thus driving the share price of these stocks up even if they don't pay out dividends. There are many market participants that will use different information to make their decisions to buy or sell a particular stock. Some will be long term buy and hold, others will be day traders, and there is everything in between. Some will use fundamentals to make their decisions, others will use charts and technicals, some will use a combination, and others will use completely different information and methods. These different market participants will create demand at various times, thus driving the share price of good companies up over time. The annual returns from dividends are often between 1% and 6%, and, in some cases, up to 10%. However, annual returns from capital gains can be 20%, 50%, 100% or more. That is the main reason why people still buy stocks that pay no dividends. It is my reason for buying them too.", "title": "" }, { "docid": "b962d0c6c11e5ca3e77f09acaddf793b", "text": "Most bond ETFs have switched to monthly dividends paid on the first of each month, in an attempt to standardize across the market. For ETFs (but perhaps not bond mutual funds, as suggested in the above answer) interest does accrue in the NAV, so the price of the fund does drop on ex-date by an amount equal to the dividend paid. A great example of this dynamic can be seen in FLOT, a bond ETF holding floating rate corporate bonds. As you can see in this screenshot, the NAV has followed a sharp up and down pattern, almost like the teeth of a saw. This is explained by interest accruing in the NAV over the course of each month, until it is paid out in a dividend, dropping the NAV sharply in one day. The effect has been particularly pronounced recently because the floating coupon payments have increased significantly (benchmark interest rates are higher) and mark-to-market changes in credit spreads of the constituent bonds have been very muted.", "title": "" }, { "docid": "f202937ec26c18b06aa1ba3356b006ad", "text": "Yes, somebody could buy the shares, receive the dividend, and then sell the shares back. However, the price he would get when he sells the shares back is, ignoring other reasons for the price to change, exactly the amount he paid minus the dividend.", "title": "" }, { "docid": "6579527da0c9cfbe380c490ca49de854", "text": "\"It depends. Dividends and fees are usually unrelated. If the ETF holds a lot of stocks which pay significant dividends (e.g. an S&P500 index fund) these will probably cover the cost of the fees pretty readily. If the ETF holds a lot of stocks which do not pay significant dividends (e.g. growth stocks) there may not be any dividends - though hopefully there will be capital appreciation. Some ETFs don't contain stocks at all, but rather some other instruments (e.g. commodity-trust ETFs which hold precious metals like gold and silver, or daily-leveraged ETFs which hold options). In those cases there will never be any dividends. And depending on the performance of the market, the capital appreciation may or may not cover the expenses of the fund, either. If you look up QQQ's financials, you'll find it most recently paid out a dividend at an annualized rate of 0.71%. Its expense ratio is 0.20%. So the dividends more than cover its expense ratio. You could also ask \"\"why would I care?\"\" because unless you're doing some pretty-darned-specific tax-related modeling, it doesn't matter much whether the ETF covers its expense ratio via dividends or whether it comes out of capital gains. You should probably be more concerned with overall returns (for QQQ in the most recent year, 8.50% - which easily eclipses the dividends.)\"", "title": "" }, { "docid": "7c73f3efee233cebf09efa70a897dd2c", "text": "It may be true for a bond fund. But it is not true for bond etf. Bond etf will drop by the same amount when it distribute dividend on ex-dividend date.", "title": "" }, { "docid": "1fc75f7221b7f6989bcfc65a0566b4e9", "text": "\"If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable. Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. \"\"But wait,\"\" you say, \"\"that's not the same - my net worth has decreased!\"\" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, \"\"no we're not done, we're still building our business!\"\". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market.\"", "title": "" }, { "docid": "d3758f89694c049210e7beac9efa2c3a", "text": "The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.", "title": "" }, { "docid": "6cea60b302b70be03bb12fc814eafffe", "text": "SPY does not reinvest dividends. From the SPY prospectus: No Dividend Reinvestment Service No dividend reinvestment service is provided by the Trust. Broker-dealers, at their own discretion, may offer a dividend reinvestment service under which additional Units are purchased in the secondary market at current market prices. SPY pays out quarterly the dividends it receives (after deducting fees and expenses). This is typical of ETFs. The SPY prospectus goes on to say: Distributions in cash that are reinvested in additional Units through a dividend reinvestment service, if offered by an investor’s broker-dealer, will be taxable dividends to the same extent as if such dividends had been received in cash.", "title": "" }, { "docid": "dd99ef5267bc2cb10f23ee1f62bc9f82", "text": "I've never seen a dividend, split or other corporate action during the day, but I have seen trade suspended a few times when something big happened. The market opening price is not in general the same as the close of the previous day. It can gap up or down and does frequently. I don't know of an api to find out if the dividend was cash or stock, but stock dividends are a lot less common.", "title": "" }, { "docid": "cee5b473a5787ba655090a61d7f23e5f", "text": "Many brokerages offer automatic dividend reinvestment. It is very infrequent that these dividends are exactly a whole share. So, if you have signed up for automatic dividend reinvestment, many brokerages will reinvest your dividends and assign to you a fractional share. I can't speak for how these shares work with regards to voting, but I can say that the value of these fractional holdings does change with stock price as if one genuinely could hold a fraction of a share.", "title": "" }, { "docid": "ed0ed68df5683cfbdc67e5ce8577bcd3", "text": "Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus. Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder. In the case of QQQ, it certainly will have dividend income as it approximates a large stock index. The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash. (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value. The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line. This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV.", "title": "" } ]	fiqa
3d5fb2f48f55e03f13c72cf2c3f5b11a	How do I go about finding an honest & ethical financial advisor?	[ { "docid": "1fa75ab8a23b7d77ea05b2bba4111506", "text": "\"You want a fee-only advisor. He charges like an architect or plumber: by the hour or some other \"\"flat fee\"\". That is his only compensation. He is not paid on commission at all. He is not affiliated with any financial services company of any kind. His office is Starbucks. He does not have a well lit office like the commission broker down the street. He does not want you to hand him your money - it stays in the brokerage account of your choice (within reason - some brokerage accounts are terrible and he'll tell you to get out of those). He never asks for the password to your brokerage account. Edit: The UK recently outlawed commission brokers. These guys were competitive \"\"sales types\"\" who thrive on commissions, and probably went into other sales jobs. So right now, everyone is clamoring for the few proper financial advisors available. High demand is making them expensive. It may not be cost-effective to hire an advisor; you may need to learn it yourself. It's not that hard. Ever hear of a plumber who works totally for free, and makes his money selling you wildly overpriced pipe? That's what regular \"\"financial advisors\"\" are. They sell products that are deliberately made unnecessarily complex. The purpose is first, to conceal sales commissions and high internal fees; and second to confuse you, so the financial world feels so daunting that you feel like you need their help just to navigate it. They're trying to fry your brain so you'l just give up and trust them. Products like whole life and variable annuities are only the poster children for how awful all of their financial products are. These products exist to fleece the consumer without quite breaking the law. Of course, everyone goes to see them because they have well lit offices in every town, and they're free and easy to deal with. Don't feel like you need to know everything about finance to invest. You don't need to understand every complex financial product that the brokerage houses bave dreamed up: they are designed to conceal and confuse, as I discuss above, and you don't want them. The core of it is fairly simple, and that's all you really need to know. Look at any smaller university and how they manage their endowments. If whole life, annuities and those complex financial \"\"products\"\" actually worked, university endowments would be full of them. But they're not! Endowments are generally made of investments you can understand. Partly because university boards are made of investment bankers who invented those products, and know what a ripoff they are. Some people refuse to learn anything. They are done with college and refuse to learn anything more. I hope that's not you. Because you should learn the workings of everything you're investing in. If you don't understand it, don't buy itl And a fee-only financial advisor won't ask you to. 1000 well-heeled, well-advised university endowments seek the most successful products on the market... And end up choosing products you can understand. That's good news for you.\"", "title": "" }, { "docid": "43bfcb307ebfd5d196bfaafbe1c6da53", "text": "If someone recommends a particular investment rather than a class of investments, assume they are getting a commission and walk away. If someone recommends whole life insurance as an investment vehicle, walk away. Find someone whose fiduciary responsibility is explicitly to you as their client. That legally obligated them to consider your best interests first. It doesn't guarantee they are good, but it's done protection against their being actively evil.", "title": "" }, { "docid": "432152d05128e329e6154642563121ef", "text": "The other answers are good, but not UK-specific. You need to look for an Independent Financial Advisor (IFA). These are regulated by the FCA and you pay them a time-based fee for their services, they do not take commission on the products they recommend to you. The Government Money Advice Service page (hat tip to @AndyT in the comments on the question for the link) tells you how to go about finding one of these and what sort of questions to ask. Contrary to the note in the answer by @Harper, in the UK many IFAs do have perfectly nice offices, this is not a sign that should put you off. Personal recommendations for IFAs are usually the best way to go but failing that there are directories of them and many will have an initial conversation with you for free to ensure you are aligned with each other.", "title": "" }, { "docid": "590b62817ccdb956ed70914b99ea65aa", "text": "\"I think the other answers raise good points. But to your question, \"\"How do I find an honest financial adviser\"\" ask your friends and family. See who they talk to and confide in. Go meet that person, understand what they do and how they view things and if you gel, great. Honesty and strong ethics exist in individuals regardless of laws. What is it you're trying to accomplish? You just have some money you want to put aside? You want to save for something? You want to start a budget or savings plan? Your first step may be talking to a tax person, not an investment adviser. Sometimes the most significant returns are generated when you simply retain more of your earnings and tax people know how to accomplish that. You're just graduating university, you're just going to get your first job. You don't need to hunt for the right heavy hitter 30% gains generating financial adviser. You need to establish your financial foundation. Crawl, walk, then run. There are some basics (that transcend international borders). If you don't know much about investing, most (if not all) retirement and individual brokerage type accounts will give you access to some kind of market index fund. You don't need to multinationally diversify in to high fee funds because \"\"emerging markets are screaming right now.\"\" Typically, over a few years the fees you pay in the more exotic asset classes will eat up the gains you've made compared to a very low fee market index fund. You can open free accounts at a number of financial institutions. These free accounts at these banks all have a list of zero commission zero load funds, all have something resembling an index fund. You can open your account for free, deposit your money for free, and buy shares in an index fund for free.\"", "title": "" }, { "docid": "dea4714128a8836bd4209e0f0d58f0be", "text": "Large and well-known companies are typically a good starting point. That doesn't mean that they are the best or even above average good, but at least they don't cheat you and run with your money. A core point is someone you pay, not the company whose investment he sell you. Although the latter seems cheaper on first glance, it isn't - if you pay him, his interest is to do good work for you; if they pay him, his interest is to sell you the product with the highest payment for him. That does not imply that they are all that way; it's just a risk. There are many good advisers that live from commissions, and still don't recommend you bad investments. Depending on the amounts, you could also read up a bit and open an account with a online investment company. It is discussable, but I think the cost for an adviser only starts to become worth it if you are deep into 5 digits of money.", "title": "" }, { "docid": "686113d3d16706ed6ffe900f4d461adf", "text": "\"If your financial needs aren't complex, and mostly limited to portfolio management, consider looking into the newish thing called robo-advisers (proper term is \"\"Automated investing services\"\"). The difference is that robo-advisers use software to manage portfolios on a large scale, generating big economy of scale and therefore offering a much cheaper services than personal advisor would - and unless your financial needs are extremely complex, the state of the art of scaled up portfolio management is at the point that a human advisor really doesn't give you any value-add (and - as other answers noted - human advisor can easily bring in downsides such as conflict of interest and lack of fiduciary responsibility). disclaimer: I indirectly derive my living from a company which derives a very small part of their income from a robo-adviser, therefore there's a possible small conflict of interest in my answer\"", "title": "" }, { "docid": "aac3d7275a71c19714675cdce0db0350", "text": "Most individuals do not need a personal financial advisor. If you are soon entering the world of work, your discretionary investments should be focused on index funds that you commit to over the long run. Indeed, the best advice I would give to anyone just starting out would be: For most average young workers, a financial advisor will just give you some version of the information above, but will change you for it. I would not recommend a financial advisor as a necessity until you have seriously complicated taxes. Your taxes will not be complicated. Save your money.", "title": "" } ]	[ { "docid": "95c4373999574da309599b1f5a8a1c45", "text": "\"No, I do not. The advice is to take advice :-) but it is not required. Several \"\"low cost\"\" SIPPs allow an \"\"Execution Only\"\" transfer from some pensions (generally not occupational or defined benefits schemes [where transfers are generally a bad idea anyway] but FAVCs such as mine are ok). Best Invest is one such, and the fees are indeed relatively low. As far as anyone knows, the government's plans for changes to rules on using pension funds would still apply even once I've transferred my pension pot and begun to withdraw funds (provided I don't commit myself to an annuity or other irrevocable investment). I am not a financial adviser, nor employed or otherwise connected with Best Invest, and I'm not endorsing their SIPP schemes, just giving them as an example of what can be done. [Added after I carried out my plan] I found the process very straightforward; I needed to apply for a pension fund with my new provider and fill in a transfer form, which set up the scheme and transferred the funds with no expense required. Once the money arrived in my pension account I filled in another form to take the lump sum and set up regular withdrawals from the fund. I had my lump sum within a couple of months of initiating the transfer. I'm very happy I did not take independent advice because it would have been very poor value for money. During my researches I was approached eagerly by one firm promising to get me my money quick and claiming to be an independent financial advisor. Luckily I mistrusted the service they offered.\"", "title": "" }, { "docid": "747c67c61f77e71e0193055130ee6ea0", "text": "There are a number of mutual funds which claim to be 'ethical'. Note that your definition of 'ethical' may not match theirs. This should be made clear in the prospectus of whichever mutual fund you are looking at. You will likely pay for the privilege of investing this way, in higher expenses on the mutual fund. If I may suggest another option, you may want to consider investing in low-fee mutual funds or ETFs and donating some of the profit to offset the moral issues you see.", "title": "" }, { "docid": "970d229d8d0f6e1819afae8743c58ada", "text": "Well i used to intern at a WM company finding clients- its not easy. There are prospecting tools like Larkspur and WealthEngine, but they are ridiculously expensive, around $400 a month. Most advisers find clients through references, so you're going to have to network with CPAs, law firms, and other advisers and get them to send you people (what can you offer in return?). There is also the path of cold calling or setting up a website but those inevitably run into FINRA problems. Thus, it tends to be a slow process that is built up over time. The best thing you can do is create a niche for yourself and cater to it- so for example you can specialize in the retirement planning for certain occupations or under certain conditions. However, bear in mind wealth advisory is turning into a zero sum industry and software is going to make it even more compressed in the future. My firm spent thousands of dollars on marketing and even then 3-5 new clients a year is good progress, but these were also large accounts. What is your background?", "title": "" }, { "docid": "12886aacfe31a414def8e77d3fa27c33", "text": "\"I know your \"\"pain\"\". But don't worry about investing the money right now -- leave it uninvested in the short term. You have other stuff you need to school up on. Investment will come, and it's not that hard. In the short term, focus on taxes. Do some \"\"mock\"\" run-throughs of your expected end-of-year taxes (use last year's forms if this year's aren't available yet). Must you pay estimated tax periodically throughout the year? The tax authorities charge hefty penalties for \"\"forgetting\"\" to do it or \"\"not knowing you have to\"\". Keep an eye out for any other government gotchas. Do not overlook this! This is the best investment you could possibly make. Max out your government sanctioned retirement funds - in the US we have employer plans like 401K or Keogh, and personal plans like the IRA. This is fairly straightforward. Avoid any \"\"products\"\" the financial advisors want to sell you, like annuities. Also if you have the Roth type IRA, learn the difference between that and a normal one. There are some tricks you can do if you expect to have an \"\"off\"\" year in the future. Charitable giving is worth considering at high income levels. Do not donate directly to charities. Instead, use a Donor Advised Fund. It is a charity of its own, which accepts your tax deductible donation, and holds it. You take the tax deduction that year. Then later, when the spirit moves, tell your DAF to donate to the charity of your choice. This eliminates most of the headaches associated with giving. You don't get on the soft-hearted sucker lists, because you tell the DAF not to disclose your address, phone or email. You don't need the charity's acknowledgement letter for your taxes, since your donation was actually to the DAF. It shuts down scams and non-charities, since the DAF confirms their nonprofit status and sends the check to their official address only. (This also bypasses those evil for-profit \"\"fundraising companies\"\".) It's a lot simpler than they want you to know. So-called \"\"financial advisors\"\" are actually salesmen working on commission. They urge you to invest, because that's what they sell. They sell financial products you can't understand because they are intentionally unduly complex, specifically to confuse you. They are trying to psych you into believing all investments are too complex to understand, so you'll give up and \"\"just trust them\"\". Simple investments exist. They actually perform better since they aren't burdened down with overhead and internal complexity. Follow this rule: If you don't understand a financial product, don't buy it. But seriously, do commit and take the time to learn investment. You are the best friend your money will have - or its worst enemy. The only way to protect your money from inflation or financial salesmen is to understand investment yourself. You can have a successful understanding of how to invest from 1 or 2 books. (Certainly not everything; those ingenious salesmen keep making the financial world more complicated, but you don't need any of that junk.) For instance how do you allocate domestic stocks, foreign stocks, bonds, etc. in an IRA if you're under 40? Well... how do smaller universities invest their endowments? They all want the same thing you do. If you look into it, you'll find they all invest about the same. And that's quite similar to the asset mix Suze Orman recommends for young people's IRAs. See? Not that complicated. Then take the time to learn why. It isn't stupid easy, but it is learnable. For someone in your tier of income, I recommend Suze Orman's books. I know that some people don't like her, but that segues into a big problem you'll run into: People have very strong feelings about money. Intense, irrational emotions. People get it from their parents or they get sucked into the \"\"trust trap\"\" I mentioned with so-called financial advisors. They bet their whole savings on whatever they're doing, and their ego is very involved. When they push you toward their salesman or his variable annuity, they want you to agree they invested well. So you kinda have to keep your head low, not listen too much to friends/family, and do your research for yourself. John Bogle's book on mutual funds is a must-read for picking mutual funds and allocating assets. Certain financial advisors are OK. They are \"\"fee only\"\" advisors. They deal with all their customers on a fee-only basis, and are not connected to a company which sells financial products. They will be happy for you to keep your money in your account at your discount brokerage, and do your own trading on asset types (not brands) they recommend. They don't need your password. Here's what not to do: A good friend strongly recommended his financial advisor. In the interview, I said I wanted a fee-only advisor, and he agreed to charge me $2000 flat rate. Later, I figured out he normally works on commissions, because he was selling me the exact same products he'd sell to a commission (free advice) customer, and they were terrible products of course. I fired him fast.\"", "title": "" }, { "docid": "7c08b825fd49af4408560809e33a42a6", "text": "\"I know I replied in another section of this tread as well, but are you looking at MS/Smith Barney, trowe advisory planning, or directly within their mutual fund equity research? The reason I ask is because often there is a misunderstanding between Financial Advisory (FA) work and working directly within a fund doing equity research (Equity Analyst). People often think FA's do a lot of research, and they do, but you'll effectively blackball yourself from ever entering research because there's a \"\"sales-person\"\" stigma attached to being an FA.\"", "title": "" }, { "docid": "18fdf9e3dfc67a60abdd1702ae7f00b6", "text": "Start at Investopedia. Get basic clarification on all financial terms and in some cases in detail. But get a book. One recommendation would be Hull. It is a basic book, but quite informative. Likewise you can get loads of material targeted at programmers. Wilmott's Forum is a fine place to find coders as well as finance guys.", "title": "" }, { "docid": "3632c7f94df6bb7ea3ee39992fc0aa13", "text": "I recommend that people think for themselves and get a multitude of counselors. The more you understand about what drives the prices of various assets, the better. Getting to good advice for a particular person depends on the financial picture for that person. For example, if they have a lot of consumer debt, then they probably would be better off paying off the debt before investing, as earning 5% (say) in the stock market year over year will be eaten up by the 18%+ they may be paying on their credit cards. Here's a starter list of the types of information that would be better to have in order to get fair investment advice.", "title": "" }, { "docid": "92812525244dd89b668832ef75619a77", "text": "I second all of this. It’s worth noting that not all estates require wealth advice. Unless it’s in the millions of dollars and you have no prior experience, I wouldn’t waste time with wealth advisors. ML is a broker dealer, not a fiduciary.", "title": "" }, { "docid": "65c9218e52f0c5c8777470e6eef5cebe", "text": "If your investment returns are the main variable you use to determine if your advisor is doing a good job you are using his or her services incorrectly Also, if you are using a good advisor, he or she needs to know how your investments are doing, not you. However, my thoughts are based on the idea that you can't go it alone. If you are not among the people concerned about the market, waiting for the market to go down 'so you can find a better buying opportunity', or making one of many other novice mistakes, I'm not speaking directly to you with my comments.", "title": "" }, { "docid": "e24bf7a39a85a27540fd6df3267e7eb0", "text": "\"Excellent question. I'm not aware of one. I was going to say \"\"go visit some personal finance blogs\"\" but then I remembered that I write on one, and that I often get a commission if I talk about online accounts, so unless something is really bad I'm not going to post on it because I want to make money, not chase it away. This isn't to say that I'm biased by commissions, but among a bunch of online banks paying pretty much the same (crappy) interest rate and giving pretty much the same (often not crappy) service, I'm going to give air time to the ones that pay the best commissions. That, and some of the affiliate programs would kick me out if I trashed them on my blog. This also would taint any site, blog or not, that does not explicitly say that they do not have affiliate relationships with the banks they review. I suppose if you read enough blogs you can figure out the bad ones by their absence, but that takes a lot of time. Seems like you'd do all right by doing a \"\"--bank name-- sucks\"\" Google search to dig up the dirt. That, or call up / e-mail / post on their forum any questions you have about their services before sending them your money. If they're up front, they'll answer you.\"", "title": "" }, { "docid": "5e94e5d41bae9c399526f9811866f985", "text": "It's quite alright, it's been over a decade since he passed so I'm not particularly sensitive about it any more. I'll have a look at investopedia, but what I'm mainly interested in is private equity. I wanted to ask directly about that, but I feel that I need a frame of reference to understand what's going on. As in, I doubt I'd be able to really get private equity without first having an understanding of public trading. Is this subreddit really that reputable? I've learned to not really trust reddit, for the most part. Is there some kind of curation here?", "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": "659d1634090f51bdf8cbd058f18116fd", "text": "One can never be too cautious when when choosing a financial adviser. For example, has the company your adviser claims to represent ever been sanctioned by the local financial authorities? Does your adviser reside in the country in which he purports to operate? Have you thoroughly researched his background? It is also important to bear in mind what venues a company uses for advertising - if the company resorts to advertising by spamming, then their overall business practices are likely unethical and this could lead to trouble down the line. Finally, one should also research how the company's clientele has been built up. Was it through word of mouth or was the client data acquired by other means?", "title": "" }, { "docid": "5e5444f4bbe5b36d3ea14dcbce9d3bd6", "text": "If you already have 500k in a Schwab brokerage account, go see your Schwab financial consultant. They will assign you one, no charge, and in my experience they're sharp people. Sure, you can get a second opinion (or even report back here, maybe in chat?), but they will get you started in the right direction. I'd expect them to recommend a lot of index funds, just a bit of bonds or blended funds, all weighted heavily toward equities. If you're young and expect the income stream to continue, you can be fairly aggressive. Ask about the fees the entire way and you'll be fine.", "title": "" }, { "docid": "c5cc462f14c7eb5e444e024987746662", "text": "\"Look at the Calvert Funds. They have a variety of \"\"socially responsible\"\" funds with published selection standards. Beware of mixing personal politics with business.\"", "title": "" } ]	fiqa
9066bca0d0fb99552b2bebeaaccdf3bd	Why do people use mortgages, when they could just pay for the house in full?	[ { "docid": "275176d892590762ae0a3070a4c12c33", "text": "Good question. If a person has a choice, it is probably better to pay cash. But not always. If your large pile of cash can earn more being invested than cost of the interest to borrow a similar large pile of cash, it is beneficial to get a mortgage. Otherwise pay cash. EXAMPLE: A house costs $100,000. I have $100,000 in extra money. I can invest that at 5% per year, and I can borrow an additional $100,000 at 2% per year. Since I can make more on my pile of cash than it costs to borrow another pile of cash, borrowing is better. Compound interest is the most powerful force on the planet according to Albert Einstein (maybe). That isn't likely for most people though. Here is the results from some online financial calculators. http://www.calcxml.com/do/hom03 Borrowing $100,000 with 2% interest for 30 years will cost a total of $148.662. You get $100,000, but it cost you $48,662 to do it. http://www.calcxml.com/do/sav07 Saving $100,000 in a bank account with an interest rate of %5 will be worth $432,194 in 30 years. By not spending the money you will earn $332,194 over the course of 30 years. So if you can invest at 5% and borrow at 2% you will end up with $283,532 more than if you didn't. It is a pretty extreme example, and financial advisers make a lot of money figuring out the complex nature of money to make situations like that possible.", "title": "" }, { "docid": "59b80422923f1d3e042999c30784a0fc", "text": "\"The advantage of using a mortgage is that you pay for a house at TODAY's price, using TOMORROW's money. Your question suggests that you rightly observed that it was not a good idea around 2006 (the last peak in housing). That was when prices were at their maximum, and had nowhere to go but down. Some experts think that house prices STILL have further to go on the downside. Meanwhile, wages have been going nowhere during that time. This phenomenon seems to happen about every 40 years or so, the 1930s, the 1970s, and around 2010. At MOST other times, say the 1980s, houses are likely to go up for the \"\"foreseeable\"\" future. At those times, you want to buy the house at \"\"today's\"\" price, then pay for it in future dollars when you are earning more money. The irony is that what most people observe as teenagers is usually the wrong thing to do when they are, say, forty. In 2035, it will probably make sense to have a large mortgage in a bull housing market, which is the opposite of what you observed around 2010. So a better rule is to do at age 40 what made sense about the time you were born (in your case, perhaps the 1990s). Whereas the people born in the early 1970s that got \"\"caught\"\" recently, observed the bull market of the 1980s and 1990s in THEIR teens and twenties, rather than the bear market of the 1970s that took place about the time they were born.\"", "title": "" }, { "docid": "92310c6dc73db7a4cbbb2ccb0b699dd8", "text": "Besides all of the other answers, I will point out that many people simply don't have enough cash sitting around to buy a home outright. It would take many years (or even decades) for the average family to accumulate the necessary cash. Also, while you are pinching your pennies for years in an attempt to save up for your dream house, remember that inflation is steadily driving up the cost of goods and services. A house that costs $200K today could cost $230K in 5 years due to inflation.", "title": "" }, { "docid": "2ba27170201ca4c8ba04ce3df0e29ef2", "text": "Some countries, like the United States, allow a mortgage interest tax deduction. This means the interest you pay on a mortgage, which is typically much more than half of the monthly payment at the beginning of a 25 year mortgage, is tax deductible, so you might get 33% or more of the interest back, and that effectively makes the interest rate significantly lower. Therefore you are borrowing the money really cheap. That makes MrChrister's answer even more appropriate.", "title": "" }, { "docid": "73665670f8f89a0dfc6e8dd8afc68fdb", "text": "A $100K house and $100K are not equivalent assets. Here's a hypothetical... You and I both work for the same company, and both get a $100K bonus (yes, I said it's hypothetical). You decide to use the $100K to pay off your house. I put the money in the bank. Six months later, our company lays both of us off. I have $100K in the bank. I can last for quite a while with that much money in the bank. You have a house, but you can't get a mortgage or home equity loan, because you don't have a job. The only way you can access the money is by selling the house, which requires you to pay money to a real estate agent and perhaps taxes, and leaves you looking for a place to live. That assumes there isn't something systemic going on - like the credit crash - and there is credit available for somebody else to buy your house.", "title": "" }, { "docid": "45b83b7db238444d8aad9d45593540a6", "text": "I believe the reason is because society and the economy is set up a certain way, and re-enforced by the government. Your options are: So, people usually go with the most attractive of their limited options, getting a mortgage. If you want to dig deeper, do some research as to why housing is expensive. Some things to consider: you need the government's permission to build houses, thus limiting the competition in the home building market, the housing bubble, artificially setting house prices, etc.) To summarize: people need mortgages because houses are expensive, and houses are expensive for many reasons, big ones having to do with the government.", "title": "" }, { "docid": "7e6110b72db7be0364dfa70f0f2309bf", "text": "\"Condensed to the essence: if you can reliably get more income from investing the cost of the house than the mortgage is costing you, this is the safest leveraged investment you'll ever make. There's some risk, of course, but there is risk in any financial decision. Taking the mortgage also leaves you with far greater flexibility than if you become \"\"house- rich but cash-poor\"\". (Note that you probably shouldn't be buying at all if you may need geographic flexibility in the next five years or so; that's another part of the liquidity issue.) Also, it doesn't have to be either/or. I borrowed half and paid the rest in cash, though I could have taken either extreme, because that was the balance of certainty vs.risk that I was comfortable with. I also took a shorter mortgage than I might have, again trading off risk and return; I decided I would rather have the house paid off at about the same time that I retire.\"", "title": "" } ]	[ { "docid": "398e94146352af9c28b7d07fd2eed9c9", "text": "\"In the Netherlands its cheaper in some cases to have a mortgage then to own a house. Example: If you own a house you pay more taxes (because you own something expensive you have to pay \"\"eigendoms belasting\"\" < owners tax). So if you instead of owning the house, keep the mortgage low and only pay the mortgage interest, the interest will be much lower then the tax you would have to pay. The sweet spot (for lowest interest and not having to pay the owners tax) is different for any mortgage but by grandparents use this method and they pay a really small amount for a rather large house.\"", "title": "" }, { "docid": "c8ced5ef0976741c68a65d54e9169b35", "text": "Second mortgages were also a popular way for home buyers without a down payment to borrow 100% of the money, but avoid certain extra fees if they borrowed all the money from a single lender. For example, to borrow $100,000 on a house would incur something called PMI (private mortgage insurance). So to borrow $100,000 to buy my house, my payment might be $800/month, but I would have an additional $100/month of PMI to pay. (These numbers are totally made up and not based in math in any way) So instead of that, borrows might get a first mortgage for $80,000 so they don't have to pay the PMI and get a second mortgage for the difference. This can be beneficial if the second mortgage payment is less than the PMI for borrowing 100%. As far as I know they aren't as easy to get these days, like any loan you need to be qualified and I think 100% financing is probably harder to come by. The negative connotation is no worse than any other loan. I am personally against borrowing money, but if you had big medical expenses, major home repairs or some other emergency I could see it justified. Probably not for a big vacation or for new car though.", "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": "b2b74b5cd2be5c6afc1c3fe45820c19c", "text": "\"The current mortgaged owner would typically not have the right to sell any portion of the house without approval from the bank. The bank doesn't \"\"own\"\" the house through the mortgage, but they do have a series of rights that, in some cases, look similar to ownership. Remember that a mortgage is just a loan that uses a house as collateral, to reduce the risk to the lender in the event of default. If it was just a personal loan, without collateral, then there would be a much higher risk of default (and therefore the interest rate would be closer to 20% than 2%). But because the loan was taken with collateral, that collateral can't be sold without the bank's permission. If the bank allowed this to happen, then one risk would be exactly as you say - that the mortgagee stops paying the bank, and the bank no longer is able to recover the full value of the loan on selling the remaining 50% of the house owed as collateral.\"", "title": "" }, { "docid": "7e60d0a15a835c2018ef1b5193889378", "text": "First, as others have commented, the idea that getting a mortgage to buy a house is always a good idea is false. It depends on a number of factors including the current interest rate, what you think the future interest rate will do over the life of your mortgage, the relative cost of renting vs. buying, and how long you would stay in the house that you bought. To the extent that a mortgage for a house is more often recommended than buying other goods on credit, it is for these reasons: Except for #1 above, you could and can find other situations where taking a loan makes more sense than buying in cash. This more true if you have the resources and the skill to invest money at a rate that beats the interest rate you pay to the creditor. The general advice not to try this rests in the fact that most people don't have the resources or the skill to actually make this pay off, especially on high-interest rate loans or over short time periods.", "title": "" }, { "docid": "6933bbfd0b40ce34f74b37a9feceb427", "text": "The problem comes when the borrower cannot afford his home. If a borrower buys more home than they can afford, as long as he can sell the house for more than he owes, he's not in a disastrous situation. He can sell the house, pay off the mortgage, and choose more affordable housing instead. If he is upside-down on his home, he doesn't have that option. He's stuck in his home. If he sells it, he will have to come up with extra money to pay off the mortgage (which he doesn't have, because he is in a home he can't afford). It used to be commonplace for banks to issue mortgages for 100% of the value of the home. As long as the home keeps appreciating, everybody is happy. But if the house drops in value and the homeowner finds himself unable to make house payments, both the homeowner and the bank are at risk. Recent regulations in the U.S. have made no-down-payment mortgages less common.", "title": "" }, { "docid": "5c9153328983fa1321a9672e4bc87dee", "text": "Of course you don't need to take a mortgage - if you happen to have enough cash (or other assets) to pay your sister her share, or if she is willing to take it in installments over the next years. Mortgages are not needed to buy houses, but to pay for them - subtle difference. If you can pay - in whichever agreed way - without a mortgage, you won't need one.", "title": "" }, { "docid": "7f3147f6adedde8e9a6bfd15489cca35", "text": "And then there is the issue of people who actually don't intend to reduce the size of their loan. They only want to pay the interest, so their debt with the bank remains constant. If you are upside down, it means you will not have the financial means to remove the debt. If, for some reason, you are no longer able to pay the bank, you might lose the house. After that you will have no house, but you still have a debt with the bank.", "title": "" }, { "docid": "f4b75a63bf6184e218d2b55c6d84ddc6", "text": "Certainly there are people who do pay off their homes. Others do not. It's a question of risk tolerance and preference. Some considerations relevant to this question: Taxes - Interest on a mortgage is tax deductible. Particularly for high earners, this is a significant incentive to maintain a mortgage balance and place extra money in the market instead. Liquidity - If you lose your job, you can sell stocks to pay the mortgage. But if you have made principle payments on your mortgage but still owe some outstanding balance, you are still required to make monthly payments without any source of income. Rates - In recent years it is been common to get a mortgage for 3.2% to 3.5%. The difference between those rates and 9% rate of return for the market is substantial. There are other considerations but the answer in the end is that for many people the risk / reward calculus says the ~5% difference in rate of return is worth the potential risks.", "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": "17f8516f000d1729439b198cb3efd5b2", "text": "Well quite a few countires have tax breaks on the first house you own ... this is typically to promote people to have atleast one house of their own ... having a house of your own provides lot more stability in the long run ... and without tax breaks it makes it difficult for quite a few to own a house ... the tax breaks form a motiviation as well ... There are at times other effects of this breaks, people buying houses beyond their need [bigger house than required] or capacity [buying in a central / expensive location] by maximizing the breaks ...", "title": "" }, { "docid": "5c6a870d896ba0f0ddafe2dbe1357b2f", "text": "Banks don't want to manage property. They despise the fact that they have all of these foreclosures that they can't sell. They just want to loan you the money at X% and collect the fees and interest. The value of a reverse mortgage to the lender is that it's a collateralized loan against a property. When the owner exits the property, it's attached to the property and must be paid back before the property is sold. They carefully consider the age of the recipient, equity in the property, etc. when they decide how much to pay the owner so that the chances of the loan going underwater are minimized.", "title": "" }, { "docid": "42c292dea4e34b1904c51b8f2eb79f7f", "text": "I think you're missing a couple of things. First - why do you think its a reverse mortgage? More likely than not its a regular mortgage - home equity loan. If so, if they expect the stock market to rise significantly more than the amount of interest they pay on the loan - then its a totally sensible course of action. Second - the purchase in cash only to take out a loan later can definitely be a sensible way to do things. For example, if the seller wants to close fast, or if there are competing offers where not having a contingency is the tipping point. Another reason might be purchasing in an entity name (for example holding the title as an LLC), and in this case it is easier to get a loan if you already have the house, since the banks see the owner's actual commitment and not just promises.", "title": "" }, { "docid": "c8aaf167eb2c41d5f96cc799f1d14288", "text": "First of all debt is a technology that allows borrower to bring forward their spending; it's a financial time machine. From borrowers point of view debt is good when it increases overall economic utility. A young person wants to bring up a family but cannot afford the house. Had they waited for 30 years they would have reached the level of income and savings to buy the house for cash. By the time it might be too late to raise a family, sure they'd enjoy the house for the last 20 years of their life. But they would loose 30 years of utility - they could have enjoyed the house for 50 years! So, for a reasonable fee, they can bring the spending forward. Another young person might want to enjoy a life of luxury, using the magical debt time machine and bringing forward their future earnings. They might spend 10 years worth of future earnings on entertainment within a year and have a blast. Due to the law of diminishing marginal utility - all that utility is pretty much wasted, but they'll still will need to make sacrifices in the future. The trick is to roughly match the period of debt repayment to the economic life of the purchase. Buying a house means paying over 30 years for an asset that has an economic life of 80 years+, given that the interest fee is reasonable and the house won't loose it's value overnight that's a good debt. Buying a used car with a remaining life of 5 years and financing its with a seven years loan - is not a good idea. Buying a luxurious holiday that lasts a fortnight with 2 years of repayments, i.e. financing non-essential short term need with medium term debt is insane. The other question is could the required utility be achieved through a substitute at a lower cost without having to bring the spending forward or paying the associated fee.", "title": "" }, { "docid": "112eafe83d9ea55e9e347bde75cf5865", "text": "It depends on where you are in life, and where you want to be at some point in the future, and the taxes, expenses and income at those points in your life. You don't get a mortgage to save on taxes, or keep a mortgage to save on taxes. But if somebody said they want to have the house paid off before they retire, that sounds to me like a great plan. They do need to balance it with saving for retirement, emergency fund, and college costs for themselves or their children. Without having the whole picture it is impossible to say doing X is always a good idea.", "title": "" } ]	fiqa
f045aacb39ba97d465f566a1f76cf59d	Homeowners: How can you protect yourself from a financial worst-case scenario?	[ { "docid": "90b52338d2178b2a5537276a2b5d5cb8", "text": "Think about your priorities in life. Everybody is a little different. In my case I have a wife and child, so these are priorities for me, and you might have your own depending on your story. So if I lost my job, and I have no more money coming in (unemployment insurance runs out, savings depleted) then the bank can have the house. I personally would probably drop the house long before it came to that point. The first thing you do is talk to your creditors and work out a deal. At the same time I would stop paying for ALL unnecessary things (cable TV, extra cell phones, automobiles, leaving light bulbs on and turning the heat up over putting on a sweater). If I can't get a good deal from the creditors, I would stop paying the mortgage, find a place to live (family, friends, cheap apartment) while the credit is still good. My advice is to get yourself setup while your credit is good and you have SOME money in the bank. Waiting until the bank decides to foreclose is probably going to make your harder.", "title": "" }, { "docid": "66abd792735c3bae6d39dc3287e67e17", "text": "Honestly, the best way to manage this risk is to manage your savings appropriately. Many experts recommend that maintain a reasonably liquid account with 6-9x your minimum monthly expenses for just this occurrence. I know, easier said than done. Right? As for insurance, I can only speak for what is the case in the US. Here, most mortgages will require you to get PMI insurance until you have at least 20% equity in your house. However, that insurance only protects the BANK from losing money if you can't pay. It doesn't save you from foreclosure or ruining your credit. Really, the type of insurance you are talking about is Unemployment insurance which all states in the US make available to workers via deductions from their paycheck. The best advice, I suppose, is to keep your expenses low enough to cover them with an unemployment check until you have accumulated enough savings to get through a rough patch. That may mean buying a less expensive home, or just waiting until you have saved a bigger down payment. If you didn't plan ahead, and you are already in the house, another option might be to extend your mortgage. For example from a 20 to a 30 year to reduce your payments to a manageable level. A more risky option might be to convert to a variable rate loan temporarily, which typically carries a lower interest rate. However, it might be hard to secure a new loan if you don't currently have an income.", "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": "bf53d98116e6b5288511d85a53574e6e", "text": "If you have doubts about the long term prospects at your employer or jobs in your area, you may want to keep the option of moving to find a new job open while you save up for a larger down payment on a house. While there are insurance products out there that claim to cover your mortgage, they often have loopholes which make them difficult to collect on. Insurance companies are in business to make money and premiums are high when it's likely that people will try to collect. Splitting those premiums into your mortgage and your own self-insured unemployment fund (i.e. an emergency fund in a money market bank account) will usually be a better deal. As always, make sure you have term life insurance for a family and long term disability insurance just in case something really bad happens in the near term. Buying a home is a better financial decision when you know you'll be in an area for at least 5 years. Saving until you have 20% down on place that you can afford to pay off in 15 years (even if you take a 30 year loan) will be a lot cheaper and less stressful.", "title": "" } ]	[ { "docid": "0cad1f3f96c5c63e9bef9ab0fbd7150b", "text": "Mostly ditto Pete B's answer. There's little you can do about closing costs. Some closing costs are government fees. There's nothing you can do about this. Sad and unfair as it is, taxes are not optional and not generally negotiable. Title insurance and fire insurance are required by the lender. Even if you're paying cash, you don't really want to skip on these. If your house burns down and you have no insurance ... well, if you're worried about saving a few hundred on your closing costs, I assume that losing $200,000 because your house burned down and you have no insurance would be a pretty bad thing. Title insurance protects you against the possibility that the seller doesn't really legally own the property, maybe a scam, more likely a mistake or a technicality. You can, and certainly should, shop around for a better deal on insurance. Last couple of housing transactions I made, title insurance was a one-time fee of around $200. (I'm sure this depends on the cost of the house, where you live, maybe other factors.) Maybe by shopping around I could have saved $10 or $20, but I doubt there's someone out there charging $50 when everyone else is charging $200. Fire insurance you're probably paying a couple of thousand a year, more opportunity for savings. Typically the buyer and the seller each have a realtor and they split the fee. If you go without a realtor but the seller hires one, she'll keep the entire fee. So the only way to avoid this expense is if neither of you has a realtor. I've never done that. Realtors cost a ton of money but they provide a useful service: not only helping you find a house but also knowing how to deal with all the paperwork. Plenty of people do it, though. I presume they get the title agency or the bank or somebody to help with the paperwork. There are also discount realtors out there who don't show your home, do little or nothing to market it, basically just help you with the paperwork, and then charge a very low fee. Timing closing for a certain day of the month can reduce what you owe at closing time -- by reducing the amount of interest you pay on the first month's loan payment -- but it doesn't save you any money. You'll make it up over the course of the loan. You might possibly save some money by timing closing around when property taxes are due. Theoretically this shouldn't matter: the theory is that they pro-rate property taxes between buyer and seller so each pays the taxes for the time when they own the house. So again, you might need less cash at closing but you'll make it up the next time property taxes are due. But the formulas the banks use on this are often goofy. Maybe if you live some place with high property taxes this is worth investigating. You could skip the inspection. But inspections I've had done generally cost about $500. If they found something that was a major issue, they might save you from buying a house that would cost tens of thousands in repairs. Or less dramatically, you can use the inspection report for leverage with the seller to get repairs done at the seller's expense. I once had an inspector report problems with the roof and so I negotiated with the seller that they would pay for a percentage of roof repair. I suppose if you're buying a house that you know is run down and will require major work, an inspection might be superfluous. Or if you know enough about construction that you can do an inspection yourself. Otherwise, it's like not buying insurance: sure, you save a little up front, but you're taking a huge risk. So what can you control? (a) Shop around for fire insurance. Maybe save hundreds of dollars. (b) Find a seller who's not using a realtor and then you don't use a realtor either. Save big bucks, 6 to 7% in my area, but you then have to figure out how to do all the paperwork yourself and you severely limit your buying options as most sellers DO use a realtor. Besides that, there's not much you can do.", "title": "" }, { "docid": "c6389ebc57dc4d089781c906ebc2a5a8", "text": "\"As the answer above states, future inflation mitigates \"\"unwise\"\" for a longer term mortgage, at least in financial-only terms. But consider that, if you lose your ability to make payments for long enough time ANYTIME during term, the lending institution has a right to repossess, leaving you with NOTHING or worse for all the maintenance you've had to do. You can never know, but eleven years into my mortgage, I lost enough of my income for just long enough time to have to sell for just enough to pay the remainder of the mortgage and walk away with empty pockets. To help clarify understanding even better, contrast the 30-yr mortgage with the other extreme: save up and own from day one. When I did the math a few years ago, buying with a 30-year mortgage would cost cumulatively almost 3 times the real house value in mortgage payments with never the freedom to suspend payments when I might need to. Being a freedom-loving American, I determined to buy a house with cash. DON'T FORGET that mortgageable properties are over-priced just because buyers less wise than you are so willing to borrow to buy them, so I decided to buy some fixer-upper that no bank would lend on. I found such a fixer-upper, paid cash, never have to worry about repossession by a lender, can continue to save up for my dream home which I'll own a lot sooner, and will have a nice increase in house value while I fix it up to help get me there, and NO INSURANCE PAYMENTS to some insurer who'll tell me what I can't do with MY property. Let the next buyer of your fixed-up, paid-off house pay YOU the over-priced amount they are willing to pay just because THEY can get that 30-year mortgage, and you enjoy the freedom to dream and adjust your budget to the needs of the moment and end up with a house in 30 years (15, more realistically) that is 2.5 times more valuable. And keep from fighting with your spouse over finances in the meantime.\"", "title": "" }, { "docid": "ce56e7d9f1405f3971ee597f12eac44f", "text": "To protect yourself from an increase in interest rates get a fixed rate loan. The loan terms: interest rate, number of payments, monthly payments will be fixed for the loan. Of course if rate for the rest of the market drops during the period of the loan, you may be able to refinance the loan. But if you can't refinance, or won't refinance, the drop in rates for the rest of the market doesn't help you. If you want to be able to have your rate float you can get a variable rate loan. Of course it can float up, or it can float down. So you take that risk. Because of that risk adjustable rate loans start at a lower rate. If the market interest rate drops far enough many people will refinance into a fixed rate loan at a lower rate than they could have gotten at the start. For adjustable rate loans the lender, during the application process, details how the rate is determined. It is pegged to be x% above some national or international interest rate that they don't have any control over. If that base rate moves then your loan rate may move. They also specify how often it will adjust, and the maximum it can adjust between each adjustments and over the entire life of the loan. That rate that starts initially lower than the fixed rate loan is the enticement that many people have to pick an adjustable rate loan. Some do it because they believe they will payoff the loan before the rates get too high, or they will see enough increase in income so they can afford the higher monthly payment if rates rise. If they are wrong about these things they may find themselves in trouble. The terms of the adjustable rate loan still have to follow the terms of the contract: the lender can't change the % offset or the source used to used to set interest rate.", "title": "" }, { "docid": "b8f73b9acadf8986c48c36572b1a410d", "text": "First consider the basic case of what you are asking: you expect to have a future obligation to pay interest, and you are concerned that the rate when you pay it, will be higher than the rate today. In the simplest case, you could theoretically hedge that risk by buying an asset which pays the market interest rate. As the interest rate rises, increasing your costs, your return on this asset would also increase. This would minimize your exposure to interest rate fluctuations. There are of course two problems with this simplified solution: (1) The reason you expect to pay interest, is because you need/want to take on debt to purchase your house. To fully offset this risk by putting all your money in an asset which bears the market interest rate, would effectively be the same as just buying your house in cash. (2) The timing of the future outflow is a bit unique: you will be locking in a rate, in 5 years, which will determine the payments for the 5 years after that. So unless you own this interest-paying asset for that whole future duration, you won't immediately benefit. You also won't need / want to buy that asset today, because the rates from today to 2022 are largely irrelevant to you - you want something that directly goes against the prevailing mortgage interest rate in 2022 precisely. So in your specific case, you could in theory consider the following solution: You could short a coupon bond, likely one with a 10 year maturity date from today. As interest rates rise, the value of the coupon bond [for it's remaining life of 5 years], which has an implied interest rate set today, will drop. Because you will have shorted an asset dropping in value, you will have a gain. You could then close your short position when you buy your house in 5 years. In theory, your gain at that moment in time, would equal the present value of the rate differential between today's low mortgage rates and tomorrow's high interest rates. There are different ways mechanically to achieve what I mention above (such as buying forward derivative contracts based on interest rates, etc.), but all methods will have a few important caveats: (1) These will not be perfect hedges against your mortgage rates, unless the product directly relates to mortgage rates. General interest rates will only be a proxy for mortgage rates. (2) There is additional risk in taking this type of position. Taking a short position / trading on a margin requires you to make ongoing payments to the broker in the event that your position loses money. Theoretically those losses would be offset by inherent gains in the future, if mortgage rates stay low / go lower, but that offset isn't in your plan for 5 years. (3) 5 years may be too long of a timeline for you to accurately time the maturity of your 'hedge' position. If you end up moving in 7 years, then changes in rates between 2022-2024 might mean you lose on both your 'hedge' position and your mortgage rates. (4) Taking on a position like this will tie up your capital - either because you are directly buying an asset you believe will offset growing interest rates, or because you are taking on a margin account for a short position (preventing you from using a margin account for other investments, to the extent you 'max out' your margin limit). I doubt any of these solutions will be desirable to an individual looking to mitigate interest rate risk, because of the additional risks it creates, but it may help you see this idea in another light.", "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": "50150ac90b2de391daae4d1c1855ce12", "text": "\"A home is an investment, but the value it returns isn't primarily financial ($$) - they are consumption (a place to live). This gives it different characteristics than other investments (e.g. increasing the amount invested by buying a more expensive home doesn't do much to assist your financial well-being and future income, and isn't necessarily the \"\"responsible\"\" thing to do). You may get some capital gains, typically in line with inflation, sometimes less, sometimes more, but those aren't the most reliable, and it's difficult to realize them (it involves selling your house and moving). Its main value as a hedge is a hedge against rising rent. But if you're still working full-time and can expect cost-of-living increases, that hedge may not be as valuable to you as it would to, say, someone living on a fixed income. But as for treating it as a \"\"low-risk investment\"\"? That's very problematic. Real low-risk investments are things like government bonds, where you can't lose principal. Unless you're going to live into your house until the day you die, the real estate crash should have disabused you of any notion that housing values never go down. Rather, your house is a single, indivisible, undiversified, illiquid investment. Imagine, if you will, going to your brokerage and borrowing a hundred thousand dollars or more on margin to invest in a single real estate investment trust... then take away whatever diversification the trust offered by holding multiple properties. Also, you can't sell any of it until you move away, and the transaction fee will take something like 3%. Still sound \"\"safe\"\"? Moreover, it's exactly the wrong kind of risk. Your house's value is tied to what people are willing to pay for housing where your house is, which is usually subject to the whims of the local economy. This means that in a recession and housing bust in the local economy, you can lose your job and have your mortgage go underwater at the same time. It totally makes sense to treat your house as an investment to some extent, and it makes double sense for a financial adviser to consider it as part of your investment recommendations. \"\"Safety\"\" is not the way you should be thinking of it, though.\"", "title": "" }, { "docid": "b3c60e0220312ea89289250d4063e229", "text": "In the 2008 housing crash, cash was king. Cash can make your mortgage payment, buy groceries, utilities, etc. Great deals on bank owned properties were available for those with cash. Getting a mortgage in 2008-2011 was tough. If you are worried about stock market crashing, then diversification is key. Don't have all your investments in one mutual fund or sector. Gold and precious metals have a place in one's portfolio, say 5-10 percent as an insurance policy. The days of using a Gold Double Eagle to pay the property taxes are largely gone, although Utah does allow it. The biggest lesson I took from the crash is you cant have too much cash saved. Build up the rainy day fund.", "title": "" }, { "docid": "041c81f0aeb57d71149e2a4bbf21e5b2", "text": "Find out whether your state has a homestead law or something similar, which might protect your primary residence during bankruptcy. You may have to explicitly register to receive that protection; details differ. Frankly, you'll get better answers to this sort of question from an agency in your area which deals with folks at risk of of bankruptcy/foreclosure/etc. They should know all the tricks which actually work in your area. Hiring a lawyer may also be advisable/necessary", "title": "" }, { "docid": "a5d1d152614dde74cea6e8431471e43b", "text": "\"You can make a contingent offer: \"\"I will buy this house if I sell my own.\"\" In a highly competitive environment, contingent offers tend to be ignored. (Another commentator described such a contingency clause as synonymous with \"\"Please Reject Me\"\".) You can get a bridge loan: you borrow money for a short term, at punishingly high interest. If your house doesn't sell, you're fscked. You pay for two mortgages (or even buy the other house for cash). If you can afford this, congratulations on, you know, being super-rich. Or you can do what I am doing: selling one house and then living at my mom's until I buy another one. (You will have to stay at your own mom's house; my mom's house will be full, of course.) Edit: A commentator with the disturbingly Kafkaesque name of \"\"R.\"\" made the not-unreasonable suggestion that you buy both and rent out one or the other. Consider this possibility, but remember: On the other hand, if the stars align, you might not want to extricate yourself. If the tenant is paying the mortgage and a little more, you have an appreciating asset, and one you can borrow against. With a little work and a little judicious use of leverage, doing this over and over, you can accumulate a string of income-producing rental properties.\"", "title": "" }, { "docid": "6f663ad4ec7451b19430e6e659f58d06", "text": "\"So here are some of the risks of renting a property: Plus the \"\"normal\"\" risk of losing your job, health, etc., but those are going to be bad whether you had the rental or not, so those aren't really a factor. Can you beat the average gain of the S&P 500 over 10 years? Probably, but there's significant risk that something bad will happen that could cause the whole thing to come crashing down. How many months can you go without the rental income before you can't pay all three mortgages? Is that a risk you're willing to take for $5,000 per year or less? If the second home was paid for with cash, AND you could pay the first mortgage with your income, then you'd be in a much better situation to have a rental property. The fact that the property is significantly leveraged means that any unfortunate event could put you in a serious financial bind, and makes me say that you should sell the rental, get your first mortgage paid down as soon as possible, and start saving cash to buy rental property if that's what you want to invest in. I think we could go at least 24 months with no rental income Well that means that you have about $36k in an emergency fund, which makes me a little more comfortable with a rental, but that's still a LOT of debt spread across two houses. Another way to think about it: If you just had your main house with a $600k mortgage (and no HELOC), would you take out a $76k HELOC and buy the second house with a $200k mortgage?\"", "title": "" }, { "docid": "af52cfcb915053566f367e38d37bb78e", "text": "I believe your statement is mostly correct: ...all the expert recommendations are based on an inflexible conventional wisdom that presumes that all renters are relatively resource-poor. When you purchase a $50 electronic item at the store and are offered an extended warranty for $3, most people turn it down, not only because they don't think it's worth it, but also because in the event that the item fails between say years 1 and 3, they don't worry enough about that $50 to care if they have to buy a new one, or live without it. The percentage of your net worth also matters. For example, if you had an entire loss tomorrow, you'd be out $20K if you needed to re-purchase your possessions. (30K minus 10K in current coverage.) $20K is approximately 1/44 or 2.3% of your net worth. If a catastrophe occurs and you only lose 2.3% of your net worth, some might consider that lucky, so from that point of view it isn't really a big deal. But on the flip side, if the extra insurance only costs you $50 more per year, you may not even notice that dent in your net worth either. I think for most people, the value of items in their home may be their net worth, or at least a much larger percentage of it, in which case the insurance makes more sense. For someone in your position, it probably doesn't make much difference either way. If you had $300K in valuables in your house, perhaps your point of view would be different.", "title": "" }, { "docid": "481467d7deea46bb5ea3a473c02ce5ef", "text": "\"Pay off the credit cards. From now on, pay off the credit cards monthly. Under no circumstances should you borrow money. You have net worth but no external income. Borrowing is useless to you. $200,000 in two bank accounts, because if one bank collapses, you want to have a spare while you wait for the government to pay off the guarantee. Keep $50,000 in checking and another $50k in savings. The remainder put into CDs. Don't expect interest income beyond inflation. Real interest rates (after inflation) are often slightly negative. People ask why you might keep money in the bank rather than stocks/bonds. The problem is that stocks/bonds don't always maintain their value, much less go up. The bank money won't gain, but it won't suddenly lose half its value either. It can easily take five years after a stock market crash for the market to recover. You don't want to be withdrawing from losses. Some people have suggested more bonds and fewer stocks. But putting some of the money in the bank is better than bonds. Bonds sometimes lose money, like stocks. Instead, park some of the money in the bank and pick a more aggressive stock/bond mixture. That way you're never desperate for money, and you can survive market dips. And the stock/bond part of the investment will return more at 70/30 than 60/40. $700,000 in stock mutual funds. $300,000 in bond mutual funds. Look for broad indexes rather than high returns. You need this to grow by the inflation rate just to keep even. That's $20,000 to $30,000 a year. Keep the balance between 70/30 and 75/25. You can move half the excess beyond inflation to your bank accounts. That's the money you have to spend each year. Don't withdraw money if you aren't keeping up with inflation. Don't try to time the market. Much better informed people with better resources will be trying to do that and failing. Play the odds instead. Keep to a consistent strategy and let the market come back to you. If you chase it, you are likely to lose money. If you don't spend money this year, you can save it for next year. Anything beyond $200,000 in the bank accounts is available for spending. In an emergency you may have to draw down the $200,000. Be careful. It's not as big a cushion as it seems, because you don't have an external income to replace it. I live in southern California but would like to move overseas after establishing stable investments. I am not the type of person that would invest in McDonald's, but would consider other less evil franchises (maybe?). These are contradictory goals, as stated. A franchise (meaning a local business of a national brand) is not a \"\"stable investment\"\". A franchise is something that you actively manage. At minimum, you have to hire someone to run the franchise. And as a general rule, they aren't as turnkey as they promise. How do you pick a good manager? How will you tell if they know how the business works? Particularly if you don't know. How will you tell that they are honest and won't just embezzle your money? Or more honestly, give you too much of the business revenues such that the business is not sustainable? Or spend so much on the business that you can't recover it as revenue? Some have suggested that you meant brand or stock rather than franchise. If so, you can ignore the last few paragraphs. I would be careful about making moral judgments about companies. McDonald's pays its workers too little. Google invades privacy. Exxon is bad for the environment. Chase collects fees from people desperate for money. Tesla relies on government subsidies. Every successful company has some way in which it can be considered \"\"evil\"\". And unsuccessful companies are evil in that they go out of business, leaving workers, customers, and investors (i.e. you!) in the lurch. Regardless, you should invest in broad index funds rather than individual stocks. If college is out of the question, then so should be stock investing. It's at least as much work and needs to be maintained. In terms of living overseas, dip your toe in first. Rent a small place for a few months. Find out how much it costs to live there. Remember to leave money for bigger expenses. You should be able to live on $20,000 or $25,000 a year now. Then you can plan on spending $35,000 a year to do it for real (including odd expenses that don't happen every month). Make sure that you have health insurance arranged. Eventually you may buy a place. If you can find one that you can afford for something like $100,000. Note that $100,000 would be low in California but sufficient even in many places in the US. Think rural, like the South or Midwest. And of course that would be more money in many countries in South America, Africa, or southern Asia. Even southern and eastern Europe might be possible. You might even pay a bit more and rent part of the property. In the US, this would be a duplex or a bed and breakfast. They may use different terms elsewhere. Given your health, do you need a maid/cook? That would lean towards something like a bed and breakfast, where the same person can clean for both you and the guests. Same with cooking, although that might be a second person (or more). Hire a bookkeeper/accountant first, as you'll want help evaluating potential purchases. Keep the business small enough that you can actively monitor it. Part of the problem here is that a million dollars sounds like a lot of money but isn't. You aren't rich. This is about bare minimum for surviving with a middle class lifestyle in the United States and other first world countries. You can't live like a tourist. It's true that many places overseas are cheaper. But many aren't (including much of Europe, Japan, Australia, New Zealand, etc.). And the ones that aren't may surprise you. And you also may find that some of the things that you personally want or need to buy are expensive elsewhere. Dabble first and commit slowly; be sure first. Include rarer things like travel in your expenses. Long term, there will be currency rate worries overseas. If you move permanently, you should certainly move your bank accounts there relatively soon (perhaps keep part of one in the US for emergencies that may bring you back). And move your investments as well. Your return may actually improve, although some of that is likely to be eaten up by inflation. A 10% return in a country with 12% inflation is a negative real return. Try to balance your investments by where your money gets spent. If you are eating imported food, put some of the investment in the place from which you are importing. That way, if exchange rates push your food costs up, they will likely increase your investments at the same time. If you are buying stuff online from US vendors and having it shipped to you, keep some of your investments in the US for the same reason. Make currency fluctuations work with you rather than against you. I don't know what your circumstances are in terms of health. If you can work, you probably should. Given twenty years, your million could grow to enough to live off securely. As is, you would be in trouble with another stock market crash. You'd have to live off the bank account money while you waited for your stocks and bonds to recover.\"", "title": "" }, { "docid": "61ad4a40dd9129dad9824a1f20f3a90c", "text": "Houses burn down a lot more frequently than banks fail. Also, I'll bet the odds that FDIC will insure the loss of money in a bank is much higher than the odds of a homeowner's policy believing a huge pile of cash burned up in your house AND even then your policy probably wouldn't have coverage limits high enough to reimburse you for substantial cash losses. Oh yeah, then there is theft, floods,etc. The biggest danger is that routine inflation will eat up that money faster than the rats in the basement. Now, having some cash for a small emergency on hand isn't a terrible idea, but using your closet as a personal bank doesn't seem very smart.", "title": "" }, { "docid": "6b109ff9ec37221ec9308dd7a528832b", "text": "\"If the default happens through mass monetary inflation rather than openly (\"\"We're not paying interest on our bonds\"\") then make sure you pay off your house. There may not be a very long window to do so. If the currency becomes worthless, then it depends on what you have of value that would be accepted by the lender as payment. If you don't have anything, the lender will take it back, as they're probably entitled to on the notes.\"", "title": "" }, { "docid": "04592407c943511a0496706a31ba97c7", "text": "\"Insurance is a financial product to control risk. The fact that a loss would not be catastrophic simply makes the decision to carry insurance less critical. It is perfectly reasonable to be \"\"self-insured\"\" in this case. This is assuming we are discussing replacement of your property vs liability (which you have made clear). Like many other products one buys, a fine reason to purchase insurance is simply because one wants to. Just because you can absorb the loss, does not mean that you want to take on the full risk. I would be careful of your analysis here: Insurance companies on average make money by selling insurance, which means you lose money on average by dealing with them Insurance companies make money based on the cumulative probability that they will have to pay on multiple policies. To make money, they analyze the risk that in a given period they will only pay on a portion of their hundreds of thousands or millions of policies. This is a different analysis than the probability that you will have a loss on your specific asset. Your risk of a loss is not equivalent to their risk of loss here. The argument that they only 'win' if you individually 'lose' is not a good one.\"", "title": "" } ]	fiqa
8fd4e8fb6ca7669c775141b2882f3f11	When a Company was expected and then made a profit of X $ then that X$ increased it's share price. or those the Sellers and Buyers [duplicate]	[ { "docid": "b152e7bee118585712db496fe8c45a9d", "text": "There are a few reason why share prices increase or decrease, the foremost is expectation of the investors that the company/economy will do well/not well, that is expectation of profit/intrinsic value growth over some time frame (1-4 qtrs.)there is also demand & supply mismatch over (usually) short time. If you really see, the actual 'value' of a company is it's net-worth (cash+asset+stock in trade+brand value+other intangibles+other incomes)/no of shares outstanding, which (in a way) is the book value, then all shares should trade at their book value, the actual number but it does not, the expectation of investors that a share would be purchased by another investor at a higher price because the outlook of the company over a long time is good.", "title": "" } ]	[ { "docid": "c0a75c6f74188ba156f3b7ab5fda265f", "text": "First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.", "title": "" }, { "docid": "e1574c4d21cc1b9e86643ae46e4b73c1", "text": "\"It means that the company earned 15 cents per share in the most recently reported quarter. Share price may or not be affected, depending on how buyers and sellers value the company. Just because profits \"\"jumped,\"\" does not mean the shares will follow suit. An increase in profits may have already been priced into the stock, or the market expected the increase in profit to be even higher. As the shareholder, you don't actually get any of these profits into your hands, unless the company pays out a portion of these profits as a dividend.\"", "title": "" }, { "docid": "e5c08b35cfcbd50dd86e92a143e7f99e", "text": "Stock prices reflect future expectations of large groups of people, and may not be directly linked to traditional valuations for a number of reasons (not definitive). For example, a service like Twitter is so popular that even though it has no significant revenue and loses money, people are simply betting that it is deeply embedded enough that it will eventually find some way to make money. You can also see a number of cases of IPOs of various types of companies that do not even have a revenue model at all. Also, if there is rapid sales growth in A but B sales are flat, no one is likely to expect future profit growth in B such that the valuation will remain steady. If sales in A are accelerating, there may be anticipation that future profits will be high. Sometimes there are also other reasons, such as if A owns valuable proprietary assets, that will hold the values up. However, more information about these companies' financials is really needed in order to understand why this would be the case.", "title": "" }, { "docid": "bd59a0d6be04b9e7ff8cc04436d98108", "text": "\"What does it mean in terms of share price? Should the share price increase by 15 cents? No, but you're on the right track. In theory, the price of a share reflects it's \"\"share\"\" of time discounted future earnings. To put it concretely, imagine a company consistently earning 15 cents a share every year and paying it all out as dividends. If you only paid 25 cents for it, you could earn five cents a share by just holding it for two years. If you imagine that stocks are priced assuming a holding period of 20 years or so, so we'd expect the stock to cost less than 3 dollars. More accurately, the share price reflects expected future earnings. If everyone is assuming this company is growing earnings every quarter, an announcement will only confirm information people have already been trading based on. So if this 15 cents announcement is a surprise, then we'd expect the stock price to rise as a function of both the \"\"surprise\"\" in earnings, and how long we expect them to stay at this new profitability level before competition claws their earnings away. Concretely, if 5 cents a share of that announcement were \"\"earnings surprise,\"\" you'd expect it to rise somewhere around a dollar.\"", "title": "" }, { "docid": "f89cf25648c78c059f612da6c62af257", "text": "Simple, there is no magic price adjustment after sales - why do you expect the stock price to change? The listed price of a stock is what someone was willing to pay for it in the last deal that was concluded. If any amount of stock changes ownership, this might have the effect that other people are willing to buy it for a higher price - or not. It is solely in the next buyer's decision what he is willing to pay. Example: if you think Apple stocks are worth 500$ a piece, and I buy a million of them, you might still think they are worth 500$. Or you might see this as a reason that they are worth 505$ now.", "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": "ebd1db8d92f3d8dc714ca36e204074bb", "text": "\"To a certain degree \"\"the only sure thing I know is the price I paid for the stock is the fair price at the time I buy it\"\" is absolutely right, by definition, and by the law of the free and efficient market and forces of supply and demand, freedom of public information about share price sensitive information, etc, etc, etc, and you've made a good point that eludes many investors I'd say. However, in practise, the market has many participants, and they will all be arriving at a different idea of what the \"\"fair price\"\" is by way of a slightly different analysis and slightly different information. In theory they all have the same information, but unfortunately in practise there is always some disparity. When one participant feels a stock is undervalued though the last thing they want to do is say so, instead they will start buying stock. They might feel it is undervalued by 20%, but that doesn't mean they'll keep buying and buying until it gets to 20%, they might push the price up just a little, then let the price drift down again, buy some more, relax, buy some more, etc. Over time the price will rise of course because the supply will become weaker, but even if the participant is correct about the 20% the price might have only risen 7% by the time they acquire all the stock they want given their risk models, market exposure and margin guidelines, etc, and it might be more than a year later before the price has actually risen to 20%, presumably because more and more other market participants have come to the same conclusion. The opposite can obviously also happen, a participant might dump stock it feels is over valued long before it hits the values it believes in. So right away you can see that pricing might not really reflect value, or \"\"fair price\"\".\"", "title": "" }, { "docid": "9f94ab28cf420d279e87cabb6029f65c", "text": "In simplest terms, when a company creates new shares and sells them, it's true that existing shareholders now own a smaller percentage of the company. However, as the company is now more valuable (since it made money by selling the new shares), the real dollar value of the previous shares is unchanged. That said, the decision to issue new shares can be interpreted by investors as a signal of the company's strategy and thereby alter the market price; this may well affect the real dollar value of the previous shares. But the simple act of creating new shares does not alter the value in and of itself.", "title": "" }, { "docid": "2824c6bf0ee10d68971d086851792687", "text": "When stocks have a change in price it is because of a TRADE. To have a trade you have to have both a buyer and a seller. When the price of a security is going up there are an equal amount of shares being sold as being bought. When the price of a security is going down there are an equal amount of shares being bought as being sold. There almost always is an unequal amount of shares waiting to be sold compared to the amount waiting to be bought. But waiting shares do not move the price, only when the purchase price and the sale price agree, and a trade occurs, does the price move. So the price does not go down because more shares are being sold. Neither does the price go up because more shares are being bought.", "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": "c15023a724fe7beb55821e5b45344924", "text": "If the market believes that the company is overstaffed, then management acknowledging the issue and resolving the problem can result in the price going up. It can also mean that external events drove the price up, and the bad news was lost in the other issues of the day. Sometimes layoffs are a sign of the company entering a long downward spiral; in other cases it is a sign of the beginning recovery. The layoffs can also be viewed as good news if they weren't as big as some experts feared. You have to look at the exact situation to understand why news x impacts the companies price.", "title": "" }, { "docid": "35d418477f6f1ff8bf0e3e14b2082fe6", "text": "Day traders see a dip, buy stocks, then sell them 4 mins later when the value climbed to a small peak. What value is created? Is the company better off from that trade? The stocks were already outside of company hands, so the trade doesn't affect them at all. You've just received money from others for no contribution to society. A common scenario is a younger business having a great idea but not enough capital funds to actually get the business going. So, investors buy shares which they can sell later on at a higher value. The investor gets value from the shares increasing over time, but the business also gets value of receiving money to build the business.", "title": "" }, { "docid": "3226b984a2e3f7ed89feb25f3e373bf9", "text": "\"Probably the biggest driver of the increased volumes that day was a change in sentiment towards the healthcare sector as a whole that caused many healthcare companies to experience higher volumes ( https://www.bloomberg.com/press-releases/2017-07-11/asset-acquisitions-accelerate-in-healthcare-sector-boosting-potential-revenue-growth ). Following any spike, not just sentiment related spikes, the market tends to bounce back to about where it had been previously as analysts at the investment banks start to see the stock(s) as being overbought or oversold. This is because the effect of a spike on underlying ratios such as the Sharpe ratio or the PE ratio makes the stock look less attractive to buyers and more attractive to sellers, including short sellers. Note, however, that the price is broadly still a little higher than it was before the spike as a result of this change in sentiment. Looking at the price trends on Bloomberg (https://www.bloomberg.com/quote/CDNA:US) the price had been steadily falling for the year prior to the spike but was levelling out at just over $1 in the few months immediately prior to the spike. The increased interest in the sector and the stock likely added to a general change in the direction of the price trend and caused traders (as opposed to investors) to believe that there was a change in the price trend. This will have lead to them trading the stock more heavily intraday exacerbating the spike. Note that there traders will include HFT bots as well as human traders. You question the legality of this volume increase but the simple answer is that we may never know if it was the target of traders manipulating the price or a case of insider trading. What we can see is that (taking \"\"animal spirits\"\" into account) without any evidence of illegality there are plenty of potential reasons why the spike may have occurred. Spikes are common where traders perceive a change in a trend as they rush to cash in on the change before other traders can and then sell out quickly when they realise that the price is fundamentally out of sync with the firm's underlying position. You yourself say that you have been watching the stock for some time and, by that fact alone, it is likely that others are for the same reasons that you are. Otherwise you wouldn't be looking at it. Where people are looking at a stock expecting it to take off or drop you expect volatility and volatility means spikes!\"", "title": "" }, { "docid": "d5607bef00056a09a17bce283bef755b", "text": "Here are some significant factors affect the company stock price performance: Usually, profitability is known to the public through the financial statements; it won't be 100% accurate and people would also trade the stock with the price not matching to the true value of the firm. Still there are dozens of other various reasons exist. People are just not behaving as rational as what the textbook describes when they are trading and investing.", "title": "" }, { "docid": "a744e74b592f9e0373f74ba71847b693", "text": "You are assuming the price increase will continue. The people selling are assuming that the price increase will not continue. Ultimately that's what a share transaction is: one person would rather have the cash at a particular price / time, and one person would rather have the share.", "title": "" } ]	fiqa
4a7e1d90869d5577765e154f6a26742e	Investments beyond RRSP and TFSA, in non-registered accounts?	[ { "docid": "9e4e5154c4a2adf1d4ec1972f97af03c", "text": "I quite like the Canadian Couch Potato which provides useful information targeted at investors in Canada. They specifically provide some model portfolios. Canadian Couch Potato generally suggests investing in indexed ETFs or mutual funds made up of four components. One ETF or mutual fund tracking Canadian bonds, another tracking Canadian stocks, a third tracking US stocks, and a fourth tracking international stocks. I personally add a REIT ETF (BMO Equal Weight REITs Index ETF, ZRE), but that may complicate things too much for your liking. Canadian Couch Potato specifically recommends the Tangerine Streetwise Portfolio if you are looking for something particularly easy, though the Management Expense Ratio is rather high for my liking. Anyway, the website provides specific suggestions, whether you are looking for a single mutual fund, multiple mutual funds, or prefer ETFs. From personal experience, Tangerine's offerings are very, very simple and far cheaper than the 2.5% you are quoting. I currently use TD's e-series funds and spend only a few minutes a year rebalancing. There are a number of good ETFs available if you want to lower your overhead further, though Canadians don't get quite the deals available in the U.S. Still, you shouldn't be paying anything remotely close to 2.5%. Also, beware of tax implications; the website has several articles that cover these in detail.", "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": "97910c0d3329b9a60f4607ab27d7c2a4", "text": "You don't seem to have any particular question to be answered. Your understanding of RRSPs seems to be very good. Have you considered whether you might be better off putting your retirement savings into a TFSA instead? Both types can protect your growth from taxation (provided you reinvest the refund from the RRSP). The main way in which the RRSP is better than TFSA is that you can pay the tax on the contribution at a time when your income is lower, and thus have a lower marginal tax rate. Most people retire with a lower income than during their earning years, but it's a matter of tax brackets. If you think you'll be in the same bracket (same marginal tax rate) when you retire, then the TFSA and RRSP work out even in that regard. So in your case, the question you want to ask yourself is: when I retire, will I have an income (including CPP, OAS, pension payments, etc) that exceeds $45,282 worth of today's dollars? If so, your RRSP holds no advantage over the TFSA. In fact, the RRSP may even be worse, since the withdrawals count as income and reduce the amount of OAS and perhaps GIS payments that the government gives you - at least under current regulations. If you're unsure, I suggest you try this calculator from taxtips.ca that runs both scenarios and helps you see which one is more beneficial. It even factors in the OAS/GIS clawbacks.", "title": "" }, { "docid": "d9c4775c8e83b672909f450949e6dca2", "text": "You might consider calling the broker you invest with. At mine, you can see the room left to contribute each year in the TFSA. The CRA might just have old/bad data.", "title": "" }, { "docid": "aa718696681523ba8b60263c70784ca7", "text": "I don't believe from reading the responses above that Questrade is doing anything 'original' or 'different' much less 'bad'. In RRSPs you are not allowed to go into debt. So the costs of all trades must be covered. If there is not enough USD to pay the bill then enough CAD is converted to do so. What else would anyone expect? How margin accounts work depends on whether the broker sets up different accounts for different currencies. Some do, some don't. The whole point of using 'margin' is to buy securities when you don't have the cash to cover the cost. The result is a 'short' position in the cash. Short positions accrue interest expense which is added to the balance once a month. Every broker does this. If you buy a US stock in a USD account without the cash to cover it, you will end up with USD margin debt. If you buy US stock in an account that co-mingles both USD and CAD assets and cash, then there will be options during the trade asking if you want to settle in USD or CAD. If you settle in CAD then obviously the broker will convert the necessary CAD funds to pay for it. If you settle in US funds, but there is no USD cash in the account, then again, you have created a short position in USD.", "title": "" }, { "docid": "907ee8efbd546f4e8397b7965b65f39d", "text": "Eeeeeeh... No, you don't. In Canada, and pretty much any country with common sense they will rarely charge you for income made outside its borders. In the worst case scenario you're taxed on income deemed resulting from investment (stocks, bonds, etc.), but the general rule is... You don't pay taxes on income made abroad.", "title": "" }, { "docid": "aeb176a02d712dd802fd6804e23b1081", "text": "\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \"\"designated stock exchange\"\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \"\"mutual funds, GICs and saving deposits\"\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\"", "title": "" }, { "docid": "7ca2d2b8b76b64ae83c126adcee29378", "text": "Depending on what state you live in in the United States, your Canadian brokerage may be able to sell products within the existing RRSP. I have an RRSP in Canada through TD Waterhouse and they infact just sent me a recent letter explaining that they are permitted to service my Canadian RRSP under the laws of Tennessee (where I live). The note went on to specifically state that they are not subject to the broker-dealer regulations of the US or the securities/regulations laws on the TN securities act. Furthermore, they state that Canadian RRSPs are not regulated under the securities laws of the US and the securities offered and sold to Canadian plans are exempt from registration with the SEC. When I call TD to do trades, I just ask for a Canada/US broker and that's who enters the sale for me. I declare my RRSP annually both to IRS under RRSP treaty and through FBAR reporting.", "title": "" }, { "docid": "ab42ac4c2bed63438d52716bde6d5ff5", "text": "\"A TFSA is a tax free savings account. It is a type of account where you can buy various investments like stocks, bonds, or funds (mutual, exchange traded, and money market). There are some other options but it's best to see what your bank or broker will allow. You probably specified the type of investment when you opened the account. You can look at your statements or maybe online to see what you're invested in. My guess is some kind of HISA (high interest savings account). This is kind of the default option for banks. The government created these accounts for a variety of reasons. The main stated reason was to encourage people to save. Obviously they also do things to get votes. There was an outcry after the change to a type of investment called \"\"investment trusts\"\". This could be seen as a consolation prize. These can be valuable to seniors for many reasons and they tend to vote more often. There was also an election promise to eliminate capital gains taxes in some fashion. It's not profitable for the government, in fact it supposedly cost the federal government $410 million in 2013. Banks make money by investing your deposit or by charging fees. You can see what every tax break 'costs' the government in lost revenue here http://www.fin.gc.ca/taxexp-depfisc/2013/taxexp1301-eng.asp#toc7\"", "title": "" }, { "docid": "bec55c44ea141f5e27b7fa29ede776dd", "text": "A questoin that I deal with almost every day. Like most investments it comes down to.....What is the purpose for this money? If it is truly a rainy day savings account that you may need in the short term, then fixed income investments like savings accounts, GIC's, Bonds, Bond funds and Fixed Income ETF's are ideal as they are taxed very inefficiently outside of any registered plan (therefore tax free in here). However if you have a plan in place that has all your short term needs covered elsewhere, I believe this is the place that you should be the most aggressive in your overall portfolio. If that mining stock goes up by 1000% wouldn't it be nice to put all of that gain in your pocket?", "title": "" }, { "docid": "29bf60f160cfd49e16556707172aba39", "text": "\"Your premise is false. When you withdraw money from a Tax Free Savings Account (TFSA), there is no tax due. Yes, you can read that again: withdrawals from a TFSA are tax free. They are labeled \"\"tax free\"\" for a good reason! After-tax money is deposited, and then from that point forward, no tax, no tax, no tax. :-) On a \"\"normal\"\", non-registered investment or savings account with no special treatment, your investment earnings will be taxed whenever gains are realized or income received (e.g. dividends or interest). You will necessarily have less in a normal non-registered investment or savings account compared to a TFSA, as long as the rate of return was positive, i.e. growing. Perhaps you were thinking not of comparing a regular investment account to a TFSA, but rather to a Registered Retirement Savings Plan (RRSP)? In the case of an RRSP, there is an up-front tax deduction, then earnings grow tax-deferred, and then on withdrawal, income tax is paid at regular rates. Even then, with RRSPs, if your marginal tax rate remains the same over time (not necessarily a reasonable assumption, but let's go with it) then you should still realize more after-tax income from your RRSP than from a normal non-registered investment or savings account. (Though, there's likely an exception case when most income came as qualified dividends and the capital itself hasn't appreciated.)\"", "title": "" }, { "docid": "1611faea12bf19b2154ee123778d95d2", "text": "\"HSBC, Hang Seng, and other HK banks had a series of special savings account offers when I lived in HK a few years ago. Some could be linked to the performance of your favorite stock or country's stock index. Interest rates were higher back then, around 6% one year. What they were effectively doing is taking the interest you would have earned and used it to place a bet on the stock or index in question. Technically, one way this can be done, for instance, is with call options and zero coupon bonds or notes. But there was nothing to strategize with once the account was set up, so the investor did not need to know how it worked behind the scenes... Looking at the deposit plus offering in particular, this one looks a little more dangerous than what I describe. See, now we are in an economy of low almost zero interest rates. So to boost the offered rate the bank is offering you an account where you guarantee the AUD/HKD rate for the bank in exchange for some extra interest. Effectively they sell AUD options (or want to cover their own AUD exposures) and you get some of that as extra interest. Problem is, if the AUD declines, then you lose money because the savings and interest will be converted to AUD at a contractual rate that you are agreeing to now when you take the deposit plus account. This risk of loss is also mentioned in the fine print. I wouldn't recommend this especially if the risks are not clear. If you read the fine print, you may determine you are better off with a multicurrency account, where you can change your HK$ into any currency you like and earn interest in that currency. None of these were \"\"leveraged\"\" forex accounts where you can bet on tiny fluctuations in currencies. Tiny being like 1% or 2% moves. Generally you should beware anything offering 50:1 or more leverage as a way to possibly lose all of your money quickly. Since you mentioned being a US citizen, you should learn about IRS form TD F 90-22.1 (which must be filed yearly if you have over $10,000 in foreign accounts) and google a little about the \"\"foreign account tax compliance act\"\", which shows a shift of the government towards more strict oversight of foreign accounts.\"", "title": "" }, { "docid": "06e4704418d257227d647692a04fec2e", "text": "If you are restricting yourself to Scotiabank (Both retail banking and iTrade), your choices are pretty limited. If you are exchanging more than CAD$25,000 to EUR without margin, you can call Scotiabank and ask for a quote with much lower spread than the published snapshots. The closest ETF that you are talking about is RWE.B on TSX, which is First Asset MSCI Europe Low Risk Weighted ETF (Unhedged). You will be exposed to huge equity market risk and you should do it only if you intend to hold it for 3-5 years. Another way of exchanging cash is without opening an account is through a currency exchange broker (search “toronto currency exchange” for relevant companies). First you send an email asking for a quote for the amount you wanted, then you send the CAD to them via cheque, and they would convert to EUR and deposit it to your EUR account at Scotiabank (retail banking). This method costs around 0.7% compared to 2.5% charged by Scotiabank. An example of these brokers is Interchange Currency Exchange in Toronto. If you are hedging more than 125000 EUR, the proper method is to open an account that supports trading Currency Futures on Globex (US CME group). You can long Euro/Canadian Dollar Futures on margin. The last method is to open an account at Interactive Brokers, put CAD in it, then borrow more CAD to buy EUR. This method costs a few dollars upon trading and the spread is negligible. You need to pay 2.25% per year margin interest through.", "title": "" }, { "docid": "18119c60e17d718132faa1012fcc402c", "text": "\"Not really, no. The assumption you're making—withdrawals from a corporation are subject to \"\"[ordinary] income tax\"\"—is simplistic. \"\"Income tax\"\" encompasses many taxes, some more benign than others, owing to credits and exemptions based on the kind of income. Moreover, the choices you listed as benefits in the sole-proprietor case—the RRSP, the TFSA, and capital gains treatment for non-registered investments—all remain open to the owner of a small corporation ... the RRSP to the extent that the owner has received salary to create contribution room. A corporation can even, at some expense, establish a defined benefit (DB) pension plan and exceed individual RRSP contribution limits. Yes, there is a more tax-efficient way for small business owners to benefit when it comes time to retirement. Here is an outline of two things I'm aware of: If your retirement withdrawals from your Canadian small business corporation would constitute withdrawal from the corporation's retained earnings (profits), i.e. income to the corporation that had already been subject to corporate income tax in prior years, then the corporation is able to declare such distributions as dividends and issue you a T5 slip (Statement of Investment Income) instead of a T4 slip (Statement of Remuneration Paid). Dividends received by Canadian residents from Canadian corporations benefit from the Dividend Tax Credit (DTC), which substantially increases the amount of income you can receive without incurring income tax. See TaxTips.ca - Non-eligible (small business) dividend tax credit (DTC). Quote: For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, in 2014 approximately $35,551 [...] could be earned before any federal* taxes were payable. * Provincial DTCs vary, and so combined federal/provincial maximums vary. See here. If you're wondering about \"\"non-eligible\"\" vs. \"\"eligible\"\": private small business corporation dividends are generally considered non-eligible for the best DTC benefit—but they get some benefit—while a large public corporation's dividends would generally be considered eligible. Eligible/non-eligible has to do with the corporation's own income tax rates; since Canadian small businesses already get a big tax break that large companies don't enjoy, the DTC for small businesses isn't as good as the DTC for public company dividends. Finally, even if there is hardly any same-year income tax advantage in taking dividends over salary from an active small business corporation (when you factor in both the income tax paid by the corporation and the individual), dividends still allow a business owner to smooth his income over time, which can result in a lower lifetime average tax rate. So you can use your business as a retained earnings piggy bank to spin off dividends that attract less tax than ordinary income. But! ... if you can convince somebody to buy your business from you, then you can benefit from the lifetime capital gains exemption of up to $800,000 on qualifying small business shares. i.e. you can receive up to $800K tax-free on the sale of your small business shares. This lifetime capital gains exemption is a big carrot—designed, I believe, to incentivize Canadian entrepreneurs to develop going-concern businesses that have value beyond their own time in the business. This means building things that would make your business worth buying, e.g. a valued brand or product, a customer base, intellectual property, etc. Of course, there are details and conditions with all of what I described, and I am not an accountant, so please consult a qualified, conflict-free professional if you need advice specific to your situation.\"", "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": "a61613930e868764aa3b86c7be05e08c", "text": "I agree that best is subjective and will not give investment advice. However, the tax deductible part can be dealt with quite swiftly. If you need tax deductibility right now, at the expense of later, put it into an RSP account. If you don't need tax deductibility right now, put it into a TFSA. Assuming you have room in either of these vehicles, I would suggest using just an RSP or TFSA cash savings account for now at ING Direct. Three reasons: You get the immediate benefit of having put it somewhere, and in the case of the RSP, an immediate tax deductibility. You don't have to worry about rushing into a specific investment and can give yourself time to figure out your goals and portfolio composition. (Read about the Couch Potato portfolio for a starting point.) You can transfer your money from them for free and still keep it registered in whichever plan it is in. The last point is the most important for my suggestion. The ability to quickly park the cash in a registered account and to move it for free using the appropriate form at a later date. Most places have a sneaky transfer-out fee. ING may not be the only place that doesn't, but I haven't looked into many other places about this. You might find something else that works the same way. And please, don't ever use GIC and high return in the same sentence.", "title": "" }, { "docid": "162c3be73cdea6ccf43e6834a2533223", "text": "There is a tax treaty between Canada and the US that recognizes RRSPs as retirement accounts. You won't be taxed on the gains in your RRSP like you would be if it was in a TFSA. So you don't really have to do anything (except fill out a form for the IRS every year). The problem that usually arises is if you want to buy something else. I don't know of any Canadian brokerage that will sell products to a US resident. It's a question of where they're licensed. However the SEC has issued an exemption so you can try to argue with your broker to get a trade done. Link to SEC order With such a small amount in the account you may be paying fees or have it invested in funds with higher fees. You will have to do the math on whether or not you should just withdraw the money and invest in cheaper funds and accounts in the US. When you withdraw the money Canada will withhold a flat rate of 25% or in some circumstances 15%. For more info go to Serbinski (a cross border tax specialist).", "title": "" } ]	fiqa
87b07607d290e8d0a73157ec5e4446e8	What investment strategy would you deduce from the latest article from Charles Munger?	[ { "docid": "25755e8dee8392ce566dbb40838b3561", "text": "\"So, I've read the article in question, \"\"Basically, It's Over\"\". Here's my opinion: I respect Charlie Munger but I think his parable misses the mark. If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better. I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear \"\"aha\"\" I was hoping for. Nevertheless, I agree with his point of view, which I see as: In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts. These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt. Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt. This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies. U.S. cash and short-term treasuries might not be a great place to be invested today. Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies. (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected. Clearly, \"\"diversification\"\" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut. U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges. I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the \"\"financial\"\"-innovation variety – and with global reach.\"", "title": "" } ]	[ { "docid": "d1bac2cad9517ca397e51368dd834c77", "text": "it's kind of like a circular loop: i think he would suggest identifying strategies/portfolio managers who have demonstrated outperformance in a persistent manner. Thing is, that's also really hard to do. I think empirically, MPT suffers when the market does. By diversifying, you'll only be down less. He's suggesting shooting for absolute returns -- no matter what the market does, he wants to see positive gains. (a lot) easier said than done", "title": "" }, { "docid": "0a5855b5ced372bdbf8af7f1267c5ced", "text": "I think your best strategy is to learn more about the behavior of what you're investing in. Learn everything you can about it. Specialize in it. The more you study, the more the proper strategy will present itself. Answer the questions you ask in paragraph 3 through your own study.", "title": "" }, { "docid": "adaba88e23cded5660899924bfd1f056", "text": "If anyone is interested in looking into it, the company Pinnacle has actually been using theory from quantitative finance for a long time. I went to one of their talks during useR!2017 in Brussels, really interesting betting company.", "title": "" }, { "docid": "71d5097054e25bcf177dfa43b19c737c", "text": "Ok, so here's the strategy I decided to go with in the meantime: Allocate E1 to A_corp and E3 to A_ira. Here are my considerations which I assume at this stage to be right:", "title": "" }, { "docid": "8fdbf339263b1065a53a294559a4d6dd", "text": "\"There is actually a recent paper that attempted to decompose Buffett's outperformance. I've quoted the abstract below: \"\"Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.\"\"\"", "title": "" }, { "docid": "92a90b972f2777bacae01d9cb07b50c1", "text": "Yeah, but how many 1970s gold bugs invested early? Paul strikes me as typical of the breed: reactive and reactionary. Probably acquired a stack of double eagles and gold stocks in 1975, at the peak of the Arab oil embargo inflation--as did others I know. Even worse, Paul's leveraged equities short fund would have destroyed him over the same period. So the unanswered critical question remains: when did he dive into gold and shorts?", "title": "" }, { "docid": "20e5cfc13dc16a19aef4dc3ba03eba08", "text": "\"Let me start by giving you a snippet of a report that will floor you. Beat the market? Investors lag the market by so much that many call the industry a scam. This is the 2015 year end data from a report titled Quantitive Analysis of Investor Behavior by a firm, Dalbar. It boggles the mind that the disparity could be this bad. A mix of stocks and bonds over 30 years should average 8.5% or so. Take out fees, and even 7.5% would be the result I expect. The average investor return was less than half of this. Jack Bogle, founder of Vanguard, and considered the father of the index fund, was ridiculed. A pamphlet I got from Vanguard decades ago quoted fund managers as saying that \"\"indexing is a path to mediocrity.\"\" Fortunately, I was a numbers guy, read all I could that Jack wrote and got most of that 10.35%, less .05, down to .02% over the years. To answer the question: psychology. People are easily scammed as they want to believe they can beat the market. Or that they'll somehow find a fund that does it for them. I'm tempted to say ignorance or some other hint at lack of intelligence, but that would be unfair to the professionals, all of which were scammed by Madoff. Individual funds may not be scams, but investors are partly to blame, buy high, sell low, and you get the results above, I dare say, an investor claiming to use index funds might not fare much better than the 3.66% 30 year return above, if they follow that path, buying high, selling low. Edit - I am adding this line to be clear - My conclusion, if any, is that the huge disparity cannot be attributed to management, a 6.7% lag from the S&P return to what the average investor sees likely comes from bad trading. To the comments by Dave, we have a manager that consistently beats the market over any 2-3 year period. You have been with him 30 years and are clearly smiling about your relationship and investing decision. Yet, he still has flows in and out. People buy at the top when reading how good he is, and selling right after a 30% drop even when he actually beat by dropping just 22%. By getting in and out, he has a set of clients with a 30 year record of 6% returns, while you have just over 11%. This paragraph speaks to the behavior of the investor, not managed vs indexed.\"", "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": "e54ba49905ede9e8b120977cc4d2c35f", "text": "Slice and Dice would have the approach for dividing things up into 25% of large/small and growth/value that is one way to go. Bogleheads also have more than a few splits ranging from 2 funds to nearly 10 funds on high end.", "title": "" }, { "docid": "13ccbde86d6468a893f0d86032fe1b7e", "text": "The goal of the kelly criterion strategy is to find a balance between preservation of starting capital and returns. One of extreme you could bet the entirety of your account on one trade, which would maximize your returns if you win, but leave you unable to further invest if you lose. On the other extreme, you could bet the smallest amount of capital possible over the course of several trades to increase the probability that you'll even out to 70% accuracy over time. But this method would be extremely slow. So for your case, investing 40% each time is one way to find an optimal balance between these two extremes. Use this as a rule of thumb though, because your own situation and investing goals may differ from the goal of optimal growth.", "title": "" }, { "docid": "7a3c83dcfcc7f65c371782525e80bd26", "text": "Given what you state you should shop around for an advisor. Think of the time required to pursue your strategies that you list? They already have studied much of what you seek to learn about. Any good investor should understand the basics. This is Canadian based but many of the concepts are universal. Hope you find it helpful. http://www.getsmarteraboutmoney.ca/Pages/default.aspx", "title": "" }, { "docid": "cd0b25899dfe8a0d7965310d6cfc769b", "text": "Playing the markets is simple...always look for the sucker in the room and outsmart him. Of course if you can't tell who that sucker is it's probably you. If the strategy you described could make you rich, cnbc staff would all be billionaires. There are no shortcuts, do your research and decide on a strategy then stick to it in all weather or until you find a better one.", "title": "" }, { "docid": "fe0f1c2a8bf6e4fd44a3cfb97431fc68", "text": "I am a bit at a loss as to how you can read the same book, that inspired Warren Buffet, and take away that trading 600 contracts per month is a way to prosperity. As a fellow engineer I can say with assurance this speculation scheme is doomed to failure. Crossing out the word gamble was a mistake. Instead you should focus on two things. The first is your core business, which is signal processing. Work and strive to be the best you can. Seek out opportunities to increase your income while keeping your costs low. As an engineer you have an opportunity to earn an above average salary with very low costs. Second would be to warehouse some of those earning and let others who are good at other things work for you. You may want to read the Jack Bogle books and seek an asset allocation model. I tend to be more aggressive then he would suggest, but that is a matter of preference. You don't really have the time, when you focus on your core business, to manage 6 trades a month let alone 600. Put your contributions on auto pilot and a surprisingly short time you will have a pile of cash.", "title": "" }, { "docid": "57296981569f8b7f4358c2884380af9a", "text": "\"The first article you link clearly refers to Warren Buffet and doesn't, in regard to taxes, refer in any way to Berkshire Hathaway. The second article you link is titled, \"\"Ways Professional Traders Can Save Big At Tax Time.\"\" Berkshire Hathaway is not a firm primarily engaged in trading. It is engaged in investing in companies that it feels offer long-term growth and appreciation. In some cases, their investment is in the entire company; in others, a very large percentage of its total capitalization. Trading, on the other hand, involves buying stocks, bonds, futures, etc. for near-term resale, ideally at a profit. Stock speculation is a risky and complex occupation because the direction of the markets are generally unpredictable and lack transparency. As has been mentioned above, we are confident that Berkshire Hathaway use every technique at its disposal to reduce its tax burden. I am confident, as well, that they spend considerable effort and expense to be certain that they are never discovered making errors in their tax returns.\"", "title": "" }, { "docid": "ed94c996ea2eda52c332ab82b4541cd4", "text": "I really like Value Investing by Bruce Greenwald. It's not a textbook so you can probably pick it up for about $20. While it is dense, I think with some patience you might be able to understand it at the undergrad level. The process outlined in the VI book is very different from the conventional corp finance way of valuing a company. A typical corp finance model would probably have you model cash flows 5 or 10 years out and then assume some sort of terminal growth. The VI book argues that it's nearly impossible to predict things that far out accurately so build your valuation on what we know. Start with the balance sheet. Then look at this year's earnings. Is that sustainable? This is a simplification of course but I describe it only so you can get the idea. I think it's definitely a worthwhile read.", "title": "" } ]	fiqa
1e317f9c9d9fa8f3634398e8a48737fd	What low-fee & liquid exchange-traded index funds / ETFs should I consider holding in a retirement portfolio?	[ { "docid": "7034b1830c9bba00e0fa8ff154ab84d5", "text": "\"Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. \"\"US-LC\"\" is large cap, MC is mid cap, SC is small cap. \"\"Intl-Dev\"\" is international stocks from developed economies, \"\"Emer\"\" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals.\"", "title": "" }, { "docid": "a3b870bb13360f8f4603071e8bca3010", "text": "I use the following allocation in my retirement portfolio: I prefer these because: Expense Ratios Oh, and by their very definition, ETFs are very liquid. EDIT: The remaining 10% is the speculative portion of my portfolio. Currently, I own shares in HAP (as a hedge against rising commodity prices) and TIP (as a hedge against hyperinflation).", "title": "" }, { "docid": "9156e491f4e2121b8b45b776294c2bea", "text": "@bstpierre gave you an example of a portfolio similar to IFA's 70 portfolio. Please, look other variants of example portfolios there and investigate which would suit to you. Although the example portfolios are not ETF-based, required by the op, you can rather easily check corresponding components with this tool here. Before deciding your portfolio, fire up a spreadsheet (samples here) and do calculations and do not underestimate things below: Bogleheads have already answered this type of questions so why not look there? Less reinventing the wheel: google retirement portfolios site:bogleheads.org. I am not making any recommendations like other replies because financial recommendations devalue. I hope I steered you to the right track, use less time to pick individual funds or stocks and use more time to do your research.", "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": "ad3f4ad517e76e988202279128dd35d6", "text": "In your case, you could very well leave it in something like FFFFX, which for readers is a self balancing fund with a target retirement date of 2040. These funds are a conglomeration of other funds that tend to move more conservatively as time passes. However, I like to put no more than 10% of my portfolio in one fund with exceptions made for balances less than 20K. So If I had 18K it really wouldn't matter if it was in FUSEX a S&P 500 index fund. However by investing in FFFFX you pretty much meet that requirement. So you are golden if that fund meets your goals. For me, I kind of hate bonds and despite being of similar age, I have almost no money invested in bonds.", "title": "" }, { "docid": "710dc43da017a9d1b5c67adf4f498817", "text": "Assuming this'll be a taxable account and you're an above-average wage earner, the following seem to be biggest factors in your decision: tax-advantaged income w/o retirement account protection - so I'd pick a stock/stocks or fund that's designed to minimize earnings taxable at income and/or short-term gains rates (e.g. dividends) declining risk profile - make sure you periodically tweak your investment mix over the 2-3 year period to reduce your risk exposure. You want to be near savings account risk levels by the end of your timeline. But make sure you keep #1 in mind - so probably don't adjust (by selling) anything until you've hit the 1-year holding mark to get the long-term capital gains rates. In addition to tax-sensitive stock & bond funds at the major brokerages like Fidelity, I'd specifically look at tax-free municipal bond funds (targeted for your state of residence) since those generally pay better than savings on after tax basis for little increase in risk (assuming you stick w/ higher-rated municipalities).", "title": "" }, { "docid": "21644dc58ac157d153254c1422b6763b", "text": "I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.", "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": "620dadd69f63a02ed5ff14e985f37356", "text": "There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.", "title": "" }, { "docid": "fa5d7fc90781b75afd3e03ba8cc686cb", "text": "\"There are a lot of funds that exist only to feed people's belief that existing funds are not diversified or specialized enough. That's why you have so many options. Just choose the ones with the lowest fees. I'd suggest the following: I wouldn't mess around with funds that try and specialize in \"\"value\"\" or those target date funds. If you really don't want to think and don't mind paying slightly higher fees, just pick the target date fund that corresponds to when you will retire and put all your money there. On the traditional/Roth question, if your tax bracket will be higher when you retire than it is now (unlikely), choose Roth. Otherwise choose traditional.\"", "title": "" }, { "docid": "07f7202017432ca3558e5ec9494595bc", "text": "Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings. Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough.", "title": "" }, { "docid": "b8bc5ac6fc7eafb3ec03c29d82e651ec", "text": "\"The London Stock Exchange offers a wealth of exchange traded products whose variety matches those offered in the US. Here is a link to a list of exchange traded products listed on the LSE. The link will take you to the list of Vanguard offerings. To view those offered by other managers, click on the letter choices at the top of the page. For example, to view the iShares offerings, click on \"\"I\"\". In the case of Vanguard, the LSE listed S&P500 ETF is traded under the code VUSA. Similarly, the Vanguard All World ETF trades under the code VWRL. You will need to be patient viewing iShares offerings since there are over ten pages of them, and their description is given by the abbreviation \"\"ISH name\"\". Almost all of these funds are traded in GBP. Some offer both currency hedged and currency unhedged versions. Obviously, with the unhedged version you are taking on additional currency risk, so if you wish to avoid currency risk then choose a currency hedged version. Vanguard does not appear to offer currency hedged products in London while iShares does. Here is a list of iShares currency hedged products. As you can see, the S&P500 currency hedged trades under the code IGUS while the unhedged version trades under the code IUSA. The effects of BREXIT on UK markets and currency are a matter of opinion and difficult to quantify currently. The doom and gloom warnings of some do not appear to have materialised, however the potential for near-term volatility remains so longs as the exit agreement is not formalised. In the long-term, I personally believe that BREXIT will, on balance, be a positive for the UK, but that is just my opinion.\"", "title": "" }, { "docid": "39039f0f18b9a5f0ebc766f87a502934", "text": "In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds. I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.", "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": "bf11a18f0b61c31cae4772b7d6a1112e", "text": "Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)...", "title": "" }, { "docid": "b676d3564243694c56c2b6b740d1dbc1", "text": "Loads of financial advisors advise holding index funds they may advise other things as well, but low fee index funds are a staple portfolio item. I can't speak to the particulars of Canada, but in the US you would just open a brokerage account (or IRA or SEP IRA in the case of a small business owner) and buy a low cost S&P index ETF or low/no fee/commission S&P index mutual fund. There's no magic to it. Some examples in no particular order are, Vanguard's VOO, Schwab's SWPPX, and iShares' IVV. There are also Canadian index equities like Vanguard's VCN and iShare's XIC.", "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": "e6cc30e76ef9235e52b2a547dac32a3a", "text": "Considering the combined accounts you're contributing $100 per month and they want $100 per year to administer them... that's 8.3% of your contributions gone to fees each year. To me, that's a definite no. Without getting in to bad mouthing the adviser for even making the suggestion, the scale of your account doesn't warrant a fee that high. Fees are very meaningful to the little fish investors. There are LOADS of IRA account providers. With that level of competition, there are several that have very reasonable account minimums, no annual maintenance fees, and a suite of no fee, no load, no commission, low expense ratio funds to choose from. Schwab, Fidelity and Vanguard come to mind. I know Schwab is running a big ad campaign right now as it's reduced some of it's already low expense ratios. If I were you, yes I would move the account because you can even get rid of the $10/year/account fee. But, no, I would not move it to a higher fee situation. In my opinion on a $3,600 account + $1,200 per year in contributions, you don't need advise. You need a good broad market low fee index fund, and enough discipline to understand that retirement is 25 years away so you keep contributing even when news is bad and the market is going down. In 10 years maybe talk to an adviser. Using the S&P500 index daily close historical data from calendar year 2016, considering first of the month monthly deposits and a starting balance of $3,600, you would come out at the end of the year with about $5,294. That's $494 in gain on your total contributions of $4,800. They'd take $100, that's about 20% of your gain. Compared to a no fee account with a reasonable expense ratio of 0.1% the fee would be just $5.30. Bearing in mind also that your $100 per year account will probably be invested in funds that also have an expense ratio fee structure further zapping gains. Further, you lose the compounding effect of the $100 fee over time which adds up to a significant of retirement funds considering a 25 year period. If all you did was put that $100 fee in to a 1% savings account each year for 25 years you'd end up with $2,850. (Considering the average 7% return of the S&P you'd have $6,964 on just your $100 per year fees) This is why you should be so vigilant about fees.", "title": "" }, { "docid": "e72405e4b94676de0eaf1aac18d330f2", "text": "In my IRA I try to find stocks that are in growing sectors but have are undervalued by traditional metrics like PE or book value; I make sure that they have lower debt levels than their peers, are profitable, and at least have comparable margins. I started trading options to make better returns off of indices or etfs. It seems overlooked but it's pretty good, in another thread I was telling someone about my strategy buy applying it to thier portfolio: https://www.reddit.com/r/options/comments/77bt17/ive_been_trading_stocks_for_a_year_and_am/dolydu8/?context=3 I double checked, I told him/her I would buy the DIA Jan 19 2018 call 225 for 795. 8 days later it's trading for 1085. Nearly 50% in a week. It'll never be 300% earnings returns, but I'm happy to take it slow. Shorting is a very different animal it takes a lot to get things right.", "title": "" } ]	fiqa
93614c5b20de1d99e92f1b3a1b9b5a46	Can I make my savings keep in check with or beat inflation over a long time period via index funds?	[ { "docid": "5a29bc0855b978c898d15c36416dee48", "text": "\"Question 2 Some financial institutions can provide a way to invest small amounts with low or no cost fees over a period of time (like monthly, weekly, etc). For instance, a few brokerages have a way to buy specific ETFs for no cost (outside of the total expense ratio). Question 3 When someone says that investing is like buying a lottery ticket, they are comparing an event that almost always has at least a 99.9% of no return (large winnings) to an event that has much better odds. Even if I randomly pick a stock in the S&P 500 and solely invest in it, over the course of a given year, I do not face a 99.9% chance of losing everything. So comparing the stock market to a lottery, unless a specific lottery has much better odds (keep in mind that some of these jackpots have a 99.9999999% of no return) is not the same. Unfortunately, nothing truly safe exists - risk may mutate, but it's always present; instead, the probability of something being safe and (or) generating a return may be true for a given period of time, while in another given period of time, may become untrue. One may argue that holding cash is safer than buying an index fund (or stock, ETF, mutual fund, etc), and financially that may be true over a given period of time (for instance, the USD beat the SPY for the year of 2008). Benjamin Franklin, per a biography I'm reading, argued that the stock market was superior to gold (from the context, it sounds like the cash of his day) because of what the stock market represents: essentially you're betting on the economic output of workers. It's like saying, in an example using oil, that I believe that even though oil becomes a rare resource in the long run, human workers will find an alternative to oil and will lead to better living standards for all of us. Do civilizations like the Mongolian, Roman, and Ottoman empires collapse? Yes, and would holding the market in those days fail? Yes. But cash and gold might be useless too because we would still need someone to exchange goods with and we would need to have the correct resources to do so (if everyone in a city owns gold, gold has little value). The only \"\"safe bet\"\" in those days would be farming skill, land, crops and (or) livestock because even without trading, one could still provide some basic necessities.\"", "title": "" }, { "docid": "bdecabad1507da5146b2ddd2c4d34e6a", "text": "\"While nothing is guaranteed - any stock market or country could collapse tomorrow - if you have a fairly long window (15+ years is certainly long), ETFs are likely to earn you well above inflation. Looking at long term ETFs, you typically see close to 10% annual growth over almost any ten year period in the US, and while I don't know European indexes, they're probably well above inflation at least. The downside of ETFs is that your money is somewhat less liquid than in a savings account, and any given year you might not earn anything - you easily could lose money in a particular year. As such, you shouldn't have money in ETFs that you expect to use in the next few months or year or even a few years, perhaps. But as long as you're willing to play the long game - ie, invest in ETF, don't touch it for 15 years except to reinvest the dividends - as long as you go with someone like Vanguard, and use a very low expense ratio fund (mine are 0.06% and 0.10%, I believe), you are likely in the long term to come out ahead. You can diversify your holdings - hold 10% to 20% in bond funds, for example - if you're concerned about risk; look at how some of the \"\"Target\"\" retirement funds allocate their investments to see how diversification can work [Target retirement funds assume high risk tolerance far out and then as the age grows the risk tolerance drops; don't invest in them, but it can be a good example of how to do it.] All of this does require a tolerance of risk, though, and you have to be able to not touch your funds even if they go down - studies have repeatedly shown that trying to time the market is a net loss for most people, and the best thing you can do when your (diverse) investments go down is stay neutral (talking about large funds here and not individual stocks). I think this answers 3 and 4. For 1, share price AND quantity matter (assuming no splits). This depends somewhat on the fund; but at minimum, funds must dividend to you what they receive as dividends. There are Dividend focused ETFs, which are an interesting topic in themselves; but a regular ETF doesn't usually have all that large of dividends. For more information, investopedia has an article on the subject. Note that there are also capital gains distributions, which are typically distributed to help offset capital gains taxes that may occur from time to time with an ETF. Those aren't really returns - you may have to hand most or all over to the IRS - so don't consider distributions the same way. The share price tracks the total net asset value of the fund divided by the number of shares (roughly, assuming no supply/demand split). This should go up as the stocks the ETF owns go up; overall, this is (for non-dividend ETFs) more often the larger volatility both up and down. For Vanguard's S&P500 ETF which you can see here, there were about $3.50 in dividends over 2014, which works out to about a 2% return ($185-$190 share price). On the other hand, the share price went from around $168 at the beginning of 2014 to $190 at the end of 2014, for a return of 13%. That was during a 'good' year for the market, of course; there will be years where you get 2-3% in dividends and lose money; in 2011 it opened at 116 and closed the year at 115 (I don't have the dividend for that year; certainly lower than 3.5% I'd think, but likely nonzero.) The one caveat here is that you do have stock splits, where they cut the price (say) in half and give you double the shares. That of course is revenue neutral - you have the same value the day after the split as before, net of market movements. All of this is good from a tax point of view, by the way; changes in price don't hit you until you sell the stock/fund (unless the fund has some capital gains), while dividends and distributions do. ETFs are seen as 'tax-friendly' for this reason. For 2, Vanguard is pretty good about this (in the US); I wouldn't necessarily invest monthly, but quarterly shouldn't be a problem. Just pay attention to the fees and figure out what the optimal frequency is (ie, assuming 10% return, what is your break even point). You would want to have some liquid assets anyway, so allow that liquid amount to rise over the quarter, then invest what you don't immediately see a need to use. You can see here Vanguard in the US has no fees for buying shares, but has a minimum of one share; so if you're buying their S&P500 (VOO), you'd need to wait until you had $200 or so to invest in order to invest additional funds.\"", "title": "" }, { "docid": "94307b9b712f8bbbbda71d1a4df93e87", "text": "\"If I invest in index funds or other long term stocks that pay dividend which I reinvest, they don't need to be worth more per share for me to make a profit, right? That is, if I sell part of the stocks, it's GOOD if they're worth more than I bought them at, but the real money comes from the QUANTITY of stocks that you get by reinvesting your dividends, right? I would say it is more the other way around. It is nice to get dividends and reinvest them, but overall the main gain comes from the stocks going up in value. The idea with index funds, however, is that you don't rely on any particular stock going up in value; instead you just rely on the aggregate of all the funds in the index going up. By buying lots of stocks bundled in an index fund, you avoid being too reliant on any one company's performance. Can I invest \"\"small amounts\"\" (part of paycheck) into index funds on a monthly basis, like €500, without taking major \"\"transaction fees\"\"? (Likely to be index fund specific... general answers or specific answers using popular stocks welcomed). Yes, you can. At least in the US, whether you can do this automatically from your paycheck depends on whether you employer has that set up. I don't know that work in the Netherlands. However, at the least, you can almost certainly set up an auto-invest program that takes $X out of your bank account every month and buys shares of some index fund(s). Is this plan market-crash proof? My parents keep saying that \"\"Look at 2008 and think about what such a thing would do to your plan\"\", and I just see that it will be a setback, but ultimately irrelevant, unless it happens when I need the money. And even then I'm wondering whether I'll really need ALL of my money in one go. Doesn't the index fund go back up eventually? Does a crash even matter if you plan on holding stocks for 10 or more years? Crashes always matter, because as you say, there's always the possibility that the crash will occur at a time you need the money. In general, it is historically true that the market recovers after crashes, so yes, if you have the financial and psychological fortitude to not pull your money out during the crash, and to ride it out, your net worth will probably go back up after a rough interlude. No one can predict the future, so it's possible for some unprecedented crisis to cause an unprecedented crash. However, the interconnectedness of stock markets and financial systems around the world is now so great that, were such a no-return crash to occur, it would probably be accompanied by the total collapse of the whole economic system. In other words, if the stock market dies suddenly once and for all, the entire way of life of \"\"developed countries\"\" will probably die with it. As long as you live in such a society, you can't really avoid \"\"gambling\"\" that it will continue to exist, so gambling on there not being a cataclysmic market crash isn't much more of a gamble. Does what I'm planning have similarities with some financial concept or product (to allow me to research better by looking at the risks of that concept/product)? Maybe like a mortgage investment plan without the bank eating your money in between? I'm not sure what you mean by \"\"what you're planning\"\". The main financial products relevant to what you're describing are index funds (which you already mentioned) and index ETFs (which are basically similar with regard to the questions you're asking here). As far as concepts, the philosophy of buying low-fee index funds, holding them for a long time, and not selling during crashes, is essentially that espoused by Jack Bogle (not quite the inventor of the index fund, but more or less its spiritual father) and the community of \"\"Bogleheads\"\" that has formed around his ideas. There is a Bogleheads wiki with lots of information about the details of this approach to investing. If this strategy appeals to you, you may find it useful to read through some of the pages on that site.\"", "title": "" }, { "docid": "4d3205801de3c35d85c8301a61274f73", "text": "For your base question, yes. (Barring some major collapse-of-civilization event, but in that case you're screwed anyway :-)) On the individual points: 1) Depends on whether you choose to invest in index-type funds (where profit is mainly expected from price appreciation), or more value-based investing. But either or a mix of the two (my own choice) should show returns above inflation, over the long term. 2) Yes, in the US anyway. You can invest a few hundred dollars at a time, and (with good companies like Vanguard & T. Rowe Price) there are no transaction fees, either for investing or for redeeming. 3) Long-term, it's crash-proof IF you have the self-discipline not to panic-sell at market lows. In my case, my total fund valuation dropped around 40% in '08. I didn't sell anything (and in fact tried to cut spending and invest more), and now I have nearly double what I had before the crash. Bottom line is that it has worked for me. After ~30 years of investing this way without being fanatic about it, I have enough that I could live moderately without working for the rest of my life. Not - and this is where I part company with MMM and most of the FIRE community - that I'd ever want to actually retire. But my modest financial independence gives me the freedom to work at things I like, rather than because I'm worrying about paying bills.", "title": "" }, { "docid": "5d7be5ad5ea9d477522e1a2195170154", "text": "See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation. Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall.", "title": "" } ]	[ { "docid": "9b623806469e53a124e6f2579b2670c9", "text": "Inflation will hurt your landlord, but it won't hurt you. In either case, you have to pay 7200, regardless of how much inflation has increased over two years. However, they are not equivalent to you. If you take the monthly payment, then you can potentially come out ahead. If you were to take the 7200 and put it in a savings account and just pay monthly then you'll be earning interest that you wouldn't get if you paid up front. There's a whole lot of other investment options you could go with too, but that's another question. The risk here is that if you go through financial hardship you may be tempted to draw on that 7200 early and come up short for rent one month.", "title": "" }, { "docid": "d89efd7c14f49294e3d93638139433ed", "text": "\"short answer: any long term financial planning (~10yrs+). e.g. mortgage and retirement planning. long answer: inflation doesn't really matter in short time frames. on any given day, you might get a rent hike, or a raise, or the grocery store might have a sale. inflation is really only relevant over the long term. annual inflation is tiny (2~4%) compared to large unexpected expenses(5-10%). however, over 10 years, even your \"\"large unexpected expenses\"\" will still average out to a small fraction of your spending (5~10%) compared to the impact of compounded inflation (30~40%). inflation is really critical when you are trying to plan for retirement, which you should start doing when you get your first job. when making long-term projections, you need to consider not only your expected nominal rate of investment return (e.g. 7%) but also subtract the expected rate of inflation (e.g. 3%). alternatively, you can add the inflation rate to your projected spending (being sure to compound year-over-year). when projecting your income 10+ years out, you can use inflation to estimate your annual raises. up to age 30, people tend to get raises that exceed inflation. thereafter, they tend to track inflation. if you ever decide to buy a house, you need to consider the impact of inflation when calculating the total cost over a 30-yr mortgage. generally, you can expect your house to appreciate over 30 years in line with inflation (possibly more in an urban area). so a simple mortgage projection needs to account for interest, inflation, maintenance, insurance and closing costs. you could also consider inflation for things like rent and income, but only over several years. generally, rent and income are such large amounts of money it is worth your time to research specific alternatives rather than just guessing what market rates are this year based on average inflation. while it is true that rent and wages go up in line with inflation in the long run, you can make a lot of money in the short run if you keep an eye on market rates every year. over 10-20 years your personal rate of inflation should be very close to the average rate when you consider all your spending (housing, food, energy, clothing, etc.).\"", "title": "" }, { "docid": "c0ae68ed525f07cf53970454159f26a8", "text": "More importantly, index funds are denominated in specific currencies. You can't buy or sell an index, so it can be dimensionless. Anything you actually do to track the index involves real amounts of real money.", "title": "" }, { "docid": "f43a0b7b433e2b4d389c13d44e373ed1", "text": "\"Yes... but it is a matter of balancing risks. It is wiser to keep a small amount of \"\"ready cash\"\" as an emergency/buffer -- and to suffer the gradual loss to inflation... Than it is risk becoming \"\"stuck\"\" in an emergency with zero dollars in any (low or no cost) source of funds -- those kinds of \"\"emergencies\"\" ($500 or $1,000 \"\"unexpected/unbudgeted\"\" expenses) are fairly frequent and virtually inevitable. You lose vastly MORE money when you are forced to borrow those amounts (interest -- even low-rate loans -- is virtually always higher than the average inflation rate).\"", "title": "" }, { "docid": "be6485d1e027582bd54cfed4272ca86a", "text": "\"Hope springs eternal in the human breast. No actively managed fund has beaten the indices over a long period of time, but over shorter periods, actively managed funds have beaten the indices quite often, sometimes quite spectacularly, and sometimes even for many years in a row. Examples from the past include Fidelity Magellan and Legg Mason Value Trust. So people buy actively managed funds hoping to cash in on such good performance. The difficulty is, of course, that many people don't even think about investing in a fund until it is listed in some \"\"Top Forty Funds of last year\"\" compilation, and for many funds, they have already peaked, and new buyers are often disappointed. Some people who invested earlier plan on getting out of the fund before the fund falls flat on its face, and fewer even succeed in doing so. As to why 401k plans often have high-cost actively managed funds, there are several reasons. A most important one is that there are numerous companies that act as administrators of 401k programs and these companies put together package deals of 401k programs (funds, administrative costs etc), and small employers perforce have to choose from one of these packages. Second, there are various rules that have come into existence since the first days of 401k (and 403b) programs such as the investment choices must include funds of different types, and actively managed funds (large cap, small cap etc) are one of the choices that must be offered. Gone are the days when the only choice was a variable annuity offered by the insurance company administering the 401k program. Finally, program participants also have hopes (cf. opening sentence) and used to demand that the 401k program offer a few actively managed funds, not just index funds.\"", "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": "7c1e38777f47d8af6a0319a751443f2a", "text": "If you're worried about investing all at once, you can deploy your starting chunk of cash gradually by investing a bit of it each month, quarter, etc. (dollar-cost averaging). The financial merits and demerits of this have been debated, but it is unlikely to lose you a lot of money, and if it has the psychological benefit of inducing you to invest, it can be worth it even if it results in slightly less-than-optimal gains. More generally, you are right with what you say at the end of your question: in the long run, when you start won't matter, as long as you continue to invest regularly. The Boglehead-style index-fund-based theory is basically that, yes, you might save money by investing at certain times, but in practice it's almost impossible to know when those times are, so the better choice is to just keep investing no matter what. If you do this, you will eventually invest at high and low points, so the ups and downs will be moderated. Also, note that from this perspective, your example of investing in 2007 is incorrect. It's true that a person who put money in 2007, and then sat back and did nothing, would have barely broken even by now. But a person who started to invest in 2007, and continued to invest throughout the economic downturn, would in fact reap substantial rewards due to continued investing throughout the post-2007 lows. (Happily, I speak from experience on this point!)", "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": "301bfdde2a9a2b9e9e1161c2eb7aba16", "text": "You can't both enforce saving and have access to the money -- from what you say, it's clear that if you can access the money you will spend it. Can you find an account that allows one withdrawal every six months but no more, which should help to cut down on the impulse buys but still let you get at your money in an emergency?", "title": "" }, { "docid": "7031661473e400ff4da42629ccfcd65c", "text": "My suggestion is that you speak with a financial adviser that specializes in Islamic investing. For the long term there are Islam approved mutual funds that only invest in non-banking organizations, and I would assume there are more conservative options for the short term as well (3-4 years). Although you may not feel the effects of inflation all that much in just a few years, it would still be beneficial to utilize programs that allow you to earn a return on your money. (I may not have said that for $2,500 but for $25,000 I think it's worth looking into.) Also, some scholars suggest that it is even allowed to invest in mutual funds that deal with banks, as long as you calculate the portion of your return that came from the bank charging interest, and donate that amount to charity.", "title": "" }, { "docid": "14a9111f0d41690460427ab8a1cace5d", "text": "In a word, yes. You can buy very low cost index ETFs, like VTI, VEA, BND, FBND and rebalance in proportion to your age and risk tolerance. Minimal management and low cost.", "title": "" }, { "docid": "fa327188e0f66a6892b1eb4a93527697", "text": "Yes, in 2 ways: As you mention, the price of a home generally grows with inflation - along with other factors (supply and demand in local markets, etc.). Through financing. If you finance 80% of your purchase today, in 2014 dollars, you will pay back in future dollars. Those future dollars are worth less, because of inflation.", "title": "" }, { "docid": "189960f9f192a13e5477662a6ef48f0f", "text": "\"There are no guarantees in the stock market. The index fund can send you a prospectus which shows what their results have been over the past decade or so, or you can find that info on line, but \"\"past results are not a guarantee of future performance\"\". Returns and risk generally trade off against each other; trying for higher than average results requires accepting higher than usual risk, and you need to decide which types of investments, in what mix, balance those in a way you are comfortable with. Reinvested dividends are exactly the same concept as compounded interest in a bank account. That is, you get the chance to earn interest on the interest, and then interest on the interest on the interest; it's a (slow) exponential growth curve, not just linear. Note that this applies to any reinvestment of gains, not just automatic reinvestment back into the same fund -- but automatic reinvestment is very convenient as a default. This is separate from increase in value due to growth in value of the companies. Yes, you will get a yearly report with the results, including the numbers needed for your tax return. You will owe income tax on any dividends or sales of shares. Unless the fund is inside a 401k or IRA, it's just normal property and you can sell or buy shares at any time and in any amount. Of course the advantage of investing through those special retirement accounts is advantageous tax treatment, which is why they have penalties if you use the money before retirement. Re predicting results: Guesswork and rule of thumb and hope that past trends continue a bit longer. Really the right answer is not to try to predict precise numbers, but to make a moderately conservative guess, hope you do at least that well, and be delighted if you do better... And to understand that you can lose value, and that losses often correct themselves if you can avoid having to sell until prices have recovered. You can, of course, compute historical results exactly, since you know how much you put in when, how much you took out when, and how much is in the account now. You can either look at how rate of return varied over time, or just compute an average rate of return; both approaches can be useful when trying to compare one fund against another... I get an approximate version of this reported by my financial management software, but mostly ignore it except for amusement and to reassure myself that things are behaving approximately as expected. (As long as I'm outperforming what I need to hit my retirement goals, I'm happy enough and unwilling to spend much more time on it... and my plans were based on fairly conservative assumptions.) If you invest $3k, it grows at whatever rate it grows, and ten years later you have $3k+X. If you then invest another $10k, you now have $3k+X+10k, all of which grows at whatever rate the fund now grows. When you go to sell shares or fractional shares, your profit has to be calculated based on when those specific shares were purchased and how much you paid for them versus when they were sold and how much you sold them for; this is a more annoying bit of record keeping and accounting than just reporting bank account interest, but many/most brokerages and investment banks will now do that work for you and report it at the end of the year for your taxes, as I mentioned.\"", "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": "71e838510d0785a6725222dbb1868b00", "text": "Store cards also tend to have a fairly low credit limit so depending on how much money you spend on the card, your credit utilisation might be a lot higher than desirable.", "title": "" } ]	fiqa
fcf535d8291b5a4dff6958a84162396e	What's the difference between buying bonds and buying bond funds for the long-term?	[ { "docid": "ce6a9019ce22a1ff13282f68d93ca6f4", "text": "\"A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what \"\"people\"\" are willing to pay for them. Those \"\"people\"\" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka \"\"Don't fight the Fed\"\"). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent.\"", "title": "" }, { "docid": "ccaa2d226cb5adbec4f42d377dedfa7a", "text": "Yes, bond funds are marked to market, so they will decline as the composition of their holdings will. Households actually have unimpressive relative levels of credit to equity holdings. The reason why is because there is little return on credit, making it irrational to hold any amount greater than to fund future liquidity needs, risk adjusted and time discounted. The vast majority of credit is held by insurance companies. Pension funds have large stakes as well. Banks hold even fewer bonds since they try to sell them as soon as they've made them. Insurance companies are forced to hold a large percentage of their floats in credit then preferred equity. While this dulls their returns, it's not a large problem for them because they typically hold bonds until maturity. Only the ones who misprice the risk of insurance will have to sell at unfavorable prices. Being able to predict interest rates thus bond prices accurately would make one the best bond manager in the world. While it does look like inflation will rise again soon just as it has during every other US expansion, can it be assured when commodity prices are high in real terms and look like they may be in a collapse? The banking industry would have to produce credit at a much higher rate to counter the deflation of all physical goods. Households typically shun assets at low prices to pursue others at high prices, so their holdings of bonds ETFs should be expected to decline during a bond collapse. If insurance companies find it less costly to hold ETFs then they will contribute to an increase in bond ETF supply.", "title": "" }, { "docid": "7752f67b871bc3bc345990de3f5221fa", "text": "why would anyone buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? 1) You are making the assumption that interest rates has bottom out hence there is no further possibility of it going down further , i mean who expected Lehman Brother to go bankrupt 2) Long term investors who are able to wait for the bad times of the bond market to end and in the mean time dont mind some dividend payment of 2-3%", "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": "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": "9925f51cfc0dc10df8dbc5d97d0bb110", "text": "\"The bond funds should tell you their duration. My 401(k) has similar choices, and right now, I'm at the short maturity, i.e. under 1 year. The current return is awful, but better than the drop the longer term funds will experience as rates come back up. Not quite mathematically correct, but close enough, \"\"duration\"\" gives you the time-weighted average maturity in a way that tells you how the value responds to a rate change. If a fund has a 10 year duration, a .1% rate rise will cause the fund value to drop 1.0%.\"", "title": "" }, { "docid": "9194142cb6b4c2f6092eb59362dd0019", "text": "\"Here are my reasons as to why bonds are considered to be a reasonable investment. While it is true that, on average over a sufficiently long period of time, stocks do have a high expected return, it is important to realize that bonds are a different type of financial instrument that stocks, and have features that are attractive to certain types of investors. The purpose of buying bonds is to convert a lump sum of currency into a series of future cash flows. This is in and of itself valuable to the issuer because they would prefer to have the lump sum today, rather than at some point in the future. So we generally don't say that we've \"\"lost\"\" the money, we say that we are purchasing a series of future payments, and we would only do this if it were more valuable to us than having the money in hand. Unlike stocks, where you are compensated with dividends and equity to take on the risks and rewards of ownership, and unlike a savings account (which is much different that a bond), where you are only being paid interest for the time value of your money while the bank lends it out at their risk, when you buy a bond you are putting your money at risk in order to provide financing to the issuer. It is also important to realize that there is a much higher risk that stocks will lose value, and you have to compare the risk-adjusted return, and not the nominal return, for stocks to the risk-adjusted return for bonds, since with investment-grade bonds there is generally a very low risk of default. While the returns being offered may not seem attractive to you individually, it is not reasonable to say that the returns offered by the issuer are insufficient in general, because both when the bonds are issued and then subsequently traded on a secondary market (which is done fairly easily), they function as a market. That is to say that sellers always want a higher price (resulting in a lower return), and buyers always want to receive a higher return (requiring a lower price). So while some sellers and buyers will be able to agree on a mutually acceptable price (such that a transaction occurs), there will almost always be some buyers and sellers who also do not enter into transactions because they are demanding a lower/higher price. The fact that a market exists indicates that enough investors are willing to accept the returns that are being offered by sellers. Bonds can be helpful in that as a class of assets, they are less risky than stocks. Additionally, bonds are paid back to investors ahead of equity, so in the case of a failing company or public entity, bondholders may be paid even if stockholders lose all their money. As a result, bonds can be a preferred way to make money on a company or government entity that is able to pay its bills, but has trouble generating any profits. Some investors have specific reasons why they may prefer a lower risk over time to maximizing their returns. For example, a government or pension fund or a university may be aware of financial payments that they will be required to make in a particular year in the future, and may purchase bonds that mature in that year. They may not be willing to take the risk that in that year, the stock market will fall, which could force them to reduce their principal to make the payments. Other individual investors may be close to a significant life event that can be predicted, such as college or retirement, and may not want to take on the risk of stocks. In the case of very large investors such as national governments, they are often looking for capital preservation to hedge against inflation and forex risk, rather than to \"\"make money\"\". Additionally, it is important to remember that until relatively recently in the developed world, and still to this day in many developing countries, people have been willing to pay banks and financial institutions to hold their money, and in the context of the global bond market, there are many people around the world who are willing to buy bonds and receive a very low rate of return on T-Bills, for example, because they are considered a very safe investment due to the creditworthiness of the USA, as well as the stability of the dollar, especially if inflation is very high in the investor's home country. For example, I once lived in an African country where inflation was 60-80% per year. This means if I had $100 today, I could buy $100 worth of goods, but by next year, I might need $160 to buy the same goods I could buy for $100 today. So you can see why simply being able to preserve the value of my money in a bond denominated in USA currency would be valuable in that case, because the alternative is so bad. So not all bondholders want to be owners or make as much money as possible, some just want a safe place to put their money. Also, it is true for both stocks and bonds that you are trading a lump sum of money today for payments over time, although for stocks this is a different kind of payment (dividends), and you only get paid if the company makes money. This is not specific to bonds. In most other cases when a stock price appreciates, this is to reflect new information not previously known, or earnings retained by the company rather than paid out as dividends. Most of the financial instruments where you can \"\"make\"\" money immediately are speculative, where two people are betting against each other, and one has to lose money for the other to make money. Again, it's not reasonable to say that any type of financial instrument is the \"\"worst\"\". They function differently, serve different purposes, and have different features that may or may not fit your needs and preferences. You seem to be saying that you simply don't find bond returns high enough to be attractive to you. That may be true, since different people have different investment objectives, risk tolerance, and preference for having money now versus more money later. However, some of your statements don't seem to be supported by facts. For example, retail banks are not highly profitable as an industry, so they are not making thousands of times what they are paying you. They also need to pay all of their operating expenses, as well as account for default risk and inflation, out of the different between what they lend and what they pay to savings account holders. Also, it's not reasonable to say that bonds are worthless, as I've explained. The world disagrees with you. If they agreed with you, they would stop buying bonds, and the people who need financing would have to lower bond prices until people became interested again. That is part of how markets work. In fact, much of the reason that bond yields are so low right now is that there has been such high global demand for safe investments like bonds, especially from other nations, such that bond issues (especially the US government) have not needed to pay high yields in order to raise money.\"", "title": "" }, { "docid": "78bcb03dd265259fb20c14f4e05e8ea1", "text": "IMHO bonds are not a good investment at this present time, nor generally. Appreciate for a moment that the yield of an investment is DIRECTLY related to the face/trading value. If a thing (bond/stock) trades for $100 and yields 3%, it pays $3. In the case of a bond, the bond doesn't pay a % amount, it pays a $ amount. Meaning it pays $3. SO, for the yield to rise, what has to happen to the trading price? It has to decrease. As of 2013/14 bonds are trading at historically LOW yields. The logical implication of this is if a bond pays a fixed $ amount, the trading price of the bond has to have increased. So if you buy bonds now, you will see a decrease in its face value over the long term. You may find the first tool I built at Simple Stock Search useful as you research potential investments.", "title": "" }, { "docid": "b01d95f8b94c0c2cbca6f0916c0342b8", "text": "One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.", "title": "" }, { "docid": "3e9716a7dae9d0ef47a03d0a17927d78", "text": "Notes and Bonds sell at par (1.0). When rates go up, their value goes down. When rates go down, their value goes up. As an individual investor, you really don't have any business buying individual bonds unless you are holding them to maturity. Buy a short-duration bond fund or ETF.", "title": "" }, { "docid": "5833ec8d238cc8454f640e2e7dadd266", "text": "It has been hinted at in some other answers, but I want to say it explicitly: Volatility is not risk. Volatility is how much an investment goes up and down, risk is the chance that you will lose money. For example, stocks have relatively high volatility, but the risk that you will lose money over a 40 year period is virtually zero (in particular if you invest in index funds). Bonds, on the other hand, have basically no volatility (their cash flow is totally predictable if you trust the future of your government), but there is a significant risk that they will perform worse than stocks over a longer period. So, volatility equals risk only if you are day trading. A 401(k) is literally the opposite of that. For further reading: Never confuse risk and volatility Also, investing is not gambling. Gambling is bad because the odds are stacked against you. You need more than average luck to actually win and the longer you play, the more you will lose. Investing means buying productive capital that will produce further value. The odds are in your favor. Even if you do a moderately bad job at investing, the longer you stay, the more you will win.", "title": "" }, { "docid": "2aa481ffa2d33951bfdbbab1ebf2c7cb", "text": "Not really. You can have two bonds that have identical duration but vastly different convexity. Pensions and insurance portfolio managers are most common buyers as they're trying to deal with liability matching and high convexity allows them to create a barbell around their projected liabilities.", "title": "" }, { "docid": "a7e82acf77e5091b7bcac9655fad7156", "text": "Often times the commission fees add up a lot. Many times the mundane fluctuations in the stock market on a day to day basis are just white noise, whereas long term investing generally lets you appreciate value based on the market reactions to actual earnings of the company or basket of companies. Day trading often involves leverage as well.", "title": "" }, { "docid": "289135f42bf8602686098991399ef023", "text": "When it comes down to it, long-term investments pay better than short-term ones. If nothing else, there's less administration and less financial risk for the provider. That's why 2, 3 or 5 year savings accounts pay better than instant access ones. Higher-risk investments pay more interest (or dividends) than low-risk ones. They have to, or nobody would invest in them. So by locking yourself out of any long term and/or risky investments, you're stuck with a choice of low-interest short term ones. There are plenty of investment funds that you can sell at short notice if you want to. But they are volatile, and if you cash out at the wrong time, you can get back less than you invested. The way you lower risk is either to invest in a fund that covers a broad range of investments, or invest in several different funds.", "title": "" }, { "docid": "34480337053b524ffb7b54a83e1dde6b", "text": "\"A fund is a portfolio, in that it is a collection, so the term is interchangeable for the most part. Funds are made up of a combination of equities positions (i.e., stocks, bonds, etc.) plus some amount of un-invested cash. Most of the time, when people are talking about a \"\"fund\"\", they are describing what is really an investment strategy. In other words, an example would be a \"\"Far East Agressive\"\" fund (just a made up name for illustration here), which focuses on investment opportunities in the Far East that have a higher level of risk than most other investments, thus they provide better returns for the investors. The \"\"portfolio\"\" part of that is what the stocks are that the fund has purchased and is holding on behalf of its investors. Other funds focus on municipal bonds or government bonds, and the list goes on. I hope this helps. Good luck!\"", "title": "" }, { "docid": "9029326b9e5b19d848a42a55f34439f4", "text": "AAA bonds are safe, as far as the principal goes. If you buy long term bonds today (at very low rates) and the interest rate goes up to 10% in 5 years, the current value of the bonds will decrease. But if you hold the bonds till maturity, you will almost certainly (barring MBS scenarios) get the expected principal and interest on the bonds. If you decide to sell a long-term bond before it matures, it will probably be worth less than you paid for it if interest rates have risen since you bought it.", "title": "" }, { "docid": "e82749a12bb0dc7acbcdae7eb3ee76e6", "text": "\"For most people \"\"home ownership\"\" is a long term lifestyle strategy (i.e. the intention is to own a home for several decades, regardless of how many times one particular house might be \"\"swapped\"\" for a different one. In an economic environment with steady monetary inflation, taking out a long-term loan backed by a tangible non-depreciating \"\"permanent\"\" asset (e.g. real estate) is in practice a form of investing not borrowing, because over time the monetary value of the asset will increase in line with inflation, but the size of the loan remains constant in money terms. That strategy was always at risk in the short term because of temporary falls in house prices, but long-term inflation running at say 5% per year would cancel out even a 20% fall in house prices in 4 years. Downturns in the economy were often correlated with rises in the inflation rate, which fixed the short-term problem even faster. Car and student loans are an essentially different financial proposition, because you know from the start that the asset will not retain its value (unless you are \"\"investing in a vintage car\"\" rather than \"\"buying a means of personal transportation\"\", a new car will lose most of its monetary value within say 5 years) or there is no tangible asset at all (e.g. taking out a student loan, paying for a vacation trip by credit card, etc). The \"\"scariness\"\" over home loans was the widespread realization that the rules of the game had been changed permanently, by the combination of an economic downturn plus national (or even international) financial policies designed to enforce low inflation rates - with the consequence that \"\"being underwater\"\" had been changed from a short term problem to a long-term one.\"", "title": "" }, { "docid": "dda09c7a210d3a3c37bd61c5791be5c3", "text": "First off, I do not recommend buying individual bonds yourself. Instead buy a bond fund (ETF or mutual fund). That way you get some diversification. The risk-reward ratio will be evident in what you find to invest in. Junk bond funds pay the highest rates. Treasury bond funds pay the lowest. So you have to ask yourself how comfortable are you with risk? Buy the funds that pay the highest rate but still let you sleep at night.", "title": "" } ]	fiqa
03438ecae35e565374a74d3f3a60b727	Why do volatility stocks/ETFs (TVIX, VXX, UVXY) trend down in the long-term?	[ { "docid": "75a7793b26cbeb152d35aa6d03be0528", "text": "\"In an attempt to express this complicated fact in lay terms I shall focus exclusively on the most influential factor effecting the seemingly bizarre outcome you have noted, where the price chart of VIX ETFs indicates upwards of a 99% decrease since inception. Other factors include transaction costs and management fees. Some VIX ETFs also provide leveraged returns, describing themselves as \"\"two times VIX\"\" or \"\"three times VIX\"\", etc. Regarding the claim that volatility averages out over time, this is supported by your own chart of the spot VIX index. EDIT It should be noted that (almost) nobody holds VIX ETFs for anything more than a day or two. This will miminise the effects described above. Typical daily volumes of VIX ETFs are in excess of 100% of shares outstanding. In very volatile markets, daily volumes will often exceed 400% of shares outstanding indicating an overwhelming amount of day trading.\"", "title": "" }, { "docid": "366a25a7bc7d14b70d9482bde19c2253", "text": "There is more than a single reason why TVIX loses value over time. Futures curve. VIX is always expected to trend up when under 20(although this could change in the future). This means 1 month away futures contracts are bought at a premium closer to 20. If the .VIX stayed flat at 15, by the end of the month, that contract is only worth about 15. meaning you lost 25%. This affects all VIX ETFs and makes inverse VIX ETFs attractive to hold(if you don't mind your account blowing up periodically). Leverage decay. if VIX goes down 25% two consecutive days, your x2 ETF(TVIX, UVXY) goes down 75%. Even if it doubled back to yesterday's value next day, you'd still be 25% down. ETF funding costs. The fund managers take some money from the pot every day.", "title": "" }, { "docid": "1417779afe385704661db0ac0cd35bc2", "text": "\"Since these indices only try to follow VIX and don't have the underlying constituents (as the constituents don't really exist in most meaningful senses) they will always deviate from the exact numbers but should follow the general pattern. You're right, however, in stating that the graphs that you have presented are substantially different and look like the indices other than VIX are always decreasing. The problem with this analysis is that the basis of your graphs is different; they all start at different dates... We can fix this by putting them all on the same graph: this shows that the funds did broadly follow VIX over the period (5 years) and this also encompasses a time when some of the funds started. The funds do decline faster than VIX from the beginning of 2012 onward and I had a theory for why so I grabbed a graph for that period. My theory was that, since volatility had fallen massively after the throes of the financial crisis there was less money to be made from betting on (investing in?) volatility and so the assets invested in the funds had fallen making them smaller in comparison to their 2011-2012 basis. Here we see that the funds are again closely following VIX until the beginning of 2016 where they again diverged lower as volatility fell, probably again as a result of withdrawals of capital as VIX returns fell. A tighter graph may show this again as the gap seems to be narrowing as people look to bet on volatility due to recent events. So... if the funds are basically following VIX, why has VIX been falling consistently over this time? Increased certainty in the markets and a return to growth (or at least lower negative growth) in most economies, particularly western economies where the majority of market investment occurs, and a reduction in the risk of European countries defaulting, particularly Portugal, Ireland, Greece, and Spain; the \"\"PIGS\"\" countries has resulted in lower volatility and a return to normal(ish) market conditions. In summary the funds are basically following VIX but their values are based on their underlying capital. This underlying capital has been falling as returns on volatility have been falling resulting in their diverging from VIX whilst broadly following it on the new basis.\"", "title": "" } ]	[ { "docid": "bc964ec49166d654ca6c7eb985c40ba0", "text": "\"What exactly do you need explained? Short term returns show \"\"fat tails\"\" in their distribution. Long term returns converge towards a gaussian distribution. The authors think there's a connection between this and the \"\"long memory\"\" of volatility (i.e. that the autocorrelation of absolute volatilities also has a fat tail).\"", "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": "dca3cf0140f34ac6c9cd6621379c2367", "text": "In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees.", "title": "" }, { "docid": "3a1962707304e58f79eb56f2e61454ad", "text": "Significantly less effort to buy into any of several international bond index funds. Off the top of my head, VTIBX.", "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": "45702570cf4f8c92340508182947fbb4", "text": "Options pricing is based on the gap between strike and the current market, and volatility. That's why the VIX, a commonly accepted volatility index, is actually just a weighted blend of S&P 500 future options prices. A general rise in the price of options indicates people don't know whether it will go up or down next, and are therefore less willing to take that risk. But your question is why everything underwater in the puts chain went higher, and that's simple: now that Apple's down, the probability of falling a few more points is higher. Especially since Apple has gone through some recent rough times, and stocks in general are seen as risky these days.", "title": "" }, { "docid": "b1267c56d307614ffae29e2461ade79f", "text": "As the commenters have already indicated, money market mutual funds are not guaranteed to maintain principal during all market conditions, and investments in mutual funds are not insured against loss due to market changes. That said, you can run a price search on Vanguard's website and see these results: So, despite all the economic problems since 1975, VMMXX has never traded at a price other than $1.00.", "title": "" }, { "docid": "a19f398a43626a50fa79e79865611c21", "text": "you very well may know better than me, honestly; but with any volatile investment, it is necessarily hard to predict their intermediate term trends. that would be my only caution to you! if you want speculative positions to hold, you might consider lower priced biopharms (though not pure penny positions). i made a bit of money on CCXI, for example. if you want more engagement/trading activity, consider tech trading or options (my personal favorite).", "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": "dfe42869d03227277ae9575312efd0e8", "text": "Volatility is a shitty metric and is sample dependent, What is more interesting is point recurrence, i.e. how many times has a certain point been touched in x time, you can make good day trading strategies off point recurrence (relative that is).", "title": "" }, { "docid": "37fe0e231579670b8da116d8a164aff4", "text": "great example of levered tracking error is any 2x/3x VIX etf. during periods of high volatility (like last week) you will be able to realize much higher returns on the underlying index as the levered and inverse ETFs are unable to replicate their intended performance using market securities. it is not uncommon to see the VIX up ~30% with levered ETFs only netting ~10-12% as opposed to the intended 60 or 90%, for example", "title": "" }, { "docid": "2c4a6165ef1f2a21b51bb5577e609515", "text": "I would say the real story is less about the implications of low vol but rather what has caused it. IMO that would be: 1) lots of money chasing a handful of investments a) loose monetary policy b) wealth effects from fantastic returns since the GR c) consolidation in various sectors (health, energy, tech) 2) rise of low cost index funds (all inflow go into the large swathes of the market so volatility across stocks is dampened) 3) various externalities of expansionary Fed policy a) resulting low bond yields lead to larger flows into equities b) low cost of debt feeding buybacks c) it has been sustained for so long it has had stabilizing effect i.e. predictability is good for markets and business decision making These factors make for an interesting story because what happens when some component of this system begins to show cracks? What happens when this low vol feedback loop ceases? Nobody knows. But it will not continue ad infinitum. Not all doom and gloom but it won't be the market we are used to today.", "title": "" }, { "docid": "1bd71d2b21416caa623fa525043c3812", "text": "That's not 100% correct, as some leveraged vehicles choose to re-balance on a monthly basis making them less risky (but still risky). If I'm not mistaken the former oil ETN 'DXO' was a monthly re-balance before it was shut down by the 'man' Monthly leveraged vehicles will still suffer slippage, not saying they won't. But instead of re-balancing 250 times per year, they do it 12 times. In my book less iterations equals less decay. Basically you'll bleed, just not as much. I'd only swing trade something like this in a retirement account where I'd be prohibited from trading options. Seems like you can get higher leverage with less risk trading options, plus if you traded LEAPS, you could choose to re-balance only once per year.", "title": "" }, { "docid": "593d3f385dbb52c6f01b17d9c60e39a2", "text": "One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them. I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares. I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds? Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.", "title": "" }, { "docid": "437554661c8d6cc03e5a8720adac8b7a", "text": "Has the VIX always received this much attention? I feel like I never really saw articles on it until about 2 years ago, and the attention has especially ramped up post election. Granted, I'm young and may have just not been aware. As the post alludes to, I think a big problem is people's interpretation of VIX being the market expectation of volatility. In a mathematical sense, that would only be valid if 1) the price of options perfectly reflects volatility, and 2) investors can rationally evaluate the future. (1) is arguable as volatility is just the single free parameter in BS and captures all confounded factors in the price, including supply/demand mismatches. (2) is debatable just because it essentially assumes that the wisdom of crowds will be true on average. My prior on this is that they're correct that often, and that the VIX is probably a pretty poor predictor of future realized volatility. I'll check this last claim and edit.", "title": "" } ]	fiqa
3cac1f9e2395d61e3bb926c4e269a213	Why aren't bond mutual funds seeing huge selloffs now?	[ { "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": "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": "" } ]	[ { "docid": "caaa941e38ec9ee827a9992f82a54e8c", "text": "\"Usually there are annual or semi-annual reports for a mutual fund that may give an idea for when a fund will have \"\"distributions\"\" which can cause the NAV to fall as this is when the fund passes the taxable liabilities to shareholders in the form of a dividend. Alternatively, the prospectus of the fund may also have the data on the recent distribution history that is likely what you want. If you don't understand why a fund would have a distribution, I highly suggest researching the legal structure of an open-end mutual fund where there more than a few rules about how taxes are handled for this case.\"", "title": "" }, { "docid": "631c6e3f6efdc57d684f2b42448b65a5", "text": "Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market.", "title": "" }, { "docid": "0dbc624215009d4ce02125d8bbff2fad", "text": "\"Bonds are priced \"\"very high\"\" because their price is compared to their yields. With the current interest rates, which are very low, the bond yields will be low. However, bond issuers still need the money, so there still will be high par value, and investors will not sell bonds at a loss unless there's a better investment (=bonds with better yields). Once the rates start going up, you'll see bonds with current rates dropping in value significantly. Once alternatives appear, people holding them will start dumping them to move the money somewhere more profitable. Similarly the stocks - since there's no other investment alternatives (yields on the bonds are low, interests are low), people invest more in the stocks. Once the rates go up, the investors will start rebalancing portfolios and cashing out.\"", "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": "b01d95f8b94c0c2cbca6f0916c0342b8", "text": "One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.", "title": "" }, { "docid": "580b87fa9582f0ad27639ac85955d59a", "text": "\"Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses. Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of \"\"bonds\"\" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments.\"", "title": "" }, { "docid": "379fd084a7b1339e70292490902c9a36", "text": "I don't see a contrast. It's really hard to predict which mutual funds will do well in the future. Predicting that ones which have done well recently will continue to do well works slightly better than chance. The WSJ article and Morningstar agree on all the objective facts, they just spin them differently.", "title": "" }, { "docid": "6039901bd125dde0231f61f69b5073ed", "text": "\"Were you thinking of an annuity? They guarantee regular payments, usually after retirement. In any case, every investment has counterparty risk. Bonds guarantee payout, but the issuer could always default. This is why Treasury bonds have the lowest yields, the Treasury is the world's most trusted borrower. It's also why \"\"junk\"\" bonds have higher yields than investment grade and partially why longer duration bonds have higher yields. As mentioned, there's bank accounts, which gain interest and are insured by FDIC up to $250,000. If the bank folds, they'll be acquired by another and your account balance will simply transfer. Similar to bank accounts are money market funds. These are funds that purchase very short term \"\"paper\"\" (basically <90 day bonds). They maintain a share price of $1 and pay interest in the form of additional shares. These have the risk of \"\"breaking the buck\"\" where they need to sell assets at a loss to meet investor withdrawal demands and NAV drops below $1.00. Fortunately, that's a super rare occurance, but still definitely possible. Finally, there's one guy I've seen on TV pitching a no risk high yield investment. I can't remember the firm, but I am waiting to see them shut down for running a ponzi scheme.\"", "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": "c7096dc31ef585f136d18d2617946e5b", "text": "There's no doubt that equities, as well as junk bonds (which have, in Europe, according to BAML, reached the same average return as 10-year-US treasuries) are currently overvalued, which is why I, and I suggest this to any active investor, have taken out all my money from tradable equities and debt and invested it into undervalued dank memes.", "title": "" }, { "docid": "0431c925b74c048b4e4f5e9fa8065e11", "text": "FI funds don't always drop in rising rate environments, and can outperform thanks to simple bond math and the way the indexes are built. It's one of the places where it's very easy to argue in favour of some form of active management.", "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": "f1929e88f0214dc218452d12e55a4339", "text": "\"1. Interest rates What you should know is that the longer the \"\"term\"\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \"\"bonds\"\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \"\"average duration\"\" or \"\"average maturity\"\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \"\"complicated\"\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \"\"floating rate\"\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\"", "title": "" }, { "docid": "1542bcc538c404dc66e2c16e89a01340", "text": "Lowered rates = boom for equities, currently held bonds, and assets. Cheaper money means a (disproportionately) good time had by all. This all comes with malinvestment, potential for moral hazard, and savers losing in a big way. Why save for retirement when your risk free return on US Treasuries can barely keep up with inflation? As an aside, it is not really a risk free rate anymore, with $20 trillion in debt and no real hope of paying it off. This is why we see the rate increases and movement towards asset sales by the Fed to get the poop off their books. They are worried about all of the above and need more arrows in their quiver when the next recession hits. They won't have enough, however. They are trying to right a ship that is fully overturned. This is now the longest period of growth (however tepid) since the tech bubble of the 1990's. Are the fundamentals really better than then?", "title": "" }, { "docid": "d8b964c197b4e88844b037810b8339df", "text": "There are some important thing you need to understand about bonds, and how they work: * A bond doesn't need an active market - like a stock, for example - to have value. * Nonetheless, there exist active markets for all of these bonds. * The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. * The Fed can hold any and all of these bonds to maturity, while receiving contractual payments all the while, and never sell a single bond back to the market.", "title": "" } ]	fiqa
529d831a8312b153547b4c94a49e6bec	Must ETF companies match an investor's amount invested in an ETF?	[ { "docid": "e68cfb5a28d39979c5839becde274e73", "text": "\"First, it's an exaggeration to say \"\"every\"\" dollar. Traditional mutual funds, including money-market funds, keep a small fraction of their assets in cash for day-to-day transactions, maybe 1%. If you invest $1, they put that in the cash bucket and issue you a share. If you and 999 other people invest $100 each, not offset by people redeeming, they take the aggregated $100,000 and buy a bond or two. Conversely, if you redeem one share it comes out of cash, but if lots of people redeem they sell some bond(s) to cover those redemptions -- which works as long as the bond(s) can in fact be sold for close enough to their recorded value. And this doesn't mean they \"\"can't fail\"\". Even though they are (almost totally) invested in securities that are thought to be among the safest and most liquid available, in sufficiently extreme circumstances those investments can fall in market value, or they can become illiquid and unavailable to cover \"\"withdrawals\"\" (redemptions). ETFs are also fully invested, but the process is less direct. You don't just send money to the fund company. Instead: Thus as long as the underlyings for your ETF hold their value, which for a money market they are designed to, and the markets are open and the market maker firms are operating, your ETF shares are well backed. See https://en.wikipedia.org/wiki/Exchange-traded_fund for more.\"", "title": "" }, { "docid": "446c12b0d6ce872ec6a585017050af10", "text": "\"Does the bolded sentence apply for ETFs and ETF companies? No, the value of an ETF is determined by an exchange and thus the value of the share is whatever the trading price is. Thus, the price of an ETF may go up or down just like other securities. Money market funds can be a bit different as the mutual fund company will typically step in to avoid \"\"Breaking the Buck\"\" that could happen as a failure for that kind of fund. To wit, must ETF companies invest a dollar in the ETF for every dollar that an investor deposited in this aforesaid ETF? No, because an ETF is traded as shares on the market, unless you are using the creation/redemption mechanism for the ETF, you are buying and selling shares like most retail investors I'd suspect. If you are using the creation/redemption system then there are baskets of other securities that are being swapped either for shares in the ETF or from shares in the ETF.\"", "title": "" }, { "docid": "4f8f5fa9a7144cf472c4d3c3c924557d", "text": "\"The point here is actually about banks, or is in reference to banks. They expect you know how a savings account at a bank works, but not mutual funds, and so are trying to dispel an erroneous notion that you might have -- that the CBIC will insure your investment in the fund. Banks work by taking in deposits and lending that money out via mortgages. The mortgages can last up to 30 years, but the deposits are \"\"on demand\"\". Which means you can pull your money out at any time. See the problem? They're maintaining a fiction that that money is there, safe and sound in the bank vault, ready to be returned whenever you want it, when in fact it's been loaned out. And can't be called back quickly, either. They know only a little bit of that money will be \"\"demanded\"\" by depositors at any given time, so they keep a percentage called a \"\"reserve\"\" to satisfy that, er, demand. The rest, again, is loaned out. Gone. And usually that works out just fine. Except sometimes it doesn't, when people get scared they might not get their money back, and they all go to the bank at the same time to demand their on-demand deposits back. This is called a \"\"run on the bank\"\", and when that happens, the bank \"\"fails\"\". 'Cause it ain't got the money. What's failing, in fact, is the fiction that your money is there whenever you want it. And that's really bad, because when that happens to you at your bank, your friends the customers of other banks start worrying about their money, and run on their banks, which fail, which cause more people to worry and try to get their cash out, lather, rinse repeat, until the whole economy crashes. See -- The Great Depression. So, various governments introduced \"\"Deposit Insurance\"\", where the government will step in with the cash, so when you panic and pull all your money out of the bank, you can go home happy, cash in hand, and don't freak all your friends out. Therefore, the fear that your money might not really be there is assuaged, and it doesn't spread like a mental contagion. Everyone can comfortably go back to believing the fiction, and the economy goes back to merrily chugging along. Meanwhile, with mutual funds & ETFs, everyone understands the money you put in them is invested and not sitting in a gigantic vault, and so there's no need for government insurance to maintain the fiction. And that's the point they're trying to make. Poorly, I might add, where their wording is concerned.\"", "title": "" } ]	[ { "docid": "253c15553b75d266c1ef711891f4cf09", "text": "Does me holding stock in the company make me an accredited investor with this company in particular? No. But maybe the site will let you trade it your shares to another accredited investor. Just ask, if the site operators have a securities lawyer they should be able to accomodate", "title": "" }, { "docid": "0293c56e8290ecce3606fdb9ca285fe9", "text": "http://www.efficientfrontier.com/ef/104/stupid.htm would have some data though a bit old about open-end funds vs an ETF that would be one point. Secondly, do you know that the Math on your ETF will always work out to whole numbers of shares or do you plan on using brokers that would allow fractional shares easily? This is a factor as $3,000 of an open-end fund will automatically go into fractional shares that isn't necessarily the case of an ETF where you have to specify a number of shares when you purchase as well as consider are you doing a market or limit order? These are a couple of things to keep in mind here. Lastly, what if the broker you use charges account maintenance fees for your account? In buying the mutual fund from the fund company directly, there may be a lower likelihood of having such fees. I don't know of any way to buy shares in the ETF directly without using a broker.", "title": "" }, { "docid": "7f6a53aa69a54a982344454e7fb48230", "text": "I think you understood much of what I say, in general. Unfortunately, I didn't follow Patches math. What I gleen from your summary is a 1% match to the 10% invested, but a .8% expense. The ETF VOO has a .05% annual fee, a bit better than SPY. A quick few calculations show that the 10% bonus does offset a long run of the .75% excess expense compared to external investing. After decades, the 401(k) appears to still be a bit ahead. Not the dramatic delta suggested in the prior answer, but enough to stay with the 401(k) in this situation. The tiny match still makes the difference. Edit - the question you linked to. The 401(k) had no match, and an awful 1.2% annual expense. This combination is deadly for the younger investor. Always an exception to offer - a 25% marginal rate earner close to retiring at 15%. The 401(k) deposit saves him 25, but can soon be withdrawn at 15, it's worth a a few years of that fee to make this happen. For the young person who is planning a quick exit from the company, same deal.", "title": "" }, { "docid": "346a6c0d30585823d64d9a8c813b0b13", "text": "\"You need a brokerage account to invest in ETFs (there are many different kinds of ETFs, not just one) and that usually means having some amount already deposited with them into the \"\"cash account\"\" in your name. Once the brokerage account is established, you can send whatever money from each paycheck to the brokerage and tell them to invest it in the ETF of your choice. There are no restrictions as to how much money you can send if you send them a check. If you want the money to be withheld from your paycheck, then of course, the limit is the amount of the take-home pay, and whether your employer offers such a service will affect the issue. If you are wanting to invest in ETFs through your employer's 401(k) plan (or 403(b) plan), there are lots of other considerations.\"", "title": "" }, { "docid": "ed0ed68df5683cfbdc67e5ce8577bcd3", "text": "Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus. Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder. In the case of QQQ, it certainly will have dividend income as it approximates a large stock index. The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash. (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value. The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line. This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV.", "title": "" }, { "docid": "cb3d0cd50e3bf62b1ac4e80401593dd2", "text": "There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund).", "title": "" }, { "docid": "d3758f89694c049210e7beac9efa2c3a", "text": "The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.", "title": "" }, { "docid": "c519cfaf3da6ff9ece7787abb0f3bb97", "text": "This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example).", "title": "" }, { "docid": "3434f214ebf6ea235e1f6dc952df5914", "text": "\"How does [FINRA's 5% markup policy] (http://www.investopedia.com/study-guide/series-55/commissions-and-trade-complaints/finra-5-markup-policy/) affect the expense/profit/value of an ETF/Mutual Fund? An extreme example to illustrate: If my fund buys 100 IBM @ 100, The fund would credit the broker $10,000 for those shares and the broker would give the fund 100 shares. Additionally there would be some sort of commission (say $10) paid on top of the transaction which would come out of the fund's expense ratio. But the broker is \"\"allowed\"\" to charge a 5% markup. So that means, that $100 price that I see could have hit the tape at $95 (assume 5% markup which is allowed). Thus, assuming that the day had zero volatility for IBM, when the fund gets priced at the end of the day, my 100 shares which \"\"cost\"\" 10,000 (plus $10) now has a market value of $9,500. Is that how it \"\"could\"\" work? That 500 isn't calculated as part of the expense of the fund is it? (how could it be, they don't know about the exact value of the markup).\"", "title": "" }, { "docid": "ebd2083d3c4dfd4d089cf638a06602e2", "text": "One thing I would add to @littleadv (buy an ETF instead of doing your own) answer would be ensure that the dividend yield matches. Expense ratios aren't the only thing that eat you with mutual funds: the managers can hold on to a large percentage of the dividends that the stocks normally pay (for instance, if by holding onto the same stocks, you would normally receive 3% a year in dividends, but by having a mutual fund, you only receive .75%, that's an additional cost to you). If you tried to match the DJIA on your own, you would have an advantage of receiving the dividend yields on the stocks paying dividends. The downsides: distributing your investments to match and the costs of actual purchases.", "title": "" }, { "docid": "32778590fecaad9af44b55729a0b9ea3", "text": "I have been careful here to cover both shares in companies and in ETFs (Exchange Traded Funds). Some information such as around corporate actions and AGMs is only applicable for company shares and not ETFs. The shares that you own are registered to you through the broker that you bought them via but are verified by independent fund administrators and brokerage reconciliation processes. This means that there is independent verification that the broker has those shares and that they are ring fenced as being yours. The important point in this is that the broker cannot sell them for their own profit or otherwise use them for their own benefit, such as for collateral against margin etc.. 1) Since the broker is keeping the shares for you they are still acting as an intermediary. In order to prove that you own the shares and have the right to sell them you need to transfer the registration to another broker in order to sell them through that broker. This typically, but not always, involves some kind of fee and the broker that you transfer to will need to be able to hold and deal in those shares. Not all brokers have access to all markets. 2) You can sell your shares through a different broker to the one you bought them through but you will need to transfer your ownership to the other broker and that broker will need to have access to that market. 3) You will normally, depending on your broker, get an email or other message on settlement which can be around two days after your purchase. You should also be able to see them in your online account UI before settlement. You usually don't get any messages from the issuing entity for the instrument until AGM time when you may get invited to the AGM if you hold enough stock. All other corporate actions should be handled for you by your broker. It is rare that settlement does not go through on well regulated markets, such as European, Hong Kong, Japanese, and US markets but this is more common on other markets. In particular I have seen quite a lot of trades reversed on the Istanbul market (XIST) recently. That is not to say that XIST is unsafe its just that I happen to have seen a few trades reversed recently.", "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": "8cb549009ae9d2f1a8976238da587253", "text": "\"My knowledge relates to ETFs only. By definition, an ETF's total assets can increase or decrease based upon how many shares are issued or redeemed. If somebody sells shares back to the ETF provider (rather than somebody else on market) then the underlying assets need to be sold, and vice-versa for purchasing from the ETF provider. ETFs also allow redemptions too in addition to this. For an ETF, to determine its total assets, you need to you need to analyze the Total Shares on Issue multipled by the Net Asset Value. ETFs are required to report shares outstanding and NAV on a daily basis. \"\"Total assets\"\" is probably more a function of marketing rather than \"\"demand\"\" and this is why most funds report on a net-asset-value-per-share basis. Some sites report on \"\"Net Inflows\"\" is basically the net change in shares outstanding multiplied by the ETF price. If you want to see this plotted over time you can use a such as: http://www.etf.com/etfanalytics/etf-fund-flows-tool which allows you to see this as a \"\"net flows\"\" on a date range basis.\"", "title": "" }, { "docid": "a6ee4e5de0eaac8cd605fe3bd7730482", "text": "\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\"", "title": "" }, { "docid": "b15d163a90235fed85ed81ab71d178ac", "text": "\"Do I understand correctly, that we still can file as \"\"Married filing jointly\"\", just add Schedule C and Schedule SE for her? Yes. Business registration information letter she got once registered mentions that her due date for filing tax return is January 31, 2016. Does this prevent us from filing jointly (as far as I understand, I can't file my income before that date)? IRS sends no such letters. IRS also doesn't require any registration. Be careful, you might be a victim to a phishing attack here. In any case, sole proprietor files a regular individual tax return with the regular April 15th deadline. Do I understand correctly that we do not qualify as \"\"Family partnership\"\" (I do not participate in her business in any way other than giving her money for initial tools/materials purchase)? Yes. Do I understand correctly that she did not have to do regular estimated tax payments as business was not expected to generate income this year? You're asking or saying? How would we know what she expected? In any case, you can use your withholding (adjust the W4) to compensate.\"", "title": "" } ]	fiqa
9f7f8487ccf41fb5f73a6b0c013a0f5a	What does inflation mean to me?	[ { "docid": "bfe88486c116475b6d9a7b924daff410", "text": "\"Inflation as defined in the general, has many impacts at a personal level. For example, you say that the reduction in the price of oil has no impact on you. That's absolutely not true, unless you're a hermit living off of the land. Every box or can or jar of food you buy off the shelf of the grocery store has the price of oil baked into it, because it had to get there somehow. High fuel costs for trucks mean increased costs to put food on shelves, which mean increased prices for that food. Even tobacco prices can affect you, because they affect what other people are spending. Demand is always a significant factor in prices, particularly retail prices, and if people are spending more money on tobacco, they're probably spending less on other things - either buying less snacks, for example, or buying cheaper brands of those snacks. So the price of Doritos may drop a bit (or not rise), for example. General inflation also tends to drive raises, particularly in industries with relatively small performance ties to raises. If inflation is 3%, wages need to raise 3% or so in order to keep up, on average; even if your personal cost-of-living went up 0%, or 5%, or 10%, the default wage inflation will be closer to that of the national average. Any raise less than national average is effectively a pay cut (which is one reason why inflation is needed in a healthy economy). So your company probably has a cost-of-living raise everyone gets that's a bit less than inflation, and then good performers get a bump up to a bit more than inflation. You can read more on this topic for a more in-depth explanation. Finally, inflation rates tend to be major factors in stock market movement. Inflation that is too high, or too low, can lead to higher volatility; inflation that is \"\"right\"\" can lead to higher stability. An economy that has consistently \"\"right\"\" inflation (around 2-3% typically) will tend to have more stable stock market in general, and thus more reliable returns from that market. There are many other factors that lead to stock markets rising and falling, but inflation is one very relevant one, particularly if it's not in the \"\"right\"\" zone.\"", "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": "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": "48ca23bc31b6c0b6e5fc9c66936c846b", "text": "It means that your money does not have the same amount of buying power.", "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": "d89efd7c14f49294e3d93638139433ed", "text": "\"short answer: any long term financial planning (~10yrs+). e.g. mortgage and retirement planning. long answer: inflation doesn't really matter in short time frames. on any given day, you might get a rent hike, or a raise, or the grocery store might have a sale. inflation is really only relevant over the long term. annual inflation is tiny (2~4%) compared to large unexpected expenses(5-10%). however, over 10 years, even your \"\"large unexpected expenses\"\" will still average out to a small fraction of your spending (5~10%) compared to the impact of compounded inflation (30~40%). inflation is really critical when you are trying to plan for retirement, which you should start doing when you get your first job. when making long-term projections, you need to consider not only your expected nominal rate of investment return (e.g. 7%) but also subtract the expected rate of inflation (e.g. 3%). alternatively, you can add the inflation rate to your projected spending (being sure to compound year-over-year). when projecting your income 10+ years out, you can use inflation to estimate your annual raises. up to age 30, people tend to get raises that exceed inflation. thereafter, they tend to track inflation. if you ever decide to buy a house, you need to consider the impact of inflation when calculating the total cost over a 30-yr mortgage. generally, you can expect your house to appreciate over 30 years in line with inflation (possibly more in an urban area). so a simple mortgage projection needs to account for interest, inflation, maintenance, insurance and closing costs. you could also consider inflation for things like rent and income, but only over several years. generally, rent and income are such large amounts of money it is worth your time to research specific alternatives rather than just guessing what market rates are this year based on average inflation. while it is true that rent and wages go up in line with inflation in the long run, you can make a lot of money in the short run if you keep an eye on market rates every year. over 10-20 years your personal rate of inflation should be very close to the average rate when you consider all your spending (housing, food, energy, clothing, etc.).\"", "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": "d3b43cf3295733598b990a5018066188", "text": "I was being sarcastic in response to you saying that hyperinflation happens every 30-50 years in a finance subreddit.. where the second lesson (right after time value of money) is that past results in general tell us nothing about the future.", "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": "315c115a101fd22f8e85ab9353b3178d", "text": "\"Inflation, like trade deficits or surpluses, have winners and losers in an economy. Clear losers are people who are on a fixed income, as they often have a fixed income and a prices keep on going up, meaning they can afford less. Numerous articles on the internet discuss the inflation of the 1970s, here are Google's results. I'm not so sure that governments want \"\"some inflation\"\" as much as they desperately want to avoid deflation. Deflation means that the price for today's product, like a car, will decrease in price tomorrow (or a month from now) which creates a powerful incentive for people to put off a purchase until later, which brings consumer demand down in a country's economy.\"", "title": "" }, { "docid": "10cdd96d500ca701a652bd70c1b162fd", "text": "This was called Financial repression by Edward S. Shaw and Ronald I. McKinnon from Stanford (https://en.wikipedia.org/wiki/Financial_repression). Financial repression is the situation, when government is stealing from people, who rely heavily on saving, rather then on spending. Meaning that your saving rates will be a lot worse then inflation rate. Financial markets are artificially hot and interest rates artificially low (average historical interest rate is 10%). This could be a possible predictor state to hyper-inflation.", "title": "" }, { "docid": "82c5c06d4f9b16f922b7813e5e0ba120", "text": "Inflation is what happens, it is not good or bad in and of itself. But consider the following. In a thriving economy with low unemployment, people are buying, buying, buying. People are not saving for later, they are buying now. Industry is also making purchases. Now. From economics 101: high demand for goods/services leads to relative scarcity leading to higher prices. Inflation tends to be one byproduct of a thriving economy. Governments want the thriving economy that brings inflation with it.", "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": "46fc56b57f9a533b640a055c9c4e14ad", "text": "It can take a while for inflation to seep into all aspects an economy and be felt by a consumer. Often, things that consumers use the most (like gasoline, wheat products, corn products, soy products, and sugar), are commodities spread across global markets with their own pricing which may be impacted by inflation in any given country. Also, inflation can be beneficial in some ways. A $500/month mortgage payment was a big deal 30 years ago, and now would be considered trivial. That's entirely because of inflation. Run-away inflation, where people are burning the currency to stay warm, is a different beast altogether. Be wary of people who conflate inflation, consumer pricing, and destructive currency devaluation, because they're not the same things.", "title": "" }, { "docid": "35409688081f5bdd4b825de0cdea4373", "text": "Correct me if I am wrong (and I know you will), but in an economy where most consumers have more debt than savings, I fail to see how moderate inflation is a bad thing. Higher wages negate higher prices, and lower debt burdens free consumer demand. Why are there always people in freak out mode if it looks like inflation may occur even slightly?", "title": "" }, { "docid": "0cfb85f4f409dad6f7a21cd944322d40", "text": "\"No, virtually ever item in the CPI is adjusted using hedonics, which by definition can only be used to lower inflation, not adjust it up. Hedonics is not necessarily bad, but it doesn't actually reflect inflation, it reflects standard of living vs. purchasing power, which is not useful for a purely monetary measure. It also does not correctly reflect that despite the fact that a 1970's 20\"\" TV cannot from an economic standpoint be directly compared to a 2012 20\"\" TV, if the price is the same (adjusted for inflation), inflation represents how the value of the dollar has accrued vs the value of a 20\"\" TV, which is what the definition of inflation is. So, no, I don't think you're correct on this. This is also kind of glossing over the fact that the CPI essentially makes the bold argument that energy and transportation prices never affect inflation.\"", "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": "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": "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": "51efd4c92fe5580c043a1793767c9e62", "text": "No, there is no linkage to the value of real estate and inflation. In most of the United States if you bought at the peak of the market in 2006, you still haven't recovered 7+ years later. Also real estate has a strong local component to the price. Pick the wrong location or the wrong type of real estate and the value of your real estate will be dropping while everybody else sees their values rising. Three properties I have owned near Washington DC, have had three different price patterns since the late 80's. Each had a different starting and ending point for the peak price rise. You can get lucky and make a lot, but there is no way to guarantee that prices will rise at all during the period you will own it.", "title": "" }, { "docid": "50473990a1f2b82126d6e9f61a574282", "text": "Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest portion which varies depending upon the current rates. The combined rate would match the inflation rate. They can be bought directly from the treasury (or from a broker or bank who might charge a commission)", "title": "" } ]	fiqa
184420851abaf5e6ac4546dc9292339f	Does a falling dollar mean doom for real estate?	[ { "docid": "580cf0af2025230d148068d848f9d37b", "text": "A falling $AUD would be beneficial to exporters, and thus overall good for the economy. If the economy improves and exporters start growing profits, that means they will start to employ more people and employment will increase - and with higher employment, employees will become more confident to make purchases, including purchasing property. I feel the falling $AUD will be beneficial for the economy and the housing market. However, what you should consider is that with an improving economy and a rising property market, it will only be a matter of time before interest rates start rising. With a lower $AUD the RBA will be more confident in starting to increase interest rates. And increasing interest rates will have a dampening effect on the housing market. You are looking to buy a property to live in - so how long do you intend to live in and hold the property? I would assume at least for the medium to long term. If this is your intention then why are you getting cold feet? What you should be concerned about is that you do not overstretch on your borrowings! Make sure you allow a buffer of 2% to 3% above current interest rates so that if rates do go up you can still afford the repayments. And if you get a fixed rate - then you should allow the buffer in case variable rates are higher when your fixed period is over. Regarding the doomsayers telling you that property prices are going to crash - well they were saying that in 2008, then again in 2010, then again in 2012. I don't know about you but I have seen no crash. Sure when interest rates have gone up property prices have levelled off and maybe gone down by 10% to 15% in some areas, but as soon as interest rates start falling again property prices start increasing again. It's all part of the property cycle. I actually find it is a better time to buy when interest rates are higher and you can negotiate a better bargain and lower price. Then when interest rates start falling you benefit from lower repayments and increasing property prices. The only way there will be a property crash in Australia is if there was a dramatic economic downturn and unemployment rates rose to 10% or higher. But with good economic conditions, an increasing population and low supplies of newly build housing in Australia, I see no dramatic crashes in the foreseeable future. Yes we may get periods of weakness when interest rates increase, with falls up to 15% in some areas, but no crash of 40% plus. As I said above, these periods of weakness actually provide opportunities to buy properties at a bit of a discount. EDIT In your comments you say you intend to buy with a monthly mortgage repayment of $2500 in place of your current monthly rent of $1800. That means your loan amount would be somewhere around $550k to $600K. You also mention you would be taking on a 5 year fixed rate, and look to sell in about 2 years time if you can break even (I assume that is break even on the price you bought at). In 2 years you would have paid $16,800 more on your mortgage than you would have in rent. So here are the facts: A better strategy:", "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": "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": "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": "9a8d7995d7303fd33d5e096f3635f99c", "text": "\"There is a substantial likelihood over the next several years that the US Dollar will experience inflation. (You may have heard terms like \"\"Quantitative Easing.\"\") With inflation, the value of each dollar you have will go down. This also means that the value of each dollar you owe will go down as well. So, taking out a loan / issuing a bond at a very good rate, converting it into an asset that's a better way to store value (possibly including stock in a big stable company like MSFT) and then watching inflation reduce the (real) value of the loan faster than the interest piles up... that's like getting free money. Combine that with the tax-shelter games alluded to by everyone else, and it starts to look like a very profitable endeavour.\"", "title": "" }, { "docid": "e0b589d58e89dc2487eaf6e429674240", "text": "\"Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing. However, these are not something \"\"everyone\"\" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand. Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment. Many times \"\"advertised\"\" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told \"\"hey, buy it and you'll be able to rent it out at $900\"\" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent. But all that said - yes, those who can - are snapping.\"", "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": "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": "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": "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": "62434a140f0cfd64e57c57b6ba1b6a0a", "text": "\"I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called \"\"hard money\"\" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement.\"", "title": "" }, { "docid": "477ffe8483980b16ca4f7dc9fd326010", "text": "\"If you do as you propose you are going to get burned. You need to sell, then start to rent. amongst other things. Since 2008, the economy never \"\"recovered,\"\" but was sort of stabilized temporarily like a fighter on the ropes. The economy is beginning to collapse again, and that collapse will accelerate around the Fall. The dollar too will also begin its delayed downward fall come Autumn. Just one example of what I speak: https://research.stlouisfed.org/fred2/series/CIVPART I would be happy to tell you more if you like, but I am already going to get pilloried for what I have already said. I do not sell anything, or push anything, but since you asked, and I follow this day in and day out, I thought that I would give you my very well informed answer. Take it for what it's worth. So let me know if you want more.\"", "title": "" }, { "docid": "809ccbb5c07858622251eb8ac3250b5d", "text": "High risk foreign debt is great until the bottom falls out of the market when the government default on debt or revalues currency. If you do this, you should be able to sustain near total losses of principal and interest.", "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": "78b34ddb0cc670476868575472df6541", "text": "When on this topic, you'll often hear general rules of thumb. And, similar to the 'only buy stocks if you plan to hold more than X years' there are going to be periods where if you buy at a bottom right before the market turns up, you might be ahead just months after you buy. I'd say that if you buy right, below market, you're ahead the day you close. Edit - I maintain, and have Schiller providing supporting data) that real estate goes up with inflation in the long term, no more, no less. If the rise were perfectly smooth, correlated 100% month to month, you'd find it would take X years to break even to the costs of buying, commission and closing costs. If we call that cost about 8%, and inflation averages 3, it points to a 3 year holding period to break even. But, since real estate rises and falls in the short term, there are periods longer than 4 years where real estate lags, and very short periods where it rises faster than the costs involved. The buy vs rent is a layer right on top of this. If you happen upon a time when the rental market is tight, you may buy, see the house decline 10% in value, and when the math is done, actually be ahead of the guy that rented.", "title": "" }, { "docid": "14dfd4204061a8a6f575f0f1353fff93", "text": "In my experience, you don't need to endorse a check with a signature to deposit it into your account. You do if you are exchanging the check for cash. Businesses usually have a stamp with their account number on them. Once stamped, those checks are only able to be deposited into that account. Individuals can do the same. I have had issues depositing insurance and government checks in the past that had both my and my wife's name on them. Both of us had to endorse the check to be able to deposit them. I think this was some kind of fraud prevention scheme, so that later one of us couldn't claim they didn't know anything about the check.", "title": "" } ]	fiqa
72d1624c9ab2f82349ca1b8b1ee5d353	What is the economic explanation for the high cost of weddings?	[ { "docid": "575df92d2b0565fc6b973f8823955a0a", "text": "\"There is the price they want and the price you pay. Everything is negotiable when its a service (always possible, but usually harder with actual \"\"goods\"\"). You should always haggle and price match your vendors. You can also try going to different vendors and not telling them its for a wedding and see if there really is a price difference. For example, call up a florist and say you need X, Y, and Z for a corporate banquet or for a special event for which you cannot give the details. If you then tell them its actually a wedding, and they blindly raise it without a good justification, move on. That said, they jack up the price because they know most people will says \"\"it's my wedding\"\", \"\"it's once in a lifetime\"\", \"\"it's MY special day\"\", etc.... The same is true about diamonds, their price does not reflect the actual supply and demand ratio, just the perception that has been created. However, as mentioned in some of the comments above, the service provided at a wedding may be different or more involved than just a normal dinner The more important issue is ensuring there are no back fees, no hidden fees, and you have well written, well reviewed contracts. For example, we know a couple whose caterer added a mandatory 20% gratuity, regardless of the service which was provided. Most venues or restaurants will not be making the bar a lose-leader, but they will charge for other things. You can also save money by buying used or looking on ebay for prices closer to wholesale for the product. I think a good analogy to this is the Recent Time Magazine article on the price of healthcare - it costs a lot because its a small market and its harder to navigate, and most are not experienced shoppers in the area or don't have control over the individual item costs.\"", "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": "4b10baf24c0aa7867791b8ae4fe55005", "text": "In a nutshell, there are significant entrance hurdles, legally and especially financially. The fixed cost and effort to get it set up is high (although later, the proportional cost and efforts are negligible). Therefore, this is only of interest for taxable amounts of seven digits or more - which most people don’t reach.", "title": "" }, { "docid": "a854b7f1fb9a4c4cbd73fad4b1fced68", "text": "Essentially imported goods from the country (in this case the US) that is improving against your local currency will become more expensive. For the most part, that is the only practical effect on you on an individual financial level.", "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": "2f40189b9cd717786307791d9cf438e9", "text": "\"I'd like to see a credible source for \"\"the highest\"\", but it's certainly fairly high. Household debt could be broadly categorized as debt for housing and debt for consumption. Housing prices seem very high compared to equivalent rental income. This is generating a great deal of debt. Keynes(?) said that \"\"if something cannot go on forever, it will stop.\"\" Just when it will stop, and whether it will stop suddenly or gradually is a matter of great interest. Obviously there are huge vested interests, including the large fraction of the population who already own property and do not wish to see it fall. Nobody really knows; my guess would be on a very-long-term plateau in nominal prices and decline in real prices. The Australian stock market is unlike the US: since it's a small country, a lot of the big companies are export-driven, either by directly exporting physical goods (miners, agriculture) or by FDI (property trusts, banks). So a local recession will hurt the stock market, but not across the board. A decline in the value of the Australian dollar would be very good news for some of these companies. Debt for consumption I think is the smaller fraction. Arguably it's driven by a wealth effect of Australia having had a reasonably good crisis with low unemployment and increasing international purchasing power. If this tops out, you'd expect to see reduced earnings for consumer discretionary companies.\"", "title": "" }, { "docid": "5fe60290bfd485b05b85adaf3e2c0fbd", "text": "Unfortunately economics (and accounting for that matter) won't help much with being an entrepreneur. The main thing you need to focus on is cash generation - you need to maximise this. There are 2 aspects: revenue and costs. You need to plot these over the last 5-10 years to see trends. What is happening to revenues Are they growing with inflation? If not, why not? Is it because people are buying online? Is it because the products are not fashionable? Is it because people simply buy less jewelry these days? Have the cost of the products gone up but the shop hasn't increased prices (i.e. gross margin contraction). Decreasing gross margin could also be an indicator that someone is stealing from the business. What about the overhead costs of running the business? What has happened to rent, salaries, insurance? Look for any unusual trends. In summary: first you need to identify where the problem is, and to do this you need to look at the trends of revenues and costs (break costs down into categories).", "title": "" }, { "docid": "e849b3d211a31435403e20341ec5b7ed", "text": "\"Just looking at the practicality: Because the total value of outstanding mortgages in the US is about $10 trillion, and the government can't afford it without printing enough money to cause hyperinflation. The cost of saving the banks was actually much less than the \"\"hundreds of billions of dollars\"\" that is quoted, because most of it was loans that have been or will be repaid, not cash payments.\"", "title": "" }, { "docid": "f6a830135f76dffd4f6e607c9830a631", "text": "You need to meet a woman (or man if you are in a state that allows same sex marriage) who has a carried forward loss or other loss that exceeds the $3K/yr they can take against their own income. If they had a loss of $200K some time ago, and are taking $3K/yr, they may still have $100K they can offset with you. Marriages have been based on less than this.", "title": "" }, { "docid": "bb07f62b520ec24071691605fda40047", "text": "Beware of keeping up with the Joneses. Many of your free-spending neighbors are broke. Basically, the prices of things like what you're noticing will rise as incomes in the area rise. A great example of this can be found in state capitals and college towns, where battalions of government workers or students all make just about the same amount of money and drive prices accordingly. For example, a college town tends to have a tight rental market.", "title": "" }, { "docid": "2c37db4e63b781272b7a6a704f876661", "text": "Surely because higher education participation has increased there are a larger number of students with debt which means less demand for absurdly priced homes which means prices will drop to affordable levels. But we can't talk about markets working normally when it comes to home prices which always remain high! Right?", "title": "" }, { "docid": "e114be9e1afff079dbb95a03cd1af829", "text": "Because Individual insurance is vastly more expensive than per person business accounts Hospital Costs are high because insurance will typically only pay out a fraction of that cost, while an individual is responsible for all There are many things that contribute to the problem. If we want to have a fourth world country with health care for only the super rich, that can be done, but that also has massive downsides.", "title": "" }, { "docid": "af3b43104de20752d1df4f8e6aa88431", "text": "\"Doesn't higher prices mean higher wages for workers? Wouldn't this mean that workers would spend their extra income and in turn increase other people's incomes? Theoretically, if you want to justify low skilled immigration for \"\"cheaper\"\" goods, would not a slave economy be better than a free one? I'm just curious here\"", "title": "" }, { "docid": "3b035ad6a97d41e25812effa927950f2", "text": "In addition to those who are wealthy (not the same as high income), there are also a certain number of people whose professional livelihood is enhanced by projecting wealth/income they may or may not have. For example, some consultants, lawyers, financial advisors or other salespeople. The same is true of luxury homes for industries where entertaining clients and associates is expected. These people are essentially making an educated bet that the additional sales they expect to make will outweigh the additional expense of the luxury items, similar to purchasing advertising. But in many cases, people are either living beyond their current income, or living beyond their long-term income by failing to save for when they are too old/sick to work. Additionally, many car brands that we traditionally associate with luxury have created mid-priced lines in the $30-40K range recently, so it is possible that some of the cars you are seeing are not as expensive as you might expect.", "title": "" }, { "docid": "96bcb49db5f376925a4cacc8e6a16234", "text": "What you just said doesn't make any sense. The prices of goods and services are set to suit our income levels. We make a choice about how we spend our income. I don't think a road sweeper should be expected to pay 5 times more land value tax, just because the area they live is now a favourite with wealthy people, with golf courses and wine bars they can't afford to use and outrageous house prices. Land Value tax would just exacerbate the problems of real estate bubbles.", "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": "" } ]	fiqa
7a028ddd3509c3cbabec5ba4b5067ce3	What is the “point” (purpose) of the S&P 500?	[ { "docid": "b3cbd45fe7f0dcc84547f3ffbd8426e9", "text": "I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for... The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. The components of the S&P 500 are selected by committee... The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. The S&P is a capitalization weighted index. If a stock price goes up, then it comprises more of the total index. If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it. So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index.", "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": "4534c4d96c1e14a709db09464dbf9d5f", "text": "The compound annual growth rate of the S&P 500 over the last 20 years is in excess of 7% annually. http://www.moneychimp.com/features/market_cagr.htm Several index funds mirror the S&P 500 such as, but not limited to SPDR S&P 500 ETF Trust. An annual growth rate of 7% on a $5,000,000 portfolio implies gains of $350,000 per year, every year investing passively. Most of us can live reasonably well on $350,000 per year! I will argue that the chances of all 500 companies in the S&P 500 going bankrupt or nearly so at once is slight and less likely than the same for Google.", "title": "" }, { "docid": "7ab8da72c085bedff94ecbf207642e2a", "text": "The S&P 500 represents a broadly diversified basket of stocks. Silver is a single metal. If all else is equal, more diversification means less volatility. A better comparison would be the S&P 500 vs. a commodities index, or silver vs. some individual stock.", "title": "" }, { "docid": "8e67f6760bb16c57f09db20228590652", "text": "\"There is no simple answer to that, because no one knows exactly what the probability distribution of S&P 500 returns is. Here is a sketch of one possible way to proceed. Don't forget step 4! The problem is that the stock market is full of surprises, so this kind of \"\"backtesting\"\" can only reliably tell you about what already happened, not what will happen in the future. People argue about how much you can learn from this kind of analysis. However, it is at the least a clearly defined and objective process. I wouldn't advise investing your whole nest egg in anything based just on this, but I do think that it is relevant information.\"", "title": "" }, { "docid": "9b7c5fcd4fce83c37e92792c0c83ace5", "text": "\"TL;DR: Because stocks represent added value from corporate profits, and not the price the goods themselves are sold at. This is actually a very complicated subject. But here's the simplest answer I can come up with. Stocks are a commodity, just like milk, eggs, and bread. The government only tracks certain commodities (consumables) as part of the Consumer Price Index (CPI). These are generally commodities that the typical person will consume on a daily or weekly basis, or need to survive (food, rent, etc.). These are present values. Stock prices, on the other hand, represent an educated guess (or bet) on a company's future performance. If Apple has historically performed well, and analysts expect it to continue to perform, then investors will pay more for a stock that they feel will continue pay good dividends in the future. Compound this with the fact that there is usually limited a supply of stock for a particular company (unless they issue more stock). If we go back to Apple as an example, they can raise their price they charge on an iPhone from $400 to $450 over the course of say a couple years. Some of this may be due to higher wage costs, but efficiencies in the marketplace actually tend to drive down costs to produce goods, so they will probably actually turn a higher profit by raising their price, even if they have to pay higher wages (or possibly even if they don't raise their price!). This, in economics, is termed value added. Finally, @Hart is absolutely correct in his comment about the stocks in the S&P 500 not being static. Additionally, the S&P 500 is a hand picked set of \"\"winners\"\", if you will. These are not run-of-the-mill penny stocks for companies that will be out of business in a week. These are companies that Standard & Poor's Financial Services LLC thinks will perform well.\"", "title": "" }, { "docid": "e72fec842579c94379154c5c9e31b87d", "text": "IESC has a one-time, non-repeatable event in its operating income stream. It magnifies operating income by about a factor of five. It impacts both the numerator and the denominator. Without knowing exactly how the adjustments are made it would take too much work for me to calculate it exactly, but I did get close to their number using a relatively crude adjustment rule. Basically, Yahoo is excluding one-time events from its definitions since, although they are classified as operating events, they distort the financial record. I teach securities analysis and have done it as a profession. If I had to choose between Yahoo and Marketwatch, at least for this security, I would clearly choose Yahoo.", "title": "" }, { "docid": "62f08eaa49bccd9597553e00a23f7716", "text": "\"While it's definitely possible (and likely?) that a diversified portfolio generates higher returns than the S&P 500, that's not the main reason why you diversify. Diversification reduces risk. Modern portfolio theory suggests that you should maximize return while reducing risk, instead of blindly chasing the highest returns. Think about it this way--say the average return is 11% for large cap US stocks (the S&P 500), and it's 10% for a diversified portfolio (say, 6-8 asset classes). The large cap only portfolio has a 10% chance of losing 30% in a given year, while the diversified portfolio has a 1% chance of losing 30% in a year. For the vast majority of investors, it's worth the 1% annual gap in expected return to greatly reduce their risk exposure. Of course, I just made those numbers up. Read what finance professors have written for the \"\"data and proof\"\". But modern portfolio theory is believed by a lot of investors and other finance experts. There are a ton of studies (and therefore data) on MPT--including many that contradict it.\"", "title": "" }, { "docid": "f9fc45ad6eaf773696f9018bbc98580a", "text": "There are more companies in the S&P500 that are tech enabled services companies, and a few are software as a service (salesforce, cerner, etc.). As a result profit margins used here have expanded. If wages increase, margins should shrink but there is likely going to be growing revenue as we still have a huge output gap because of all the unemployed people who would have income. Not sure there is a mean to regress to", "title": "" }, { "docid": "40265e05dd1b8d3e5da68a36066c3c9d", "text": "\"I am guessing that when you say \"\"FRENCH40\"\" and \"\"GERMAN30\"\" you are referring to the main French and German stock market indices. The main French index is the CAC-40 with its 40 constituent companies. The main German index is the DAX, which has 30 constituents. The US30 is presumably the Dow Jones Index which also has 30 constituents. These are stock market indices that are used to measure the value of a basket of shares (the index constituents). As the value of the constituents change, so does the value of the index. There are various financial instruments that allow investors to profit from movements in these indices. It is those people who invest in these instruments that profit from price movements. The constituent companies receive no direct benefit or profit from investor trading in these instruments, nor does the government.\"", "title": "" }, { "docid": "4e353258faa2579b57954440f88d6247", "text": "\"Doing your homework means to perform what's more accurately called \"\"fundamental analysis\"\". According to proponents of fundamental analysis (FA), it is possible to accurately determine how much a stock should trade for and then buy or sell the stock based on whether it trades above or below this target price. This target price is based on the discounted anticipated future earnings of your stock, so \"\"doing your homework\"\" means that you figure out how much future earnings you can expect from the stock and then figuring out at what rate you want to discount those future earnings (Are 1000 dollars that you'll earn next year worth $800 today or $900 or only $500? That depends on the overall economic and political climate...) So does this make any sense? Depends. I'm aware that there are a lot of anecdotes of people researching a stock, buying that stock and doing well with that stock. But poor decisions can at times lead to good outcomes... EDIT: Due to some criticism, I want to expand on a few points. So, is homework completely for naught? No!\"", "title": "" }, { "docid": "427040f8683b2a11bdd39178e27642de", "text": "My level of analysis is not quite that advanced. Can you share what that would show and why that particular measure is the one to use? I've run regression on prices between the two. VIX prices have no correlation to the s&p500 prices. Shouldn't true volatility result in the prices (more people putting options on the VIX during the bad times and driving that price up) correlate to the selloff that occurs within the S&P500 during recessions and other events that would cause significant or minor volatility? My r2 showed no significance within a measurement of regression within Excel. But, gasp I could be wrong, but would love to learn more about better ways of measurement :)", "title": "" }, { "docid": "d411c1151085f09033ddd2702c28711a", "text": "You are correct that over a short term there is no guarantee that one index will out perform another index. Every index goes through periods of feat and famine. That uis why the advice is to diversify your investments. Every index does have some small amount of management. For the parent index (the S&P 500 in this case) there is a process to divide all 500 stocks into growth and value, pure growth and pure value. This rebalancing of the 500 stocks occurs once a year. Rebalancing The S&P Style indices are rebalanced once a year in December. The December rebalancing helps set the broad universe and benchmark for active managers on an annual cycle consistent with active manager performance evaluation cycles. The rebalancing date is the third Friday of December, which coincides with the December quarterly share changes for the S&P Composite 1500. Style Scores, market-capitalization weights, growth and value midpoint averages, and the Pure Weight Factors (PWFs), where applicable across the various Style indices, are reset only once a year at the December rebalancing. Other changes to the U.S. Style indices are made on an as-needed basis, following the guidelines of the parent index. Changes in response to corporate actions and market developments can be made at any time. Constituent changes are typically announced for the parent index two-to-five days before they are scheduled to be implemented. Please refer to the S&P U.S. Indices Methodology document for information on standard index maintenance for the S&P 500, the S&P MidCap 400,the S&P SmallCap 600 and all related indices. As to which is better: 500, growth,value or growth and value? That depends on what you the investor is trying to do.", "title": "" }, { "docid": "0633a8f9a7f64459ddcbb18125935018", "text": "\"I think that \"\"memoryless\"\" in this context of a given stock's performance is not a term of art. IMO, it's an anecdotal concept or cliche used to make a point about holding a stock. Sometimes people get stuck... they buy a stock or fund at 50, it goes down to 30, then hold onto it so they can \"\"get back to even\"\". By holding the loser stock for emotional reasons, the person potentially misses out on gains elsewhere.\"", "title": "" }, { "docid": "9374d840b15d019f87d3d20fc217d014", "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? It does seem strange that there is a correlation between government debt and the stock market. But I could see many reasons for the reaction. The downgrade by S&P may make it more expensive for the government to borrow money (i.e. higher interest rates). This means it becomes more expensive for the government to borrow money and the government will probably need to raise taxes to cover the cost of borrowing. Rising taxes are not good for business. Also, many banks in the US hold US government debt. Rising yields will push down the value of their holdings which in turn will reduce the value of US debt on the businesses' balance sheets. This weakens the banks' balance sheets. They may even start to unload US bonds. Why is there such a large emphasis on the S&P rating? I don't know. I think they have proven they are practically useless. That's just my opinion. Many, though, still think they are a credible ratings agency. What happens when the debt ceiling is reached? Theoretically the government has to stop borrowing money once the debt ceiling is reached. If this occurs and the government does not raise the debt ceiling then the government faces three choices:", "title": "" }, { "docid": "a198d0acdcc2a019260a9d70f0bdcf39", "text": "Cost. If an investor wanted to diversify his portfolio by investing in the companies that make up the S&P 500, the per-share and commission costs to individually place trades for each and every one of those companies would be prohibitive. I can buy one share of an exchange-traded fund that tracks the S&P 500 for less than the purchase price of a single share in some of the companies that make up the index.", "title": "" } ]	fiqa
f4fb2f27f21f507b7b71db8b0fbb5c16	Why did gold dip in 2011	[ { "docid": "6027469fe2cb45ad372b8b736d78b610", "text": "\"The cause of the increase in 2006-2011 was the financial crisis, where, if you recall, the global banking system came close to collapse for reasons that are well documented. Rightly or wrongly, gold is seen as a safe haven asset in times of crisis. The price of gold began to decline in 2011 when the markets decided that the risk of a global banking system collapse had passed without further incident. In the period leading up to 2006, the price of gold was in a flat-to-down trend because there was little net buying interest in gold and large gold sales had been executed by various central banks around the world who felt that gold no longer had a place in central bank reserves. In modern economies gold is seen as a \"\"fringe\"\" asset. It has no role to play. The recent financial crisis may have dented that perception, but those dents are now being forgotten and the price of gold is returning to its long-term downward trend. When the next financial/banking crisis is upon us, the price of gold will again (probably) rally. The extent of the rally will depend on the extent of the crisis.\"", "title": "" } ]	[ { "docid": "992c4a800619acd532506d590e88bf8b", "text": "For the record, now that 2011 is here we know that the capital gains tax rate didn't change. Congress extended it for two more years. This shows the uncertainty in trying to maximize earnings based on future changes to the tax code.", "title": "" }, { "docid": "18db0e4ca9c70f63f9dfd4813596faf3", "text": "\"I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2). While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further. This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities. Consider that the ECB's actions were \"\"tighter\"\" than expected and the Fed plans to raise rates, or claims so. Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities. If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country. Yet, it's not doing that. The whole \"\"China crisis\"\" is completely oversold in the West; China is saying one thing (\"\"oh no\"\"), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies. You know how many bailouts ExxonMobil has received compared to Goldman Sachs? You know who owns more real wealth? Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates. Hard times strengthen good companies. This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get? Zero. At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think \"\"investing in miners is a VERY BAD idea.\"\" What do they think is a good idea? \"\"Duh, Snapchat and Twitter, bruh!\"\" Then there's the old saying, \"\"Be greedy when everyone's fearful and fearful when everyone's greedy.\"\" Finally, miners own hard assets. Benjamin Graham used to point this out with the \"\"dead company\"\" strategy like finding a used cigarette with one more smoke. You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE! Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply. Remember, investors are part owners in companies - take more control to limit the supply. Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose. When you own assets debt free, you can cut the supply. This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation. The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key.\"", "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": "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": "f4f42a26d035479427867cc4eb653fc4", "text": "Two reasons why I think that's irrelevant: First, if it was on 3/31/2012 (two other sources say it was actually 4/3/2012), why the big jump two trading days later? Second, the stock popped up from $3.10 to $4.11, then over the next several trading days fell right back to $3.12. If this were about the intrinsic value of the company, I'd expect the stock to retain some value.", "title": "" }, { "docid": "dcc2c42a6eb56e97cd39caabe9023042", "text": "As soon as the USA left the gold exchange standard, total factor productivity began to dramatically stagnate. We can trace it back to the early 1900s, but because of electricity, oil, automobiles and computers it is best to track it from Nixon taking us off the gold standard: http://azizonomics.files.wordpress.com/2012/06/tfp.jpeg Coincidence? I don’t think so — a fundamental change in the nature of the money supply coincided almost exactly with a fundamental change to the shape of the nation’s economy. Is the simultaneous outgrowth in income inequality a coincidence too? Keynesians may respond that correlation does not necessarily imply causation, and though we do not know the exact causation, there are a couple of strong possibilities that may have strangled productivity: 1.Leaving the gold exchange standard was a free lunch for policymakers: GDP growth could be achieved without any real gains in productivity, or efficiency, or in infrastructure, but instead by just pumping money into the system. 2.Leaving the gold exchange standard was a free lunch for businesses: revenue growth could be achieved without any real gains in productivity, or efficiency. And it’s not just total factor productivity that has been lower than in the years when America was on the gold exchange standard — as a Bank of England report recently found, GDP growth has averaged lower in the pure fiat money era (2.8% vs 1.8%), and financial crises have been more frequent in the non-gold-standard years. Bottomline, it is the best explanation for a fall in productivity even factoring in computers.", "title": "" }, { "docid": "23b6f3349410a9cd46532acb781c86ea", "text": "The point of what you heard is likely that gold is thought by some to hold its value well, when the money market would provide negative interest rates. These negative interest rates are a sign of deflation, where cash money is worth more in the future than it is today. Normally, under inflation, cash money is worth less in the future than it is today. Under 'normal' circumstances where inflation exists, interest paid by the bank on money held there generally keeps up with inflation + a little bit extra. Now, we are seeing many banks offering interest rates in the negatives, which is an acknowledgement of the fact that money will be worth more in the future than it is today. So in that sense, holding physical gold 'fights' deflation [or, negative interest rates], in the same way that holding physical cash does [because if you hold onto a $10k bundle of bills, in 10 years you can walk into a bank and it will be worth $10k in future dollars - which in a deflationary market would be more than it is worth today]. Some view gold as being better at doing this than just holding cash, but that discussion gets into an analysis of the value of paper money as a currency, which is outside the scope of this answer. Suffice to say, I do not personally like the idea of buying gold as an investment, but some do, and partly for this reason.", "title": "" }, { "docid": "b6c7b57b4c708099bbf82caed964b5cb", "text": "December, 5, 2011 ( 03:00pm ) :- All markets including stocks & Commodities are moving towards upward direction on the strong cues comes on the expiring today. Little bit Volatile comes over the settlement in MCX today. Gold & Silver contracts are expiring today. Dow Jones Industrial average future up by80 points from the optimism coming from the European Countries. All European Countries getting financial aid from the side of IMF which is provided through the European Central Bank. Nifty have strong resistance at 5150 levels under this level short term trend still bearish side. Gold have strong support at Rs 28960 above this trend bullish under this trend down for short term.", "title": "" }, { "docid": "8ac2209c513ee6c964e7277b426315ba", "text": "Gold is a commodity. It has a tracked price and can be bought and sold as such. In its physical form it represents something real of signifigant value that can be traded for currency or barted. A single pound of gold is worth about 27000 dollars. It is very valuable and it is easily transported as opposed to a car which loses value while you transport it. There are other metals that also hold value (Platinum, Silver, Copper, etc) as well as other commodities. Platinum has a higher Value to weight ratio than gold but there is less of a global quantity and the demand is not as high. A gold mine is an investement where you hope to take out more in gold than it cost to get it out. Just like any other business. High gold prices simply lower your break even point. TIPS protects you from inflation but does not protect you from devaluation. It also only pays the inflation rate recoginized by the Treasury. There are experts who believe that the fed has understated inflation. If these are correct then TIPS is not protecting its investors from inflation as promised. You can also think of treasury bonds as an investment in your government. Your return will be effectively determined by how they run their business of governing. If you believe that the government is doing the right things to help promote the economy then investing in their bonds will help them to be able to continue to do so. And if consumers buy the bonds then the treasury does not have to buy any more of its own.", "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": "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": "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": "eab99cf37df4a53a13425e546e9c18cc", "text": "Your quote: There's about 10 trillion in gold and about 2.8 trillion of US cash in the world. Neither of these is anywhere large enough to be used for all the transactions in the world. So how was it commercial banks could lend like crazy for home mortgages?? M1 remaind constant throughout the decade and years , if frac multiplier effect was the cause for m2, why wasn't it until the 2000s that m2 became exponential? Commercial Banks able to create credit and lend out of thin air to customers thanks to deregulation that caused m2 to explode. They didn't need no FED. They didin't need no reserves. They were able to act regardless of the FED. The FED responded to them, instead of the other way around. Before deregulation banks didn't bother creating too much credit loans coz it was too dangerous, they were mostly utilty banks. After deregulation, creation of exotic derivatives, low interest rates, and high speed internet globalized digital trading, they went crazy creating credit out of thin air coz it wasn't dangerous because they could sell the home loans.", "title": "" }, { "docid": "cd2a64bcdd023cd567783c2803055d70", "text": "What do you base that on? It does appear to be in a bubble, but what makes you think it will pop in a year or two? What if people keep getting more and more scared of the current instability and keep pumping their money into 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": "" } ]	fiqa
e182e15649b518622a31247e0b9aeaf3	How to motivate young people to save money	[ { "docid": "f64638bc09f0ef72ed1083f5cd0918a8", "text": "Talk freely about what you can now do because of saving. If you plan to retire sooner than most, or more comfortably than most, and can tie that to something you want them to do, show them that. If you buy a very nice car, or install a pool, and they wish they could afford that, tell them it took 5 or 10 or 20 years to save up for it, at x a week, and now you have it with no loan. Or be a cautionary tale: wish you had something, and regret not having saved for it. Young adults are generally well served by knowing more of parental finances than they did while they were dependents. Ask them if they will want or need to fund parental leaves, make a down payment for a house, own vacation property, put a child through post secondary education (share the cost of theirs including living expenses if you paid them), or go on amazing vacations fairly regularly. Tell them what those things cost in round figures. Explain how such a huge sum of money can accumulate over 2, 5, 10 years of saving X a month. for example $10 a week is $500 a year and so on. While they may not want to save 20 years for their downpayment, doing this simple math should let them map their savings amounts to concrete wishes and timeframes. Finally, if this is your own child and they live with you, charge them rent. This will save them from developing the habit of spending everything they earn, along with the expensive tastes and selfish speaking habits that come with it. Some parents set the rent aside and give it back as a wedding or graduation present, or to help with a downpayment later, but even if you don't, making them live within their true means, not the inflated means you have when you're living rent-free, is truly a gift.", "title": "" }, { "docid": "dd0dd85bad94d6fbb950e2764c032786", "text": "\"I posted a comment in another answer and it seems to be approved by others, so I have converted this into an answer. If you're talking about young adults who just graduated college and worked through it. I would recommend you tell them to keep the same budget as what they were living on before they got a full-time job. This way, as far as their spending habits go, nothing changes since they only have a $500 budget (random figure) and everything else goes into savings and investments. If as a student you made $500/month and you suddenly get $2000/month, that's a lot of money you get to blow on drinks. Now, if you put $500 in savings (until 6-12 month of living expenses), $500 in investments for the long run and $500 in vacation funds or \"\"big expenses\"\" funds (Ideally with a cap and dump the extra in investments). That's $18,000/yr you are saving. At this stage in your life, you have not gotten used to spending that extra $18,000/yr. Don't touch the side money except for the vacation fund when you want to treat yourself. Your friends will call you cheap, but that's not your problem. Take that head start and build that down payment on your dream house. The way I set it up, is (in this case) I have automatics every day after my paychecks come in for the set amounts. I never see it, but I need to make sure I have the money in there. Note: Numbers are there for the sake of simplicity. Adjust accordingly. PS: This is anecdotal evidence that has worked for me. Parents taught me this philosophy and it has worked wonders for me. This is the extent of my financial wisdom.\"", "title": "" }, { "docid": "e1616d8bf5ea75501f47408abdac52ee", "text": "\"Although my kid just turned 5, he's learning the value of money now, which should help him in the future. First thing, teach him that you exchange money for goods and services. Let him see the bills, and explain what they're for (i.e. \"\"I pay ISP Co to give us Internet; that lets us watch Youtube and Netflix, as well as play games with Grandma on your GameStation\"\"). After a little while, they will see where it goes, and why. Then you have your automatic bills, such as mortgage payments. I make a habit of taking out the cash after I get paid, and my son comes with me to the bank where I deposit it again (I get paid monthly, so it's only one extra withdraw). He can physically see the money, and understand that if the stack is gone, it's gone. Now that he is understanding things cost money, he wants to make money himself. He volunteers to help clean up the kitchen and vacuum rooms in the house, usually without being asked. I give him a dollar or two for the simple chores like that. Things like cleaning his room or his own mess, he does not get paid for. He puts all his money into his piggy bank, and he has some goals in mind: a big fire truck, a police helicopter, a pool, a monster truck, a boat. Remember he's only 5. He has his goals, and we have the money he's been saving up. We calculate how many times he needs to vacuum the living room, or clean up dishes, to get there, and he realizes it takes a long time. He looks for other ways to make money around the house, and we come up with solutions together. I am hoping in a year or two that I can show him my investments and get him to understand why they make or lose money. I want to get him in to the habit of investing a little bit every few months, then every month, to help his income grow, even if he can't touch the money quite yet.\"", "title": "" }, { "docid": "ddaec831da2ea04d33237c7a9d7a2a9b", "text": "Are you sure the question even makes sense? In the present-day world economy, it's unlikely that someone young who just started working has the means to put away any significant amount of money as savings, and attempting to do so might actually preclude making the financial choices that actually lead to stability - things like purchasing [the right types and amounts of] insurance, buying outright rather than using credit to compensate for the fact that you committed to keep some portion of your income as savings, spending money in ways that enrich your experience and expand your professional opportunities, etc. There's also the ethical question of how viable/sustainable saving is. The mechanism by which saving ensures financial stability is by everyone hoarding enough resources to deal with some level of worst-case scenario that might happen in their future. This worked for past generations in the US because we had massive amounts (relative to the population) of (stolen) natural resources, infrastructure built on enslaved labor, etc. It doesn't scale with modern changes the world is undergoing and it inherently only works for some people when it's not working for others. From my perspective, much more valuable financial skills for the next generation are:", "title": "" }, { "docid": "dd89a3b979537aa56baccb0c1159a488", "text": "I recommend pulling up a retirement calculator and having an honest conversation about how long term savings works, and the power of compound interest. Just by playing around with the sliders on an online calculator, you can demonstrate how the early years are the most important. Depending on how much they make now and are considering saving, delaying 5-10 years can easily leave 6-7 figures on the table. If it's specifically a child or close family member, I recommend pulling up your retirement account. Talk with them about how you managed it, and how much you were putting in. Perhaps show them how much is the principal and how much is interest. If you did well, tell them how. If you didn't do as well as you liked, tell them what you would have done differently. Finally, discuss a bit of psychology. Even if they don't have a professional job and are making minimum wage, getting into the habit of saving makes it easier when they eventually make more. A couple of dollars a month isn't much, but getting into the habit makes it easier to save a couple hundred dollars a month later on.", "title": "" }, { "docid": "3b756983b590de33a66abf890947706d", "text": "As a 20 year old who has just started earning enough to save, I suggest showing them the different types of lifestyles they could live in the future if they started saving now versus what their life would be like if they didn't save at all. Try showing them actual dollar values as well so it's not just an arbitrary idea.", "title": "" }, { "docid": "00b7376f54ad2039f73cb151f343a3ad", "text": "Teach them that money can help solve most (if not all the problems) in life. If they truly appreciate the value of saving every single penny, eventually they will come to realize that if you don't touch your money (waste it on useless things you don't need such as eating out) that it can grow. Also teach them the value of compounding interest, even a TFSA/high interest savings account with a modest 3-4% annual ROI can be big with yearly additions and no withdrawals for a lifetime. Tell them to take Johnny Appleseed for example. Johnny starts up his TFSA with help from mom and dad at the age of 15, let's say they put in $5000 all together. Now let's say he adds in a modest $2500 to his TFSA every year until he is 55 years old. If the TFSA has an interest rate of 4%, then when he's 55 he'll have over half a million dollars in the bank and he really didn't have to do much besides not touch it.", "title": "" }, { "docid": "c645dc413730f33424e2bdb782d78a32", "text": "In the United States you can't, because the average millennial in the United States has no opportunity to save money. Either you get a college education, then you will be burdened with a student loan. The cost of college education skyrocketed in the past decades. It is now practically impossible to enter the workforce without a huge debt, unless you are one of the lucky few who has rich and generous parents. Or you skip college. But college is the only way in the United States to obtain a generally accepted qualification, so you won't get any job which pays enough to save any money. As soon as that student loan is paid off, you need to get another loan for you house which you pay off for several decades. As soon as the house debt is paid off, you will be old and develop some medical problems. The medical bills will come in and you will be in debt again. So when in their life are millennials supposed to save money?", "title": "" } ]	[ { "docid": "be328e7afd1c173af50f4af885eb9548", "text": "\"I found this great resource at MarketWatch.com - a listing on online games that help parents teach kids about saving and finance, set up by age group. Here's an example of some of the content: For children six to nine: www.fleetkids.com, sponsored by the Fleet Bank, has great games -- like \"\"Buy lo, Sell hi\"\" and \"\"Chunka Change\"\" -- that teach kids about spending and saving. Kids can compete for prizes such as computers and backpacks for their schools.\"", "title": "" }, { "docid": "ed34d0cc8acae6af2b075ae12dcce9de", "text": "I agree with all of the answers, but knowing the amount of money saved will give new ideas to use this money to help develope new concepts that will help humanity.", "title": "" }, { "docid": "7e23806abc4aac758bb9c06fc926f314", "text": "begin having them take community college courses while they are still in high school - this should be a better use of time than AP courses. if they continue and get an associates degree the credits should be transferrable anywhere take the associates degree to a state school and have them finish just their two years (4 semesters) at the state school. that should be an non-stressful and affordable approach that will give them a time/age-based advantage over their peers. so instead of playing with financial aid and retirement plan rules, this sort of goal can help you save, without creating inconsequential and unnecessary expectations for yourself or your family", "title": "" }, { "docid": "60c540abcf82bfac279538fd755a87c3", "text": "\"The advice to \"\"Only invest what you can afford to lose\"\" is good advice. Most people should have several pots of money: Checking to pay your bills; short term savings; emergency fund; college fund; retirement. When you think about investing that is the funds that have along lead time: college and retirement. It is never the money you need to pay your bills. Now when somebody is young, the money they have decided to invest can be in riskier investments. You have time to recover. Over time the transition is made to less risky investments because the recovery time is now limited. For example putting all your college savings for your recent high school graduate into the stock market could have devastating consequences. Your hear this advice \"\"Only invest what you can afford to lose\"\" because too many people ask about hove to maximize the return on the down payment for their house: Example A, Example B. They want to use vehicles designed for long term investing, for short term purposes. Imagine a 10% correction while you are waiting for closing.\"", "title": "" }, { "docid": "8444c1e9f962bf7ed2b95b0b44bb3d2a", "text": "\"Many reasons, but let me pick my favourite: The incentive to save isn't there. Any government subject to elections has the incentive to spend as much as possible to remain in power. What is worse, it has a DISINCENTIVE to save. Because the money it saves - and which it pays for with bad will from the electorate, who should really be smarter - is going to be spent by the OTHER guy who will then look incredibly good and be reassured of re-election. \"\"But isn't it afraid of accumulating debt?\"\" you may ask, and its simple. Somebody else will be there when the debt is due. The problem of incentives is a fundamental one.\"", "title": "" }, { "docid": "b8ac04acdd03e5aee92e8b4c4d3c7d80", "text": "\"It's also not really anything new. For a several decades, a huge percentage of the population has been essentially living paycheck-to-paycheck, and with essentially zero cash savings to cover emergencies. It's possible that it is slightly worse now in the sense that -- with the pervasive use of credit & debit cards, etc -- few people deal in cash or change very often ... and so they don't even have the old proverbial \"\"piggy banks\"\" (or jars/bottles filled with end-of-day pocket-change) that they can raid for $50 or $100. Oh, and THAT really has nothing to do with \"\"bubbles\"\". --- EDIT: Plus another thought... just the other day there was an article crowing about how Millennials are \"\"saving for retirement\"\" in higher amounts and at earlier ages than prior generations -- if that is true, then a likely corollary would be that they are NOT engaged in plain old \"\"savings\"\" at the same rate -- i.e. what money they are \"\"stashing away\"\" is all heading to Wall Street, and is difficult to access in an emergency (and if they did access 401k savings, it would likely be as a \"\"loan\"\" -- rather than paying the early-withdrawal penalties & taxes).\"", "title": "" }, { "docid": "d12a01b8f903137662fada452e2939e5", "text": "\"Congratulations. The first savings goal should be an emergency fund. Think of this not as an investment, but as insurance against life's woes. They happen and having this kind of money earmarked allows one to invest without needing to withdraw at an inopportune time. This should go into a \"\"high interest\"\" savings account or money market account. Figure three to six months of expenses. The next goal should be retirement savings. In the US this is typically done through 401K or if your company does not offer one, either a ROTH IRA or Traditional IRA. The goal should be about 15% of your income. You should favor a 401k match over just about anything else, and then a ROTH over that. The key to transforming from a broke college student into a person with a real job, and disposable income, is a budget. Otherwise you might just end up as a broke person with a real job (not fun). Part of your budget should include savings, spending, and giving. All three areas are the key to building wealth. Once you have all of those taking care of the real fun begins. That is you have an emergency fund, you are putting 15% to retirement, you are spending some on yourself, and giving to a charity of your choice. Then you can dream some with any money left over (after expenses of course). Do you want to retire early? Invest more for retirement. Looking to buy a home or own a bunch of rental property? Start educating yourself and invest for that. Are you passionate about a certain charity? Give more and save some money to take time off in order to volunteer for that charity. All that and more can be yours. Budgeting is a key concept, and the younger you start the easier it gets. While the financiers will disagree with me, you cannot really invest if you are borrowing money. Keep debt to zero or just on a primary residence. I can tell you from personal experience that I did not started building wealth until I made a firm commitment to being out of debt. Buy cars for cash and never pay credit card interest. Pay off student loans as soon as possible. For some reason the idea of giving to charity invokes rancor. A cursory study of millionaires will indicate some surprising facts: most of them are self made, most of them behave differently than pop culture, and among other things most of them are generous givers. Building wealth is about behavior. Giving to charity is part of that behavior. Its my own theory that giving does almost no good for the recipient, but a great amount of good for the giver. This may seem difficult to believe, but I ask that you try it.\"", "title": "" }, { "docid": "0a0eec08c6dc5f325bd54e3dfe206026", "text": "\"Other people have already demonstrated the effect of compound interest to the question. I'd like to add a totally different perspective. Note that the article says if you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors [...] you'll likely accumulate enough savings to retire comfortably. (the latter point may be the more practical mark than the somewhat arbitrary million (rupees? dollars?) My point here is that the group of people who do put away a substantial fraction of their (lower) early wages and keep them invested for decades show (at least) two traits that will make a very substantial difference to the average (western) person. They may be correlated, though: people who are not tempted or able to resist the temptation to spend (almost) their whole income may be more likely to not touch their savings or investments. (In my country, people like to see themselves as \"\"world champions in savings\"\", but if you talk to people you find that many people talk about saving for the next holidays [as opposed to saving for retirement].) Also, if you get going this way long before you are able to retire you reach a relative level of independence that can give you a much better position in wage negotiations as you do not need to take the first badly paid job that comes along in order to survive but can afford to wait and look and negotiate for a better job. Psychologically, it also seems to be easier to consistently keep the increase in your spending below the increase of your income than to reduce spending once you overspent. There are studies around that find homeowners on average substantially more wealthy than people who keep living in rental appartments (I'm mostly talking Germany, were renting is normal and does not imply poverty - but similar findings have also been described for the US) even though someone who'd take the additional money the homeowner put into their home over the rent and invested in other ways would have yielded more value than the home. The difference is largely attributed to the fact that buying and downpaying a home enforces low spending and saving, and it is found that after some decades of downpayment homeowners often go on to spend less than their socio-economic peers who rent. The group that is described in this question is one that does not even need the mental help of enforcing the savings. In addition, if this is not about the fixed million but about reaching a level of wealth that allows you to retire: people who have practised moderate spending habits as adults for decades are typically also much better able to get along with less in retirement than others who did went with a high consumption lifestyle instead (e.g. the homeowners again). My estimate is that these effects compound in a way that is much more important than the \"\"usual\"\" compounding effect of interest - and even more if you look at interest vs. inflation, i.e. the buying power of your investment for everyday life. Note that they also cause the group in question to be more resilient in case of a market crash than the average person with about no savings (note that market crashes lead to increased risk of job loss). Slightly off topic: I do not know enough how difficult saving 50 USD out of 50 USD in Pakistan is - and thus cannot comment whether the savings effort called for in the paper is equivalent/higher/lower than what you achieve. I find that trying to keep to student life (i.e. spending that is within the means of a student) for the first professional years can help kick-starting a nest egg (European experience - again, not sure whether applicable in Pakistan).\"", "title": "" }, { "docid": "bdc99f33cda6ef0e91fe653de1761fe5", "text": "One of the simplest things is to lock your money e.g. put on time deposit which has some penalty when you broke them pre-maturily. Also create a portfolio in a site, this will spark interest on saving and investment.", "title": "" }, { "docid": "045b03d3530b3e3f6265ebefedc303b3", "text": "\"Remember where they said \"\"Life, liberty and the pursuit of happiness? That is the essence of this problem. You have freedom including freedom to mess up. On the practical side, it's a matter of structuring your money so it's not available to you for impulse buying, and make it automatic. Have you fully funded your key necessities? You should have an 8-month emergency fund in reserve, in a different savings account. Are you fully maxing out your 401K, 403B, Roth IRA and the like? This single act is so powerful that you're crazy not to - every $1 you save will multiply to $10-100 in retirement. I know a guy who tours the country in an RV with pop-outs and tows a Jeep. He was career Air Force, so clearly not a millionaire; he saved. Money seems so trite to the young, but Seriously. THIS. Have auto-deposits into savings or an investment account. Carry a credit card you are reluctant to use for impulse buys. Make your weekly ATM withdrawal for a fixed amount of cash, and spend only that. When your $100 has to make it through Friday, you think twice about that impulse buy. What about online purchases? Those are a nightmare to manage. If you spend $40 online, reduce your ATM cash withdrawal by $40 the next week, is the best I can think of. Keep in mind, many of these systems are designed to be hard to resist. That's what 1-click ordering is about; they want you to not think about the bill. That's what the \"\"discount codes\"\" are about; those are a fake artifice. Actually they have marked up the regular price so they are only \"\"discounting\"\" to the fair price. You gotta see the scam, unsubscribe and/or tune out. They are preying on you. Get angry about that! Very good people to follow regularly are Suze Orman or Dave Ramsey, depending on your tastes. As for the ontological... freedom is a hard problem. Once food and shelter needs are met, then what? How does a free person deny his own freedom to structure his activities for a loftier goal? Sadly, most people pitching solutions are scammers - churches, gurus, etc. - after your money or your mind. So anyone who is making an effort to get seen by you and promise to help you is probably not a good guy. Though, Napoleon Hill managed to pry some remarkable knowledge from Andrew Carnegie in his book \"\"Think and Grow Rich\"\". Tony Robbins is brilliant, but he lets his staff sell expensive seminars and kit, which make him look like just another shyster. Don't buy that stuff, you don't need it and he doesn't need you to buy it.\"", "title": "" }, { "docid": "77ab1d33ec2931a9eb55d8b0db9fe0b6", "text": "\"There are only two ways to increase your savings: You are young, and both of these are likely to spontaneously happen - you will be promoted and get raises, and your loans will be paid off, removing the loan payment. It would seem that you need only to wait a year or so, and there will a lot more than $87 left over each month, and your savings will grow almost without any action from you. But somehow, that is not what happens in real life. As people get older they \"\"need\"\" more than they did before (larger home, more expensive \"\"things\"\", etc) and they never manage to get around to saving. So it's great that you are wondering how to do it. But you are not truly making it a priority. You mention that you also pay/spend for friends, the internet, play & joy, cloth, gifts, book, etc. And this armwavy entirely optional spending is the difference between 72.85 (such precision!) and 90% of your salary. In other words it is 17-18% or more than your rent. Think about that for a moment. Every month you spend more than your rent on friends, play, joy, books and good old etc. If you were to cut that in half, you could save 8 or 9% of your salary. Maybe after your next raise you can get that up to 10%. How can you cut that optional \"\"fun\"\" stuff in half? Well, I don't know, because I don't know what it is, and I suspect you don't either. So track it, for a month or two. Are you getting takeout food or coffee every day? Are you always the one who pays when you go out with friends? Do you eat in restaurants a lot? Do you always wear the latest fashions, buy $500 shoes, pay people to do your nails or dye your hair, buy a new phone every year, have the top end phone plan, top end cable plan, ... You have to know where that rent's-worth of money goes every month. Then you can figure out how to send some of it to savings instead. In some ways you are in a hard generation. Your parents didn't need to save for their retirement because they had you, and they know you will send money home for them. But you probably don't expect the same from the children you don't have yet, so you have to save for yourself. This is a challenge. If you were saving the money you send your parents, you'd be fine. Yet you don't want to reduce what you send, they need it. Still, people have faced bigger challenges and overcome them. Start by understanding where your fun money is going, then look at how to send some (aim for half) of that to savings instead. You won't regret it.\"", "title": "" }, { "docid": "1407a11a1bfd45195cc54d12195ad9d1", "text": "\"In that example, \"\"creating money\"\" could be used interchangeably with \"\"making promises\"\". There's no inflation, and no problem, so long as everyone keeps their promises. Which sounds like a horrifying thing to say about the foundations of the economy, but the remarkable thing is that people mostly do.\"", "title": "" }, { "docid": "ad8a6813ffead5acedb9417d1db3f382", "text": "\"I would let them get their hands dirty, learn by practicing. Below you can find a simple program to generate your own efficient frontier, just 29 lines' python. Depending on the age, adult could help in the activity but I would not make it too lecturing. With child-parent relationship, I would make it a challenge, no easy money anymore -- let-your-money work-for-you -attitude, create the efficient portfolio! If there are many children, I would do a competition over years' time-span or make many small competitions. Winner is the one whose portfolio is closest to some efficient portfolio such as lowest-variance-portfolio, I have the code to calculate things like that but it is trivial so build on the code below. Because the efficient frontier is a good way to let participants to investigate different returns and risk between assets classes like stocks, bonds and money, I would make the thing more serious. The winner could get his/her designed portfolio (to keep it fair in your budget, you could limit choices to index funds starting with 1EUR investment or to ask bottle-price-participation-fee, bring me a bottle and you are in. No money issue.). Since they probably don't have much money, I would choose free software. Have fun! Step-by-step instructions for your own Efficient Frontier Copy and run the Python script with $ python simple.py > .datSimple Plot the data with $ gnuplot -e \"\"set ylabel 'Return'; set xlabel 'Risk'; set terminal png; set output 'yourEffFrontier.png'; plot '.datSimple'\"\" or any spreadsheet program. Your first \"\"assets\"\" could well be low-risk candies and some easy-to-stale products like bananas -- but beware, notice the PS. Simple Efficient-frontier generator P.s. do not stagnate with collectibles, such as candies and toys, and retailer products, such as mangos, because they are not really good \"\"investments\"\" per se, a bit more like speculation. The retailer gets a huge percentage, for further information consult Bogleheads.org like here about collectible items.\"", "title": "" }, { "docid": "fca05efbdc5641fa55c112669d696760", "text": "I think the list could have added: - Save in regular intervals using the same strategy. Just to make sure that good old dollar cost averaging is thrown in. That's probably where most people go way wrong. Save money all year, dump it on a stock they like because some family friend investment expert said that 'apple prices will go up' with out explaining that you need to take advantage of mean reversion to help spread the risk.", "title": "" }, { "docid": "ed0a834861a6e3accdc94feb5d815429", "text": "If these are children that may be employed, in a few years, it may well be worth walking them through some basics of the deductions around employment, some basic taxes, uses of banks, and give them enough of a basis in how the economy of the world works. For example, if you get a job and get paid $10/hour, that may sound good but how much do various things eat at that so your take-home pay may be much lower? While this does presume that the kids will get jobs somewhere along the way and have to deal with this, it is worth making this part of the education system on some level rather than shocking them otherwise. Rather than focusing on calculations, I'd be more tempted to consider various scenarios like how do you use a bank, what makes insurance worth having(Life, health, car, and any others may be worth teaching on some level), and how does the government and taxes fit into things. While I may be swinging more for the practical, it is worth considering if these kids will be away in college or university in a few years, how will they handle being away from the parents that may supply the money to meet all the financial needs?", "title": "" } ]	fiqa
3a6af1df18f088ae042161266d43d63c	Buying Fixed Deposit in India from Europe	[ { "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": "" }, { "docid": "c250eb615243f98ddef97cbc801dfbae", "text": "A few weeks ago, I was thinking about this exact thing (except swap Euros for Canadian Dollars). The good news is that there are options. Option 1: yes, buy Indian fixed deposits Interest rates are high right now- you can get up to 9% p.a. It boils down to your sentiment about the Indian rupee going forward. For instance, let's say you purchase a deposit for amount x at 9% p.a., you can have it double to almost 2x in 10 years. Three things can happen in 10 years: Are you optimistic about Indian governance and economy going forward? If you are, go for it! I certainly am. Option 2: heard of FCNR? Look in to FCNR deposits. I don't know about Europe, but in Canada, the best rate for a 1 year deposit is approximately 1.5%. However, through Foreign Currency Non-Resident (FCNR) deposits, you can get up to 4% or 5%. The other benefit is that you don't have to convert currency to INR which results in conversion savings. However, only major currencies can be used to open such accounts.", "title": "" }, { "docid": "898ce44c82eb87251d3e0d36b6907dda", "text": "You could go further and do a carry trade by borrowing EUR at 2% and depositing INR at 10%. All the notes above apply, and see the link there.", "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": "1aca376468745b168aed1c52d5994b16", "text": "If you plan to stay in Europe for some time, then you should match your income currency with your liability currency, and so should use the Euro loan to pay off the INR loan, thereby eliminating the currency risk that you currently bear every time you convert Euro into INR to pay down the loan. Plus, you have a much lower interest rate. So, do it !", "title": "" }, { "docid": "d5b1c411ac0912893cb09fe44fe2823a", "text": "Currently, in the US, you won't be able to get 4% return on a risk free investment (savings account, CDs, treasury bonds). If the banking system in India guarantees your money and the cost of transferring them to India is not prohibitive, that's the safest option. Buying a house usually is only worth it if you plan to live in it for a while, 5 years or more being the commonly cited figure. Every case is different, if you rent is very high, it might be worth to buy. I suggest posting another question specifically about that with more details about your situation. If you can tolerate a bit more risk, you might want to talk to a financial adviser and invest in the stock market.", "title": "" }, { "docid": "e8727238d9dabfc6e758becb7c6b7d71", "text": "The easiest way is to walk over to any Bank that deals with Foreign Exchange or go to any Western union Money Transfer agencies, they will take the Euro and give you Indian Rupees. Passport is not required, but a proof of identity is required. Banks will also ask you question as to how you got the money, as long as you are able to answer them you will get the money. There would also be local Jewellary stores that would convert the money. If you are dealing with them be sure you have check the rates with few before going into the deal.", "title": "" }, { "docid": "39a433a84ddadd612b78e80c78d4808f", "text": "\"The UK has Islamic banks. I don't know whether Germany has the same or not (with a quick search I can find articles stating intentions to establish one, but not the results). Even if there's none in Germany, I assume that with some difficulty you could use banks elsewhere in the EU and even non-Euro-denominated. I can't recommend a specific provider or product (never used them and probably wouldn't offer recommendations on this site anyway), but they advertise savings accounts. I've found one using a web search that offers an \"\"expected profit rate\"\" of 1.9% for a 12 month fix, which is roughly comparable with \"\"typical\"\" cash savings products in pounds sterling. Typical to me I mean, not to you ;-) Naturally you'd want to look into the risk as well. Their definition of Halal might not precisely match yours, but I'm sure you can satisfy yourself by looking into the details. I've noticed for example a statement that the bank doesn't invest your money in tobacco or alcohol, which you don't give as a requirement but I'm going to guess wouldn't object to!\"", "title": "" }, { "docid": "7661b60cafbf998e95f8e3cebeb7cc8f", "text": "There are good reasons to not go the cash route here (see Jay's answer). If one insists however, at 30 k€ anti-money laundering regulations have to be considered (and are not mentioned by the existing answers so far). Depositing amounts larger than 10 k€ will trigger questions about the source of the money to fight tax evasion and organized crime (splitting the amount may still trigger the process). So prepare good proof concerning the origin of that money and a paper trail that shows it is legal money and that it has been taxed already. I.e. the latest Anti-Money Laundering Directive is supposed to be implemented by national laws, thus including Spain. The European Union Fourth Anti-Money Laundering Directive is the most sweeping AML legislation in Europe in several years. On 25 June 2015, the EU Fourth Directive was enacted, which replaces the previous Third Directive. With a two-year window for implementation, all EU member states must be compliant with the new mandates by 26 June 2017. Source", "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": "ebb874728ea5c83f7c47d5f71cbed3ed", "text": "I can't speak for India, but for US travelers abroad, using an ATM card that reimburses transaction fees is usually the most convenient and cheapest way to obtain foreign cash. There are several banks and brokerages that offer these types of ATM cards in the US. The exchange rate is competitive and because the fees are reimbursed it's cheaper and easy than going to a bank or kiosk to exchange currencies. I don't know if you can get accounts/cards like this in India that reimburse ATM fees. For purchases, using a credit card is fine, too. Some cards charge a foreign transaction fee of ~1%, some don't. The credit card I use most of the time does charge a 1% transaction fee, but I get 2% back in rewards so I still don't mind using it when traveling.", "title": "" }, { "docid": "9a645e71c88b090fb161d6d1f0924ae6", "text": "\"Rating agencies are pretty garbage, the market is always a few steps ahead of them. However, India is rated lower as it has not been an economic \"\"power\"\" for a long time ans is still developing. However the market rates on bonds tell a different story, and that is that India is safer than Spain to lend to. It is also easier to go after assets in Spain a Eurozone country than India, however Indian debt in Rupees should be safer than Spanish debt in Euros as India can fire up the printer if necessary. Indian yield on the 10 year is ~ 8.5% inflation is 7.5% giving a real yield of 1% Spanish 10 year is 6.87% and Eurozone inflation is 2.4% giving a real yield of 4.47%. The market doesn't agree with S&P.\"", "title": "" }, { "docid": "60dbfff8b0fc19a14a628170f4c6aa8d", "text": "\"The question is asking for a European equivalent of the so-called \"\"Couch Potato\"\" portfolio. \"\"Couch Potato\"\" portfolio is defined by the two URLs provided in question as, Criteria for fund composition Fixed-income: Regardless of country or supra-national market, the fixed-income fund should have holdings throughout the entire length of the yield curve (most available maturities), as well as being a mix of government, municipal (general obligation), corporate and high-yield bonds. Equity: The common equity position should be in one equity market index fund. It shouldn't be a DAX-30 or CAC-40 or DJIA type fund. Instead, you want a combination of growth and value companies. The fund should have as many holdings as possible, while avoiding too much expense due to transaction costs. You can determine how much is too much by comparing candidate funds with those that are only investing in highly liquid, large company stocks. Why it is easier for U.S. and Canadian couch potatoes It will be easier to find two good funds, at lower cost, if one is investing in a country with sizable markets and its own currency. That's why the Couch Potato strategy lends itself most naturally to the U.S.A, Canada, Japan and probably Australia, Brazil, South Korea and possibly Mexico too. In Europe, pre-EU, any of Germany, France, Spain, Italy or the Scandinavian countries would probably have worked well. The only concern would be (possibly) higher equity transactions costs and certainly larger fixed-income buy-sell spreads, due to smaller and less liquid markets other than Germany. These costs would be experienced by the portfolio manager, and passed on to you, as the investor. For the EU couch potato Remember the criteria, especially part 2, and the intent as described by the Couch Potato name, implying extremely passive investing. You want to choose two funds offered by very stable, reputable fund management companies. You will be re-balancing every six months or a year, only. That is four transactions per year, maximum. You don't need a lot of interaction with anyone, but you DO need to have the means to quickly exit both sides of the trade, should you decide, for any reason, that you need the money or that the strategy isn't right for you. I would not choose an ETF from iShares just because it is easy to do online transactions. For many investors, that is important! Here, you don't need that convenience. Instead, you need stability and an index fund with a good reputation. You should try to choose an EU based fund manager, or one in your home country, as you'll be more likely to know who is good and who isn't. Don't use Vanguard's FTSE ETF or the equivalent, as there will probably be currency and foreign tax concerns, and possibly forex risk. The couch potato strategy requires an emphasis on low fees with high quality funds and brokers (if not buying directly from the fund). As for type of fund, it would be best to choose a fund that is invested in mostly or only EU or EEU (European Economic Union) stocks, and the same for bonds. That will help minimize your transaction costs and tax liability, while allowing for the sort of broad diversity that helps buy and hold index fund investors.\"", "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": "d72f65a044b71a3bd6360019255b8039", "text": "Part 1 Quite a few [or rather most] countries allow USD account. So there is no conversion. Just to illustrare; In India its allowed to have a USD account. The funds can be transfered as USD and withdrawn as USD, the interest is in USD. There no conversion at any point in time. Typically the rates for CD on USD account was Central Bank regulated rate of 5%, recently this was deregulated, and some banks offer around 7% interest. Why is the rate high on USD in India? - There is a trade deficit which means India gets less USD and has to pay More USD to buy stuff [Oil and other essential items]. - The balance is typically borrowed say from IMF or other countries etc. - Allowing Banks to offer high interest rate is one way to attract more USD into the country in short term. [because somepoint in time they may take back the USD out of India] So why isn't everyone jumping and making USD investiments in India? - The Non-Residents who eventually plan to come back have invested in USD in India. - There is a risk of regulation changes, ie if the Central Bank / Country comes up pressure for Forex Reserves, they may make it difficut to take back the USD. IE they may impose charges / taxes or force conversion on such accounts. - The KYC norms make it difficult for Indian Bank to attract US citizens [except Non Resident Indians] - Certain countries would have explicit regulations to prevent Other Nationals from investing in such products as they may lead to volatility [ie all of them suddenly pull out the funds] - There would be no insurance to foreign nationals. Part 2 The FDIC insurance is not the reason for lower rates. Most countires have similar insurance for Bank deposits for account holdes. The reason for lower interst rate is all the Goverments [China etc] park the excess funds in US Treasuries because; 1. It is safe 2. It is required for any international purchase 3. It is very liquid. Now if the US Fed started giving higher interest rates to tresaury bonds say 5%, it essentially paying more to other countries ... so its keeping the interest rates low even at 1% there are enough people [institutions / governemnts] who would keep the money with US Treasury. So the US Treasury has to make some revenue from the funds kept at it ... it lends at lower interest rates to Bank ... who in turn lend it to borrowers [both corporate and retail]. Now if they can borrow cheaply from Fed, why would they pay more to Individual Retail on CD?, they will pay less; because the lending rates are low as well. Part 3 Check out the regulations", "title": "" }, { "docid": "b79ee9aba5de71821740aebb9cb3c967", "text": "There are multiple ways in which you can get money to India; - Citi Bank / HDFC Bank offere similar services [and the credit account can be ICICI Bank] - Ask for a Wire/SWIFT transfer, there would be some changes [in the range of USD 30] - Ask for a company check, it would take around 30 days for you to encash in into your bank account in India.", "title": "" }, { "docid": "557a6cad91cdbb47585518cd2448d807", "text": "If they short the contract, that means, in 5 months, they will owe if the price goes up (receive if the price goes down) the difference between the price they sold the future at, and the 3-month Eurodollar interbank rate, times the value of the contract, times 5. If they're long, they receive if the price goes up (owe if the price goes down), but otherwise unchanged. Cash settlement means they don't actually need to make/receive a three month loan to settle the future, if they held it to expiration - they just pay or receive the difference. This way, there's no credit risk beyond the clearinghouse. The final settlement price of an expiring three-month Eurodollar futures (GE) contract is equal to 100 minus the three-month Eurodollar interbank time deposit rate.", "title": "" }, { "docid": "7398abe8544fccf27a34b60e839f28b3", "text": "You can check whether the company whose stock you want to buy is present on an european market. For instance this is the case for Apple at Frankfurt.", "title": "" }, { "docid": "e6d30beaaa40f21d5137f48c6ea2cca6", "text": "It's meaningful because we as a society have collectively decided that they are. It's all imaginary value, just like fiat money. That and in our capitalist society it is yet another product you are forced to buy or risk not having access to even a semblance of a decent life. It's a pretty good racket if I do say so myself.", "title": "" } ]	fiqa
4d08d32d21efa2b77cbc690ea1414a65	What is the “Bernanke Twist” and “Operation Twist”? What exactly does it do?	[ { "docid": "4eef03adb23ac2f2b8b9f6d3a908fd72", "text": "\"So \"\"Operation Twist\"\" is actually a pretty simple concept. Here's the break down: The Fed sells short-term treasury bonds that it already holds on its books. Short-term treasury bonds refer to - bonds that mature in less than three years. Then: Uses that money to buy long term treasury bonds. Long-term treasury bonds refer to - bonds that mature in six to 30 years The reason: The fed buys these longer-term treasuries to lower longer-term interest rates and encourage more borrowing and spending. Diving deeper into how it works: So the Fed can easily determine short-term rates by using the Federal funds rate this rate has a direct effect on the following: However this does not play a direct role in influencing the rate of long-term loans (what you might pay on a 30-year fixed mortgage). Instead, long-term rates are determined by investors who buy and sell bonds in the bond market, which changes daily. These bond yields fluctuate depending on the health of the economy and inflation. However, the Fed funds rate does play an indirect role in these rates. So now that we know a little more about what effects what rate, why does lower long-term rates in treasuries influence my 30yr fixed mortgage? Well when you are looking for a loan you are entering a market and competing against other people, by people I mean anyone looking for money (e.g: my grandmother, companies, or the US government). The bank that lends you money has to decide weather the deal you are offering them is better then another deal on the market. If the risk of lending to one person is the same as the risk of lending to another, the bank will make whichever loan yields the higher interest rate. The U.S. government is considered a very safe borrower, so much so that government bonds are considered almost “risk free”, but because of the lower risk the rate of return is lower. So now the bank has to factor in this risk and make its decision weather to lend you money, or the government. So, if the government were to go to the market and buy its own long-term bonds it is adding demand in the market causing the price of the bond to rise in effect lowering the interest rate (when price goes up, yield goes down). So when you go back and ask for a loan it has to re-evaluate and decide \"\"Is it worth giving this money to Joe McFreeBeer instead and collecting a higher yield?\"\" (After all, Joe McFreeBeer is a nice guy). Here's an example: Lets say the US has a rating of 10 out of 10 and its bonds pay a 2% yield. Now lets say for each lower mark in rating the bank will lend at a minimum of 1% higher and your rating is 8 of 10. So if you go to market, the lowest rate you can get will be 4%. Now lets say price rises on the US treasury and causes the rate to go down by 1%. In this scenario you will now be able to get a loan for 3% and someone with a rating of 7 of 10 would be able to get that 4% loan. Here's some more info and explinations: Why is the Government Buying Long-Term Bonds? What Is 'Operation Twist'? A Q&A on US Fed Program Federal Reserve for Beginners Federal Open Market Committee\"", "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": "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": "12cec45d7a98b04b18ee1ff0e22ffdc2", "text": "Yeah it's called the Fed buying shit mortgages that the banks invented to make money, then got bailed out on 100 cents on the dollar for, and with an underhanded deal that the banks will then buy Treasury bills with the magically prestidigitated money the Fed creates out of nothing that the banks receive in order to prop up federal debt prices, and thus keep interest rates down, so the dollar can limp along a little while longer until the bottom drops out because they are out of ways to keep the money cheap because at some point government debt will become massively discounted no matter what they do. Only, how does this bizarre circlejerk process end? It ends with consumption ramped up consuming things for a large war, is how it ends. Edit: I'm wasted. Fuck you.", "title": "" }, { "docid": "2ffbb4a564a62c8a471a983d723cac5d", "text": "\"Had they made a billion dollars it still wouldn't be arbitrage. The definition of arbitrage is \"\"the simultaneous purchase and sale of similar commodities in different markets to take advantage of price discrepancy\"\". What they did was take advantage of a loophole where they took free money to buy more free money. I believe the American government calls that Quantitative Easing. Bazinga.\"", "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": "05e87d41ee53fac21f7ce4f9b2fcdd3c", "text": "As far as i understand the big companies on the stock markets have automated processes that sit VERY close to the stock feeds and continually processes these with the intention of identifying an opportunity to take multiple small lots and buy/sell them as a big lot or vice/versa and do this before a buy or sell completes, thus enabling them to intercept the trade and make a small profit on the delta. With enough of these small gains on enough shares they make big profits and with near zero chance of losing.", "title": "" }, { "docid": "bb70a93417809e51fc892e9093c447aa", "text": "Let me explain this for you: - Massive decrease in sales from 2009-2010= bad government (Obama/Bernanke). - Even bigger increase in sales from 2010-2013= substantive economic growth due to a well-run company. - Later downturn in 2013-2014= bad government (Obama/Bernanke) Basically, when a company is increasing overall revenue and profits, that's because economics and free-markets. When a company is losing sales and revenues, that's because Obama. If their stock-price goes up when it shouldn't, that's also because Obama. Stock prices that are high right now are only high because Obama/Bernanke, except when they are high because of something else. When stock prices go down, it will also be because of Obama/Bernanke. Hopefully that clarifies things for you.", "title": "" }, { "docid": "6e488ba73bb1bea39e9b6737e5018779", "text": "Sorry, but I am absolutely correct. Fractional reserve lending (banking) is simply that when someone deposits money into a bank, the bank is allowed to loan that money out, so long as they keep a reserve. If the reserve rate is 10% (it's much lower in reality), and someone deposits $100 into the bank, the bank can then loan out $90. That is fractional reserve lending at its most basics. Now fractional reserve lending does have a multiplier effect. And this effect is exactly how I described it. Let's go back to the example. Person A deposits the $100, the bank then loans $90 to person B, person B spends it with person C, person C takes the money and deposits back to the bank. Now the bank has the $100 cash back, $90 in loans and the $190 in deposits, so they need to hold onto $19 as a reserve and can loan out $81. Assuming the money cycles with 100% efficiency, the bank can continue loaning out the same money until they are left with $1000 in deposits, $900 in loans, and the original $100 is the reserve. This is the multiplier effect.", "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": "49298734e5683df12355c7dbccf30bb4", "text": "\"The default scenario that we're talking about in the Summer of 2011 is a discretionary situation where the government refuses to borrow money over a certain level and thus becomes insolvent. That's an important distinction, because the US has the best credit in the world and still carries enormous borrowing power -- so much so that the massive increases in borrowing over the last decade of war and malaise have not affected the nation's ability to borrow additional money. From a personal finance point of view, my guess is that after the \"\"drop dead date\"\" disclosed by the Treasury, you'd have a period of chaos and increasing liquidity issues after government runs out of gimmicks like \"\"borrowing\"\" from various internal accounts and \"\"selling\"\" assets to government authorities. I don't think the markets believe that the Democrats and Republicans are really willing to destroy the country. If they are, the market doesn't like surprises.\"", "title": "" }, { "docid": "3abfe6c068b124327ded89f42cbe279f", "text": "\"I think it's an argument for Keynesian economic policy, basically an abridged version of this paragraph from the Wikipedia article: Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. \"\"private sector decisions\"\" are bottom-up: millions of businesses and individuals make economic decisions and \"\"the economy\"\" is the sum of what they do. \"\"monetary policy actions by the central bank and fiscal policy actions by the government\"\" are top-down: central institutions implement measures that are intended to have a positive effect (such as reducing unemployment) on millions of individuals.\"", "title": "" }, { "docid": "345ee357ebff024c4d84f5403004d19b", "text": "\"I'm still very new to the world of finance. I'm learning about all of the derivatives and how money is made off of them, but it's crazy to me that everyone involved neglected the risk aspect of this. In hindsight, it's so easy to explain what was happening. I guess when everyone is making money hand over fist, it's easy to look the other way. Even the federal gov't played a tremendous role in the crash. Looking at that FRED graph is probably the easiest way to explain the ramifications of the crash. I'm reading [All the Devils Are Here](https://www.amazon.com/All-Devils-Are-Here-Financial/dp/159184438X) right now that was recommended to me by my GF's father. It gives context to the crash in a digestible way, but isn't too dumbed down. I highly recommend it. The man played for the USA on the \"\"Miracle\"\" team and then went on to become a successful bonds trader. I've learned more from my conversations with him than I think I'll ever learn in school. Dude is brilliant and can go for hours on anything finance related.\"", "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": "09e0dc02beb3ab2a18b54de2e2064cd6", "text": "A Ponzi scheme takes investor money and lies about where it is invested. New investor money is then used to pay dividends to current investors to attract more investors. However there is a fundamental lie as to where the investment is and how much money is under control. The Fed satisfies none of these requirements. You're pretty confused on the terms. See my post above on how the Fed works.", "title": "" }, { "docid": "c2c240138d6421f5623cf2a6162c0879", "text": "This might be a question better suited for r/askeconomics or just r/economics. Ben Bernanke is an excellent source on the Great Depression, however, and he's very good if you want to understand these crises from an economic point of view.", "title": "" }, { "docid": "1d6f220dd1677d35b3bed386d664808f", "text": "Investing in mutual funds, ETF, etc. won't build a large pool of money. Be an active investor if your nature aligns. For e.g. Invest in buying out a commercial space (on bank finance) like a office space and then rent it out. That would give you better return than a savings account. In few years time, you may be able to pay back your financing and then the total return is your net return. Look for options like this for a multiple growth in your worth.", "title": "" } ]	fiqa
52b55dcb7fa4fddf1812b84c6740a9a0	Is it ever logical to not deposit to a matched 401(k) account?	[ { "docid": "da8c84c95dbf3d06800a6611c57b1596", "text": "\"The original question was aimed at early payment on a student loan at 6%. Let's look at some numbers. Note, the actual numbers were much lower, I've increased the debt to a level that's more typical, as well as more likely to keep the borrower worried, and \"\"up at night.\"\" On a $50K loan, we see 2 potential payoffs. A 6 year accelerated payoff which requires $273.54 extra per month, and the original payoff, with a payment of $555.10. Next, I show the 6 year balance on the original loan terms, $23,636.44 which we would need to exceed in the 401(k) to consider we made the right choice. The last section reflects the 401(k) balance with different rates of return. I purposely offer a wide range of returns. Even if we had another 'lost decade' averaging -1%/yr, the 401(k) balance is more than 50% higher than the current loan debt. At a more reasonable 6% average, it's double. (Note: The $273.54 deposit should really be adjusted, adding 33% if one is in the 25% bracket, or 17.6% if 15% bracket. That opens the can of worms at withdrawal. But let me add, I coerced my sister to deposit to the match, while married and a 25%er. Divorced, and disabled, her withdrawals are penalty free, and $10K is tax free due to STD deduction and exemption.) Note: The chart and text above have been edited at the request of a member comment. What about an 18% credit card? Glad you asked - The same $50K debt. It's tough to imagine a worse situation. You budgeted and can afford $901, because that's the number for a 10 year payoff. Your spouse says she can grab a extra shift and add $239/mo to the plan, because that' the number to get to a 6 year payoff. The balance after 6 years if we stick to the 10 year plan? $30,669.82. The 401(k) balances at varying rates of return again appear above. A bit less dramatic, as that 18% is tough, but even at a negative return the 401(k) is still ahead. You are welcome to run the numbers, adjust deposits for your tax rate and same for withdrawals. You'll see -1% is still about break-even. To be fair, there are a number of variables, debt owed, original time for loan to be paid, rate of loan, rate of return assumed on the 401(k), amount of potential extra payment, and the 2 tax rates, going in, coming out. Combine a horrific loan rate (the 18%) with a longer payback (15+ years) and you can contrive a scenario where, in fact, even the matched funds have trouble keeping up. I'm not judging, but I believe it's fair to say that if one can't find a budget that allows them to pay their 18% debt over a 10 year period, they need more help that we can offer here. I'm only offering the math that shows the power of the matched deposit. From a comment below, the one warning I'd offer is regarding vesting. The matched funds may not be yours immediately. Companies are allowed to have a vesting schedule which means your right to this money may be tiered, at say, 20%/year from year 2-6, for example. It's a good idea to check how your plan handles this. On further reflection, the comments of David Wallace need to be understood. At zero return, the matched money will lag the 18% payment after 4 years. The reason my chart doesn't reflect that is the match from the deposits younger than 4 years is still making up for that potential loss. I'd maintain my advice, to grab the match regardless, as there are other factors involved, the more likely return of ~8%, the tax differential should one lose their job, and the hope that one would get their act together and pay the debt off faster.\"", "title": "" }, { "docid": "a37eaad18e2c46e41dca3d6ce66a1da1", "text": "Whether or not it is logical probably depends on individual circumstance. When you take on (or maintain) debt, you are choosing to do two things: The first is clear. This is what you describe very well in your answer. It is a straightforward analysis of interest rates. The fixed cost of the debt can then be directly compared to expected return on investments that are made with the newly available cash flow. If you can reasonably expect to beat your debt interest rate, this is an argument to borrow and invest. Add to this equation an overwhelming upside, such as a 401k match, and the argument becomes very compelling. The second cost listed is more speculative in nature, but just as important. When you acquire debt, you are committing your future cash flow to payments. This exposes you to the risk of too little financial margin in the future. It also exposes you to the risk of any negatives that come with non-payment of debt (repossession, foreclosure, credit hit, sleeping at night, family tension, worst-case bankruptcy) Since the future tends to be difficult to predict, this risk is not so easy to quantify. Clearly the amount and nature of the debt is a large factor here. This would seem to be highly personal, with different individuals having unique financial or personal resources or income earning power. I will never say someone is illogical for choosing to repay their debts before investing in a 401k. I can see why some would always choose to invest to the match.", "title": "" }, { "docid": "67f1e3d6f0554611cc1f6864f874b742", "text": "If your plan permits loans, deposit enough through the year to maximize the match and then take a loan from the plan. Use the loan portion to pay your student loan. Essentially you have refinanced your debt at a (presumably) lower rate and recieved the match. You pay yourself back (with interest) through your payroll. The rates are typically the prime rate + 1%. The loans are subject to a lesser of 50% vested account balance or $50,000 provision.", "title": "" }, { "docid": "d056a5ebd67c4f992912e9eea5b149a4", "text": "The other answers assumed student loan debt -- and for that, it's rarely worth it (unless your company only offers managed plans w/ really bad returns, or the economy recovers to the point where banks are paying 5% again on money market accounts) ... but if it's high rate debt, such as carrying a credit card debt, and the current rate of returns on the 401k aren't that great at the time, it would be worth doing the calculations to see if it's better to pay them down instead. If you're carrying extremely high interest debt (such as 'payday loans' or similar), it's almost always going to be worth paying down that debt as quickly as possible, even if it means forgoing matching 401k payments. The other possible reason for not taking the matching funds are if the required contributions would put you in a significant bind -- if you're barely scraping by, and you can't squeeze enough savings out of your budget that you'd risk default on a loan (eg, car or house) or might take penalties for late fees on your utilities, it might be preferable to save up for a bit before starting the contributions -- especially if you've maxed your available credit so you can't just push stuff to credit cards as a last resort.", "title": "" }, { "docid": "c7c28f4c19bec73bdb506f07d5a19e6f", "text": "One situation where it would be prudent not to contribute would be if expenses are so tight that you cannot afford to contribute because you need that cashflow for expenses.", "title": "" }, { "docid": "846c25ba517a8c3fd0c8159cd443b533", "text": "Some have suggested you can put the money in the 401k then take a loan to pay off the student loan debt. Some things to consider before doing that: Check your 401k plan first. Some plans allow you to continue paying on a loan if you leave the company, some do not. If you have to change jobs before you pay back the 401k loan, you may only have 90 days to completely pay the loan or the IRS will treat this as an early withdrawal, which means taxes and penalties. If you don't have another job lined up, this is going to make things much worse since you will have lost your income and may owe even more to the government (depending on your state, it may be up to 50% of the remaining amount). There are ways to work with some student debt loans to defer or adjust payments. There is no such option with a 401k plan. This may change your taxes at the end of the year. Most people can deduct student loan interest payments. You cannot deduct interest paid to your 401k loan. You are paying the interest to yourself though. It may hurt your long term growth potential. Currently loans on 401k loans are in the 4% range. If you are able to make more than 4% inside of your 401k, you will be losing out on that growth since that money will only be earning the interest you pay back. It may limit flexibility for a few years. When people fall on hard times, their 401k is their last resort. Some plans have a limit on the number of loans you can have at one time. You may need a loan or a withdrawal in the future. Once you take the money out for a loan, you can't access it again. See the first bullet about working with student loan vendors, they typically have ways to work with you under hard circumstances. 401k loans don't. Amortization schedule. Many 401k loans can only be amortized for a max of 5 years, if you currently have 10 year loans, can you afford to pay the same debt back in 1/2 the time at a lower rate? You will have to do the math. When considering debt other than student loans (such as credit cards), if you fall on hard times, you can always negotiate to reduce the amount you owe, or the debt can be discharged (with tax penalties of course). They can't make you take money out. Once it is out, it is fair game. Just to clarify, the above isn't saying you shouldn't do it under any circumstances, it is a few things you need to evaluate before making that choice. The 401k is supposed to be used to help secure your financial future when you can't work. The numbers may work out in the short term, but do they still work out in the long term? Most credit cards require minimum payments high enough to pay back in 7-10 years, so does shortening that to 5 (or less) make up for the (probably early) years of compounding interest for your retirement? I think others have addressed some of this so I won't do the math. I can tell you that I have a 401k loan, and when things got iffy at my job for, it was a very bad feeling to have that over my head because, unlike other debts, there isn't much you can do about it.", "title": "" } ]	[ { "docid": "3902ff75b95b17d3da9bb9b7e00e3bdb", "text": "\"If you have enough earned income to cover this amount you should be all set. If I understand you correctly you proposed two transactions. The first, a withdrawal from the beneficiary IRA. Some of which is an RMD the rest is an extra withdrawal of funds. Next, you propose to make a deposit to a combination of your IRA and your wife's IRA. As long as there's earned income to cover this deposit, your plan is fine. To be clear, you can't \"\"take a bene IRA and deposit the RMD to an IRA.\"\" But, money is fungible, the dollars you deposit aren't traceable, only need to be justified by enough earned income. A bene IRA is a great way to get the money to increase your own IRA or 401(k) deposits. Further details - The 2016 contribution limit is $5,500 per person, so I did make the assumption you knew the $9000 deposit need to be split between the 2 IRAs, with no more than $5500 going into either one.\"", "title": "" }, { "docid": "8418b64bc7a531370f7aca1b38f565ab", "text": "The fact that you are planning to move abroad does not affect the decision to contribute to a 401(k). The reason for this is that after you leave your employer, you can roll all the money over from your 401(k) into a self-directed traditional IRA. That money can stay invested until retirement, and it doesn't matter where you are living before or after retirement age. So, when deciding whether or not to use a 401(k), you need to look at the details of your employer's plan: Does your employer offer a match? If so, you should definitely take advantage of it. Are there good investments available inside the 401(k)? Some plans offer very limited options. If you can't find anything good to invest in, you don't want to contribute anything beyond the match; instead, contribute to an IRA, where you can invest in a fund that you like. The other reason to use a 401(k) is that the contribution limits can be higher. If you want to invest more than you are allowed to in an IRA, the 401(k) might allow that. In your case, since there is no match, it is up to you whether you want to participate or not. An IRA will allow more flexibility in investing options. If you need to invest more than your IRA limit, the 401(k) might allow that. When you leave your employer, you should probably roll any 401(k) money into an IRA.", "title": "" }, { "docid": "a253b6cffa7a7926e5d5c5802a2858d2", "text": "Separate from some of the other considerations such as the legality, it is likely going to be worth your will if you employer has company matching even if you have to pay the early withdraw penalty because the matching funds from your employer can be viewed as gains on the money deposited. For example, using round numbers to make the math easy: No 401(k) Deposit With 401(k) Deposit So as you can see there is a benefit to deferring some of the earnings to the 401(k) account due to the employer matching but the actual dollar amount that you would be able to take home will be different based upon your own circumstances. Depending upon what the take home would be at the end of the day the percentage return may or may not be worth the time involved with doing the paperwork. However, all of this only applies if you have to pull the money out early as once you hit 59.5 years old you can start withdrawing the money without the tax penalty in which case the returns on your initial deposit will be much more.", "title": "" }, { "docid": "0231a1ed438596a093df5865378641ef", "text": "To expand on mhoran's answer - Once you mention the 401(k), we're compelled to ask (a) what is the match, if any, and (b) what are the expenses within the funds offered. Depositing to get the full match is going to get you the biggest return on your money. It's common to get a dollar for dollar match on the first 5 or 6% of your income. If the fees are high, you stop at the match, and move to an IRA for the next money you wish to save. At 22, I'd probably focus on the Roth. If you have access to a Roth 401(k), that's great, the match will be pre tax dollars and you'll get started with a decent tax status mix. These accounts can form the core of your investing. Most people have little left over once their retirement accounts are fully funded. And yes, reading to understand stocks is great, but also to understand why stock indexing is the best choice for most investors.", "title": "" }, { "docid": "b98c50fba6e6a87e5801149122fd644b", "text": "\"Another consideration is that you are going to wind up with money in the \"\"regular\"\" 401(k) no matter which one you contribute to. The employer match can't go into the Roth 401(k). So all employer matching funds go in with pre-tax dollars and will be deposited in a normal 401(k) account. Edit from JoeTaxpayer - 2013 brought with it the Roth 401(k) conversion the ability to convert from the traditional pretax side of your 401(k) account to the Roth side.\"", "title": "" }, { "docid": "019436e3750e0037cce98d04021422c0", "text": "the whole room basically jumped on me I really have an issue with this. Someone providing advice should offer data, and guidance. Not bully you or attack you. You offer 3 choices. And I see intelligent answers advising you against #1. But I don't believe these are the only choices. My 401(k) has an S&P fund, a short term bond fund, and about 8 other choices including foreign, small cap, etc. I may be mistaken, but I thought regulations forced more choices. From the 2 choices, S&P and short term bond, I can create a stock bond mix to my liking. With respect to the 2 answers here, I agree, 100% might not be wise, but 50% stock may be too little. Moving to such a conservative mix too young, and you'll see lower returns. I like your plan to shift more conservative as you approach retirement. Edit - in response to the disclosure of the fees - 1.18% for Aggressive, .96% for Moderate I wrote an article 5 years back, Are you 401(k)o'ed in which I discuss the level of fees that result in my suggestion to not deposit above the match. Clearly, any fee above .90% would quickly erode the average tax benefit one might expect. I also recommend you watch a PBS Frontline episode titled The Retirement Gamble It makes the point as well as I can, if not better. The benefit of a 401(k) aside from the match (which you should never pass up) is the ability to take advantage of the difference in your marginal tax rate at retirement vs when earned. For the typical taxpayer, this means working and taking those deposits at the 25% bracket, and in retirement, withdrawing at 15%. When you invest in a fund with a fee above 1%, you can see it will wipe out the difference over time. An investor can pay .05% for the VOO ETF, paying as much over an investing lifetime, say 50 years, as you will pay in just over 2 years. They jumped on you? People pushing funds with these fees should be in jail, not offering financial advice.", "title": "" }, { "docid": "9b9b6bd0da39b12ed4ac17e04daefd67", "text": "\"Here are the issues, as I see them - It's not that I don't trust banks, but I just feel like throwing all of our money into intangible investments is unwise. Banks have virtually nothing to do with this. And intangible assets has a different meaning than you assume. You don't have to like the market, but try to understand it, and dislike it for a good reason. (Which I won't offer here). Do your 401(k) accounts offer company match? When people start with \"\"we'd like to reduce our deposits\"\" that's the first thing we need to know. Last - you plan to gain \"\"a few hundred dollars a month.\"\" I bet it's closer to zero or a loss. I'll return to edit, we have recent posts here that reviewed the expenses to consider, and I'd bet that if you review the numbers, you've ignored some of them. \"\"A few hundred\"\" - say it's $300. Or $4000/yr. It would take far less work and risk to simply save $100K in your retirement accounts to produce this sum each year. The investment may very well be excellent. I'm just offering the flip side, things you might have missed. Edit - please read the discussion at How much more than my mortgage should I charge for rent? The answers offer a good look at the list of expenses you need to consider. In my opinion, this is one of the most important things. I've seen too many new RE investors \"\"forget\"\" about so many expenses, a projected monthly income reverts to annual losses.\"", "title": "" }, { "docid": "b5b9a2379fe0e363b5e4f935c7eda594", "text": "\"Defining risk tolerance is often aided with a series of questions. Such as - You are 30 and have saved 3 years salary in your 401(k). The market drops 33% and since you are 100% S&P, you are down the same. How do you respond? (a) move to cash - I don't want to lose more money. (b) ride it out. Keep my deposits to the maximum each year. Sleep like a baby. A pro will have a series of this type of question. In the end, the question resolves to \"\"what keeps you up at night?\"\" I recall a conversation with a coworker who was so risk averse, that CDs were the only right investment for her. I had to explain in painstaking detail, that our company short term bond fund (sub 1 year government paper) was a safe place to invest while getting our deposits matched dollar for dollar. In our conversations, I realized that long term expectations (of 8% or more) came with too high a risk for her, at any level of her allocation. Zero it was.\"", "title": "" }, { "docid": "eabd723d57d919a323d3f41519a30077", "text": "If it were my money, I wouldn't put it in a 401(k) for this purpose. If you were working at a company that provided 401(k) matching, then it might be worth it to put the money in your employer's 401(k) because the employer chips in based on what you put in. But you're self-employed, so there's no matching unless you match it yourself. (Correct?) So, given that there's no matching, a 401(k) arrangement would have more restrictions than a non-tax-advantaged account (like a bank account, or a taxable money market account). This would be taxable in the year you earn the money, but then that's it. If you're expecting to pull out the money pre-retirement, I wouldn't put it in in the first place.", "title": "" }, { "docid": "627cffc58d9c9f7ac31ca1bbc12289f5", "text": "The details of the 401(k) are critical to the decision. A high cost (the expenses charged within the) 401(k) - I would deposit only to the match, and I'd be sure to get the entire match offered. In which case, that $3000 might be good to have available if you start out with a tight budget. Low cost 401(k) w/match - a no-brainer, deposit what you can afford. Roth 401(k) w/match - same rules for expenses apply, with the added note to use Roth when getting started and in a lower bracket. Yes, it makes sense to have both. You should note, depositing to the Roth now is riskless. The account, not the investment. If you decide next year you didn't want it, you can withdraw the deposit with no penalty or tax. Edit to respond to updated question - there are two pieces to the Roth deposit issue. The deposit itself, which puts the $3000 earned income into tax sheltered account, and the choice to invest. These two are sequential and you can take your time in between. I'm not sure what you mean by the dividend timing. In an IRA or 401(k) the dividend isn't taxed, so it's a non-issue. In a cash account, you might quickly have a small tax issue, but this doesn't come into the picture in the tax deferred accounts.", "title": "" }, { "docid": "aa1ab4352c4b2ea40d45ae23b1f82460", "text": "If there is no match and you are disciplined enough to contribute without it coming directly out of your paycheck, dump the 401K. The reason: Most 401K plans have huge hidden fees built into the investment prices. You won't see them directly, but 3% is not uncommon. 3% is a horrible drag on your investment performance. Get an IRA or Roth IRA and pick something with low fees. Bonus: You will have a lot more investment choices!", "title": "" }, { "docid": "810eceab7edb6216ea4133d029874089", "text": "\"I humbly disagree with #2. the use of Roth or pre-tax IRA depends on your circumstance. With no match in the 401(k), I'd start with an IRA. If you have more than $5k to put in, then some 401(k) would be needed. Edit - to add detail on Roth decision. I was invited to write a guest article \"\"Roth IRAs and your retirement income\"\" some time ago. In it, I discuss the large amount of pretax savings it takes to generate the income to put you in a high bracket in retirement. This analysis leads me to believe the risk of paying tax now only to find tHat you are in a lower bracket upon retiring is far greater than the opposite. I think if there were any generalization (I hate rules of thumb, they are utterly pick-apartable) to be made, it's that if you are in the 15% bracket or lower, go Roth. As your income puts you into 25%, go pretax. I believe this would apply to the bulk of investors, 80%+.\"", "title": "" }, { "docid": "80c8c8cc1ed477d727736d22d56956fb", "text": "\"I frequently advise to go 401(k) up to the match. With no match, I'm not so sure. If you are in the 15% bracket, I'd skip the 401(k). Your standard deduction is $5800 this year, do you itemize? I ask because the 15% bracket ends at $34,500, and I don't know if you manage enough deductions to get under that. But - I'd only pt into the 401(k) what would otherwise be taxed at 25%, no more. Even then only if the 401(k) expenses were pretty reasonable. Will all the hoopla over retirement accounts, we easily forget the beauty of the investment in ETFs long term. You buy the SPY (S&P 500 ETF) and hold it forever. The gains are all deferred until you sell, and then they have a favored rate. You control the timing of the sale with no risk of penalty. The expenses are low, and over time, can make up for the lack of tax deduction (The pretax deposit) vs the 401(k) account. You die and the beneficiaries have a stepped up basis with no tax due (under whatever the limit is that year). Long term, I'd go with low cost ETFs and pay the mortgage at the minimum payments. Even without itemizing, 4.2% is pretty low compared to the expected return over the next decade in stocks. I recommend a look at Fairmark to help understand your marginal rate. Your gross doesn't matter as much as that line on 1040 \"\"taxable income.\"\" This will tell you if you are in the 25% bracket and if so, how deep. Edit - If one's taxable income, line 43 on your 1040, I believe, puts him into the 15% bracket, there are issues using a pretax 401(k). The priority should be to use a Roth IRA or Roth 401(k). Being so close to that 25% bracket at 26 tells me you will grow, and/o marry into it over time, that's the ideal time to use the pre-tax 401(k) to stay at 15%. i.e. deposit just enough to bring your taxable income right to that line of 15/25%.\"", "title": "" }, { "docid": "908961df089838354f7ea512ee03d06e", "text": "\"I would like to buy hubby a beer and talk some sense into him. Do you have 2 years gross income saved as your retirement balance? That's about where he should be at age 30. I wrote about this in an article Retirement Savings Ratio. Blowing the 401(k) for anything less than an extreme emergency is downright foolish. The decision whether to roll it to an IRA or the new account isn't so simple. If you roll it to new plan, yes you can borrow, up to 60 months at a low rate, 4% or so. Taking the cash and then making an IRA deposit just means paying the penalty for nothing, unless you manage it just right, depositing the amount within 60 day, etc. You don't mention what he wants to do with it. You need to sit down and have a long \"\"money talk.\"\" Keep in mind, if you oversave, it's easy to retire early, or at 50 just stop saving, spend every new dime. But it's something else to turn 50 and realize you will have to work till you die. I've seen both situations. (I am 48, the Mrs, 54 our multiple is now 13. The target is 20 to retire. The house is not counted as it can't be spent. The mortgage IS counted as it must be paid) Edit - as I read this again, I see the OP asked about opening an IRA in the same year they withdraw the 401(k) and pay tax and penalty. Wow. I also see her user reverted to generic, which means, I think, she's never returned. I hope they made the right decision, to keep the money in retirement accounts. Hubby never even said what he wanted the money for.\"", "title": "" }, { "docid": "96be169c2db8ab9588b647f3b54e964b", "text": "By definition, this is a payroll deduction. There's no mechanism for you to tell the 401(k) administrator that a Jan-15 deposit is to be credited for 2016 instead of 2017. (As is common for IRAs where you do have the 'until tax time' option) If you are paid weekly, semi-monthly, or monthly, 12/31 is a Saturday this year and should leave no ambiguity about the date of your last check. The only unknown for me if if one is paid bi-weekly, and has a check covering 12/25 - 1/7. Payroll/HR will need to answer whether that check is considered all in 2016, all in 2017 or split between the two.", "title": "" } ]	fiqa
2448ba96e26b5ae03f48d70bd23e55ba	Should I buy a house or am I making silly assumptions that I can afford it?	[ { "docid": "1eb13c9666e53791ca4cf6f61715f852", "text": "\"The (interest bearing) mortgage of £300,000 would be SIX times your salary. That's a ratio that was found in Japan, and (I believe) was a main reason for their depressed economy of the past two decades. Even with an interest free loan of nearly £150,000, it would be a huge gamble for someone of your income. Essentially, you are gambling that 1) your income will \"\"grow\"\" into your mortgage, (and that's counting income from renting part of the property) or 2) the house will rise in value, thereby bailing you out. That was a gamble that many Americans took, and lost, in the past ten years. If you do this, you may be one of the \"\"lucky\"\" ones, you may not, but you are really taking your future in your hands. The American rule of thumb is that your mortgage should be no more than 2.5-3 times income, that is maybe up to £150,000. Perhaps £200,000 if £50,000 or so of that is interest free. But not to the numbers you're talking about.\"", "title": "" }, { "docid": "1c2347a4ed4cd25bf7adcbdf7126f9d7", "text": "The rules of thumb are there for a reason. In this case, they reflect good banking and common sense by the buyer. When we bought our house 15 years ago it cost 2.5 times our salary and we put 20% down, putting the mortgage at exactly 2X our income. My wife thought we were stretching ourselves, getting too big a house compared to our income. You are proposing buying a house valued at 7X your income. Granted, rates have dropped in these 15 years, so pushing 3X may be okay, the 26% rule still needs to be followed. You are proposing to put nearly 75% of your income to the mortgage? Right? The regular payment plus the 25K/yr saved to pay that interest free loan? Wow. You are over reaching by double, unless the rental market is so tight that you can actually rent two rooms out to cover over half the mortgage. Consider talking to a friendly local banker, he (or she) will likely give you the same advice we are. These ratios don't change too much by country, interest rate and mortgages aren't that different. I wish you well, welcome to SE.", "title": "" }, { "docid": "6ade21fd3e683ecce1e0dc99e3e3f3fa", "text": "\"Having convinced myself that there is no point of paying someone's else mortgage Somewhat rhetorical this many years later, but I expect some other kid forcefed the obsession with propping up the housing market might be repeating the nonsense about \"\"paying someone else's mortgage\"\" and read this. Will you be buying your own farm to grow your own food, or are you happy with people using the money you spend on food for a mortgage? How about clothes? Will you be weaving your own clothes because you don't want money you spend on clothes to pay someone else's mortgage? What's special about the money you pay for rent that you get annoyed at how someone else spends it? Don't get a mortgage just because you don't like the idea of how other people might spend the money that's no longer yours after you pay them with it. As an aside, at your age with your income and no debt, you could be sensibly investing a lot of money. If you did that for five years, you'd be in a much better position that you would be tying yourself to whatever current scheme the UK is using to desperately prop up house prices.\"", "title": "" }, { "docid": "c20caa866e1e2694a2da247c5e9f80a9", "text": "A common rule of thumb is the 28/36 ratio. It's described here. In your case, with a gross (?) salary of £50,000, that means that you should spend no more than 28% of it, or £1,167 per month on housing. You may be able to swing a bit more because you have no debts and a modest amount in your savings. The 36% part comes in as the amount you can spend servicing all your debt, including mortgage. In your case, based on a gross (?) salary of £50,000, that'd be £1,500 per month. Again, that is to cover your housing costs and any additional debt you are servicing. So, you need to figure out how much you could bring in through rent to make up the rest. As at least one other person has commented, the rule of thumb is that your mortgage should be no more than 2.5 - 3 times your income. I personally think you are not a good candidate for a mortgage of the size you are discussing. That said, I no longer live in England. If you could feel fairly secure getting someone to pay you enough in rent to bring down your total mortgage and loan repayment amounts to £1,500 or so a month, you may want to consider it. Remember, though, that it may not always be easy to find renters.", "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": "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": "dea708a4a3ed2acf96b85950993dd8b2", "text": "\"It certainly seems like you are focusing on the emotional factors. That's your blind spot, and it's the surest path to a situation where your husband gets to say \"\"I told you so\"\". I recommend you steer straight into that blind spot, and focus your studies on the business aspects of buying and owning homes. You should be able to do spreadsheets 6 ways from Sunday, be able to recite every tax deduction you'll get as a homeowner, know the resale impacts of 1 bathroom vs 2, tell a dirty house from a broken house, etc. Everybody's got their favorites, mine are a bit dated but I like Robert Irwin and Robert Allen's books. For instance: a philosophy of Allen's that I really like: never sell. This avoids several problems, like the considerable costs of money, time and nerves of actually selling a house, stress about house prices, mistaking your house's equity for an ATM machine, and byzantine rules for capital gains tax mainly if you rent out the house, which vary dramatically by nation. In fact the whole area of taxes needs careful study. There's another side to the business of home ownership, and that's renting to others. There's a whole set of economics there - and that is a factor in what you buy. Now AirBNB adds a new wrinkle because there's some real money there. Come to understand that market well enough to gauge whether a duplex or triplex will be a money maker. Many regular folk like you have retired early and live off the rental income from their properties. JoeTaxpayer has an interesting way of looking at the finances of housing: if a house doesn't make sense as a a rental unit, maybe it doesn't make sense as a live-in either. So learn how to identify those fundamentals - the numbers. And get in the habit of evaluating houses. Work it regularly until it's second nature. Then, yes, you'll see houses you fall in love with, partly because the numbers work. It also helps to be handy. It really, really changes the economics if you can do your own quality work, because you don't need to spend any money on labor to convert a dirty house into a clean house. And lots of people do, and there's a whole SE just for that. There is a huge difference between going down to the local building supply and getting the water pipe you need, vs. having to call a plumber. And please deal with local businesses, please don't go to the Big Box stores, their service is abominable, they will cheerfully sell you a gadget salad of junk that doesn't work together, and I can't imagine a colder and less inviting scene to come up as a handy person.\"", "title": "" }, { "docid": "33d099c8da7f15157ff66e6ab94e8a96", "text": "My in-laws are pressuring me to buy a home. I don't really have much financial experience. In fact, I'm a nightmare with finances. I almost have my student loans payed off from school. My in-laws and husband are great with finances and with real-estate. My husband has a good job and $200k in savings. I have a good job too, and still have some debt from school. (approx $60k left of 180k). They say the house will be available in Jan or February for purchase, and that we should really try to buy it (prob $2-3 mil). My guess is they want to make it available to us off the market (which is a huge benefit in this area, there are really no houses available lately) . The problem is: I am uncomfortable because I don't have all of my loans payed off, I could divert money away from paying off the loans in order to save for a larger downpayment. I just got a bonus of $35k (after taxes) I don't think I'll have all of my loans payed off by January. Should I save my money for the downpayment or focus on my loans, should I go for the house? I don't know how to weigh these options against each other with such little experience.", "title": "" }, { "docid": "c660aa77d34da2bf069924c305d831ea", "text": "\"I am going to respond to a very thin sliver of what's going on. Skip ahead 4 years. When buying that house, is it better to have $48K in the bank but a $48K student loan, or to have neither? That $48K may very well be what it would take to put you over the 20% down payment threshhold thus avoiding PMI. Banks let you have a certain amount of non-mortgage debt before impacting your ability to borrow. It's the difference between the 28% for the mortgage, insurance and property tax, and the total 38% debt service. What I offer above is a bit counter-intuitive, and I only mention it as you said the house is a priority. I'm answering as if you asked \"\"how do I maximize my purchasing power if I wish to buy a house in the next few years?\"\"\"", "title": "" }, { "docid": "4577731b949a0dece0a8ed46a0bc96d8", "text": "\"I recently moved out from my parents place, after having built up sufficient funds, and gone through these questions myself. I live near Louisville, KY which has a significant effect on my income, cost of living, and cost of housing. Factor that into your decisions. To answer your questions in order: When do I know that I'm financially stable to move out? When you have enough money set aside for all projected expenses for 3-6 months and an emergency fund of 4-10K, depending on how large a safety net you want or need. Note that part of the reason for the emergency fund is as a buffer for the things you won't realize you need until you move out, such as pots or chairs. It also covers things being more expensive than anticipated. Should I wait until both my emergency fund is at least 6 months of pay and my loans in my parents' names is paid off (to free up money)? 6 months of pay is not a good measuring stick. Use months of expenses instead. In general, student loans are a small enough cost per month that you just need to factor them into your costs. When should I factor in the newer car investment? How much should I have set aside for the car? Do the car while you are living at home. This allows you to put more than the minimum payment down each month, and you can get ahead. That looks good on your credit, and allows refinancing later for a lower minimum payment when you move out. Finally, it gives you a \"\"sense\"\" of the monthly cost while you still have leeway to adjust things. Depending on new/used status of the car, set aside around 3-5K for a down payment. That gives you a decent rate, without too much haggling trouble. Should I get an apartment for a couple years before looking for my own house? Not unless you want the flexibility of an apartment. In general, living at home is cheaper. If you intend to eventually buy property in the same area, an apartment is throwing money away. If you want to move every few years, an apartment can, depending on the lease, give you that. How much should I set aside for either investment (apartment vs house)? 10-20K for a down payment, if you live around Louisville, KY. Be very choosy about the price of your house and this gives you the best of everything. The biggest mistake you can make is trying to get into a place too \"\"early\"\". Banks pay attention to the down payment for a good reason. It indicates commitment, care, and an ability to go the distance. In general, a mortgage is 30 years. You won't pay it off for a long time, so plan for that. Is there anything else I should be doing/taking advantage of with my money during this \"\"living at home\"\" period before I finally leave the nest? If there is something you want, now's the time to get it. You can make snap purchases on furniture/motorcycles/games and not hurt yourself. Take vacations, since there is room in the budget. If you've thought about moving to a different state for work, travel there for a weekend/week and see if you even like the place. Look for deals on things you'll need when you move out. Utensils, towels, brooms, furniture, and so forth can be bought cheaply, and you can get quality, but it takes time to find these deals. Pick up activities with monthly expenses. Boxing, dancing, gym memberships, hackerspaces and so forth become much more difficult to fit into the budget later. They also give you a better credit rating for a recurring expense, and allow you to get a \"\"feel\"\" for how things like a monthly utility bill will work. Finally, get involved in various investments. A 401k is only the start, so look at penny stocks, indexed funds, ETFs or other things to diversify with. Check out local businesses, or start something on the side. Experiment, and have fun.\"", "title": "" }, { "docid": "60d54be3b63010282dc4e0772eaea452", "text": "I would ignore the bank completely when they use gross income. Decide, based upon your current living situation, what your MAX limit on a monthly payment is. Then from that determine the size and cost of the house you can buy. My husband and I decided on a $2000 monthly payment max, but also agreed $1500 was more reasonable. When using those numbers in the calculators it is way less than when using gross income. When we used our gross pay the calculators all said we could afford double what we were looking for. Since they don't know what our take home pay is (after all the deductions including 401k, healthcare, etc), the estimates on gross income are way higher than what we can comfortably afford. Set a budget based on your current living situation and what you want your future to look like. Do you want to scrimp and coupon clip or would you rather live comfortably in a smaller home? Do the online calculators based on take home pay and on gross pay to get a sense of the range you could be looking at.", "title": "" }, { "docid": "749960a13c58456820dd69d8e93bd7c4", "text": "\"Whether or not you choose to buy is a complicated question. I will answer as \"\"what you should consider/think about\"\" as I don't think \"\"What should I do\"\" is on topic. First off, renting tends to look expensive compared to mortgages until you factor in the other costs that are included in your rent. Property taxes. These are a few grand a year even in the worst areas, and tend to be more. Find out what the taxes are ahead of time. Even though you can often deduct them (and your interest), you're giving up your standard deduction to do so - and with the low interest regime currently, unless your taxes are high you may not end up being better off deducting them. Home insurance. This depends on home and area, but is at least hundreds of dollars per year, and could easily run a thousand. So another hundred a month on your bill (and it's more than renter's insurance by quite a lot). Upkeep costs for the property. You've got a lot of up-front costs (buy a lawnmower, etc. types of things) plus a lot of ongoing costs (general repair, plumbing breaks, electrical breaks, whatnot). Sales commission, as Scott notes in comments. When you sell, you're paying about 6% commission; so you won't be above water, if housing prices stay flat, until you've paid off 6% of your loan value (plus closing costs, another couple of percent). You hit the 90% point on a 15 year about year 2, but on a 30 year you don't hit it until about year 5, so you might not be above water when you want to sell. Risk of decrease in value. Whenever you buy property, you take on the risk of losing value as well as the potential of gaining value. Don't assume that because prices are going up they will continue to; remember that a lot of investors are well aware of possible profits from rising prices and will be buying (and driving prices up) themselves. 2008 was a shock to a lot of people, even in areas where it seemed like prices should've still gone up; you never know what's going to happen. If you buy a house for 20% or so down, you have a bit of a safety net (if it drops 10-20% in value, you're still above water, though you do of course lose money), while if you buy it for 0% down and it drops 20% in value, you won't be able to sell (at all) for years. All that together means you should really take a hard look at the costs and benefits, make a realistic calculation including all actual costs, and then make a decision. I would not buy simply because it seems like a good idea to not pay rent. If you're unable to make any down payment, then you're also unable to deal with the risks in home ownership - not just decrease in value, but when your pipe bursts and ruins your basement, or when the roof needs a replacement because a tree falls on it. Yes, home insurance helps, but not always, and the deductible will still get you. Just to have some numbers: For my area, we pay about $8000 a year in property taxes on a $280k house ($200k mortgage), $1k a year in home insurance, so our escrow payment is about $750 a month. A 15 year for $200k is about $1400 a month, so $2200 or so total cost. We do live in a high property tax area, so someone in lower tax regimes would pay less - say 1800-1900 - but not that cheap. A 30 year would save you 500 or so a month, but you're still not all that much lower than rent.\"", "title": "" }, { "docid": "2c4bc25e5ecf9f7dd4e2a49e2fe716ba", "text": "\"To add to what other have stated, I recently just decided to purchase a home over renting some more, and I'll throw in some of my thoughts about my decision to buy. I closed a couple of weeks ago. Note that I live in Texas, and that I'm not knowledgeable in real estate other than what I learned from my experiences in the area when I am located. It depends on the market and location. You have to compare what renting will get you for the money vs what buying will get you. For me, buying seemed like a better deal overall when just comparing monthly payments. This is including insurance and taxes. You will need to stay at a house that you buy for at least 5-7 years. You first couple years of payments will go almost entirely towards interest. It takes a while to build up equity. If you can pay more towards a mortgage, do it. You need to have money in the bank already to close. The minimum down payment (at least in my area) is 3.5% for an FHA loan. If you put 20% down, you don't need to pay mortgage insurance, which is essentially throwing money away. You will also have add in closing costs. I ended up purchasing a new construction. My monthly payment went up from $1200 to $1600 (after taxes, insurance, etc.), but the house is bigger, newer, more energy efficient, much closer to my work, in a more expensive area, and in a market that is expected to go up in value. I had all of my closing costs (except for the deposit) taken care of by the lender and builder, so all of my closing costs I paid out of pocket went to the deposit (equity, or the \"\"bank\"\"). If I decide to move and need to sell, then I will get a lot (losing some to selling costs and interest) of the money I have put in to the house back out of it when I do sell, and I have the option to put that money towards another house. To sum it all up, I'm not paying a difference in monthly costs because I bought a house. I had my closing costs taking care of and just had to pay the deposit, which goes to equity. I will have to do maintenance myself, but I don't mind fixing what I can fix, and I have a builder's warranties on most things in the house. To really get a good idea of whether you should rent or buy, you need to talk to a Realtor and compare actual costs. It will be more expensive in the short term, but should save you money in the long term.\"", "title": "" }, { "docid": "a5711d12602cfcbaf9d52c641416cb4d", "text": "\"Fundamentals: Then remember that you want to put 20% or more down in cash, to avoid PMI, and recalculate with thatmajor chunk taken out of your savings. Many banks offer calculators on their websites that can help you run these numbers and figure out how much house a given mortgage can pay for. Remember that the old advice that you should buy the largest house you can afford, or the newer advice about \"\"starter homes\"\", are both questionable in the current market. =========================== Added: If you're willing to settle for a rule-of-thumb first-approximation ballpark estimate: Maximum mortgage payment: Rule of 28. Your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out). Maximum housing cost: Rule of 32. Your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. Maximum Total Debt Service: Rule of 40. Your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. As I said, many banks offer web-based tools that will run these numbers for you. These are rules that the lending industy uses for a quick initial screen of an application. They do not guarantee that you in particular can afford that large a loan, just that it isn't so bad that they won't even look at it. Note that this is all in terms of mortgage paymennts, which means it's also affected by what interest rate you can get, how long a mortgage you're willing to take, and how much you can afford to pull out of your savings. Also, as noted, if you can't put 20% down from savings the bank will hit you for PMI. Standard reminder: Unless you explect to live in the same place for five years or more, buying a house is questionable financially. There is nothing wrong with renting; depending on local housing stock it may be cheaper. Houses come with ongoung costs and hassles rental -- even renting a house -- doesn't. Buy a house only when it makes sense both financially and in terms of what you actually need to make your life pleasant. Do not buy a house only because you think it's an investment; real estate can be a profitable business, but thinking of a house as simultaneously both your home and an investment is a good way to get yourself into trouble.\"", "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": "cba49732a004bf70fd9e04cad1a15c98", "text": "You'll have much more flexibility and peace of mind if your expenses are based on your current income and that income increases in the future. It's great that you aren't comfortable with spending more, you don't want to end up in the position you just removed yourself from. That said, you don't just ignore planned income altogether. Personally, my wife and I feel best knowing that I have the essentials covered with my income, and that her income primarily helps us put away more for retirement, home renovations, and vacations, because she likely won't work for a long while if we have kids. How you plan depends on your wife's career aspirations and prospects, if your wife has high income potential and you don't plan to buy until after she resumes work, then it may suit you to plan on her income too. You'll have to balance the certainty and amount of her income with your goals. If you're trying to make up ground on savings/retirement, then a less expensive house seems wise anyway. It's a much easier problem to decide what to do with excess funds than feeling trapped/stressed by a high mortgage payment.", "title": "" }, { "docid": "33b302d80d4aec200d913ed4957c9d97", "text": "If your debt will all be less than 25% gross (yes, I see you said take home) you are in great shape. I'd get the car and not worry. The well written mortgage is 20% down, with a housing payment (which of course includes prop tax and insurance, as noted by mhoran, below) under 28% and total debt under 36%. You are well within the limits, not even close. That's great.", "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": "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": "5d14017cf9bb7bba44f247ba96217ce9", "text": "The technical term of a recession is 2 successive quarters of negative GDP growth. As is the natural cycle, the curve will invert at some point in the future; maybe it's tomorrow or 5 years from now - but nobody knows for certain. One also shouldn't take any single indicator as the end all be all of indicators. For example, there are other spreads that indicate the health of credit in the global economy such as the TED spread and the LIBOR-OIS spread. If you take a peek at the TED spread (http://www.macrotrends.net/1447/ted-spread-historical-chart), it tells a much different story. The TED spread measures the health of the global banking system by tracking the rate at which banks lend to each other. A lower TED rate equals more trust and perceived creditworthiness of the borrower, which would be another bank. Lastly, you really can't rely on a single article or single indicator to come to the conclusion that the sky is falling. Even if we are on the precipice of a recession here in the US, nobody can tell predetermine the impact and depth of the recession. In my opinion, we are nearing the top of the credit cycle and should be expecting a bit of a cooling off in the near term 1-3 years. Outside of that, your guess is as good as mine.", "title": "" } ]	fiqa
c9e0adf713c4d78b44c8e7d3a67a220f	What is a subsidy?	[ { "docid": "b6156d8d24394a79802c07edf1d6a1e2", "text": "Subsidy usually means gratuitous financial support. For example, if for whatever reason you live much below the living average paying utility services in full might be too expensive - you'll be out of money before you even think of buying food and basic clothes. Yet it's clear that once can't live in a city without utility services. So the government might have a program for subsidizing utility services for people with very low income - a person brings in proof of low income and once it is low enough government will step in and pay that person utility services in full or in part depending on actual income he proves. The same can be organized for anything government or some organization wishes to support for whatever reason. The key idea is someone gives you free money for spending on some specific purpose.", "title": "" }, { "docid": "705b8bb17f02ce2119fe61d0704c5bf9", "text": "subsidy - financial support. For example subsidized housing - when the government pays a part of your rent (usually for low income families). or subsidized student loan - when somebody else is paying interest on the money you borrowed while you are in school.", "title": "" }, { "docid": "e67096d3a6a605ce4f1b98783b15ba06", "text": "It means a government giving out money to encourage a particular product (or service) to be bought or sold. Some people will use the word more loosely to refer to any financial incentive, even if it's not coming from the government. Wikipedia has a list of examples that may be helpful: http://en.wikipedia.org/wiki/Subsidy A commonly-mentioned one is farm subsidies, where farmers are paid to produce certain crops.", "title": "" }, { "docid": "a386d52e8820cd77a4acb592f43dbff4", "text": "A subsidy is a payment made by a group (usually the state) to individuals or corporations in order to shift the balance if the rational economic decision for the individual would be detrimental to the group as a whole otherwise. For example, if there are different quality kinds of crops that can be planted, for example a GM maize that brings in high yields but can only be processed to High Fructose Corn Syrup or a naturally bred corn that brings lower yields but tastes well enough for direct consumption, then if demand for both exceeds supply, the economic choice for the individual farmer is to plant the former. If the claims that HFCS contribute to obesity are founded, then it is in the public interest to produce less of it, and more alternative foods. Given that a market rather than a planned economy is desired, this cannot be achieved by decree, but rather money is used as an incentive. In the long term, this investment may very well pay off through reduced health care costs, so it is a rational economic decision from the state's point of view. In a world where all actors make decisions that are fully in their self interest, in principle subsidies would not be needed as consumers would demand healthy rather than cheap foods, and market mechanisms would provide these.", "title": "" } ]	[ { "docid": "fb053d3e39dfbf1774ccd53577678890", "text": "That's a completely false statement. You really should read something for yourself instead of parroting misinformation. Per the US Energy Information Administration's 2015 report, more than 50% of all subsidy money ($15 billion of just less than $30 billion) is for renewables while producing less than 15% of energy with solar accounting for a whopping 0.005% (rounded up). https://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf By contrast, liquid petroleum and coal received only ~$3.4 billion in subsidies produced 66% (rounded down) of energy. The moral of the story is: just because you want something to be true really badly doesn't mean it is.", "title": "" }, { "docid": "b347516b80a7e2ce42a82256cc525709", "text": "A Loan is an loan that gives some kind of benefit as an assurance to a loaning organization. So when you put in an application for a credit, you likewise advocate that in case that you can not pay, you've some form of benefit that will cover the default sum.", "title": "" }, { "docid": "bfcb63dcc9f97588f55a8ede45e22a8a", "text": "Well you would have to take into account 2 things. 1 the taxes and regulations that fossil fuel industries face relative to renewables. 2. subsidies as a percent of fossil fuel industry compared to subsidies as a percent of green energy companies. My hunch is that both of these points show that overall, the fossil fuel industry isn't benefiting from the government and renewable companies are benefiting", "title": "" }, { "docid": "627d7f807f3b08ed69498324074acf85", "text": "> It's still free money from US to build a system for THEM so they can sell the power back to us at a profit. Sure, because otherwise they can't make a profit and thus wouldn't build the system. That's the point in subsidises.", "title": "" }, { "docid": "64c3f2132171b5273ef7d6135437d46b", "text": "Investment in public infrastructure is different than subsidy to private companies. Comparison to the interstate system here is irrelevant. The state of Wisconsin is giving a company $230k per worker per year in tax breaks for jobs that will pay the workers $53k per year. There is no tax rate that can earn that investment back for the state. In fact, that state income tax rate on these salaries is 6.27%. Even considering all of the additional jobs that will be created for construction and as an effect of having a large employer in the area, this investment will never pay for itself in terms of taxes generated.", "title": "" }, { "docid": "13ab33ce88815758683978479ee0009f", "text": "\"Companies often provide cafeteria, or catering services, to employees tax-free at subsidized rates. I'll use \"\"cafeteria\"\" as an illustration. The IRS says that in order to avoid lunch being taxed as income, the employees must pay the \"\"direct costs\"\" of the lunch, food and labor. In addition to those costs, cafeterias add two more items to come up with the total tab; \"\"overhead,\"\" (the cost of renting the space), and of course, profit. The company can waive the last two, and charge employees only materials and labor. That's why subsidized cafeteria food can cost as little as half of what it would cost elsewhere.\"", "title": "" }, { "docid": "6f8deb6271cb0f019346d6c648e11cd1", "text": "I think increasing funding to public colleges are an -okay- thing to do. Certainly it is better than the current system which guarantees student loans to benefit the bankers. So, we're talking about two different kinds of subsidies: one directly for schools and one for bankers. While ideally, I'd like to see no government involvement whatsoever, I can compromise as long as bankers are bearing the full risk of their student loans. The student loan system is what is bubbling up tuition prices, very similar to what happened in housing.", "title": "" }, { "docid": "fc7a6f35a0191b74ae0b4020a2121cee", "text": "What subsidies are you talking about? From wikipedia: >>'The USPS has not directly received taxpayer-dollars since the early 1980s with the minor exception of subsidies for costs associated with the disabled and overseas voters' More like small businesses are grateful there is a service they don't have to pay excessive administrative taxes to use and are sad the greed in the US is going to wreck yet another piece. The value of privatization is such a horrible scam.", "title": "" }, { "docid": "50bb518a10ebf19ab021cf0290cfa804", "text": ">>The US remains wedded to its allegedly free market leanings despite revelations that JP Morgan, among others, receives $14 BILLION a year in government subsidies. I don't think you'd get much more argument from American taxpayers (big or small) that subsidies if/when they are justified should come with requirements to make sure the public interest is truly being served. What is less clear is that holding stock in businesses that the government has decided to subsidize means the government should control the pay of the parent company's execs. Disclaimer: I identify conservative with libertarian leanings and do not (to the best of my knowledge) own stock in any bank or bank-like entity", "title": "" }, { "docid": "9d9e049493c96bcb0872c1bd9d8fdef8", "text": "\"Similar, but actually quite different. A negative income tax on the first $20,000/year has a couple of problems this scheme doesn't: 1) Administration costs and legal complexity. Are we \"\"prebating\"\" or \"\"rebating\"\" the stipend? How is someone supposed to get along if they lose their job unexpectedly in a rebate-based system, can they get their income-tax withholdings back up to $20,000/year? How does the government register changes in income to know when to write someone a check? 2) With a negative tax up to a certain fixed level, there's effectively a changing level of subsidy depending how much of the per-capita income is the break-even tax level. If the per-capita income is $45,000/year (our current GDP per capita), then the subsidy level is almost 50%, and if it goes up to $60,000/year (our current mean household income), the subsidy level is then 33%. The system I described and steepk (IIRC) invented fixes the subsidy percentage in relation to the mean reported income (effectively fixing a relative class level as minimum) rather than a particular monetary amount (whose relative buying power versus inflation or other incomes can fluctuate wildly). We pick a subsidy level, say 1/3 (33.33333%). We then impose a flat income tax of that level plus a little bit more for administration costs (say, 35%). At the end of the year, everyone is taxed at that flat level, and the government scrapes its administration costs off the top and now has a big pot with 1/3 of everyone's income in it. This is divided into one portion for each taxpayer, and those portions into monthly or biweekly pieces. These pieces are sent out regularly as checks to the taxpayer, and these checks are not taxed as income. That last bit is what makes this so nice: it turns the tax progressive, in fact more progressive than our current system. After taxes and after stipend, only the rich will pay an effective tax rate asymptotically close to the real 35%. Most people without incomes many, many times the size of their stipends will be looking at an effective tax rate of less than 15%, including the tax-paying middle class and the professional upper-middle class who currently bitch so much about our tax rates being so confiscatory (which they are, for the abysmal level of social services we receive). Now, to get back to the big benefits of fixing the subsidy percentage. This means that the subsidy grows with mean income, effectively functioning as easy to run, fair, and direct wealth redistribution without the difficulty of trying to create efficient, productive WPA-style jobs or imposing market-distorting subsidies. It also means that we can allow things like automation to improve the productivity of our economy because everyone gets a share: if automating a certain job is truly more efficient than having a worker do it, the capitalist's income-gain from automation will push up the mean income, and therefore the basic income, further than the worker's lesser income and the capitalist's lesser profit would have.\"", "title": "" }, { "docid": "b95d0ed144da13e2d4872f034f7d0151", "text": "well, but to the best of my understanding we do subsidize the Koch Bros extremely heavily. my sense of things is that Soros is not popular with the powers that be, and left out of the subsidies, but please enlighten me if i am wrong. i am interested and curious. also cynical but thats another post. hah", "title": "" }, { "docid": "7474c47838a44b167ea5ed7e98c7c088", "text": "Yes, your assumptions are correct. The industry realizes that the equilibrium price of product A is $10. The government decides to increase the amount of people who can access product A. They do this by subsidizing $5 of the $10 dollar cost. However the industry reacts by increasing the cost of product A by the amount of the subsidy (so product A is now priced at $15), because the industry knows people already can afford paying $10. This is not exclusive to medicine, it is also happening with higher education. Here is a paper that examines the effect of government subsidization of college tuition. The study finds that as financial aid increased, there was a 102% correlation with the increase in the cost of tuition. http://www.nber.org/chapters/c13711.pdf", "title": "" }, { "docid": "ba5851f5170c2bfd280aca1fcfd84f22", "text": "A service provider that prevents competition by making it illegal to compete. Every other insurance program allows you to opt out. And i wouldnt consider it protection when they stick there dick into everyone elses business. Every gang or mafia claims to protect those it shakes down. Edit.. Just because you wear a brown shirt doesnt make you a righteous person.", "title": "" }, { "docid": "c37656edd7d3463cbc010c541ef917f7", "text": "Clearly the semantics of the discussion are of greater importance to you. Hospitals are not directly subsidized by the government. Medicare originated with two parts: Part A: Medicare Hospital Insurance (HI) which covers hospital / hospice costs and Part B: Supplementary Medical Insurance (SMI) which covers outpatient costs. Part C was added later by Clinton, which set up a system of selection of health insurance through private companies, and those private companies are then subsidized by the federal government.", "title": "" }, { "docid": "54c2bdbd4b4d608641614b279fe26cdf", "text": "Not really. There are rules against subsidizing markets that inflict injury on like industries among WTO nations. Bombardier is violating that rule by getting subsidies for commercial airliners. Boeing gets government loans for Department Of Defense contracts, but not for commercial jets. Canada has a bad habit of side stepping NAFTA and WTO guidelines and they're upset someone is finally calling them on it. If Canada wants to subsidize markets that fellow WTO nations do not participate in, fine. They have that opportunity. Bombardier was not that.", "title": "" } ]	fiqa
5d5c914fd4fc72cc90d492cf63847f6d	Who sets the prices on government bonds?	[ { "docid": "08279327cb374f26ca370c33cba6526b", "text": "\"Who sets the prices? Effectively the market does, like basically all openly traded things. The Greek government could well have said \"\"5% is as high as we will go\"\". As a result, investors may not have chosen to buy the securities. The global bond market is highly liquid, and investors who have a choice could well then choose to go elsewhere. The reasons could well be varied, but primary among them would be that investors view Greek investments as more than 5% risky. If I can get 5% from a country that I deem less risky than from Greece, my choice is clear. Therefore to be compensated for loaning them my money, I am expecting a return of 7% because there is the possibility that they will default. As for not selling them at all, if they could avoid issuing bonds, most governments would. They may not have had much of a choice. If they just print more money, that does other potentially bad things to the economy. The government needs funds to operate, if they are not collecting enough in taxes, for example, and do not want to print money as I mentioned, then bonds are one other common way to raise cash. Notwithstanding that in your example you are referring to the interest rate, not the price, the principal is the same.\"", "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": "d37196a48b37a2316c05a349ab0af9cf", "text": "\"So how does one of these get set up exactly? If a private company wants to backstop their ability to repay bond obligations with public funds, doesn't an agreement like that have to go through something like a city council meeting before it's approved? If it does, and that happened in these cases, then the municipalities made a bad decision on an \"\"investment\"\" that included some level of risk, just like any other investment they make. If it doesn't work out, it shouldn't be a surprise who's on the hook for the payment.\"", "title": "" }, { "docid": "44d10cf8dea72d350a41c0b3a9d9bb61", "text": "\"It may seem weird but interest rates are set by a market. Risk is a very large component of the price that a saver will accept to deposit their money in a bank but not the only one. Essentially you are \"\"lending\"\" deposited cash to the bank that you put it in and they will lend it out at a certain risk to themselves and a certain risk to you. By diversifying who they lend to (corporations, home-buyers each other etc.) the banks mitigate a lot of the risk but lending to the bank is still a risky endeavour for the \"\"saver\"\" and the saver accepts a given interest rate for the amount of risk there is in having the money in that particular bank. The bank is also unable to diversify away all possible risk, but tries to do the best job it can. If a bank is seen to take bigger risks and therefore be in greater risk of failing (having a run on deposits) it must have a requisitely higher interest rates on deposits compared to a lower risk bank. \"\"Savers\"\" therefore \"\"shop around\"\" for the best interest rate for a given level of risk which sets the viable interest rate for that bank; any higher and the bank would not make a profit on the money that it lends out and so would not be viable as a business, any lower and savers would not deposit their money as the risk would be too high for the reward. Hence competition (or lack of it) will set the rate as a trade off between risk and return. Note that governments are also customers of the banking industry when they are issuing fixed income securities (bonds) and a good deal of the lending done by any bank is to various governments so the price that they borrow money at is a key determinant of what interest rate the bank can afford to give and are part of the competitive banking industry whether they want to be or not. Since governments in most (westernised) countries provide insurance for deposits the basic level of (perceived) risk for all of the banks in any given country is about the same. That these banks lend to each other on an incredibly regular basis (look into the overnight or repo money market if you want to see exactly how much, the rates that these banks pay to and receive from each other are governed by interbank lending rates called Libor and Euribor and are even more complicated than this answer) simply compounds this effect because it makes all of the banks reliant on each other and therefore they help each other to stay liquid (to some extent). Note that I haven't mentioned currency at all so far but this market in every country applies over a number of currencies. The way that this occurs is due to arbitrage; if I can put foreign money into a bank in a country at a rate that is higher than the rate in its native country after exchange costs and exchange rate risk I will convert all of my money to that currency and take the higher interest rate. For an ordinary individual's savings that is not really possible but remember that the large multinational banks can do exactly the same thing with billions of dollars of deposits and effectively get free money. This means that either the bank's interest rate will fall to a risk adjusted level or the exchange rate will move. Either of those moves will remove the potential for making money for nothing. In this case, therefore it is both the exchange rate risk (and costs) as well as the loan market in that country that set the interest rate in foreign currencies. Demand for loans in the foreign currency is not a major mover for the same reason. Companies importing from foreign entities need cash in foreign currencies to pay their bills and so will borrow money in other currencies to fulfil these operations which could come from deposits in the foreign currency if they were available at a lower interest rate than a loan in local currency plus the costs of exchange but the banks will be unwilling to loan to them for less than the highest return that they can get so will push up interest rates to their risk level in the same way that they did in the market before currencies were taken into account. Freedom of movement of foreign currencies, however, does move interest rates in foreign currencies as the banks want to be able to lend as much of currencies that are not freely deliverable as they can so will pay a premium for these currencies. Other political moves such as the government wanting to borrow large amounts of foreign currency etc. will also move the interest rate given for foreign currencies not just because loaning to the government is less risky but also because they sometimes pay a premium (in interest) for being able to borrow foreign currency which may balance this out. Speculation that a country may change its base interest rate will move short term rates, and can move long term rates if it is seen to be a part of a country's economic strategy. The theory behind this is deep and involved but the tl;dr answer would be the standard \"\"invisible hand\"\" response when anything market or arbitrage related is involved. references: I work in credit risk and got a colleague who is also a credit risk consultant and economist to look over it. Arbitrage theory and the repo markets are both fascinating so worth reading about!\"", "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": "4f27a728efa05f14ce56512f50cc4767", "text": "The generic representative of interest rates is the 10 year treasury bond rate. (USA). As an approximation most other interest rates do tend to move up and down with the treasury rate, but with more or less sensitivity. Another prominently discussed interest rate is the short term loan rate established by the Federal Reserve for loans it makes to banks.", "title": "" }, { "docid": "13ad0143a8523b975c7b299bed7ecf3c", "text": "\"The rate of the bond is fixed. But there is a risk known as \"\"interest rate risk\"\". Basically, if you have a 2 percent bond and market rates are 4 percent, you'll have to offer your bond at a discount or nobody would buy it. So if you ever needed to sell it, you'd lose a bit of money.\"", "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": "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": "b0d570729d6309ccf9878653379d3654", "text": "The literal answer to your question 'what determines the price of an ETF' is 'the market'; it is whatever price a buyer is willing to pay and a seller is willing to accept. But if the market price of an ETF share deviates significantly from its NAV, the per-share market value of the securities in its portfolio, then an Authorized Participant can make an arbitrage profit by a transaction (creation or redemption) that pushes the market price toward NAV. Thus as long as the markets are operating and the APs don't vanish in a puff of smoke we can expect price will track NAV. That reduces your question to: why does NAV = market value of the holdings underlying a bond ETF share decrease when the market interest rate rises? Let's consider an example. I'll use US Treasuries because they have very active markets, are treated as risk-free (although that can be debated), and excluding special cases like TIPS and strips are almost perfectly fungible. And I use round numbers for convenience. Let's assume the current market interest rate is 2% and 'Spindoctor 10-year Treasury Fund' opens for business with $100m invested (via APs) in 10-year T-notes with 2% coupon at par and 1m shares issued that are worth $100 each. Now assume the interest rate goes up to 3% (this is an example NOT A PREDICTION); no one wants to pay par for a 2% bond when they can get 3% elsewhere, so its value goes down to about 0.9 of par (not exactly due to the way the arithmetic works but close enough) and Spindoctor shares similarly slide to $90. At this price an investor gets slightly over 2% (coupon*face/basis) plus approximately 1% amortized capital gain (slightly less due to time value) per year so it's competitive with a 3% coupon at par. As you say new bonds are available that pay 3%. But our fund doesn't hold them; we hold old bonds with a face value of $100m but a market value of only $90m. If we sell those bonds now and buy 3% bonds to (try to) replace them, we only get $90m par value of 3% bonds, so now our fund is paying a competitive 3% but NAV is still only $90. At the other extreme, say we hold the 2% bonds to maturity, paying out only 2% interest but letting our NAV increase as the remaining term (duration) and thus discount of the bonds decreases -- assuming the market interest rate doesn't change again, which for 10 years is probably unrealistic (ignoring 2009-2016!). At the end of 10 years the 2% bonds are redeemed at par and our NAV is back to $100 -- but from the investor's point of view they've forgone $10 in interest they could have received from an alternative investment over those 10 years, which is effectively an additional investment, so the original share price of $90 was correct.", "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": "9883bc47d8fd12d8301ff1079d0e0bdc", "text": "\"I think a lot of this goes to the short-sightedness of the government that was in place at the time of the first default. They caused it, and their attempt at cleaning things up just kicked the can down the road. If they would have added in a \"\"class action\"\" clause that most bonds now have, what they settled with a majority would apply to all bond-holders. What they did was the opposite: added in a clause in which the low-water mark was set by the deal that was least favourable for them. It was probably a misguided attempt at assuaging the markets with the consequences we now see...\"", "title": "" }, { "docid": "2aa481ffa2d33951bfdbbab1ebf2c7cb", "text": "Not really. You can have two bonds that have identical duration but vastly different convexity. Pensions and insurance portfolio managers are most common buyers as they're trying to deal with liability matching and high convexity allows them to create a barbell around their projected liabilities.", "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": "c8be50d70cfd1d6fccfbdcd413d166f0", "text": "\"The Bank of Canada does not \"\"set\"\" the interest rates. They auction government debt, and then report what the average yield/interest rate was (rounded to 25 basis points). [The average yield of yesterday's auction of 3-month Treasury bills was 0.76%](http://www.bankofcanada.ca/rates/interest-rates/t-bill-yields/). I don't know why the news tries to interpret what the BOC \"\"is trying to say\"\". BOC isn't saying anything - just reporting what happened, with some filler words.\"", "title": "" }, { "docid": "bb1cf8423107a911bd071f131354e0dc", "text": "If you are looking for money to speculate in the capital markets, then your brokers will already lend to you at a MUCH more favorable rate than an outside party will. For instance, with $4,000 you could EASILY control $40,000 with many brokers, at a 1% interest rate. This is 10:1 leverage, much like how US banks operate... every dollar that you deposit with them, they speculate with 10x as much. Interactive Brokers will do this for you with your current credit score. They are very reputable and clear through Goldman Sachs, so although reputable is subjective in the investment banking world, you won't have to worry the federal government raiding them or anything. If you are investing in currencies than you can easily do 50:1 leverage as an American, or 100:1 as anyone else. This means with only $400 dollars you can control $40,000 account. If you are investing in the futures market, then there are many many ways to double and triple and quadruple your leverage at the lowest interests rates. Any contract you enter into is a loan from the market. You have to understand, that if you did happen to have $40,000 of your own money, then you could get $4,000,000 account size for speculating, at 1% interest. Again, these are QUICK ways to lose your money and owe a lot more! So I'd really advise against it. A margin call in the futures market can destroy you. I advise you to just think more efficiently until you come up with a way to earn that much money initially, and then speculate.", "title": "" } ]	fiqa
da4af2250552a6918bfb334c77d75daa	What does quantitative easing 2 mean for my bank account?	[ { "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": "103f55895f58d26ed4d4ccd96c1ac011", "text": "IMO, QE2 will likely have no perceptible impact in the near term. Keeping all of your savings in a bank guarantees that you will lose money to inflation & taxes. I'd suggest consulting a financial advisor -- preferably someone who understands issues facing someone with assets in the US and Canada. In terms of what portion of your savings should be in USD vs. CAD, that's going to depend on your situation. I'd probably want more assets in the place that I'm living in for the next several years.", "title": "" }, { "docid": "d260b646640677769c5e0a9bdaf5c6ca", "text": "Probably means next to zero chance of having decent rates on savings accounts for the near future - who needs your money if banks can have government money for free? Probably no short-term effects on you besides that.", "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": "ba960eb7f7436e5f3824be9fad756a02", "text": "If you're willing to use OFX or QIF files, most Canadian banks can spit output more data than 90 days. The files are typically used to import into Quicken-like local programs, but can be easily parsed for your webapp, I imagine.", "title": "" }, { "docid": "d9cdcdff137ec7b88535795c9b4a7540", "text": "\"From the banks point of view the point of a current account like this is to get you as a regular customer. They want to be your \"\"main bank\"\", the bank you interact with the most, the bank you turn to first when you need financial products and services, the bank whose advertising you see every time you log into online banking or walk into a branch. The bank knows that if they just offer the unprofitablly high interest rate or other perks with no strings attatched that people will open the account and dump a bunch of savings in it but won't actually move their financial life over, their old bank will still be their main bank. So they attatch strings like a required minimum deposit, a minimum number of direct debits and similar. These have minimal effect on people actually using the account as their main current account while being a pain for people trying to game the system. Of course as you point out it is still possible to game the system but they don't need to make gaming the system impossible, they just need to make it inconvianiant enough that most people won't bother.\"", "title": "" }, { "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": "531c24fc4799a873aaae9d2509686043", "text": "What are you using the analysis for? If your analyzing your interest rate risk then you want to determine decay rates for your non-maturity deposits. Assuming your bank uses ALM software to produce your Earnings-at-Risk (EAR) and Economic Value of Equity (EVE) metrics, the decay rate assumptions make a big difference in those numbers. Most ALM models have default assumptions that may not be correct for your institution, and as a result are giving you EAR and EVE numbers that are not at all accurate. Basically you want to have some analysis that proves how you are bucketing your NMDs (3,6,9, 12, 24 months?). Are your deposits sticky or are they affected by small changes in interest rates? You can look at historical numbers to determine how your deposits behave, but be sure to go back more than 3-4 years as deposit behavior has been pretty abnormal since 2008 with rates near zero. Similarly, you may want to try and identify 'surge' deposits that came into your bank due to the low rate environment and as soon as rates rise they will move into higher earning assets (stocks, bond, money markets).", "title": "" }, { "docid": "8581237521e013efb99dba1ca0c48598", "text": "Because giving someone a loan and paying them to take it isn't a loan anymore. I'll grant you, some of the treasury bill auctions did slip below 0% -- people paid in slightly more than what the bill would pay out. In as much as this was done by actual investors (and not afore-mentioned helicopter Ben Bernanke keeping the printing presses running hot all night), it was major accounts fearful of the euro disintegrating and banks crashing, and so on, and needing a safe spot to stick their cash for a couple months. Where the Fed is concerned, that interest rate he's referring to is lending they do to banks. So, how much would you take if you ran a bank and the Fed offered to pay you to take their money? A billion? A trillion? As much as you could cram in your vaults, shove in your pockets, and stuff down your favorite teller's blouse? Yea, me too.", "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": "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": "f18f3c5e4610ab3f40cdc8e509be5c33", "text": "\"Bank for International Settlements (BIS) are the guys in Switzerland that came up with the Basel accords and gave us fun things like Capital Adequacy Ratios and kept bankers constipated for the last decade. It seems According to them, the bankers have been up to no good again and have been engaging in bank to bank currency swaps and derivative swaps in a manner that has allowed them to by pass regulatory safe guards and hide the debt off balance sheet, and a situation is occurring where they have to pay back their debt before the debt that is owed to them matures and that could lead to a credit crunch and liquidity crisis. The trigger they feel for this could be a rise in inflation in the US which would lead to the Fed raising rates or an unforeseen shock to the dollar that would tighten the market. \"\"Signs of excess are visible everywhere. “Corporate debt is now considerably higher than it was pre-crisis. Leverage indicators have reached levels reminiscent of those that prevailed during previous corporate credit booms. A growing share of firms face interest expenses exceeding earnings before interest and taxes,” said the report. Up shit creek and its in danger of popping\"", "title": "" }, { "docid": "4f8f5fa9a7144cf472c4d3c3c924557d", "text": "\"The point here is actually about banks, or is in reference to banks. They expect you know how a savings account at a bank works, but not mutual funds, and so are trying to dispel an erroneous notion that you might have -- that the CBIC will insure your investment in the fund. Banks work by taking in deposits and lending that money out via mortgages. The mortgages can last up to 30 years, but the deposits are \"\"on demand\"\". Which means you can pull your money out at any time. See the problem? They're maintaining a fiction that that money is there, safe and sound in the bank vault, ready to be returned whenever you want it, when in fact it's been loaned out. And can't be called back quickly, either. They know only a little bit of that money will be \"\"demanded\"\" by depositors at any given time, so they keep a percentage called a \"\"reserve\"\" to satisfy that, er, demand. The rest, again, is loaned out. Gone. And usually that works out just fine. Except sometimes it doesn't, when people get scared they might not get their money back, and they all go to the bank at the same time to demand their on-demand deposits back. This is called a \"\"run on the bank\"\", and when that happens, the bank \"\"fails\"\". 'Cause it ain't got the money. What's failing, in fact, is the fiction that your money is there whenever you want it. And that's really bad, because when that happens to you at your bank, your friends the customers of other banks start worrying about their money, and run on their banks, which fail, which cause more people to worry and try to get their cash out, lather, rinse repeat, until the whole economy crashes. See -- The Great Depression. So, various governments introduced \"\"Deposit Insurance\"\", where the government will step in with the cash, so when you panic and pull all your money out of the bank, you can go home happy, cash in hand, and don't freak all your friends out. Therefore, the fear that your money might not really be there is assuaged, and it doesn't spread like a mental contagion. Everyone can comfortably go back to believing the fiction, and the economy goes back to merrily chugging along. Meanwhile, with mutual funds & ETFs, everyone understands the money you put in them is invested and not sitting in a gigantic vault, and so there's no need for government insurance to maintain the fiction. And that's the point they're trying to make. Poorly, I might add, where their wording is concerned.\"", "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": "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": "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": "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": "3440392865922705522359d6a305d0c9", "text": "I concur with the answers above - the difference is about the risk. But in this particular case I find the interest level implausible. 11% interest on deposits in USD seems very speculative and unsustainable. You can't guarantee such return on investment unless you engage in drug trade or some other illegal activity. Or it is a Ponzi scheme. So I would suspect that the bank is having liquidity problems. Which bank is it, by the way? We had a similar case in Bulgaria with one bank offering abnormal interest on deposits in EUR and USD. It went bust - the small depositors were rescued by the local version of FDIC but the large ones were destroyed.", "title": "" } ]	fiqa
cc23cc1f385b1c59ee881e94a6620e2f	What is the best credit card for someone with no credit history	[ { "docid": "db39d960adc97bf1d05e0c089f4b5395", "text": "If you've never had a credit card before a likely reason can be due to lack of credit history. You can apply for a department store card. Nordstroms, Macy's, Target will often grant a small line of credit even with no history. Target would be my first attempt as they have a wide selection of every day items, improving your usage on the card. If you've been denied due to too many applications, then you need to wait 18-24 months for the hard pulls to drop off your credit report before you apply again.", "title": "" }, { "docid": "761f768d6cdb089c8bda6e11a9c686d1", "text": "\"You have what is called in the biz a \"\"thin file\"\". Check with a Credit Union. They will get you a secured card or maybe a straight credit card. They usually will graduate you from a secured card to a real credit card in 12-18 months. Then you are on your way. You should also sign up for Creditkarma to get your credit report updated every week. They make their money on referring people to credit card companies so you might be able to kill two birds with one stone.\"", "title": "" }, { "docid": "a2bca858601b7bc24a317dbaf20d6a38", "text": "\"You have a lack of credit history. Lending is still tight since the recession and companies aren't as willing to take a gamble on people with no history. The secured credit card is the most direct route to building credit right now. I don't think you're going to be applicable for a department store card (pointless anyways and encourages wasteful spending) nor the gas card. Gas cards are credit cards, funded through a bank just like any ordinary credit card, only you are limited to gas purchases at a particular retailer. Although gas cards, department store cards and other limited usage types of credit cards have less requirements, in this post-financial crisis economy, credit is still stringent and a \"\"no history\"\" file is too risky for banks to take on. Having multiple hard inquiries won't help either. You do have a full-time job that pays well so the $500 deposit shouldn't be a problem for the secured credit card. After 6 months you'll get it back anyways. Just remember to pay off in full every month. After 6 months you'll be upgraded to a regular credit card and you will have established credit history.\"", "title": "" }, { "docid": "3c558511abfc24150bb63b00c9f7161a", "text": "Capital One's normal master card is known to approve people with limited or bad credit history. If not that look into a secured credit card. You put down a deposit of $200 or more and you get that much in credit, sometimes more.", "title": "" }, { "docid": "0659a4bed498947c7ee0553fab7d390c", "text": "Consider getting yourself a gas card. Use it for a year. Make your payments on time. Then reapply for a credit card.", "title": "" } ]	[ { "docid": "87d965cd8c97f1faa8784ca29206e209", "text": "Because even if you won the lottery, without at least some credit history you will have trouble renting cars and hotel rooms. I learned about the importance, and limitations of credit history when, in the 90's, I switched from using credit cards to doing everything with a debit card and checks purely for convenience. Eventually, my unused credit cards were not renewed. At that point in my life I had saved a lot and had high liquidity. I even bought new autos every 5 years with cash. Then, last decade, I found it increasingly hard to rent cars and sometimes even a hotel rooms with a debit card even though I would say they could precharge whatever they thought necessary to cover any expenses I might run. I started investigating why and found out that hotels and car rentals saw having a credit card as a proxy for low risk that you would damage the car or hotel room and not pay. So then I researched credit cards, credit reports, and how they worked. They have nothing about any savings, investments, or bank accounts you have. I had no idea this was the case. And, since I hadn't had cards or bought anything on credit in over 10 years there were no records in my credit files. Old, closed accounts had fallen off after 10 years. So, I opened a couple of secured credit cards with the highest security deposit allowed. They unsecured after a year or so. Then, I added several rewards cards. I use them instead of a debit card and always pay in full and they provide some cash back so I save money compared to just using a debit card. After 4 years my credit score has gone to 800+ even though I have never carried any debt and use the cards as if they were debit cards. I was very foolish to have stopped using credit cards 20 years ago but just had no idea of the importance of an established credit history. And note that establishing a great credit history does not require that you borrow money or take out loans for anything. just get credit cards and pay them in full each month.", "title": "" }, { "docid": "6d1f5c390d2fc95f58a1fcc9cdf0566a", "text": "For those who are looking to improve credit for the sake of being able to obtain future credit on better terms, I think a rewards credit card is the best way to do that. I recommend that you only use as many cards as you need to gain the best rewards. I have one card that gives 6% back on grocery purchases, and I have another card that gives 4% back on [petrol] and 2% back on dining out. Both of those cards give only 1% back on all other purchases, so I use a third card that gives 1.5% back across the board for my other purchases. I pay all of the cards in full each month. If there was a card that didn't give me an advantage in making my purchases, I wouldn't own it. I'm generally frugal, so I know that there is no psychological disadvantage to paying with a card. You have to consider your own spending discipline when deciding whether paying with cards is an advantage for you. In the end, you should only use debt when you can pay low interest rates (or as in the case of the cards above, no interest at all). In the case of the low interest debt, it should be allowing you to make an investment that will pay you more by having it sooner than the cost of interest. You might need a car to get to work, but you probably don't need a new car. Borrow as little as you can and repay your loans as quickly as you can. Debt can be a tool for your advantage, but only if used wisely. Don't be lured in by the temptation of something new and shiny now that you can pay for later.", "title": "" }, { "docid": "13205a84955e1cc9da6c599458da163d", "text": "Department store cards will appear on your credit report and is often much easier to get approved for. All my friends that have applied for a Macy's card have always been approved. If you are new to the country, department store cards are a great way to build history. Target and Nordstroms are two other department stores to look at. Target is my first suggestion since they carry every day items and will be easy to consistently put charges on the card to build credit history.", "title": "" }, { "docid": "c1f1bd2ee9a6d2caf9bfec545571ff8c", "text": "I came to US as an international student several years ago, and I have also experienced the same situation like most of the international students in finding ways to build credit history. Below I list out some possible approaches you may want to consider: I. Get a student job at campus (recommended) I think the best way is to get a student job in university, say a teaching assistant or student helper. In this case, you can be provided with a social security number and start to build your own credit history. II. Get credit card You can also consider to apply for a credit card. There are indeed some financial institutions that can provide credit cards for international students with no or limited credit scores requirement, say Discover and Bank of America. However, it is relatively hard to get approved, simply because hey may put more restriction in other aspects. For example, you may be required to keep sufficient bank balance above several thousand dollars during a period of time, or you should prove that you have relatives with citizenship in US who can provide your financial aid if needed. III. Apply for a loan (recommended) Getting a loan product is another alternative to get out of this difficult situation, but most of people don’t realize that. There are some FinTech start-ups in United States that specifically focus on international students’ loan financing. One representative example is Westbon (Westbon ), an online lending company that specializes in providing car loan for international students with no SSN or credit history. I once used their loan product to finance a Honda Accord, and Westbon reported my loan transaction records to US credit bureau during my repayment process. Later when I officially got my SSN number, I found my credit history has been automatically synchronized and I don’t have to start from all over again. It never be an easy journey for international students to build credit history in United States. What approach you should make really depends on you own situation. I hope the information above can be useful and good luck for your credit journey!", "title": "" }, { "docid": "f0f27d3d497769d2b2fda5a0d8869bff", "text": "If you have no credit history but you have a job, buying an inexpensive used car should still be doable with only a marginally higher interest rate on the car. This can be offset with a cosigner, but it probably isn't that big of a deal if you purchase a car that you can pay off in under a year. The cost of insurance for a car is affected by your credit score in many locations, so regardless you should also consider selling your other car rather than maintaining and insuring it while it's not your primary mode of transportation. The main thing to consider is that the terms of the credit will not be advantageous, so you should pay the full balance on any credit cards each month to not incur high interest expenses. A credit card through a credit union is advantageous because you can often negotiate a lower rate after you've established the credit with them for a while (instead of closing the card and opening a new credit card account with a lower rate--this impacts your credit score negatively because the average age of open accounts is a significant part of the score. This advice is about the same except that it will take longer for negative marks like missed payments to be removed from your report, so expect 7 years to fully recover from the bad credit. Again, minimizing how long you have money borrowed for will be the biggest benefit. A note about cosigners: we discourage people from cosigning on other people's loans. It can turn out badly and hurt a relationship. If someone takes that risk and cosigns for you, make every payment on time and show them you appreciate what they have done for you.", "title": "" }, { "docid": "2dd5be2dd8fe231b5ca85513873d09ec", "text": "I would like to post a followup after almost a quarter. littleadv's advice was very good, and in retrospect exactly what I should have done to begin with. Qualifying for a secured credit card is no issue for people with blank credit history, or perhaps for anyone without any negative entries in their credit history. Perhaps, cash secured loans are only useful for those who really have so bad a credit history that they do not qualify for any other secured credit, but I am not sure. Right now, I have four cash secured credit cards and planning to maintain a 20% utilization ratio across all of them. Perhaps I should update this answer in 1.5 years!", "title": "" }, { "docid": "4eaf0ece65e124c8ee239f8b0f7821d9", "text": "I've seen credit cards that provide you your credit score for free, updated once a month and even charted over the last year. Unfortunately the bank I used to have this card with was bought and the purchasing bank discontinued the feature. Perhaps someone out there knows of some cards that still offer a feature like this?", "title": "" }, { "docid": "63248a355bcd65af62550a6567c3f754", "text": "My first thought is get a Capital One Secured Card. Use it for small things and pay it all off when you get paid. It will build your credit and after six months of solid use your credit limit can go up and you can be eligible for a better non-secured card (not that you need to get one). It's great for starting or rebuilding credit.", "title": "" }, { "docid": "49136c4aa863e265570541bc1bcd0c3a", "text": "K, welcome to Money.SE. You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores. My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill. Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members. (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes)", "title": "" }, { "docid": "5c6e66187675209e5b49f55a3dded01b", "text": "A bank or credit card agency can deny your application for pretty much any reason. That said, it's extremely unlikely they'd do so for a secured credit card. This is because the credit is secured. If your sister is to get a card with, say, a $1000 limit, she will have to provide $1000 in security. This means the banks risk practically nothing. That said, I have found one reference that claims you need a score of above 600 to qualify for a secured credit card, though this is hard to believe. Secured credit cards are a reasonable way of building your credit back up. Just about the only other way for her credit rating to improve is for her history of bad debt to fall off the credit report, but that's going to take quite some time. She should be working hard to provide positive credit history to replace the old negative history, assuming her credit rating is important to her. It may not be; it's only important if she plans on taking on debt in the future. Honestly, a credit rating of around 500 is so bad that I wouldn't even worry much about lowering it. It's already low enough as to make it all but impossible to qualify for (unsecured) credit or loans. A single denial is unlikely to significantly affect the score, except in the very short term. With two bankruptcies, I encourage credit counselling for your sister. There are a number of good books available, too. Credit counselling should go into detail on credit scores, unsecured credit, proper budgeting, and all that sort of useful information.", "title": "" }, { "docid": "f3075b259cb4f23c55ecb99c138aff09", "text": "Yes, it is a very good idea to start your credit history early. It sounds like you have a good understanding of the appropriate use of credit, as a substitute for cash rather than a supplement to income. As long as you keep your expenses under control and pay off your card each month, I see no problems with the idea. Try to find a card with no annual fees, a low interest rate if possible (which will be difficult at your age), and with some form of rewards such as cash back. Look for a reputable issuing bank, and keep the account open even after you get a new card down the road. Your credit score is positively correlated with having an account open for a long time, having a good credit usage to credit limit ratio, and having accounts in good standing and paid on time.", "title": "" }, { "docid": "3dfae77394018b4ded73741d3303cda0", "text": "\"Or here's a better idea: don't have a credit card at all. They offer no real benefits and plenty of dangers. Don't take my word for it, though: \"\"I tell every student class I get, high school students, university students, you know, they'd be better off if they never used credit cards\"\" - Warren Buffet (Net worth: $44 billion) Before anyone says anything about using credit cards \"\"wisely\"\" and getting the rewards points, I can save 15% on many kinds of large purchases ($100+) using cash. You won't find a reward system offering that level of incentive. Two recent examples of cash discounts: After I bought my house I needed a lawnmower and a my wife wanted a new vacuum cleaner. Went to Lowe's and found the ones we wanted. They were $600 combined. Found the manager, stuck five $100 bills in his hand and said \"\"this is what I have, and that is what I need.\"\" 16.6% saved. Bought my daugher a bed recently. Queen box spring and mattress were on sale for $300 but it didn't come with the rails, which they wanted $50 extra for. Went to the bank and got $320 in cash from the bank, walked in, set it in his hand and said, \"\"I need the bed box spring and rails, tax included.\"\" He replied, \"\"Sorry man, I can't. I'm already taking a loss on...\"\" Then he stopped mid sentence, looked down at the cash again and said \"\"Hold on. Let me ask my manager.\"\" Manager walks over, guy explains what I said, manager looks at the cash and says \"\"Make it happen\"\" 14.3 % saved. As for purchasing a home, it is a myth that you need a credit score to obtain a mortgage for a home. Lending institutions can do manual underwriting instead of just relying on your credit score. It is a little tougher to do and banks usually have stricter requirements, but based on the information the OP has given in this and other questions, I think he can easily meet them.\"", "title": "" }, { "docid": "240af245a23939104871e35102887363", "text": "Update: Here is a Google Docs spreadsheet that is actively maintained and editable. It contains a list of EMV credit cards. With a few exceptions (UN, existing BMO Diners Club cardholders, employees of the state of North Carolina), it still looks like the Travelex card is the best option for most people. Original answer: The premise of the question may now be outdated. I have found internet articles claiming 4 US banks will now issue Chip and PIN cards. Specifically: The Chase link is for their British Airways card, which multiple sources say is really Chip and Signature (leaving it there so no one else suggests it). The Citi link is to specific chip and PIN information. I could not find specific information for the other two. I have a question into my bank (US Bank) and will update when they get back to me. In looking into this, some of the chip and PIN links I followed ended up being chip and signature, so as always, be careful.", "title": "" }, { "docid": "15c15857ff5c581f243a3b1e99ffd3f1", "text": "If you have no credit score it is generally far easier and more affordable to establish credit the cheapest way possible, which is usually in the form of a small credit card (student card if you are a student, low credit line unsecured, or even secured if you need). Your local bank/credit union will usually be keen to offer you something to start out, but you can also apply online to some of the major credit card vendors. As always, look out for annual fees, etc. In general, trying to get a larger loan to establish credit will cost you a lot as you will not qualify for any legitimate 0% or ultra-low APR car loans - those are reserved for people with established and generally pretty good credit. I expect you'll find a car loan that will have a lower APR than you could get investing your money otherwise - especially if you do not have established excellent credit - to simply be a phantom (you won't find it), and even if you could it is more risky than it is worth. Furthermore, if establishing credit is important to you (such as for buying a house down the road), you can build an excellent credit score without ever having a car loan. So you don't have to buy a car on borrowed money just to hope to get approved for a house some day - it's just not a requirement. Finally, I urge you to make a decision on the best car for you in your situation, ignoring the credit score - especially if you are more than 3-5+ years away from buying a house. Everything else about buying a car is more important - the actual cost of the car, year, mileage, suitability for your needs, gas mileage, maintenance and insurance costs, etc. Then, at the very end of your decision making process, ensure that buying the car would not put you dangerously low on savings by squeezing your emergency fund. Decide if you really need a loan or as expensive of a car, considering the costs over the expected life of you owning the car (or at least the next 2-5 years). Never get trapped into just thinking about monthly payments, which hide the true cost of loans and buying beyond what you can afford to purchase today.", "title": "" }, { "docid": "19bde1702c8c2197120ccd74d527b835", "text": "While you're asking about a particular bank, I'll give my opinion of this in general. I think a $12,000 household income is pretty low to be given credit. The risk to the bank is certainly higher than if the income were at that $35,000 level. They can use this to differentiate what they offer for perks, and if they ever collateralize the debt of these cards, it's a clearly defined demographic.", "title": "" } ]	fiqa
92d42bcfe1e64e4ef17c76ec1f8fbc8d	Why are “random” deposits bad?	[ { "docid": "36ba5ef475e3f88c1a5c6ed0f9611f4f", "text": "\"Random deposits are a bit like playing the lotery - especially if one is frequently chasing \"\"hot tips\"\". You might make it big, but the odds are vastly against you. \"\"Random\"\" deposits into various investments won't be optimal, because such \"\"random\"\" decisions will not be properly diversified and balanced. Various investments have different rates of risk and return. \"\"Random\"\" deposits will not take this into account for an individual's personal situation. In addition to needing to research individual investments as they are made, investments also need to be considered as part of a whole financial picture. A few considerations for example: Simply put, random isn't a financial strategy.\"", "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": "bff4b865a1719e435d5065a66da76fe1", "text": "It means someone's getting paid too much. I'd check the sharpe ratio and compare that to similar funds along with their expense ratio. So in some scenarios it's not necessarily a bad thing but being informed is the important thing", "title": "" }, { "docid": "b8d7639e01902ca28754028bcf23657d", "text": "\"Historically, Banks are mandated to take relatively safe risks with their money. In exchange, they gain a de-facto permission to invent new money. They have regulations about what mix of assets they are permitted to own. Real estate speculation will be in a different category than a mortgage to someone with good credit. Second, mortgages with a secured asset are pretty safe almost all of the time. That person might stop paying their mortgage, but it is secured; when that happens, the bank gets the secured asset (the right-to-apartment or house or what have you). In a sense, the bank loses only if both the person paying the mortgage is less creditworthy than they look, and the secured asset cannot recoup their losses. In comparison, the person paying the mortgage loses if the secured asset cannot recoup their losses. The bank is buffered from risk two fold. What more, the bank uses the customer to determine what to invest in. Deciding what to do with money is expensive and hard. By both having a customer willing to put their good credit on the line and doing due diligence on the apartment, the Bank in effect uses you as a consultant who decides this may be a solid investment. Much of the risk of failure is on you, so you have lots of incentive to make a good choice. If the Bank was instead deciding which apartment where worth buying, who would decide? A bank employee, whose bonus this year depends on finding a \"\"great apartment to invest in?\"\", but the consequence of a bad choice doesn't show up for many years? The people selling the bank the apartments? Such a business can exist. There are real estate companies that take money, and invest it in real estate. Often the borrow money from Banks secured against their existing real estate and use it to build more real estate. (Notice the bit about it being secured against existing real estate; things go south, Bank gets stuff). The Bank's indirect investment in that apartment in the current system is covered by appraisals, the seller, the mortgage holder, and the system deciding that the mortgage holder is creditworthy. Banks sell risk. They lend you money, you go off and do something risky with it, and they get a the low-risk return on investment of your loan. Multiple such low-risk investments provides them with a relatively dependable stream of money, which they give out to their bondholders, deposit account customers, shareholders or what have you. When you take a mortgage out for that, you are buying risk from the bank. You are more exposed to the failure of the investment than they are. They get less return if things go really well.\"", "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": "8bb302a7109f71f553e50dcc3bea6301", "text": "For small amounts I wouldn't be too concerned. There are two factors I can think of: For relatively small amounts and when dealing with reputable banking institutions there should be little concern of banking with a single bank. It's what most people do.", "title": "" }, { "docid": "5bcecd7eb7f436eb760dcaed90ba6626", "text": "\"They say that banks earn 4 - 5% on deposits, so with lower costs they can give away 2-4%. They cite [this article](https://www.wsj.com/articles/u-s-banking-industry-annual-profit-hit-record-in-2016-1488295836) which says that \"\"return on equity [for banks] up at 9.32%, the highest level since 2013\"\". But [net interest margin](https://www.fdic.gov/bank/analytical/qbp/2017mar/chart4.html) is lower (2.5%-4.5%). And that's in a good year. They elaborate in a blog post: \"\"Fed Funds rates are supposed to affect deposit rates that banks pay to their customers, as, after all, deposit is a form of short term loan from depositor to the bank (see the explanation in our recent blog). However, as WalletHub notes in their recent report, it has not actually happened recently. As the report notes, for traditional branch-based banks, savings and checking account rates are virtually unchanged. You are probably getting the same 0.01% in your checking or savings account? Meanwhile, rates on your credit card went up by 0.53% since December 2015.\"\" \"\"So why aren’t deposit rates increasing? One reason often cited, is actually the relative decrease in the levels of competition in the U.S. market (as we described in our earlier blog). While there are still thousands of banks in the U.S., 4 control ~40% of the assets and close to half of the assets (loans). The other reason could be, perhaps, that after almost 10 years of getting close to zero in your bank account, you will forget that it could be any different. In fact, bank executives are puzzled why consumers are not “demanding” more on their deposits. You can walk to the branch and “demand” more money from your bank, but you may end up in county jail. The only other viable option is to take your deposits elsewhere, or vote with your feet.\"\" (https://blog.meetbeam.com/draft-why-are-lending-rates-going-up-but-deposit-rates-are-not-76e050b382af) \"\"Beam makes money by providing value-added services to our partnering bank and other financial service partners in the banking ecoysystem.\"\" That sounds like they might be selling your data?\"", "title": "" }, { "docid": "c15618de5aa33b15216777072f5941bf", "text": "Its based on demand and supply and what Bank think the future rates would be. Today Banks in India have a liquidity crunch as the Repo Rates by Reserve Bank of India [Central Bank] are high. Bank want to encourage more people to deposit money and hence are offering higher rates. Banks also believe that once the Inflation is under control, the Central Bank would ease the repo rates. This is likely to happen in a years time. Hence Banks one year down want to lower the Fixed Deposit rates. So essentially they would be at loss if they give higher rates for longer periods. So they are offering the highest rates for a period of year which motivates more people to invest for a year, even if they want to stay invested for long.", "title": "" }, { "docid": "9c7e9fdd7c91b218a2c43b183b06dad3", "text": "\"Great question. There are several reasons; I'm going to list the few that I can think of off the top of my head right now. First, even if institutional bank holdings in such a term account are covered by deposit insurance (this, as well as the amount covered, varies geographically), the amount covered is generally trivial when seen in the context of bank holdings. An individual might have on the order of $1,000 - $10,000 in such an account; for a bank, that's basically chump change, and you are looking more at numbers in the millions of dollars range. Sometimes a lot more than that. For a large bank, even hundreds of millions of dollars might be a relatively small portion of their holdings. The 2011 Goldman Sachs annual report (I just pulled a big bank out of thin air, here; no affiliation with them that I know of) states that as of December 2011, their excess liquidity was 171,581 million US dollars (over 170 billion dollars), with a bottom line total assets of $923,225 million (a shade under a trillion dollars) book value. Good luck finding a bank that will pay you 4% interest on even a fraction of such an amount. GS' income before tax in 2011 was a shade under 6.2 billion dollars; 4% on 170 billion dollars is 6.8 billion dollars. That is, the interest payments at such a rate on their excess liquidity alone would have cost more than they themselves made in the entire year, which is completely unsustainable. Government bonds are as guaranteed as deposit-insurance-covered bank accounts (it'll be the government that steps in and pays the guaranteed amount, quite possibly issuing bonds to cover the cost), but (assuming the country does not default on its debt, which happens from time to time) you will get back the entire amount plus interest. For a deposit-insured bank account of any kind, you are only guaranteed (to the extent that one can guarantee anything) the maximum amount in the country's bank deposit insurance; I believe in most countries, this is at best on the order of $100,000. If the bank where the money is kept goes bankrupt, for holdings on the order of what banks deal with, you would be extremely lucky to recover even a few percent of the principal. Government bonds are also generally accepted as collateral for the bank's own loans, which can make a difference when you need to raise more money in short order because a large customer decided to withdraw a big pile of cash from their account, maybe to buy stocks or bonds themselves. Government bonds are generally liquid. That is, they aren't just issued by the government, held to maturity while paying interest, and then returned (electronically, these days) in return for their face value in cash. Government bonds are bought and sold on the \"\"secondary market\"\" as well, where they are traded in very much the same way as public company stocks. If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would dictate that if you get a huge inflow of capital, you can lower the interest rate paid on that capital. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest because they cannot secure capital funding at lower rates. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds. Individuals will often buy bonds for the perceived safety. Depending on how much money you are dealing with (sold a large house recently?) it is quite possible even for individuals to hit the ceiling on deposit insurance, and for any of a number of reasons they might not feel comfortable putting the money in the stock market. Buying government bonds then becomes a relatively attractive option -- you get a slightly lower return than you might be able to get in a high-interest savings account, but you are virtually guaranteed return of the entire principal if the bond is held to maturity. On the other hand, it might not be the case that you will get the entire principal back if the bank paying the high interest gets into financial trouble or even bankruptcy. Some people have personal or systemic objections toward banks, limiting their willingness to deposit large amounts of money with them. And of course in some cases, such as for example retirement savings, it might not even be possible to simply stash the money in a savings account, in which case bonds of some kind is your only option if you want a purely interest-bearing investment.\"", "title": "" }, { "docid": "17eed3eee79782d41d269c8843c6feba", "text": "The main reason people go with lower interest accounts is for convenience of having the money in the same institution with other accounts (like checking, auto loans, credit cards, etc.) with their local bank. These online savings accounts are regulated by law to only allow 6 transfers out per month, so for people that need to make withdrawals more frequently, that can also be a factor. If someone has an account like this that is not part of their normal checking account, it can also be inconvenient to wait for an ACH to complete overnight before the funds are available in their main accounts. I certainly use a higher yielding account for my very short-term liquid savings.", "title": "" }, { "docid": "fa9db0e5e90fb6f0b02e793dc44bd6cf", "text": "Remote Deposit usually means a scanner and some software and has a monthly fee associated with it (so it only makes sense for businesses, and even then only some businesses). Chase and USAA allow you to make deposits via your iPhone which is aimed at consumers and has some deposit limits associated with it (checks have to be less than some $$). I've used both. Remote Deposit is super easy, the software usually sucks, but it's too expensive for personal users ($60/month at citibank). Chase deposits have worked on my iPhone usually after 2 or 3 tries but that did save me from walking to the bank.", "title": "" }, { "docid": "bb08333d1a6300656a2baa34071e9316", "text": "\"Theres nothing wrong with CDOs or Synthetic ones. What is important is that they are labelled correctly in terms of their risk. You cant be selling risky CDOs as \"\"safe\"\" bets. If the rating agencies and financial institutions rate them correctly then I dont see a problem with it.\"", "title": "" }, { "docid": "007c21de69a829f2189aaf04738a5092", "text": "In my experience Sparkasse or VR Bank have them quite often. They stick out in my mind because when you make a withdrawal you have to reach in to get your money instead of it spitting it out. I'm always afraid its going to chop my hand off.", "title": "" }, { "docid": "b2bfe73bca613298ce22c988da3d6a9f", "text": "There is nothing conceptually wrong with it. If you like it that way, go ahead. The only thing to watch out for is bank policies that effectively penalize having many small accounts. For instance, some banks charge you a fee for checking accounts with a balance below a certain minimum, but will waive the fees for accounts with a higher balance. You may be able to avoid such fees by judicious management of your funds (or by switching to a different bank), but it's something to be aware of. (The interest rates on savings accounts also often vary with the balance, making many small balances less efficient than one big balance. However, right now, at least in the US, interest rates on savings accounts are so low that the difference here is likely to be minimal.)", "title": "" }, { "docid": "07807c7d9d6a1b20798c2c6096b99d17", "text": "Yep. You know, for banks to use against your deposits which are now legally interpreted as unsecured loans or some such. I don't think we can print big again. Happened in [Cyprus](http://rt.com/business/cyprus-crisis-bailout-deposit-631/). Tinfoil hat is optional.", "title": "" }, { "docid": "da9bcd80c4b84b951d5e8c1372a1ed05", "text": "\"This article is written by an idiot!! Risk ≠ failure, risk = possibility of failure Reward (return) should be commensurate with risk and this is why long-shot propositions should be worthwhile. An example of this could be something like the following; an investment with a 95% chance of success should return about 5% on the investment (1 in 20 risk of loss, 1/20th return on investment for taking the risk) while a long-shot investment with a 5% chance of success should be paying a 2000% return (1 in 20 will succeed but they will pay 20 times the investment if they do). An investment with a 0% chance of return (that you are suckered into due to \"\"opacity\"\") is not an investment, it is being robbed and it should be illegal. WTF is opacity? Lying?\"", "title": "" } ]	fiqa
2f7206b216b1cc57324dcb18273cd692	Is it worth trying to find a better minimum down payment for a first time home buyer?	[ { "docid": "23f08b5e85a46978c831a05245b1321d", "text": "It's worthwhile to try and find a better minimum down-payment. When I bought my home, I got an FHA loan, which drastically reduced the minimum down-payment required (I think the minimum is 3% under FHA). Be aware that any down-payment percentage under 20% means that you'll have to pay for private mortgage insurance (PMI) as part of your monthly mortgage. Here's a good definition of it. Part of the challenge you're experiencing may be that banks are only now exercising the due diligence with borrowers for mortgages that they should have been all along. I hope you're successful in finding the right payment. Getting a mortgage to reduce your spending on housing relative to rent is a wise move. In addition to fixing your monthly costs at a consistent level (unlike rent, which can rise for reasons you don't control), the mortgage interest deduction makes for a rather helpful tax benefit.", "title": "" }, { "docid": "6d2c5c75a3a4275cd1e4dd42f690d634", "text": "If you are putting down less than 20% expect to need to pay PMI. When you first applied they should have described you a group of options ranging from minimal to 20% down. The monthly amounts would have varied based on PMI, down payment, and interest rate. The maximum monthly payment for principal, interest, taxes, and insurance will determine the maximum loan you can get. The down payment determines the price of the house above the mortgage amount. During the most recent real estate bubble, lenders created exotic mortgage options to cover buyers who didn't have cash for a down-payment; or not enough income for the principal and interest, or ways to sidestep PMI. Many of these options have disappeared or are harder to get. You need to go back to the bank and get more information on your different options, or find a lender broker who will help you.", "title": "" }, { "docid": "eb041bd16df447903c31bf70394077a4", "text": "\"When I first purchased my home six years ago, I was able to get into a Bank of America First Time Homebuyer program that required no down payment and no PMI. While I hope you find a lower initial payment, the banks have tightened their requirements so that buyers have \"\"more skin in the game\"\" so to speak. Exotic loan options coupled with the subprime mortgage crisis caused the housing bubble to burst. Now banks are being very selective about who they provide a mortgage. The other things you need to look at are interest rate and terms. Do you feel you will be in the home for the next 30 years? Have you considered a 15 year mortgage? Shop around. PMI used to have a bad connotation (at least it did when I bought my home six years ago), but I feel now that it would have been worthwhile for the banks and the economy in the long run had banks required buyers to utilize PMI.\"", "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": "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": "55bd433a38d2333dc733ebaacf1980d3", "text": "Your best bet is to talk with a banker about your specific plans. One of the causes of the housing crash was an 80/20 loan. There you would get a first for 80% of the value of a home and 20% on a HELOC for the rest. This would help the buyer avoid PMI. Editorially, the reason this was popular was because the buyer could not afford the home with the PMI and did not have a down payment. They were simply cutting things too close. Could you find a banker willing to do something like this, I bet you could. In your case it seems like you are attempting to increase the value of your home by using money to do an improvement so the situation is better. However, sizable improvements rarely return 100% or more on investments. Typically, I would think, the bank would want you to have some money invested too. So if you wanted to put in a pool, a smart banker would have you put in about 60% of the costs as pools typically have a 40% ROI. However, I bet you can find a banker that would loan you 100%. You don't seem to be looking for advice on making a smart money decision, and it is difficult to render a verdict as very little detail is supplied about your specific situation. However, while certain decisions might look very profitable on paper, they rarely take into consideration risk.", "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": "607d3d93fe01a67524bee2141178e60a", "text": "The short answer is, with limited credit, your best bet might be an FHA loan for first time buyers. They only require 3.5% down (if I recall the number right), and you can qualify for their loan programs with a credit score as low as 580. The problem is that even if you were to add new credit lines (such as signing up for new credit cards, etc.), they still take time to have a positive effect on your credit. First, your score takes a bit of a hit with each new hard inquiry by a prospective creditor, then your score will dip slightly when a new credit account is first added. While your credit score will improve somewhat within a few months of adding new credit and you begin to show payment history on those accounts, your average age of accounts needs to be two years or older for the best effect, assuming you're making all of the payments on time. A good happy medium is to have between 7 and 10 credit lines on your credit history, and to make sure it's a mix of account types, such as store cards, installment loans, and credit cards, to show that you can handle various types of credit. Be careful not to add TOO much credit, because it affects your debt-to-income ratio, and that will have a negative effect on your ability to obtain mortgage financing. I really suggest that you look at some of the sites which offer free credit scores, because some of them provide great advice and tips on how to achieve what you're trying to do. They also offer credit score simulators, which can help you understand how your score might change if, for instance, you add new credit cards, pay off existing cards, or take on installment loans. It's well worth checking out. I hope this helps. Good luck!", "title": "" }, { "docid": "a1cbaf548cfac2d95afa711c88f816b6", "text": "I think we would be good with paying around $1200 monthly mortgage fees (with all other property fees included like tax etc.) You probably can't get a $250k house for $1,200 a month including taxes and insurance. Even at a 4% rate and 20% down, your mortgage payment alone will be $954, and with taxes and insurance on top of that you're going to be over $1,200. You might get a lower rate but even a drop to 3% only lowers the payment $90/month. Getting a cheaper house (which also reduces taxes and insurance) is the best option financially. What to do with the $15k that I have? If you didn't have a mortgage I'd say to keep 3-6 months of living expenses in an emergency fund, so I wouldn't deplete that just to get a mortgage. You're either going to be Since 1) the mortgage payment would be tight and 2) you aren't able to save for a down payment, my recommendation is for you to rent until you can make a 20% down payment and have monthly payment that is 25% of your take-home pay or less. Which means either your income goes up (which you indicate is a possibility) or you look for less house. Ideally that would be on a 15-year note, since you build equity (and reduce interest) much more quickly than a 3-year note, but you can get the same effect by making extra principal payments. Also, very few people stay in their house for 30 years - 5 years is generally considered the cutoff point between renting and buying. Since you're looking at a 10-year horizon it makes sense to buy a house once you can afford it.", "title": "" }, { "docid": "997ffcf0eb3fb67c5b69f9379e46ed51", "text": "If you can get a mortgage with 10% downpayment and the seller will accept (some may want at least 20% downpayment for whatever reasons) and with PMI it still lower than your rent, sounds like it's a good idea to buy now. Of course this assumes that the money you'd be otherwise saving for 20% downpayment will be used to pay off a mortgage faster.", "title": "" }, { "docid": "58ef13596490800da6f197ed332a44d6", "text": "If you don't think you're necessarily going to stay in this area for five years, consider another option: renting. Five years is often quoted as the minimum length of time for buying (over renting), as the costs of the house purchase and the mortgage are significant - and if you're buying a new house every 5 years you're putting several thousand dollars of fees up front each time. If you don't assume that house prices will increase (as they won't necessarily), then you can consider these costs - say, $5000-$6000 for a $500k house - an extra 1% or so of interest that first year. If you are there 5 years, then you're paying 0.2% extra (more or less); that's reasonable, but if you're there only 2 years, you're adding 0.5% to your rate, which is pretty significant. You won't necessarily come out ahead here (versus renting). Renting for a year or two gives you enough time to find out if you do like the area, and if you do, you buy then - with more knowledge of the area and a chance to make a purchase at the right time for you. You pay off your loans, or at least a chunk of them, now, save some of the rest, and then rethink in a couple of years. If you then don't qualify for a doctor's mortgage anymore, you just save up the rest of the 20% before making the purchase.", "title": "" }, { "docid": "4c341364afeab9a693ed255b3f300d17", "text": "\"This is the meat of your potato question. The rephrasing of the question to a lending/real estate executive such as myself, I'd ask, what's the scenario? \"\"I would say you're looking for an Owner Occupied, Super Jumbo Loan with 20% Down or $360K down on the purchase price, $1.8 mil purchase price, Loan Amount is ~$1.45 mil. Fico is strong (assumption). If this is your scenario, please see image. Yellow is important, more debt increases your backend-DTI which is not good for the deal. As long as it's less than 35%, you're okay. Can someone do this loan, the short answer is yes. It's smart that you want to keep more cash on hand. Which is understandable, if the price of the property declines, you've lost your shirt and your down payment, then it will take close to 10 years to recover your down. Consider that you are buying at a peak in real estate prices. Prices can't go up more than they are now. Consider that properties peaked in 2006, cooled in 2007, and crashed in 2008. Properties declined for more than 25-45% in 2008; regardless of your reasons of not wanting to come to the full 40% down, it's a bit smarter to hold on to cash for other investments purposes. Just incase a recession does hit. In the end, if you do the deal-You'll pay more in points, a higher rate compared to the 40% down scenario, the origination fee would increase slightly but you'll keep your money on hand to invest elsewhere, perhaps some units that can help with the cashflow of your home. I've highlighted in yellow what the most important factors that will be affected on a lower down payment. If your debt is low or zero, and income is as high as the scenario, with a fico score of at least 680, you can do the deal all day long. These deals are not uncommon in today's market. Rate will vary. Don't pay attention to the rate, the rate will fluctuate based on many variables, but it's a high figure to give you an idea on total cost and monthly payment for qualification purposes, also to look at the DTI requirement for cash/debt. See Image below:\"", "title": "" }, { "docid": "1d141ce8a573675facfabe058a4d18a1", "text": "In such a situation, is there any reason, financial or not, to NOT pay as many points as mortgage seller allows? I can think of a few reasons not to buy points, in the scenario you described: If interest rates decrease you could be better off refinancing to a lower rate than buying points now. If buying points reduced your down payment below 20% then the PMI would more than offset the benefit of having purchased points. Your situation changes and you aren't able to stay in the home as long as planned. That said, current interest rates are pretty low, so I'd probably gamble on them not getting too much lower anytime soon. I also assume that if you can afford as many points as they allow, that you wouldn't have to dip below 20% down payment even with points. Edit: Others have mentioned that it's important to note opportunity cost when calculating the benefit of purchasing points, I agree, you wouldn't want to buy points at a rate that saved you less than you could earn elsewhere. Personally, I've not seen a points scenario that didn't yield more benefit than market average returns, but that could be due to my market, or just coincidence, you should definitely calculate the benefit for your scenario and shop for a good lender. Don't forget that points are tax deductible in the year paid when calculating their benefit.", "title": "" }, { "docid": "33d099c8da7f15157ff66e6ab94e8a96", "text": "My in-laws are pressuring me to buy a home. I don't really have much financial experience. In fact, I'm a nightmare with finances. I almost have my student loans payed off from school. My in-laws and husband are great with finances and with real-estate. My husband has a good job and $200k in savings. I have a good job too, and still have some debt from school. (approx $60k left of 180k). They say the house will be available in Jan or February for purchase, and that we should really try to buy it (prob $2-3 mil). My guess is they want to make it available to us off the market (which is a huge benefit in this area, there are really no houses available lately) . The problem is: I am uncomfortable because I don't have all of my loans payed off, I could divert money away from paying off the loans in order to save for a larger downpayment. I just got a bonus of $35k (after taxes) I don't think I'll have all of my loans payed off by January. Should I save my money for the downpayment or focus on my loans, should I go for the house? I don't know how to weigh these options against each other with such little experience.", "title": "" }, { "docid": "97ee126f81b81e9394033cbffba6ed84", "text": "Since I have 10k in my account after down-payment, will I get a good interest rate on the loan? When the bank considers your loan, they will see $70K. Regardless, they will want to see certain amount of savings that would allow you to continue paying your loan in case of an emergency, and $10K might not be enough. I was planning to put down 15%, but I have been told that I should buy something called PMI to satisfy the rest 5% and if I take that my interest will be more and sometimes, bank will not go for anybody who pays less than 20%. Is that true? Yes. After downpayment + closing costs, how much money in the savings accounts, is the bank looking for to say that I am a good buyer? Depends on the bank, my wild guess would be they're looking for several months' worth of loan payments (you should have ~6 months worth of savings for emergencies, regardless of loans).", "title": "" }, { "docid": "44a1a8100cc0999b85472c694aaf3436", "text": "As other people have said, a few thousand dollars isn't going to make any significant difference in what you pay - if you put an extra 1% down, and redraw all the documents accordingly, your payments are going to be roughly 1% less per month. So, for example, $1800 per month would become $1780 or so per month. You're much better off keeping the money as an emergency fund: When you buy a house, there are a lot of things that can go wrong (as is the case with your car, if you have one, and with medical expenses, and helping out a relative, not to mention losing your job, and so on). It doesn't sound like you have all that much money, because if you did, you would have put 20% down and avoided Private Mortgage Insurance, saving yourself a lot more money than 1%. So having a few more thousand in the bank sounds like a good thing.", "title": "" }, { "docid": "5ec49248f075ef9668c8ab7be040a979", "text": "It's easier to get approval for a smaller loan, and more down means less borrowed. Also, more down means more they can recover if they have to foreclose.", "title": "" }, { "docid": "c50a683c082ec94436effd96d108bed7", "text": "\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\"", "title": "" } ]	fiqa
9b7143920d32ae476b07de6628f704bb	classify investments in to different asset types	[ { "docid": "f89ed67b5f0774d7905ab336c87cbb9a", "text": "REITs can be classified as equity, mortgage, or hybrid. A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. Trades like equity but the underlying is a property ot mortgage. So you are investing in real estate but without directly dealing with it. So you wouldn't classify it as real estate. CD looks more like a bond.If you look at the terms and conditions they have many conditions as a bond i.e. callable, that is a very precious option for both the buyer and seller. Self occupied house - Yes an asset because it comes with liabilities. When you need to sell it you have to move out. You have to perform repairs to keep it in good condition. Foreign stock mutual fund - Classify it as Foreign stocks, for your own good. Investments in a foreign country aren't the same as in your own country. The foreign economy can go bust, the company may go bust and you would have limited options of recovering your money sitting at home and so on and so forth.", "title": "" }, { "docid": "135a2e56bf522c48f2db3566edca2a69", "text": "A foreign stock mutual fund definitely belongs in stocks. It's composed of stocks. Your self occupied house is definitely real estate. You don have to keep in mind,however that selling it would create costs such as rent. I wouldn't leave it out, if doing that would cause you to buy more real estate. This would cause you to be overweighted in the real estate area. I would tend to think if a CD as cash. While it could be considered a bond, as you said the principal doesn't go down. The REIT is the toughest one. I would really like to see a graph showing how correlated it is to the real estate market. That would determine where I would put it.", "title": "" } ]	[ { "docid": "134a2b54f8d2ddefd07691afbcb16bc6", "text": "The short answer is that you would want to use the net inflow or net outflow, aka profit or loss. In my experience, you've got a couple different uses for IRR and that may be driving the confusion. Pretty much the same formula, but just coming at it from different angles. Thinking about a stock or mutual fund investment, you could project a scenario with an up-front investment (net outflow) in the first period and then positive returns (dividends, then final sale proceeds, each a net inflow) in subsequent periods. This is a model that more closely follows some of the logic you laid out. Thinking about a business project or investment, you tend to see more complicated and less smooth cashflows. For example, you may have a large up-front capital expenditure in the first period, then have net profit (revenue less ongoing maintenance expense), then another large capital outlay, and so on. In both cases you would want to base your analysis on the net inflow or net outflow in each period. It just depends on the complexity of the cashflows trend as to whether you see a straightforward example (initial payment, then ongoing net inflows), or a less straightforward example with both inflows and outflows. One other thing to note - you would only want to include those costs that are applicable to the project. So you would not want to include the cost of overhead that would exist even if you did not undertake the project.", "title": "" }, { "docid": "d3c3966b5e38b2427a3327868d0fcfa7", "text": "Below is a list of rules that will help you to decide what types of products you should be investing in:", "title": "" }, { "docid": "0044b61fb390a15d42caa49119414285", "text": "I have had similar thoughts regarding alternative diversifiers for the reasons you mention, but for the most part they don't exist. Gold is often mentioned, but outside of 1972-1974 when the US went off the gold standard, it hasn't been very effective in the diversification role. Cash can help a little, but it also fails to effectively protect you in a bear market, as measured by portfolio drawdowns as well as std dev, relative to gov't bonds. There are alternative assets, reverse ETFs, etc which can fulfill a specific short term defensive role in your portfolio, but which can be very dangerous and are especially poor as a long term solution; while some people claim to use them for effective results, I haven't seen anything verifiable. I don't recommend them. Gov't bonds really do have a negative correlation to equities during periods in which equities underperform (timing is often slightly delayed), and that makes them more valuable than any other asset class as a diversifier. If you are concerned about rate increases, avoid LT gov't bond funds. Intermediate will work, but will take a few hits... short term bonds will be the safest. Personally I'm in Intermediates (30%), and willing to take the modest hit, in exchange for the overall portfolio protection they provide against an equity downturn. If the hit concerns you, Tips may provide some long term help, assuming inflation rises along with rates to some degree. I personally think Tips give up too much return when equity performance is strong, but it's a modest concern - Tips may suit you better than any other option. In general, I'm less concerned with a single asset class than with the long term performance of my total portfolio.", "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": "8903fcb9641a6b805c349a10d960a665", "text": "\"Money is a tool. Here is an \"\"oversimplified\"\" order of investments:\"", "title": "" }, { "docid": "d2ee45566bdfe71aa642ed965b2bc49e", "text": "\"There are some index funds out there like this - generally they are called \"\"equal weight\"\" funds. For example, the Rydex S&P Equal-Weight ETF. Rydex also has several other equal weight sector funds\"", "title": "" }, { "docid": "abc2f84718703e157926e5b001527a6f", "text": "\"Please note that the following Graham Rating below corresponds to five years: Earnings Stability (100% ⇒ 10 Years): 50.00% Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett describes Graham's book - The Intelligent Investor - as \"\"by far the best book about investing ever written\"\" (in its preface). Graham's first recommended strategy - for casual investors - was to invest in Index stocks. For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them. For advanced investors, Graham described various \"\"special situations\"\". The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund. The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach. But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment. For example, given below are the actual Graham ratings for International Business Machines Corp (IBM), with no adjustments other than those for inflation. Defensive Graham investment requires that all ratings be 100% or more. Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%. International Business Machines Corp - Graham Ratings Sales \| Size (100% ⇒ $500 Million): 18,558.60% Current Assets ÷ [2 x Current Liabilities]: 62.40% Net Current Assets ÷ Long Term Debt: 28.00% Earnings Stability (100% ⇒ 10 Years): 100.00% Dividend Record (100% ⇒ 20 Years): 100.00% Earnings Growth (100% ⇒ 30% Growth): 172.99% Graham Number ÷ Previous Close: 35.81% Not all stocks failing Graham's rules are necessarily bad investments. They may fall under \"\"special situations\"\". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety. Thank you.\"", "title": "" }, { "docid": "7b4949a3da3761f93882e91e555bf38b", "text": "With robo-advisor services, you don't select which funds you buy or sell. All you do is decide on a risk profile, and when you add or remove funds to your account, they decide what to buy or sell based on that profile. Each service might decide how to do this differently. Looking at Betterment's case, it looks like they try to do rebalancing when you buy. So if you put a deposit in each month, they'll buy the lower priced funds to rebalance your account to the desired ratio. In a taxable account, Betterment likes to optimize your tax liability when you withdraw, so they sell the funds that have lost money before they sell the ones that have gained.", "title": "" }, { "docid": "f942f83af50827f1778ff784b6e6f832", "text": "You can also use ICS<GO> on Bloomberg and choose the right category (many subcategories, probably you'll start on home builders or something like that). If that doesn't work, press F1 twice and ask it to an analyst. I'm sure they have this info.", "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": "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": "3e516905444b5f8601052766e9d6301a", "text": "An accountant should be able to advise on the tax consequences of different classes of investments/assets/debts (e.g. RRSP, TFSA, mortgage). But I would not ask an accountant which specific securities to hold in these vehicles, or what asset allocation (in terms of geography, capitalization, or class (equity vs fixed income vs derivatives vs structured notes etc). An investment advisor would be better suited to matching your investments to your risk tolerance.", "title": "" }, { "docid": "3b0513ea719821872a14f80eda6c8c71", "text": "ACWI refers to a fund that tracks the MSCI All Country World Index, which is A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets. The ex-US in the name implies exactly what it sounds; this fund probably invests in stock markets (or stock market indexes) of the countries in the index, except the US. Brd Mkt refers to a Broad Market index, which, in the US, means that the fund attempts to track the performance of a wide swath of the US stock market (wider than just the S&P 500, for example). The Dow Jones U.S. Total Stock Market Index, the Wilshire 5000 index, the Russell 2000 index, the MSCI US Broad Market Index, and the CRSP US Total Market Index are all examples of such an index. This could also refer to a fund similar to the one above in that it tracks a broad swath of the several stock markets across the world. I spoke with BNY Mellon about the rest, and they told me this: EB - Employee Benefit (a bank collective fund for ERISA qualified assets) DL - Daily Liquid (provides for daily trading of fund shares) SL - Securities Lending (fund engages in the BNY Mellon securities lending program) Non-SL - Non-Securities Lending (fund does not engage in the BNY Mellon securities lending program) I'll add more detail. EB (Employee Benefit) refers to plans that fall under the Employee Retirement Income Security Act, which are a set a laws that govern employee pensions and retirement plans. This is simply BNY Mellon's designation for funds that are offered through 401(k)'s and other retirement vehicles. As I said before, DL refers to Daily Liquidity, which means that you can buy into and sell out of the fund on a daily basis. There may be fees for this in your plan, however. SL (Securities Lending) often refers to institutional funds that loan out their long positions to investment banks or brokers so that the clients of those banks/brokerages can sell the shares short. This SeekingAlpha article has a good explanation of how this procedure works in practice for ETF's, and the procedure is identical for mutual funds: An exchange-traded fund lends out shares of its holdings to another party and charges a rental fee. Running a securities-lending program is another way for an ETF provider to wring more return out of a fund's holdings. Revenue from these programs is used to offset a fund's expenses, which allows the provider to charge a lower expense ratio and/or tighten the performance gap between an ETF and its benchmark.", "title": "" }, { "docid": "ee7997e614fb5734ca64aa3847de7488", "text": "Short term investments, treasuries, current accounts.", "title": "" }, { "docid": "ea037e297eea30bc449f3febfb1d4090", "text": "\"When you have multiple assets available and a risk-free asset (cash or borrowing) you will always end up blending them if you have a reasonable objective function. However, you seem to have constrained yourself to 100% investment. Combine that with the fact that you are considering only two assets and you can easily have a solution where only one asset is desired in the portfolio. The fact that you describe the US fund as \"\"dominating\"\" the forign fund indicates that this may be the case for you. Ordinarily diversification benefits the overall portfolio even if one asset \"\"dominates\"\" another but it may not in your special case. Notice that these funds are both already highly diversified, so all you are getting is cross-border diversification by getting more than one. That may be why you are getting the solution you are. I've seen a lot of suggested allocations that have weights similar to what you are using. Finding an optimal portfolio given a vector of expected returns and a covariance matrix is very easy, with some reliable results. Fancy models get pretty much the same kinds of answers as simple ones. However, getting a good covariance matrix is hard and getting a good expected return vector is all but impossible. Unfortunately portfolio results are very sensitive to these inputs. For that reason, most of us use portfolio theory to guide our intuition, but seldom do the math for our own portfolio. In any model you use, your weak link is the expected return and covariance. More sophisticated models don't usually help produce a more reasonable result. For that reason, your original strategy (80-20) sounds pretty good to me. Not sure why you are not diversifying outside of equities, but I suppose you have your reasons.\"", "title": "" } ]	fiqa
c6ca34c3d61299f07902d0387e68db77	What is the big deal about the chinese remnibi trading hub that opened in toronto	[ { "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": "d9479a92b91dfca71bbd90e5f1194c56", "text": "Those are towns with dwindling populations. Val D'or, the core of it, for instance is like 2 miles by 2 miles and has 3 McDs. All the kids in the province go study in bigger cities like Quebec or Montreal when fall comes because college is practically free and university is really cheap. This is not news, merely that those towns have too much fast food joints for their population anyway.", "title": "" }, { "docid": "9709d537f7e0c36d061f13dd63e53460", "text": "Obviously China whispered to NK to chill. But the tweetmaster had been bullhorning about China being the control in that area of the world and not being active in that role while also sending the fleet. And it finally happened, after the UN tightened their trade down. So thats actually 3 things. UN action, China co-operation, NK standdown.", "title": "" }, { "docid": "8048f155db62bfb0eaa57d8e8fd2e102", "text": "\"[Link 1] (https://www.bloomberg.com/news/articles/2017-06-12/two-chinese-provinces-falsified-economic-data-inspectors-say) [Link 2] (https://www.ft.com/content/a5bf42e2-03cf-11e7-ace0-1ce02ef0def9) [Link 3] (https://www.ft.com/content/0361c1a4-bcfe-11e6-8b45-b8b81dd5d080) China has been cooking their books, just like the U.S. has been doing it the past few years. Just google \"\"U.S. Central banks buying stocks and bonds\"\", then connect the numbers. Insider Information: At my previous company we sold solar manufacturing equipment. I went to said Chinese city that bought our equipment. They were producing ton loads of solar panels, I asked one of the manager's where all of the panels were being sold (domestic, or international?). To my surprise, he said they warehoused the panels they produced; because, there weren't enough customers. And, why were they warehousing the panels? Because, the Chinese government needed to show numbers that jobs were plenty, and manufacturing was still strong.\"", "title": "" }, { "docid": "ad766ebd8bb78cde5a30f7e50124700c", "text": "I'm a bot, bleep, bloop. Someone has linked to this thread from another place on reddit: - [/r/talkbusiness] [Starting a restaurant in Toronto (Canada)](https://np.reddit.com/r/talkbusiness/comments/789f5l/starting_a_restaurant_in_toronto_canada/) [](#footer)^(If you follow any of the above links, please respect the rules of reddit and don't vote in the other threads.) ^\\([Info](/r/TotesMessenger) ^/ ^[Contact](/message/compose?to=/r/TotesMessenger)) [](#bot)", "title": "" }, { "docid": "d4341abf862459a30f0788a56b0a0d37", "text": "Well that is another story altogether. Cynically, I would say that having HK as an international financial center under Chinese sovereignty makes it easy for officials within the CCP to launder money outside the country, because most people with money in China want to go elsewhere, or because they feel uneasy about their chances of being shot for corruption. Why, even Xi Dada has his two flats in the Grand Hyatt here... But HK is in trouble because this might not be reason enough...", "title": "" }, { "docid": "b2d42137aed0a277db3fba7aab67fa1b", "text": "EFA must be bought and sold in US dollars. XIN allows people to buy and sell EFA in Canadian dollars without exposing their investment to unpredictable swings in the USD/CAD ratio. This is what's known as a currency-hedged instrument. Now, why the chart sums up to over 100% is anyone's guess. Presumably it's the result of a couple hundred rounding errors from all the components. If you view their most recent report, it also sums up to over 100%, but at least the EFA component is (sensibly) under 100%. P.S. I'm not seeing where it says there's only one holding. There's the primary holding, plus over 100 other cash holdings to effect the currency-hedging.", "title": "" }, { "docid": "d2a2533e21d9c3937663ce32404664fa", "text": "This factory is also for cars being sold into China. It makes sense for the factory that serves the China market to be close to where the cars are going. Especially since so many of the components of the car are made in China in the first place. (Toyota, VW, BMW, etc make cars in the US for a reason!) EDIT: My original comment said these cars were only for the Chinese market and that is wrong.", "title": "" }, { "docid": "84dd87a2dcf847b04520b2a27c544ef8", "text": "It will be painful for the world, but not in the same way that the Western financial crisis of '08 was painful. This will mostly hurt China, as well as western companies whose marginal revenue and growth is dependent upon Chinese business.", "title": "" }, { "docid": "52b55224b4c29cb6c20ed7f506aa740a", "text": "\"This is the best tl;dr I could make, [original](http://www.baldingsworld.com/2017/10/23/everything-we-think-we-know-about-chinese-finances-is-wrong/) reduced by 96%. (I'm a bot) *** > We do not know what these assets hold other than three broad categories comprised of guarantee, commitment operations, and financial asset services which even then only comprise 79% of the total 253 trillion. > Chinese citizens and firms have a very real interest in switching into similar foreign assets while foreigners have very little interest in switching into Chinese assets. > I have long noted that there is fundamentally, absent controls, a much larger structural non-cyclical interest in purchasing foreign assets by Chinese than in purchasing Chinese assets by foreigners. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/78e60t/everything_we_think_we_know_about_chinese/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~233958 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: asset^#1 Bank^#2 financial^#3 China^#4 balance^#5\"", "title": "" }, { "docid": "589c916aea3a5fdabf66704468b2d677", "text": "Here is a list of threads in other subreddits about the same content: * [Wealth Management Products in China [pdf]](https://www.reddit.com/r/Economics/comments/78kwt4/wealth_management_products_in_china_pdf/) on /r/Economics with 3 karma (created at 2017-10-25 10:50:52 by /u/LtCmdrData) ---- ^^I ^^am ^^a ^^bot ^^[FAQ](https://www.reddit.com/r/DuplicatesBot/wiki/index)-[Code](https://github.com/PokestarFan/DuplicateBot)-[Bugs](https://www.reddit.com/r/DuplicatesBot/comments/6ypgmx/bugs_and_problems/)-[Suggestions](https://www.reddit.com/r/DuplicatesBot/comments/6ypg85/suggestion_for_duplicatesbot/)-[Block](https://www.reddit.com/r/DuplicatesBot/wiki/index#wiki_block_bot_from_tagging_on_your_posts) ^^Now ^^you ^^can ^^remove ^^the ^^comment ^^by ^^replying ^^delete!", "title": "" }, { "docid": "adf7cb34059baa66baec3efdef1c35c1", "text": "There's huge slack in Asia it still needs to absorb before it has to worry about dilution. This was a record number, but it was only 9% growth over last year, and half were in ASPAC. As china's financial sector booms it's natural that the number of people there sitting for the CFA would explode as well.", "title": "" }, { "docid": "d32a1decfd5376322d3f19af1ceda721", "text": "Also I think everyone forgets that a lot of the time U.S. Bonds are the ONLY place to park money. Where else can someone invest 1.5 trillion? I think between the bond yields and inflation rate, China isn't really making a profit on this investment. Better to lose a little than a lot I guess. The problem with the U.S. is that they don't use this profitable scheme to pay down debt.", "title": "" }, { "docid": "6793a6a1575da4ad1a9d16fb8292de7f", "text": "I apologize to you too :) the first comment I made I thought was pretty funny so I felt a little surprised when I saw it the next day. Yeah, China has improved and most people who have office jobs or are small business owners play. Apple actually tried to use the hunger tactic of selling iPhones, they would release them in every country then finally starve china so when it's released everyone flocks. Then Chinese people mini revolted and apple lost like 2 billion or smt, and had to apologize. Mob rule is pretty powerful sometimes ;) Where in Australia did you live? I was in the Gold Coast before also moving to the states.", "title": "" }, { "docid": "1a2d6f5e9aee81d3da4405f9e2b98a3e", "text": "\"Amazon has some major issues with growing out in Seattle, primarily infrastructure and geography. Seattle's infrastructure is stretched, leading to some hilarious activity - \"\"http://kuow.org/post/seattle-traffic-got-so-bad-guy-started-flying-work\"\". Also, Seattle is locked between the sea and the mountains, and with a limited supply of land, there isn't anywhere to build economically. NO ROOM TO GROW. Ontario has a few good things going for it: Healthcare, Immigration, Low corporate taxes, Education... But there are also some elephants. Ontario has some of the highest land costs in the world, longest commute times on the planet, and a government which will inevitably need to raise taxes. If I had to bet, we'll probably see Amazon set up shop in a City with low land costs, ring roads, and a low debt government. A place with room to grow. Raleigh/Durham Dallas-Fort Worth Denver Minneapolis Salt Lake City Cincinnati\"", "title": "" }, { "docid": "1adeb087becc5bb652d0e6520b5c3452", "text": "This story really misses the point of this deal. This is not an inversion fueled by tax savings. In fact, it would likely end up in very little tax savings for the new companies given the effective tax rate that BK actually pays in the US (They actually pay 27% in the US vs about 26.5% in Ontario, where Tim Horton's is now). Headquartering the new company in Canada has a lot more to do with placating Canadian regulators. The Investment Canada Act allows for the government to block any merger it doesn't see as in the best interests of the country. Clearly, one of it's biggest and most visible companies being swallowed up by an American firm could fit that description. Politically, it is easy to see why regulators would have an issue with that. However, if you make the new company Canadian... then it's seen as a win for regulators.", "title": "" } ]	fiqa
e934c96ed7ae576caca8c979eddaecb7	How frequently should I request additional credit?	[ { "docid": "a3dfc8d4608c3715d2c372bb7b0d5384", "text": "\"I don't know of a guideline to how often you can ask for an increase. You can ask as often as you like. As for consequences, refer to Is there a downside to asking for a credit increase?, where the consensus is that, aside from a possible (temporary) hard pull on your credit report, there's probably no risk to asking. Depending on your credit score/history, and especially in the current economy, you may get \"\"no\"\" as an answer most often. You can try talking to your card's Credit Department or even Customer Retention Department as they may have more leverage. They may say yes or no or that they need to review your account. When you do ask for an increase, I would make sure to ask if there will be a hard pull on your report, if there is any cost or downside to applying, and to make sure that this would be an increase to your current credit line, not a new account.\"", "title": "" }, { "docid": "4e95987a92f63bdf095dc2a39b0c1dd9", "text": "I do this all the time, my credit rating over time plotted on a graph looks like saw blades going upward on a slope I use a credit alert service to get my credit reports quarterly, and I know when the credit agencies update their files (every three months), so I never have a high balance at those particular times Basically, I use the negative hard pulls to propel my credit score upwards with a the consequentially lowered credit utilization ratio, and the credit history. So here is how it works for me, but I am not an impulse buyer and I wouldn't recommend it for most people as I have seen spending habits: Month 1: charge cards, pay minimum balance (raises score multiple points) Month 2: PAY OFF ALL CREDIT CARDS, massive deleveraging using actual money I already have (raises score multiple points) Month 3: get credit report showing low balance, charge cards, pay minimum balance ask for extensions of credit, AND followup on new credit line offers (lowers score several points per credit inquiry) Month 4: charge cards, pay minimum balance, discretionally approving hard pulls - always have room for one or two random hard pulls, such as for a new cell phone contract, or renting a car, or employment, etc Month 5: PAY OFF CREDIT CARDS using actual money you have. (the trick is to NEVER really go above a 15% credit utilization ratio, and to never overleverage. Tricky because very quickly you will get enough credit to go bankrupt) Month 6: get credit report showing low balances, a slight dip in score from last quarter, but still high continue.", "title": "" } ]	[ { "docid": "585f805eb52017a01668c8f337d46eb9", "text": "Remember that if you make charges as the starting of your billing cycle, then you are receiving a free ~60-day loan. For those that are able to receive high interest rates on their, this means a greater opportunity to earn on their money. For example: Your billing statement ends on Jan 5th. On Jan 6th, you max out your credit card. Your billing statement ends on Feb 5th. Depending on your credit card, your grace period can be anywhere from 20 to 30 days. If your bill is due Mar 7th, you just gave yourself a free 60 day loan. If you have multiple credit cards with different due dates and long grace periods, you can rotate which cards you max out to optimize the money you keep in savings.", "title": "" }, { "docid": "49136c4aa863e265570541bc1bcd0c3a", "text": "K, welcome to Money.SE. You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores. My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill. Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members. (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes)", "title": "" }, { "docid": "79d2ca0681ec20663320a4dee527ced1", "text": "It could be a couple of things besides extra principal: I seem to remember hearing that some (shady?) lenders would just pocket extra payments if you didn't specify where they were headed, but I've also been told that this just isn't true.", "title": "" }, { "docid": "e363385e0d09936345052a4a848d92ae", "text": "Assuming that a person has good financial discipline and is generally responsible with spending, I think that having a few hundred or thousand dollars extra of available credit is usually worth more to that person for the choice/flexibility it provides in unforeseen circumstance, versus the relatively minor hit that could be taken to their credit score.", "title": "" }, { "docid": "1a5a1da92420013f72c201f2ccd6593c", "text": "\"I can't think of any conceivable circumstance in which the banker's advice would be true. (edit: Actually, yes I can, but things haven't worked that way since 1899 so his information is a little stale. Credit bureaus got their start by only reporting information about bad debtors.) The bureaus only store on your file what gets reported to them by the institution who extended you the credit. This reporting tends to happen at 30, 60 or 90-day intervals, depending on the contract the bureau has with that institution. All credit accounts are \"\"real\"\" from the day you open them. I suspect the banker might be under the misguided impression the account doesn't show up on your report (become \"\"real\"\") until you miss a payment, which forces the institution to report it, but this is incorrect-- the institution won't report it until the 30-day mark at the earliest, whether or not you miss a payment or pay it in full. The cynic in me suspects this banker might give customers such advice to sabotage their credit so he can sell them higher-interest loans. UDAAP laws were created for a reason.\"", "title": "" }, { "docid": "de2025b241f8fe7e14defc87ce78a3fd", "text": "\"One key point that other answers haven't covered is that many credit cards have a provision where if you pay it off every month, you get a grace period on the interest. Interest doesn't accrue at all unless you rollover a non-zero balance. But if you do, you pay interest on the average balance, not the rolled-over balance, for the entire month. You have to ask yourself what you are trying to accomplish with your credit history? Are you trying to maximize your \"\"buying power\"\" (really, leverage)? Or are you trying to make sure that you get the best terms on a moderately sized loan (house mortgage, car note)? As JohnFx and losthorse already noted, it's in the banker's best interest to maximize the profit they make off of you. Of course, that is not in your best interest. Keeping a credit card balance from month to month definitely feeds the greedy nature of the financing beast. And makes them willing to take more risks, because the returns are also higher. But those returns cost you. If you are planning to get sensible loans in the future, that you can comfortably afford, you won't need a maxed credit score. You won't get the largest loan amounts, but because you are doing the sensible thing and making a large down payment, the risk is also very low and you'll find lenders willing to give you a low interest rate. Because even though the reward is lower than the compulsive purchaser who pays an order of magnitude more in financing fees, the return/risk ratio is still very favorable to the bank. Don't play the game that maximizes their return. That happens when you have a loan of maximum size, high interest rate, and struggle to make payments, end up missing a couple and paying late fees, or request forbearance which compounds the interest. Play to minimize risk.\"", "title": "" }, { "docid": "656fa8ca4e7f2805511c0fe027f03114", "text": "\"There are two issues here: arithmetic and psychology. Scenario 1: You are presently paying an extra $500 per month on your student loan, above the minimum payments. Your credit card company offers a $4000 cash advance at 0% for 8 months. So you take the cash advance, pay it toward the student loan, and then instead of paying the extra $500 per month toward the student loan you use that $500 for 8 months to repay the cash advance. Net result: You pay 0% interest on the loan, and save roughly 8 months times $4000 times the interest on the student loan divided by two. (I say \"\"divided by two\"\" because it's not the difference between $4000 and zero, but between $4000 and the $500 you would have been paying off each month.) Clearly you are better off. If you are NOT presently paying an extra $500 on the student loan -- or even if you are but it is a struggle to come up with the money -- then the question becomes, can you reasonably expect to be able to pay off the credit card before the grace period runs out? Interest rates on credit cards are normally much higher than interest rates on student loans. If you get the cash advance and then can't repay it, after 8 months you are paying a very steep interest rate, and anything you saved on the student loan will quickly be lost. What I mean by \"\"psychological\"\" is that you have to have the discipline to really repay the credit card within the grace period. If you're not very confidant that you can do that, this plan could go bad very quickly. Personally, I've thought about doing things like this many times -- cash advances against credit cards, home equity loans, etc, all give low-interest money that could be used to pay off a higher-interest debt. But it's easy to get into trouble doing things like this. It's easy to say to yourself, Well, I don't need to put ALL the money toward that other debt, I could keep a thousand or so to buy that big screen TV I really need. Or to fail to pay back the low-interest loan on schedule because other things keep coming up that you spend your money on instead, whether frivolous luxuries or true emergencies. And there's always the possibility that something will happen to mess up your finances, from a big car repair bill to losing your job. You don't want to paint yourself into a corner. Finally, maxing out your credit cards hurts your credit rating. The formulas are secret, but I understand that if you use more than half your available credit, that's a minus. How much it hurts you depends on lots of factors.\"", "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": "fa775ce17f8217c8d8ffbd2f06743976", "text": "An inquiry to your credit report is a slight ding and lasts 2 years. I'd suggest that if you are playing the bonus game you watch your score closely, and if it drops below the level you'd like to maintain, hold off a while. Credit Karma offers a good simulation to show the impact of inquiries, utilization, new accounts, etc.", "title": "" }, { "docid": "663e0b7eaa447ba2ac0a8e5bec4ce53c", "text": "\"I realize. I never would claim I did a ... \"\"triple\"\" full time (?). I was responding to the comment that any credible university wouldn't let you do more than +1 extra class. Obviously, +1 class in terms of hours is variable since it can range from 3-8 hours at a traditional semester university. Our recommended was something like 18 though the upper limit was 20 IIRC (been awhile).\"", "title": "" }, { "docid": "a5cee18f181da341e08115d366cd27c4", "text": "The Government sponsored website will give you one free report from each of the 3 bureaus every year. No subscription or anything of the sort and no ding (that I've seen). Most people check it 3 times, every 4 months. http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm", "title": "" }, { "docid": "879a2f9d08d157b5b6885499455c88a8", "text": "Generally, banks will report your loan to at least one (if not all three) credit bureaus - although that is not required by law. The interest you're paying, in addition to your insurance isn't justifiable for building credit. I would recommend paying the car off and then perhaps applying for a secure credit card if you are worried about being rejected. Of course, since you have very little credit, applying for an unsecured card and getting rejected won't hurt you in the long run. If you are rejected, you can always go for a secured credit card the second time. As I mentioned in my comments, it's better to show 6 months of on-time payments than to have no payment history at all. So if your goal is to secure an apartment near campus, I'm sure you're already a step ahead of the other students.", "title": "" }, { "docid": "fb27c66a35cc55960c02af798c2cf7b9", "text": "\"You'd have to check the terms of your contract. On most installment loans, I think, they calculate interest monthly, not daily. That is, if you make 3 payments of $96 over the course of the month instead of one payment of $288 at the end of the month (but before the due date), it makes absolutely zero difference to their interest calculation. They just total up your payments for the month. That's how my mortgage works and how some past loans I've had worked. All you'd accomplish is to cost yourself some time, postage if you're mailing payments, and waste the bank's time processing multiple payments. If the loan allows you to make pre-payments -- which I think most loans today do -- then what DOES work is to make an extra payment or an overpayment. If you have a few hundred extra dollars, make an extra payment. This reduces your principle and reduces the amount of interest you pay every month for the remainder of the loan. And if you're paying $1 less in interest, then that extra dollar goes against principle, which further reduces the amount you pay in interest the next month. This snowballs and can save you a lot in the long run. Better still, instead of paying $288 each month, pay, say, $300. Then every month you're nibbling away at the principle faster and faster. For example, I calculate that if you're paying $288 per month, you'll pay the loan off in 72 months and pay a total of $6062 in interest. Pay $300 per month and you'll pay it off in 67 months with a total of $6031 interest. Okay, not a huge deal. Pay $350 per month and you pay it off in 55 months with $5449 interest. (I just did quick calculations with a spreadsheet, not accurate to the penny, but close enough for comparison.) PS This is different from \"\"revolving credit\"\", like credit cards, where interest is calculated on the \"\"average daily balance\"\". With a credit card, making multiple payments would indeed reduce your interest. But not by much. If you pay $100 every 10 days instead of $300 at the end, then you're saving the interest on 20 days x $100 + 10 days x $100, so 12.5% = 0.03% per day, so 0.03% x ($2000+$1000) = 90 cents. If you're mailing your payments, the postage is 49 cents x 2 extra payments = 98 cents. You're losing 8 cents per month by doing this.\"", "title": "" }, { "docid": "a33b7e79c798f5df57f893117b965db2", "text": "Thanks it is problem for class and I don't want to give the problem I just want to understand how to actually do it and the book hasn't been much help. Only additional information I can provide is In Inventory – 15 days Accounts Receivable outstanding – 35 days Vendor credit – 40 days Operating Cycle – 50 days", "title": "" }, { "docid": "5f454ce108eafa80cde02d8406ef0899", "text": "We want to be able to get two cards (related: is it difficult to ask the credit card issuer for two cards, even if the account belongs to one person?) with the best credit limits and perks. No, it's actually quite common to have authorized users on your account. They typically get a separate card with their name on it, but it's attached to your account and may or may not have the same number. Would it be better for me to apply for the card on my own, or would there be an advantage to having her co-sign? Probably faster/easier to just apply yourself and add her an an authorized user. I know some issuers even offer additional sign up bonuses for adding an authorized user. As an afterthought, as her credit improves she can apply for the card and add you as an authorized user to again reap some more signup bonuses.", "title": "" } ]	fiqa
aab5f92228ce40834d1f889a628bbac8	What is the best way to stay risk neutral when buying a house with a mortgage?	[ { "docid": "5b4abe67b0d227096dee474c107713db", "text": "To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell.", "title": "" }, { "docid": "3e7f7a24bf514c80562b0fb0562fcf4c", "text": "\"How can one offset exposure created by real-estate purchase? provides a similar discussion. Even if such a product were available in the precise increments you need, the pricing would make it a loser for you. \"\"There's no free lunch\"\" in this case, and the cost to insure against the downside would be disproportional to the true risk. Say you bought a $100K home. At today's valuations, the downside over a given year might be, say, 20%. It might cost you $5000 to 'insure' against that $20K risk. Let me offer an example - The SPY (S&P ETF) is now at $177. A $160 (Dec '14) put costs $7.50. So, if you fear a crash, you can pay 4%, but only get a return if the market falls by over 14%. If it falls 'just' 10%, you lose your premium. With only 5% down, you will get a far better risk-adjusted return by paying down the mortgage to <78% LTV, and requesting PMI, if any, be removed. Even if no PMI, in 5 years, you'll have 20% more equity than otherwise. Over the long term, 5 year's housing inflation would be ~ 15% or so. This process would help insure you are not underwater in that time. Not guarantee, but help.\"", "title": "" }, { "docid": "54021fa6f8918e0f14a01e2c971c153b", "text": "\"Note: I am making a USA-assumption here; keep in mind this answer doesn't necessarily apply to all countries (or even states in the USA). You asked two questions: I'm looking to buy a property. I do not want to take a risk on this property. Its sole purpose is to provide me with a place to live. How would I go about hedging against increasing interest rates, to counter the increasing mortgage costs? To counter increasing interest rates, obtaining a fixed interest rate on a mortgage is the answer, if that's available. As far as costs for a mortgage, that depends, as mortgages are tied to the value of the property/home. If you want a place to live, a piece of property, and want to hedge against possible rising interest rates, a fixed mortgage would work for these goals. Ideally I'd like to not lose money on my property, seeing as I will be borrowing 95% of the property's value. So, I'd like to hedge against interest rates and falling property prices in order to have a risk neutral position on my property. Now we have a different issue. For instance, if someone had opened a fixed mortgage on a home for $500,000, and the housing value plummeted 50% (or more), the person may still have a fixed interest rate protecting the person from higher rates, but that doesn't protect the property value. In addition to that, if the person needed to move for a job, that person would face a difficult choice: move and sell at a loss, or move and rent and face some complications. Renting is generally a good idea for people who (1) have not determined if they'll be in an area for more than 5-10 years, (2) want the flexibility to move if their living costs rises (which may be an issue if they lose wages), (3) don't want to pay property taxes (varies by state), homeowner's insurance, or maintenance costs, (4) enjoy regular negotiation (something which renters can do before re-signing a lease or looking for a new place to live). Again, other conditions can apply to people who favor renting, such as someone might enjoy living in one room out of a house rather than a full apartment or a person who likes a \"\"change of scenes\"\" and moves from one apartment to another for a fresh perspective, but these are smaller exceptions. But with renting, you have nothing to re-sell and no financial asset so far as a property is concerned (thus why some real estate agents refer to it as \"\"throwing away money\"\" which isn't necessarily true, but one should be aware that the money they invest in renting doesn't go into an asset that can be re-sold).\"", "title": "" }, { "docid": "3d916382e4e072a92746c28fb3347fc5", "text": "It is pretty simple to avoid risk in home ownership: Do those things and your risk of home ownership is about nil.", "title": "" }, { "docid": "e9f4bbbba14e2988eec0d6f896a04cc9", "text": "You can hedge your house price from losing value if you believe that the housing market is correlated with major stock indices. Speak with a commodities broker because they will be able to help you buy puts on stock indices which if correlated with housing prices will offer somewhat of a hedge. Example. House prices drop 30% because of weak economy, stocks will generally drop around that same amount 30%. If you have enough exposure to in the puts compared to your house value you will be protected. You can also buy calls in 30 year bonds for interest rate lock if you are not on a fixed interest rate. Many investors like warren buffet and carl icahn have been protecting them selves from a potential market downward turn. Speak to a local commodity broker to get some detailed advice, not etrade or any discount brokers they won't be able to help you specialize your trades. look for a full time commodity broker house.", "title": "" } ]	[ { "docid": "85b29fb9f21e2f7238927cc9b7d31b6e", "text": "If you have good credit, you already know the rate -- the bank has it posted in the window. If you don't have good credit, tell the loan officer your score. Don't have them run your credit until you know that you're interested in that bank. Running an application or prequal kicks off the sales process, which gets very annoying very quickly if you are dealing with multiple banks. A few pointers: You're looking for a plain vanilla 30 year loan, so avoid mortgage brokers -- they are just another middleman who is tacking on a cost. Brokers are great when you need more exotic loans. Always, always stay away from mortgage brokers (or inspectors or especially lawyers) recommended by realtors.", "title": "" }, { "docid": "7dde74392ae43418f5636c60a710d5c6", "text": "\"I'm not aware that any US bank has any way to access your credit rating in France (especially as you basically don't have one!). In the US, banks are not the only way to get finance for a home. In many regions, there are plenty of \"\"owner financed\"\" or \"\"Owner will carry\"\" homes. For these, the previous owner will provide a private mortgage for the balance if you have a large (25%+) downpayment. No strict lending rules, no fancy credit scoring systems, just a large enough downpayment so they know they'll get their money back if they have to foreclose. For the seller, it's a way to shift a house that is hard to sell plus get a regular income. Often this mortgage is for only 3-10 years, but that gives you the time to establish more credit and then refinance. Maybe the interest rate is a little higher also, but again it's just until you can refinance to something better (or sell other assets then pay the loan off quick). For new homes, the builders/developers may offer similar finance. For both owner-will-carry and developer finance, a large deposit will trump any credit rating concerns. There is usually a simplified foreclosure process, so they're not really taking much of a risk, so can afford to be flexible. Make sure the owner mortgage is via a title company, trust company, or escrow company, so that there's a third party involved to ensure each party lives up to their obligations.\"", "title": "" }, { "docid": "1c2347a4ed4cd25bf7adcbdf7126f9d7", "text": "The rules of thumb are there for a reason. In this case, they reflect good banking and common sense by the buyer. When we bought our house 15 years ago it cost 2.5 times our salary and we put 20% down, putting the mortgage at exactly 2X our income. My wife thought we were stretching ourselves, getting too big a house compared to our income. You are proposing buying a house valued at 7X your income. Granted, rates have dropped in these 15 years, so pushing 3X may be okay, the 26% rule still needs to be followed. You are proposing to put nearly 75% of your income to the mortgage? Right? The regular payment plus the 25K/yr saved to pay that interest free loan? Wow. You are over reaching by double, unless the rental market is so tight that you can actually rent two rooms out to cover over half the mortgage. Consider talking to a friendly local banker, he (or she) will likely give you the same advice we are. These ratios don't change too much by country, interest rate and mortgages aren't that different. I wish you well, welcome to SE.", "title": "" }, { "docid": "886e10a51f92d7a079ec4b39db998528", "text": "\"I love the idea of #1, keep that going. I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a \"\"high interest\"\" savings account (around 1%). I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may. If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!\"", "title": "" }, { "docid": "94b7b27feac8a3dcef63056fa43001dd", "text": "It seems like you are asking two different questions, one is, how do I know if I can afford a house? The other is, how do I know what type of mortage to get? The first question is fairly simple to answer, there's plenty of calculators out there that will tell you what you can afford, but rule of thumb is 30% of income can goto housing. Now what type of mortgage to get can be much more confusing, because the mortgage industry makes money off of these confusing products. The best thing to do in my opionion in situations like this is to keep it simple. You need to be careful buying a house. So much money is changing hands and there are so many parasites involved in the transaction I would be extremely wary of anybody who is going to tell you what mortgage to get. I've never heard of a fee only independent mortgage broker, and if I found one that claimed to be I wouldn't believe him. I would just ignore all the exotic non-conforming products and just answer one simple question. Are you the type of person that buys an insurance policy or that likes to self insure? If you like insurance, get a 30 year fixed mortgage. If you like to self insure, get a 7 year ARM. The average lenghth someone owns a house is 7 years, plus in 7 years time, it might not adjust up, and even if it does, you can just accelerate your payments and pay it off quickly (this is the self insurance part of it). If you're like me, I'm willing to pay an extra .5% for the 30 year so that my payment never changes and I'm never forced to move (which is admitedly extremely unlikely, but I like the safety). I don't like 15 year term loans because rates are so low, you can get way better returns in the stock market right now, so why pay off sooner then you need to. Heck, if I had a paid off house right now I'd refi into a 30 year and invest the money. In summary, pick 30 year or ARM, then just shop around to find the lowest rate (which is extremely easy).", "title": "" }, { "docid": "42017314ad29c44e315aa4a2cccc938a", "text": "In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0. Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)", "title": "" }, { "docid": "a5711d12602cfcbaf9d52c641416cb4d", "text": "\"Fundamentals: Then remember that you want to put 20% or more down in cash, to avoid PMI, and recalculate with thatmajor chunk taken out of your savings. Many banks offer calculators on their websites that can help you run these numbers and figure out how much house a given mortgage can pay for. Remember that the old advice that you should buy the largest house you can afford, or the newer advice about \"\"starter homes\"\", are both questionable in the current market. =========================== Added: If you're willing to settle for a rule-of-thumb first-approximation ballpark estimate: Maximum mortgage payment: Rule of 28. Your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out). Maximum housing cost: Rule of 32. Your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. Maximum Total Debt Service: Rule of 40. Your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. As I said, many banks offer web-based tools that will run these numbers for you. These are rules that the lending industy uses for a quick initial screen of an application. They do not guarantee that you in particular can afford that large a loan, just that it isn't so bad that they won't even look at it. Note that this is all in terms of mortgage paymennts, which means it's also affected by what interest rate you can get, how long a mortgage you're willing to take, and how much you can afford to pull out of your savings. Also, as noted, if you can't put 20% down from savings the bank will hit you for PMI. Standard reminder: Unless you explect to live in the same place for five years or more, buying a house is questionable financially. There is nothing wrong with renting; depending on local housing stock it may be cheaper. Houses come with ongoung costs and hassles rental -- even renting a house -- doesn't. Buy a house only when it makes sense both financially and in terms of what you actually need to make your life pleasant. Do not buy a house only because you think it's an investment; real estate can be a profitable business, but thinking of a house as simultaneously both your home and an investment is a good way to get yourself into trouble.\"", "title": "" }, { "docid": "879062f352451bc4ee852520a91ffa83", "text": "\"BEFORE you invest in a house, make sure you account for all the returns, risks and costs, and compare them to returns, risks and costs of other investments. If you invest 20% of a house's value in another investment, you would also expect a return. You also probably will not have the cost interest for the balance (80% of ???). I have heard people say \"\"If I have a rental property, I'm just throwing away money - I'll have nothing at the end\"\" - if you get an interest-only loan, the same will apply, if you pay off your mortgage, you're paying a lot more - you could save/invest the extra, and then you WILL have something at the end (+interest). If you want to compare renting and owning, count the interest against the rental incoming against lost revenue (for however much actual money you've invested so far) + interest. I've done the sums here (renting vs. owning, which IS slightly different - e.g. my house will never be empty, I pay extra if I want a different house/location). Not counting for the up-front costs (real estate, mortgage establishment etc), and not accounting for house price fluctuations, I get about the same \"\"return\"\" on buying as investing at the bank. Houses do, of course, fluctuate, both up and down (risk!), usually up in the long term. On the other hand, many people do lose out big time - some friends of mine invested when the market was high (everyone was investing in houses), they paid off as much as they could, then the price dropped, and they panicked and sold for even less than they bought for. The same applies if, in your example, house prices drop too much, so you owe more than the house is worth - the bank may force you to sell (or offer your own house as collateral). Don't forget about the hidden costs - lawn mowing and snow shoveling were mentioned, insurance, maintenance, etc - and risks like fluctuating rental prices, bad tenants, tenants moving on (loss of incoming, cleaning expenses, tidying up the place etc)....\"", "title": "" }, { "docid": "7dac3bea905e716cc1763cc0cedb785b", "text": "I could be wrong, but I doubt you're going to be able to roll the current mortgage into a new one. The problem is that the bank is going to require that the new loan is fully collateralized by the new house. So the only way that you can ensure that is if you can construct the house cheaply enough that the difference between the construction cost and the end market value is enough to cover the current loan AND keep the loan-to-value (LTV) low enough that the bank is secured. So say you currently owe $40k on your mortgage, and you want to build a house that will be worth $200k. In order to avoid PMI, you're going to have to have an LTV of 80% or less, which means that you can spend no more than $160k to build the house. If you want to roll the existing loan in, now you have to build for less than $120k, and there's no way that you can build a $200k house for $120k unless you live in an area with very high land value and hire the builders directly (and even then it may not be possible). Otherwise you're going to have to make up the difference in cash. When you tear down a house, you are essentially throwing away the value of the house - when you have a mortgage on the house, you throw away that value plus you still owe the money, which is a difficult hole to climb out of. A better solution might be to try and sell the house as-is, perhaps to someone else who can tear down the house and rebuild with cash. If that is not a viable option (or you don't want to move) then you might consider a home equity loan to renovate parts of the house, provided that they increase the market value enough to justify the cost (e.g. modernize the kitchen, add on a room, remodel bathrooms, etc. So it all depends on what the house is worth today as-is, how much it will cost you to rebuild, and what the value of the new house will be.", "title": "" }, { "docid": "f86aff035b0ccc3e9a474f3878d5a5d1", "text": "\"If you are investing in a mortgage strictly to avoid taxes, the answer is \"\"pay cash now.\"\" A mortgage buys you flexibility, but at the cost of long term security, and in most cases, an overall decrease in wealth too. At a very basic level, I have to ask anyone why they would pay a bank a dollar in order to avoid paying the government 28 - 36 cents depending on your tax rate. After all, one can only deduct interest- not principal. Interest is like rent, it accrues strictly to the lender, not equity. In theory the recipient should be irrelevant. If you have a need to stiff the government, go ahead. Just realize you making a banker three times as happy. Additionally the peace of mind that comes from having a house that no banker can take away from you is, at least for me, compelling. If I have a $300,000 house with no mortgage, no payments, etc. I feel quite safe. Even if my money is tied up in equity, if a serious situation came along (say a huge doctors bill) I always have the option of a reverse mortgage later on. So, to directly counter other claims, yes, I'd rather have $300k in equity then $50k in equity and $225k in liquid assets. (Did you notice that the total net worth is $25k less? And that's even before one considers the cash flow implication of a continuing mortgage. I have no mortgage, and I'm 41. I have a lot of net worth, but the thing that I really like is that I have a roof over my head that no on e can take away from me, and sufficient savings to weather most crises). That said, a mortgage is not about total cost. It is about cash flow. To the extent that a mortgage makes your cash flow situation better, it provides a benefit- just not one that is quantifiable in dollars and cents. Rather, it is a risk/reward situation. By taking a mortgage even when you have the cash, you pay a premium (the interest rate) in order to have your funds available when you need it. A very simple strategy to calculate and/or minimize this risk would be to invest the funds in another investment. If your rate of return exceeds the interest rate minus any tax preference (e.g. 4% minus say a 25% deduction = 3%), your money is better off there, obviously. And, indeed, when interest rates are only 4%, it may may be possible to find that. That said, in most instances, a CD or an inflation protected bond or so won't give you that rate of return. There, you'd need to look at stocks- slightly more risky. When interest rates are back to normal- say 5 or 6%, it gets even harder. If you could, however, find a better return than the effective interest rate, it makes the most sense to do that investment, hold it as a hedge to pay off the mortgage (see, you get your security back if you decide not to work!), and pocket the difference. If you can't do that, your only real reason to hold the cash should be the cash flow situation.\"", "title": "" }, { "docid": "1707e391b50fb6601344bdb077f3ff93", "text": "I think it's smart. It's the same game, just stiffer regulations, so your lender will ask more from you. Buy if you... If someone has been saving for years and years and still can't put 20% down, I think they're taking a significant risk. Buy something where your mortgage payment is around one week's salary at most. Try to buy only what you can afford to live in if you lost your job and couldn't find work for 3-6 months. You might want to do a 30-yr fixed instead of a 15-yr if you're worried about cash-flow.", "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": "613922ad4af2b6f8dad0417ea4fd4d0c", "text": "The common opinion is an oversimplification at best. The problem with buying a house using cash is that it may leave you cash-poor, forcing you to take out a home equity loan at some point... which may be at a higher rate than the mortgage would have been. On the other hand, knowing that you have no obligation to a lender is quite nice, and many folks prefer eliminating that source of stress. IF you can get a mortgage at a sufficiently low rate, using it to leverage an investment is not a bad strategy. Average historical return on the stock market is around 8%, so any mortgage rate lower than that is a relatively good bet and a rate MUCH lower (as now) is that much better a bet. There is, of course, some risk involved and the obligation to make mortgage payments, and your actual return is reduced by what you're paying on the mortage... but it's still a pretty good deal. As far as investment vehicles: The same answers apply as always. You want a rate of return higher than what you're paying on the mortgage, preferably market rate of return or better. CDs won't do it, as you've found. You're going to have to increase the risk to increase the return. That does mean picking and maintaining a diversified balance of investments and investment types. Working with index funds makes diversifying within a type easy, but you're probably going to want both stocks and bonds, rebalancing between them when they drift too far from your desired mix. My own investments are a specific mix with one each of bond fund, large cap fund, small cap fund, REIT, and international fund. Bonds are the biggest part of that, since they're lowest risk, but the others play a greater part in producing returns on the investments. The exact mix that would be optimal for you depends on your risk tolerance (I'm classified as a moderately aggressive investor), the time horizon you're looking at before you may be forced to pull money back out of the investments, and some matters of personal taste. I've been averaging about 10%, but I had the luxury of being able to ride out the depression and indeed invest during it. Against that, my mortgage is under 4% interest rate, and is for less than 80% of the purchase price so I didn't need to pay the surcharge for mortgage insurance. In fact, I borrowed only half the cost of the house and paid the rest in cash, specifically because leveraging does involve some risk and this was the level of risk I was comfortable with. I also set the duration of the loan so it will be paid off at about the same time I expect to retire. Again, that's very much a personal judgement. If you need specific advice, it's worth finding a financial counselor and having them help you run the numbers. Do NOT go with someone associated with an investment house; they're going to be biased toward whatever produces the most income for them. Select someone who is strictly an advisor; they may cost you a bit more but they're more likely to give you useful advice. Don't take my word for any of this. I know enough to know how little I know. But hopefully I've given you some insight into what the issues are and what questions you need to ask, and answer, before making your decisions.", "title": "" }, { "docid": "b5825b7937a3c46f4dad210d283bc7aa", "text": "Also see who has the authority to delete bills or items on bills. This was a huge scam with some servers I've worked with. If you can delete an entire bill that was paid in cash then that's money in your pocket.", "title": "" }, { "docid": "df41d5435ebcc94a9d14c1308ac5656d", "text": "I've been looking through annual reports of some Canadian insurance companies. Having serious trouble with their reporting; it varies widely. I've been trying to create a historic look at the combined ratios, and have been comparing income statements. Maybe that's the wrong place to look.", "title": "" } ]	fiqa
f03ed9d9a2a4a10aa901779aa0acb493	Relation between interest rates and currency for a nation	[ { "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": "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": "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": "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": "f223389ac294be1c02dff830429e81dd", "text": "First question: Any, probably all, of the above. Second question: The risk is that the currency will become worth less, or even worthless. Most will resort to the printing press (inflation) which will tank the currency's purchasing power. A different currency will have the same problem, but possibly less so than yours. Real estate is a good deal. So are eggs, if you were to ask a Weimar Germany farmer. People will always need food and shelter.", "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": "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": "3440392865922705522359d6a305d0c9", "text": "I concur with the answers above - the difference is about the risk. But in this particular case I find the interest level implausible. 11% interest on deposits in USD seems very speculative and unsustainable. You can't guarantee such return on investment unless you engage in drug trade or some other illegal activity. Or it is a Ponzi scheme. So I would suspect that the bank is having liquidity problems. Which bank is it, by the way? We had a similar case in Bulgaria with one bank offering abnormal interest on deposits in EUR and USD. It went bust - the small depositors were rescued by the local version of FDIC but the large ones were destroyed.", "title": "" }, { "docid": "58eafc943a14f3c08e58f381165b935c", "text": "Your hypothetical money market account parallel basically nails it. You understand exactly how the math works. IRR computes a rate at which your money market account would have to pay interest in order to match whatever investment you are comparing to. That said, there are two major complicating factors to consider: Your hypothetical account would have to not only pay interest, but also lend money, at exactly the IRR rate. In reality of course, it never happens this way. You may be able to lend (invest) at x, but to borrow you're going to have to pay y. IRR simplifies away that issue in order to give us a single number. That number can be very handy for comparison to other competing hypothetical investments, but it does not capture that fundamental issue of lending rate vs. borrowing rate. An IRR calculation assumes implicitly that all cash flows, outgoing and incoming, are known and fixed; that is, risk-free. It makes no allowance whatever for risk, and all investments have some level of risk. Two investments that compute to the same IRR might have hugely different risk around their cashflows, and so not be a close decision at all. To compare those investments, you might go to a measure like RAROC-- risk-adjusted return on capital. But that's much harder, and more subjective, because it requires some numerical measurement of risk.", "title": "" }, { "docid": "d67d3a9f9940d33d75c8fbfa7f854d74", "text": "The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)", "title": "" }, { "docid": "e5416a1c34543f185d3e43efc655ef62", "text": "As Sean pointed out they usually mean LIBOR or the FFR (or for other countries the equivalent risk free rate of interest). I will just like to add on to what everyone has said here and will like to explain how various interest rates you mentioned work out when the risk free rate moves: For brevity, let's denote the risk free rate by Rf, the savings account interest rate as Rs, a mortgage interest rate as Rmort, and a term deposit rate with the bank as Rterm. Savings account interest rate: When a central bank revises the overnight lending rate (or the prime rate, repo rate etc.), in some countries banks are not obliged to increase the savings account interest rate. Usually a downward revision will force them to lower it (because they net they will be paying out = Rf - Rs). On the other hand, if Rf goes up and if one of the banks increases the Rs then other banks may be forced to do so too under competitive pressure. In some countries the central bank has the authority to revise Rs without revising the overnight lending rate. Term deposits with the bank (or certificates of deposit): Usually movements in these rates are more in sync with Rf than Rs is. The chief difference is that savings account offer more liquidity than term deposits and hence banks can offer lower rates and still get deposits under them --consider the higher interest rate offered by the term deposit as a liquidity risk premium. Generally, interest rates paid by instruments of similar risk profile that offer similar liquidity will move in parallel (otherwise there can be arbitrage). Sometimes these rates can move to anticipate a future change in Rf. Mortgage loan rates or other interests that you pay to the bank: If the risk free rate goes up, banks will increase these rates to keep the net interest they earn over risk free (= Δr = Rmort - Rf) the same. If Rf drops and if banks are not obliged to decrease loan rates then they will only do so if one of the banks does it first. P.S:- Wherever I have said they will do so when one of the banks does it first, I am not referring to a recursion but merely to the competitive market theory. Under such a theory, the first one to cut down the profit margin usually has a strong business incentive to do so (e.g., gain market share, or eliminate competition by lowering profit margins etc.). Others are forced to follow the trend.", "title": "" }, { "docid": "bff253c2835df67c70228c10c88ea019", "text": "\"It is important to distinguish between cause and effect as well as the supply (saving) versus demand (borrowing) side of money to understand the relationship between interest rates, bond yields, and inflation. What is mean by \"\"interest rates\"\" is usually based on the officially published rates determined by the central bank and is referenced to the overnight lending rate for meeting reserve requirements. In practice, what the means is, (for example) in the United States the Federal Reserve will have periodic meetings to determine whether to leave this rate alone or to raise or lower the rate. The new rate is generally determined by their assessment of current and forecast national and global economic conditions and factors in the votes of the various Regional Federal Reserve Presidents. If the Fed anticipates economic weakness they will tend to lower and keep rates lower, while when the economy seems to be overheated the tendency will be to raise rates. Bond yields are also based on the expectation of future economic conditions, but as determined by market participants. At times the market will actually \"\"lead\"\" the Fed in bidding bond prices up or down, while at other times it will react after the Fed does. However, ignoring the varying time lag the two generally will track each other because they are really the same thing. The only difference is the participants which are collectively determining what the rates/yields are. The inverse relationship between interest rates and inflation is the main reason for fluctuating rates in the first place. The Fed will tend to raise rates to try to slow inflation, and lower rates when it feels inflation is too low and economic growth should be stimulated. Likewise, when the economy is doing poorly there is both little inflationary pressure (driving interest rates down both in terms of what savers can accept to keep ahead of inflation and at) and depressed levels of borrowing (reduced demand for money, driving down rates to try to balance supply and demand), and the opposite is true when the economy is booming. Bond yields are thus positively correlated to inflation because during periods of high inflation savers won't want to invest in bonds that don't provide them with an acceptable inflation adjusted yield. But high interest rates tend to have the effect or reining in inflation because it gets more costly for borrowers and thus puts a damper on new economic activity. So to summarize,\"", "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": "7cff897020391a620928a2dc45c9594c", "text": "Thanks. It has taken me some time to understand how all this works, and there are still many gray areas I want to understand further. The Fed interest rate is the rate charged by banks to loan to each other to balance overnight reserves but only using the reserves they hold at the Fed. That adds no new money to the system, but increases the money multiplier a little since perhaps more loans can be made. Basically one bank with excess reserves can loan to another bank that needs reserves. The Fed injects no money here, only sets the rate for banks to do this with each other. When the Fed buys securities that effectively adds that many more dollars into circulation, which then gets hit by the money multiplier, adding a lot of new liquidity. I think historically the latter tracks increases in the money supply much better than the former. I think the St. Louis Fed has records online for all this dating back to the 1940's or so.", "title": "" }, { "docid": "cdf12a9cc260c7dc4e165c7bd53e1716", "text": "This is very insightful, I think. As an open question, consider what downside a nation (or bank) has to acknowledging bitcoin or other cryptocurrencies. Obviously nations may lose some monetary control by endorsing bitcoin, but I don't know if there's much of a downside for banks considering bitcoin's easy conversion in to USD. If anything, I feel like most of the problems for banks surrounding cryptos would be regulatory.", "title": "" }, { "docid": "6d8e93ad767c500b3ef79d69ebc32df0", "text": "Basically, they all do. The relationship is much more dynamic with stocks but corporate financing costs increase, return requirements increase (risk free rate goes up). Same with real estate. Commodity demand is correlated with economic activity, which is correlated with interest rates, although not perfectly. The most important factor is, a higher risk free rate increases the discount rate, which reduces asset values", "title": "" }, { "docid": "ac4977a4961a36d663225f022a72b039", "text": "Not to be a jerk, since I'm learning about options myself, but I think you have a few things wrong about your tesla put postion. First, assuming it was itm or atm within a week of strike it would maybe be worth $12-15, I glanced at the 11/10 put strikes ~325 trades for $12.65 https://www.barchart.com/stocks/quotes/TSLA/options?expiration=2017-11-10 The closer it gets to expiry theta decay reduces put value significantly, the 325's that expire tomorrow are only worth $2.60. Expecting TSLA to drop from 325 to 50 a share by Jan has a .006% chance of occuring according to the current delta. It's a lottery ticket at best. _____ Lastly the $50 price is the expected share price at the date of expiry. The price you pay is 57c for the options. So in order to get to your 494k number TSLA would need to decline $50 dollars to a price of 275 a share. You wouldn't want to buy 50 dollar puts, just the 275 puts, provided it declines very quickly. EDIT: I was looking at the recent expiration to get an idea of atm or itm prices, since it's not like you would hold to expiration. Also the Jan has a 0.6% chance of hitting 50, not .006%. That said what I've noticed when things start to slide is that puts have a weird way of pricing themselves. For example when something gradually goes up all of the calls go up down the chain through time frames, but puts do not in the same fashion. Further out lower priced puts won't move nearly as much unless the company is basically headed for bankruptcy.", "title": "" } ]	fiqa
36ce137cd444b05a800888c1d08cb949	Opportunity to buy Illinois bonds that can never default?	[ { "docid": "fae63f941025620056514a2584d9274e", "text": "\"Can't declare bankruptcy isn't the same as \"\"can't default\"\". Bankruptcy is a specific legal process for discharging or restructuring debts. If Illinois can't declare bankruptcy, that means it will still owe you the money for the bonds no matter what, but it doesn't guarantee that it will actually pay you what it owes. If Illinois should run out of money to pay what's due on its bonds, then it will default. Unlike the federal government, Illinois can't print money to make the payments.\"", "title": "" }, { "docid": "a62c1a1a6e6730478c6baf65f0c70e36", "text": "\"If Illinois cannot go bankruptcy This is missing a few, very important words, \"\"...under current law.\"\" The United States changed the law so as to allow Puerto Rico to go into a form of bankruptcy. So you cannot rely on a lack of legal support for bankruptcy to protect any bond investments you might make in Illinois. It is entirely possible for the federal government to add a law enabling a state to discharge its debts through a bankruptcy process. That's why the bonds have been downgraded. They are still fine now, but that could change at any time. I don't want to dive too deep into the politics on this stack, but I could quite easily see a bargain between US President Donald Trump and Democrats in Congress where he agreed to special privileges for pension debts owed to former employees in exchange for full discharge of all other debts. That would lead to a complete loss of value for the bonds that you are considering. There still seem to be other options now, but they seem to be getting closer and closer to that.\"", "title": "" }, { "docid": "945ec7648a923bc792eb62d9376ed17d", "text": "If you give money to a person or entity, and they don't have the ability to pay you back, it doesn't matter if they are legally required to pay you.", "title": "" }, { "docid": "6627e09ac69b769280a54d790890ead1", "text": "\"Sovereign immunity is the state's ultimate \"\"get out of bankruptcy free\"\" card. After all, the state has a hand in defining what bankruptcy even is in their state. Federal law is a framework, states customize it from there. The state's simplest tactic is to simply not pay you. And leave you scrambling to the courthouse for redress. Is that an automatic win? Not really, the State can plead sovereign immunity, e.g. Hans v. Louisiana, Alden v. Maine. You could try to pierce that sovereign immunity, essentially you'd be in Federal court trying to force the state into bankruptcy. This would pit State authority against Federal authority. The Feds are just as likely to come in on the state's side, and you lose. Best scenario, it's a knock-down drag-out all the way to the Supreme Court. You would have to be one heck of a creditor for the legal fees to be worth your trouble. States don't make a habit of this because if they did, no one would lend money to them, and this would be rather bad for the economy all around. So business and government work really hard to avert it. But it always stands as their \"\"nuclear option\"\". And you gotta know that when loaning money to States.\"", "title": "" } ]	[ { "docid": "478cdde040cedfb6e01af7f6e8296744", "text": "I looked into the investopedia one (all their videos are mazing), but that detail just was not clear to me, it also makes be wonder, if a country issues bonds to finance itself, what happens at maturity when literally millions of them need to be paid? The income needs to have grown to that level or it defaults? Wouldn't all the countries default if that was the case, or are bonds being issued to being able to pay maturity of older bonds already? (I'm freaking myself out by realizing this)", "title": "" }, { "docid": "e6d9456ced95d82d4b55a30dcd8ae546", "text": "Russia has become more risky as an investment, thus investors, basically the market, wants to be paid more for investing in or owning those bonds. As yields go up, prices go down. So right now you can buy a low priced Russian bond with a high yield because the market views the risk involved as higher than risks involved in other similar securities.", "title": "" }, { "docid": "09341e6010c64a265197ec01f49e1ee6", "text": "As no one has mentioned them I will... The US Treasury issues at least two forms of bonds that tend to always pay some interest even when prevailing rates are zero or negative. The two that I know of are TIPS and I series bonds. Below are links to the descriptions of these bonds: http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips.htm http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm", "title": "" }, { "docid": "32c99fe52d2e5eeb262512161d0e5709", "text": "\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-05-25/investors-say-it-s-time-to-price-climate-into-cities-bond-risks) reduced by 95%. (I'm a bot) *** > Municipal defaults are rare: Moody&#039;s reports fewer than 100 defaults by municipal borrowers it rated between 1970 and 2014. > Kurt Forsgren, a managing director at S&P, said its municipal ratings remain &quot;Largely driven by financial performance.&quot; He said the company was looking for ways to account for climate change in ratings, including through a city&#039;s ability to access insurance. > Laskey, of Fitch, was skeptical that rating companies could or should account for climate risk in municipal ratings. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6ejcgp/rising_seas_may_wipe_out_these_jersey_towns_but/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~133538 tl;drs so far.\"\") \| [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: rated^#1 climate^#2 risk^#3 bond^#4 change^#5\"", "title": "" }, { "docid": "580b87fa9582f0ad27639ac85955d59a", "text": "\"Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses. Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of \"\"bonds\"\" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments.\"", "title": "" }, { "docid": "c0d0368bdda605c51b53c580867697f1", "text": "US or EU states are sovereigns which cannot go bankrupt. US states have defaulted in the 1840's, but in most of those cases creditors were eventually repaid in full. (I'm not 100% sure, but I believe that Indiana was an exception with regard to costs incurred building a canal system) The best modern example of a true near-default was New York City in the late 1970's. Although New York City isn't a state, the size and scope of its finances is greater than many US states. What happened then in a nutshell: Basically, a default of a major state or a city like NYC where creditors took major losses would rock the financial markets and make it difficult for all states to obtain both short and long term financing at reasonable rates. That's why these entities get bailed out -- if Greece or California really collapse, it will likely create a domino effect that will have wide reaching effects.", "title": "" }, { "docid": "0b1bae7921e2964548e4bfb52f74808c", "text": "\"All bonds carry a risk of default, which means that it's possible that you can lose your principal investment in addition to potentially not getting the interest payments that you expect. Bonds (in the US anyway) are graded, so you can manage this risk somewhat by taking higher quality bonds, i.e. in companies or governments that are considered more creditworthy. Regular bank savings (again specific to the US) are insured by FDIC, so even if your bank goes bust, the US Government is backing them up to some limit. That makes such accounts less risky. There's generally no insurance on a bond, even if it is issued by a government entity. If you do your homework on the bond rating system and choose bonds in a rating band where you're comfortable, this could be a good option for you. You'll find, however, that the bond market also \"\"knows\"\" that the interest rates are generally low, so be ware that higher interest issues are usually coming from less creditworthy (and therefore more risky) issuers. EDIT Here's some additional information based on the follow-up question in the comment. When you buy a bond you are actually making a loan to the issuer. They will pay you interest over the lifetime of the bond and then return your principal at the end of the term. (Verify this payment schedule - This is typical, but you should be sure that whatever you're buying works like this.) This is not an investment in the value of the issuer itself like you would be making if you bought stock. With stock you are taking an ownership share in the company. This might entitle you to dividends if the company pays them, but otherwise your investment value on a stock will be tied to the performance of the company. With the bond, the company might be in decline but the bond still a good investment so long as the company doesn't decline so much that they cannot pay their debts. Also, bonds can be issued by governments, but governments do not sell stock. (An \"\"ownership share of the government\"\" would not make sense.) This may be the so-called sovereign debt if issued by a sovereign government or it may be local (we call it municipal here in the US) debt issued by a subordinate level of government. Bonds are a little bit like stock in the sense that there's a secondary market for them. That means that if you get partway through the length of the bond and don't want to hold it, you can sell the bond to someone else. Of course, it will be harder to sell a bond later if the company becomes insolvent or if the interest rates go up between when you buy and when you sell. Depending on these market factors, you might end up with a capital gain or capital loss (meaning you get more or less than the principal that you put into the bond) at the time of a sale.\"", "title": "" }, { "docid": "6e1d5d0f243389e114a65d8c5ecb0d2b", "text": "Risk is reduced but isn't zero The default risk is still there, the issuer can go bankrupt, and you can still loose all or some of your money if restructuring happens. If the bond has a callable option, the issuer can retire them if conditions are favourable for the issuer, you can still loose some of your investment. Callable schedule should be in the bond issuer's prospectus while issuing the bond. If the issuer is in a different country, that brings along a lot of headaches of recovering your money if something goes bad i.e. forex rates can go up and down. YTM, when the bond was bought was greater than risk free rate(govt deposit rates) Has to be greater than the risk free rate, because of the extra risk you are taking. Reinvestment risk is less because of the short term involved(I am assuming 2-3 years at max), but you should also look at the coupon rate of your bond, if it isn't a zero-coupon bond, and how you invest that. would it be ideal to hold the bond till maturity irrespective of price change It always depends on the current conditions. You cannot be sure that everything is fine, so it pays to be vigilant. Check the health of the issuer, any adverse circumstances, and the overall economy as a whole. As you intend to hold till maturity you should be more concerned about the serviceability of the bond by the issuer on maturity and till then.", "title": "" }, { "docid": "5ae24f7eb0621e7c87284229bddaaa9f", "text": "The Barclay's 20+ Year Treasury Bond inception date was July 21, 2002. You aren't going to find treasury bond information going back to 1900 because Treasury Bills have only been issued since 1929. The U.S. Department of the Treasury will give you data back to 1990. There's a good article in the Globe and Mail which covers why you may want to buy bonds as part of your portfolio. The key is diversification. Historically, stocks have done better than bonds long-term, but when stocks fall, bonds tend to (though do not always) go up. If you are investing for 30 years, the risk of putting money into bonds is that you will not make as much money as if you had put the money into stocks. Historically (in the US or Canada), you'd have seen positive returns, just not as high as investing in the stock market. There are many investment strategies. I live in Canada and personally favour the one described in the Canadian Couch Potato, a passive index investment strategy where I invest my money in Canadian, U.S. and International equity (stock market mutual funds) and also in a Canadian bond fund. There are, of course, plenty of people who will tell you to take a radically different strategy with your investments.", "title": "" }, { "docid": "62f3d7b741fce8fcb3f608bb101fc0c5", "text": "\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \"\"the Market.\"\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\"", "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": "82133eec33d53e68afd1aae5ca19f57c", "text": "No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.", "title": "" }, { "docid": "b4ae774d48fa6d2cae21d71ed5c702bf", "text": "\"A (very) simplified bond-pricing equation goes thus: Fair_Price: {Face_Value * (1 + Interest - Expected_Market_Return) ^ (Years_To_Maturity)} * P(Company_Will_Default_Before_Maturity) To reiterate, that is a very simplified model. But it allows us to demonstrate the 3 key factors that drive \"\"Fair\"\" Value: The interest relative to the current market rate. If your AAA bond yields 1%, but an equally-good AAA bond currently sells at 3% in the market, then the \"\"Equivalent\"\" value is the face value minus 2% (1% - 3%) for every year to maturity. Years to maturity. Because 1) is multiplied for every year to maturity, longer-dated bonds are more sensitive to changes in market rates. If your bond yields 2% less than market but matures in a year, then it's worth $98, but if it matures in 56 years, then it's only worth 0.98^56 = $32. Conversely, if your bond yields more than the market rate, then its' price will be greater than face value. The company might default on the debt. If a Bond has a \"\"Fair\"\" Value of $100, but you think there's a 50% chance that the company will default, then it's only worth $50. In fact, it can be worth even less because getting paid on a defaulted bond can often take time and/or money and/or lawyers. In your case, because your bond matures in 56 years but yields ~5% (well above the current market rate), for it to be below Face value implies a strong probability of default, or a strong belief that market returns will be above 5% over the next 56 years.\"", "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": "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": "" } ]	fiqa
392098b2421204d7ae800fa7292f143a	How foreign cash is beneficial for a country?	[ { "docid": "fd24a245b63135a04525e1dadd98ca96", "text": "Let me ask you another question: if that person stayed at home and made a widget instead, would exporting that widget benefit his home country? There is no difference, economically, between the two situations. A foreign worker sending home remittances is no different from a local manufacturer exporting their products. Both are earning export dollars for themselves and their home countries. Is this a good thing or a bad thing? Clearly, the answer is yes - this is a good thing or a bad thing but we cannot know which in isolation. However, in general, foreign worker remittances are overwhelmingly beneficial for the host (which gets work done that otherwise would not be done) and the source (which gets export income. With reference to your particular question about local inflation, a rise in exports causes appreciation in the exchange rate i.e. local currency becomes more expensive with respect to (in this case) the Euro. Appreciation in the exchange rate actually puts downward pressure on inflation. However, the absence of our worker from the local economy puts upward pressure on local wages and and hence inflation. Both of these effects are small and other factors will dominate them.", "title": "" } ]	[ { "docid": "22782299d51d74e14dcc1a8511ee2749", "text": "So if a country forces their savings onto another country, say the U.S., the U.S. would have to absorb those savings somehow. If there were enough productive investments available, then this would be a good thing. But if there aren't enough productive investments available but the savings are still forced upon the U.S. it would seem that it would inevitably lead to some kind of a debt bubble for the U.S.", "title": "" }, { "docid": "fb8aa7a528971a6af0168fae78a3e9a4", "text": "I can see that dollars are more useful than Yuan (after all, in my example, Russia may wish to buy from countries other than China). What proportion of, say, international trade by Japan with countries other than the US is conducted in dollars?", "title": "" }, { "docid": "ca0fd39e8414dd94c6d787fd00e425f7", "text": "Taking into account your POV I would recommend mostly goods that will be harder to obtain, precious metals (not only gold) and forex (although the forex aproach depends on some other country not having troubles with it's own economy which in a world as interconnected as ours by internet and all the new technologies doesn't seem likely) i highly recommend silver which is cheaper than gold and is stable enough in the long term", "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": "06347da072b82d84f07b4c9d441f3931", "text": "Assuming US,but the principles apply in many (not all) places: If the bills are legitimate and issued by the federal government, they're legal tender and you can spend or deposit them. Old bills, especially silver certificates, may be worth more than their face value to collectors (or may not). Bills issued by banks, by the confederate states, or something like that have only collector's value (which will vary depending on exactly what they are and their condition). The value of money from another country will depend on the issuing country and exchange rates, of course. There's nothing wrong with windfall cash. The IRS may ask some nosy questions about it to make sure you aren't trying to hide something, but if you aren't deliberately trying to cheat them or hide something illegal that's generally harmless at worst.", "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": "bffafb1c110a47aebd15ce939c82941e", "text": "This is more of an economics question than personal finance. That said, I already started writing an answer before I noticed, so here are a few points. I'll leave it open for others to expand the list. Advantages Disadvantages Advantages Disadvantages The flip-side to the argument that more users means more stability is that the impact of a strong economy (on the value of the currency) is diluted somewhat by all the other users. Indeed, if adopted by another country with similar or greater GDP, that economy could end up becoming the primary driver of the currency's value. It may be harder to control counterfeiting. Perhaps not in the issuing country itself, but in foreign countries that do not adopt new bills as quickly.", "title": "" }, { "docid": "cc52b67a7168a4e37da8e29c52ab92cf", "text": "Assuming you are allowed to trade freely, you can use free labor to pull money into your economy from outside your borders. This net influx of money will increase your overall wealth. I has the double effect of allowing you to undercut any competitor and having none of your people spending their earnings outside your borders. Because of this, it would be a mistake for anyone to enter into trade with you.", "title": "" }, { "docid": "b6f43e10da2e90d65bc9494e1e120d6b", "text": "When I traveled to Germany, I found it was much better to get cash at ATMs and use credit cards. The exchange rate was better than exchanging dollars for Euros at an exchange center. Just make sure you have enough cash to get from the airport to whereever your are traveling. The airport exchange rates were terrible.", "title": "" }, { "docid": "4fdc05017bf72e9d071694448159aa6c", "text": "If you prefer the stock rather than cash, you might find it easier to take the cash, report it, and then buy the same stock from within your own country.", "title": "" }, { "docid": "674ad41569cab3cb71035f7bafdfd946", "text": "Apart from some of the excellent things others say, you could borrow money in AUD and invest that in another currency (that's risky but interesting) if the AUD interest rate is low and the other countries interest rate is higher, you'll eventually win. Also, look at what John Paulson did in 2007, 2008... I wish I'd thought of that when I was in your position (predicting a housing crisis)", "title": "" }, { "docid": "a854b7f1fb9a4c4cbd73fad4b1fced68", "text": "Essentially imported goods from the country (in this case the US) that is improving against your local currency will become more expensive. For the most part, that is the only practical effect on you on an individual financial level.", "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": "0b0479b36934e68400c8ef31edb2983f", "text": "Thank God. I mean, I like having some kind of spending power... But not at the expense of my taxes being used to bombs kids in countries who's leaders try to reject the dollar. Unfortunately, the international banking cartels are invested in Yen and Rubbles, so they win and we all lose no matter what. If only the people of all three nations were able to see past nationalism and devise a system that doesn't rely on competition for currency dominance....", "title": "" }, { "docid": "d67d3a9f9940d33d75c8fbfa7f854d74", "text": "The general idea is that if the statement wasn't true there would be an arbitrage opportunity. You'll probably want to do the math yourself to believe me. But theoretically you could borrow money in country A at their real interest rate, exchange it, then invest the money in the other country at Country B's interest rate. Generating a profit without any risk. There are a lot of assumptions that go along with the statement (like borrowing and lending have the same costs, but I'm sure that is assumed wherever you read that statement.)", "title": "" } ]	fiqa
36d2b24722e4fbec511e8a7e9a5b026d	How will Brexit affect house mortgages?	[ { "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": "9de7969b93bd5ae445b30f4b32d0c84d", "text": "Nobody can predict the affects of Brexit but it is wise to consider them. We saw the pound weaken after the vote to leave and it is possible the pound will weaken further after Brexit and this devaluation could be quite dramatic. If that happens it is likely to increase inflation, UK inflation has gone from under 1% around the time of the referendum to 3% today and it could well go higher. https://www.rateinflation.com/inflation-rate/uk-historical-inflation-rate If inflation continues to increase, the Bank of England is likely to put up interest rates, as it has historically done this to hedge against inflation. We have been living in a world of artificially low interest rates since the global crash of 2008 as the BoE has tried to stimulate recovery with lower rates. The rates cannot continue at this level if inflation starts to rise. http://www.thisismoney.co.uk/money/news/article-2387744/Base-rate-vs-inflation-chart-How-tell-things-really-got-better.html That in turn will put up mortgage rates. So for example if you have a £100k mortgage at 3.92% (currently this is a reasonable rate to have) your repayments will be £523 a month. If your mortgage rate goes up to say 7% then your repayments are £707 a month, if it goes up to 10% then it's £909 a month and so on. There is a mortgage calculator you can use to try playing with different amounts here: https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator My advice would therefore be try to get as small a mortgage as you can and make sure you can afford it quite comfortably, in case rates go up and you need to find a few hundred pounds a month extra. There are other risks from Brexit as well, house prices could fall as people decide not to buy properties due to excessive interest rates! Overall nobody knows what will happen but it is good to be planning ahead for all eventualities. ** I am not a financial advisor, this advice is given in good faith but with no financial qualification.", "title": "" } ]	[ { "docid": "c7a96cdfac72aa243a64d2ba596c51a3", "text": "Some of the factors that will act on house prices are: There will likely be a recession in that country, which will lower incomes and probably lower housing prices. It will likely be harder to get credit in that country so that too will increase demand and depress demand for housing (cf the USA in 2010.) If Greece leaves the Euro, that will possibly depress future economic growth, through decreased trade and investment, and possibly decreased transfer payments. Eventually the budget will need to come back into balanced which also is likely to push down house prices. In some European countries (most famously Spain) there's been a lot of speculative building which is likely to hang over the market. Both countries have governance and mandate problems, and who knows how long or how much turmoil it will take to sort that out. Some of these factors may already be priced in, and perhaps prices are already near what will turn out to be the low. In the Euro zone you have the nearly unprecedented situation of the countries being very strongly tied into another currency, so the typical exchange-rate movements that played out in Argentina cannot act here. A lot will depend on whether the countries are bailed out, or leave the Euro (and if so how), etc. Typically inflation has been a knock-on effect of the exchange rate moves so it's hard to see if that will happen in Greece. Looking back from 2031, buying in southern Europe in 2011 may turn out to be a good investment. But I don't think you could reasonably call it a safe defensive investment.", "title": "" }, { "docid": "914dcbba4ab9d561b1215bcf16e4db8c", "text": "\"This is the best tl;dr I could make, [original](http://www.bbc.co.uk/news/business-40934138) reduced by 61%. (I'm a bot) *** > The average price of a home in the UK went up by nearly &pound;2,000 to &pound;223,000 in June, according to official figures. > The Office for National Statistics figures show the wide variation in price movements across the UK. In the month of June, the average price of London home fell &pound;3,000 to &pound;482,000, while a house in the North East of England gained &pound;2,000 to &pound;130,000. > The biggest change was in Orkney where the average price is 28% higher than a year ago at &pound;148,000. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6txyxk/house_price_growth_holding_steady/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~191667 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: price^#1 average^#2 while^#3 June^#4 London^#5\"", "title": "" }, { "docid": "8cc2389786fff79f3147cc8c27172e0e", "text": "Personal loans are typically more expensive (have higher interest) than mortgages, because they are not backed by an immovable asset. So you should reconsider the decision to not want a mortgage; it would be cheaper. Aside from that, once you get a personal loan, you are free to do with it whatever you want; this includes sending it to your parents, buying something, gambling it away in Vegas, or take out cash and burn it. So, yes, you can. Sending money from the UK to other EU countries should be easy and simple, once it is in your account, your bank can help you to make the transfer. I assume you understand that if your parents walk away with the money, you are left holding the bag. You are taking the full risk, and you will have to pay it back.", "title": "" }, { "docid": "b8bc5ac6fc7eafb3ec03c29d82e651ec", "text": "\"The London Stock Exchange offers a wealth of exchange traded products whose variety matches those offered in the US. Here is a link to a list of exchange traded products listed on the LSE. The link will take you to the list of Vanguard offerings. To view those offered by other managers, click on the letter choices at the top of the page. For example, to view the iShares offerings, click on \"\"I\"\". In the case of Vanguard, the LSE listed S&P500 ETF is traded under the code VUSA. Similarly, the Vanguard All World ETF trades under the code VWRL. You will need to be patient viewing iShares offerings since there are over ten pages of them, and their description is given by the abbreviation \"\"ISH name\"\". Almost all of these funds are traded in GBP. Some offer both currency hedged and currency unhedged versions. Obviously, with the unhedged version you are taking on additional currency risk, so if you wish to avoid currency risk then choose a currency hedged version. Vanguard does not appear to offer currency hedged products in London while iShares does. Here is a list of iShares currency hedged products. As you can see, the S&P500 currency hedged trades under the code IGUS while the unhedged version trades under the code IUSA. The effects of BREXIT on UK markets and currency are a matter of opinion and difficult to quantify currently. The doom and gloom warnings of some do not appear to have materialised, however the potential for near-term volatility remains so longs as the exit agreement is not formalised. In the long-term, I personally believe that BREXIT will, on balance, be a positive for the UK, but that is just my opinion.\"", "title": "" }, { "docid": "cf78976a18395e57a7dca605637a6e0c", "text": "\"Not sure why the downvote - seems like a fair question to me. Who owns a house and in what proportions can be totally separate from who is named on the mortgage. There are two ways to do this - one way would be for you loan them the money first under a separate contract, which you should have a solicitor draw up; then they buy the house themselves. The contract would state the terms for repayment of the loan, which could be e.g. no repayment due until the sale of the house at which point the original amount is returned plus interest equivalent to the growth in value of the house between purchase and sale (or whatever). You'd need to be clear about what happened if the house lost value or they ended up in a negative equity situation. The other option is where you are directly a party to the purchase of the house and are named as part owners on the deeds. Again the solicitor who is handling the house purchase for them would help with the paperwork. In either case you would need to clear this arrangement with the mortgage company to make sure they were OK with it. To answer your specific questions in order: - Yes, they would still be eligible for the Help To Buy ISAs (assuming that is what you are referring to) even though you would not be - I'm not sure what \"\"penalty\"\" you are referring to. You'd have to pay tax on any income or capital gain you made from the deal. - No-one can say whether this is a good deal for you without knowing a great deal more about your individual circumstances (and even then, any such advice you would get on here is worth as much as you pay for it.... if in doubt, consult an IFA.)\"", "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": "779300a60e57ff333c291551940b1bbd", "text": "\"Please clarify your question. What do you mean by \"\"..loan in Greece\"\"? If you are referring to taking a mortgage loan to purchase residential property in Greece, there are two factors to consider: If the loan originates from a Greek bank, then odds are likely that the bank will be nationalized by the government if Greece defaults. If the loan is external (i.e. from J.P. Morgan or some foreign bank), then the default will certainly affect any bank that trades/maintains Euros, but banks that are registered outside of Greece won't be nationalized. So what does nationalizing mean for your loan? You will still be expected to pay it according to the terms of the contract. I'd recommend against an adjustable rate contract since rates will certainly rise in a default situation. As for property, that's a different story. There have been reports of violence in Greece already, and if the country defaults, imposes austerity measures, etc, odds are there will be more violence that can harm your property. Furthermore, there is a remote possibility that the government can attempt to acquire your private property. Unlikely, but possible. You could sue in this scenario on property rights violations but things will be very messy from that point on. If Greece doesn't default but just exits the Euro Zone, the situation will be similar. The Drachma will be weak and confidence will be poor, and unrest is a likely outcome. These are not statements of facts but rather my opinion, because I cannot peek into the future. Nonetheless, I would advise against taking a mortgage for property in Greece at this point in time.\"", "title": "" }, { "docid": "5a86f8a46f42233c11e7ebf54dfaf9ac", "text": "Regarding the mortgage company, they will want to know where the down payment came from, and as long as you are honest about it, there is no fraud. It's possible that the mortgage company may have some reservations about the deal now that they know where the down payment came from, but that will depend on the size of the deal and other factors. If everyone involved has decent credit, and this is a fairly standard mortgage, it will probably have no impact at all.", "title": "" }, { "docid": "4756eab6ac2200618ce3994a7c1fc7a3", "text": "That really depends on the lender, and in the current climate this is extremely unlikely. In the past it was possible to get a loan which is higher than the value of the house (deposit considered), usually on the basis that the buyer is going to improve the property (extend, renovate, etc.) and this increase the value of the property. Responsible lenders required some evidence of the plans to do this, but less responsible ones simply seem to have given the money. Here in the UK this was often based on the assumption that property value tends to rise relatively quickly anyway so a seemingly-reasonable addition to the loan on top of the current value of the property will quickly be covered. That meant that indeed some people have been able to get a loan which is higher than the cost of the purchase, even without concrete plans to actively increase the value of the property. Today the situation is quite different, lenders are a lot more careful and I can't see this happening. All that aside - had it been possible, is it a good idea? I find it difficult to come up with a blanket rule, it really depends on many factors - On the one hand mortgage interest rates tend to be significantly lower than shorter term interest rates and from that point of view, it makes sense, right?! However - they are usually very long term, often with limited ability to overpay, which means the interest will be paid over a longer period of time.", "title": "" }, { "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": "d9a73b096209f7d1ca00be3848c15704", "text": "The City of London economy is entirely dependent on total, unhindered access to the EU. Any blockages and it's over. No deal, no matter how good is going to replicate the City of London being in the EU. It may be a substantial financial centre for a few years after Brexit but that will very quickly evaporate. Libor would have been something keeping banks there, but with that now gone there is nothing else.", "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": "9127b715c6be43e9ff0896058ac85785", "text": "\"Watching all the news about the Euro, I \"\"feel\"\" that maybe the British made the right choice about staying away. I would feel annoyed if I was in one of the other countries (e.g. Ireland) and the deal had been rammed through and imposed on me. The interesting thing for me - In Ireland's case they need to have a refurendum. I wonder if they will accept this? I am not an expert on european fiscal union or anything, but this new treaty has been a surprise to me - almost bolting the door after the horse has bolted\"", "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": "6f1551afd1abb120bab92dc358d48309", "text": "One thing I like to do every once in a while is look at the day's market movers. It's a list of symbols that had huge movement. There tend to be a couple of 50+% movers every time I look. In fact today I see ATV moved up 414.48%: So there it is—doubling your investment in one day and then some is technically possible. The problem is that the market movers chart also has an equal number of symbols that had major movements in the other direction. Today's winner is: SPCB lost 40% in one day, and thats the problem. If you invest in anything that can double your investment in one year, it can also halve your investment in one year. Or do better. Or do worse. You really don't know because the volatility is so high.", "title": "" } ]	fiqa
df16704684d057cfcb5834148d2c38cf	How to quantify differences in return with low expense ratio vs high expense ratio mutual funds?	[ { "docid": "bdcf05dafe8669ec0c776f77e15f1190", "text": "Yes you should take in the expenses being incurred by the mutual fund. This lists down the fees charged by the mutual fund and where expenses can be found in the annual statement of the fund. To calculate fees and expenses. As you might expect, fees and expenses vary from fund to fund. A fund with high costs must perform better than a low-cost fund to generate the same returns for you. Even small differences in fees can translate into large differences in returns over time. You don't pay expenses, so the money is taken from the assets of the fund. So you pay it indirectly. If the expenses are huge, that may point to something i.e. fund managers are enjoying at your expense, money is being used somewhere else rather than being paid as dividends. If the expenses are used in the growth of the fund, that is a positive sign. Else you can expect the fund to be downgraded or upgraded by the credit rating agencies, depending on how the credit rating agencies see the expenses of the fund and other factors. Generally comparison should be done with funds invested in the same sectors, same distribution of assets so that you have a homogeneous comparison to make. Else it would be unwise to compare between a fund invested in oil companies and other in computers. Yes the economy is inter twined, but that is not how a comparison should be done.", "title": "" } ]	[ { "docid": "1a9e38527d7e1f9e8e0d36c2cc010dfc", "text": "\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \"\"enough\"\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\"", "title": "" }, { "docid": "bd36cc84ea10cfdc1920099d015b5085", "text": "Why don't you look at the actual funds and etfs in question rather than seeking a general conclusion about all pairs of funds and etfs? For example, Vanguard's total stock market index fund (VTSAX) and ETF (VTI). Comparing the two on yahoo finance I find no difference over the last 5 years visually. For a different pair of funds you may find something very slightly different. In many cases the index fund and ETF will not have the same benchmark and fees so comparisons get a little more cloudy. I recall a while ago there was an article that was pointing out that at the time emerging market ETF's had higher fees than corresponding index funds. For this reason I think you should examine your question on a case-by-case basis. Index fund and ETF returns are all publicly available so you don't have to guess.", "title": "" }, { "docid": "aa0ef326df4465ff87ce2aea2d17493a", "text": "What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though.", "title": "" }, { "docid": "352ae26769c4ba7b9868bfb94afe8813", "text": "\"You absolutely should consider expenses. Why do they matter when the \"\"sticker price\"\" already includes them? Because you can be much more certain about what the expense ratio will be in the future than you can about what the fund performance will be in the future. The \"\"sticker price\"\" mixes generalized economic growth (i.e., gains you could have gotten from other funds) with gains specific to the fund, but the expense ratio is completely fund-specific. In other words, when looking at the \"\"sticker price\"\" performance of a fund, it's difficult to determine how that performance will extend into the future. But the expense ratio will definitely carry into the future. It is rare for funds to drastically change their expense ratios, but common for funds to change their performance. Suppose you find a fund that has returned a net of 8% over some time period and has a 1% expense ratio, and another fund that has returned a net of 10% but has a 2% expense ratio. So the first fund returned 9%-1% = 8% and the second returned 12%-2%=10%. There are decent odds that, over some future time period, the first fund will return 10%-1%=9% while the second fund will return 10%-2%=8%. In order for the second fund to be better than the first, it has to reliably outperform it by 1%; this is harder than it may sound. Simply put, there is a lot of \"\"noise\"\" in the fund performance, but the expense ratio is \"\"all signal\"\". Of course, if you find a fund that will reliably return 20% after expenses of 3%, it would probably make sense to choose that over one that returns 10% after expenses of 1%. But \"\"will reliably return\"\" is not the same as \"\"has returned over the past N years\"\", and the difference between the two phrases becomes greater and greater the smaller N is. When you find a fund that seems to have performed staggeringly well over some time period, you should be cautious; there is a good chance that the future holds some regression to the mean, and the fund will not continue to be so stellar. You may want to take a look at this question which asked about Morningstar fund ratings, which are essentially a measure of past performance. My answer references a study done by Morningstar comparing its own star ratings vs. fund expenses as a predictor of overall results. I'll repeat here the take-home message: How often did it pay to heed expense ratios? Every time. How often did it pay to heed the star rating? Most of the time, with a few exceptions. How often did the star rating beat expenses as a predictor? Slightly less than half the time, taking into account funds that expired during the time period. In other words, Morningstar's own study showed that its own star ratings (that is, past fund performance) are not as good at predicting success as simply looking at the expense ratios of the funds.\"", "title": "" }, { "docid": "03d41dcf56859ae93fbc012bda231e5a", "text": "As has been pointed out, one isn't cheaper than the other. One may have a lower price per share than the other, but that's not the same thing. Let's pretend that the total market valuation of all the stocks within the index was $10,000,000. (Look, I said let's pretend.) You want to invest $1,000. For the time being, let's also pretend that your purchasing 0.01% of all the stock won't affect prices anywhere. One company splits the index into 10,000 parts worth $1,000 each. The other splits the same index into 10,000,000 parts worth $1 each. Both track the underlying index perfectly. If you invest $1,000 with the first company, you get one part; if you invest $1,000 with the second, you get 1,000 parts. Ignoring spreads, transaction fees and the like, immediately after the purchase, both are worth exactly $1,000 to you. Now, suppose the index goes up 2%. The first company's shares of the index (of which you would have exactly one) are now worth $1,020 each, and the second company's shares of the index (of which you would have exactly 1,000) are worth $1.02 each. In each case, you now have index shares valued at $1,020 for a 2% increase ($1,020 / $1,000 = 1.02 = 102% of your original investment). As you can see, there is no reason to look at the price per share unless you have to buy in terms of whole shares, which is common in the stock market but not necessarily common at all in mutual funds. Because in this case, both funds track the same underlying index, there is no real reason to purchase one rather than the other because you believe they will perform differently. In an ideal world, the two will perform exactly equally. The way to compare the price of mutual funds is to look at the expense ratio. The lower the expense ratio is, the cheaper the fund is, and the less of your money is being eroded every day in fees. Unless you have some very good reason to do differently, that is how you should compare the price of any investment vehicles that track the same underlying commodity (in this case, the S&P 500).", "title": "" }, { "docid": "51c2e3fcc43fda52d2e151179f2922f5", "text": "\"The best predictor of mutual fund performance is low expense ratio, as reported by Morningstar despite the fact that it produces the star ratings you cite. Most of the funds you list are actively managed and thus have high expense ratios. Even if you believe there are mutual fund managers out there that can pick investments intelligently enough to offset the costs versus a passive index fund, do you trust that you will be able to select such a manager? Most people that aren't trying to sell you something will advise that your best bet is to stick with low-cost, passive index funds. I only see one of these in your options, which is FUSVX (Fidelity Spartan 500 Index Fund Fidelity Advantage Class) with an exceptionally low expense ratio of 0.05%. Do you have other investment accounts with more choices, like an IRA? If so you might consider putting a major chunk of your 401(k) money into FUSVX, and use your IRA to balance your overall porfolio with small- and medium-cap domestic stock, international stock, and bond funds. As an aside, I remember seeing a funny comment on this site once that is applicable here, something along the lines of \"\"don't take investment advice from coworkers unless they're Warren Buffett or Bill Gross\"\".\"", "title": "" }, { "docid": "07ff8f6bdf26e89b18a978a60f4e1929", "text": "\"Mathematically it seems like the expected rate of return, whatever that might be, is the same for both. An aggressive strategy is higher risk and higher reward. A conservative strategy is lower risk and lower reward. That is not true. Roughly, the mathematical analogue of \"\"higher risk and higher reward\"\" is \"\"higher standard deviation and higher mean\"\". In other words, the aggressive strategy does have a higher expected rate of return (higher mean). Its disadvantage is that it has a higher likelihood of incurring intermediate losses (and/or higher magnitude of intermediate losses) on the way. This is classically illustrated with the following chart - from Vanguard. You can see that the average return is greater the riskier the portfolio (i.e., the more allocated to stocks relative to bonds), but this higher average return comes at the price of a greater range of possible returns. With an aggressive portfolio, you take a greater risk of losses at any given moment for a greater chance of gains over a long period. Given this, it should be obvious why the advice is to be aggressive early on. Early in life, you don't care about whether your current position is up or down, because you're not taking the money out. If your portfolio is down, you just leave the money in there until it goes back up again. Later in life, you need to spend the money; you now care about whether your current position is up or down, because you can't afford to wait out a down market and may have to realize a loss by selling. It's important to note that the expected return is always greater for a higher-risk portfolio, as is the expected risk; the expected rate of return doesn't magically change as you age. What changes is your ability to absorb losses to hold out for later gains.\"", "title": "" }, { "docid": "a5e5dbb140511e66e895c62be614c8e3", "text": "\"If you want the answer from the horse's mouth, go to the website of the ETF or mutual find, and the expense ratio will be listed there, both on the \"\"Important Information\"\" part of the front page, as well as in the .pdf file that you click on to download the Prospectus. Oh wait, you don't want to go the fund's website at all, just to a query site where you type in something like VFINX. hit SEARCH, and out pops the expense ratio for the Vanguard S&P 500 Index Fund? Well, have you considered MorningStar?\"", "title": "" }, { "docid": "624d64de9d677b3001fe738a4e116cac", "text": "\"One other thing to consider, particularly with Vanguard, is the total dollar amount available. Vanguard has \"\"Admiralty\"\" shares of funds which offer lower expense ratios, around 15-20% lower, but require a fairly large investment in each fund (often 10k) to earn the discounted rate. It is a tradeoff between slightly lower expense ratios and possibly a somewhat less diverse holding if you are relatively early in your savings and only have say 20-30k (which would mean 2 or 3 Admiralty share funds only).\"", "title": "" }, { "docid": "a286b75a29218a3fd4c1ff216ddc054a", "text": "Annual-report expense ratios reflect the actual fees charged during a particular fiscal year. Prospectus Expense Ratio (net) shows expenses the fund company anticipates will actually be borne by the fund's shareholders in the upcoming fiscal year less any expense waivers, offsets or reimbursements. Prospectus Gross Expense Ratio is the percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio. All of these ratios are gathered from a fund's prospectus.", "title": "" }, { "docid": "1fd4eac4a4af6f69fb8949b1a94261c8", "text": "Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.", "title": "" }, { "docid": "ab80bacac82aee1f35b9de381d028a40", "text": "The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.", "title": "" }, { "docid": "a2d54102c2d480f7adc795284fb66e01", "text": "So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right? One would get ((14000 ÷ 14) × 0.0451) = 45.1 is what you would get. The expenses are not to be factored. Generally if a scheme has less expense ratio, the yield is more. i.e. this has already got factored in 0.0451. If the expense ratio was less, this would have been 0.05 if expense ration would have been more it would have been 0.040. Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme? As the MIP as classified as Hybrid funds as they invest around 30% in equities, there is no tax on the income. More so if there is a lock-in of 3 years. In Bank FD, there would be tax applicable as per tax brackets.", "title": "" }, { "docid": "e87cf009a427c288022fcb9eaf253bed", "text": "You are comparing a risk-free cost with a risky return. If you can tolerate that level of risk (the ups and downs of the investment) for the chance that you'll come out ahead in the long-run, then sure, you could do that. So the parameters to your equation would be: If you assume that the risky returns are normally distributed, then you can use normal probability tables to determine what risk level you can tolerate. To put some real numbers to it, take the average S&P 500 return of 10% and standard deviation of 18%. Using standard normal functions, we can calculate the probability that you earn more than various interest rates: so even with a low 3% interest rate, there's roughly a 1 in 3 chance that you'll actually be worse off (the gains on your investments will be less than the interest you pay). In any case there's a 3 in 10 chance that your investments will lose money.", "title": "" }, { "docid": "b08e15959e01191e6cf76c05c4b50af0", "text": "The problem you'll have is that premium income is a vague term so you have to figure out what they mean by a) premium and b) income. Gross or net of reinsurance and acquisition costs? Written or earned basis? Combined ratios are also a pig, very commonly they are loss ratio + expense ratio --- but of course loss ratio is losses incurred / premium earned while expense ratio is expenses paid / premium written so it's a self-inconsistent measure. And then there's investment income, and then there's reserve releases...", "title": "" } ]	fiqa
0e0c488c2492bacd13d83f0123d0e6e1	How would bonds fare if interest rates rose?	[ { "docid": "f1929e88f0214dc218452d12e55a4339", "text": "\"1. Interest rates What you should know is that the longer the \"\"term\"\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \"\"bonds\"\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \"\"average duration\"\" or \"\"average maturity\"\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \"\"complicated\"\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \"\"floating rate\"\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\"", "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": "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": "96cec02c99cd390afdf4af6154c169c1", "text": "\"So after you've learned about bonds, you might find yourself learning about interest rates. You might, in fact, discover that there's no such thing as a \"\"correct\"\" interest rate, or even a true \"\"market\"\" interest rate. PS We already had the housing bubble. It has come, and gone. What new bubble are you referring to?\"", "title": "" }, { "docid": "732d7e94a01d2d9f4a5574b742e151da", "text": "Long term gov't bonds fluctuate in price with a seemingly small interest rate fluctuation because many years of cash inflows are discounted at low rates. This phenomenon is dulled in a high interest rate environment. For example, just the principal repayment is worth ~1/3, P * 1/(1+4%)^30, what it will be in 30 years at 4% while an overnight loan paying an unrealistic 4% is worth essentially the same as the principal, P * 1/(1+4%)^(1/365). This is more profound in low interest rate economies because, taking the countries undergoing the present misfortune, one can see that their overnight interest rates are double US long term rates while their long term rates are nearly 10x as large as US long term rates. If there were much supply at the longer maturities which have been restrained by interest rates only manageable by the highly skilled or highly risky, a 4% increase on a 30% bond is only about a 20% decline in bond price while a 4% increase on a 4% bond is a 50% decrease. The easiest long term bond to manipulate quantitatively is the perpetuity where p is the price of the bond, i is the interest payment per some arbitrary period usually 1 year, and r is the interest rate paid per some arbitrary period usually 1 year. Since they are expressly linked, a price can be implied for a given interest rate and vice versa if the interest payment is known or assumed. At a 4% interest rate, the price is At 4.04%, the price is , a 1% increase in interest rates and a 0.8% decrease in price . Longer term bonds such as a 30 year or 20 year bond will not see as extreme price movements. The constant maturity 30 year treasury has fluctuated between 5% and 2.5% to ~3.75% now from before the Great Recession til now, so prices will have more or less doubled and then reduced because bond prices are inversely proportional to interest rates as generally shown above. At shorter maturities, this phenomenon is negligible because future cash inflows are being discounted by such a low amount. The one month bill rarely moves in price beyond the bid/ask spread during expansion but can be expected to collapse before a recession and rebound during.", "title": "" }, { "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": "4c020f3c37abccf66e1d71bf9f09dc55", "text": "what will happen to the valuation of Tom's bond holdings after the equity crash? This is primarily opinion based. What will happen is generally hard to predict. Bond Price Bump due to Demand: Is a possible outcome; this depends on the assumption that the bonds in the said country are still deemed safe. Recent Greece example, this may not be true. So if the investors don't believe that Bonds are safe, the money may move into Real Estate, into Bullion [Gold etc], or to other markets. In such a scenario; the price may not bump up. Bond Price Decline due to Rising Interest Rates: On a rising interest rates, the long-term bonds may loose in value while the short term bonds may hold their value. Related question How would bonds fare if interest rates rose?", "title": "" }, { "docid": "b67743cb4e5d07b3227567e526be37de", "text": "\"The interest rate offered by a bond is called the nominal interest rate. The so-called real interest rate is the nominal interest rate minus the rate of inflation. If inflation is equal to or greater than the nominal rate at any given time, the REAL interest rate is zero or negative. We're talking about a ten year bond. It's possible for the real interest rate to be negative for one or two years of the bond's life, and positive for eight or nine. On the other hand, if we have a period of rising inflation, as in the 1970s, the inflation rate will exceed the (original) interest rate in most years, meaning that the real interest rate on the ten year bond will be negative over its whole life. People lost \"\"serious\"\" money on bonds (and loans) in the 1970s. In such situations, the BORROWERS make out. That is, they borrow money at low rates, earn inflation (plus a little more) pay back inflated dollars, and pocket the difference. For them, the money is \"\"free.\"\"\"", "title": "" }, { "docid": "6e4bbd3e7d72c51119d1690928f018d4", "text": "\"The federal funds rate is one of the risk-free short-term rates in the economy. We often think of fixed income securities as paying this rate plus some premia associated with risk. For a treasury security, we can think this way: (interest rate) = (fed funds rate) + (term premium) The term premium is a bit extra the bond pays because if you hold a long term bond, you are exposed to interest rate risk, which is the risk that rates will generally rise after you buy, making your bond worth less. The relation is more complex if people have expectations of future rate moves, but this is the general idea. Anyway, generally speaking, longer term bonds are exposed to more interest rate risk, so they pay more, on average. For a corporate bond, we think this way: (interest rate) = (fed funds rate) + (term premium) + (default premium) where the default premium is some extra that the bond must pay to compensate the holder for default risk, which is the risk that the bond defaults or loses value as the company's prospects fall. You can see that corporate and government bonds are affected the same way (approximately, this is all hand-waving) by changes in the fed funds rate. Now, that all refers to the rates on new bonds. After a bond is issued, its value falls if rates rise because new bonds are relatively more attractive. Its value rises if rates on new bonds falls. So if there is an unexpected rise in the fed funds rate and you are holding a bond, you will be sad, especially if it is a long term bond (doesn't matter if it's corporate or government). Ask yourself, though, whether an increase in fed funds will be unexpected at this point. If the increase was expected, it will already be priced in. Are you more of an expert than the folks on wall-street at predicting interest rate changes? If not, it might not make sense to make decisions based on your belief about where rates are going. Just saying. Brick points out that treasuries are tax advantaged. That is, you don't have to pay state income tax on them (but you do pay federal). If you live in a state where this is true, this may matter to you a little bit. They also pay unnaturally little because they are convenient for use as a cash substitute in transactions and margining (\"\"convenience yield\"\"). In general, treasuries just don't pay much. Young folk like you tend to buy corporate bonds instead, so they can make money on the default and term premia.\"", "title": "" }, { "docid": "1e538c046c14ab86ba88dc26048ac046", "text": "\"What could happen to bonds such as these because of Detroit filing for bankruptcy? Depending on how the courts process Detroit's situation, there could be that some bonds become worthless since they are so low and the city can't pay anything on those low priority debts. Others may get pennies on the dollar. There could also be the case that some bailout comes along that makes the bonds good though I'd say that is a long shot at this point. Are these bonds done for, or will bondholders receive interest payments and eventual payment? I wouldn't suspect that they are done for in the sense of being completely worthless though at the same time, I'd be very careful about buying any of them given that they are likely to be changed a great deal. Could these bonds tend to rise over time after the bankruptcy? Yes, it is possible. If there was some kind of federal or state bailout that is done, the bonds could rise. However, that is one heck of an \"\"if\"\" as you'd need to have someone come to guarantee the bonds in a sense. What similar situations from the past might support this idea? Not that many as this is the biggest municipal bankruptcy ever, but here are a few links that may be useful as a starting point, though keep in mind Detroit's scale is part of the story as it is such a big amount being defaulted:\"", "title": "" }, { "docid": "1cf9c7613a8b1d0fd44de8be4f8b61b0", "text": "Keep in mind there are a couple of points to ponder here: Rates are really low. With rates being so low, unless there is deflation, it is pretty easy to see even moderate inflation of 1-2% being enough to eat the yield completely which would be why the returns are negative. Inflation is still relatively contained. With inflation low, there is no reason for the central banks to raise rates which would give new bonds a better rate. Thus, this changes in CPI are still in the range where central banks want to be stimulative with their policy which means rates are low which if lower than inflation rates would give a negative real return which would be seen as a way to trigger more spending since putting the money into treasury debt will lose money to inflation in terms of purchasing power. A good question to ponder is has this happened before in the history of the world and what could we learn from that point in time. The idea for investors would be to find alternative holdings for their cash and bonds if they want to beat inflation though there are some inflation-indexed bonds that aren't likely appearing in the chart that could also be something to add to the picture here.", "title": "" }, { "docid": "3d5f5f1829782f7f48ca417c3f0e1b75", "text": "Is your question academic curiosity or are you thinking of buying bonds? Be aware that bond interest rates are near all-time lows, and if interest rates were to rise, the prices of bonds could fall. Those buying bonds today are taking unusually large risk of capital loss.", "title": "" }, { "docid": "ccaa2d226cb5adbec4f42d377dedfa7a", "text": "Yes, bond funds are marked to market, so they will decline as the composition of their holdings will. Households actually have unimpressive relative levels of credit to equity holdings. The reason why is because there is little return on credit, making it irrational to hold any amount greater than to fund future liquidity needs, risk adjusted and time discounted. The vast majority of credit is held by insurance companies. Pension funds have large stakes as well. Banks hold even fewer bonds since they try to sell them as soon as they've made them. Insurance companies are forced to hold a large percentage of their floats in credit then preferred equity. While this dulls their returns, it's not a large problem for them because they typically hold bonds until maturity. Only the ones who misprice the risk of insurance will have to sell at unfavorable prices. Being able to predict interest rates thus bond prices accurately would make one the best bond manager in the world. While it does look like inflation will rise again soon just as it has during every other US expansion, can it be assured when commodity prices are high in real terms and look like they may be in a collapse? The banking industry would have to produce credit at a much higher rate to counter the deflation of all physical goods. Households typically shun assets at low prices to pursue others at high prices, so their holdings of bonds ETFs should be expected to decline during a bond collapse. If insurance companies find it less costly to hold ETFs then they will contribute to an increase in bond ETF supply.", "title": "" }, { "docid": "099a0afe44a9775482bc038a44439a33", "text": "\"Beyond the yield/price relationship, a good intuitive way to understand it is just this: these people control a substantial amount of money that could be essentially loaned to governments. If they feel a particular policy is likely to lead to inflation or default, they may decide not to loan that country any more money. All else being equal, with a smaller supply of possible borrowers, the country will have to pay higher interest to fund a particular amount of debt. Furthermore they may loudly publicly announce that they will no longer lend to that country, in which case other participants may be persuaded that they too should no longer lend at the going rate. What's more, this is somewhat self-fulfilling: as rates go up, the country will spend more money servicing its debt, and will in fact become a worse risk. So I think the thing that gives them their \"\"vigilante\"\" nature is that governments worry they will round up a posse and things will run away. As far as actual incentives, I would welcome more information but I think the main bond vigilante case is that they are basically long on the country but want it to tighten up its policy so their existing holdings don't decline.\"", "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": "65ee8fe1e4d415e65ad72de915f56166", "text": "I would also like to have this discussed, alongside the issue that the US has gone into some type of [recession](https://upload.wikimedia.org/wikipedia/commons/c/c0/US_Treasuries_to_Federal_Funds_Rate.png) roughly every ten year. So with the prospect of a possible recession with a close to 0% cash rate looming, what tools will the FED employ to keep Banks borrowing while maintaining inflation rates?", "title": "" }, { "docid": "1b3288d5c52f3108024698a072fca939", "text": "Possibly but not necessarily, though that can happen if one looks at the US interest rates in the late 1970s which did end with really high rates in the early 1980s. Generally interest rates are raised when inflation picks up as a way to bring down inflation.", "title": "" } ]	fiqa
245894efbeb414aa15d871cadf39f346	How much does taking a Microeconomics course help you understand the field of investing?	[ { "docid": "6aee9110313ebaf379e7f267e6f714ab", "text": "Not much at all, especially an introductory level Microeconomics class. There are a few reasons for this: That's not to say that Economics isn't worth studying. I loved both my Micro and Macro class. But I probably got more useful investing knowledge from a class on linear regression.", "title": "" } ]	[ { "docid": "2f4587cce75eb5a3d4934057ee999966", "text": "http://i.imgur.com/qvayKiB.jpg I bet many mathematicians would tell you that learning math makes you a better investor. And programmers would tell you that learning how to code makes you a better investor. And similarly for [biologists](https://www.bloomberg.com/news/articles/2017-07-20/hedge-fund-quant-posting-21-return-says-biology-is-secret-sauce) and sociologists and psychologists and [linguists](https://tepper.cmu.edu/-/media/files/tepper/extranet/academic%20programs/phd/dissertations/gao%20dissertation%20pdf.pdf) (PDF). Admittedly I have my own preconceived notions about [literary criticism](http://xkcd.com/451/), but I'd be tempted to believe the argument of an expert in any of those fields over a literary critic's.", "title": "" }, { "docid": "68096f69964e7c23df344624fe88ceb3", "text": "They are actually both undergraduate texts; however, Investments is FAR more complex. Essentials of Investments really waters down the statistical and mathematical notation while Investments does not. Investments also has an entire section (4-5 chapters) called options, futures, and other derivatives while Essentials of Investments does not. [Of course, if you want to learn about options, futures, and other derivatives, there is a seminal book by John Hull with that exact title.] That notwithstanding, neither book is sophisticated enough to be considered a true graduate school textbook in quantitative investment theory. No grad schools worth their salt are going to rely too heavily on Investments in a specialized finance curriculum. It's a great book to start out, though.", "title": "" }, { "docid": "4129a93aa562c091b242e8e991084f39", "text": "\"I have an MScF (Undergrad Math/Econ) and I currently work in algo trading, I started off on the buy side and then went off on my own after I got a large enough bonus for seed capital,.... :) Quantitative Finance is not a \"\"small field\"\" within it there are subfields (there are much more subfields that these). Econometrics/Statistical/Research methods, time series analysis, statistics, stochastic calculus, data mining Asset Management/Trading: Building testing and implementing models, usually you have an idea, test it and implement it, requires a lot of good time series skills, statistical skills and programming and be good at research. Modelling/Pricing/Risk, building better pricing models, coming up with elegant solutions, so a strong knowledge of stochastic calc, Differential Equations, Partial Differential Equations, Monte Carlo Simulations, etc 12 Months will not make you an expert in any of the above. You may learn enough to understand it. Quant Finance is something you learn by doing, yes you need to understand the theory but its just theory until you start to implement it. Finally if you do an MFin/MscF/MFE make sure there is a THESIS otherwise it will be tough to do a PhD after. If you want a taste, grab some R/Matlab/Whatever and try and program some common SSRN papers..\"", "title": "" }, { "docid": "772b0416b59da8f49430c9ec76d9f1f3", "text": "\"Not really. It's good to supplement a shitty school and bad GPA with, a nice thing to pursue and great at teaching you finance if you're not a finance major. It will undeniably look good on a resume, however, it will not make or break you, outside of possibly you being in Top 3 internship candidates and you're the only CFA candidate. It's practically useless for trading, but a friend of mine at a brokerage is getting his so that he can have more \"\"authority\"\" with clients, although, he is at a foreign brokerage and the clients tend to need that assurance that the broker knows what they're doing.\"", "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": "30f9b89b8dbfc12556848e570c45f60e", "text": "As JoeTaxpayer has commented, the markets are littered with the carcasses of those who buy into the idea that markets submit readily to formal analysis. Financial markets are amongst the most complex systems we know of. To borrow a concept from mathematics - that of a chaotic system - one might say that financial markets are a chaotic system comprised of a nested structure of chaotic subsystems. For example, the unpredictable behaviour of a single (big) market participant can have dramatic effects on overall market behaviour. In my experience, becoming a successful investor requires a considerable amount of time and commitment and has a steep learning curve. Your actions in abandoning your graduate studies hint that you are perhaps lacking in commitment. Most people believe that they are special and that investing will be easy money. If you are currently entertaining such thoughts, then you would be well advised to forget them immediately and prepare to show some humility. TL/DR; It is currently considered that behavioural psychology is a valuable tool in understanding investors behaviour as well as overall market trends. Also in the area of psychology, confirmation bias is another aspect of trading that it is important to keep in mind. Quantitative analysis is a mathematical tool that is currently used by hedge funds and the big investment banks, however these methods require considerable resources and given the performance of hedge funds in the last few years, it does not appear to be worth the investment. If you are serious in wanting to make the necessary commitments, then here are a few ideas on where to start : There are certain technical details that you will need to understand in order to quantify the risks you are taking beyond simple buying and holding financial instruments. For example, how option strategies can be used limit your risk; how margin requirements may force your hand in volatile markets; how different markets impact on one another - e.g., the relationship between bond markets and equity markets; and a host of other issues. Also, to repeat, it is important to understand how your own psychology can impact on your investment decisions.", "title": "" }, { "docid": "d5600bed0504562a8904efa3439539e5", "text": "I have taken the free Kiyosaki evening course, and it does give some good information. It is an upsell to the $500 weekend course, which I also took. That course taught me enough about real-estate investing to get started. I have not yet had the need to pursue his other, more expensive courses. Read his books, take the $500 course, read other people's books on real estate investing, talk to other like-minded individuals, and gain some experience. I understand real estate better than I understand paper assets because I spent more time studying real estate. If you want to invest in real estate, study it first. If you want to invest in paper assets, study those first.", "title": "" }, { "docid": "01a307c4236d58d3e0da1df77541e4a9", "text": "I didn't take too many finance or economics courses so i can't comment. In my post I recommended the YouTube video or audiobook 'why an economy grows and why it doesn't' I guess it's more economy related than finance related, but is still relevant as it touches on loans and net worth and stuff.", "title": "" }, { "docid": "ea5a8b54052d889b5b4856c0ebdcabd0", "text": "This is a very simple picture book on *financial statements* with retard level examples. Shows COGS, SGA and the like. stockbroker is using terms that are on financial statements. http://www.amazon.com/Financial-Statements-Step-Step-Understanding/dp/1564143414 A good map for you might be to think in terms of Macro and Micro economics. stockbroker is doing micro - analyzing the fundamentals of a business. Macro economics has to do with big issues of a nations economy like gdp. Both are important.", "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": "abc2f84718703e157926e5b001527a6f", "text": "\"Please note that the following Graham Rating below corresponds to five years: Earnings Stability (100% ⇒ 10 Years): 50.00% Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett describes Graham's book - The Intelligent Investor - as \"\"by far the best book about investing ever written\"\" (in its preface). Graham's first recommended strategy - for casual investors - was to invest in Index stocks. For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them. For advanced investors, Graham described various \"\"special situations\"\". The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund. The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach. But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment. For example, given below are the actual Graham ratings for International Business Machines Corp (IBM), with no adjustments other than those for inflation. Defensive Graham investment requires that all ratings be 100% or more. Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%. International Business Machines Corp - Graham Ratings Sales \| Size (100% ⇒ $500 Million): 18,558.60% Current Assets ÷ [2 x Current Liabilities]: 62.40% Net Current Assets ÷ Long Term Debt: 28.00% Earnings Stability (100% ⇒ 10 Years): 100.00% Dividend Record (100% ⇒ 20 Years): 100.00% Earnings Growth (100% ⇒ 30% Growth): 172.99% Graham Number ÷ Previous Close: 35.81% Not all stocks failing Graham's rules are necessarily bad investments. They may fall under \"\"special situations\"\". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety. Thank you.\"", "title": "" }, { "docid": "09559e9c00c99af95ddf0e5fa66b37b7", "text": "Check out Khan Academy if you get a chance - they have a large suite of finance/capital market video clips that cover a lot of the basics of financial theory in short, manageable clips that might be suitable for someone in high school.", "title": "" }, { "docid": "80c3bca0cefb917a25817e527ebb492e", "text": "If you've already done some micro and macro, you are on the right track to learn finance. What you should study next depends on what kind of finance you want to know more about. Is it M&A and corporate finance, more macro would not help much, but maybe some financial accounting. You could see if you could get your hands on a corporate finance text book since they are a good starting place to learn more about finance in general (and such a book is a relatively easy read). Much finance, however, requires good quantitative skills so probability, statistics, linear algebra and calculus, and their applications to finance, is never a bad thing to look into. This would open up for understanding e.g. derivatives that played a huge role in the financial crisis and in financial markets today.", "title": "" }, { "docid": "ef08f8282500399d92fa6386732c2dcf", "text": "as someone who made a fair attempt at understanding money subjects, I'd like some more writing from you. I took high school level Marketing; Business economics; commercial law. it took six months on top of my previous High school ( with high level maths). during those months I got medium grades, and failed in- can you believe it - marketing. I had a go at The intelligent investor. I made it to page 96. But honestly I felt like I needed a lot of background in order for me to understand it. English is my second language. Sure I can understand words like liability vs assets. but to this day i still can't remember the difference between a bull and bearish market. I know its about risk assesment on a national/ global level. So who honestly gave finance a go but got their ass kicked. What would you say? any books?", "title": "" }, { "docid": "72837c1163d48aa638ea1885c20b77ce", "text": "Reading this made me think of [this](https://www.youtube.com/watch?v=-s1s5K52zEQ). I wish you luck if you consider yourself an authority on a subject you have practically no exposure to, but hey, what does a hiring manager know? I mean, you're about to start an internship, so obviously everyone should want to know your opinion on the future of the market.", "title": "" } ]	fiqa
f305dbefec6375df3bda135987b19a08	I don't understand all this techincal jargon	[ { "docid": "c8c1bb111eb1852049ed03985633ccdb", "text": "Note: While I think the above is a reasonable interpretation, I'm not about to take legal responsibility for it since I'm not a lawyer, if you need serious advice get a professional opinion through appropriate channels.", "title": "" } ]	[ { "docid": "58f4c1710f413ef72f8f51b9bad358c2", "text": "\"Author seems bitter. A person who frequently talks in cliches while never or rarely offering any substantive is a problem; a person who knows his/her stuff and uses cliches as an efficient way to get their point across is not. Purposely trying to avoid common vernacular will do more to make a person sound like they're trying to compensate for a lack of understanding. The only way this article makes sense is if it's just the author venting, otherwise it serves to get supposed halfwits who talk in cliches to find a new way to \"\"fake it until they make it\"\".\"", "title": "" }, { "docid": "d419af8781f06ffe726da8dd53e5cc60", "text": "I've only got the equivalent of an associates (I think). It's a three year program at the Technologist level. It was not an easy program. We lost 1/3 of the remaining class each year it seemed. I think the money is due to the multidisciplinary nature of the work. Chemistry, electronics, mechanics, physics, programming, networking, all at a reasonable level on a daily basis. Plus there is an insane amount of responsibility right out of the gate and some people don't handle that well.", "title": "" }, { "docid": "9c9ec5df8e2be3c8bfb24550d898df4d", "text": "I went to school for something I was interested in. Also, if you looked at what pay rates some people I went to school with took jobs at, you would stick with what works for you just like me. I have no desire to start at $60000 or something. IT certifications can matter in some cases, and I have my share of them, but they again represent a synthetic benchmark. Lots of people are good test takers and can't do things in the real world. A recent project of one of my companies was to install a wired network for 12 users that would allow each user basically unrestricted internet access in a site with a connection with a single external IP address. It was required that the clients not be able to communicate with each other. If you saw the idiotic solution and ridiculous configuration using (that didn't work) using mac address filtering and detection and whatever that a CCNA who used to work for me tried, you would go crazy. Why not just have individual VLANs individually PATed to the external internet interface with no routing between them, and then broken out at the main switch? The config to do that is very very simple and works perfectly. I think it took me 5 minutes to pull out of my ear. To me, experience and prior work trump all.", "title": "" }, { "docid": "de87904e4a5d9a7d5b8186de4e5e1726", "text": "\"I speak from personal experience. Even now, as I type this, I've had very sleep so, I'm on the edge a little, but you don't see me blogging about how ridiculous it is for me to stay up to learn something new, and I'm in my thirties where I've had to do this several year already. That being said, I don't enjoy the long hours, but I do enjoy the problem-solving process, which can be time consuming. I tend to lose track of time when I'm immersed in learning or figuring a problem. Given the fact that tech is ever evolving, no one should ever be surprised to find out that there are long hours involved. It's not busy work. It's part of the learning process. If I figure it out, then it goes on my blog on how I resolved the issue instead of bitching how some VC (that was smart enough to become one) is going to benefit from my time. I'm paid for the work. That is the path I chose to be in. With that in mind, I've worked for seven well known tech firm (most startups) so far. One was my own shop, which I ran for nearly six years. Nowhere did I hear anyone glorify the long hours. If I stayed after hours, I was asked if the work could be delayed, or if I can do it from home. Most managers want their direct reports to be happy, happy equals productivity. I haven't seen what you've observed in the tech firms that I have worked for, but I suspect you might have had a difference experience. In my experience, the work-life balance was always preached in the interest of keeping people happy, despite work-life balance being nothing more than a term coined to get managers out of a sticky situation with HR-related events. Any how, I digress. Amy has applied some deep rationale to her blog post because she felt robbed of her time and possibly her youth. Sadly, her reputation with prospective employers might be influenced by her choice of words in the interest of \"\"fucking glory.\"\" I suppose in the arrogance of youth that's a way of saying fuck glory. There is a part of me that think this will work to her advantage at some point...\"", "title": "" }, { "docid": "99a559edf50ab621e96ad7d7a5f98e48", "text": "\"Lol master in computer science. I'm an idiot. K bro. I'm just calling it like it is. The problem with finance guys is they look at rich guys and accept their word as law. I don't care if this guy is a \"\"VP\"\" or whatever, I care if he has the technical chops to understand the technology. I'm willing to bet money he hasn't read a single paper on the technology, including the original Bitcoin paper, which by the way explicitly says do not speculate on cryptocurrencies (fun fact). I agree it's overvalued, but it's because traders with no idea of the real value of the tech are speculating. Everyone is speculating on crypto, but historically disruptive tech is far undervalued. Think Microsoft when the iPhone was coming out. People were literally saying Apps are stupid and will never take off. At the end of the day I have money in it and we'll see where it goes.\"", "title": "" }, { "docid": "55bd82392b9f03e4190e3d4436bb95c2", "text": "Thank you. Added to my list. This is very very helpful. I knew about the blockchain and the currency. Unfortunately, I'm not a pedant about differentiating between them with capitalising the first letter. I do not, however, understand Ethereum very well at all. So will read up.", "title": "" }, { "docid": "eb662d933c97a3aa5720cc19f72447d4", "text": ">The application will still function until December 15. After that date, users won’t be able to sign in and all data will be deleted, automatically but only people and users with an aim.com email address can access it. This sentence doesn't make any sense to me; am I crazy?", "title": "" }, { "docid": "573857d250c22ecd0a0f9a1a0cacee2e", "text": "Serious question - I don't work in finance, but I always hear how the big finance firms only hire the best and brightest and if they don't know anything, they'll pick it up quickly. How is it possible that those who work in derivatives find it that difficult to explain them. resistite's definition of derivatives is essentially what is taught to any beginner, so I don't quite understand how anyone with a finance background would find it difficult to explain (at least at a very general level).", "title": "" }, { "docid": "c2a9178cd5972a9357e5ffabdef9db61", "text": "I know bitcoin. I don't understand ethereum except that the smart contracts bit is an abstraction of the blockchain concept to expand it beyond a mere ledger to a crypto-enhanced trust system that could be the escrow of the financial world. I still need to read more about it and understand how ICOs are done. I had those sources open already. Some 10 tabs that I still haven't gotten to read in 4 months. Oh well, some incentive to get to it this weekend I guess.", "title": "" }, { "docid": "3ce9de4b86891c9cfe083f9ce0526ab0", "text": "Who wrote this? Just because some people -- and aparantly the author -- don't know the meaning of some of these doesn't mean they are useless phrases. But to close the loop on this… = Always the more theoretical Business Development/Strategy guys who say this, so they can sound thorough? Not. Try: put a process in place to make certain that the things we just decided to do actually get done, either by assigning a third party to or using an automated system to regularly check for failure to progress, and deliver that information to someone that can do something about it. This is low-hanging fruit = Get this done quickly? How about, this can be done quickly and brings disproportionate and important immediate benefits, so we should do it first.", "title": "" }, { "docid": "9b34ae522b52319b6eeb168d76920d13", "text": "\"It's not hard, but it requires effort, and understanding what one is looking at. The social networks aimed at geeks failed or are not exposed to failure (Google+ would be the poster boy) so I assume this network would appeal at general users. The assumption that the general user 1. detects what's happening 2. understands \"\" \"\" 3. cares about \"\" \"\" doesn't hold water. The pool of users with the three characteristics is small, and their attention span is also limited because it's not their own work and they want to be users.\"", "title": "" }, { "docid": "18f66dae6ed740c7b842bf4c81daeba5", "text": "\"I like stuff like this for perspective but I found the article lacking in mechanics as to how to unlearn, how to apply it, etc. I may have missed it though. This reminds me of my CEO challenging everyone at every level to \"\"innovate\"\". Need more of the \"\"how\"\" behind these kinds of objectives. It's great to shed preconceptions, think outside the box, etc but that's been managerial buzz speak for years, and yet we still find ourselves within the box. Focusing on how to get out of it seems like a worthy cause.\"", "title": "" }, { "docid": "2840d9ee82b4c6fb1f2cc39abdf0e4da", "text": ">1. A big project to automate the entry of 2 invoices per month from a supplier. Is would take an employee less than 10 minutes a month to enter those 2 invoices manually into the system. I am curious. Can't they apply the same solution for other suppliers?", "title": "" }, { "docid": "7ef5855ee4b9e0703abdf81e3e3cd16e", "text": ">The heat from the data center cannot be harnessed aside of providing some of this heating, or to help with the heating of domestic water. Overall, exceptionally little of it is useful. I'm admittedly dense, I'm still not clear on why this is.", "title": "" }, { "docid": "27492e780af199c4b68397052c0b660a", "text": "I don't want to be needlessly critical, but I think that you're being downvoted because of how unwieldy that source is. The writer struggles to communicate ideas and concepts clearly - his structures are needlessly verbose, to the extent that arriving at his conclusion in even a single sentence is like slogging through a certain legendary molasses flood. I've dealt with technical language before (graduate economics-type stuff), and there are definitively good and bad ways of addressing dry, technical materials. If your material isn't interesting, then it should at least be clear. That blog post is neither (which is moderately surprising [or maybe it isn't?] considering his seniority at Microsoft).", "title": "" } ]	fiqa
fc892b5456ed438b2f181aefeb893798	Should I buy a house because Mortgage rates are low	[ { "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": "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": "1153b504f9692320397ae8e1bfa47417", "text": "How can people afford 10% mortgage? Part of the history of housing prices was the non-bubble component of the bubble. To be clear, there was a housing bubble and crash. Let me offer some simple math to illustrate my point - This is what happened on the way down. A middle class earner, $60K/yr couple, using 25% of their income, the normal percent for a qualified mortgage, was able to afford $142K for the mortgage payment. At 10% fixed rate. This meant that after down payment, they were buying a house at $175K or so, which was above median home pricing. Years later, obviously, this wasn't a step function, with a rate of 4%, and ignoring any potential rise of income, as in real term, income was pretty stagnant, the same $1250/mo could pay for a $260K mortgage. If you want to say that taxes and insurance would push that down a bit, sure, drop the loan to $240K, and the house price is $300K. My thesis ('my belief' or 'proposal', I haven't written a scholarly paper, yet) is that the relationship between median home price and median income is easily calculated based on current 30 year fixed rate loans. For all the talk of housing prices, this is the long term number. Housing cannot exceed income inflation long term as it would creep up as a percent of income and slow demand. I'm not talking McMansion here, only the median. By definition, the median house targets the median earners, the middle class. The price increase I illustrate was just over 70%. See the famous Shiller chart - The index move from 110 to 199 is an 81% rise. I maintain, 70 of that 81 can be accounted for by my math. Late 80's, 1987 to be exact, my wife got a mortgage for 9%, and we thought that was ok, as I had paid over 13% just 3 years earlier.", "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": "fac469245c0605d033cba9fca4684cc3", "text": "Reasons for no: In your first sentence you say something interesting: rates low - prices high. Actually those 2 are reversely correlated, imagine if rates would be 5% higher-very few people could buy at current prices so prices would drop. Also you need to keep in mind the rate of inflation that was much higher during some periods in the US history(for example over 10% in the 1980) so you can not make comparisons just based on the nominal interest rate. Putting all your eggs in one basket. If you think real estate is a good investment buy some REITs for 10k, do not spend 20% of your future income for 20 years. Maintenance - people who rent usually underestimate this or do not even count it when making rent vs mortgage comparisons. Reasons for yes: Lifestyle decision - you don't want to be kicked out of your house, you want to remodel... Speculation - I would recommend against this strongly, but housing prices go up and down, if they will go up you can make a lot of money. To answer one of questions directly: 1. My guess is that FED will try to keep rates well bellow 10% (even much lower, since government can not service debts if interest rates go much higher), but nobody can say if they will succeed.", "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": "23f08b5e85a46978c831a05245b1321d", "text": "It's worthwhile to try and find a better minimum down-payment. When I bought my home, I got an FHA loan, which drastically reduced the minimum down-payment required (I think the minimum is 3% under FHA). Be aware that any down-payment percentage under 20% means that you'll have to pay for private mortgage insurance (PMI) as part of your monthly mortgage. Here's a good definition of it. Part of the challenge you're experiencing may be that banks are only now exercising the due diligence with borrowers for mortgages that they should have been all along. I hope you're successful in finding the right payment. Getting a mortgage to reduce your spending on housing relative to rent is a wise move. In addition to fixing your monthly costs at a consistent level (unlike rent, which can rise for reasons you don't control), the mortgage interest deduction makes for a rather helpful tax benefit.", "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": "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": "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": "460d9b7f54847c2d1d61cf029e7a866c", "text": "\"If this is an issue of opportunity cost then there is a benefit. Mortgage interest rates are extremely low, low enough that they can effectively be used to indirectly fund investments. If one stores equity in a house, ie \"\"pays it off\"\", then that wealth returns only the rate of growth of the house less expenditures. If one borrows against the house to fund investments, then the above stated returns which on average exceed the mortgage interest rate can be augmented by the investments, yielding a greater return. The tax benefit is more of a cherry on top. If one is using this as a justification to spend then it is frivolity.\"", "title": "" }, { "docid": "488a2e2da0765eb148803ded8cdeccfb", "text": "Like @littleadv, I don't consider a mortgage on a primary residence to be a low-risk investment. It is an asset, but one that can be rather illiquid, depending on the nature of the real estate market in your area. There are enough additional costs associated with home-ownership (down-payment, insurance, repairs) relative to more traditional investments to argue against a primary residence being an investment. Your question didn't indicate when and where you bought your home, the type of home (single-family, townhouse, or condo) the nature of your mortgage (fixed-rate or adjustable rate), or your interest rate, but since you're in your mid-20s, I'm guessing you bought after the crash. If that's the case, your odds of making a profit if/when you sell your home are higher than they would be if you bought in the 2006/2007 time-frame. This is no guarantee of course. Given the amount of housing stock still available, housing prices could still fall further. While it is possible to lose money in all sorts of investments, the illiquid nature of real estate makes it a lot more difficult to limit your losses by selling. If preserving principal is your objective, money market funds and treasury inflation protected securities are better choices than your home. The diversification your financial advisor is suggesting is a way to manage risk. Not all investments perform the same way in a given economic climate. When stocks increase in value, bonds tend to decrease (and vice versa). Too much money in a single investment means you could be wiped out in a downturn.", "title": "" }, { "docid": "31c83387a5c166a0bf0e8c3637a9e7db", "text": "I'll add this to what the other answers said: if you are a renter now, and the real estate you want to buy is a house to live in, then it may be worth it - in a currency devaluation, rent may increase faster than your income. If you pay cash for the home, you also have the added benefit of considerably reducing your monthly housing costs. This makes you more resilient to whatever the future may throw at you - a lower paying job, for instance, or high inflation that eats away at the value of your income. If you get a mortgage, then make sure to get a fixed interest rate. In this case, it protects you somewhat from high inflation because your mortgage payment stays the same, while what you would have had to pay in rent keeps going up an up. In both cases there is also taxes and insurance, of course. And those would go up with inflation. Finally, do make sure to purchase sensibly. A good rule of thumb on how much you can afford to pay for a home is 2.5x - 3.5x your annual income. I do realize that there are some areas where it's common for people to buy homes at a far greater multiple, but that doesn't mean it's a sensible thing to do. Also: I'll second what @sheegaon said; if you're really worried about the euro collapsing, it might give you some peace of mind to move some money into UK Gilts or US Treasuries. Just keep in mind that currencies do move against each other, so you'd see the euro value of those investments fluctuate all the time.", "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": "a93375dd629bb7b0f7fcb45086cbc5e3", "text": "You can't transfer mortgages when you purchase a new property. You can purchase a new property now, or you can refinance your current property now and leverage yourself as far as possible while rates are low. The higher rates you are worried about may not be as bad as you think. With higher interest rates, that may put downward pressure on housing prices, or when rates do rise, it may simply move from historic lows to relative lows. I had a mortgage at 4.25% that I never bothered refinancing even though rates went much lower because the savings in interest paid (minus my tax deduction for mortgage interest) didn't amount to more than the cost of refinancing. If rates go back up to 5%, that will still be very affordable.", "title": "" }, { "docid": "aac943752d99f999810f476a2afd3b00", "text": "If you need / want the car, I would get the car. Without car payments you can save your money again to get the house. Moreover, I wouldn't want to be saddled with payments to the mortgage and car loan at the same time. Lastly, a car is a more temporary possession (10 years) vs a house (30+) years so shopping around for the house longer while you save money is a good thing. I know you want to buy while prices are low, but I personally think it is more important to get a house that you want to live in later than settle for a cheap one you get a deal on now.", "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": "fae978c812a104583716ba6b0d6ed86d", "text": "If you can't afford it don't buy it, the next perfect house is just around the corner. The more time you spend researching and looking at houses, the increased chance you will find the perfect house you can afford. Also, here in Australia, we (the banks as well) factor in an interest rate rise of 2% above current rates to see if repayments can still be afforded at this increased rate.", "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": "938db83ce9d0d8d64a670ca38b919a3b", "text": "Note: This is not professional tax advice. If you think you need professional tax advice, find a licensed professional in your local area. What are the expected earnings/year? US$100? US$1,000? US$100,000? I would say if this is for US$1,000 or less that registering an EIN, and consulting a CPA to file a Partnership Tax return is not going to be a profitable exercise.... all the earnings, perhaps more, will go to paying someone to do (or help do) the tax filings. The simplest taxes are for a business that you completely own. Corporations and Partnerships involve additional forms and get more and more and complex, and even more so when it involves foreign participation. Partnerships are often not formal partnerships but can be more easily thought of as independent businesses that each participants owns, that are simply doing some business with each other. Schedule C is the IRS form you fill out for any businesses that you own. On schedule C you would list the income from advertising. Also on schedule C there is a place for all of the business expenses, such as ads that you buy, a server that you rent, supplies, employees, and independent contractors. Amounts paid to an independent contractor certainly need not be based on hours, but could be a fixed fee, or based on profit earned. Finally, if you pay anyone in the USA over a certain amount, you have to tell the IRS about that with a Form 1099 at the beginning of the next year, so they can fill out their taxes. BUT.... according to an article in International Tax Blog you might not have to file Form 1099 with the IRS for foreign contractors if they are not US persons (not a US citizen or a resident visa holder).", "title": "" } ]	fiqa
9bd3d229abdfdc6456fbc92bee120108	Paying tax for freelance work while travelling	[ { "docid": "5ffaa6dfe158bba9f5d5492710d8c72d", "text": "Having freelanced myself in South America I could give you a sound advice BUT you would first need to answer some questions. 1) How long do you plan on being in South America? At the end of 2017 will you be back in Ireland or still being in South America? In other words was is your country of residence for tax purposes on Dec. 31 2017 ? That is the key element to consider. Link 2) In latin America you can freelance with a legal working permit BUT in all these countries more than 50% of the economy is under the table. In all these countries expatriate work under the table. The question you need to answer is then: Who will be your employer, a company or the owner of this company? Working undeclared in Latin America is very common, what are the risks? The legal risks depend on the country and their laws. In which country will you travel? How long will you stay there? You will have a tourist visa or a working visa? 3) An important detail, your health. Check how long you can be out of Ireland without loosing your social health benefits in Ireland? In my country, if I am abroad for more than 180 days, I loose my national health coverage. Evaluate the amount of days you will be out of Ireland and where you want to be on Dec. 31th. That could change a lot of things in your life.", "title": "" } ]	[ { "docid": "d268171091dd171b468c547cc8453f33", "text": "You can receive funds from US Client as an individual. There is no legal requirement for you to have a company. If the transactions are large say more than 20 lacs in a year, its advisable to open a Private Ltd. Although its simple opening & Registering a company [A CA or a Laywer would get one at a nominal price of Rs 5000] you can do yourself. Whatever be the case, its advisable to have seperate accounts for this business / professional service transactions. Maintain proper records of the funds received. There are certain benefits you can claim, a CA can help you. Paying taxes in Advance is your responsibility and hence make sure you keep paying every quarter as advance tax. Related questions Indian citizen working from India as freelancer for U.S.-based company. How to report the income & pay tax in India? Freelancer in India working for Swiss Company Freelancing to UK company from India How do I account for money paid to colleagues out of my professional income?", "title": "" }, { "docid": "081f555c38ac6fb2c9bc41996fc7ad5a", "text": "\"Disclaimer: My answer is based on US tax law, but I assume Australian situation would be similar. The IRS would not be likely to believe your statement that \"\"I wouldn't have gone to the country if it wasn't for the conference.\"\" A two-week vacation, with a two-day conference in there, certainly looks like you threw in the conference in order to deduct vacation expenses. At the very least, you would need a good reason why this conference is necessary to your business. If you can give that reason, it would then depend on the specifics of Australian law. The vacation is clearly not just incidental to the trip. The registration for the conference is always claimable as a business expense.\"", "title": "" }, { "docid": "8faf102c4cceb0254f9731411e2413c0", "text": "If the firm treats you as an employee then they are treated as having a place of business in the UK and therefore are obliged to operate PAYE on your behalf - this rule has applied to EU States since 2010 and the non-EU EEA members, including Switzerland, since 2012. If you are not an employee then your main options are: An umbrella company would basically bill the client on your behalf and pay you net of taxes and NI. You potentially take home a bit less than you would being 100% independent but it's a lot less hassle and potentially makes sense for a small contract.", "title": "" }, { "docid": "b7c17ae0a48b1b0c0783dd5e5b0f8db8", "text": "\"You can report it as \"\"hobby\"\" income, and then you won't be paying self-employment taxes. You can also deduct the blog-related expenses from that income (subject to the 2% limit though). See this IRS pub on the \"\"hobby\"\" income.\"", "title": "" }, { "docid": "c1f72824ef2b3072f154a0d2fa565ef4", "text": "Depending on what software you use. It has to be reported as a foreign income and you can claim foreign tax paid as a foreign tax credit.", "title": "" }, { "docid": "be8d414a0fd1c029f1c9ad663a449c4d", "text": "I do NOT know the full answer but I know here are some important factors that you need to consider : Do you have a physical location in the United States? Are you working directly from Canada? With a office/business location in the United States your tax obligation to the US is much higher. Most likely you will owe some to the state in which your business is located in Payroll Tax : your employer will likely want to look into Payroll tax, because in most states the payroll tax threshold is very low, they will need to file payroll tax on their full-time, part-time employees, as well as contractor soon as the total amount in a fiscal year exceeds the threshold Related to No.1 do you have a social security number and are you legally entitled to working in the States as an individual. You will be receiving the appropriate forms and tax withholding info Related to No.3 if you don't have that already, you may want to look into how to obtain permissions to conduct business within the United States. Technically, you are a one person consulting service provider. You may need to register with a particular state to obtain the permit. The agency will also be able to provide you with ample tax documentations. Chances are you will really need to piece together multiple information from various sources to resolve this one as the situation is specific. To start, look into consulting service / contractor work permit and tax info for the state your client is located in. Work from state level up to kick start your research then research federal level, which can be more complex as it is technically international business service for Canada-US", "title": "" }, { "docid": "8fe6f7a9cad2f4520ed898b0c39b47ba", "text": "\"I assume your employer does standard withholding? Then what you need to do is figure what bracket that puts you in after you've done all your normal deductions. Let's say it's 25%. Then multiply your freelance income after business expenses, and that's your estimated tax, approximately. (Unless the income causes you to jump a bracket.) To that you have to add approximately 12-13% Social Security/Medicare for income between the $90K and $118,500. Filling out Form 1040SSE will give you a better estimate. But there is a \"\"safe harbor\"\" provision, in that if what you pay in estimated tax (and withholding) this year is at least as much as you owed last year, there's no penalty. I've always done mine this way, dividing last year's tax by 4, since my income is quite variable, and I've never been able to make sense of the worksheets on the 1040-ES.\"", "title": "" }, { "docid": "3829f2bd93fbc08fcf8d58ebe3c01c34", "text": "\"ITR1 or ITR2 needs to be filed. Declare the income through freelancing in the section \"\"income from other sources\"\"\"", "title": "" }, { "docid": "2226740c96f085d39471c7c914edee3f", "text": "If you are paid by foreigners then it is quite possible they don't file anything with the IRS. All of this income you are required to report as business income on schedule C. There are opportunities on schedule C to deduct expenses like your health insurance, travel, telephone calls, capital expenses like a new computer, etc... You will be charged both the employees and employers share of social security/medicare, around ~17% or so, and that will be added onto your 1040. You may still need a local business license to do the work locally, and may require a home business permit in some cities. In some places, cities subscribe to data services based on your IRS tax return.... and will find out a year or two later that someone is running an unlicensed business. This could result in a fine, or perhaps just a nice letter from the city attorneys office that it would be a good time to get the right licenses. Generally, tax treaties exist to avoid or limit double taxation. For instance, if you travel to Norway to give a report and are paid during this time, the treaty would explain whether that is taxable in Norway. You can usually get a credit for taxes paid to foreign countries against your US taxes, which helps avoid paying double taxes in the USA. If you were to go live in Norway for more than a year, the first $80,000/year or so is completely wiped off your US income. This does NOT apply if you live in the USA and are paid from Norway. If you have a bank account overseas with more than $10,000 of value in it at any time during the year, you owe the US Government a FinCEN Form 114 (FBAR). This is pretty important, there are some large fines for not doing it. It could occur if you needed an account to get paid in Norway and then send the money here... If the Norwegian company wires the money to you from their account or sends a check in US$, and you don't have a foreign bank account, then this would not apply.", "title": "" }, { "docid": "96503ad0863d795ad2f0d81405f41c31", "text": "75k is short of the 'highly compensated' category. Most US citizens in that pay range would consider paying someone to do their taxes as an unnecessary expense. Tax shelters usually don't come into play for this level of income. However, there are certain things which provide deductions. Some things that make it better to pay someone: Use the free online tax forms to sandbox your returns. If all you're concerned about is ensuring you pay your taxes correctly, this is the most cost efficient route. If you want to minimize your tax burden, consult with a CPA. Be sure to get one who is familiar with resident aliens from your country and the relevant tax treaties. The estimate you're looking at may be the withholding, of which you may be eligible for a refund for some part of that withholding. Tax treaties likely make sure that you get credit on each side for the money paid in the other. For example, as a US citizen, if I go to Europe and work and pay taxes there, I can deduct the taxes paid in Europe from my tax burden in the US. If I've already paid more to the EU than I would have paid on the same amount earned in the US, then my tax burden in the US is zero. By the same token, if I have not paid up to my US burden, then I owe the balance to the US. But this is way better than paying taxes to your home country and to the host country where you earned the money.", "title": "" }, { "docid": "2b5c0f3ab5a837e85d550225adbb03c7", "text": "I would say you can file your taxes on your own, but you will probably want the advice of an accountant if you need any supplies or tools for the side business that might be tax deductible. IIRC you don't have to tell your current employer for tax reasons (just check that your contract doesn't state you can't have a side job or business), but I believe you'll have to tell HMRC. At the end of the year you'll have to file a tax return and at that point in time you'll have to pay the tax on the additional earnings. These will be taxed at your highest tax rate and you might end up in a higher tax bracket, too. I'd put about 40% away for tax, that will put you on the safe side in case you end up in the high tax bracket; if not, you'll have a bit of money going spare after paying your taxes.", "title": "" }, { "docid": "c11d1781a910fe53b160db6f0ac43cb5", "text": "The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate", "title": "" }, { "docid": "f7dda4d298962e5676469e1351ccb15d", "text": "\"Some of the 45,000 might be taxable. The question is how was the stipend determined. Was it based on the days away? The mile driven? The cities you worked in? The IRS has guidelines regarding what is taxable in IRS Pub 15 Per diem or other fixed allowance. You may reimburse your employees by travel days, miles, or some other fixed allowance under the applicable revenue procedure. In these cases, your employee is considered to have accounted to you if your reimbursement doesn't exceed rates established by the Federal Government. The 2015 standard mileage rate for auto expenses was 57.5 cents per mile. The rate for 2016 is 54 cents per mile. The government per diem rates for meals and lodging in the continental United States can be found by visiting the U.S. General Services Administration website at www.GSA.gov and entering \"\"per diem rates\"\" in the search box. Other than the amount of these expenses, your employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven). For information on substantiation methods, see Pub. 463. If the per diem or allowance paid exceeds the amounts substantiated, you must report the excess amount as wages. This excess amount is subject to income tax with-holding and payment of social security, Medicare, and FUTA taxes. Show the amount equal to the substantiated amount (for example, the nontaxable portion) in box 12 of Form W-2 using code “L\"\"\"", "title": "" }, { "docid": "71bd8b7bb71148feb7f19174d08ae7fa", "text": "\"When I have a question about my income taxes, the first place I look is generally the Giant Book of Income Tax Information, Publication 17 (officially called \"\"Your Federal Income Tax\"\"). This looks to be covered in Chapter 26 on \"\"Car Expenses and Other Employee Business Expenses\"\". It's possible that there's something in there that applies to you if you need to temporarily commute to a place that isn't your normal workplace for a legitimate business reason or other business-related travel. But for your normal commute from your home to your normal workplace it has this to say: Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.\"", "title": "" }, { "docid": "62d4d02c96f3c835c9f5f8998ccd9e9d", "text": "Technically, if you earn in US (being paid there, which means you have a work visa) and live in other country, you must pay taxes in both countries. International treaties try to decrease the double-taxation, and in this case, you may pay in your country the difference of what you have paid in US. ie. your Country is 20% and USA is 15%, you will pay 5%, and vice-versa. This works only with certain areas. You must know the tax legislation of both countries, and I recommend you seek for advisory. This site have all the basic information you need: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion Good luck.", "title": "" } ]	fiqa
79e1a2b3571e6c6943fce9ceae3cfe08	How is not paying off mortgage better in normal circumstances?	[ { "docid": "7aa140333d3f24b0bee604d7c5edc4e6", "text": "\"The reason is that although the American economy is functioning normally, mortgage rates are stupid-low, and are below a prudent expectation of long-term (30 year) rates of return in the market. I manage endowments, so I say \"\"prudent\"\" in the context of endowment investment, which is the picture of caution and subject to UPMIFA law (the P being prudent). What's more, there are tax benefits. Yes, you pay 15% long-term capital gains tax on investment income. But your mortgage interest is tax deductible at your \"\"tax bracket\"\" rate of 25, 28 or 33% - this being the tax you would pay on your next dollar of earned income. And in the early years of a mortgage, mortgage payments are nearly 100% interest. So even if it's a wash: you gain $10k in the market but pay $10k in mortgage interest -- you pay $1500 tax on the gains, but the interest deduction redudes tax by $2800. So you are still $1300 ahead. TLDR: the government pays us to do this.\"", "title": "" }, { "docid": "1021105f9b691a94f55193b46aa9d692", "text": "Lets do the math, using your numbers. We start off with $100K, a desire to buy a house and invest, and 30 years to do it. Scenario #1 We buy a house for $100K mortgage at 5% interest over 30 years. Monthly payment ends up being $536.82/month. We then take the $100K we still have and invest it in stocks, earning an average of 9% annually and paying 15% taxes. Scenario #2 We buy a house for our $100K cash, and then, every month, we invest the $536.82 we would have paid for the mortgage. Again, investments make 9% annually long term, and we pay 15% taxes. How would it look in 30 years? Scenario #1 Results: 30 years later we would have a paid off house and $912,895 in investments Scenario #2 Results: 30 years later we would have a paid off house and $712,745 in investments Conclusion: NOT paying off your mortgage early results in an additional $200,120 in networth after 30 years. That's 28% more. Therefore, not paying off your mortgage is the superior scenario. Caveats/Notes/Things to consider Play with the numbers yourself:", "title": "" }, { "docid": "748835fabfba5ebb60dae096b4a4f374", "text": "There are several reasons:", "title": "" }, { "docid": "04d940078dcec99600dfe5f9d54d4f39", "text": "\"In some respects the analysis for this question is similar to comparing a \"\"safe\"\" return on a government bond vs. holding the stock market. Typically, the stock market's expected return will be higher -- i.e., there's a positive equity risk premium -- vs. a government bond (assuming it's held to maturity). There's no guarantee that the stock market will outperform, although the probability of outperformance rises (some analysts argue) the longer the holding period for equities beyond, say, 10 years. That's why there's generally a positive equity risk premium, otherwise no one (or relatively few investors) would hold equities.\"", "title": "" }, { "docid": "f1387faafbfd01db56cf7af7a6187736", "text": "One way of looking at it is that your equity in your house is an investment in a particular class of asset, and investing further in that asset class may drive you away from, rather than towards, your preferred asset mix. It's pretty common here in New Zealand for people's only investments to be their homes and rental properties. I wish those people luck when our current property boom ends.", "title": "" }, { "docid": "f4b75a63bf6184e218d2b55c6d84ddc6", "text": "Certainly there are people who do pay off their homes. Others do not. It's a question of risk tolerance and preference. Some considerations relevant to this question: Taxes - Interest on a mortgage is tax deductible. Particularly for high earners, this is a significant incentive to maintain a mortgage balance and place extra money in the market instead. Liquidity - If you lose your job, you can sell stocks to pay the mortgage. But if you have made principle payments on your mortgage but still owe some outstanding balance, you are still required to make monthly payments without any source of income. Rates - In recent years it is been common to get a mortgage for 3.2% to 3.5%. The difference between those rates and 9% rate of return for the market is substantial. There are other considerations but the answer in the end is that for many people the risk / reward calculus says the ~5% difference in rate of return is worth the potential risks.", "title": "" } ]	[ { "docid": "99c768a2572426fd23b4feda32756c24", "text": "It also reduces risk from the bank's eyes. Believe it or not, they do lose out when people don't pay on their mortgages. Take the big 3 (Wells, Chase and BoA). If they have 50 million mortgages between the 3 of them and 20% of people at one point won't be able to pay their mortgage due to loss of income or other factors, this presents a risk factor. Although interest payments are still good, reducing their principal and interest keeps them tied down for additional (or sometimes shorter) time, but now they are more likely to keep getting those payments. That's why credit cards back in 07 and 08 reduced limits for customers. The risk factor is huge now for these financial institutions. Do your research, sometimes a refi isn't the best option. Sometimes it is.", "title": "" }, { "docid": "3a8c68e2a137a8bc2208321265351b42", "text": "\"Because \"\"my accountant said I'm in the 28% bracket and need more write-offs.\"\" When I hear someone say this I tell them to get a new accountant/advisor/tax guy. The benefit, if any, is the fact that if, and only if, (a hat tip to @staticx) you are already itemizing your deductions. It means that for me, my 3.5% mortgage is really costing me 2.625%. The only effect of this is the when I line up my debts, the mortgage might fall to a lower priority for payback. This is where there's a balance between the choice of a robust emergency fund, earning close to 0% today, or using those funds to pay the mortgage at an accelerated rate. If the sentiment expressed by the question implies that one should carry a mortgage, needed or not, it really comes down the a question of risk over the long term. I don't suggest that people take a mortgage today to invest in the market. A zero return as we just saw in the '00s will show you that the 10% market return is an average over the very long term. FWIW, the '96-'05 period returned 9.08%, and '06-'13 (2 years short of the 10) 7.26%. Few have the discipline to patiently wait out the dips and see the returns I quoted. That said, the fact that the interest is deductible is a small factor given the low rates we are currently enjoying. Each of the points above can be expanded into its own answer. A great question with not-so-simple answers.\"", "title": "" }, { "docid": "4247fc4bd8436e1a1c0b69754b86c1ff", "text": "One big factor that no one has mentioned yet is whether you believe in a deflationary or inflationary future. Right now, we are leaning towards a deflationary environment so it makes sense to pay off more of the debt. (If you make just one extra payment a year, you will have paid off your house 7 years early). However, should this change (depending on government and central bank policy) you may be better off putting down the very minimum. In a year or three from now, you should have a clearer picture. In the meanwhile, here is a recent Business Week article discussing both sides of the argument. http://www.businessweek.com/magazine/content/10_28/b4186004424615.htm", "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": "4b27fe4787eb6e07ed71131bc7357766", "text": "\"There are other good answers to the general point that the essence of what you're describing exists already, but I'd like to point out a separate flaw in your logic: Why add more complications so that \"\"should I call this principal or interest\"\" actually makes a difference? Why's the point (incentive) for this? The incentive is that using excess payments to credit payments due in the future rather than applying it to outstanding principal is more lucrative for the lender. Since it's more lucrative and there's no law against it most (all) lenders use it as the default setting.\"", "title": "" }, { "docid": "6933bbfd0b40ce34f74b37a9feceb427", "text": "The problem comes when the borrower cannot afford his home. If a borrower buys more home than they can afford, as long as he can sell the house for more than he owes, he's not in a disastrous situation. He can sell the house, pay off the mortgage, and choose more affordable housing instead. If he is upside-down on his home, he doesn't have that option. He's stuck in his home. If he sells it, he will have to come up with extra money to pay off the mortgage (which he doesn't have, because he is in a home he can't afford). It used to be commonplace for banks to issue mortgages for 100% of the value of the home. As long as the home keeps appreciating, everybody is happy. But if the house drops in value and the homeowner finds himself unable to make house payments, both the homeowner and the bank are at risk. Recent regulations in the U.S. have made no-down-payment mortgages less common.", "title": "" }, { "docid": "6767c66274c2315423cadd3711bfb23c", "text": "I would say generally, the answer is No. There might be some short term relief to people in certain situations, but generally speaking you sign a contract to borrow money and you are responsible to pay. This is why home loans offer better terms then auto loans, and auto loans better than credit cards or things like furniture. The better terms offer less risk to the lender because there are assets that can be repossessed. Homes retain values better than autos, autos better than furniture, and credit cards are not secured at all. People are not as helpless as your question suggests. Sure a person might lose their high paying job, but could they still make a mortgage payment if they worked really hard at it? This might mean taking several part time jobs. Now if a person buys a home that has a very large mortgage payment this might not be possible. However, wise people don't buy every bit of house they can afford. People should also be wise about the kinds of mortgages they use to buy a home. Many people lost their homes due to missing a payment on their interest only loan. Penalty rates and fees jacked up their payment, that was way beyond their means. If they had a fixed rate loan the chance to catch up would have not been impossible. Perhaps an injury might prevent a person from working. This is why long term disability insurance is a must for most people. You can buy quite a bit of coverage for not very much money. Typical US households have quite a bit of debt. Car payments, phone payments, and either a mortgage or rent, and of course credit cards. If income is drastically reduced making all of those payments becomes next to impossible. Which one gets paid first. Just this last week, I attempted to help a client in just this situation. They foolishly chose to pay the credit card first, and were going to pay the house payment last (if there was anything left over). There wasn't, and they are risking eviction (renters). People finding themselves in crisis, generally do a poor job of paying the most important things first. Basic food first, housing and utilities second, etc... Let the credit card slip if need be no matter how often one is threatened by creditors. They do this to maintain their credit score, how foolish. I feel like you have a sense of bondage associated with debt. It is there and real despite many people noticing it. There is also the fact that compounding interest is working against you and with your labor you are enriching the bank. This is a great reason to have the goal of living a debt free life. I can tell you it is quite liberating.", "title": "" }, { "docid": "0d6eaeb4ba54c786c2800de434892ca9", "text": "\"I'm going to give a simpler answer than some of the others, although somewhat more limited: the complicated loan parameters you describe benefit the lender. I'll focus on this part of your question: You should be able to pay back whenever; what's the point of an arbitrary timeline? Here \"\"you\"\" refers to the borrower. Sure, yes, it would be great for the borrower to be able to do whatever they want whenever they want, increasing or decreasing the loan balance by paying or not paying arbitrary amounts at their whim. But it doesn't benefit the lender to let the borrower do this. Adding various kinds of restrictions and extra conditions to the loan reduces the lender's uncertainty about when they'll be receiving money, and also gives them a greater range of legal recourse to get it sooner (since they can pursue the borrower right away if they violate any of the conditions, rather than having the wait until they die without having paid their debt). Then you say: And if you want, you can set a legal deadline. But the mere deadline in the contract doesn't affect how much interest is paid—the interest is only affected by how much money is borrowed and how long has passed. I think in many cases that is in fact how it works, or at least it is more how it works than you seem to think. For instance, you can take out a 30-year loan but pay it off in less than 30 years, and the amount you pay will be less if you pay it off sooner. However, in some cases the lender will charge you a penalty for doing so. The reason is the same as above: if you pay off the loan sooner, you are paying less interest, which is worse for the lender. Again, it would be nice for the borrower if they could just pay it off sooner with no penalty, but the lender has no reason to let them do so. I think there are in fact other explanations for these more complicated loan terms that do benefit the borrower. For instance, an amortization schedule with clearly defined monthly payments and proportions going to interest and principal also reduces the borrower's uncertainty, and makes them less likely to do risky things like skip lots of payments intending to make it up later. It gives them a clear number to budget from. But even aside from all that, I think the clearest answer to your question is what I said above: in general, it benefits the lender to attach conditions and parameters to loans in order to have many opportunities to penalize the borrower for making it hard for the lender to predict their cash flow.\"", "title": "" }, { "docid": "4d117fa1cc11e115832fee5e4fb4bbb1", "text": "\"Good debt and \"\"Bad debt\"\" are just judgement calls. Each person has their own opinion on when it is acceptable to borrow money for something, and when it is not. For some, it is never acceptable to borrow money for something; they won't even borrow money to buy a house. Others, of course, are in debt up to their eyeballs. All debt costs money in interest. So when evaluating whether to borrow or not, you need to ask yourself, \"\"Is the benefit I am getting by borrowing this money worth the cost?\"\" Home ownership has a lot of advantages: For many, these advantages, coupled with the facts that home mortgages are available at extremely low interest rates and that home mortgage interest is tax-deductible (in the U.S.), make home mortgages \"\"worth it\"\" in the eyes of many. Contrast that with car ownership: For these reasons, there are many people who consider the idea of borrowing money to purchase a car a bad idea. I have written an answer on another question which outlines a few reasons why it is better to pay cash for a car.\"", "title": "" }, { "docid": "08fb6d65d0231a99af8117233afd3ed3", "text": "As mentioned, the main advantage of a 15-year loan compared to a 30-year loan is that the 15-year loan should come at a discounted rate. All things equal, the main advantage of the 30-year loan is that the payment is lower. A completely different argument from what you are hearing is that if you can get a low interest rate, you should get the longest loan possible. It seem unlikely that interest rates are going to get much lower than they are and it's far more likely that they will get higher. In 15 years, if interest rates are back up around 6% or more (where they were when I bought my first home) and you are 15 years into a 30 year mortgage, you'll being enjoying an interest rate that no one can get. You need to keep in mind that as the loan is paid off, you will earn exactly 0% on the principal you've paid. If for some reason the value of the home drops, you lose that portion of the principal. The only way you can get access to that capital is to sell the house. You (generally) can't sell part of the house to send a kid to college. You can take out another mortgage but it is going to be at the current going rate which is likely higher than current rates. Another thing to consider that over the course of 30 years, inflation is going to make a fixed payment cheaper over time. Let's say you make $60K and you have a monthly payment of $1000 or 20% of your annual income. In 15 years at a 1% annualized wage growth rate, it will be 17% of your income. If you get a few raises or inflation jumps up, it will be a lot more than that. For example, at a 2% annualized growth rate, it's only 15% of your income after 15 years. In places where long-term fixed rates are not available, shorter mortgages are common because of the risk of higher rates later. It's also more common to pay them off early for the same reason. Taking on a higher payment to pay off the loan early only really only helps you if you can get through the entire payment and 15 years is still a long way off. Then if you lose your job then, you only have to worry about taxes and upkeep but that means you can still lose the home. If you instead take the extra money and keep a rainy day fund, you'll have access to that money if you hit a rough patch. If you put all of your extra cash in the house, you'll be forced to sell if you need that capital and it may not be at the best time. You might not even be able to pay off the loan at the current market value. My father took out a 30 year loan and followed the advice of an older coworker to 'buy as much house as possible because inflation will pay for it'. By the end of the loan, he was paying something like $250 a month and the house was worth upwards of $200K. That is, his mortgage payment was less than the payment on a cheap car. It was an insignificant cost compared to his income and he had been able to invest enough to retire in comfort. Of course when he bought it, inflation was above 10% so it's bit different today but the same concepts still apply, just different numbers. I personally would not take anything less than a 30 year loan at current rates unless I planned to retire in 15 years.", "title": "" }, { "docid": "e4ad5de991424ab48e01a72ac5cbd3ac", "text": "\"I'll assume you live in the US for the start of my answer - Do you maximize your retirement savings at work, at least getting your employer's match in full, if they do this. Do you have any other debt that's at a higher rate? Is your emergency account funded to your satisfaction? If you lost your job and tenant on the same day, how long before you were in trouble? The \"\"pay early\"\" question seems to hit an emotional nerve with most people. While I start with the above and then segue to \"\"would you be happy with a long term 5% return?\"\" there's one major point not to miss - money paid to either mortgage isn't liquid. The idea of owing out no money at all is great, but paying anything less than \"\"paid in full\"\" leaves you still owing that monthly payment. You can send $400K against your $500K mortgage, and still owe $3K per month until paid. And if you lose your job, you may not so easily refinance the remaining $100K to a lower payment so easily. If your goal is to continue with real estate, you don't prepay, you save cash for the next deal. Don't know if that was your intent at some point. Disclosure - my situation - Maxing out retirement accounts was my priority, then saving for college. Over the years, I had multiple refinances, each of which was a no-cost deal. The first refi saved with a lower rate. The second, was in early 2000s when back interest was so low I took a chunk of cash, paid principal down and went to a 20yr from the original 30. The kid starts college, and we target retirement in 6 years. I am paying the mortgage (now 2 years into a 10yr) to be done the month before the kid flies out. If I were younger, I'd be at the start of a new 30 yr at the recent 4.5% bottom. I think that a cost of near 3% after tax, and inflation soon to near/exceed 3% makes borrowing free, and I can invest conservatively in stocks that will have a dividend yield above this. Jane and I discussed the plan, and agree to retire mortgage free.\"", "title": "" }, { "docid": "42da4b05ea23c29486c6dcf00ec57ed6", "text": "\"Math says invest in the Market (But paying off your mortgage early is a valid option if you are very risk averse.) You are going to get a better return by investing in the stock market. In the US in 2015/2016, mortgages are 3%-4%, and give you a tax break. The rate of return on the stock market is ~10%, (closer to 6% after you subtract out inflation, taxes, fees, etc.) Since 10 > 3, (or 6% > 4%, to use the pessimistic numbers) investing in the market is the better deal. But... The market has risk, and your mortgage does not. If you are very risk averse paying off the mortgage may make sense. As an example: Family A has a single \"\"breadwinner\"\", who works a low skilled job. Family B has 2 working spouses, both in high skill white collar positions. These two families are going to have wildly different risk tolerances. It may make sense for family A to \"\"invest\"\" its extra money in paying off the mortgage, after they have tackled high interest debt, built an emergency fund, maxed the 401k, etc. Personally I would not: in the US you cannot recoup pre-payments if you lose your job. If I was very risk averse, I would keep my extra money as cash, so I could pay my mortgage after I lost my job. It is never going to make sense for family B to pay the mortgage early. At that point, any decision to pre-pay is going to be based on emotion and not logic.\"", "title": "" }, { "docid": "6da16e402bf9c3b83f7e5d828925194f", "text": "\"Pete and Noah addressed the math, showing how this is, in effect, converting a 30yr to a ~23yr mortgage, at a cost, plus payment about 8% higher (1 extra payment per year). No magic there. The real issue, as I see it, is whether this is the best use of the money. Keep in mind, once you pay extra principal, which in effect is exactly what this is, it's not easy to get it back. As long as you have any mortgage at all, you have the need for liquidity, enough to pay your mortgage, tax, utilities, etc, if you find yourself between jobs or to get through any short term crisis. I've seen people choose the \"\"sure thing\"\" prepayment VS the \"\"risky\"\" 401(k) deposit. Ignoring a match is passing up a 50% or 100% return in most cases. Too good to pass up. 2 points to add - I avoided the further tangent of the tax benefit of IRA/401(k) deposits. It's too long a discussion, today's rate for the money saved, vs the rate on withdrawal. Worth considering, but not part of my answer. The other discussion I avoid is Nicholas' thoughts on the long term market return of 10% vs today's ~4% mortgage rate. This has been debated elsewhere and morphs into a \"\"pre-pay vs invest\"\" question.\"", "title": "" }, { "docid": "f31da463ed6f2eab4dc16b96c69531c7", "text": "But now you have cash on hand that wasn't used to pay debt, no change in net worth. In fact, if you refuse to pay your mortgage for two years until you're kicked out of your underwater house, your net worth goes up.", "title": "" }, { "docid": "6787c5a4ece0bd9aca6d411366063770", "text": "While, from a money-saving standpoint, the obviously-right course of action is to make only the minimum payment on the 0% loan, there are potentially legal reasons to try to pay off a car loan early. With a mortgage, you are the legal owner of the property and any action by the lender beyond imposing fees (e.g. foreclosure) requires going through the proper legal channels. On the other hand, in most jurisdictions, you are not the legal owner of a car purchased on a loan, and a missed or even lost payment can result in repossession without the lender even having to go to court. So from a risk-aversion standpoint, there's something to be said for getting rid of car loans as soon as you can.", "title": "" } ]	fiqa
50a9380ea8fcf639305b6d468b046802	Teaching school kids about money - what are the real life examples of math, budgeting, finance?	[ { "docid": "0977c3b9eb3b8c0cd2266c36a40159c8", "text": "\"I am a numbers guy, the math is great. Instead of \"\"jane was twice her son's age when he married, and is now 1.5 times his age.....\"\" questions in math class, I think the math problems should mostly have dollar/pound signs in front of them. In general, I like the idea of relating to the kids' situations as much as possible. When my daughter (14) makes a purchase, I'd ask her to be aware of how many hours she had to work to make the money she plans to spend. Was it worth 4 hours babysitting to buy an iPad case? Was it worth 2 to buy lunch that we could have made you at home? (Note, the 'convert price to hours worked' is a concept that works great when teaching budgeting to anyone, not just kids.) The math of tax and discounts for comparison shopping works great as well so long as they understand value. A $400 sweatshirt at 50% off isn't really a bargain, in my opinion. Next, the math of balancing a checkbook should be high on the list. Accounting for the checks that didn't clear but are outstanding is beyond many people, amazing enough. For the sport fan, there are unlimited math problem one can create for game scores, stats for the season, etc. Young boys who will fall asleep during a stats class will pay attention if instead of abstract numbers, you add 'goals' 'home runs' etc, after the numbers. (Note - this question is probably outside the scope of the board, no right or wrong answer. But I love it as a question in general, and if not here, I hope it finds a good home.)\"", "title": "" }, { "docid": "ed0a834861a6e3accdc94feb5d815429", "text": "If these are children that may be employed, in a few years, it may well be worth walking them through some basics of the deductions around employment, some basic taxes, uses of banks, and give them enough of a basis in how the economy of the world works. For example, if you get a job and get paid $10/hour, that may sound good but how much do various things eat at that so your take-home pay may be much lower? While this does presume that the kids will get jobs somewhere along the way and have to deal with this, it is worth making this part of the education system on some level rather than shocking them otherwise. Rather than focusing on calculations, I'd be more tempted to consider various scenarios like how do you use a bank, what makes insurance worth having(Life, health, car, and any others may be worth teaching on some level), and how does the government and taxes fit into things. While I may be swinging more for the practical, it is worth considering if these kids will be away in college or university in a few years, how will they handle being away from the parents that may supply the money to meet all the financial needs?", "title": "" }, { "docid": "df4a0faa381737651673d571cb03dcf9", "text": "\"My education on this topic at this age range was a little more free-form. We were given a weeklong project in the 6th grade, which I remember pretty clearly: Fast forward 6 years (we were 12). You are about to be kicked out of your parents' house with the clothes on your back, $1,000 cash in your pocket, your high school diploma, and a \"\"best of luck\"\" from your parents. That's it. Your mission is to not be homeless, starving and still wearing only the clothes on your back in 3 months. To do this, you will find an apartment, a job (you must meet the qualifications fresh out of high school with only your diploma; no college, no experience), and a means of transportation. Then, you'll build a budget that includes your rent, estimated utilities, gasoline (calculated based on today's prices, best-guess fuel mileage of the car, and 250% of the best-guess one-way distance between home and job), food (complete nutrition is not a must, but 2000cal/day is), toiletries, clothing, and anything else you want or need to spend your paycheck or nest egg on. Remember that the laundromat isn't free, and neither is buying the washer/dryer yourself. Remember most apartments aren't furnished but do have kitchen appliances, and you can't say you found anything on the side of the road. The end product of your work will be a narrative report of the first month of your new life, a budget for the full 3 months, plus a \"\"continuing\"\" budget for a typical month thereafter to prove you're not just lasting out the 3 months, and all supporting evidence for your numbers, from newspaper clippings to in-store mailers (the Internet and e-commerce were just catching on at the time, Craigslist and eBay didn't exist yet, and not everyone had home Internet to begin with). Extra Credit: Make your budget work with all applicable income and sales taxes. Extra Extra Credit: Have more than your original $1000 in the bank at the end of the 3 months, after the taxes in the Extra Credit. This is a pretty serious project for a 12-year-old. Not only were we looking through the classified ads and deciphering all the common abbreviations, we were were taking trips to the grocery store with shopping lists, the local Wal-Mart or Target, the mall, even Goodwill. Some students had photos of their local gas station's prices, to which someone pointed out that their new apartment would be on the other side of town where gas was more expensive (smart kid). Some students just couldn't make it work (usually the mistakes were to be expected of middle-class middle-schoolers, like finding a job babysitting and stretching that out full-time, only working one job, buying everything new from clothes to furniture, thinking you absolutely need convenience items you can do without, and/or trying to buy the same upscale car your dad takes to work), though most students were able to provide at least a plausible before-tax budget. A few made the extra credit work, which was a lot of extra credit, because not only were you filling out a 1040EZ for your estimated income taxes, you were also figuring FICA and Social Security taxes which even some adults don't know the rates for, and remember, no Internet. Given that the extra-extra credit required you to come out ahead after taxes (good luck), I can't remember that anyone got that far. The meta-lesson that we all learned? Life without a college education is rough.\"", "title": "" } ]	[ { "docid": "a65efd5afe866ce7d2d86bb59793098c", "text": "\"In the UK there is a School Rewards System used in many schools to teach kids and teens about finance and economy. In the UK there is a framework for schools called \"\"Every Child Matters\"\" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory.\"", "title": "" }, { "docid": "7f4270d67a6601b909ed315a269981d3", "text": "Hey thank you so much for the reply! So the interview is a late stage one - I've gotten past the concepts and honestly the role shouldn't be that heavy on the finance side ...what I'm looking at now is actually having to mock up a financial forecast in a real estate development scenario. I'm getting the case in advance and have to prepare a presentation. So right now, I really need the ABCs of forecasting specifically. But I'm definitely checking out your recommendations!", "title": "" }, { "docid": "1407a11a1bfd45195cc54d12195ad9d1", "text": "\"In that example, \"\"creating money\"\" could be used interchangeably with \"\"making promises\"\". There's no inflation, and no problem, so long as everyone keeps their promises. Which sounds like a horrifying thing to say about the foundations of the economy, but the remarkable thing is that people mostly do.\"", "title": "" }, { "docid": "e05f9fb1d45a1fba06e958b27c614ebd", "text": "As asked previous in the week, there is a big difference between budgeting and expense tracking. Using software, like GNUCash, allows one to track their spending. A budget is a plan, the tracking is what actually happened. I do not track expenses, although I do budget. For me, hitting financial goals is good enough of a track, without investing the time and energy into tracking every penny. One could easily criticize my method, as how can you have a good plan without continuous feedback? For me it is an example of the 80/20 principle. If I put in 20% effort into making and sticking to a budget, I will obtain 80% of the financial success that a person who devotes 100% effort into budgeting and tracking. A person with the same income and life events, who budgets and tracks, will likely be more successful that I, however, not overwhelmingly so. For me time is better spent on other endeavors. You seem to have this attitude as well, but those that do track have it as part of their path to financial success and probably view us as somewhat foolish. This is another example how personal finance is more about behavior than math.", "title": "" }, { "docid": "3b756983b590de33a66abf890947706d", "text": "As a 20 year old who has just started earning enough to save, I suggest showing them the different types of lifestyles they could live in the future if they started saving now versus what their life would be like if they didn't save at all. Try showing them actual dollar values as well so it's not just an arbitrary idea.", "title": "" }, { "docid": "b136684aff859e57a18347bea96e2291", "text": "Can anyone recommend a good textbook for a first course in finance? I'm not studying it, if it's relevant--I'm just a guy who wants a better understanding of the financial sector. I don't know anything anout finance outside a few basic concepts.", "title": "" }, { "docid": "ac326aca2189c78f3ed3457661c6f291", "text": "My daughter is two, and she has a piggy bank that regularly dines on my pocket change. When that bank is worth $100 or so I will make it a regular high yield savings account. Then I will either setup a regular $10/month transfer into it, or something depending on what we can afford. My plan is then to offer my kid an allowance when she can understand the concept of money. My clever idea is I will offer her a savings plan with the Bank of Daddy. If she lets me keep her allowance for the week, I will give her double the amount plus a percentage the next week. If she does it she will soon see the magic of saving money and how banks pay your for the privilege. I don't know when I will give her access to the savings account with actual cash. I will show it to her, and review it with her so she can track her money, but I need to know that she has some restraint before I open the gates to her.", "title": "" }, { "docid": "d9e7d3106f9e19ea20ac6488b0aab00f", "text": "Here's a very good series of classroom lectures by Robert Schiller, one of America's top economists and a prof at Yale: http://www.youtube.com/user/YaleCourses#g/c/8F7E2591EE283A2E This should give you some general insight into basic principles of finance and give you a framework to learn more later.", "title": "" }, { "docid": "9a43caccb4e26c98f5a98bd0ff63cf78", "text": "Until they're old enough to be legally responsible for their own credit, the only thing you can really do is show them by example how to manage money and credit in your own finances. Teach them budgeting, immerse them in understanding how credit and financing work, and teach them smart ways to make their money work for them. When they're teenagers, you could potentially approach small banks or credit unions about ways to perhaps co-sign loans for them and let them make payments to learn good habits for managing their responsibilities, but that's not always easy either. It won't do anything for their credit, but having the responsibility of coming in to make payments might instill good habits and help their self-esteem at the same time. You have great intentions, but as has been pointed out here already, from a legal standpoint there's not much you can do. All you can do is prepare them for the day when they are on their own and can enter into credit agreements. Kids going to college get into real trouble with credit because cards are handed out like candy to them by the banks, so teaching them money management skills is invaluable and something you can do now.", "title": "" }, { "docid": "17972f2341e3a49ab0ea1e28a96c6c01", "text": "I’d suggest going over to Khan Academy. It’s basically a free school with really helpful videos. There are quizzes you can do and forums for each subject. My advice would be to starts the personal finance section because most things build from there and it’ll help you more with real life finance. Good luck!", "title": "" }, { "docid": "b5eb73a9199fa4cc6976f6a504dabdcb", "text": "\"Anything by Frank Fabozzi - the de facto authority on financial education. Most of the stuff will be textbook ($$$) so get ready for sticker shock. Hopefully you can find a used copy of something. Quick search on Amazon yielded \"\"The Basics of Finance\"\" for about $150.\"", "title": "" }, { "docid": "4cda418d37f637ca634dd67e846e44ef", "text": "We are a pretty average (professional, used to be fully two-income) family. I have gone part-time (plus a total career change) to be more involved at home - that's minus 50K from our family budget a year. Montessori for the younger one is - 10K. Violin (-5K) and piano (-5K) lessons for each kid... summer science camps... summer golf/tennis plus equipment... dance/sports all year round are around 10K too. We are looking at an 80K hole in our budget (compared to what we could have had). Plus by now I would have been probably more advanced in my previous career had I stayed there, so the hole is potentially even greater.", "title": "" }, { "docid": "61dd0f7406c13e16a3b9da31c4672e53", "text": "Hi, I'm going to be a social studies teacher and will have to introduce students to economics. I am saving your post for the future because it is an amazingly well crafted and engaging lesson.. the village analogy can even be used for group enactment. Thanks so much for this!", "title": "" }, { "docid": "5f01d40e1a2a04d326b3dfd50a204d84", "text": "Frankly, I think all the higher maths in finance is mental masturbation. EDIT: wht all the down votes? I've made my money by trading against the PhDs in European investment banks who actually and innocently believe their models represent the real world. Their models work when they work. I love trading against the combination of arrogance and faux intellectualism. Folks, read Fooled by Randomness or Black Swan.", "title": "" }, { "docid": "0da09d5f659beffb49747422af4eb306", "text": "All value given to products is subjective and is different from person to person. It can also vary for the same person from year to year, month to month, day to day, or even hour to hour as a person analyzes different products and prices to determine which imparts the most value to him or her at a given point in time. In regards to losing money in your investment accounts. This reminds of a book I read on Jesse Livermore. Jesse was a famous stock broker who made millions (in the 1920's so he would be a billionaire in today's money) in the stock market multiple times. Jesse felt like you - he felt like after a while the losses on paper did not seem to concern him as much as he thought it should. He thought it was due to the investment accounts being simply being numbers on papers and not cold, hard cash. So what did Jesse do to remove the abstract nature of investment accounts? From here: Livermore always sold out all his positions at the end of every year and had the cash deposited in his account at the Chase Manhattan Bank. Then he would arrange with the bank to have the money, in cash, in the bank’s vault in chests. “There was a desk, a chair, a cot and an easy chair in the middle of the cash.” On the occasion described in 1923, there was $50 million in cash. In the corner was a fridge with food, enough for a few days. There was lighting installed. Then, like Scrooge McDuck, Livermore would have himself locked in the vault with his cash. He would stay a couple of days and “review his year from every aspect.” After his stay was over, he would fill his pockets with cash and go on a shopping spree. He would also take a vacation and not re-enter the market until February. But unlike Scrooge McDuck, this was not the act of a miser, explains Smitten. Livermore lived a world of paper transactions all year long. He believed that “by the end of the year he had lost his perception of what the paper slips really represented, cash money and ultimately power.” He “needed to touch the money and feel the power of cash.” It made him re-appraise his stock and commodity positions. Imagine the $60,000 from your investment account sitting on your kitchen table. Imagine seeing $1,000 dumped into the trash can one day. I know I would appreciate the money much more seeing that happen.", "title": "" } ]	fiqa
9172ffbe9c881abe502dba57189c5f7c	Is there a country that uses the term “dollar” for currency without also using “cents” as fractional monetary units?	[ { "docid": "529292bb3a40bac43c9d045b5541d27c", "text": "\"Going through the list of economies that currently use the dollar, all of them list cents as a fractional unit. In Hong Kong and Taiwan, the 1/100 fractional unit is still called a cent, but it's no longer in circulation in coin form and only finds use in financial markets or electronic payments. In countries like Malaysia, the word \"\"sen\"\" is used as the translation of the word \"\"cent\"\", even though the word for the actual currency, \"\"ringgit\"\", isn't a translation of the word \"\"dollar\"\". A similar situation occurs in Panama. The local currency is called the balboa, and it's priced on par (1:1) with the US dollar. US banknotes are also accepted as legal tender, and Panamanians sometimes use the terms balboa/dollar interchangeably. The 1/100 subdivision of the balboa is the centésimo, which is merely a translation of cent. Like Malaysia, the fractional unit is called \"\"cent\"\" (or a translation) but the main unit isn't merely a translation of the word \"\"dollar.\"\" On a historical note, the Spanish Dollar was subdivided into 8 reales in order to match the German thaler (the word that forms the basis for the English word \"\"dollar\"\").\"", "title": "" }, { "docid": "4a93c451f46ad3d48c41ae4a06bbe3fc", "text": "\"Wikipedia has a nice list of currencies that use \"\"cents\"\" and currencies that use 1/100th division that is not called \"\"cent\"\". Cent means \"\"100\"\" in Latin (and French, and probably all the Roman family of languages), so if the currency is divided by 100 subunits - it will likely to be called \"\"cent\"\" or something similar in the local language. The list of currencies (on the same page) where it is not the case is significantly shorter, and includes countries with relatively ancient currency units that were invented before the introduction of the decimal system (even though now they are in fact decimal they still kept the old names, like the British \"\"pence\"\" or the Russian \"\"kopek\"\"). The point is that \"\"Dollar\"\" and \"\"cent\"\" are not directly related, many currencies that are not called \"\"Dollar\"\" are using cents as well (Euro, among others). It just means \"\"1/100th\"\", and it is safe to assume that most (if not all) of the modern currencies are divided into 1/100th.\"", "title": "" } ]	[ { "docid": "03a02fa136bd870c1b7e0c6f9b687c59", "text": "Dollars are bits you don't control. The banking system has your bits and they can charge you more bits to move your bits around. At any point, they could freeze your accounts and suddenly you have no bits. It's all designed to make it so you can't function in society without them controlling your bits.", "title": "" }, { "docid": "18fdaf795363cebce215bc069bf9f8f1", "text": "Today typically a Business needs to hold accounts in more than one currency. Banks in certain countries are offering what is called a dual currency account. It is essentially 2 accounts with same account number but different currency. So One can have an account number say 123456 and have it in say AUD and USD. So the balance will always show as X AUD and Y USD. If you deposit funds [electronic, check or cash] in USD; your USD balance goes up. Likewise at the time of withdrawal you have to specify what currency you are withdrawing. Interest rates are calculated at different percentage for different currencies. So in a nutshell it would like operating 2 accounts, with the advantage of remembering only one account number. Designate a particular currency as default currency. So if you don't quote a currency along with the account number, it would be treated as default currency. Otherwise you always quote the account number and currency. Of-course bundled with other services like free Fx Advice etc it makes the entire proposition very attractive. Edit: If you have AUD 100 and USD 100, if you try and withdraw USD 110, it will not be allowed; Unless you also sign up for a auto sweep conversion. If you deposit a GBP check into the account, by default it would get converted into AUD [assuming AUD is the default currency]", "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": "440a586735e707c8207b09ed7ea6c8fb", "text": "Lots of countries have printed themselves away from debt. Not all inflation turns into a death spiral like Zimbabwe (or Weimar Germany) did, for that you need to have a really shitty economy that no-one believes in. The problem with Japan right now is that they are trying to print their debt away, but as they do so, their currency appreciates. Gold medal for the first one who manages to explain that one.", "title": "" }, { "docid": "e83d0a17d6016f0a1252a86909c2d29e", "text": "\"Well there are a couple reasons that people from various countries use specific currencies: 1. Government courts will recognize the settlement of contracts if they are paid with their local currency. So even if you wanted to be paid in Swiss Francs, your contracting partner can choose to pay you in USD instead. This artificially inflates the value of the local currency by increasing demand for it. 2. You're only allowed to pay your taxes in the local currency. This also artificially increases the demand for it, and it's the \"\"root value\"\" of the currency - people clamor for bits of green paper because if they don't have enough of it to pay off the tax man, they'll go to jail.\"", "title": "" }, { "docid": "3643d7beeb720ccb8b716a16c50eaae2", "text": "\"The best I could come up with would be to simply ask for the amount of \"\"notes\"\" and \"\"coins\"\" you would like, and specify denominations thereof. The different currency labels exist for the reason that not all of them are valued the same, so USD 100 is not the same as EUR 100. To generalize would mean some form of uniformity in the values, that just isn't there.\"", "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": "08aaa115b58a78d19ceb90a601d1f1e4", "text": "i disagree. if a country has sovereign currency, then there is no squandering. where does that money come from in the first place? govt creates it, and spends it into the economy through deficit spending. And govt gets a service or product in return from that spending. Govt deficit spending = private sector savings.", "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": "d62f5c863bcb09797da483525ae56141", "text": "Another possibly significant issue, is that the number ten thousand is very important in the Japanese language. In Japanese, you count in ones, tens, hundreds, thousands, ten thousands, BUT instead of a 'hundred thousand', you have ten ten thousands. and then one hundred ten thousands, and then a thousand ten thousands. The ten thousand yen note, equivalent roughly to the $100 bill, is the main base of Japanese currency. If you go to the bank, for example, you will almost always take out your money in ten thousand yen notes. Knowing a little about the language, i would say it would become quite strange and un-natural to suddenly start using a hundred as the main note value. I doubt the Japanese people would ever even consider that, and my guess is the only people who are even put out by the large number of zeroes are foreigners who are used to dealing in dollars and cents.", "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": "18dae2aeb2b806d7ead62f6ce0d1bf19", "text": "I'm pretty sure using it wastes a lot of man-hours in the economy. Handling money isn't cheap. Handling pennies is asinine. We should probably get rid of nickels and quarters too just to do away with the last decimal place, just dimes and a (smaller than current) half-dollar.", "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": "fb8aa7a528971a6af0168fae78a3e9a4", "text": "I can see that dollars are more useful than Yuan (after all, in my example, Russia may wish to buy from countries other than China). What proportion of, say, international trade by Japan with countries other than the US is conducted in dollars?", "title": "" }, { "docid": "ed788135c2f0217aae547d4b142d7e50", "text": "Arguably, the only reason the US can print dollar without massive repercussions on devaluing it is because of it is the world's reserve currency, backed by oil. This has allowed to US to build the world's biggest and most powerful army because they can easily borrow money to fund it. Everyone needs oil for their economy, therefore everyone needs dollars...", "title": "" } ]	fiqa
136e2e7743bf697a15c21f19cdc86a92	Are real estate prices memory-less?	[ { "docid": "30027b1c4f087c6113a9f335c856edd9", "text": "For various reasons, real estate prices exhibit far more memory than stock prices. The primary reason for this is that real estate is much less liquid. Transaction costs for stock trading are on the order of 10 basis points (0.1%), whereas a real estate transaction will typically have total costs (including title, lawyers, brokers, engineers, etc.) of around 5% of the amount of the transaction. A stock transaction can be executed in milliseconds, whereas real estate transactions typically take months. Thus today's behavior is a much better indicator of future price behavior for real estate than for stocks.", "title": "" }, { "docid": "bc1db48c13698bf5a7dc8eafdeb4a9a9", "text": "No, at least not with specific houses. When I bought my current house, our realtor looked at the previous selling price of this house, along with the prices at which it had been placed on the market. These values influenced the amount we offered for the house. I'm sure it also influenced the amount the house had been listed at.", "title": "" }, { "docid": "478a4f74037de66e9ee99150366f6030", "text": "Housing prices are set by different criteria. It can become memoryless the same as the stock if the criteria used to set its price in the past is no longer valid. For example, take Phoenix or Las Vegas - in the past these were considered attractive investments because of the economical growth and the climate of the area. While the climate hasn't changed, the economical growth stopped not only there but also in the places where people buying the houses lived (which is all over the world really). What happened to the housing market? Dropped sharply and stays flat for several years now at the bottom. So it doesn't really matter if the house was worth $300K in Phoenix 5 years ago, you can only sell it now for ~$50K, and that's about it. The prices have been flat low for several years and the house price was $50K, but does it mean its going to stay so? No, once economy gears up, the prices will go up as well. So its not exactly memory-less, but the stocks are not memory-less as well. There is correlation between the past and the future performance. If the environment conditions are similar - the performance is likely to be similar. For stocks however there's much more environment conditions than the housing market and its much harder to predict them. But even with the housing people were burnt a lot on the misconception that the past performance correlates to the future. It doesn't necessarily.", "title": "" }, { "docid": "7744375628735c954d11d694ce171bd8", "text": "I would argue no. It's easy to correlate home prices based on size, neighborhood, school district, condition and other factors, such as property taxes. In fact, real estate people and government assessors use those characteristics to assess property value. The demographics of a home will drive desirability/demand for the property. Combine that with the cost and availability of capital, and house prices are relatively predictable.", "title": "" } ]	[ { "docid": "e84a8b4c47e19de7bbbad138cef6c93c", "text": "\"This is the best tl;dr I could make, [original](https://www.project-syndicate.org/commentary/real-estate-prices-housing-inequality-by-robert-j--shiller-2017-07) reduced by 92%. (I'm a bot) *** > In some cities, higher-priced homes may tend to turn over more rapidly than in others. > Some cities may be inhabited by larger families, implying bigger houses than in other cities. > Using satellite data for major US cities, the economist Albert Saiz of MIT confirmed that tighter physical constraints - such as surrounding bodies of water or land gradients that make properties unsuitable for extensive building - tend to correlate with higher home prices. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6os52x/shiller_on_housing_prices/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~172691 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: city^#1 home^#2 price^#3 housing^#4 income^#5\"", "title": "" }, { "docid": "58f3407bdf68475135618142761e77bd", "text": "What really matters is of course how it compares to future prices. Are we making the assumption that the future prices will be more like the average over the last 100 years (which, by looking at your diagram, we seem to be one standard deviation or so above)?", "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": "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": "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": "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": "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": "aa118ec88d6ba97d72957cf867b37be7", "text": "If there's no inflation (or alternately there's deflation) people would tend to sit on money and wait for the prices to drop. This in pretty bad for pricier stuff like real estate/housing industry where a few percent can make a big difference. For a growing economy a small inflation is good as people would go out and buy new stuff when they want it knowing they will not get a better deal if they wait a year or so.", "title": "" }, { "docid": "e0b589d58e89dc2487eaf6e429674240", "text": "\"Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing. However, these are not something \"\"everyone\"\" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand. Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment. Many times \"\"advertised\"\" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told \"\"hey, buy it and you'll be able to rent it out at $900\"\" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent. But all that said - yes, those who can - are snapping.\"", "title": "" }, { "docid": "d74ce0acb761e346e6dfe3323d9ea77c", "text": "The article John cites says no correlation, but this chart from the article says otherwise; One sees the rate drop from 14% to 4% and housing rise from an index of 50 to near 190. (reaching over to my TI BA-35 calculator) I see that at 14%, $1000/mo will buy $84,400 worth of mortgage, but at 4%, it will buy $209,500. 2-1/2 times the borrowing power for the same payment. But wait, my friends at West Egg tell me that inflation means I can't compare $1000 in 1980 to the same $1000 in 2010. The $1,000 inflates to $2611 (i.e. an income rising only with inflation, no more) and that can fund a mortgage for $546,900. This is 6.5 times the original borrowing power, yet the housing index 'only' rose 3.8X. See that crazy chart? Housing actually got cheaper from 1980 to the peak. Statistics can say whatever you wish. Interest rate change drove all the change in housing prices, but not quite as much as it should have. To answer your question - I expect that when rates rise (and they will) housing prices will take a hit. In today's dollars, a current $1000 borrows (at 4%) nearly $210K, but at 6%, just $167K. If rates took a jump from these record lows, that's the nature of the risk you'd take.", "title": "" }, { "docid": "fac469245c0605d033cba9fca4684cc3", "text": "Reasons for no: In your first sentence you say something interesting: rates low - prices high. Actually those 2 are reversely correlated, imagine if rates would be 5% higher-very few people could buy at current prices so prices would drop. Also you need to keep in mind the rate of inflation that was much higher during some periods in the US history(for example over 10% in the 1980) so you can not make comparisons just based on the nominal interest rate. Putting all your eggs in one basket. If you think real estate is a good investment buy some REITs for 10k, do not spend 20% of your future income for 20 years. Maintenance - people who rent usually underestimate this or do not even count it when making rent vs mortgage comparisons. Reasons for yes: Lifestyle decision - you don't want to be kicked out of your house, you want to remodel... Speculation - I would recommend against this strongly, but housing prices go up and down, if they will go up you can make a lot of money. To answer one of questions directly: 1. My guess is that FED will try to keep rates well bellow 10% (even much lower, since government can not service debts if interest rates go much higher), but nobody can say if they will succeed.", "title": "" }, { "docid": "9cb8d2713786a67c691618f992ccd148", "text": "The assumption that house value appreciates 5% per year is unrealistic. Over the very long term, real house prices has stayed approximately constant. A house that is 10 years old today is 11 years old a year after, so this phenomenon of real house prices staying constant applies only to the market as a whole and not to an individual house, unless the individual house is maintained well. One house is an extremely poorly diversified investment. What if the house you buy turns out to have a mold problem? You can lose your investment almost overnight. In contrast to this, it is extremely unlikely that the same could happen on a well-diversified stock portfolio (although it can happen on an individual stock). Thus, if non-leveraged stock portfolio has a nominal return of 8% over the long term, I would demand higher return, say 10%, from a non-leveraged investment to an individual house because of the greater risks. If you have the ability to diversify your real estate investments, a portfolio of diversified real estate investments is safer than a diversified stock portfolio, so I would demand a nominal return of 6% over the long term from such a diversified portfolio. To decide if it's better to buy a house or to live in rental property, you need to gather all of the costs of both options (including the opportunity cost of the capital which you could otherwise invest elsewhere). The real return of buying a house instead of renting it comes from the fact that you do not need to pay rent, not from the fact that house prices tend to appreciate (which they won't do more than inflation over a very long term). For my case, I live in Finland in a special case of near-rental property where you pay 15% of the building cost when moving in (and get the 15% payment back when moving out) and then pay a monthly rent that is lower than the market rent. The property is subsidized by government-provided loans. I have calculated that for my case, living in this property makes more sense than purchasing a market-priced house, but your situation may be different.", "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": "432f55ef513524ca36a935720a54e195", "text": "\"This is the best tl;dr I could make, [original](https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2073.en.pdf) reduced by 99%. (I'm a bot) *** > Inflation Housing Demand + 0 + + 0 0 Mon Pol + + 0 0 Loans Supply Lend Rates 0 + 0 + A. Supply A. Demand + + + The first column lists the endogenous variables of the VAR, which react to the shocks reported in the first row: housing demand shocks, monetary policy innovations, shocks to the credit supply, aggregate supply and demand shocks. > The patterns used to distinguish aggregate demand and supply shocks are commonly used in the literature, we are able to discriminate house prices shocks from loans supply and lending rates shocks on the ground of economic theory. > In Spain, in the absence of other shocks, if the growth rates of real consumption had been driven exclusively by housing demand shocks, they would have been largest around 1995 and 2004, and lowest in 2012.18 The cumulative effect of housing demand shocks is rather muted in the remaining countries. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6gxbr4/ecb_house_prices_and_monetary_policy_in_the_euro/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~142717 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: shock^#1 price^#2 House^#3 housing^#4 policy^#5\"", "title": "" }, { "docid": "6194e70294709a000a67a8082c3515f1", "text": "\"I think anyone who is seriously contemplating a real estate purchase needs to sit down and read some history -- in particular the accounts of the 1930's and what happened to people who jumped into real estate in the midst of the depression. If you're not aware: by and large, what happened is they lost their asses: the property continues to fall in value, and then they're on the hooked for increasing taxes as local and state governments raise taxes in a desperate attempt to plug budget holes. And, of course, interest rates are headed nowhere but up. That will inversely impact your home's value, given that most people buy homes exactly like you're thinking about them: not how much the home is worth, but rather how much payment can you afford (as rates go up, you can afford less). A contemporary piece which has lots of accounts of this over multiple years is [The Great Depression - A Diary](http://www.amazon.com/The-Great-Depression-A-Diary/dp/1586489011). IMHO real estate is to be avoided until well after a bottom has been reached, and that's IMHO still some years away. Someone coming out of college now should ferret away as much money as possible, live as cheaply as possible, and stay far, far away from thoughts of \"\"gee, it sure would be a good idea to go drop half a million dollars on a house when I'm making $70K.\"\" While you're predicting raises and employment, neither is safe to take for granted. Indeed, many folks thought that in the late 00's and got absolutely destroyed financially as a result.\"", "title": "" } ]	fiqa
3abbc5af914078b7a613d6ebe2447fe6	What is the rationale behind stock markets retreating due to S&P having a negative outlook on the USA?	[ { "docid": "9374d840b15d019f87d3d20fc217d014", "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? It does seem strange that there is a correlation between government debt and the stock market. But I could see many reasons for the reaction. The downgrade by S&P may make it more expensive for the government to borrow money (i.e. higher interest rates). This means it becomes more expensive for the government to borrow money and the government will probably need to raise taxes to cover the cost of borrowing. Rising taxes are not good for business. Also, many banks in the US hold US government debt. Rising yields will push down the value of their holdings which in turn will reduce the value of US debt on the businesses' balance sheets. This weakens the banks' balance sheets. They may even start to unload US bonds. Why is there such a large emphasis on the S&P rating? I don't know. I think they have proven they are practically useless. That's just my opinion. Many, though, still think they are a credible ratings agency. What happens when the debt ceiling is reached? Theoretically the government has to stop borrowing money once the debt ceiling is reached. If this occurs and the government does not raise the debt ceiling then the government faces three choices:", "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": "3dec6527bd0a515914b6241198a5034c", "text": "\"When people (even people in the media) say: \"\"The stock market is up because of X\"\" or \"\"The stock market is down because of Y\"\", they are often engaging in what Nicolas Taleb calls the narrative falacy. They see the market has moved in one direction or another, they open their newspaper, pick a headline that provides a plausible reason for the market to move, and say: \"\"Oh, that is why the stock market is down\"\". Very rarely do statements like this actually come from research, asking people why they bought or sold that day. Sometimes they may be right, but it is usually just story telling. In terms of old fashioned logic this is called the \"\"post hoc, ergo proper hoc\"\" fallacy. Now all the points people have raised about the US deficit may be valid, and there are plenty of reasons for worrying about the future of the world economy, but they were all known before the S&P report, which didn't really provide the markets with much new information. Note also that the actual bond market didn't move much after hearing the same report, in fact the price of 10 year US Treasury bonds actually rose a tiny bit. Take these simple statements about what makes the market go up or down on any given day with several fistfuls of salt.\"", "title": "" }, { "docid": "34e317f7595ce74495cd79f6e768a5ba", "text": "If you spoke in front of a group of people in 2001 about the possibility of be lowered, you would be written off as a kook. Now S&P is talking about a negative credit outlook -- scary stuff. It's scary because a base assumption in any risk model is that US Treasury debt is utterly reliable and comes with zero default risk. So publicly banding about the notion that US Treasury debt may be less the AAA in two years is a shock to the system and changes the way many people assess risk. It's also scary because Treasury debt is auctioned... will a spooked market still accept a measely 2.9% return for a 7 year T-Bill? But while the prospect of a credit downgrade is truly a bad thing, you also need to take the S&P statements with a grain of salt -- since being a named a villain during the mortgage implosion (these were the guys who declared junk mortgage securities as AAA), they now err on the side of doom and gloom. So while things are bad, they've been bad since the Bush administration was forced to put Fannie Mae & Freddie Mac on the government balance sheet to stave off a bank panic. The scary stuff about default in July due to the debt ceiling debate is not very credible at all. Unless the Republican House plans on dramatically slashing spending on Medicare, Defense or Social Security and have the votes to stick to that strategy, the debt ceiling will be raised after much ado. Politicians talk tough, but have a proven track record of creating financial problems tomorrow to fix electoral problems today.", "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": "2c4a6165ef1f2a21b51bb5577e609515", "text": "I would say the real story is less about the implications of low vol but rather what has caused it. IMO that would be: 1) lots of money chasing a handful of investments a) loose monetary policy b) wealth effects from fantastic returns since the GR c) consolidation in various sectors (health, energy, tech) 2) rise of low cost index funds (all inflow go into the large swathes of the market so volatility across stocks is dampened) 3) various externalities of expansionary Fed policy a) resulting low bond yields lead to larger flows into equities b) low cost of debt feeding buybacks c) it has been sustained for so long it has had stabilizing effect i.e. predictability is good for markets and business decision making These factors make for an interesting story because what happens when some component of this system begins to show cracks? What happens when this low vol feedback loop ceases? Nobody knows. But it will not continue ad infinitum. Not all doom and gloom but it won't be the market we are used to today.", "title": "" }, { "docid": "7acc0cc7b924cbf49ca9a80edd4ec788", "text": "The satisfaction from gains packs less of an emotional impact than the fear of loss. It's very difficult for many people to overcome this fear, so when prices begin to fall, many investors sell to minimize their potential loss. This causes a further drop, which can lead to more selling as other investors reach their emotional threshold for loss. This emotion-based selling keeps the market inefficient in the short term. If there aren't enough value investors waiting to scoop up the stock at the new discount, it can stay undervalued for a long time.", "title": "" }, { "docid": "b4eb2b3378d801a11572375397c35778", "text": "\"It's significant. I look at the VIX Index. The VIX futures. etc. Usually stock market scares from financial worries (the economy, liquidity freezes, European country defaults etc) tend to last a bit longer, and non-financial worries (plane crashes, military skirmishes) tend to last a few days - then back to biz as usual. My feeling is that the S&P500 will continue to grind higher as long as the US economy remains on life support (US fed injections), and you will see these periodic -5% S&P500 mini-scares (which are buying opportunities) but the overall trend will remain intact (from the \"\"lower left to the upper right\"\" as that goof Dennis Gartman says). Once the US Fed stops the bond purchase program - it's anybody's guess. I also think we're in a tech stock bubble again but that's another topic.\"", "title": "" }, { "docid": "49298734e5683df12355c7dbccf30bb4", "text": "\"The default scenario that we're talking about in the Summer of 2011 is a discretionary situation where the government refuses to borrow money over a certain level and thus becomes insolvent. That's an important distinction, because the US has the best credit in the world and still carries enormous borrowing power -- so much so that the massive increases in borrowing over the last decade of war and malaise have not affected the nation's ability to borrow additional money. From a personal finance point of view, my guess is that after the \"\"drop dead date\"\" disclosed by the Treasury, you'd have a period of chaos and increasing liquidity issues after government runs out of gimmicks like \"\"borrowing\"\" from various internal accounts and \"\"selling\"\" assets to government authorities. I don't think the markets believe that the Democrats and Republicans are really willing to destroy the country. If they are, the market doesn't like surprises.\"", "title": "" }, { "docid": "1799d588f2d4eb1b661030fa761a70d9", "text": ">Jeremy Grantham, chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co., said margins will send stock markets tumbling when they eventually revert to their mean. >“The implication for the stock market is ugly, because it means earnings are unsustainably high,” Grantham’s colleague Ben Inker, GMO’s director of asset allocation, said in a telephone interview.", "title": "" }, { "docid": "eac18c368c7af4420ed6b45910472d03", "text": "\"He's misunderstanding Buffett's argument, which is that all forms of investment compete, and so when interest rates give you guaranteed low returns, it makes sense for stocks to give you average low returns. That implies high prices for current stocks, because your return on equities is the price tomorrow over the price today. Buffett would likely agree with him that this implies slow growth in the future, though he may not want to say so for competitive reasons. Historical P/E norms are a more wrong metric, because they don't capture any fundamental change that might have happened in the economy. What's likely going on is a surplus of capital: as business becomes more efficient (i.e. generates more revenue with fewer workers), that excess cash flow becomes investable capital, but as it becomes more efficient (i.e. less of that revenue filters down to workers in the form of wages that they can spend on consumer goods), the amount of productive uses where that capital can be effectively deployed in income-generating activities declines. More capital + fewer investable opportunities = higher supply + lower demand = the price of securities for the few areas of the economy that are doing well increases. This is why you see insane valuations for tech companies. If we do get a major economic crash, it will likely come from a Carlota Perez-style financial crisis, where all the money gets concentrated within emerging new industries focused on new technology, who can't sell their products because nobody else has any money. We're on the path to that already, but it will likely take a decade or two to play out; there's still a lot of money left in the \"\"old economy\"\" which can be extracted. Also, these style of financial crises usually are accompanied by war and a breakdown of the established political order, and so all bets are off anyway.\"", "title": "" }, { "docid": "25755e8dee8392ce566dbb40838b3561", "text": "\"So, I've read the article in question, \"\"Basically, It's Over\"\". Here's my opinion: I respect Charlie Munger but I think his parable misses the mark. If he's trying to convince the average person (or at least the average Slate-reading person) that America is overspending and headed for trouble, the parable could have been told better. I wasn't sure how to follow some of the analogies he was making, and didn't experience the clear \"\"aha\"\" I was hoping for. Nevertheless, I agree with his point of view, which I see as: In the long run, the United States is going to have serious difficulty in supporting its debt habit, energy consumption habit, and its currency. In terms of an investment strategy to protect oneself, here are some thoughts. These don't constitute a complete strategy, but are some points to consider as part of an overall strategy: If the U.S. is going to continue amassing debt fast, it would stand to reason it will become a worse credit risk, requiring it to pay higher interest rates on its debt. Long-term treasury bonds would decline as rates increase, and so wouldn't be a great place to be invested today. In order to pay the mounting debt and debt servicing costs, the U.S. will continue to run the printing presses, to inflate itself out of debt. This increase in the money supply will put downward pressure on the U.S. dollar relative to the currencies of better-run economies. U.S. cash and short-term treasuries might not be a great place to be invested today. Hedge with inflation-indexed bonds (e.g. TIPS) or the bonds of stronger major economies – but diversify; don't just pick one. If you agree that energy prices are headed higher, especially relative to U.S. dollars, then a good sector to invest a portion of one's portfolio would be world energy producing companies. (Send some of your money over to Canada, we have lots of oil and we're right next door :-) Anybody who has already been practicing broad, global diversification is already reasonably protected. Clearly, \"\"diversification\"\" across just U.S. stocks and bonds is not enough. Finally: I don't underestimate the ability of the U.S. to get out of this rut. U.S. history has impressed upon me (as a Canadian) two things in particular: it is highly capable of both innovating and of overcoming challenges. I'm keeping a small part of my portfolio invested in strong U.S. companies that are proven innovators – not of the \"\"financial\"\"-innovation variety – and with global reach.\"", "title": "" }, { "docid": "bdbbb8aae1fb4d6a79a31906807cb37d", "text": "Primarily because they don't want big price movements when they are in the market. If they spook the markets, either they have to buy at a higher price, or they sell at a lower price or they decrease the price of their holdings(which isn't always a big factor). The 3 situations they didn't want to be in the first place. And the most important thing is most analysts are dumb bozos, whom you should ignore. They tout because they want to increase their exposure in your eyes, so that they may land a job in one of those big investment companies, or they might be holding stocks and want to profit from it. Frankly speaking if you take advice from the so called analysts, be prepared to say goodbye to your money some day, mayn't be always. One near case maybe Carson Block from Muddy Waters, but he does his homework properly.", "title": "" }, { "docid": "181fc80c7366dcfad9e29d060d9f53fe", "text": "\"Clear malice? lol The article isn't even about \"\"the market\"\" it is about the economy. The article is about how GDP growth is not looking that great. The stock market can go up for reasons that have nothing to do with a good economy. If investors believe Trump will cut corporate taxes, stocks should rise, because an investor will make more money when the company pays less in taxes. Stock prices have gone up, but the economy isn't looking great.\"", "title": "" }, { "docid": "4f2a3af6526fd4b4e1134e9c460ed9f6", "text": "The market can stay irrational longer than you can remain solvent -John Maynard Keynes The stocks could stagnate and trade in a thin range, or decline in value. You assume that your stocks will offer you ANY positive return for every month over 24 months. Just one month of negative returns puts you underwater. Thats whats wrong with it. Even if you identified any stock that has been up every month for a consecutive 24 months in the past, there is nothing that says it will be so in the future, and a broad market selloff will effect both indexes as well as individual stocks. Literally any adverse macroeconomic event in the next two years will put you underwater on your loan, no matter how much research you do on individual stocks.", "title": "" }, { "docid": "f0be4c290617e9cebd4b30f64ba5183f", "text": "Because US bonds have had the prior impression of absolute invincibility and safety that has helped the dollar become the world's reserve currency and the United States borrow essentially at will. For the people that care what S&P says, the aura of invincibility is broken and it is conceivable, in SOME universe, for the US to default on its debt. This is of little practical importance on its own, but it's yet another signpost on the road to Chinese or European economic hegemony.", "title": "" }, { "docid": "f1e4efc8d488772225b890384c97761b", "text": "This article is so dumb. Passive investors should be concerned about poor corporate governance just as much as anyone else. The whole point is that active investors are more hesitant to put their money into companies like snap. Inclusion into an index could lead to technical buying. By ensuring the bare minimum standard in terms of corporate governance, S&P is actually protecting passive investors.", "title": "" }, { "docid": "b80dc222a7ae0d67c2d106f4ff913647", "text": "U.S. companies have two fundamental problems not within their control (plus others of course) 1. Growth in China is slowing dramatically, cutting prices and demand for commodities we export. Even companies like Yum (which owns KFC) are hurting) 2. European demand for finished and high tech products is down sharply. So while American demand is trying to make a comeback, we are so inter-linked that American businesses cannot fix this by themselves. If I were buying stock, I'd look at companies that produce and sell entirely in the U.S., Canada and Mexico. Edit: And I'd stay the heck away from new investment in the BRICS Edit2: And its fine (from an investment POV ) if companies source parts or material outside of the U.S./Canada/Mexico - just don't count on any sales strength to China or Europe or the BRICS.", "title": "" }, { "docid": "9542646e4405b37844f1c70025ca6bf5", "text": "S&P 500 are a relatively small portion of the entire American economy. Any number of things could cause them to increase in value at a greater rate than total output. For example, distribution of total spending could shift from the public sector to the private sector if government tax receipts and outlays were decreased. It's also possible the economy is becoming more centralized towards tech and industrial giants, with an increasing market share in the hands of fewer, larger companies.", "title": "" }, { "docid": "de2442349928571c8c1fd0025617a775", "text": "More questions! 1.) I thought the criticism of the Dow was that it's much smaller than other indexes and thus less representative of the market as a whole? 2,) When you say private investors are you talking about a few specific people? Or anyone who invests at all? Thanks", "title": "" } ]	fiqa
d27bff84167ae181484d5ee00dbf561a	As an investor or speculator, how might one respond to QE3 taper?	[ { "docid": "14eea4c64153d4049a9c19ddb647bb4d", "text": "\"Any answer for what to do in a taper will assume ceteris paribus because how markets initially react when they suspect a taper may immediately change depending on what data are released after the taper. For instance, I've seen Soros and a few other hedge fund managers hold shorts when expecting a taper because the theory is that the market may fall. However, suppose the market falls 5%, but then positive employment numbers are released. What then? The same holds true for betting against Emerging Markets (EM), something I've seen Jesse Colombo and others suggest; the claim that Emerging Markets are in a bubble thanks to the U.S. Federal Reserve (the more money they release, the more the money goes overseas ...). Again, this is possibly true, but if good data are released after the taper for these emerging markets, they could see growth and those with the shorts could get killed. TL;DR - when we ask about what happens after the taper, we have to remember we're assuming some things about everything else. I do think that the \"\"safest play\"\" post taper is what Bill Gross mentioned about bonds (basically a bubble), as we should see interest rates rise and the Chinese seem to be reluctant to buy as much of U.S. bonds as they have in the past (though some, like Mish, assert the U.S. would welcome this). The other play I like is the VIX (if you think the market will fall) or against (if you think the market will rise). SVXY has been one of the best plays since 2011 (compare it to the SPY for the same time period).\"", "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": "6a56d2417ee1801a479b4a3cd52bce29", "text": "well, saying: >DJIA went from 6,626.94 in March 6, 2009 to 17,100.18 in July 18, 2014. That's nearly a 200% increase in 5 years. The economy, on the other hand, has not reflected this rise. is disingenuous at best since you're measuring the starting point from the depth of recession, when the stock market was severely undervalued. This is also why many mutual funds boast absolutely ridiculous 5-year yields right now. The Dow hovered around 12,500 for much of 2007~2008, so if you used that as the baseline the index recovered to those levels in the 2nd quarter of 2011. From that point onwards, it's only a 25% increase over 3+ years for an 8% APR, in line with historic values. I'm not gonna get into whether QE is good fiscal policy or not, all I'm saying is the tapering/ending of QE won't result in a full-on reversal like people seem to be expecting.", "title": "" }, { "docid": "25e56af0f5cbdab0fbbef9de4082a0b0", "text": "Hey, you seem like you read a lot about what a quant does on the Internet... I'm guessing zerohedge mostly and maybe some financial pop culture books about the financial crisis. Why don't you leave that out of this discussion as it is pretty misleading. Quants price relative risk and that is important for a number of reasons.", "title": "" }, { "docid": "aa3e84867601957ef5b60a40bf9e86b3", "text": "I would buy an ETF (or maybe a couple) in stable, blue chip companies with a decent yield (~3%) and then I'd play a conservative covered call strategy on the stock selling a new position about once a month. That's just me.", "title": "" }, { "docid": "5ec6f6d74a9946f9c7b7f8f7132d8642", "text": "I guess I wasn't clear. I want to modestly leverage (3-4x) my portfolio using options. I believe long deep-in-the-money calls would be the best way to do this? (Let me know if not.) It's important to me that the covariance matrix from the equity portfolio scales up but doesn't fundamentally change. (I liken it to systemic change as opposed to idiosyncratic change.) This is what I was thinking: * For the same expiry date, find each positions lowest lambda. * Match all option to the the highest of the lowest lambda. * Adjust number of contracts to compensate for higher leverage. I don't think this will work because if I matched the lowest lambda of options on bond etfs to my equity options they would be out-of-the-money. By the way, thanks for your time.", "title": "" }, { "docid": "5407caa3fdeeb0f1d6e7832883cd83cf", "text": "> ES_F June today the most recent 5 min bar has 809 volume. while the september has 10616 volume on the same bar. on my rolled over contract, the ratio based adjustment has happened last week (9 bus days prior to expiration) > 1. Commision p/l should be subtracted as actual actual. absolutely BUT, initially, it is interesting to see if there's a good positive bias in the strategy. then we check whether comm/slippage eats it all. if so we try to play it in an index/etf whatever that charges less c&s/. agree ?", "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": "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": "438b91c98be455e4df5330943498f0be", "text": "You mean in response to OP? Investors should buy physical gold and silver, and wait out the storm. The US Bond market is negative when you factor in inflation, that's a bubble that's going to burst eventually. Riding the gold horse will keep you high and dry. But if you mean in response to Fearan? I would say that the way to reduce income inequality is to stop all the market distortions and malinvestment due to regulations. The countries with the most income disparity are the ones with the most regulations.", "title": "" }, { "docid": "71d4eaabfa6cca5b056b6598546fa4da", "text": ">If we are looking to offset risk in location A where we are not able to buy forward with location W, and they are the same commodity is this even a common practice in risk management? Let me prephase this by saying I don't do work directly in this area, but sometimes I analyze what's happening in less liquid markets compared to more liquid markets in various commodities to get a better sense of the supply and demand dynamics of the market. It's normal - but just looking at the ratios - it looks like the spread is quite volatile - it looks like the price at location W went from trading at 130% of location A to 170% of the price at location A. (I also don't use R so I don't know which time period was the start and which was the end) What moved in one direction can definitely reverse. If you don't know what is driving this movement in the spread then adding the hedge could be riskier than not having any hedge on. And there are scenarios where the price of the commodity you want to buy at location A is going to rise towards the price at liquid location W and if you are unable to buy it and store it then there isn't much you can do to hedge your company's exposure.", "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": "" }, { "docid": "f37a9a8ab361e1370dd314922cfb9b84", "text": "My current strategy is long equity in blue chips with limited growth but large profits... Some call that value investing. GM, AAPL, BRK.B have done very well for me. VZ is a notable straggler. Regardless, my overall positions have grown considerably :) Not a fan of shorting... but TSLA would be my short of choice since it is very expensive to short SHLD.", "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": "b07522b3d0b8010ac5cf189a043fcddf", "text": "so... asset price inflation decoupled from fundamentals (thank you QE) along with rise in ETF (notorious depressant on volatility) means options trader are underestimating volatility? Who calculates the daily spreads between HV and IV, anyone? Im new to this.", "title": "" }, { "docid": "9bb216e708d26faa93e7635a4783e22b", "text": "Well, if you are going long on a future option, you would not have to risk as much capital. I am interested in commodities, but I want to trade it more conservatively. But I do want to learn about them before I dive in, just so there are no surprises.", "title": "" }, { "docid": "a9fce735a06d3dd36302147dbd99a66d", "text": "It depends and I would not just jump into conclusion as I have seen cases where offering some services are not U.S. sourced income. I'll advise you speak with a knowledgeable tax professional.", "title": "" } ]	fiqa
28c2d565ce53f132391ffb9d8ffee59d	Does a stay at home mom need term life insurance?	[ { "docid": "ece1010f6a16b8f0d8df6ae8138d3a7d", "text": "The way to think about this is: what would happen to the family if stay-at-home Mom were to die. You obviously can't do anything about the loss, grief and trauma, but think about the financial implications. Assuming that Dad continues to work, and that the child is young, you are going to have to find someone to take care of him/her. If you have relatives willing to step in, that may be fine. but if not you will have to pay for daycare - an expense you don't now have. That's going to get less as the child goes to school, but not go away until he/she is old enough to look after themselves. Bringing up a child, as well as working a full time job, is pretty demanding. You may find that you don't have as much time for cleaning the house, cooking or other chores. Having a sum of money which can be used to hire help or pay for a few meals out can be very useful in these cases. Here is an article which places a value on the work done by a stay-at-home Mom. You might not need to pay for all of those services, but it gives you an idea of what the extra expenses might be. Think about what extra money you might need to spend, and arrange for life insurance to cover it.", "title": "" }, { "docid": "b1eea7c8c7a4e954533912a071fb2bc8", "text": "Absolutely! Just because a spouse doesn't have a taxable income, doesn't mean they aren't providing real, tangible benefit to the family economy with an important job. As tragic as it is to consider losing your spouse, are you truly in a position to replace everything they do you for you? Knowing what they do for you and appreciating the effort your spouse gives is important, but don't sell short the dollar amount of what they provide. Your life insurance policy should be to keep you whole. Without your spouse, you will need childcare. You might need domestic services to the home. What about a nanny or similar service? Would $50K cover that until your child is an adult? There are a number of added expenses in the short and long term that would occur if a spouse died. How much for a funeral? Obviously you know the amount and term depends on the age of your kid. But I think you should really try to account for the number of daily hours you spouse puts in, and try to attach a cost to those hours. Then buy insurance for them just as you would for a wage earning. For example, buy a policy that is 10x the annual cost for services it would take to compensate for your spouse. Your tolerance for risk and cost can adjust it up and down from there.", "title": "" }, { "docid": "b7413b64dd84b48bcc6de3cb284dff30", "text": "We asked the same question earlier this year as my wife is a SAHM with 2 young boys (5 and under). If something happened to her I'd have to quit work or change careers to stay home to raise them or something. We ended up getting a decent 20 year level TERM policy that will cover the care of both boys for many of their younger years. The cost is negligible but the piece of mind is priceless.", "title": "" }, { "docid": "3ff7148e192db7fe47dfe1f25883aeec", "text": "Another source of insurance can be through the working spouses employment. Some companies do provide free or low cost coverage for spouses without a need for a physical exam. The risk is that it might not be available at the amount you want, and that if the main spouse switches companies it might not be available with the new employer. A plus is that if there is a cost it is only a one year commitment. Term insurance is the way to go. It is simple to purchase, and not complex to understand. Sizing is key. You may need to provide some level of coverage until the youngest child is in high school or college. Of course the youngest child might not have been born yet. The longer the term, the higher the cost to account for the inflation during the period of the insurance. If the term expires, but the need still exists, it is possible to get another policy but the cost of the new term policy will be higher because the insured is older. If there are special needs children involved the amount and length may need to be increased due to the increased costs and duration of need. Don't forget to periodically review the insurance situation to make sure your need haven't changed so much a new level of insurance would be needed.", "title": "" } ]	[ { "docid": "7610a43443e148a699c9b0643eb86a56", "text": "\"First, I'm really sorry to hear about your mother. My wife was recently diagnosed with Stage 4 cancer, so I know that there is a possibility that your mind is in \"\"survival\"\" mode, trying to preserve as much as you can in the way of things that you can effect (that's how I've been feeling recently). Having a loved one with cancer is really tough because there is absolutely, positively nothing tangible that you can do to change the fact that they have cancer. You will have to ask yourself some questions: How important is it that your mom can stay in her house? Moving could add some unneeded stress. How may years have you been contributing to your 401k? If you have 30 years left, you could have enough time to recover some of your losses from reducing the amount of money you have given up for your mom. Will your mom be able to pay you back for paying the taxes over time, or would this be a 'gift'? Have her doctors told her that she \"\"... has N months left...\"\"? What is the next step after you are able to pay her taxes and save the house? Someone close to me recently told me that \"\"There is no point in trying to save for someone for the future, if you can't sustain them until they get to that future. What will happen to your mom if she loses her house? Will it make it easier or harder for her to recover if she can stay? To paraphrase someone famous, \"\"you can't take a loan out for your retirement, but you could take a loan out for this event.\"\" At any rate, good luck. My thoughts are with you and your mother.\"", "title": "" }, { "docid": "b788b4cbe7182a402691ecdc663659b5", "text": "\"If I was in your shoes I would have some term insurance, and it is pretty darn cheap at your age. Your wife is dependent upon your income, and it will take sometime to transition from non-working to working. As she could probably get a job doing anything, it will probably take many years to build up to the lifestyle she is accustomed. She may never be able to obtain your salary. While she could spend down the amount you two have saved up for retirement, tax will have to be paid on any non-ROTH contributions. The decisions for this have to be made within a year of death and are not easy. I would not want to put my spouse through this. Plus some day she would have to retire. If she spends down a significant portion of the savings you have built, well that will need to be replenished and you probably know time is not on one's side when it comes to compounding. Do you have to have 10x-15x times your earnings in insurance? No. Do you need to do a 20 year level term, No. Perhaps a 10 year level term for like 5x your income. Just something to \"\"bridge the gap\"\". If you live, you will be much better off financially, and could probably drop the coverage. If you don't you will not leave her sad and with difficult financial decisions; just sad.\"", "title": "" }, { "docid": "730ad7c986ba008c4a3dfbaf3aed190d", "text": "At their age, the likely did not even need the coverage anymore unless they were doing some major estate planning. If that's the case then it sound like they purchased the wrong policy to begin with since OP's account of the information makes it sound like a term policy. If it is a term policy, the term was also probably about to end as well. In the end, this will likely not be a bog deal.", "title": "" }, { "docid": "1176912da74cf1b97a8f7dcf90586010", "text": "\"I have an answer and a few comments. Back to the basics: Insurance is purchased to provide protection in case of a loss. It sounds as though you are doing well, from a financial perspective. If you have $0 of financial obligations (loans, mortgages, credit cards, etc.) and you are comfortable with the amount that would be passed on to your heirs, then you DO NOT NEED LIFE INSURANCE. Life insurance is PROTECTION for your heirs so that they can pay off debts and pay for necessities, if you are the \"\"bread-winner\"\" and your assets won't be enough. That's all. Life insurance should never be viewed as an investment vehicle. Some policies allow you to invest in funds of your choosing, but the fees charged by the insurance company are usually high. Higher than you might find elsewhere. To answer your other question: I think NY Life is a great life insurance company. They are a mutual company, which is better in my opinion than a stock company because they are okay with holding extra capital. This means they are more likely to have the money to pay all of their claims in a specific period, which shows in their ratings: http://www.newyorklife.com/about/what-rating-agencies-say Whereas public companies will yield a lower return to their stock holders if they are just sitting on additional capital and not paying it back to their stock holders.\"", "title": "" }, { "docid": "53bdf838a2709ffdd535c342eae41bdc", "text": "Term life insurance makes sense if you will have a need for money if someone dies. If you (and your brothers) do not have enough money currently for a proper burial for your father, then you might consider term insurance to cover this. If you already have the money to cover this (or can save for it in a short amount of time), then you are better off financially to not purchase the insurance. Estimate what you think it will cost for a burial, then determine if you have this money available to you. If you already do, then don't purchase the insurance. If you do not have this money available to you, then you can look into a term life insurance policy on your father. You definitely do not want a whole life insurance policy. This will cost many more times what a term policy costs. A term policy is a policy with an expiration date. For example, let's say that you determine that you will need $10,000 when your father dies for the funeral and burial. You could get a 10-year policy on your father for $10,000. Over the next 10 years, besides paying your premiums, save up $10,000 ($1,000 each year) in some type of savings/investing account. Hopefully, your father will still be around 10 years from now, and you won't need the insurance policy anymore, because you will have saved enough to cover the costs when the time comes. Doing this will almost always cost you less than getting a whole life policy, which never expires, but has much higher premiums. There are also 20-year term policies, which will cost more, but will give you more time to save up your fund. The costs for these policies depend on your father's age, so get a quote for both and decide what will work for you.", "title": "" }, { "docid": "e7949ba4d3c415a4fd358bc2b44ce02d", "text": "I've had many home loans, and all have been sold to a big bank. They have certain rules about how much insurance you need to have, but I've never had one buy insurance on my behalf - they always send letters telling me I need to increase the insurance. They do say that if I don't get enough insurance, they will do it for me, but this has never been necessary.", "title": "" }, { "docid": "4d31afb23d1362c3d8ae5cbc15fb6ac4", "text": "As Mhoran stated, no dependents, no need. Even with dependants, insurance is to cover those who would otherwise have a hardship. Once the kids are off to college and house paid for, the need drops dramatically. There are some rather complex uses for insurance when estates are large but potentially illiquid. Clearly this doesn't apply to you.", "title": "" }, { "docid": "619411647736891896ac3c26e0bed10c", "text": "\"This article has a section titled \"\"Do you need an umbrella policy to cover your personal liability risks?\"\" that says: If you have young children, for example, you might need a policy because they have lots of friends. These little tikes might get into some mischief and hurt themselves at your home. If so, you’re at risk of being sued. Do you have people over often? Do you drive like a maniac or a Parisian? Do you have firearms on your premises? Do you have gardeners and housekeepers on the grounds? All these are reasons why you might want to own an umbrella policy. Although many people in the US are homeowners, parents, drivers, etc., not everyone falls into these categories. For some people, as low as the premiums for such a policy might be, the expected cost outweighs the expected benefit. The cost of a lawsuit may be extremely high, but someone may feel that the chance of a lawsuit being filed against them is low enough to be safely ignored and not worth insuring against. I'm probably not a great example, but I'll use my own situation anyway. Even though a liability policy probably wouldn't cost me too much, I'm almost certain that I wouldn't derive any benefit from it. I live alone without children (or firearms, pet tigers, gardeners, etc.) in a 520 sq. ft. apartment, so the probability that something bad would happen to someone on the small bit of property that I rent and that they would file a sizable lawsuit against me is small enough that I choose to ignore it.\"", "title": "" }, { "docid": "78808e9dd52b33e6f3993f320dd9e810", "text": "Higher life insurance. Mortgage insurance is a very expensive decreasing term life insurance policy, that pays the Lender. You can likely increase your limits for less cost, AND, the payout doesn't depreciate every month, AND, your beneficiary can use the money any way they want - to buy food, or pay property taxes, or whatever.", "title": "" }, { "docid": "9f2487f643a187dfc1e4bd144bd1b541", "text": "If the child can take over the life insurance when they wish to get a mortgage or have their own children, there may be a case for buying insurance for the child in the event that your child's health is not good enough for them to get cover at that time. However I don’t think this type of insurance is worth having.", "title": "" }, { "docid": "53565154111376f435af2c4d8b50d458", "text": "As you say life insurance is about covering the loss of income, so unless your child is an actor or musical prodigy or similar and already earning money, there is no income to cover, and in fact you would have less of a financial commitment without a child to provide for. The other angle is that child life insurance is cheap and they'll have lower premiums than an adult. I'll quote the referenced article directly to address that: Another ploy is that children's life insurance is cheap. It is inexpensive compared to adult life insurance because, plain and simply, children rarely die. While the numbers that the sales agent puts together may make children's life insurance sound like a great deal, take the time to run what you'd have if you instead invested the exact same amount used on the insurance fees into a Roth IRA and you'll find the true cost of purchasing this type of life insurance.", "title": "" }, { "docid": "9b1e77a88b909b572416ca954b39460a", "text": "For most people Term is the way to go. I consider life insurance a necessity not an investment. See this article on SmartMoney.", "title": "" }, { "docid": "faf771838eccce369d94d11fa1701ebc", "text": "\"The problem above is actually a pretty good list of the concerns around life insurance. While there is no correct answer to the question as posed, this will vary among different WSCs, there is a simpler way to think about insurance in general that may make finding what is right answer for you easier. Buying life insurance, like almost all insurance, is on average a money losing purchase. This is simply because the companies selling wouldn't offer it if they couldn't expect to make money on it. Think about buying insurance (a warranty) on a new cell phone, maybe if you are particularly prone to damaging cell phones it can be in your favor, but for most of the people that buy it will lose money on average. People, of course, still buy insurance anyway to protect themselves from unlikely but very bad consequences. The big reason to make this trade off is if the loss will have big lasting consequences. To stay with our cell phone example having to replace a cell phone, at least for me, would be annoying but not a catastrophic event. For myself, the protection is not worth the warranty cost, but that is not true for everyone. Life insurance is a pretty extreme case of this, but I find the best question to ask is \"\"if you (you and your spouse) were to die will your dependents lives become so much worse that you really dislike the idea of not being insured?\"\" For some working seniors, they already have enough saved to bridge their kids/spouse to adulthood/old-age that insurance makes no sense. For some, their children/husband/wife would be destitute and insurance is an obvious choice and an easy price to pay even if it is very high. The example you suggest seems on the border and good questions to ask are: Thinking about those questions may help you understand if the protection offers is worth the cost.\"", "title": "" }, { "docid": "e7c606e17d41f33ef5ca789b461f6c8b", "text": "(Disclosure - I am a real estate agent, involved with houses to buy/sell, but much activity in rentals) I got a call from a man and his wife looking for an apartment. He introduced itself, described what they were looking for, and then suggested I google his name. He said I'd find that a few weeks back, his house burned to the ground and he had no insurance. He didn't have enough savings to rebuild, and besides needing an apartment, had a building lot to sell. Insurance against theft may not be at the top of your list. Don't keep any cash, and keep your possessions to a minimum. But a house needs insurance for a bank to give you a mortgage. Once paid off, you have no legal obligation, but are playing a dangerous game. You are right, it's an odds game. If the cost of insurance is .5% the house value and the chance of it burning down is 1 in 300 (I made this up) you are simply betting it won't be yours that burns down. Given that for most people, a paid off house is their largest asset, more value that all other savings combined, it's a risk most would prefer not to take. Life insurance is a different matter. A person with no dependents has no need for insurance. For those who are married (or have a loved one), or for parents, insurance is intended to help survivors bridge the gap for that lost income. The 10-20 times income value for insurance is just a recommendation, whose need fades away as one approaches independence. I don't believe in insurance as an investment vehicle, so this answer is talking strictly term.", "title": "" }, { "docid": "48c24049376a347959f8f744d9e66517", "text": "Bond ETFs are traded like normal stock. It just so happens to be that the underlying fund (for which you own shares) is invested in bonds. Such funds will typically own many bonds and have them laddered so that they are constantly maturing. Such funds may also trade bonds on the OTC market. Note that with bond ETFs you're able to lose money as well as gain depending on the situation with the bond market. The issuer of the bond does not need to default in order for this to happen. The value of a bond (and thus the value of the bond fund which holds the bonds) is, much like a stock, determined based on factors like supply/demand, interest rates, credit ratings, news, etc.", "title": "" } ]	fiqa
c304041b13e01ed79da2d46bb48cd8bd	Clarification of Inflation according to Forbes	[ { "docid": "2df67d91e2c1c9ae4457d083be5beb0c", "text": "I think you're missing Simon Moore's point. His point is that, due to low inflation, the returns on almost all asset classes should be less than they have been historically, so we shouldn't rebalance our portfolio or withdraw from the market and hold cash based on the assumption that stocks (or any other asset) seem to be underperforming relative to historical trends. His last paragraph is written in case someone might misunderstand him, he is not advocating to hold cash, just that investors should not expect as good returns as has happened historically, since those happened in higher inflation environments. To explain: If the inflation rate historically has been 5% and now it's 2%, and the risk-free-market return should be about 2%, then historically the return on a risk-free asset would be 7% (2%+5%), and now it should be expected to be 4% (2%+2%). So, if you have had a portfolio over some time you might be concerned that the rate of return is worsening, but Simon's point is that before you sell off your stocks / switch investment brokers, you should try to figure out if inflation is the cause of the performance loss. On the subject of cash: cash always loses value over time from inflation, since inflation is a measure of the increase in prices over time-- it's a part of the definition of what inflation is. That said, cash holdings lose value more slowly when inflation is lower, so they are relatively less worse than before. The future value of cash doesn't go up in low inflation (you'd need deflation for that), it just decreases at a lower rate, that is, it becomes less expensive to hold- but there still is a price. As an addendum, unless a completely new economic paradigm is adopted by world leaders, we will always see cash holdings decrease in value over time, since modern economics holds that deflation is one of the worst things that can happen to an economy.", "title": "" }, { "docid": "340b75b1e37eecd052b891c6d5bbe629", "text": "Inflation can be a misleading indicator. Partly because it is not measured as a function of the change in prices of everything in the economy, just the basket of goods deemed essential. The other problem is that several things operate on it, the supply of money, the total quantity of goods being exchanged, and the supply of credit. Because the supply of goods divides - as more stuff is available prices drop - it's not possible to know purely from the price level, if prices are rising because there's an actual shortage (say a crop failure), or simply monetary expansion. At this point it also helps to know that the total money supply of the USA (as measured by total quantity of money in bank deposits) doubles every 10 years, and has done that consistently since the 1970's. USA Total Bank Deposits So I would say Simon Moore manages to be right for the wrong reasons. Despite low inflation, cash holdings are being proportionally devalued as the money supply increases. Most of the increase, is going into the stock market. However, since shares aren't included in the measures of inflation, then it doesn't influence the inflation rate. Still, if you look at the quantity of shares your money will buy now, as opposed to 5 years ago, it's clear that the value of your money has dropped substantially. The joker in the pack is the influence of the credit supply on the price level.", "title": "" } ]	[ { "docid": "fbdea9ba5d1fc8a54ba6589926fb9783", "text": "Well, there are also cases where inflation actually helps you, individually, as a consumer. For example, if you have a mortgage or any other debt, debtors benefit from the value of a dollar today decreasing tomorrow. In a very general sense, psychologically you want to avoid deflationary periods as well as it tends to seize up an economy (why would I spend a dollar today if it will be worth more tomorrow?). Sure, the absolute value of a dollar decreases over time, but this is intentionally designed to diminish the value of hoarding cash today. Standard income should rise approximately with the rate of inflation, so from an absolute purchasing power standpoint you should remain approximately neutral.", "title": "" }, { "docid": "c8190e9108a05fa2ddb5fed8c8ec55ac", "text": "It's rather evident that, despite the nay-sayers, food prices will go down due to this deal. Amazon is laser-focused on two things: making things cheaper and getting things to you faster. They've developed/ are developing a strong base of knowledge and development in machine learning, robotics, and blockchain, which would greatly facilitate these two tasks. However, as stated in the article, this will not have a significant effect on inflation due to the fact that the economy makes up for it in other respects (cough rising tuition and oil prices cough). It's interesting to note that food inflation was warned against by several experts within the past two years but this deal might change that (see: https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings.aspx ).", "title": "" }, { "docid": "bf829122e170703d3f940567433dc3fb", "text": "But has inflation went up ? The only reason jobs would be lost would be if the cities economy couldn't absorb the inflation . Since you are now increasing the incomes of every one at the bottom , the city will likely be able to absorb the inflation . The question really is have the people at the bottom increased there spending power over all and have there been winners and losers for example maybe servers are doing better but retirees and others on a fixed income worse .", "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": "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": "1b48c02108fbceb137c649caea9a0cc0", "text": "Yes, asset inflation is still inflation. Economy = consumption + investment + government - net exports. So you increase the money supply to the wealthy what happens? Not in increase in consumption, their basic needs are met so they invest it. Everyone invests their extra money, what happens? Price goes up for stock and real estate while the yield on those investments goes down. You have people buying really expensive assets with great leverage because their is no alternative. So inflation has increased, you are just to poor to notice it. We also live on a deflationary world. Production increases while demand remains constant. So what happens? Price goes down and marginal companies go out of business. Leading to more consolidation, lower prices due to greater market share, more companies cannot compete and the cycle continues. The only inflation comes from overseas, where you have growing economies. Here we have almost no population or wage growth, so that is deflationary .", "title": "" }, { "docid": "875ce063881a862e69df58e822d3e536", "text": "\"I knew before I clicked that this was going to refer to Saez. I don't mean to disparage his scholarship, but he's clearly a guy with an agenda. For example, the reason this number is so outrageous is because 2010 was a terrific year for the stock market, and a middling to bad year for employment and wage growth. Stocks tend to be a leading indicator, while job growth is a trailing one. In fact, Saez also tries to make hay by comparing the first two years of this \"\"recovery\"\" with the entirety of the (much longer) '90's and '00's booms. If you target your analysis at years when the market has recovered but jobs haven't, of course you'll see greater income gains for the investor class. But by that same token, Saez could have been putting out press releases for studies in 2008 showing how the rich were getting absolutely screwed by losing the lion's share of their income as the market tanked, while ordinary folks were perhaps losing only a little because the full force of job losses hadn't hit yet. But he didn't, AFAIK.\"", "title": "" }, { "docid": "f5cb701b6cfca2174077ccca271b9fb1", "text": "let's define inflation as an increase in m1 relative to the goods and services in the dollar economy. twist doesn't change m1 because it is sterilized. it does make tsys attractive since it supports their prices. that means de-risking flows are to the u.s. that means dollar goes up. that means gold goes down.", "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": "78e3adf89767e6d8654774c49cb9b1f2", "text": "There are two things you need to keep in mind when you look at Inflation as an entity. Inflation is necessary to keep in check the value of goods. As per Moore's Law for example, a mobile phone that you buy for £100 today will be available for £50 in two years. With increased purchasing power, one needs to maintain balance between the purchasing power and its value. If you think about the 'loss' at a rate of 2% you would have £96.04 (in terms of today's value) in two years. But if you looked at the same cell phone as leverage for your business where it allowed you to do work and earn £1000 in two years - the investment would clearly offset the cost of inflation. Inflation is incentive for people to spend their money. If you for example spent all of your £100 today, it is £100 income for someone else. He has further incentive to spend it creating a chain of transactions. In theory while this is a true mathematical loss, the increasing purchasing power helps you leverage your financial asset to get a return on your investment.", "title": "" }, { "docid": "1407a11a1bfd45195cc54d12195ad9d1", "text": "\"In that example, \"\"creating money\"\" could be used interchangeably with \"\"making promises\"\". There's no inflation, and no problem, so long as everyone keeps their promises. Which sounds like a horrifying thing to say about the foundations of the economy, but the remarkable thing is that people mostly do.\"", "title": "" }, { "docid": "7a53c5f4ce1cf486607686d161248249", "text": "\"The official source is the most recent Form 13F that Berkshire Hathaway, which is filed with the Securities & Exchange Commission on a quarterly basis . You can find it through the SEC filing search engine, using BRKA as the ticker symbol. and then looking for the filings marked 13-FR or 13-FR/A (the \"\"/A\"\" indicates an amended filing). As you can see by looking at the 13-F filed for the quarter ending September 30 , the document isn't pretty or necessarily easy to read, hence the popularity of sites such as those that Chad linked to. It is, though, the truly official source from which websites tracking the Berkshire Hathaway portfolio derive their information.\"", "title": "" }, { "docid": "f791ea47391e980f4185fbb60046f1e9", "text": "Assuming constant velocity, inflation is caused by the difference between the growth in the money supply and growth in real output. In other words, this means that the money supply growing faster than output is expanding causes inflation to arise.", "title": "" }, { "docid": "dfafcc92da76fa7f7ae4390603830f17", "text": "There is inflation, but it's hidden through various mechanisms. What do you call housing price increases and wage declines? What do you call the fed essentially paying down the inflation with free money and prices still pressuring upwards? I get the sense there is a great underlying pressure for inflation to burst out from the fed's free money pressure chamber. For all our sake, I really hope the pressure chamber holds or I'm totally wrong in the first place.", "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": "" } ]	fiqa
8eb07199780c492d2e9edf71d6396f39	Buying a foreclosed property	[ { "docid": "c3c977ec4a6f2ce7f1d3adc224bc472f", "text": "\"Usually... I think that's overstating the case. You CAN get a bargain (especially if the place is in not-so-great condition), but not every foreclosure will be a good deal even if it is priced well below its most recently appraised value. As the buyer it's your responsibility to determine whether it's priced well or not, and to decide whether you're willing and able to repair its deficiencies after you buy it. The same's true when purchasing any house; foreclosures just make it more likely that there are problems and (hopefully) wind up being priced to allow for them. I don't know of a single website which lists all foreclosures. Some of the home listing websites do have a \"\"show me foreclosure listings\"\" filter, and I'm sure that the better tools available to real estate agents can select these. But if that's the direction you're interested in going, you should be looking at distressed properties generally, NOT just foreclosures; you may get a better deal, in the long run, by going for the one that has been mechanically maintained but is just plain ugly rather than the one with a pretty skin whose heating system hasn't been serviced for the last decade. Do your homework, shop around, don't fall in love with any one house... all the same rules apply at this end of the spectrum just as strongly as they do in the mid or upper ranges. Perhaps more so. Happy hunting!\"", "title": "" }, { "docid": "f2e9f2153e4460445c24cf7830f14c08", "text": "No, it is not true. It depends on the market, the banks' inventory, the original debt that was owed, etc etc. The banks generally want to recover their money, so in case of underwater properties they may end up hold a property for years until prices bounce back (as it happened during the last crisis when many houses were boarded for months/years until banks put them back on the market hoping to sell at a price that would allow them to recover their losses).", "title": "" }, { "docid": "51b60654625f24fcfb67d8f662cabb41", "text": "That may depend largely in which country you are in, the legislation in that country and the state of the economy and property market (more specifically) at the time of the foreclosure. In Australia, where we do not have non-recourse loans (except in SMSFs) the banks are obliged to recoup as much as possible for the mortgagee, however they would not hold on to the property indefinitely, as that could cause other problems and they have to return the mortgagee portion of the funds back to them (if there is any funds left after the bank takes their portion). In 2008, when the property market here was weak we had bought some foreclosure houses and were able to get them 20% to 25% below what they were selling at the year before. If there was a forclosure in today's strong market in Australia (and especially in Sydney), I dought you would get much of a discount at all. So it may largly depend on the demand and supply at the time of the forclosure.", "title": "" }, { "docid": "47b97f141baea0df9f1827f55502835c", "text": "\"Like most other things, this is \"\"sometimes,\"\" but not always true. Sometimes banks will be willing to sell at a discount, sometimes they will hold out for \"\"full price.\"\" But if you want a discount, this is a good place to \"\"look.\"\"\"", "title": "" } ]	[ { "docid": "4af29a241248699704bf23cf1c31c9ea", "text": "The core competency of banks is to lend money from depositors and re-lend that money to borrowers. They do not have the expertise to develop real estate. They have trouble evening managing foreclosed real estate, such that they have to sell them at a discount.", "title": "" }, { "docid": "bdfc3e853580c00d5da19e51a2631af0", "text": "\"Based on what you asked and your various comments on other answers, this is the first time that you will be making an offer to buy a house, and it seems that the seller is not using a real-estate agent to sell the house, that is, it is what is called a FSBO (for sale by owner) property (and you can learn a lot of about the seller's perspective by visiting fsbo.com). On the other hand, you are a FTB (first-time buyer) and I strongly recommend that you find out about the purchase process by Googling for \"\"first-time home buyer\"\" and reading some of the articles there. But most important, I urge you DO NOT make a written offer to purchase the property until you understand a lot more than you currently do, and a lot more than all the answers here are telling you about making an offer to buy this property. Even when you feel absolutely confident that you understand everything, hire a real-estate lawyer or a real-estate agent to write the actual offer itself (the agent might well use a standard purchase offer form that his company uses, or the State mandates, and just fill in the blanks). Yes, you will need to pay a fee to these people but it is very important for your own protection, and so don't just wing it when making an offer to purchase. As to how much you should offer, it depends on how much you can afford to pay. I will ignore the possibility that you are rich enough that you can pay cash for the purchase and assume that you will, like most people, be needing to get a mortgage loan to buy the house. Most banks prefer not to lend more than 80% of the appraised value of the house, with the balance of the purchase price coming from your personal funds. They will in some cases, loan more than 80% but will usually charge higher interest rate on the loan, require you to pay mortgage insurance, etc. Now, the appraised value is not determined until the bank sends its own appraiser to look at the property, and this does not happen until your bid has been accepted by the seller. What if your bid (say $500K) is much larger than the appraised value $400K on which the bank is willing to lend you only $320K ? Well, you can still proceed with the deal if you have $180K available to make the pay the rest. Or, you can let the deal fall apart if you have made a properly written offer that contains the usual contingency clause that you will be applying for a mortgage of $400K at rate not to exceed x% and that if you can't get a mortgage commitment within y days, the deal is off. Absent such a clause, you will lose the earnest money that you put into escrow for failure to follow through with the contract to purchase for $500K. Making an offer in the same ballpark as the market value lessens the chances of having the deal fall through. Note also that even if the appraised value is $500K, the bank might refuse to lend you $400K if your loan application and credit report suggest that you will have difficulty making the payments on a $400K mortgage. It is a good idea to get a pre-approval from a lender saying that based on the financial information that you have provided, you will likely be approved for a mortgage of $Z (that is, the bank thinks that you can afford the payments on a mortgage of as much as $Z). That way, you have some feel for how much house you can afford, and that should affect what kinds of property you should be bidding on.\"", "title": "" }, { "docid": "de7a838250aa1b7ab38cc453fbfb6214", "text": "\"But look at the bright side. The Home Owners Association is telling your neighbor (for the low low fee of $200 every 4 months) to put his garbage can into his garage after every garbage pickup. Your house is worth a fortune, even if nobody is willing to buy the 12 houses for sale on your block (never mind the fact that they have been for sale for the past 2 years or the fact that nobody is willing to \"\"rent\"\" a place in butt fuck Egypt for $1500 a month).\"", "title": "" }, { "docid": "83c106b9454403695d381986d1c497d6", "text": "Aside from everyone else's explanation about bundling them with other mortgages, a buddy of mine who worked at a boutique lending group basically said that they KNOW these people can't pay the loans back and thus the bank will be able to take over ownership of the home. Since housing prices are guaranteed to go up, they'll be able to make money once they re-sell the property.", "title": "" }, { "docid": "f5ed620bbf35fad3ba097a75207ecd10", "text": "\"There's truth to that, although I'm not sure if the ratio is quite 6 to 1. It IS true that they are processing foreclosures much slower now after the robo-signing fiasco, and also that there is some justification for letting a house stay occupied rather than sit empty. I disagree with your assertion that \"\"smart banks\"\" would dump massive amounts of property at a loss. Selling their inventory quickly would slim their balance sheet (which they been trying to do) and let huge losses flow through their income statement. That's a bad way to achieve a good end, even though the changes are purely accounting and not economic. That's not smart for any business, operating in a vacuum and independent of competition, whether a bank or a retailer. Should GM and Ford sell their backlogs of cars at a massive loss now, just to get rid of the property? There's underlying, economic, intrinsic value. Properties in the biggest bust markets, like LV and Phoenix, are down 2/3rds from the prices around 05/06; one would argue that the prices are so low they fail to make economic sense. Florida was a huge bust market, but today's NY Times (http://www.nytimes.com/2011/12/28/us/miami-courts-free-spending-brazilians.html?_r=1&scp=2&sq=brazil&st=cse) talks about a recovery in property values, fueled by Brazilians. Given that cities like Vancouver and throughout the SF Bay Area have seen property prices recover, in part fueled by foreign purchasers (mostly China, etc) why would a bank not want to hold onto the property until it gets a good price?\"", "title": "" }, { "docid": "e19c9cf8d26bc4722076e8306f5b4ae5", "text": "\"I'm in a similar situation, but I live in a state that doesn't allow mortgagees to \"\"walk away\"\" without recourse. I would consider a short sale or otherwise abandoning the property if: At the end of the day, real estate is an investment, and you don't realize gains or losses until you close the position. The \"\"ra, ra\"\" crowd that thought that real estate was going to boom forever in 2006 was just as wrong as the \"\"bad news bears\"\" crowd that thinks that real estate will never recover either. Investments rise and fall. Many people who bought houses in the 1980's boom (recall the S&L crisis) were underwater for years until prices started rising in the mid-90's. You haven't lost money until you realize that loss.\"", "title": "" }, { "docid": "d35a275785ad334b43d00e02d8ea4291", "text": "\"Just like foreclosing is less than optimal for the banks, a tax sale has drawbacks for the county. At a minimum, there the manpower needed to process the foreclosure and sale, and in many cases the value for which the property can be sold is probably less than the taxes due. The problem is this flies in the face of the \"\"personal responsibility\"\" talking point that many bankers have been spreading since the beginning of the financial crisis. It's a moral failing for a homeowner to walk away from an upside-down mortgage, but when the bank does the same thing for a tax bill it's a simple business decision.\"", "title": "" }, { "docid": "69680bbfebdbbdb0d36fc00477a04d01", "text": "Nearly every state in the US is full-recourse. If one doesn't seek bankruptcy protection, creditors can seek judgement, and collect assets. Foreclosures frequently sell for approximately half the market price. Considering unemployment risk, homes can be risky. A far better way to accumulate wealth is with equities (stocks). However, the risk converts from insolvency to liquidation since during times of high unemployment, equities are also cheap, causing any liquidation used to fund current expenses to be potentially ruinous.", "title": "" }, { "docid": "e0b589d58e89dc2487eaf6e429674240", "text": "\"Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing. However, these are not something \"\"everyone\"\" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand. Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment. Many times \"\"advertised\"\" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told \"\"hey, buy it and you'll be able to rent it out at $900\"\" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent. But all that said - yes, those who can - are snapping.\"", "title": "" }, { "docid": "79ee7e90db2f1e6040e314f243def684", "text": "Not a good idea, the bank is a lean holder unless you deduct the remainder of the loan from the purchase price you will end up paying much more. Tell the seller to pay off the loan and provide you a clean title. Btw unless you're getting the deal of the century I'd walk away until I saw a clean title", "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": "" }, { "docid": "6664eacc798c5f29b3db5551f12efa3c", "text": "I've done this in AZ. It's important to know which lender is foreclosing, because if it's not the most senior one, then your purchase can later be foreclosed. A foreclosure extinguishes all junior interests, but can itself be extinguished by a more senior interest. I may not have the correct terms here but you get the idea. You should also check to be sure property taxes are current. They are probably being paid by the original lender, but it wouldn't hurt to check. Make sure you understand the requirements for participation in the auction. In my case they required that I bring a $10K cashier's check made out to myself. On winning the auction I endorsed the check over to the auction company and had 24hours to come up with the remaining funds in cash. The property I bought had been previously sold at a Sheriff's sale to satisfy a judgment in favor of the Homeowner's Association for delinquent dues. The HOA bought the property at the auction and received a Sheriff's deed. At this point the original owner's possessory interest in the property was extinguished. Nevertheless, the original mortgage and deed of trust were still in place, being senior to the HOA's interest. About a year later the lender foreclosed on the property and I bought it at auction at the courthouse. This had the effect of extinguishing the HOA's interest, a fact that took some explaining to the water utility to get the account in my name :-)", "title": "" }, { "docid": "98f34a740b842b03229ba27120912486", "text": "Both of you sit down with a lawyer who practices in real estate and foreclosures, and hash out every single possibility of what could conceivably go wrong, with nothing out of bounds. Come up with a reasonable and fair plan for resolving each situation, that you are willing to commit to, life and breath, for real, no exit. Put all of it into a legal commitment between you two. However this is a fearless, searching and even ruthless contemplation, requiring a level of intimacy and personal responsibility you may not be comfortable with. and there's absolutely no room for dancing around unspoken questions. So in essence, it puts the hardest stuff up-front. If you put that much thought and honesty into it, you'll probably be OK. But you probably won't want to be that honest, or won't want to do the deal after you do.", "title": "" }, { "docid": "17b2928bee6da11bfcbf89b118b27938", "text": "I'll compare it to a situation that is different, but will involve the same cash flow. Imagine the buyer agrees that you buy only 70% of the house right now, and the remaining 30% in 7 years time. It would be obviously fair to pay 70% of today's value today, pay 30% of a reasonable rent for 7 years (because 30% of the house isn't owned by you), then pay 30% of the value that the house has in 7 years time. 30% of the value in 7 years is the same as 30% of the value today, plus 30% of whatever the house gained in value. Instead you pay 70% of today's value, you pay no rent for the 30% that you don't own, then in 7 years time you pay 30% of today's value, plus 50% of whatever the house gained in value. So you are basically exchanging 30% of seven years rent, plus interest, for 20% of the gain in value over 7 years. Which might be zero. Or might be very little. Or a lot, in which case you are still better off. Obviously you need to set up a bullet proof contract. A lawyer will also tell you what to put into the contract in case the house burns down and can't be rebuilt, or you add an extension to the home which increases the value. And keep in mind that this is a good deal if the house doesn't increase in value, but if the house increases in value a lot, you benefit anyway. A paradoxical situation, where the worse the deal turns out to be after 7 years, the better the result for you. In addition, the relative carries the risk of non-payment, which the bank obviously is not willing to do.", "title": "" }, { "docid": "b3d0df6a5c0e03d978175ab3b73b0c5a", "text": "You can be a co-borrower on the property that your father owns. Some Banks require that you also be part owner of the property, some banks do not require this. You can take a home loan for a new property, normally Banks will ask you of all your current loans [auto/other home/personal/ etc] to determine the amount they will be ready to lend. Edit: The first loan I believe your father already has a property in his name ... your father can apply for Loan against property ... if he does not have sufficient income, then you can guarantee the loan [ie co-sign on the loan, some banks allow this ... however there is no tax benefit on this loan] . The second is the Home Loan for the balance amount that you would get it … Both the loans can be taken from the same Bank, there would be a overall cap as to the amount of loan a Bank would give depending on your income, further the finance for this house will only be to the extent of 80% of the value.", "title": "" } ]	fiqa
54d0a3948cc5316f7811548186525c81	Optimal Asset Allocation	[ { "docid": "8adfee5e74946a3fe31601151914d637", "text": "Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national. It may help if you diversified into other types of products. 2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc. They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns. It's really the ability to limit the risk for the returns - this really translates to limiting the volatility. This may mean that overall your max returns could be lower-- ie: maybe VTSAX gives potential average returns between 3%-11%. A diversified portfolio may give you potential average returns of 5%-9%. A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.", "title": "" }, { "docid": "ab49bc410881ee4bc8e5e5d965482653", "text": "\"There are some good answers about the benefits of diversification, but I'm going to go into what is going on mathematically with what you are attempting. I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities. While there does exist a minimum variance portfolio that is a combination of the two with lower vol than 100% of either individually, this portfolio is not necessarily the portfolio with highest utility under your metric. Your metric includes returns not just volatility/variance so the different returns bias the result away from the min-vol portfolio. Using the utility function: E[x] - .5Asig^2 results in the highest utility of 100% VTSAX. So here the Sharpe ratio (risk adjusted return) of the U.S. portfolio is so much higher than the international portfolio over the period tracked that the loss of returns from adding more international stocks outweigh the lower risk that you would get from both just adding the lower vol international stocks and the diversification effects from having a correlation less than one. The key point in the above is \"\"over the period tracked\"\". When you do this type of analysis you implicitly assume that the returns/risk observed in the past will be similar to the returns/risk in the future. Certainly, if you had invested 100% in the U.S. recently you would have done better than investing in a mix of US/Intl. However, while the risk and correlations of assets can be (somewhat) stable over time relative returns can vary wildly! This uncertainty of future returns is why most people use a diversified portfolio of assets. What is the exact right amount is a very hard question though.\"", "title": "" }, { "docid": "19f504b9aea811dc04900fe99d9f9a1f", "text": "\"There are a couple of reasons to diversify your assets. First, since we cannot predict which of our investments will perform best, we want to \"\"cast our net\"\" broadly enough to have something invested in what's going to be performing well. Second, diversification isn't intended to provide the highest returns, but rather it is used to soften the effects of market volatility. By softening the downsides and lowering the overall volatility among our assets, returns are more consistent. If a model does not address future downside risk it is only telling you part of the story. (Past performance does not guarantee... you get the picture)\"", "title": "" }, { "docid": "ea037e297eea30bc449f3febfb1d4090", "text": "\"When you have multiple assets available and a risk-free asset (cash or borrowing) you will always end up blending them if you have a reasonable objective function. However, you seem to have constrained yourself to 100% investment. Combine that with the fact that you are considering only two assets and you can easily have a solution where only one asset is desired in the portfolio. The fact that you describe the US fund as \"\"dominating\"\" the forign fund indicates that this may be the case for you. Ordinarily diversification benefits the overall portfolio even if one asset \"\"dominates\"\" another but it may not in your special case. Notice that these funds are both already highly diversified, so all you are getting is cross-border diversification by getting more than one. That may be why you are getting the solution you are. I've seen a lot of suggested allocations that have weights similar to what you are using. Finding an optimal portfolio given a vector of expected returns and a covariance matrix is very easy, with some reliable results. Fancy models get pretty much the same kinds of answers as simple ones. However, getting a good covariance matrix is hard and getting a good expected return vector is all but impossible. Unfortunately portfolio results are very sensitive to these inputs. For that reason, most of us use portfolio theory to guide our intuition, but seldom do the math for our own portfolio. In any model you use, your weak link is the expected return and covariance. More sophisticated models don't usually help produce a more reasonable result. For that reason, your original strategy (80-20) sounds pretty good to me. Not sure why you are not diversifying outside of equities, but I suppose you have your reasons.\"", "title": "" } ]	[ { "docid": "668e10003575f88b6ce719c0d39a32af", "text": "I want to mention I've found 2 options for more powerful tools that can be used to manage asset allocation: Advantages/Disadvantages: Vanguard Morningstar X-ray I hope this helps others struggling with asset allocation.", "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": "3bea9e988a1f22d46aa61a5179ca7bf5", "text": "Standard Markowitz's portfolio optimization takes trend into account, not mean reversion. Otherwise, since a portfolio is a linear combination of your individual assets, you could 1st model them separately and than establish a second-layer criteria for weighting. For the 1st layer, mean reversion (as well as trend) of returns can be captured with a ARIMA model, and for the 2nd layer, you could use the Kelly criterion, for instance. A more direct approach to mean-reversion portfolio selection is working with pairs trading. I'm not linking any materials as those topics are plentiful on the web. ...If that's still not the answer you're looking for... The problem with predicting economic cycles is that, they are long, and we hardly have a sufficient measured history to forecast anything reliable. In order to predict the mean reversion of a stock or bond market cycle, you've got to measure their long-term mean first. And there you'll have disagreements right on the start... Some researchers (see Jeremy Siegel) have tried to measure the long-term mean of returns for various asset classes. Some argue that stocks are the long-run winners and that CAPM explains that, but others say that's just questionable, since measurements go just as far as the western countries (US, UK, etc.) have thrived. Other countries have much more recent economic records.", "title": "" }, { "docid": "1bea3acc878bbc52ef38fcc73324835a", "text": "\"An asset allocation formula is useful because it provides a way to manage risk. Rebalancing preserves your asset allocation. The investment risk of a well-diversified portfolio (with a few ETFs or mutual funds in there to get a wide range of stocks, bonds, and international exposure) is mostly proportional to the asset class distribution. If you started out with half-stocks and half-bonds, and stocks surged 100% over the past few years while bonds have stayed flat, then you may be left with (say) 66% stocks and 33% bonds. Your portfolio is now more vulnerable to future stock market drops (the risk associated with stocks). (Most asset allocation recommendations are a little more specific than a stock/bond split, but I'm sure you can get the idea.) Rebalancing can be profitable because it's a formulaic way to enforce you to \"\"buy low, sell high\"\". Massive recessions notwithstanding, usually not everything in your portfolio will rise and fall at the same time, and some are actually negatively correlated (that's one idea behind diversification, anyway). If your stocks have surged, chances are that bonds are cheaper. This doesn't always work (repeatedly transferring money from bonds into stocks while the market was falling in 2008-2009 could have lost you even more money). Also, if you rebalance frequently, you might incur expenses from the trading (depending on what sort of financial instrument you're holding). It may be more effective to simply channel new money into the sector that you're light on, and limit the major rebalancing of the portfolio so that it's just an occasional thing. Talk to your financial adviser. :)\"", "title": "" }, { "docid": "6856197742bcbab76c7f3726f14eda60", "text": "\"Old question I know, but I have some thoughts to share. Your title and question say two different things. \"\"Better off\"\" should mean maximizing your ex-ante utility. Most of your question seems to describe maximizing your expected return, as do the simulation exercises here. Those are two different things because risk is implicitly ignored by what you call \"\"the pure mathematical answer.\"\" The expected return on your investments needs to exceed the cost of your debt because interest you pay is risk-free while your investments are risky. To solve this problem, consider the portfolio problem where paying down debt is the risk-free asset and consider the set of optimal solutions. You will get a capital allocation line between the solution where you put everything into paying down debt and the optimal/tangent portfolio from the set of risky assets. In order to determine where on that line someone is, you must know their utility function and risk parameters. You also must know the parameters of the investable universe, which we don't.\"", "title": "" }, { "docid": "9852216cde5c4e947daed12ed984d1e7", "text": "In answer to your last formulation, no. In a perfectly efficient market, different investors still have different risk tolerances (or utility functions). They're maximizing expected utility, not expected value. The portfolios that maximize expected utility for different risk preferences are different, and thus generally have different expected values. (Look up mean-variance utility for a simple-ish example.) Suppose you have log utility for money, u(x) = log(x), and your choice is to invest all of your money in either the risk-free bond or in the risky bond. In the risky bond, you have a positive probability of losing everything, achieving utility u(0) = -\\infty. Your expected utility after purchase of the risky bond is: Pr(default)u(default) + (1-Pr(default))u(nominalValue). Since u(default)= -\\infty, your expected utility is also negative infinity, and you would never make this investment. Instead you would purchase the risk-free bond. But another person might have linear utility, u(x) = x, and he would be indifferent between the risk-free and risky bonds at the prices you mention above and might therefore purchase some. (In fact you probably would have bid up the price of the risk-free bond, so that the other investor strictly prefers the risky one.) So two different investors' portfolios will have different expected returns, in general, because of their different risk preferences. Risk-averse investors get lower expected value. This should be very intuitive from portfolio theory in general: stocks have higher expected returns, but more variance. Risk-tolerant people can accept more stocks and more variance, risk-averse people purchase less stocks and more bonds. The more general question about risk premia requires an equilibrium price analysis, which requires assumptions about the distribution of risk preferences among other things. Maybe John Cochrane's book would help with that---I don't know anything about financial economics. I would think that in the setup above, if you have positive quantities of these two investor types, the risk-free bond will become more expensive, so that the risky one offers a higher expected return. This is the general thing that happens in portfolio theory. Anyway. I'm not a financial economist or anything. Here's a standard introduction to expected utility theory: http://web.stanford.edu/~jdlevin/Econ%20202/Uncertainty.pdf", "title": "" }, { "docid": "e684c98f04db9a9885cad4ab7319e653", "text": "DCA is not 10%/day over 10 days. If I read the objective correctly, I'd suggest about a 5 year plan. It's difficult to avoid the issue of market timing. And any observation I'd make about the relative valuation of the market would be opinion. By this I mean, some are saying that PE/10 which Nobel prize winner Robert Schiller made well known, if not popular, shows we are pretty high. Others are suggesting the current PE is appropriate given the near zero rate of borrowing. Your income puts long term gains at zero under current tax code. Short term are at your marginal rate. I would caution not to let the tax tail wag the investing dog. The fellow that makes too many buy/sell decisions based on his taxes is likely to lag he who followed his overall allocation goals.", "title": "" }, { "docid": "3d9a087db7ac36a435de1783db63916d", "text": "\"What you are seeking is termed \"\"Alpha\"\", the mispricing in the market. Specifically, Alpha is the price error when compared to the market return and beta of the stock. Modern portfolio theory suggests that a portfolio with good Alpha will maximize profits for a given risk tolerance. The efficient market hypotheses suggests that Alpha is always zero. The EMH also suggests that taxes, human effort and information propagation delays don't exist (i.e. it is wrong). For someone who is right, the best specific answer to your question is presented Ben Graham's book \"\"The Intelligent Investor\"\" (starting on page 280). And even still, that book is better summarized by Warren Buffet (see Berkshire Hathaway Letters to Shareholders). In a great disservice to the geniuses above it can be summarized much further: closely follow the company to estimate its true earnings potential... and ignore the prices the market is quoting. ADDENDUM: And when you have earnings potential, calculate value with: NPV = sum(each income piece/(1+cost of capital)^time) Update: See http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/ \"\"When Charlie Munger and I buy stocks...\"\" for these same ideas right from the horse's mouth\"", "title": "" }, { "docid": "52a68e315eefe0325f56476761a2d3ea", "text": "Over time, fees are a killer. The $65k is a lot of money, of course, but I'd like to know the fees involved. Are you doubling from 1 to 2%? if so, I'd rethink this. Diversification adds value, I agree, but 2%/yr? A very low cost S&P fund will be about .10%, others may go a bit higher. There's little magic in creating the target allocation, no two companies are going to be exactly the same, just in the general ballpark. I'd encourage you to get an idea of what makes sense, and go DIY. I agree 2% slices of some sectors don't add much, don't get carried away with this.", "title": "" }, { "docid": "eca7b08aae740dccd9c59d0ec0679496", "text": "Canadian Couch Potato has an article which is somewhat related. Ask the Spud: Can You Time the Markets? The argument roughly boils down to the following: That said, I didn't follow the advice. I inherited a sum of money, more than I had dealt with before, and I did not feel I was emotionally capable of immediately dumping it into my portfolio (Canadian stocks, US stocks, world stocks, Canadian bonds, all passive indexed mutual funds), and so I decided to add the money into my portfolio over the course of a year, twice a month. The money that I had not yet invested, I put into a money market account. That worked for me because I was purchasing mutual funds with no transaction costs. If you are buying ETFs, this strategy makes less sense. In hindsight, this was not financially prudent; I'd have been financially better off to buy all the mutual funds right at the beginning. But I was satisfied with the tradeoff, knowing that I did not have hindsight and I would have been emotionally hurt had the stock market crashed. There must be research that would prove, based on past performance, the statistically optimal time frame for dollar-cost averaging. However, I strongly suppose that the time frame is rather small, and so I would advise that you either invest the money immediately, or dollar-cost average your investment over the course of the year. This answer is not an ideal answer to your question because it is lacking such a citation.", "title": "" }, { "docid": "43365c974a9498c87b911d593b9ced47", "text": "Mutual Funds are relatively evaluated and this is likely what you want. Your answer is likely the information ratio. If your interested, Active Portfolio Management by Grinold, Kahn is probably a good book to read. That being said, hedge funds will generally have absolute mandates and will be more likely to use a sharpe ratio.", "title": "" }, { "docid": "ec424b8304b09e414879c974e3e7db78", "text": "\"You are conflating two different types of risk here. First, you want to invest money, and presumably you're not looking at the \"\"lowest risk, lowest returns\"\" end of the spectrum. This is an inherently risky activity. Second, you are in a principal-agent relationship with your advisor, and are exposed to the risk of your advisor not maximizing your profits. A lot has been written on principal-agent theory, and while incentive schemes exist, there is no optimal solution. In your case, you hope that your agent will start maximizing your profits if they are 100% correlated with his profits. While this idea is true (at least according to standard economic theory, you could find exceptions in behavioral economics and in reality), it also forces the agent to participate in the first risk. From the point of view of the agent, this does not make sense. He is looking to render services and receive income for it. An agent with integrity is certainly prepared to carry the risk of his own incompetence, just like Apple is prepared to replace your iPhone should it not start one day. But the agent is not prepared to carry additional risks such as the market risk, and should not be compelled to do so. It is your risk, a risk you personally take by deciding to play the investment gamble, and you cannot transfer it to somebody else. Of course, what makes the situation here more difficult than the iPhone example is that market-driven losses cannot be easily distinguished from incompetent-agent losses. So, there is no setup in which you carry the market risk only and your agent carries the incompetence risk only. But as much as you want a solution in which the agent carries all risk, you probably won't find an agent willing to sign such a contract. So you have to simply accept that both the market risk and the incompetence risk are inherent to being an investor. You can try to mitigate your own incompetence by having an advisor invest for you, but then you have to accept the risk of his incompetence. There is no way to depress the total incompetence risk to zero.\"", "title": "" }, { "docid": "dd01dc792e5e107c7aa7065b5a85f17e", "text": "I would read any and all of the John Bogle books. Essentially: We know the market will rise and fall. We just don't know when specifically. For the most part it is impossible to time the market. He would advocate an asset allocation approach to investing. So much to bonds, tbills, S&P500 index, NASDAQ index. In your case you could start out with 10% of your portfolio each in S&P500 and NASDAQ. Had you done that, you would have achieved growth of 17% and 27% respectively. The growth on either one of those funds would have probably dwarfed the growth on the entire rest of your portfolio. BTW 2013 and 2014 were also very good years, with 2015 being mostly flat. In the past you have avoided risk in the market to achieve the detrimental effects of inflation and stagnant money. Don't make the same mistakes going forward.", "title": "" }, { "docid": "cc3b53420f83deaefdcd21bacc9b616d", "text": "Modern portfolio theory has a strong theoretical background and its conclusions on the risk/return trade-off have a lot of good supporting evidence. However, the conclusions it draws need to be used very carefully when thinking about retirement investing. If you were really just trying to just pick the one investment that you would guess would make you the most money in the future then yes, given no other information, the riskiest asset would be the best one. However, for most people the goal retirement investing is to be as sure as possible to retire comfortably. If you were to just invest in a single, very risky asset you may have the highest expected return, but the risk involved would mean there might be a good chance you money may not be there when you need it. Instead, a broad diversified basket of riskier and safer assets leaning more toward the riskier investments when younger and the safer assets when you get closer to retirement tends to be a better fit with most people's retirement goals. This tends to give (on average) more return when you are young and can better deal with the risk, but dials back the risk later in life when your investment portfolio is a majority of your wealth and you can least afford any major swings. This combines the lessons of MPT (diversity, risk/return trade-off) in a clearer way with common goals of retirement. Caveat: Your retirement goals and risk-tolerance may be very different from other peoples'. It is often good to talk to (fee-only) financial planner.", "title": "" }, { "docid": "8966c3b7edd79325543ea051ef2ebe6e", "text": "It looks like there's some confusion about the purchase price and reclaiming VAT. You should pay your supplier the total amount (£10 + VAT in this scenario, so £12) - look for this figure on the invoice or receipt. The supplier doesn't normally expect you to work this out for yourself, so I'd be a little surprised if it's not on there? As Dumbcoder's said, you'd then be able to claim the VAT back from HMRC if you were VAT registered. But seeing as you're not, then you don't need to worry about claiming it. And as for selling the product without VAT, you can (and probably should) increase the unit price to cover the extra cost, otherwise you'll be operating at a loss. Hope this helps!", "title": "" } ]	fiqa
00de32fd55d48a38a9f8beb4dd7c1cee	How to take advantage of record high household debt in Canada?	[ { "docid": "5be0a104f173e9ba6adf44ea52192025", "text": "Some ideas:", "title": "" } ]	[ { "docid": "556d779950d628f3bdb98b63bbbf4757", "text": "If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.", "title": "" }, { "docid": "3ada33136c3e39a4d2c087d8d89a4ef3", "text": "If you are now in a better position to pay your debts, the wise move for your long-term credit is to consolidate any high-interest debt that remains and pay it off as quickly as possible. This may not be possible depending on your situation, but one way to get such consolidation loans is to have a parent with good credit cosign as guarantor on the consolidation loan. The only way your credit will recover is if you establish a good history of payments over the next seven years. Frankly I wouldn't cosign a loan with a family member who made the same decisions you have made, because I wouldn't want to put my own credit at risk, but I might loan the money directly, which would ease the pain for that family member, but it wouldn't help their credit going forward. This may not be a popular opinion, but without any details, it's hard for me to agree that any of your creditors are being greedy when they threaten a judgment. They loaned you the money in good faith, and now you are attempting to negotiate a change of terms. Are they greedy because the interest rates are too high? Maybe you were a bad risk when they loaned the money and the rates reflected the risk of losing some portion of the money. The fact that you are trying to discharge some portion of that debt vindicates any high rates charged.", "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": "a7f7384d35c387d2c34d790377bb93df", "text": "\"This scheme doesn't work, because the combination of corporation tax, even the lower CCPC tax, plus the personal income tax doesn't give you a tax advantage, not on any realistic income I've ever worked it out on anyway. Prior to the 2014 tax year on lower incomes you could scrape a bit of an advantage but the 2013 budget changed the calculation for the tax credit on non-eligible dividends so there shouldn't be an advantage anymore. Moreover if you were to do it this way, by paying corporation tax instead of CPP you aren't eligible for CPP. If you sit with a calculator for long enough you may figure out a way of saving $200 or something small but it's a lot of paperwork for little if any benefit and you wouldn't get CPP. I understand the money multiplier effect described above, but the tax system is designed in a way that it makes more sense to take it as salary and put it in a tax deferred saving account, i.e. an RRSP - so there's no limit on the multiplier effect. Like I said, sit with a calculator - if you're earning a really large amount and are still under the small business limit it may make more sense to use a CCPC, but that is the case regardless of using it as a tax shelter because if you're earning a lot you're probably running a business of some size. The main benefit I think is that if you use a CCPC you can carry forward your losses, but you have to be aware of the definition of an \"\"allowable business investment loss\"\".\"", "title": "" }, { "docid": "6f4bbf70788e0c7639aa06a94221cde8", "text": "\"You have a few options, none of which are trade off free: Apply for a credit card, and live off of that. Here, of course, you will go into debt, and there are minimums to pay. But, it will tide you over. In any case, you are getting unsecured credit, so your rates will probably be very, very high. You don't want to build up a lot of 20% per annum debt. An alternative to this would be to go to any bank and ask for an unsecured loan. Having no income, it will be difficult, though not necessarily impossible, to secure some funds. When I was in between houses, once, for example, I was able to borrow $30,000 in unsecured debt (to help me construct my new house!), just based on my income. Grant you, I paid it 2 months later, in order to avoid the 10% / year interest, but the point is that unsecured debt does exist. Credit Cards are easier to get. Arrange for personal financing through your parents or other relatives. If your parents can send you remittances, the terms will most likely be more generous. They know your credit and your true ability to repay. Just because they send you money doesn't mean you have to live with them. As a parent, I have a stake in ensuring my children's success. If I think that tiding them over briefly is in their best interest and mine, you better be sure I'll do it. A variation on this is Microfinance - something like Kiva. Here, if you can write up a story compelling enough to get finance, there are people who might lend you money. Kiva is normally directed towards poorer countries and entrepeneurs - but local variations exist. UPDATE: Google-backed 'LendingClub.com is far more appropriate to this situation than Kiva. Same general idea, but that's the vendor. Find freelance, contract, or light employment. Your concern about employment is justified - you don't want to be in a position where you are unable to travel to an interview because Starbucks or McDonalds will fire you if you don't show up for a shift. (Then again, do you really care if McDonald's lets you go?) As such, you need to find income that is less bound by schedule. Freelance work, in particular, will give you that freedom - assuming you have a skill you can trade. Likewise, short term contract work is equally flexible - usually. Finally, it may be easiest just to get temporary pickup work in a service capacity. In any event, doing something will be better than doing nothing. Who knows, you might want to be a manager / owner of a McDonalds some day. Wouldn't hurt to say, \"\"I started at the bottom.\"\"\"", "title": "" }, { "docid": "336c242807b2a76919c7656d1e3db6e5", "text": "I see some merit in the other answers, which are all based on the snowball method. However, I would like to present an alternative approach which would be the optimal way in case you have perfect self-control. (Given your amount of debt, most likely you currently do not have perfect self-control, but we will come to that.) The first step is to think about what the minimum amount of emergency funds are that you need and to compare this number with your credit card limit. If your limits are such that your credit cards can still cover potential emergency expenses, use all of the 4000$ to repay the debt on the loan with the higher interest rate. Some answer wrote that Others may disagree as it is more efficient to pay down the 26%er. However, if you pay it all of within the year the difference only comes to $260. This is bad advice because you will probably not pay back the loan within one year. Where would you miraculously obtain 20 000$ for that? Thus, paying back the higher interest loan will save you more money than just 260$. Next, follow @Chris 's advice and refinance your debt under a lower rate. This is much more impactful than choosing the right loan to repay. Make sure to consult with different banks to get the best rate. Reducing your interest rate has utmost priority! From your accumulated debt we can probably infer that you do not have perfect self-control and will be able to minimize your spending/maximize your debt repayments. Thus, you need to incentivize yourself to follow such behavior. A powerful way to do this is to have a family member or very close friend monitor your purchase and saving behavior. If you cannot control yourself, someone else must. It should rather be a a person you trust than the banks you owe money.", "title": "" }, { "docid": "6c8849a352fb9477a84f1711a4dafd30", "text": "\"Two suggestions: I don't know if you have them in South Africa, but here we have some TV reality shows where a credit consultant visits a family that is deeply in debt and advises them on how to get out of it. The advice isn't very sophisticated, but it does show the personal impact on a family and what is likely to happen to them in the future. \"\"All Maxed Out\"\" is the name of the one I remember. \"\"Till Debt Us Do Part\"\" is another, which focusses on married couples and the stress debt puts on a marriage. If you can find a similar one, loan him a few episodes. Alternatively, how about getting him to a professional debt counsellor?\"", "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": "cd09e8a1db0d28c7d37ad2059e0bdf28", "text": "\"I would advise against \"\"wasting\"\" this rare opportunity on mundane things, like by paying off debts or buying toys - You can always pay those from your wages. Plus, you'll inevitably accumulate new debts over time, so debt repayment is an ongoing concern. This large pile of cash allows you to do things you can't ordinarily do, so use the opportunity to invest. Buy a house, then rent it out. Rent an apartment for yourself. The house rent will pay most (maybe all) of the mortgage, plus the mortgage interest is tax-deductible, so you get a lower tax bill. And houses appreciate over time, so that's an added bonus. When you get married, and start a family, you'll have a house ready for you, partially paid off with other people's money.\"", "title": "" }, { "docid": "ab84c1c48204e90c8b1eeb4ce4868857", "text": "It's very simple, line up your debt in the order of interest rate, tax adjusted, and start with the highest rate. Too simple? If knocking off the $7500 loan feels better to you than the fact that you are still paying 9% on $7500 (as part of the $20K) makes you feel bad, just pay off the $7500. I'd rather be ahead $210/yr. (A celebrity advocates the small wins promoting good feelings and encouragement. If that actually works for some, I won't criticize it here) If freeing up the $200/mo payment enables you to do something else that's beneficial, that's another story. I've written how $10,000 of student loan can keep you from qualifying for $30K or more of mortgage. In isolation, highest rate. With the rest of the picture, other advice might be more suitable. Welcome to Money.SE", "title": "" }, { "docid": "4b65a7bc2e4502b2f706e84c5fc12f04", "text": "\"As THEAO suggested, tracking spending is a great start. But how about this - Figure out the payment needed to get to zero debt in a reasonable time, 24 months, perhaps. If that's more than 15% of your income, maybe stretch a tiny bit to 30 months. If it's much less, send 15% to debt until it's paid, then flip the money to savings. From what's left, first budget the \"\"needs,\"\" rent, utilities, etc. Whatever you spend on food, try to cut back 10%. There is no budget for entertainment or clothes. The whole point is one must either live beneath their means, or increase their income. You've seen what can happen when the debt snowballs. In reality, with no debt to service and the savings growing, you'll find a way to prioritize spending. Some months you'll have to choose, dinner out, or a show. I agree with Keith's food bill, $300-$400/mo for 3 of us. Months with a holiday and large guest list throws that off, of course.\"", "title": "" }, { "docid": "0933048f289c21eb3a5c4a85958f3908", "text": "\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \"\"Joe, at what mortgage rate do you pay it off first?\"\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\"", "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": "2f40189b9cd717786307791d9cf438e9", "text": "\"I'd like to see a credible source for \"\"the highest\"\", but it's certainly fairly high. Household debt could be broadly categorized as debt for housing and debt for consumption. Housing prices seem very high compared to equivalent rental income. This is generating a great deal of debt. Keynes(?) said that \"\"if something cannot go on forever, it will stop.\"\" Just when it will stop, and whether it will stop suddenly or gradually is a matter of great interest. Obviously there are huge vested interests, including the large fraction of the population who already own property and do not wish to see it fall. Nobody really knows; my guess would be on a very-long-term plateau in nominal prices and decline in real prices. The Australian stock market is unlike the US: since it's a small country, a lot of the big companies are export-driven, either by directly exporting physical goods (miners, agriculture) or by FDI (property trusts, banks). So a local recession will hurt the stock market, but not across the board. A decline in the value of the Australian dollar would be very good news for some of these companies. Debt for consumption I think is the smaller fraction. Arguably it's driven by a wealth effect of Australia having had a reasonably good crisis with low unemployment and increasing international purchasing power. If this tops out, you'd expect to see reduced earnings for consumer discretionary companies.\"", "title": "" }, { "docid": "51c97062f6e948df006f5fb2e8511fa4", "text": "\"Some very general advice. Lifestyle borrowing is almost always a bad idea. You should limit your borrowing to where it is an investment decision or where it is necessary and avoid it when it is a lifestyle choice. For example, many people need to borrow to have a car/house/education or go without. Also, if you are unemployed for a long period of time and can't find work, charging up the credit cards seems very reasonable. However, for things like entertainment, travel, and other nice-to-haves can easily become a road to crushing debt. If you don't have the cash for these types of things, my suggestion is to put off the purchase until you do. Note: I am not including credit cards that you pay off in full at the end of the month or credit used as a convenience as \"\"borrowing\"\"\"", "title": "" } ]	fiqa
9eb9ea5ce8b57572938b29c034479856	What are the economic benefits of owning a home in the United States?	[ { "docid": "f5d03797d7499736c830449098a393c1", "text": "\"Is all interest on a first time home deductible on taxes? What does that even mean? If I pay $14,000 in taxes will My taxes be $14,000 less. Will my taxable income by that much less? If you use the standard deduction in the US (assuming United States), you will have 0 benefit from a mortgage. If you itemize deductions, then your interest paid (not principal) and your property tax paid is deductible and reduces your income for tax purposes. If your marginal tax rate is 25% and you pay $10000 in interest and property tax, then when you file your taxes, you'll owe (or get a refund) of $2500 (marginal tax rate * (amount of interest + property tax)). I have heard the term \"\"The equity on your home is like a bank\"\". What does that mean? I suppose I could borrow using the equity in my home as collateral? If you pay an extra $500 to your mortgage, then your equity in your house goes up by $500 as well. When you pay down the principal by $500 on a car loan (depreciating asset) you end up with less than $500 in value in the car because the car's value is going down. When you do the same in an appreciating asset, you still have that money available to you though you either need to sell or get a loan to use that money. Are there any other general benefits that would drive me from paying $800 in rent, to owning a house? There are several other benefits. These are a few of the positives, but know that there are many negatives to home ownership and the cost of real estate transactions usually dictate that buying doesn't make sense until you want to stay put for 5-7 years. A shorter duration than that usually are better served by renting. The amount of maintenance on a house you own is almost always under estimated by new home owners.\"", "title": "" }, { "docid": "fd45428a5440e0c854325bd463132338", "text": "Altough this may vary a lot depending on where you live and your actual finance, here what convinced me buying a home instead of renting : Other benefits :", "title": "" }, { "docid": "2c4bc25e5ecf9f7dd4e2a49e2fe716ba", "text": "\"To add to what other have stated, I recently just decided to purchase a home over renting some more, and I'll throw in some of my thoughts about my decision to buy. I closed a couple of weeks ago. Note that I live in Texas, and that I'm not knowledgeable in real estate other than what I learned from my experiences in the area when I am located. It depends on the market and location. You have to compare what renting will get you for the money vs what buying will get you. For me, buying seemed like a better deal overall when just comparing monthly payments. This is including insurance and taxes. You will need to stay at a house that you buy for at least 5-7 years. You first couple years of payments will go almost entirely towards interest. It takes a while to build up equity. If you can pay more towards a mortgage, do it. You need to have money in the bank already to close. The minimum down payment (at least in my area) is 3.5% for an FHA loan. If you put 20% down, you don't need to pay mortgage insurance, which is essentially throwing money away. You will also have add in closing costs. I ended up purchasing a new construction. My monthly payment went up from $1200 to $1600 (after taxes, insurance, etc.), but the house is bigger, newer, more energy efficient, much closer to my work, in a more expensive area, and in a market that is expected to go up in value. I had all of my closing costs (except for the deposit) taken care of by the lender and builder, so all of my closing costs I paid out of pocket went to the deposit (equity, or the \"\"bank\"\"). If I decide to move and need to sell, then I will get a lot (losing some to selling costs and interest) of the money I have put in to the house back out of it when I do sell, and I have the option to put that money towards another house. To sum it all up, I'm not paying a difference in monthly costs because I bought a house. I had my closing costs taking care of and just had to pay the deposit, which goes to equity. I will have to do maintenance myself, but I don't mind fixing what I can fix, and I have a builder's warranties on most things in the house. To really get a good idea of whether you should rent or buy, you need to talk to a Realtor and compare actual costs. It will be more expensive in the short term, but should save you money in the long term.\"", "title": "" }, { "docid": "6ea4d3a923c2639ab701f7799273b1a1", "text": "\"@Alex B already answered the first question. I want to respond to the second and third: I have heard the term \"\"The equity on your home is like a bank\"\". What does that mean? I suppose I could borrow using the equity in my home as collateral? Yes, you can borrow against the equity in your home. What you should keep in mind is that you can only borrow against the amount that you've paid on your house. For example, if you've paid $100,000 against your house, you can then borrow $100,000 (assuming the value hasn't changed). The argument that this is a good deal misses the obvious alternative: If you didn't spend that $100,000 on a house, then you'd still have it and wouldn't need to take out a loan at all. Of course, equity still has value, and you should consider it when doing the cost/benefit analysis, but make sure to compare your equity to savings you could have from renting. Are there any other general benefits that would drive me from paying $800 in rent, to owning a house? Economically: As you'll notice from my parenthetical remarks, this is extremely situational. It might be good to come up with a spreadsheet for your situation, taking all of the costs into account, and see if you end up better or worse. Also, there's nothing wrong with buying a house for non-economic reasons if that's what you want. Just make sure you're aware of the real cost before you do it.\"", "title": "" }, { "docid": "4d79ed55b0385f309f4f2bcdb0342dab", "text": "It is almost a sure thing that the housing market will crash again hugely.For this reason I prefer to own several houses that way when it does no one can ask for their money back and leave me homeless. Current economics suggest a fall of between 40-60% from 2011 prices meaning that if you have bought a house in the last 12 years you can wave bye bye to any and all equity, and this will happen very soon. I recommend saving your money and buying a house outright (like I did 3 times) from someone who has spent 12 years or so paying a mortgage.", "title": "" } ]	[ { "docid": "436d904961c3151d719d57448dbd71e6", "text": "When discussing buying a home I often hear people say they like having a mortgage because they get the benefit of writing off the interest. I assume this is the United States. You need to also consider that many people can take the standard deduction of about $12k for married couples filing jointly, so even if they itemize the interest, it would only make sense to 'write it off' if you are able to itemize deductions greater than the standard deduction: Source: http://www.forbes.com/sites/kellyphillipserb/2013/10/31/irs-announces-2014-tax-brackets-standard-deduction-amounts-and-more/ So some people will input the mortgage interest and other related deductions into the computer only to find out that their itemized deductions don't add up. Where it benefits people sometimes is if they have medical bills which are greater than 10% of their income in addition to the mortgage interest. So it benefits them to itemize. There are other major sources of itemization but medical bills are very common. Other common items are auto registration taxes or interest from student loans. It is going to be situation dependent, but if you are within a few years of paying off the mortgage it would make sense to make micropayments to accelerate the payoff date. If you have 30 years to go, it would make more sense to generate an emergency fund, pay off a car, or save up for other things in life than worry about paying off a mortgage. Take the benefit of deducting the mortgage interest if you can, but I imagine that many people would be surprised to hear that it's not always black and white.", "title": "" }, { "docid": "64be73485e61899b19ee721171c09a53", "text": "Your home (the one you live in) is not an investment. Its an expense/liability/asset, but its something you pay for to use, not invest to grow.", "title": "" }, { "docid": "312a23075af437f9aa40c3b4ea5d8378", "text": "Yeah those are similar numbers to the largest cities in the US. You can buy a house in or near a mid-sized US city for 100K but it would be a very basic house in good not great neighborhood. After the downturn, I bought 2 houses as investments. One I bought for 31,000 USD and after renovations I had 85,000 in it. Sold it for 115,000. The other I bought for $91,000. I still have that one. It rents for $1200/mo and is currently worth maybe $140,000 (3 Bedrooms, 1 full bath, 1 half bath, 1400 sq ft). It is a very safe area but Cincinnati city schools. FYI Cincinnati has a STEM academy that is one of the top public schools in the country but you have to test into that specific school. Those prices just blow me away. I make a very good living plus the investment income and I don't think I could even sort of make the payment on 1.4 million for a shack. Everyone can't be a trust fund baby or a Google millionaire. FYI(2) I joined a Bay Area internet startup back in the day and in the end it got bought up by an ERP company. My stock that I hoped to make millions on got me a $45,000 payday (so a lot better than nothing but in no way buying me a house in the Bay Area)", "title": "" }, { "docid": "12320c79d3ba9bbf18f35e0276e6755a", "text": "\"Prop 13's benefit to \"\"the rich\"\" is incidental and, frankly, minimal. Check out these maps that I grabbed from a title records. I searched for data on single family homes that were purchased (ergo assessed value is based on) between 1900 and 1980. Arbitrary, but it'll do for our purposes. I'd speculate that if I were to have picked 1970 or earlier the number of homes that are assessed at far below market value is negligible relative to the tax base as a whole. Here's Coronado Island: http://imgur.com/572yTZI The peninsula in Newport Beach: http://imgur.com/dFMcrZ1 The San Francisco Bay Area: http://imgur.com/a/NMZz0 And a zoomed in area of the Bay: http://imgur.com/a/NMZz0 If a parcel is outlined in green, it's assessed based on a purchase date prior to 1980. Outlined in white means after 1980. In my eyes, the big takeaway is that the number of homes which were purchased prior to 1980 is minimal. Even in the Bay Area, where the zoomed out view suggests that there's a lot of those homes, when you zoom in and realize how densely populated the area is, not very many homes are assessed on outdated values. (For example, on the Coronado map, the number of homes purchased pre-1980 was 47. Pre-1990 was 179. The search shows a total of 2,859 single family residences in the map area.) You can argue that it's a dumb tax policy, but as social policy, I don't have an issue with it and I'd still contend it's largely negligible. It's a battle that doesn't matter. A skirmish when compared to 1031 Exchanges, basis step ups, the massive decline in personal income taxes for the upper brackets, etc. Our tax policy as a whole is skewed and becoming more regressive (or, to the GOP, fair) all the time. Not entirely unrelated, but I did some research and played with some numbers about income taxes because it's something that interests me. Using this link: https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets/ you can see that $10,000 income in 1950 (which is about $100,000 in 2016 dollars) was taxed (I'm using married filing separately throughout): 20% on the first $2,000 22% from $2,000 to $4,000 26% from $4,000 to $6,000 30% from $6,000 to $8,000 34% from $8,000 to $10,000 The highest marginal tax rate was 91%, which applied to all income over $200,000 (just over $2,000,000 in 2016 dollars). Median household income in 1950 was $3,216. So the median american paid a maximum marginal tax of $22%. If you do the math, our median household pays 20.8% of its income in taxes versus 26.4% for the $10,000 income household. Fast forward to 1970, where our $10,000 CPI adjusts to $15,975 and median household income is now $6,186: 14% on first $500 15% from $500 to $1,000 16% from $1,000 to $1,500 17% from $1,500 to $2,000 19% from $2,000 to $4,000 22% from $4,000 to $6,000 25% from $6,000 to $8,000 The highest marginal tax rate has dropped 23% to 70% from 91% and our median American is paying a maximum marginal tax rate of 25%. Skip forward to 2010, where our $10,000 CPI adjusts to $91,504 and median household income is now $49,445. 10% on the first $8,375 15% from $8,375 to $34,000 24% from $34,000 to $82,400 28% from $82,400 to $171,850 33% from $171,850 to $373,650 35% above that The highest marginal tax rate has dropped another 50% from 70% to 35% and a total of 62% from the 1950 rate. Of course, this is all skewed because the more income you make the better able you are to shelter income from taxes. A family making median income is unlikely to be able to take significant advantage of tax shelters.\"", "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": "9183b4c1428a12698926e2e6ad9e4e91", "text": "A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.", "title": "" }, { "docid": "b291f8354948f68c47bf9b69785c6131", "text": "The financial reasons, beyond simply owning your home outright, are: You're no longer paying interest. Yes, the interest is tax-deductible in the U.S. (though not in Canada), but the tax savings is a percentage of a percentage; if you paid, say, $8000 in interest last year, at the 25% marginal rate you effectively save $2000 off your taxes. But, if you paid off your home and had that $8000 in your pocket, you'd pay the $2000 in taxes but you'd have $6000 left over. Which is the better deal? In Canada, the decision gets even easier; you pay taxes on the interest money either way, so you're either spending the $8000 in interest, lost forever as cost of capital, or on other things. Whatever you're earning is going into your own pocket, not the bank's. Similar to the interest, but also including principal, a home you own outright is a mortgage payment you don't have to make. You can now use that money, principal and interest, for other things. Whether these advantages outweigh those of anything else you could do with a few hundred grand depends primarily on the rate of return. If you got in at the bottom of the mortgage crisis (which is pretty much right now) and got a rate in the 3-4% range, with no MIP or other payment on top, then almost anything you can do with the amount you'd need to pay off a mortgage principal would get you a better rate of return. However, you'll need some market savvy to avoid risks. In most cases when someone has pretty much any debt and a big wad of cash they're considering how to spend, I usually recommend paying off the debt, because that is, in effect, a risk-free way to increase the net rate of return on your total wealth and income. Balancing debt with investments always carries with it the risk that the investment will fail, leaving you stuck with the debt. Paying the debt on the other hand will guarantee that you don't have to pay interest on that outstanding amount anymore, so it's no longer offsetting whatever gains you are making in the market on your savings or future investments.", "title": "" }, { "docid": "01c6706b742d0639d685a8d39313b62e", "text": "According to the tax reform framework, changes to the current tax code would eliminate important provisions, such as the state and local tax deduction, while nearly doubling the standard deduction and eliminating personal and dependency exemptions. NAR believes the result would all but nullify the incentive to purchase a home for most, amounting to a de facto tax increase on homeowners, putting home values across the country at risk and ensuring that only the top 5 percent of Americans have the opportunity to benefit from the mortgage interest deduction. This isn't good and serves no benefit. You would THINK someone with a background in real Estate would know this. It appears not. There would also be a rise in rents as taxes go up.", "title": "" }, { "docid": "1c2ddf482737d372ae1c5fb5ee672551", "text": "\"Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually \"\"loan origination fees\"\" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say \"\"zounds! I lost $20,000 by buying\"\". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period.\"", "title": "" }, { "docid": "1f5070d3b66ae4f427d7b10e483ff131", "text": "\"Goods that are exchanged for financial value, which you can use to increase your own standard of living at the expense of the people importing your goods. What good's a toaster if you spent part of your nest egg to get it? I've been \"\"emphasizing\"\" a bottom line this entire time!\"", "title": "" }, { "docid": "7ba9327c8f024c08fa6c256cf3ec6196", "text": "Which is generally the better option (financially)? Invest. If you can return 7-8% (less than the historical return of the S&P 500) on your money over the course of 25 years this will outperform purchasing personal property. If you WANT to own a house for other reason apart from the financial benefits then buy a house. Will you earn 7-8% on your money, there is a pretty good chance this is no because investors are prone to act emotionally.", "title": "" }, { "docid": "6fb93fa97b82f105f50a9d78e413e00c", "text": "So obviously, realtors are not economists and have a strong bias here. A lot of actual [economists](https://fivethirtyeight.com/features/the-tax-deductions-economists-hate/) think the mortgage deduction is nonsense and doesn't actually promote home ownership. Countries without the deduction have about the same ownership rates as the U.S. Worth noting that this proposal doesn't actually scrap the mortgage deduction, it just makes the standard deduction bigger. Some people will end up better off with the new standard deduction, and those with more expensive homes can keep using the mortgage deduction. This is one of the few proposals coming out of the Republican congress that actually helps poor people more than rich people.", "title": "" }, { "docid": "b13ce3e4a1c377d4ab7c7c98c30d3ebf", "text": "Government purchases of mortgages simply transfers the debt burden from households to the sovereign. Taxes pay sovereign debt (65% of whom are homeowners anyway). No debt has been restructured -- it's now paid via taxes instead of monthly mortgage payments -- and those paying include persons who responsibly avoided housing speculation. The U.S. has a debt-to-GDP ratio just shy of the critical point of 90%. Purchasing $10 trillion in mortgage debt (about a year of GDP) would put the U.S. on an inexorable path towards insolvency and inflation. There are all sorts of other risks (loss of a risk-free asset, moral hazard, nationalization of the housing industry, etc.) but this should make the point clear that it's not a good idea. There are only three ways to reduce debt: 1) default, 2) restructure, or 3) lower the real debt burden by de-valuing currency in which the debt is denominated.", "title": "" }, { "docid": "bac9d17624dca5bf1c7d6d7eb66b7d34", "text": "There is indeed a market for single stock futures, and they have been trading on the OneChicago exchange since 2002. Futures are available in 12,509 individual stocks, according to the exchange's current product listing. One advantage they offer over trading the underlying stock is the significantly higher leverage that is available, combined with the lack of pattern day trader rules that apply to stocks and similar securities. Single stock futures have proven to be something of a regulatory challenge as it has been unclear whether their oversight is the remit of the SEC/FINRA or the CFTC/NFA.", "title": "" }, { "docid": "672067a3a9979708817228320dc670ec", "text": "The trades after that date were Ex-DIV, meaning after 5 pm Dec 12, new trades did not include the shares that were to be spun out. The process is very orderly, no one pays $60 without getting the spinoff, and no one pays $30 but still gets it. The real question is why there's that long delay nearly three weeks to make the spinoff shares available. I don't know. By the way, the stock options are adjusted as well. Someone owning a $50 put isn't suddenly in the money on 12/13. Edit - (I am not a hoarder. I started a fire last night and realized I had a few Barron's in the paper pile) This is how the ABT quote appeared in the 12/24 issue of Barron's. Both the original quote, and the WI (when issued) for the stock less the spin off company.", "title": "" } ]	fiqa
393d5329a36b4fdd26ef2e86b4cc176f	For a mortgage down-payment, what percentage is sensible?	[ { "docid": "b33d90ed50b9465c8401b318e3e86ff2", "text": "\"The typical down-payment was expected to be 20%. The idea being that if one could not save 1/5 of the cost of a house, they were not responsible enough to ensure repayment of the loan. It is hard to say whether this is truly a relevant measure. However, in the absence of other data points, it is pretty decent. It typically requires a fair amount of time to amass that much money and it does demonstrate some restraint. (e.g. it is easily the cost of a decent new car or some other shiny \"\"toy.\"\") Income is not necessarily a good measure, on its own. I am certainly more responsible with my spending when I have less money to spend. (Lately, I have been feeling like my father, scrutinizing every single purchase down to the penny.)\"", "title": "" }, { "docid": "3e67ad87b1c3891b0e9a587976822f66", "text": "In Australia, you will typically be required to pay for mortgage insurance if you borrow more than 80% of the value of the property. Basically this means another ~1% on top of the regular interest rate. So it's in your interests to save until you can at least reach that point. If you can't rent and save at the same time, it suggests your finances may be too stretched for buying now to be a good idea.", "title": "" }, { "docid": "ad9c8354dd526a1f94c6ca1f2ff3a52c", "text": "A bigger down payment is good, because it insulates you from the swings in the real estate market. If you get FHA loan with 3% down and end up being forced to move during a down market, you'll be in a real bind, as you'll need to scrape up some cash or borrow funds to get out of your mortgage.", "title": "" }, { "docid": "a77ce45759fedc4b9142759f19d2ed37", "text": "\"Well hindsight tells us now that by and large, doing 100% borrowing was not the best policy we could have taken. It gets nitpicky, but in the US the traditional 20% is the answer I presently feel comfortable with. It could be a reactionary judgement I am making to the current mess (in which I have formed the opinion that all parties are responsible) and arm-chair quarterbacking \"\"if we had only stuck with the 20% rule, we wouldn't be here right now. The truth is probably much more gray than that, but like all things personal finance it is really up to you. If the law allows 100% financing ask yourself if it really makes sense that a bank would just loan you hundreds of thousands of dollars to live somewhere.\"", "title": "" }, { "docid": "bd4f93a1d7ad2601e1dd0ef443ae9d42", "text": "I think anything from 10% on demonstrates a reasonable ability to save. I would consider ongoing debt level a better indicator than the size of the down payment. It's been my experience that, without exception, there is a direct correlation between a persons use of revolving credit and their ability to manage their money & control their spending. Living in Seattle, I only put 10% down on my first house, but not only have we never missed a payment we have always paid extra and now have about 50% equity after 10 years with a family. Yet it would have taken me another year to save the other 10% during which time I would have burned that amount and 1/2 again in useless rent.", "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": "7a16e7a60d19912d82df48675bb490c6", "text": "\"I second DJClayworth's suggestion to wait and save a larger down-payment. I'll also add: It looks like you neglected to consider CMHC insurance in your calculation. When you buy your first home with less than 20% down, the bank will require you to insure the mortgage. CMHC insurance protects the bank if you default – it does not protect you. But such insurance does make a bank feel better about lending money to people it otherwise wouldn't take a chance on. The kicker is you would be responsible for paying the CMHC insurance that's protecting the bank. The premium is usually added on to the amount borrowed, since a buyer requiring CMHC insurance doesn't, by definition, have enough money up front. The standard CMHC premium for a mortgage with 5% down, or as they would say a \"\"95% Loan-to-Value ratio\"\" is 2.75%. Refer to CMHC's table of premiums here. So, if you had a down-payment of $17,000 to borrow a remaining $323,000 from the bank to buy a $340,000 property, the money you owe the bank would be $331,883 due to the added 2.75% CMHC insurance premium. This added $8883, plus interest, obviously makes the case for buying less compelling. Then, are there other closing costs that haven't been fully considered? One more thing I ought to mention: Have you considered saving a larger down-payment by using an RRSP? There's a significant advantage doing it that way: You can save pre-tax dollars for your down-payment. When it comes time to buy, you'd take advantage of the Home Buyer's Plan (HBP) and get a tax-free loan of your own money from your RRSP. You'd have 15 years to put the money back into your RRSP. Last, after saving a larger downpayment, if you're lucky you may find houses not as expensive when you're ready to buy. I acknowledge this is a speculative statement, and there's a chance houses may actually be more expensive, but there is mounting evidence and opinion that real estate is currently over-valued in Canada. Read here, here, and here.\"", "title": "" }, { "docid": "0f91a9b488625fc14dbb4fe82bc2da20", "text": "\"The optimal down payment is 100%. The only way you would do anything else when you have the cash to buy it outright is to invest the remaining money to get a better return. When you compare investments, you need to take risk into account as well. When you make loan payments, you are getting a risk free return. You can't find a risk-free investment that pays as much as your car loan will be. If you think you can \"\"game the system\"\" by taking a 0% loan, then you will end up paying more for the car, since the financing is baked into the sales [price in those cases (there is no such thing as free money). If you pay cash, you have much more bargaining power. Buy the car outright (negotiating as hard as you can), start saving what you would have been making as a car payment as an emergency fund, and you'll be ahead of the game. For the inflation hedge - you need to find investments that act as an inflation hedge - taking a loan does not \"\"hedge\"\" against inflation since you'll still be paying interest regardless of the inflation rate. The fact that you'll be paying slightly less interest (in \"\"real\"\" terms) does not make it a hedge. To answer the actual question, if your \"\"reinvestment rate\"\" (the return you can get from investing the \"\"borrowed\"\" cash) is less than the interest rate, then the more you put down, the greater your present value (PV). If your reinvestment rate is less than the interest rate, then the less you put down the better (not including risk). When you incorporate risk, though, the additional return is probably not worth the risk. So there is no \"\"optimal\"\" down payment in between those mathematically - it will depend on how much liquid cash you need (knowing that every dollar that you borrow is costing you interest).\"", "title": "" }, { "docid": "d3c9b2dd4b3aa31b34090a78696fb1c8", "text": "Given that you have your emergency fund, and no other high interest rate debts (credit cards, etc.) you will want to put down at least enough to not have to pay Private Mortgage Insurance (PMI). PMI is solely to protect the lender if you default. It has no benefit to you. It generally means that you will need at least 20% down. After that, its a personal decision, depending on what else you are going to do with the money. If you are the type to spend money frivolously if you have it, it might make sense to put as much down as you can. If you think that you can invest the money and over the long-term make more than the historically low mortgage interest rates, it might make sense to invest. One thing to keep in mind is that money that you put into the down-payment is relatively illiquid, meaning that it is hard to turn back into cash. If you have large expenses in the future, like health problems or college for the kids, it might be better to have the money in something easier to turn into cash.", "title": "" }, { "docid": "e0f3195d0e9409f2aa92e1fb02bc0eef", "text": "\"There are actually a few questions you are asking here. I will try and address each individually. Down Payment What you put down can't really be quantified in a dollar amount here. $5k-$10k means nothing. If the house costs $20k then you're putting 50% down. What is relevant is the percent of the purchase price you're putting down. That being said, if you go to purchase a property as an investment property (something you wont be moving into) then you are much more likely to be putting a down payment much closer to 20-25% of the purchase price. However, if you are capable of living in the property for a year (usually the limitation on federal loans) then you can pay much less. Around 3.5% has been my experience. The Process Your plan is sound but I would HIGHLY suggest looking into what it means to be a landlord. This is not a decision to be taken lightly. You need to know the tenant landlord laws in your city AND state. You need to call a tax consultant and speak to them about what you will be charging for rent, and how much you should withhold for taxes. You also should talk to them about what write offs are available for rental properties. \"\"Breaking Even\"\" with rent and a mortgage can also mean loss when tax time comes if you don't account for repairs made. Financing Your first rental property is the hardest to get going (if you don't have experience as a landlord). Most lenders will allow you to use the potential income of a property to qualify for a loan once you have established yourself as a landlord. Prior to that though you need to have enough income to afford the mortgage on your own. So, what that means is that qualifying for a loan is highly related to your debt to income ratio. If your properties are self sustaining and you still work 40 hours a week then your ability to qualify in the future shouldn't be all that impacted. If anything it shows that you are a responsible credit manager. Conclusion I can't stress enough to do YOUR OWN research. Don't go off of what your friends are telling you. People exaggerate to make them seem like they are higher on the socioeconomic ladder then they really are. They also might have chicken little syndrome and try to discourage you from making a really great choice. I run into this all the time. People feel like they can't do something or they're to afraid so you shouldn't be able to either. If you need advice go to a professional or read a book. Good luck!\"", "title": "" }, { "docid": "2c49bd9fd655065c73ebf814a7429ebf", "text": "As I've crunched numbers towards what my family could afford for a down payment (in an area with similar housing costs - don't you hate that high cost of living?), I've come up with the following numbers: We may be missing some area of expenses, but in general I think we are being fairly conservative. You should consider making a similar list to determine your comfort level. Spend some time with an interest calculator to know the serious pain of each dollar you are paying interest on to a lender. Also know that the bigger your down payment, the more likely the seller is to accept your offer. It shows you are serious.", "title": "" }, { "docid": "d0a8dfb3b7af002ee8840658871d052e", "text": "I suggest that you first decide on what %'s of the home value you each have a legal claim to. Then split the mortgage using the same %'s. Then, if someone feels their % is slightly higher, they are compensated because they 'own' a correspondingly higher share of the house. Use the same %'s for downpayments (which may mean that an 'adjustment' payment might be required to bring your initial cash outlay from 70/30 into the %'s that you agree to). Tenant income gets split the same way. Utilities are a bit more difficult - as heating depends more on square feet, but water and hydro depend more on how many people are there. You can try to be really precise about working out the %'s, or just keep it simple by using the same %'s as the mortgage.", "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": "1eb13c9666e53791ca4cf6f61715f852", "text": "\"The (interest bearing) mortgage of £300,000 would be SIX times your salary. That's a ratio that was found in Japan, and (I believe) was a main reason for their depressed economy of the past two decades. Even with an interest free loan of nearly £150,000, it would be a huge gamble for someone of your income. Essentially, you are gambling that 1) your income will \"\"grow\"\" into your mortgage, (and that's counting income from renting part of the property) or 2) the house will rise in value, thereby bailing you out. That was a gamble that many Americans took, and lost, in the past ten years. If you do this, you may be one of the \"\"lucky\"\" ones, you may not, but you are really taking your future in your hands. The American rule of thumb is that your mortgage should be no more than 2.5-3 times income, that is maybe up to £150,000. Perhaps £200,000 if £50,000 or so of that is interest free. But not to the numbers you're talking about.\"", "title": "" }, { "docid": "b1d662b8c52df021205c3ee3346a9c52", "text": "\"I'm going to answer your questions out of order. Emergency fund: Depending on how conservative you are and how much insurance you have, you may want anywhere from 3-12 months of your expenses on hand. I like to keep 6 months worth liquid in a \"\"high-yield\"\" savings account. For your current expenses that would be $24k, but when this transaction completes, you will have a mortgage payment (which usually includes home-owners insurance and property taxes in addition to your other expenses) so a conservative guess might be an additional $3k/month, or a total of $42k for six months of expenses. So $40-$100k for an emergency fund depending on how conservative you are personally. Down payment: You should pay no less than 20% down ($150k) on a loan that size, particularly since you can afford it. My own philosophy is to pay as much as I can and pay the loan off as soon as possible, but there are valid reasons not to do that. If you can get a higher rate of return from that money invested elsewhere you may wish to keep a mortgage longer and invest the other money elsewhere. Mortgage term: A 15-year loan will generally get you the best interest rate available. If you paid $400k down, financing $350k at a 3.5% rate, your payment would be about $2500 on a 15-year loan. That doesn't include property taxes and home-owners insurance, but without knowing precisely where you live, I have no idea whether those would keep you inside the $3000 of additional monthly home expenses I mentioned above when discussing the emergency fund. That's how I would divide it up. I'd also pay more than the $2500 toward the mortgage if I could afford to, though I've always made that decision on a monthly basis when drawing up the budget for the next month.\"", "title": "" }, { "docid": "06fb3d1da7a348d784d4b3b0bf146096", "text": "Risk. That's it. No guarantees on the fund performance, while the mortgage has a guaranteed return of -3%. I'm doing this very thing. Money is cheap, I think it's wise to take advantage of it, assuming your exercise proper risk management.", "title": "" }, { "docid": "a5711d12602cfcbaf9d52c641416cb4d", "text": "\"Fundamentals: Then remember that you want to put 20% or more down in cash, to avoid PMI, and recalculate with thatmajor chunk taken out of your savings. Many banks offer calculators on their websites that can help you run these numbers and figure out how much house a given mortgage can pay for. Remember that the old advice that you should buy the largest house you can afford, or the newer advice about \"\"starter homes\"\", are both questionable in the current market. =========================== Added: If you're willing to settle for a rule-of-thumb first-approximation ballpark estimate: Maximum mortgage payment: Rule of 28. Your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out). Maximum housing cost: Rule of 32. Your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. Maximum Total Debt Service: Rule of 40. Your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. As I said, many banks offer web-based tools that will run these numbers for you. These are rules that the lending industy uses for a quick initial screen of an application. They do not guarantee that you in particular can afford that large a loan, just that it isn't so bad that they won't even look at it. Note that this is all in terms of mortgage paymennts, which means it's also affected by what interest rate you can get, how long a mortgage you're willing to take, and how much you can afford to pull out of your savings. Also, as noted, if you can't put 20% down from savings the bank will hit you for PMI. Standard reminder: Unless you explect to live in the same place for five years or more, buying a house is questionable financially. There is nothing wrong with renting; depending on local housing stock it may be cheaper. Houses come with ongoung costs and hassles rental -- even renting a house -- doesn't. Buy a house only when it makes sense both financially and in terms of what you actually need to make your life pleasant. Do not buy a house only because you think it's an investment; real estate can be a profitable business, but thinking of a house as simultaneously both your home and an investment is a good way to get yourself into trouble.\"", "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": "c47f234affebd290a287b5aa59f0de7f", "text": "How much should my down payment be? Ideally 20% of the purchase price because with 20% of the purchase price, you don't have to pay a costly private mortgage insurance (PMI). If you don't have 20% down and come across a good property to purchase, it is still a good idea to go forward with purchasing with what you are comfortable with, because renting long term is generally never a good idea if you want to build wealth and become financially independent. How much should I keep in my emergency fund? People say 3-12 months of living expenses. Keep in mind though, in most cases, if you lose your job, you are entitled to unemployment benefits from the government. How long should my mortgage be? 30 year amortization is the best. You can always opt to pay more each month. But having that leverage with a 30 year loan can allow you to invest your savings in other opportunities, which can yield more than mortgage interest. Best of luck!", "title": "" }, { "docid": "0afe1f4ed3ca647fba82bf18a7ce93ad", "text": "In regards to your 1st question, if you are a US resident (according to IRS rules) and you have any foreign bank accounts, then you need to file a FBAR form for every year in which any of these accounts has more than $10,000. This is the way that IRS keeps track of substantial amounts of money kept by US residents in foreign accounts.", "title": "" }, { "docid": "4015a67ac8479112a93c6116fbb474bf", "text": "However, we would also like to include on our budget the actual cost of the furniture when we buy it. That would be double-counting. When it's time to buy the new kit, just pay for it directly from savings and then deduct that amount from the Furniture Cash asset that you'd been adding to every month.", "title": "" } ]	fiqa
e347cf0b35befea83602cd7e810684bb	Events that cause major movement in forex?	[ { "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": "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": "04d3f10147795efaba835bb24ae83636", "text": "Trading Speeches can be difficult, 1 comment can be bullish then next phrase bearish. However language algorithms can process the tone of the entire message before you can read the first word or have even finished downloading the text of the statement. The biggest news is the 1st Friday of the month, the non-farm payrolls out of the USA. You used to be able to get the news before the price moved, but high-frequency algos changed all that, essentially the exchanges get quote stuffed, so good luck unless you are using a bucketshop. Better to wait for a pull back from the initial reaction if the numbers are good, otherwise you will get a fill at the peak. If the numbers are a big deviation from expectations then you can just jump in. Back in 2006 the Bank of England raised interest rates when it wasn't expected and the GBPUSD flew 500 pips. This Forex calendar has charts of every news release, so you can see what to expected based on what has happened in the past with a certain bit of economic news. http://www.fasteconomicnews.com/fx_calendar.aspx", "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": "20c32a3cf62ace7633294b14aec72f97", "text": "Sometimes the market has to be left alone. Too much interference of the policy makers to stabilize the falling market can actually result in a major crisis. Every change stabilises after sometime and it is also applicable in the Forex trading market. So, the eager investors should learn to have some patience and wait for the market to stabilise itself rather than make random predictions on the policies released by policy makers", "title": "" }, { "docid": "2ca7c24dc646716a903295d51bf7fa16", "text": "currency's central bank or treasury/finance department speeches that can announce a significant change in policy. That includes: Particularly when it is a high level figure within the department such as the President or Prime Minister making the announcement. Macroeconomic stats: GeoPolitical considerations, such as: Economic calendars, such as ForexFactory and MyFxBook track planned economic news releases. Obviously, a coup d'etat or war declaration may not be well known in advance.", "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": "7fa4236619f0c3895073c76edb5eb278", "text": "The root cause can be said to always be a crisis in confidence. It may be due to a very real event. However, confidence is what pushes the markets up and worries are what bring them down.", "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": "8290de06be4d6255f61a606db30404dd", "text": "\"Both explanations are partly true. There are many investors who do not want to sell an asset at a loss. This causes \"\"resistance\"\" at prices where large amounts of the asset were previously traded by such investors. It also explains why a \"\"break-through\"\" of such a \"\"resistance\"\" is often associated with a substantial \"\"move\"\" in price. There are also many investors who have \"\"stop-loss\"\" or \"\"trailing stop-loss\"\" \"\"limit orders\"\" in effect. These investors will automatically sell out of a long position (or buy out of a short position) if the price drops (or rises) by a certain percentage (typically 8% - 10%). There are periods of time when money is flowing into an asset or asset class. This could be due to a large investor trying to quietly purchase the asset in a way that avoids raising the price earlier than necessary. Or perhaps a large investor is dollar-cost-averaging. Or perhaps a legal mandate for a category of investors has changed, and they need to rebalance their portfolios. This rebalancing is likely to take place over time. Or perhaps there is a fad where many small investors (at various times) decide to increase (or decrease) their stake in an asset class. Or perhaps (for demographic reasons) the number of investors in a particular situation is increasing, so there are more investors who want to make particular investments. All of these phenomena can be summarized by the word \"\"momentum\"\". Traders who use technical analysis (including most day traders and algorithmic speculators) are aware of these phenomena. They are therefore more likely to purchase (or sell, or short) an asset shortly after one of their \"\"buy signals\"\" or \"\"sell signals\"\" is triggered. This reinforces the phenomena. There are also poorly-understood long-term cycles that affect business fundamentals and/or the politics that constrain business activity. For example: Note that even if the markets really were a random walk, it would still be profitable (and risk-reducing) to perform dollar-cost-averaging when buying into a position, and also perform averaging when selling out of a position. But this means that recent investor behavior can be used to predict the near-future behavior of investors, which justifies technical analysis.\"", "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": "84dc6e6ef5dad182fafdbc6f7c910579", "text": "\"According to Soros in \"\"The Alchemy of Finance\"\", exchange rates fluctuations are mostly influenced by: (sorry I do not have the quote here, and I am paraphrasing from the top of my head what I read about a week ago). I mention his point of view as he is one of the most successful hedge fund manager ever, proved his skills, and dealt a lot with currencies. This is not just theory as he actively used the above points when managing his fund (as explained in the book). What I find interesting is that, according to him, the fundamental reason (the balance of trade) is not the most influential. Speculation on future value of currencies is the most influential, and these can set trends that can last years. Also it is key to notice that Soros thought foreign exchange markets are \"\"wrong\"\" most of the time, just like he thought stock markets are \"\"wrong\"\" most of the time (a point on which Warren Buffet and Jim Rogers also agree from my understanding).\"", "title": "" }, { "docid": "0021fa4d97554c8c2732a3a0c6e053a8", "text": "very interesting.. I deal with speculation all day every day, I wish there was a dependable method to determine what actually happens in these possibly nefarious and possibly innocent events. I believe that Sadam Hussain and Momar Quadafi were deposed/eliminated because they both traded oil for currencies other than dollars.", "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": "a27a2131386bb326d295d3241415a143", "text": "If I knew a surefire way to make money in FOREX (or any market for that matter) I would not be sharing it with you. If you find an indicator that makes sense to you and you think you can make money, use it. For what it's worth, I think technical analysis is nonsense. If you're just now wading in to the FOREX markets because of the Brexit vote I suggest you set up a play-money account first. The contracts and trades can be complicated, losses can be very large and you can lose big -- quickly. I suspect FOREX brokers have been laughing to the bank the last couple weeks with all the guppies jumping in to play with the sharks.", "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": "2d122ee87f06c9c0fb33698d8369750f", "text": "\"Relative changes in rates are significant. Why? Exchange rates encourage cross-border trade. For example, I live in an area that is now popular with Canadian tourists, mostly due to the favorable exchange rates. Changes in exchange rates between trading partners can affect trade balance as well. The US \"\"strong dollar\"\" policy made US exports expensive and imports cheaper, which encouraged more imports.\"", "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": "f91f4a2c1fefc9609804c9797e792abd", "text": "The British didn't choose to stay away, they were forced out (as was Sweden) by their fucked up policies and being unable to defend their peg against the (trading only at the time) euro currency. They lost a fuckload in the process and when it became apparent that those that understand market arbitrage wouldn't let up (what killed Mexico/Argentia Peso as well), they backed out.", "title": "" }, { "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": "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": "" } ]	fiqa
1efae8affb05451ea84ae8ae8f64db48	Effect of country default on house prices?	[ { "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": "c7a96cdfac72aa243a64d2ba596c51a3", "text": "Some of the factors that will act on house prices are: There will likely be a recession in that country, which will lower incomes and probably lower housing prices. It will likely be harder to get credit in that country so that too will increase demand and depress demand for housing (cf the USA in 2010.) If Greece leaves the Euro, that will possibly depress future economic growth, through decreased trade and investment, and possibly decreased transfer payments. Eventually the budget will need to come back into balanced which also is likely to push down house prices. In some European countries (most famously Spain) there's been a lot of speculative building which is likely to hang over the market. Both countries have governance and mandate problems, and who knows how long or how much turmoil it will take to sort that out. Some of these factors may already be priced in, and perhaps prices are already near what will turn out to be the low. In the Euro zone you have the nearly unprecedented situation of the countries being very strongly tied into another currency, so the typical exchange-rate movements that played out in Argentina cannot act here. A lot will depend on whether the countries are bailed out, or leave the Euro (and if so how), etc. Typically inflation has been a knock-on effect of the exchange rate moves so it's hard to see if that will happen in Greece. Looking back from 2031, buying in southern Europe in 2011 may turn out to be a good investment. But I don't think you could reasonably call it a safe defensive investment.", "title": "" } ]	[ { "docid": "0da4ce624e5475b510e50627b98ae7a5", "text": "\"Yes, except many, many Icelanders still owe debt on assets they purchased in krona (the Icelandic dollar) before it collapsed. Now many are stuck with homes, vehicles, etc. on which they owe twice the underlying value. You'll often see this referred to as \"\"private debt overhang\"\" in financial news articles, and it is not reported on nearly enough. Just letting the banks fail doesn't unwind all of the ridiculous currency speculation that took place in Iceland. They may be on their way to recovery...eventually...but they're still in terrible shape in the short term.\"", "title": "" }, { "docid": "1f69b9b3b61d001e92118515fb873e53", "text": "gnasher729's answer is fundamentally correct and deserves the checkmark, but I'd like to give an economic explanation for how this economically functions. The key point from gnasher729's answer's that the interest rate is 49.9% for one company. While this may be much higher than the equilibrium rate, the true market interest rate, it is not completely unreasonable because of the risk. For credit to be continually produced, default risk must be compensated because this is a cost to the lender. Most are not in business to lose money, so making loans to borrowers that default 40% of the time would make this interest rate reasonable. For UK citizens, this would not be such a problem because the lender can usually pursue the borrower for the balance, but if the borrower can disavow the loan and leave the legal reach of the UK creditors, the collection rate is 0%. The guarantee by the foreign persons not present in the UK is incidental and probably more of a regulatory requirement since the inability to collect from them is just as unlikely. One should always look for the lowest price with at least minimum quality when shopping for anything, but you are right to be apprehensive legally. Read every line and be sure that you yourself understand every clause before signing. If alternative cheaper financing is available, it is probably superior.", "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": "bbf7092d961bc1cbea11e5406ac99cc1", "text": "Keep in mind that the only portion of the MBS that was rated AAA was the most senior tranche. It achieved this rating due to the buffer to principal losses provided by the equity and mezzanine tranches. So for the principal to be at risk for the AAA senior tranche, 10% of the mortgages in the pool would have to default. Since this number was way higher than historical default rates - it seemed safe. Obviously looking back we know that risk management underestimated the effect that lowered lending standards would have on the default rates (if they did project a rise in default rates, they did not project a large enough rise). As well, while the MBS is exposed to systemic risk - as happened, when the entire country was affected by the collapse - they were packaged to avoid other risks. For example, the pool would spread out mortgages across the country and other various factors would be hedged so that if a natural disaster hits state X and everyone defaults on their mortgage, you are only losing a small part of the underlying. I assume (hope) that at some point the quantitative analysis people in risk management at the major investment banks realized that the default rates would rise given the lower lending standards being employed - but chose to ignore it. They chose to ignore it because investors still wanted to buy it, and the banks make money by collecting fees on issuing securities.", "title": "" }, { "docid": "d8cc99f247ccc6fa76d1139088907572", "text": "The value of debt is that it allows you to profit from the return of equity beyond the amount of actual net equity you own. Of course, this only works if the cost of borrowing is less than your return on equity. Market timing matters a great deal but isn't accounted for in this view. For my answer I would like to hand-wave away market timing considerations. One plausible justification is that you could default on your current home and then immediately go buy one of equal value. If you buy a new home of a lesser value (due to lack of funds) and then prices appreciate, then you missed some opportunity cost but probably not $100k worth of it. Moving on, here are some helpful assumptions I'll make. I'll ignore performance of your portfolio after retirement and only seek to optimize F, which will be your net worth upon retirement. In either case, your current net worth is earning the R2 rate. We can convert this for both your current net worth and future savings using conversion formulas. Present to future value F = P (1+R2)^x Annual to future value F = S ( (1+R2)^x - 1 ) / R2 Adding these together is sufficient to obtain F in the case that you have no borrowing power. The case where you do not default and maintain your credit score is different due to an initial $100k penalty and the amortized value of borrowing power. In a completely theoretical sense, you get an effective (R2-R1) yield on all borrowed money. The future value will be the following: F = A1 (1+R2-R1)^x One step is missing, however, which is to convert this value (the value of having a good credit score) into present value to compare to value of your defaulting. P of borrowing power = F / (1+R2)^x = A1 { (1+R2-R1)/(1+R2) }^x Now, let's put some specific values in. Say that you can borrow $300k with your good credit history and this applies for the next 25 years, after which you retire. The borrowing rate is 7% and the time-value of money to you is 10%. I would then calculate: P of borrowing power = $58 k < $100 k This indicates that it would be more economical to default. Of course, some people might point out that it will be removed from your record after 7 years. If you plug 7 years instead of 25 years into the equation, almost no assumptions about rates will lead to the option of keeping your house being preferable. So in a nutshell, the value of your credit is probably less than $100k in a purely mathematical sense. But there are other factors too. If you don't have that borrowing ability maybe you wouldn't be able to borrow money to start the business of your dreams. If you are a rock star entrepreneur, then time-value of money to you could be 1,000% yield, sure, then maybe you could make the above numbers work (to favor keeping the house). I've also neglected ethics. As other people point out, it would be like stealing from the bank.", "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": "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": "23dcb346982a8bdcf2ec460e8c272c4c", "text": "There are many different things that can happen, all or some. Taking Russia and Argentina as precedence - you may not be able to withdraw funds from your bank for some period of time. Not because your accounts will be drained, but because the cash supply will be restricted. Similar thing has also happened recently in Cyprus. However, the fact that the governments of Russia and Argentina limited the use of cash for a period of time doesn't mean that the US government will have to do the same, it my choose some other means of restraint. What's for sure is that nothing good will happen. Nothing will probably happen to your balance in the bank (Although Cyprus has shown that that is not a given either). But I'm not so sure about FDIC maintaining it's insurance if the bank fails (meaning if the bank defaults as a result of the chain effect - you may lose your money). If the government is defaulting, it might not have enough cash to take over the bank deposits. After the default the currency value will probably drop sharply (devaluation) which will lead to inflation. Meaning your same balance will be worth much less than it is now. So there's something to worry about for everyone.", "title": "" }, { "docid": "d31a275fbb717703bc4739ca6ad43aff", "text": "When I read that part of his post, it reminded me more of credit companies rather than banks. People default on credit all the time. I have no idea what the regulations are on the amount of credit that a company can issue, though. And this is sort of part of what actually happened in the beginning of the economic crunch. A bunch of people began to trade for credit (debt) against what they thought the future value of their house or other real estate would be. After a while, people stopped being able to afford property at its future value, so they stopped buying it. When people then tried to sell their property for the future value that they had borrowed against, they couldn't, so they couldn't pay back their debt. Because real estate had become a popular investment vehicle for the middle class, this was able to reach a kind of critical mass, and shortly afterward the effects rippled back into the credit market, which also had its own crunch -- a bunch of credit just disappeared overnight because so many people had assumed a level of debt that they could not actually fulfill their promises on once the future value of their home became completely imaginary.", "title": "" }, { "docid": "d0dcaa4b799cd1892c0ae2860245e32e", "text": "\"This is the best tl;dr I could make, [original](https://qz.com/1064061/house-flippers-triggered-the-us-housing-market-crash-not-poor-subprime-borrowers-a-new-study-shows/) reduced by 83%. (I'm a bot) *** > Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economists-Stefania Albanesi of the University of Pittsburgh, the University of Geneva&#039;s Giacomo De Giorgi, and Jaromir Nosal of Boston College-found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution-and that these borrowers accounted for a disproportionate share of defaults. > The mortgages these prime borrowers were able to secure were much bigger than those taken out by poor homebuyers. > Shoar&#039;s work reveals that borrowing and defaults had risen proportionally across income levels and credit score, but that those with sounder credit ratings drove the rise in delinquencies. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6xfbx2/house_flippers_triggered_the_us_housing_market/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~202565 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: credit^#1 borrowed^#2 mortgage^#3 score^#4 crisis^#5\"", "title": "" }, { "docid": "a81fcec8b06a16d323ca49071561d6e7", "text": "My first thought was that it must be due to inflation, which causes such differences in many cases since a creditor needs to make back more than the rate of inflation in order not to effectively lose money. But it seems that Paraguay currently has only a very modest rate of inflation, about 3%. Other possible reasons for different credit rates: The latter is most likely. It means that if debtors are generally poor and are often completely unable to pay back the loan, or if there is no effective way to force uncooperative debtors to pay (e.g. when there are weak laws or overworked courts), then creditors will lose a lot of money to defaults and have to raise rates to compensate for this.", "title": "" }, { "docid": "28a0e1b5359a14a50a5383e06c2e5531", "text": "The big risk for a bank in country X is that they would be unfamiliar with all the lending rules and regulations in country Y. What forms and disclosures are required, and all the national and local steps that would be required. A mistake could leave them exposed, or in violation of some obscure law. Plus they wouldn't have the resources in country Y to verify the existence and the actual ownership of the property. The fear would be that it was a scam. This would likely cause them to have to charge a higher interest rate and higher fees. Not to mention that the currency ratio will change over the decades. The risks would be large.", "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": "213f18ac19a519aadc9ab2415ad7cc9e", "text": "I wouldn't like to say either way what you should do, not being an financial advisor or lawyer, but I did find an interesting article on nytimes.com: Walk Away From Your Mortgage! that you might also find helpful to frame your decision. It has some interesting information on defaults, it says this: Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them. In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare. And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.", "title": "" }, { "docid": "647740b4ae71f5a6f13b36593cb3f041", "text": "The default of the country will affect the country obligations and what's tied to it. If you have treasury bonds, for example - they'll get hit. If you have cash currency - it will get hit. If you're invested in the stock market, however, it may plunge, but will recover, and in the long run you won't get hit. If you're invested in foreign countries (through foreign currency or foreign stocks that you hold), then the default of your local government may have less affect there, if at all. What you should not, in my humble opinion, be doing is digging holes in the ground or probably not exchange all your cash for gold (although it is considered a safe anchor in case of monetary crisis, so may be worth considering some diversifying your portfolio with some gold). Splitting between banks might not make any difference at all because the value won't change, unless you think that one of the banks will fail (then just close the account there). The bottom line is that the key is diversifying, and you don't have to be a seasoned investor for that. I'm sure there are mutual funds in Greece, just pick several different funds (from several different companies) that provide diversified investment, and put your money there.", "title": "" } ]	fiqa
dc442c9d5d90da03d997d50d7fd58989	Why was S&P 500 PE Ratio so high on May 2009	[ { "docid": "12b7d06ba1eb87d6839062014583b981", "text": "\"Asking why the p/e was so high is best answered \"\"because reported earnings were so low\"\". Recall that the S&P500 bottomed in early March 2009 when the panic of the financial crisis reached exhaustion. As noted on the page you have linked, the reported p/e ratios are computed using reported earnings from the trailing twelve months. During those twelve months the banks were writing down all of the bad debt associated with the mortgage backed securities that has lost so much value. This meant that the banks were reporting negative earnings. Since the financial sector is a large part of the S&P500, this alone had an enormous effect on the index p/e. However, the problem was compounded by a general collapse in earnings across the economy as consumers reacted to the resulting uncertainty. The same site reports earnings for the previous years at $17.11 for the S&P500, compared to $76.17 for the year prior to 2008. That is a collapse of about 78% in earnings. Although the S&P500 has suffered badly during this time, stock market investors being forward looking were starting to price in improved earnings by May 2009. Indeed, the S&P500 was up about 33% in just two months, from its low in March2009 to mid May2009. Thus, by May of 2009 prices were not suffering to the same extent as reported trailing earnings. This would account for the anomalous p/e value reporting in May2009.\"", "title": "" } ]	[ { "docid": "bf168ee521b97096dbc19a8a9c86a3f4", "text": "It could be an endless number of reasons for it. It could simply just be a break through a long term resistance causing technical traders to jump in. It could be an analyst putting out a buy recommendation. If fundamentals have not changed then maybe the technicals have changed. Momentum could have reached an oversold position causing new buyers to enter the market. Without knowing the actual stock, its fundamentals and its technicals, no one will ever know exactly why.", "title": "" }, { "docid": "7e2e68179cb7715afc6b734828b30557", "text": "PE can be misleading when theres a good risk the company simply goes out of business in a few years. For this reason some people use PEG, which incorporates growth into the equation.", "title": "" }, { "docid": "e4cf1f5efd115f13c58c14aad6ff927f", "text": "Everyone and their grandmother has been expecting QE to taper since May 2013. If the drop is caused by that, then it shouldn't be too serious. Also, can people stop comparing stuff to 2009? 2009 was a unique once-in-a-lifetime circumstance, and not indicative of actual market values.", "title": "" }, { "docid": "d3fa67f6d512004eb69580e49b12485e", "text": "\"Do you recall where you read that 25% is considered very good? I graduated college in 1984 so that's when my own 'investing life' really began. Of the 29 years, 9 of them showed 25% to be not quite so good. 2013 32.42, 2009 27.11, 2003 28.72, 1998 28.73, 1997 33.67, 1995 38.02, 1991 30.95, 1989 32.00, 1985 32.24. Of course this is only in hindsight, and the returns I list are for the S&P index. Even with these great 9 years, the CAGR (compound annual growth) of the S&P from 1985 till the end of 2013 was 11.32% Most managed funds (i.e. mutual funds) do not match the S&P over time. Much has been written on how an individual investor's best approach is to simply find the lowest cost index and use a mix with bonds (government) to match their risk tolerance. \"\"my long term return is about S&P less .05%\"\" sounds like I'm announcing that I'm doing worse than average. Yes, and proud of it. Most investors (85-95% depending on survey) lag by far more than this, many percent in fact)\"", "title": "" }, { "docid": "3226b984a2e3f7ed89feb25f3e373bf9", "text": "\"Probably the biggest driver of the increased volumes that day was a change in sentiment towards the healthcare sector as a whole that caused many healthcare companies to experience higher volumes ( https://www.bloomberg.com/press-releases/2017-07-11/asset-acquisitions-accelerate-in-healthcare-sector-boosting-potential-revenue-growth ). Following any spike, not just sentiment related spikes, the market tends to bounce back to about where it had been previously as analysts at the investment banks start to see the stock(s) as being overbought or oversold. This is because the effect of a spike on underlying ratios such as the Sharpe ratio or the PE ratio makes the stock look less attractive to buyers and more attractive to sellers, including short sellers. Note, however, that the price is broadly still a little higher than it was before the spike as a result of this change in sentiment. Looking at the price trends on Bloomberg (https://www.bloomberg.com/quote/CDNA:US) the price had been steadily falling for the year prior to the spike but was levelling out at just over $1 in the few months immediately prior to the spike. The increased interest in the sector and the stock likely added to a general change in the direction of the price trend and caused traders (as opposed to investors) to believe that there was a change in the price trend. This will have lead to them trading the stock more heavily intraday exacerbating the spike. Note that there traders will include HFT bots as well as human traders. You question the legality of this volume increase but the simple answer is that we may never know if it was the target of traders manipulating the price or a case of insider trading. What we can see is that (taking \"\"animal spirits\"\" into account) without any evidence of illegality there are plenty of potential reasons why the spike may have occurred. Spikes are common where traders perceive a change in a trend as they rush to cash in on the change before other traders can and then sell out quickly when they realise that the price is fundamentally out of sync with the firm's underlying position. You yourself say that you have been watching the stock for some time and, by that fact alone, it is likely that others are for the same reasons that you are. Otherwise you wouldn't be looking at it. Where people are looking at a stock expecting it to take off or drop you expect volatility and volatility means spikes!\"", "title": "" }, { "docid": "6fec016cf575e64cf7800e78563810ec", "text": "\">\"\"Those measures all reflect a new way of measuring VaR though, one that switches the model from a four-year look to just one year, removing the rocky years of 2008 and 2009 from the current measure\"\" From my understanding (and I'm no risk mgmt or quant), and the specifics are lacking some in both articles, excluding 2008 and 2009 reduces the volatility of results in their VaR model. If you look at a chart of S&P Volatility, you can see that 2008 and 2009 were anomalies, even though volatility was prevalent in every year since, until 2012. [VIX](http://chart.finance.yahoo.com/z?s=%5eVIX&t=5y&q=&l=&z=l&a=v&p=s&lang=en-US&region=US)\"", "title": "" }, { "docid": "66530672adfb39be5f65813dc9f0922a", "text": "Here's the 2009-2014 return of the S&P 500 (SPY) vs. Vanguard FTSE ex-US (VEU) (higher returns bolded) Another argument for them is their low correlation to U.S stocks. Looking at history however, I don't see it. Most times U.S stocks have done badly, foreign stocks have also done badly. Looking at the last 6 years (and current YTD), 1 in 3 years have international stocks doing better. I invest a portion of my investments in international because they aren't well correlated.", "title": "" }, { "docid": "adbf8533f813e6417c05b3596645eb28", "text": "ETFs have caused many if not most stocks on the SP500 to become correlated. I think at some point in the last couple of years, 90% of the SP500 were correlated to the index itself. So you're going to see a lot of movement together of most stocks.", "title": "" }, { "docid": "ec71eaa74d95a27d599d989b6c92d992", "text": "There is most likely an error in the WSJ's data. Yahoo! Finance reports the P/E on the Russell 2000 to be 15 as of 8/31/11 and S&P 500 P/E to be 13 (about the same as WSJ). Good catch, though! E-mail WSJ, perhaps they will be grateful.", "title": "" }, { "docid": "86f7fb8aee91031e8893956bc83201aa", "text": "Are you implying that Amazon is a better investment than GE because Amazon's P/E is 175 while GE's is only 27? Or that GE is a better investment than Apple because Apple's P/E is just 13. There are a lot of other ratios to consider than P/E. I personally view high P/E numbers as a red flag. One way to think of a P/E ratio is the number of years it's expected for the company to earn its market cap. (Share price divided by annual earnings per share) It will take Amazon 175 years to earn $353 billion. If I was going to buy a dry cleaners, I would not pay the owner 175 years of earnings to take control of it, I'd never see my investment back. To your point. There is so much future growth seemingly built in to today's stock market that even when a company posts higher than expected earnings, the company's stock may take a hit because maybe future prospects are a little less bright than everyone thought yesterday. The point of fundamental analysis is that you want to look at a company's management style and financial strategies. How is it paying its debt? How is it accumulating the debt? How is it's return on assets? How is the return on assets trending? This way when you look at a few companies in the same market segment you may have a better shot at picking the winner over time. The company that piles on new debt for every new project is likely to continue that path in to oblivion, regardless of the P/E ratio. (or some other equally less forward thinking management practice that you uncover in your fundamental analysis efforts). And I'll add... No amount of historical good decision making from a company's management can prepare for a total market downturn, or lack of investor confidence in general. The market is the market; sometimes it's up irrationally, sometimes it's down irrationally.", "title": "" }, { "docid": "b7bbbba72cb8dc5b8dcf6cba5fd65700", "text": "The S&P 500 is a market index. The P/E data you're finding for the S&P 500 is data based on the constituent list of that market index and isn't necessarily the P/E ratio of a given fund, even one that aims to track the performance of the S&P 500. I'm sure similar metrics exist for other market indexes, but unless Vanguard is publishing it's specific holdings in it's target date funds there's no market index to look at.", "title": "" }, { "docid": "7cda4e508cbccdc13fb6c2499982293b", "text": "You are correct about the first two questions. At the time it was last measured those were the percent invested in the Basic Materials sector for the ETF and its benchmark. Note, this ETF will be significantly different from its benchmark as it is an equal-weight index rather than the more common capitalization-weighted index. Meaning that this ETF could have materially different performance from its benchmark. The third column is the average sector weights of all the ETFs in Morningstar's Large Blend category. These are ETFs that generally invest in a broad collection of large U.S. stocks and (weighted?) average of all of them will be generally fairly close to the benchmark.", "title": "" }, { "docid": "aa196599aea1fbefd2765f38b644ff1f", "text": "\"This is a good question and my answer below, being the first rationale that crossed my mind, is far from fleshed-out. It's just a reply based on many books on the historical cycles of markets and it's something I've discussed at work (I work in finance). Historically we can observe that periods of financial \"\"booms\"\" entailing high valuations of public equities tend to lead to lower returns. It's a fairly simplistic notion, but if you're paying more now for something - when it's potentially close to a high water mark - then you're returns in the short term are likely to be somewhat stunted. Returns from the underlying companies have a hard time keeping up with high valuations such that investors aren't likely to see a bountiful return in the short run.\"", "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": "b285e55976bdcb3fcc8739e2e1f1296e", "text": "Long story short, 8% turned out to be the tipping point because it was the average subordination level of the A rated tranches of the subprime MBS bonds. The reason this was the magic number is because of the way bonds were placed during the period. Basically no end user wanted to take on the risk of buying below A-rated paper, so instead of being sold directly, these BBB rated and below bonds were re-packaged into CDOs and tranched off. Again, the higher rated paper was sold off to whomever, while the BBB and below stuff got reshuffled and repackaged into other CDOs or CDO^2 , further levering up the initial subprime bonds. Now, back to the magic 8% number. Remember how I said that 8% was the subordination level for the A rated subprime paper? The other way of saying that is once defaults reached 8%, the BBB and below tranches of the the MBS were completely wiped out. Since the CDOs were largely made up of these BBB and below MBS, once they started getting written down so did the CDOs. When the lower rated CDO tranches started to go, because they were also repackaged in the same way, it just continued the negative feedback loop and before long even the AA and AAA rated paper was seeing massive losses. As more and more supposedly safe paper started to get wiped out, highly leveraged CDS contracts started coming due, causing AIG (which had written contracts on over $500 billion in assets) to get downgraded by the rating agencies, putting it on the brink of going under. Because basically every major bank had exposure to AIG, had they gone under, the other banks would have all had to write down those contracts at the same time, essentially causing the entire financial system to collapse.", "title": "" } ]	fiqa
4b7acbc8f73626424b15bb31e914cce7	Salary equivalency: London vs Berlin	[ { "docid": "f93a84958857c9807a590468efe06a74", "text": "Coming to London at this point of time is not a wise decision, not that I mean to discourage you. The job market is quite competitive because loads of developers are in the markets, because of the layoffs. So be ready to wait for some time to land a role. Banks aren't recruiting that heavily, but that might change if the economy picks up. Regarding salaries, the contract rates you quote are primarily for banking sector jobs, some outside banking also pay those rates, but they are few. You can quote what you want to a recruiter, most contracts are through them as most managers have a fincancial get go between recruiters and themselves. Recruiters take their cut what they bill, 400+200(just a guess). So the more they take from the 400, better is their margin. So they try to decrease the 400 portion. But the important point is be ready to keep your chair warm for some time. I am not sure why you have to move to London. Keep your current job. Get a Skype number or something and get the calls diverted to your phone in Germany. You can come down to London for interviews and schedule them so you come in a week and give all your interviews. London is a costly place, you can find cheap places to stay too. But without a job and searching for one will get you depressed(been there and experienced it)", "title": "" }, { "docid": "4b034e64e0008f5c0806f96636a3afee", "text": "Germany is substantially cheaper than the London . You would need at least double your current income to maintain the same lifestyle in London. Even then, you will likely have to settle for a cramped housing or a long commute. Java developers are largely contractors in the UK. Typical wages and rates can be found at www.itjobswatch.co.UK Wages go up and down depending on supply and demand. Don't quit till you have another offer.", "title": "" } ]	[ { "docid": "4d9f05f39288a85e40d0d2571f7e15c5", "text": "\"You are in your mid 30's and have 250,000 to put aside for investments- that is a fantastic position to be in. First, let's evaluate all the options you listed. Option 1 I could buy two studio apartments in the center of a European capital city and rent out one apartment on short-term rental and live in the other. Occasionally I could Airbnb the apartment I live in to allow me to travel more (one of my life goals). To say \"\"European capital city\"\" is such a massive generalization, I would disregard this point based on that alone. Athens is a European capital city and so is Berlin but they have very different economies at this point. Let's put that aside for now. You have to beware of the following costs when using property as an investment (this list is non-exhaustive): The positive: you have someone paying the mortgage or allowing you to recoup what you paid for the apartment. But can you guarantee an ROI of 10-15% ? Far from it. If investing in real estate yielded guaranteed results, everyone would do it. This is where we go back to my initial point about \"\"European capital city\"\" being a massive generalization. Option 2 Take a loan at very low interest rate (probably 2-2.5% fixed for 15 years) and buy something a little nicer and bigger. This would be incase I decide to have a family in say, 5 years time. I would need to service the loan at up to EUR 800 / USD 1100 per month. If your life plan is taking you down the path of having a family and needed the larger space for your family, then you need the space to live in and you shouldn't be looking at it as an investment that will give you at least 10% returns. Buying property you intend to live in is as much a life choice as it is an investment. You will treat the property much different from the way something you rent out gets treated. It means you'll be in a better position when you decide to sell but don't go in to this because you think a return is guaranteed. Do it if you think it is what you need to achieve your life goals. Option 3 Buy bonds and shares. But I haven't the faintest idea about how to do that and/or manage a portfolio. If I was to go down that route how do I proceed with some confidence I won't lose all the money? Let's say you are 35 years old. The general rule is that 100 minus your age is what you should put in to equities and the rest in something more conservative. Consider this: This strategy is long term and the finer details are beyond the scope of an answer like this. You have quite some money to invest so you would get preferential treatment at many financial institutions. I want to address your point of having a goal of 10-15% return. Since you mentioned Europe, take a look at this chart for FTSE 100 (one of the more prominent indexes in Europe). You can do the math- the return is no where close to your goals. My objective in mentioning this: your goals might warrant going to much riskier markets (emerging markets). Again, it is beyond the scope of this answer.\"", "title": "" }, { "docid": "4ff04025b2e518098d73c9128376b2f8", "text": "This is amazing. Pretty standard in the EU but as an Americanizing in London it took multiple Brit friends to get me to take a few days as my marriage ended. Ultimately helped me save a few deals I was working on that began to fall apart as I struggled.", "title": "" }, { "docid": "c974fce2e0de21ef5938bef66aad614f", "text": "\"Using your example link, I found the corresponding chart for a stock that trades on London Stock Exchange: https://ca.finance.yahoo.com/echarts?s=RIO.L#symbol=RIO.L;range=1d As you can see there, the chart runs from ~8:00am to ~4:30pm, and as I write this post it is only 2:14pm Eastern Time. So clearly this foreign chart is using a foreign time zone. And as you can see from this Wikipedia page, those hours are exactly the London Stock Exchange's hours. Additionally, the closing price listed above the graph has a timestamp of \"\"11:35AM EST\"\", meaning that the rightmost timestamp in the graph (~4:30pm) is equal to 11:35AM EST. 16:30 - 11:30 = 5 hours = difference between London and New York at this time of year. So those are two data points showing that Yahoo uses the exchange's native time zone when displaying these charts.\"", "title": "" }, { "docid": "ee4ba03a116f6912d54f8297f674feb3", "text": "This More or Less podcast has a fantastic section on executive pay in the US and UK. With some economists whose research determined that there is basically no relation between remuneration and performance. In Germany, Switzerland etc where there are different rules and factors there is less overall executive pay and it is far more tied to performance. http://downloads.bbc.co.uk/podcasts/radio4/moreorless/moreorless_20120511-1640a.mp3", "title": "" }, { "docid": "4d71ed4a3c2a4630d8ee5190254fae36", "text": "\"Background: I live and work in a small city (250k) and want to work somewhere much larger (New York, London, Chicago, Sydney). Ideal job is something quantitative and related to programming/analytics in finance, though I have passed the CFA Level III Exam to show my interest in the field and currently work as a systems and database analyst (job title is \"\"Senior financial analyst\"\".) I have a Master's in mathematical finance but my work mostly relates to personal side projects. Questions: Short of packing up and moving, what is an effective way to network with people from these larger cities? Is there demand for quants and junior quants, or is there too much supply? Will I need to get a PhD to be relevant? Can I transfer my background or skills into another area of finance first to get the networking contacts?\"", "title": "" }, { "docid": "cbd421769c61e70ca57735bade197f0b", "text": "I understand how it works very well - as Europes financial centre. I understand that without UKs EU membership those days are gone. I understand that rents in Frankfurt are skyrocketing because banks are fleeing a sinking ship. Without financial passporting rights to the worlds second largest economy London as a financial centre is finished. New York does well because it's part of Americas economy, Hong Kong does well because it's part of China's economy.", "title": "" }, { "docid": "a792f5a527c4e21925256003a4983c39", "text": "Literally the same drivers in the same cars (since it's the same licence to be able to drive for them) and Cabify quotes you a fixed price and I like the interface better. It's just far less useful when traveling as it tends to be only really useful in Spain.", "title": "" }, { "docid": "fcd600a5b867728f4fcfb1cc46a3da9a", "text": "\"Did you see that Kaiser pays their average nurse $110K? Nurse in the sense of \"\"works full time at a major hospital\"\". As for the police: the $75K doesn't include time in rank bonus....which even in NYC goes from $45K to $90K in five years. Time in rank bonus is a very big deal.\"", "title": "" }, { "docid": "48a6bf9cf171d813361886f74c92a6f9", "text": "I think you're on the right track. Keep it up. You are still relatively young, and it wont have an impact. You have experience and you have a lot of education, both will be assets. I can't comment on the region question because I have only ever worked in one region. Are you asking from a purely economics/getting paid perspective? One approach you can take is making a little spreadsheet with average trader salary divided by cost of living in that region. The issue is that trader salaries and bonuses vary SO MUCH in every region, that you can't make any generalizations.", "title": "" }, { "docid": "b17143b20fa74af51346bcb7004179a0", "text": "Singapore does well because? Zurich does well because? London is already a much larger and more versatile financial centre than anywhere you have cited (bar New York) or the above. Not all financial services require passporting and, as I mentioned,'it remains to be seen whether some arrangement can be reached that allows firms UK firms similar passport privileges within the EU that they currently enjoy. Finance is very different from trade and the City is far less vulnerable to this political divorce than British importers and exporters. Never mind that London is a much greater cultural hub than any would be pretenders. I work in finance, no one I know has the slightest inclination to move to Frankfurt. It'll take a generation for any city to build up the institutional knowledge, infrastructure and talent pool that exists in Greater London.", "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": "" }, { "docid": "6a90b539c710657db704926895802556", "text": "Just like Switzerland lost its banking privileges by not being in the EU, huh? The truth is none of us really know what's going to happen so we all need to stop throwing out opinions as fact. London has an already established stable banking climate and the cost and effort of relocating to other places might prove to be too high as opposed to just working something out between the Brits and the Europeans. We just don't know yet.", "title": "" }, { "docid": "e47e8944b1e90294d8c46480e0a63278", "text": "\"Since a lot of the companies in your source are public accounting firms, I'm interested in if these salaries are similar to what they (PwC, EY, Deloitte, etc...) pay their entry level accountants? How about entry level advisory accountants? Do their accountant salaries ever approach the level of their \"\"consultants\"\"?\"", "title": "" }, { "docid": "a814ac98bac8c51668dca9901eb22879", "text": "From my understanding: Original Holding: Siemens - 10,000 units at 80 Euros/unit Cost = 800,000 euros Spin-off: Every 10 Siemens get 1 OSRAM On July 5th, 2013: Siemens closing - 78 Euros On Monday, July 8th: Ex-date (opening) - 75 Euros Hence: Market value for:- 1. Siemens: 75 * 10,000 = 750,000 euros 2. OSRAM: (10,000 / 10) * (78 - 75) = 3,000 euros Total Market value = 780,000 + 3,000 = 753,000 euros Ratio for: 1. Siemens = 750,000 / 753,000 = 0.996015936 2. OSRAM = 3,000 / 753,000 = 0.003984063 Cost for: 1. Siemens = 800,000 * 0.996015936 = 796,812.75 2. OSRAM = 3,187.25", "title": "" }, { "docid": "a01d5a46e30910926be7fd70e8e07b7f", "text": "From Seattle. So a local minimum wage law is not pushing out as many jobs as naysayers projected. Not that surprising, really. The switch to capital takes time, so data within the first year or two isn't going to show you much.", "title": "" } ]	fiqa
1e4be5625fb00a9be587cb4ed32155e9	Is it worth buying real estate just to safely invest money?	[ { "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": "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": "73714a6fd3ad30dd3f5a834177aeddde", "text": "People in the United States in the mid-2000's thought that real estate was safe. Then they discovered that when the bubble burst the value of their house dropped 10 to 50%. Then they realized that they couldn't sell, even if they had the cash to make the lender whole. Some lost their houses to foreclosure, others walked away and took massive hits to their wealth and credit scores. When it is hard or impossible to sell, that means you can't move to where the jobs are. While it is possible to make money in real estate, treating your house as an investment vehicle means that you are putting not only all your eggs into one basket; you are also living in the basket. In general you should assume that all investment involves risk. So if you are trying to avoid all chances of losing money then the safest form of investment is via your bank account and government bonds. Your national government has a program to insure bank accounts, you need to understand the rules for that program, including types of accounts and amounts. You should also look into your national programs for retirement accounts, to make sure you are investing for the long term. Many people invest via the stock market or the bond market. These investments are not guaranteed, though there may be some protection for fraud. The more specific your investments (individual companies) the more time you need to invest in research and tracking. Many investors do so via mutual funds or Exchange Traded Funds, this involves less of a time investment because you are paying the management comp nay for the fund to do that research for all their investors.", "title": "" }, { "docid": "a47c65b0a06c138ef8250846a5a28aba", "text": "There are two parts to this. Firstly, if you are also living in the property you have bought, then you should not consider it to be an investment. You need it to provide shelter, and the market value is irrelevant unless/until you decide to move. Of course, if your move is forced at a time not of your choosing then if the market value has dropped, you might lose out. No-one can accurately predict the housing market any more than they can predict interest rates on normal savings accounts, the movement of the stock market, etc. Secondly, if you just have a lump sum and you want to invest it safely, the bank is one of the safest places to keep it. It is protected / underwritten by EU law (assuming you are in the EU) up to €100,000. See for example here which is about the UK and Brexit in particular but mentions the EU blanket protection. The other things you could do with it - buy property, gold, art works, stocks and shares, whatever thing you think will be least likely to lose value over time - would not be protected in the same way.", "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": "7238e6a38329958a49bf7b9e30ce6e74", "text": "\"Neither you nor others have mentioned the costs of being a homeowner. First, there are monetary costs. If you own a house, you have to pay taxes. They will vary by jurisdiction, but are usually not zero. You also need insurance, which again comes with monthly rates. Then, once in a while, you'll be hit with unpleasant lump sum payments. In 30 years, the mortgage is over and you own the house - but by that time, it will probably need a new roof. That's in the price range of a new car. And over that time, you'll rack up several other repairs which your landlord covers when you rent. Another thing which feels less like an expense emotionally but ends up thinning your wallet is the cosmetic changes you make just because it's your own home. You wouldn't put marble floors in the bathroom if you rent, but you might be tempted to if you live in the house. It might be even worth it from a life satisfaction point of view, but we are talking finance right now, and that's a minus. And then there are the opportunity costs. A house binds you geographically. You may pass up on a nice job offer because your house is too far away, for example. Or you might experience liquidity problems, because a house is difficult to turn into money in a hurry. If you are able to do so, it is usually a much larger sum than you need, and you are paying the costs inherent in that large transaction. These are just examples, you can probably come up with more costs. Then, it is not sure how much money you can get of the house if you change your mind. Say you take this job at the other end of the country, or you become a parent of four and need more space. At the time you decide to sell, the market may have gone down due to the overall state of the economy, or to the house location's popularity, or your own house may have turned undesirable (what if you get a mold infestation which would only go away if you strip it to the concrete and rebuild?) You could let it to renters, but that's a hassle of its own. It takes time to find renters, it may be expensive (income tax, regulations like Energieausweis in Germany), it is risky (if they don't pay, you might not see money even if you sue them). Then there is the problem that prices reflect not some kind of \"\"true\"\" value, but the intersection of supply and demand. And the home market is not as efficient as in a first semester microeconomics textbook. The buyers of private homes deal in small volumes, have little knowledge in the market, pay intermediaries' cuts, and are emotionally attached to the idea of \"\"owning my own house\"\". This drives demand up and creates higher prices than if you had perfectly rational actors on both sides. People pay money for the feeling of being home owners, so those who forego spending on that feeling have more money to invest in something else. Owning something always causes expenses. You have to calculate the savings of having the house vs. the expenses of having it, before you can decide if it is a good deal or not. If you only calculate one side of the equation, you'll be badly mistaken.\"", "title": "" }, { "docid": "adf501f484179c36384e962cf72178e6", "text": "Investment is very uncertain, so I believe that unless you have loads of money, you should not play around with houses for the sole purpose of investing. Here are the questions which I would consider to judge the situation. Note that this is based on the current situation in The Netherlands Income: Your income is 1800 a month nett, which means your gross annual income should be somewhere below 28500. Allowed mortgage amount: Your maximum morgage amount is then roughly 135000 Is it expensive?: Given your maximum morgage, buying a 200k appartment would consume pretty much all your cash. There is some cost of buying the appartment, so basically if you buy it, you will not have much cash to decorate or deal with unforseen maintenance. If you are conservative, I would say that buying a 175k appartment is financially much more relaxing in your situation. What will be the monthly expense?: Monthly mortgage payments will be about 450~500. So your cashflow will suffer a bit. The amount you actually 'burn' on interest in the early months is about 180 nett (assuming an interest rate just below 2% and tax deductions). There will be additional costs (more heating, long term maintenance etc.) so overall the amount of money you burn will be close to the amount of money you burn on rent. Of course over time there will be less interest, so this should go down. Value change: The value may go up or down, in the very long term I would bet on it going up, but on the short or medium term it is quite uncertain. If you may live there for less than a decade, value change is more of a risk than a benefit. Break even point: As you mention that you will buy a house for 200k, I will assume it is not in the heart of a major city, and that renting it out may not be very attractive. However, I will also assume that it is not the middle of nowhere, and that it will only take a reasonable amount of time to sell the house. So if you want to move out, you will probably sell it at a reasonable price. In this case a rule of thumb is that living in an affordable house is usually a good idea when you live there for more than 5 years. (Is it likely that you will find a partner in this period of time, and will you live at your place then, or somewhere else?) Buying a 200k appartment would leave you completely cashless after you move in, something I would not recommend unless you can depend on your parents for instance to 'bridge the gap' when your cashflow dries up. From a monthly expense point of view you are probably going to be OK, as long as you survive the short run. And financially it only makes sense if you are going to live there for a while, and are fairly confident in your position in the labour market. I would personally recommend you to think hard on your family situation, and only buy a house if it leaves you with some cash in your pocket.", "title": "" }, { "docid": "9e16929c4729303de3778f395776620d", "text": "Consider looking into real estate investment trusts (REITs). Assuming that they are available for the area that you are considering they simplify the process of investing in this sector. Your money pooled with other investors and then invested in a broad range of properties. If you go this route make sure to only by REITs that are traded in the open market (liquidity and an honest current valuation). Even better I would consider a index fund of REITs for more diversification. Personally I do use a US based REIT index as a small part of my portfolio so as to get better diversification.", "title": "" }, { "docid": "64d3ed9bdd8bc785d306c43ab39bcb18", "text": "\"No one has addressed the fact that your loan interest and property taxes are \"\"deductible\"\" on your taxes? So, for the first 2/3 years of your loan, you will should be able to deduct each year's mortgage payment off your gross income. This in turn reduces the income bracket for your tax calculation.... I have saved 1000's a year this way, while seeing my home value climb, and have never lost a down payment. I would consider trying to use 1/2 your savings to buy a property that is desirable to live in and being able to take the yearly deduction off your taxes. As far as home insurance, most people I know have renter's insurance, and homeowner's insurance is not that steep. Chances are a year from now if you change your mind and wish to sell, unless you're in a severely deflated area, you will reclaim at minimum your down payment.\"", "title": "" } ]	[ { "docid": "562c42a443fff22c390f5e45bb7d2402", "text": "\"Maybe a bit off topic, but I suggest reading \"\"Rich Dad Poor Dad\"\" by Robert Kiyosaki. An investment is something that puts money to your pocket. If your properties don't put money to your pocket (and this seems to be the case), then they're not an investment. Instead, they drain money from you pocket. Therefore you should instead turn these \"\"investments\"\" into real investments. Make everything to earn some money using them, not to earn money somewhere else to cover the loses they create. If that's not possible, get rid of them and find something that \"\"puts money into your pocket\"\".\"", "title": "" }, { "docid": "8c986bdc7bd14f116c542f34eb2db587", "text": "Real estate is never a low-risk investment. I'd keep your money in the bank, and make sure that you don't have more in any one bank than is guaranteed in the event of bank failure. If your bank account is in Greece, Italy, Spain, Portugal or Ireland, I'd consider moving it to Eurozone country that's in better shape, as there's just a slight possibility of one or more of those countries exiting the Eurozone in a disorderly fashion and forcibly converting bank accounts to a new and weak currency.", "title": "" }, { "docid": "5dee09c7bcf1ccfe6b8a68518b9eddb0", "text": "Being able to make small investments in very valuable real estate could make this a game changer. I want to invest in a skyscraper in the UAE, but I only have $10k. I can just use REAL tokens to buy a percentage of that property. At least, that's the way I understand this to work.", "title": "" }, { "docid": "1780c956b6e79156a96d46a6b5e1ce97", "text": "\"Remind him that, over the long-term, investing in safe-only assets may actually be more risky than investing in stocks. Over the long-term, stocks have always outperformed almost every other asset class, and they are a rather inflation-proof investment. Dollars are not \"\"safe\"\"; due to inflation, currency exchange, etc., they have some volatility just like everything else.\"", "title": "" }, { "docid": "6f663ad4ec7451b19430e6e659f58d06", "text": "\"So here are some of the risks of renting a property: Plus the \"\"normal\"\" risk of losing your job, health, etc., but those are going to be bad whether you had the rental or not, so those aren't really a factor. Can you beat the average gain of the S&P 500 over 10 years? Probably, but there's significant risk that something bad will happen that could cause the whole thing to come crashing down. How many months can you go without the rental income before you can't pay all three mortgages? Is that a risk you're willing to take for $5,000 per year or less? If the second home was paid for with cash, AND you could pay the first mortgage with your income, then you'd be in a much better situation to have a rental property. The fact that the property is significantly leveraged means that any unfortunate event could put you in a serious financial bind, and makes me say that you should sell the rental, get your first mortgage paid down as soon as possible, and start saving cash to buy rental property if that's what you want to invest in. I think we could go at least 24 months with no rental income Well that means that you have about $36k in an emergency fund, which makes me a little more comfortable with a rental, but that's still a LOT of debt spread across two houses. Another way to think about it: If you just had your main house with a $600k mortgage (and no HELOC), would you take out a $76k HELOC and buy the second house with a $200k mortgage?\"", "title": "" }, { "docid": "61e08f0d238c2474a7eb648aac96c339", "text": "\"TL;DR - go with something like Barry Ritholtz's All Century Portfolio: 20 percent total U.S stock market 5 percent U.S. REITs 5 percent U.S. small cap value 15 percent Pacific equities 15 percent European equities 10 percent U.S. TIPs 10 percent U.S. high yield corp bonds 20 percent U.S. total bond UK property market are absurdly high and will be crashing a lot very soon The price to rent ratio is certainly very high in the UK. According to this article, it takes 48 years of rent to pay for the same apartment in London. That sounds like a terrible deal to me. I have no idea about where prices will go in the future, but I wouldn't voluntarily buy in that market. I'm hesitant to invest in stocks for the fear of losing everything A stock index fund is a collection of stocks. For example the S&P 500 index fund is a collection of the largest 500 US public companies (Apple, Google, Shell, Ford, etc.). If you buy the S&P 500 index, the 500 largest US companies would have to go bankrupt for you to \"\"lose everything\"\" - there would have to be a zombie apocalypse. He's trying to get me to invest in Gold and Silver (but mostly silver), but I neither know anything about gold or silver, nor know anyone who takes this approach. This is what Jeremy Siegel said about gold in late 2013: \"\"I’m not enthusiastic about gold because I think gold is priced for either hyperinflation or the end of the world.\"\" Barry Ritholtz also speaks much wisdom about gold. In short, don't buy it and stop listening to your friend. Is buying a property now with the intention of selling it in a couple of years for profit (and repeat until I have substantial amount to invest in something big) a bad idea? If the home price does not appreciate, will this approach save you or lose you money? In other words, would it be profitable to substitute your rent payment for a mortgage payment? If not, you will be speculating, not investing. Here's an articles that discusses the difference between speculating and investing. I don't recommend speculating.\"", "title": "" }, { "docid": "488a2e2da0765eb148803ded8cdeccfb", "text": "Like @littleadv, I don't consider a mortgage on a primary residence to be a low-risk investment. It is an asset, but one that can be rather illiquid, depending on the nature of the real estate market in your area. There are enough additional costs associated with home-ownership (down-payment, insurance, repairs) relative to more traditional investments to argue against a primary residence being an investment. Your question didn't indicate when and where you bought your home, the type of home (single-family, townhouse, or condo) the nature of your mortgage (fixed-rate or adjustable rate), or your interest rate, but since you're in your mid-20s, I'm guessing you bought after the crash. If that's the case, your odds of making a profit if/when you sell your home are higher than they would be if you bought in the 2006/2007 time-frame. This is no guarantee of course. Given the amount of housing stock still available, housing prices could still fall further. While it is possible to lose money in all sorts of investments, the illiquid nature of real estate makes it a lot more difficult to limit your losses by selling. If preserving principal is your objective, money market funds and treasury inflation protected securities are better choices than your home. The diversification your financial advisor is suggesting is a way to manage risk. Not all investments perform the same way in a given economic climate. When stocks increase in value, bonds tend to decrease (and vice versa). Too much money in a single investment means you could be wiped out in a downturn.", "title": "" }, { "docid": "cbc8773cb5a67bbf55cba1b513b1816b", "text": "\"Due to the zero percent interest rate on the Euro right now you won't find any investment giving you 5% which isn't equivalent to gambling. One of the few investment forms which still promises gains without unreasonable risks right now seems to be real estate, because real estate prices in German urban areas (not so in rural areas!) are growing a lot recently. One reason for that is in fact the low interest rate, because it makes it very cheap right now to take a loan and buy a home. This increased demand is driving up the prices. Note that you don't need to buy a property yourself to invest in real estate (20k in one of the larger cities of Germany will get you... maybe a cardboard box below a bridge?). You can invest your money in a real estate fund (\"\"Immobilienfond\"\"). You then don't own a specific property, you own a tiny fraction of a whole bunch of different properties. This spreads out the risk and allows you to invest exactly as much money as you want. However, most real estate funds do not allow you to sell in the first two years and require that you announce your sale one year in advance, so it's not a very liquid asset. Also, it is still a risky investment. Raising real estate prices might hint to a bubble which might burst eventually. Financial analysts have different opinions about this. But fact is, when the European Central Bank starts to take interest again, then the demand for real estate property will drop and so will the prices. When you are not sure what to do, ask your bank for investment advise. German banks are usually trustworthy in this regard.\"", "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": "dc3d31cae4876d633c5f8674b48d8b89", "text": "\"Is it safe? No in general. Are there any other safe \"\"paper\"\" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything.\"", "title": "" }, { "docid": "3da4efe6540dfd85d329d83f22974972", "text": "\"With no numbers offered, it's not like we can tell you if it's a wise purchase. -- JoeTaxpayer We can, however, talk about the qualitative tradeoffs of renting vs owning. The major drawback which you won't hear enough about is risk. You will be putting a very large portion of your net worth in what is effectively a single asset. This is somewhat risky. What happens if the regional economy takes a hit, and you get laid off? Chances are you won't be the only one, and the value of your house will take a hit at the same time, a double-whammy. If you need to sell and move away for a job in another town, you will be taking a financial hit - that is, if you can sell and still cover your mortgage. You will definitely not be able to walk away and find a new cheap apartment to scrimp on expenses for a little while. Buying a house is putting down roots. On the other hand, you will be free from the opposite risk: rising rents. Once you've purchased the house, and as long as you're living in it, you don't ever need to worry about a local economic boom and a bunch of people moving into town and making more money than you, pushing up rents. (The San Francisco Bay Area is an example of where that has happened. Gentrification has its malcontents.) Most of the rest is a numbers game. Don't get fooled into thinking that you're \"\"throwing away\"\" money on renting - if you really want to, you can save money yourself, and invest a sum approximately equal to your down payment in the stock market, in some diversified mutual funds, and you will earn returns on that at a rate similar to what you would get by building equity in your home. (You won't earn outsized housing-bubble-of-2007 returns, but you shouldn't expect those in the housing market of today anyway.) Also, if you own, you have broad discretion over what you can do with the property. But you have to take care of the maintenance and stuff too.\"", "title": "" }, { "docid": "5757acae7e1624d29020368571f4543e", "text": "I would suggest, both as an investor and as someone who has some experience with a family-run trust (not my own), that this is probably not something you should get involved with, unless the money is money you're not worried about - money that otherwise would turn into trips to the movies or something like that. If you're willing to treat it as such, then I'd say go for it. First off, this is not a short or medium term investment. This sort of thing will not be profitable right away, and it will take quite a few years to become profitable to the point that you could take money out of it - if ever. Your money will be effectively, if not actually, locked up for years, and be nearly entirely illiquid. Second, it's not necessarily a good investment even considering that. Real estate is something people tend to feel like it should be an amazing investment that just makes you money, and is better than risky things like the stock market; except it's really not. It's quite risky, vulnerable to things like the 2008 crash, but also to things like a local market being a bit down, or having several months with no renter. The amount your fund will have in it (at most $100x15/month) won't be enough to buy even one property for years ($1500/month means you're looking at what, 100-150 months before you have enough?), and as such won't have enough to buy multiple properties for even longer, which is where you reach some stability. Having a washing machine break down or a roof leak is a big deal when you only have one property to manage; having five or six properties spreads out the risk significantly. You won't get tax breaks from this, of course, and that's where the real issue is for you. You would be far better off putting your money in a Roth IRA (or a regular IRA, but based on your career choice and current income, I'd strongly consider a Roth). You'll get tax free growth, less risky than this fund AND probably faster growing - but regardless of both of those, tax free. That 15-25% that Uncle Sam is giving you back is a huge, huge deal, greater than any return a fund is going to give you (and if they promise that high, run far and fast). Finally, as someone who's watched a family trust work at managing itself - it's a huge, huge headache, and not something I'd recommend at least (unless it comes with money, in which case it's of course a different story). You won't agree on investments, inevitably, and you'll end up spending huge amounts of time trying to convince each other to go with your idea - and it will likely end up being fairly stagnant and conservative, because that's what everyone will be able to at least not object to. It might be something you all enjoy doing, in which case good luck - but definitely not my cup of tea.", "title": "" }, { "docid": "31c83387a5c166a0bf0e8c3637a9e7db", "text": "I'll add this to what the other answers said: if you are a renter now, and the real estate you want to buy is a house to live in, then it may be worth it - in a currency devaluation, rent may increase faster than your income. If you pay cash for the home, you also have the added benefit of considerably reducing your monthly housing costs. This makes you more resilient to whatever the future may throw at you - a lower paying job, for instance, or high inflation that eats away at the value of your income. If you get a mortgage, then make sure to get a fixed interest rate. In this case, it protects you somewhat from high inflation because your mortgage payment stays the same, while what you would have had to pay in rent keeps going up an up. In both cases there is also taxes and insurance, of course. And those would go up with inflation. Finally, do make sure to purchase sensibly. A good rule of thumb on how much you can afford to pay for a home is 2.5x - 3.5x your annual income. I do realize that there are some areas where it's common for people to buy homes at a far greater multiple, but that doesn't mean it's a sensible thing to do. Also: I'll second what @sheegaon said; if you're really worried about the euro collapsing, it might give you some peace of mind to move some money into UK Gilts or US Treasuries. Just keep in mind that currencies do move against each other, so you'd see the euro value of those investments fluctuate all the time.", "title": "" }, { "docid": "8a01424e83595065e20e56380b974ff5", "text": "\"I don't know much about New Zealand, but here are just some general thoughts on things to consider. The big difference between buying a house and investing in stocks or the like is that it is fairly easy to invest in a diversified array of stocks (via a mutual fund), but if you buy a house, you are investing in a single piece of property, so everything depends on what happens with that specific property. This in itself is a reason many people don't invest in real estate. Shares of a given company or mutual fund are fungible: if you buy into a mutual fund, you know you're getting the same thing everyone else in the fund is getting. But every piece of real estate is unique, so figuring out how much a property is worth is less of an exact science. Also, buying real estate means you have to maintain it and manage it (or pay someone else to do so). It's a lot more work to accurately assess the income potential of a property, and then maintain and manage the property over years, than it is to just buy some stocks and hold them. Another difficulty is, if and when you do decide to sell the property, doing so again involves work. With stocks you can pretty much sell them whenever you want (although you may take a loss). With a house you have to find someone willing to buy it, which can take time. So a big factor to consider is the amount of effort you're prepared to put into your investment. You mention that your parents could manage the property for you, but presumably you will still have to pay for maintenance and do some managing work yourself (at least discussing things with them and making decisions). Also, if you own the property for a long time your parents will eventually become too old to take care of it, at which point you'll have to rethink the management aspect. So that's sort of the psychological side of things. As for the financial, you don't mention selling the house at any point. If you never sell it, the only gain you get from it is the rent it brings in. So the main factor to consider when deciding whether to buy it as a rental is how much you can rent it for. This is going to be largely determined by where it is located. So from the perspective of making an investment the big question --- which you don't address in the info you provided --- is: how much can you rent this house for, and how much will you be able to rent it for in the future? There is no way to know this for sure, and the only way to get even a rough sense of it is to talk with someone who knows the local real estate market well (e.g., a broker, appraiser, or landlord). If the property is in an \"\"up-and-coming\"\" area (i.e., more people are going to move there in the future), rents could skyrocket; if it's in a backwater, rents could remain stagnant indefinitely. Basically, if you're going to buy a piece of real estate as a long-term investment, you need to know a lot about that property in order to make any kind of comparison with another investment vehicle like a mutual fund. If you already live in the area you may know some things already (like how much you might be able to rent it for). Even so, though, you should try to get some advice from trustworthy people who know the local real estate situation.\"", "title": "" }, { "docid": "9183b4c1428a12698926e2e6ad9e4e91", "text": "A possibility could be real estate brokerage firms such as Realogy or Prudential. Although a brokerage commission is linked to the sale prices it is more directly impacted by sales volume. If volume is maintained or goes up a real estate brokerage firm can actually profit rather handsomely in an up market or a down market. If sales volume does go up another option would be other service markets for real estate such as real estate information and marketing websites and sources i.e. http://www.trulia.com. Furthermore one can go and make a broad generalization such as since real estate no longer requires the same quantity of construction material other industries sensitive to the price of those commodities should technically have a lower cost of doing business. But be careful in the US much of the wealth an average american has is in their home. In this case this means that the economy as a whole takes a dive due to consumer uncertainty. In which case safe havens could benefit, may be things like Proctor & Gamble, gold, or treasuries. Side Note: You can always short builders or someone who loses if the housing market declines, this will make your investment higher as a result of the security going lower.", "title": "" } ]	fiqa
22429b15e6eb37a66d13c7a2214646bb	What does a well diversified self-managed investment portfolio look like?	[ { "docid": "12cf46e5aa8dc153b2ce8e72f94d8999", "text": "Diversified is relative. Alfred has all his money in Apple. He's done very well over the last 10 years, but I think most investors would say that he's taking an incredible risk by putting everything on one stock. Betty has stock in Apple, Microsoft, and Google. Compared to Alfred, she is diversified. Charlie looks at Betty and realizes that she is only investing in one particular industry. All the companies in an individual industry can have a downturn together, so he invests everything in an S&P 500 index fund. David looks at Charlie and notes that he's got everything in large, high-capitalization companies. Small-cap stocks are often where the growth happens, so he invests in a total stock market fund. Evelyn realizes that David has all his money tied up in one country, the United States. What about the rest of the world? She invests in a global fund. Frank really likes Evelyn's broad approach to equities, but he knows that some portion of fixed-income assets (e.g. cash deposits, bonds) can reduce portfolio volatility—and may even enhance returns through periodic rebalancing. He does what Evelyn does, but also allocates some percentage of his portfolio to fixed income, and intends to maintain his target allocations. Being diversified enough depends on your individual goals and investing philosophy. There are some who would say that it is wrong to put all of your money in one fund, no matter what it is. Others would say that a sufficiently broad index fund is inherently diversified as-is.", "title": "" }, { "docid": "68137f0a658c2a2bc73b6b31ad72c235", "text": "\"When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called \"\"risk apettite\"\", more formally known as Risk Tolerance: Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. (emphasis added) This means that you are willing to accept some losses in order to get a potential bigger return. Fidelity has this graph: As you can see in the table above, the higher the risk tolerance, the bigger the difference between the best and worst values. That is the variability. The right-most pie can be one example of an agressive diversified portfolio. But this does not mean you should go and buy exactly that security compostion. High-risk means playing with fire. Unless you are a professional stuntman, playing with fire usually leaves people burnt. In a financial context this usually means the money is gone. Recommended Reading: Investopedia; Risk and Diversification: The Risk-Reward Tradeoff Investopedia; How to construct a High Risk portfolio Fidelity: Guide to Diversification KPMG: Understanding and articulating Risk Appetite (pdf)\"", "title": "" }, { "docid": "30fe1f5527b4099b5136e2ba5d9789d9", "text": "\"Diversification is spreading your investments around so that one point of risk doesn't sink your whole portfolio. The effect of having a diversified portfolio is that you've always got something that's going up (though, the corollary is that you've also always got something going down... winning overall comes by picking investments worth investing in (not to state the obvious or anything :-) )) It's worth looking at the different types of risk you can mitigate with diversification: Company risk This is the risk that the company you bought actually sucks. For instance, you thought gold was going to go up, and so you bought a gold miner. Say there are only two -- ABC and XYZ. You buy XYZ. Then the CEO reveals their gold mine is played out, and the stock goes splat. You're wiped out. But gold does go up, and ABC does gangbusters, especially now they've got no competition. If you'd bought both XYZ and ABC, you would have diversified your company risk, and you would have been much better off. Say you invested $10K, $5K in each. XYZ goes to zero, and you lose that $5K. ABC goes up 120%, and is now worth $11K. So despite XYZ bankrupting, you're up 10% on your overall position. Sector risk You can categorize stocks by what \"\"sector\"\" they're in. We've already talked about one: gold miners. But there are many more, like utilities, bio-tech, transportation, banks, etc. Stocks in a sector will tend to move together, so you can be right about the company, but if the sector is out of favor, it's going to have a hard time going up. Lets extend the above example. What if you were wrong about gold going up? Then XYZ would still be bankrupt, and ABC would be making less money so they went down as well; say, 20%. At that point, you've only got $4K left. But say that besides gold, you also thought that banks were cheap. So, you split your investment between the gold miners and a couple of banks -- lets call them LMN and OP -- for $2500 each in XYZ, ABC, LMN, and OP. Say you were wrong about gold, but right about banks; LMN goes up 15%, and OP goes up 40%. At that point, your portfolio looks like this: XYZ start $2500 -100% end $0 ABC start $2500 +120% end $5500 LMN start $2500 +15% end $2875 OP start $2500 +40% end $3500 For a portfolio total of: $11,875, or a total gain of 18.75%. See how that works? Region/Country/Currency risk So, now what if everything's been going up in the USA, and everything seems so overpriced? Well, odds are, some area of the world is not over-bought. Like Brazil or England. So, you can buy some Brazilian or English companies, and diversify away from the USA. That way, if the market tanks here, those foreign companies aren't caught in it, and could still go up. This is the same idea as the sector risk, except it's location based, instead of business type based. There is an additional twist to this -- currencies. The Brits use the pound, and the Brazilians use the real. Most small investors don't think about this much, but the value of currencies, including our dollar, fluctuates. If the dollar has been strong, and the pound weak (as it has been, lately), then what happens if that changes? Say you own a British bank, and the dollar weakens and the pound strengthens. Even if that bank doesn't move at all, you would still make a gain. Example: You buy British bank BBB for 40 pounds a share, when each pound costs $1.20. Say after a while, BBB is still 40 pounds/share, but the dollar weakened and the pound strengthened, such that each pound is now worth $1.50. You could sell BBB, and because of the currency exchange once you've got it converted back to dollars you'd have a 25% gain. Market cap risk Sometimes big companies do well, sometimes it's small companies. The small caps are riskier but higher returning. When you think about it, small and mid cap stocks have much more \"\"room to run\"\" than large caps do. It's much easier to double a company worth $1 billion than it is to double a company worth $100 billion. Investment types Stocks aren't the only thing you can invest in. There's also bonds, convertible bonds, CDs, preferred stocks, options and futures. It can get pretty complicated, especially the last two. But each of these investment behaves differently; and again the idea is to have something going up all the time. The classical mix is stocks and bonds. The idea here is that when times are good, the stocks go up; when times are bad, the bonds go up (because they're safer, so more people want them), but mostly they're there to providing steady income and help keep your portfolio from cratering along with the stocks. Currently, this may not work out so well; stocks and bonds have been moving in sync for several years, and with interest rates so low they don't provide much income. So what does this mean to you? I'm going make some assumptions here based on your post. You said single index, self-managed, and don't lower overall risk (and return). I'm going to assume you're a small investor, young, you invest in ETFs, and the single index is the S&P 500 index ETF -- SPY. S&P 500 is, roughly, the 500 biggest companies in the USA. Further, it's weighted -- how much of each stock is in the index -- such that the bigger the company is, the bigger a percentage of the index it is. If slickcharts is right, the top 5 companies combined are already 11% of the index! (Apple, Microsoft, Exxon, Amazon, and Johnson & Johnson). The smallest, News Corp, is a measly 0.008% of the index. In other words, if all you're invested in is SPY, you're invested in a handfull of giant american companies, and a little bit of other stuff besides. To diversify: Company risk and sector risk aren't really relevant to you, since you want broad market ETFs; they've already got that covered. The first thing I would do is add some smaller companies -- get some ETFs for mid cap, and small cap value (not small cap growth; it sucks for structural reasons). Examples are IWR for mid-cap and VBR for small-cap value. After you've done that, and are comfortable with what you have, it may be time to branch out internationally. You can get ETFs for regions (such as the EU - check out IEV), or countries (like Japan - see EWJ). But you'd probably want to start with one that's \"\"all major countries that aren't the USA\"\" - check out EFA. In any case, don't go too crazy with it. As index investing goes, the S&P 500 is not a bad way to go. Feed in anything else a little bit at a time, and take the time to really understand what it is you're investing in. So for example, using the ETFs I mentioned, add in 10% each IWR and VBR. Then after you're comfortable, maybe add 10% EFA, and raise IWR to 20%. What the ultimate percentages are, of course, is something you have to decide for yourself. Or, you could just chuck it all and buy a single Target Date Retirement fund from, say, Vanguard or T. Rowe Price and just not worry about it.\"", "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": "136a3319c5a9aa18f28e1dc9a86d035d", "text": "If you are looking for an index index fund, I know vanguard offers their Star fund which invests in 11 other funds of theirs and is diversified across stocks, bonds, and short term investments.", "title": "" }, { "docid": "642b86f98a538677ffa13426a8d71943", "text": "Is it POSSIBLE? Of course. I don't even need to do any research to prove that. Just some mathematical reasoning: Take the S&P 500. Find the performance of each stock in that list over whatever time period you want to use for your experiment. Now select some number of the best-performing stocks from the list -- any number less than 500. By definition, the X best must be better than or equal to the average. Assuming all the stocks on the S&P did not have EXACTLY the same performance, these 10 must be better than average. You now have a diversified portfolio that performed better than the S&P 500 index fund. Of course as they always say in a prospectus, past performance is not a guarantee of future performance. It's certainly possible to do. The question is, if YOU selected the stocks making up a diversified portfolio, would your selections do better than an index fund?", "title": "" }, { "docid": "846d367583fbcb6cd2fabd6e2d9345f9", "text": "\"I recommend you take a look at this lecture (really, the whole series is enlightening), from Swenson. He identifies 3 sources of returns: diversification, timing and selection. He appears to discard timing and selection as impossible. A student kinda calls him out on this. Diversification reduces risk, not increase returns. It turns out they did time the market, by shorting .com's before the bubble, and real estate just before the downturn. In 1990, Yale started a \"\"Absolute Return\"\" unit and allocated like 15 percent to it, mostly by selling US equities, that specializes in these sorts of hedging moves. As for why you might employ managers for specific areas, consider that the expense ratio Wall Street charges you or me still represent a very nice salary when applied to the billions in Yale's portfolio. So they hire internally to reduce expenses, and I'm sure they're kept busy. They also need people to sell off assets to maintain ratios, and figuring out which ones to sell might take specialized knowledge. Finally, in some areas, you functionally cannot invest without management. For example, Yale has a substantial allocation in private equity, and by definition that doesn't trade on the open market. The other thing you should consider is that for all its diversification, Yale lost 25 percent of their portfolio in 2009. For a technique that's supposed to reduce volatility, they seem to have a large range of returns over the past five years.\"", "title": "" }, { "docid": "5685b1ded2c93079cd5e6b11fdc85535", "text": "I found that an application already exists which does virtually everything I want to do with a reasonable interface. Its called My Personal Index. It has allowed me to look at my asset allocation all in one place. I'll have to enter: The features which solve my problems above include: Note - This is related to an earlier post I made regarding dollar cost averaging and determining rate of returns. (I finally got off my duff and did something about it)", "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": "5c857c04427909172b1463baf2887b5b", "text": "\"Yes, a diversified portfolio can generate greater returns than the S&P 500 by going OUTSIDE it. For instance, small stocks (on average) generate higher returns than the \"\"large caps\"\" found in the S&P 500. So if you own a diversified portfolio of stocks, some of which are smaller (in market cap) than the typical S&P 500 stock, you have a chance to outperform. You might also outperform by owning other asset classes than stocks such as gold, real estate, and timber (among others) at appropriate times. (You may also be able to get the relevant exposure by owning gold and timber stocks and REITS.) This was a lesson that David Swensen of the Yale endowment taught us.\"", "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": "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": "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": "75e2b29099a8c4fa0c12049ef7f73594", "text": "What you may be looking for are multi-manager ETFs; these invest in a basket of diversified funds to get the best out of all of the funds. The problem with multi-manager funds is, of course, that you pay fees twice; once to the fund itself and once to each of the funds in the fund. The low fees on ETFs mean that it is not very profitable to actively maintain one so there are not many around (Googling returns very few). Noting that historic success doesn't guarantee future success and that fees are being applied to fees these funds only really benefit from diversification of manager performance risk. partial source of information and an example of a (non-outperforming) Multi-manager ETF: http://www.etfstrategy.co.uk/advisorshares-sets-date-for-multi-manager-etf-with-charitable-twist-give-53126/", "title": "" }, { "docid": "dae84622294f488ae7fff5c11d07754a", "text": "That looks like a portfolio designed to protect against inflation, given the big international presence, the REIT presence and TIPS bonds. Not a bad strategy, but there are a few things that I'd want to look at closely before pulling the trigger.", "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": "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": "3fec87ba98c65968d2530af5cf61d076", "text": "\"An investment portfolio is typically divided into three components: All three of those can be accessed through mutual funds or ETFs. A 401(k) will probably have a small set of mutual funds for you to pick from. Mutual funds may charge you silly expenses if you pick a bad one. Look at the prospectus for the expense ratio. If it's over 1% you're definitely paying too much. If it's over 0.5% you're probably paying too much. If it's less than 0.1% you have a really good deal. US stocks are generally the core holding until you move into retirement (or get close to spending the money on something else if it's not invested for retirement). International stocks are riskier than US stocks, but provide opportunity for diversification and better returns than the US stocks. Bonds, or fixed-income investments, are generally very safe, but have limited opportunities for returns. They tend to do better when stocks are doing poorly. When you've got a while to invest, you should be looking at riskier investments; when you don't, you should be looking for safer investments. A quick (and rough) rule of thumb is that \"\"your age should match the portion of your portfolio in bonds\"\". So if you're 50 years old and approaching retirement in 15 years or so, you should have about 50% in bonds. Roughly. People whose employment and future income is particularly tied to one sector of the market would also do well to avoid investing there, because they already are at risk if it performs badly. For instance, if you work in the technology sector, loading up on tech stocks is extra risky: if there's a big bust, you're not just out of a job, your portfolio is dead as well. More exotic options are available to diversify a portfolio: While many portfolios could benefit from these sorts of holdings, they come with their own advantages and disadvantages and should be researched carefully before taking a significant stake in them.\"", "title": "" }, { "docid": "f50a77edeff46066dd58bbd93707a0f4", "text": "Here are the specific Vanguard index funds and ETF's I use to mimic Ray Dalio's all weather portfolio for my taxable investment savings. I invest into this with Vanguard personal investor and brokerage accounts. Here's a summary of the performance results from 2007 to today: 2007 is when the DBC commodity fund was created, so that's why my results are only tested back that far. I've tested the broader asset class as well and the results are similar, but I suggest doing that as well for yourself. I use portfoliovisualizer.com to backtest the results of my portfolio along with various asset classes, that's been tremendously useful. My opinionated advice would be to ignore the local investment advisor recommendations. Nobody will ever care more about your money than you, and their incentives are misaligned as Tony mentions in his book. Mutual funds were chosen over ETF's for the simplicity of auto-investment. Unfortunately I have to manually buy the ETF shares each month (DBC and GLD). I'm 29 and don't use this for retirement savings. My retirement is 100% VSMAX. I'll adjust this in 20 years or so to be more conservative. However, when I get close to age 45-50 I'm planning to shift into this allocation at a market high point. When I approach retirement, this is EXACTLY where I want to be. Let's say you had $2.7M in your retirement account on Oct 31, 2007 that was invested in 100% US Stocks. In Feb of 2009 your balance would be roughly $1.35M. If you wanted to retire in 2009 you most likely couldn't. If you had invested with this approach you're account would have dropped to $2.4M in Feb of 2009. Disclaimer: I'm not a financial planner or advisor, nor do I claim to be. I'm a software engineer and I've heavily researched this approach solely for my own benefit. I have absolutely no affiliation with any of the tools, organizations, or funds mentioned here and there's no possible way for me to profit or gain from this. I'm not recommending anyone use this, I'm merely providing an overview of how I choose to invest my own money. Take or leave it, that's up to you. The loss/gain incured from this is your responsibility, and I can't be held accountable.", "title": "" } ]	fiqa
ab5990a009587f9fd8a6b06a71342c74	Why are the administrative fees for the three biggest donor-advised funds identical?	[ { "docid": "44fa918fa226a914a48c0e624bff32a8", "text": "The commenters who referred you to the prisoner's dilemma are exactly correct, but I wanted to give a more detailed explanation because I find game theory quite interesting. The prisoner's dilemma is a classic scenario in game theory where even though it's in the best interests of two or more players to cooperate, they fail to do so. Wikipedia has a simple example using prisoners, but I'll use a simple example using Fidel and Charles, who are fund managers at Fidelity and Charles Schwab, respectively. To make the table shorter, I abbreviated a bit: INC = increase fees, KEEP=keep fees the same, DEC=decrease fees. Here is the dilemma itself, in the table that shows the resulting market shares if each fund manager follows the course of action in question. While this example isn't mathematically rigorous because I completely fabricated the numbers, it makes a good example. The most profitable course of action would be both fund managers agreeing to increase their fees, which would keep their market shares the same but increase their profits as they earn more fees. However, this won't happen for several reasons. Because economies of scale exist in the market for investment funds, it's reasonable to assume in a simple example that as funds grow larger, their costs decrease, so even though a fund manager decreases his fees (betraying the other players), this decrease won't be enough to reduce their profits. In fact, the increased market share resulting from such a decrease may well dominate the decreased fees and lead to higher profits. The prisoner's dilemma is highly applicable to markets such as these because they exist as oligopolies, i.e. markets where a relatively small number of established sellers possess considerable market power. If you actually wanted to model the market for donor-advised funds using game theory, you need to take a few more things into account. Obviously there are more than two firms. It's probably a valid assumption that the market is an oligopoly with significant economies of scale, but I haven't researched this extensively. There is more than one time period, so some form of the iterated prisoner's dilemma is needed. The market for donor-advised funds is also complicated by the fact that these are philanthropic funds. This may introduce tax implications or the problem of goodwill and institutional opinion of these funds. Although both funds increasing their fees may increase their profits in theory, institutional investors may look on this as a pure profit-seeking and take their funds elsewhere. For example, they may choose to invest in smaller funds with higher fees but better reputations. While reputation is important for any company, it might make more of a difference when the fund/investment vehicle is philanthropic in nature. I am by no means an expert on game theory, so I'm sure there are other nuances to the situation that I'm unaware of.", "title": "" } ]	[ { "docid": "a9f1d97d08857ec75a4dae304f17d6bd", "text": "\"This was an article meant for mass consumption, written by a Yale law professor and an individual who has a PhD in economics (in addition to his practical, on the job experience managing the Yale endowment). I'm having a hard time believing that it was \"\"poorly argued.\"\" As for proof, that's the sort of thing you find in financial and economic journals (for example, [The Effect of Maker-Taker Fees on Investor Order Choice and Execution Quality in U.S. Stock Markets](http://people.stern.nyu.edu/jhasbrou/SternMicroMtg/SternMicroMtg2015/Papers/MakerTakerODonoghue.pdf)). One of the direct takeaways from the above paper states: \"\"I find that total trading cost to investors increases, when the taker fee and maker rebate increase, even if the net fee is held fixed. The total trading cost represents the net-of-fees bid-ask spread and the brokerage commission to an investor wanting to buy and then sell the same stock.\"\" I'm not here to argue for the paper. I'm really here to tell you that these guys have far more of a clue than you realize. ~~A dash of humility on your part may be in order, given the fact that you've already admitted to the reality that you aren't sure of any of this yourself.~~ Edit: Thought I was responding to a different thread.\"", "title": "" }, { "docid": "d1eee4f33571648fb95733b26e6f5736", "text": "\"Here's an example that I'm trying to figure out. ETF firm has an agreement with GS for blocks of IBM. They have agreed on daily VWAP + 1% for execution price. Further, there is a commission schedule for 5 mils with GS. Come month end, ETF firm has to do a monthly rebalance. As such must buy 100,000 shares at IBM which goes for about $100 The commission for the trade is 100,000 * 5 mils = $500 in commission for that trade. I assume all of this is covered in the expense ratio. Such that if VWAP for the day was 100, then each share got executed to the ETF at 101 (VWAP+ %1) + .0005 (5 mils per share) = for a resultant 101.0005 cost basis The ETF then turns around and takes out (let's say) 1% as the expense ratio ($1.01005 per share) I think everything so far is pretty straight forward. Let me know if I missed something to this point. Now, this is what I'm trying to get my head around. ETF firm has a revenue sharing agreement as well as other \"\"relations\"\" with GS. One of which is 50% back on commissions as soft dollars. On top of that GS has a program where if you do a set amount of \"\"VWAP +\"\" trades you are eligible for their corporate well-being programs and other \"\"sponsorship\"\" of ETF's interests including helping to pay for marketing, rent, computers, etc. Does that happen? Do these disclosures exist somewhere?\"", "title": "" }, { "docid": "5d354ffcba653ace3f0d5f2d49614d2d", "text": "First and foremost you need to be aware of what you are comparing. In this case, HSBC as traded on the NYSE exchange is not common shares, but an ADR (American Depository Receipt) with a 5:1 ratio from the actual shares. So for most intents and purposes owning one ADR is like owning five common shares. But for special events like dividends, there may be other considerations, such as the depository bank (the institution that created the ADR) may take a percentage. Further, given that some people, accounts or institutions may be required to invest in a given country or not, there may be some permanent price dislocation between the shares and the ADR, which can further lead to discrepancies which are then highlighted by the seeming difference in dividends.", "title": "" }, { "docid": "b7c8115416ff9f0bb1c0fe23627ab8ab", "text": "The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)", "title": "" }, { "docid": "7a31634080d21cd160fd160fc41d54b5", "text": "\"That's an example of the Act applying to an adviser to a fund, not a fund being exempt from the Act. An adviser to a 3(c)7 fund in this case is taking advantage of a safe harbor pertaining to performance-based compensation set forth in the Act. The reasoning is that a 3(c)7 fund will by definition most likely be comprised of \"\"qualified clients.\"\" The prohibition does apply to other private funds - such as 3(c)1 funds. To the extent that their investors are not \"\"qualified clients,\"\" they are unable to charge a performance-based fee.\"", "title": "" }, { "docid": "75e2b29099a8c4fa0c12049ef7f73594", "text": "What you may be looking for are multi-manager ETFs; these invest in a basket of diversified funds to get the best out of all of the funds. The problem with multi-manager funds is, of course, that you pay fees twice; once to the fund itself and once to each of the funds in the fund. The low fees on ETFs mean that it is not very profitable to actively maintain one so there are not many around (Googling returns very few). Noting that historic success doesn't guarantee future success and that fees are being applied to fees these funds only really benefit from diversification of manager performance risk. partial source of information and an example of a (non-outperforming) Multi-manager ETF: http://www.etfstrategy.co.uk/advisorshares-sets-date-for-multi-manager-etf-with-charitable-twist-give-53126/", "title": "" }, { "docid": "30b42818168e9bacd7e46e29baf37382", "text": "Excellent summary. I'd add a minor point that it's cheaper to setup and run a hedge fund. The legal fees associated with starting a 40 Act mutual fund are about $750,000. A hedge fund cane be setup for about $80,000. It's also cheaper to keep the hedge fund going as the reporting requirements are much less. source: Have setup hedge funds and mutual funds. edit: A word and source. Edi", "title": "" }, { "docid": "0f25b9fbec9ffacf7aed54f24f4be5ec", "text": "In the absence of a country designation where the mutual fund is registered, the question cannot be fully answered. For US mutual funds, the N.A.V per share is calculated each day after the close of the stock exchanges and all purchase and redemption requests received that day are transacted at this share price. So, the price of the mutual fund shares for April 2016 is not enough information: you need to specify the date more accurately. Your calculation of what you get from the mutual fund is incorrect because in the US, declared mutual fund dividends are net of the expense ratio. If the declared dividend is US$ 0.0451 per share, you get a cash payout of US$ 0.0451 for each share that you own: the expense ratio has already been subtracted before the declared dividend is calculated. The N.A.V. price of the mutual fund also falls by the amount of the per-share dividend (assuming that the price of all the fund assets (e.g. shares of stocks, bonds etc) does not change that day). Thus. if you have opted to re-invest your dividend in the same fund, your holding has the same value as before, but you own more shares of the mutual fund (which have a lower price per share). For exchange-traded funds, the rules are slightly different. In other jurisdictions, the rules might be different too.", "title": "" }, { "docid": "bdc088e3c947f07ccdf31e5b845889e8", "text": "\"I just looked at a fund for my client, the fund is T Rowe Price Retirement 2015 (TRRGX). As stated in the prospectus, it has an annual expense ratio of 0.63%. In the fine print below the funds expenses, it says \"\"While the fund itself charges no management fee, it will indirectly bear its pro-rata share of the expenses of the underlying T. Rowe Price funds in which it invests (acquired funds). The acquired funds are expected to bear the operating expenses of the fund.\"\" One of it's acquired funds is TROSX which has an expense ratio of 0.86%. So the total cost of the fund is the weighted average of the \"\"acquired funds\"\" expense ratio's plus the listed expense ratio of the fund. You can see this at http://doc.morningstar.com/docdetail.aspx?clientid=schwab&key=84b36f1bf3830e07&cusip=74149P796 and its all listed in \"\"Fees and Expenses of the Fund\"\"\"", "title": "" }, { "docid": "d3741d5862564553029f431e8570eb66", "text": "\"The mutual fund is legally its own company that you're investing in, with its own expenses. Mutual fund expense ratios are a calculated value, not a promise that you'll pay a certain percentage on a particular day. That is to say, at the end of their fiscal year, a fund will total up how much it spent on administration and divide it by the total assets under management to calculate what the expense ratio is for that year, and publish it in the annual report. But you can't just \"\"pay the fee\"\" for any given year. In a \"\"regular\"\" account, you certainly could look at what expenses were paid for each fund by multiplying the expense ratio by your investment, and use it in some way to figure out how much additional you want to contribute to \"\"make it whole\"\" again. But it makes about as much sense as trying to pay the commission for buying a single stock out of one checking account while paying for the share price out of another. It may help you in some sort of mental accounting of expenses, but since it's all your money, and the expenses are all part of what you're paying to be able to invest, it's not really doing much good since money is fungible. In a retirement account with contribution limits, it still doesn't really make sense, since any contribution from outside funds to try to pay for expense ratios would be counted as contributions like any other. Again, I guess it could somehow help you account for how much money you wanted to contribute in a year, but I'm not really sure it would help you much. Some funds or brokerages do have non-expense-ratio-based fees, and in some cases you can pay for those from outside the account. And there are a couple cases where for a retirement account this lets you keep your contributions invested while paying for fees from outside funds. This may be the kind of thing that your coworker was referring to, though it's hard to tell exactly from your description. Usually it's best just to have investments with as low fees as possible regardless, since they're one of the biggest drags on returns, and I'd be very wary of any brokerage-based fees when there are very cheap and free mutual fund brokerages out there.\"", "title": "" }, { "docid": "819946382517061214fcfcea1453525c", "text": "You're right. That's a large part of what I talked about in my post, I just didn't call it that. The other provision of Title III (aka CROWDFUND Act) is that all the equity has to be purchased through a brokerage or funding portal. I mentioned those in another post in this thread.", "title": "" }, { "docid": "61f292c177b78daa76fd032500f0bff7", "text": "This is a Vanguard-specific difference in the sense that in the US, Vanguard is a leader in lowering management fees for the mutual funds that they offer. Of course, several US mutual fund companies have also been lowering the expense ratio of their mutual funds in recent years because more and more investors have been paying attention to this particular performance parameter, and opting for funds that have low expense ratios. But many US funds have not reduced their expense ratios very much and continue to have expense ratios of 1% or even higher. For example, American Funds Developing World Growth and Income Fund (DWGAX) charges a 1.39% expense ratio while their 2060 Retirement Fund (AANTX) charges 1.12% (the funds also have a 5.75% sales charge); Putnam Capital Opportunities Fund charges 1.91% for their Class C shares, and so on. Many funds with high expense ratios (and sometimes sales charges as well) show up as options in far too many 401(k) plans, especially 401(k) plans of small companies, because small companies do not enjoy economies of scale and do not have much negotiating power when dealing with 401(k) custodians and administrators.", "title": "" }, { "docid": "aa5888916091d16a9b14403dc22f162d", "text": "They do. The $260 already accounts for fees, I just left that out as I didn't believe it necessary info for the question of how to solve for group B. Edit : Oh, you mean accounting for the 1.5% interchange for group A? Yeah, I didn't do that. For group A we weren't given a number for monthly spend but we were told that they carry an average monthly balance of $3000.", "title": "" }, { "docid": "19f06ae3fb5539ce2720a61d47286e51", "text": "\"Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading. To see this, use the \"\"compare\"\" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.\"", "title": "" }, { "docid": "11d9f20c10870a59cfb7994066ecf4c1", "text": "\"The IRS has been particularly vague about the \"\"substantially identical\"\" investment part of the wash rule. Many brokers, Schwab for instance, say that only identical CUSIPs (exactly the same ETF) matter for the wash rule in their internal calculations, but warn that the IRS might consider two ETFs over the same index to be substantially identical. In your case, the broker has chosen to call these a wash despite even having different underlying indices. Talking to the broker is the first step as they will report it to the IRS. Though technically you have the final say in your taxes about the cost basis, discussing this with the IRS could be rather painful. First though it is probably worth checking with your broker about exactly what happened. There are other wash sale triggers that frequently trip people up that may have been in play here.\"", "title": "" } ]	fiqa
31c8f1ca95cb68b12937bab26b731376	Strategic countermeasures to overcome crisis in Russia	[ { "docid": "89bf83f18f6fc3252483ecf01139e83b", "text": "You could of course request payment in EUR or USD, maybe keep a PayPal account and just leave the funds in PayPal unless you need to withdraw the money in local currency? Either currency would be fine because the problem you are trying to overcome is the instability in the ruble. EUR and USD both accomplish that. If you can get local clients to pay in EUR or USD (again, PayPal seems like an easy way to accomplish that) you avoid the ruble, but at the risk that your services become more expensive to local clients because they have to convert a weaker currency to a stronger one. You should also solicit some international clients! You are obviously perfectly fluent in English and that's a significant advantage. And they'll be happy to pay in dollars and euros.", "title": "" }, { "docid": "e034c4331d15e3aef5d73451913e17b2", "text": "If you have significant assets, such as a large deposit, then diversification of risks such as currency risk is good practice - there are many good options, but keeping 100% of it in roubles is definitely not a good idea, nor is keeping 100% of it in a single foreign currency. Of course, it would be much more beneficial to have done it yesterday, and moments of extreme volatility generally are a bad time to make large uninformed trades, but if the deposit is sufficiently large (say, equal to annual expenses) then it would make sense to split it among different currencies and also different types of assets as well (deposit/stocks/precious metals/bonds). The rate of rouble may go up and down, but you also have to keep in mind that future events such as fluctuating oil price may risk a much deeper crisis than now, and you can look to experiences of the 1998 crisis as an example of what may happen if the situation continues to deteriorate.", "title": "" }, { "docid": "6e6ee42f0fee830618da3e7651a45ee1", "text": "\"You could do nothing for a while longer. Foreign exchange simply means your services are cheaper and imports and more expensive, local transactions are otherwise unaffected. Your main worry is whether the government's attempts to revert these issues will create inflation within Russia. Local clients will likely not care to pay you in Euros, Dollars, or Pounds (as it will cost them significantly more, they'd have to acquire the currency to pay you with) but does it matter if they pay in Roubles? The financial crisis in more an international thing, not a local one. Now it is possible there will be inflation setting in but I doubt the powers that be will allow that to happen... If you are concerned about it, buying non-liquid assets are the thing to do - a house will still be worth \"\"1 house\"\" no matter what a 1-million rouble note will buy you in a year's time. Similarly, you can invest in 'blue-chip' stocks that should be a good hedge against any further inflation (the rich don't tend to turn poor in difficult times!) In the meantime, get some international clients - as the Rouble is so low, relatively speaking, your services are very competitive. The rest of the time, is to wait it out a little - nobody knows what will happen, but in my knowledge of history interest rates like this drop back to something much closer to normal quite quickly.\"", "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": "23569de52f40f654ed3411b7c2d09efc", "text": "Bitcoins are very liquid. They can be sold or spent very easily. And you don't depend on the banks being solvent to keep your Bitcoin funds, since you can keep them yourself in an offline wallet. I'm not sure what's the legality of Bitcoin in Russia, though.", "title": "" } ]	[ { "docid": "05b31c4863b954ec74e44c37162952a5", "text": "Ehm, the 2008 crisis was effectively a debt crisis. Debt levels are higher now than in 2008 and default rates are on the rise. Furthermore the ability for monetary policy to absorb has been spent. What helped in 2008 was the high savings rate of China. Now even china is in a debt bubble. Stocks are beyond expensive in a historical context, and the reason is, with money so cheap where else do you stand to get some return? This crash is coming... not sure when as market timing is impossible, but i would advise you to take a big crisis into account in your planning...,", "title": "" }, { "docid": "6d879dd78129acc7224ebfb1c2f3f669", "text": "This crisis just shows why the dollar has no chance in my lifetime of loding it's dominance. Russia is a major world player, were taking what seemed right steps to move forward economically, socially, politically. Yet this crisis shows the truth. Media controlled by the kremlin. Taking actions in other countries. No fear of economic hardships due to political issues. Who else could supplant the US dollar? China is in the same boat as Russia. Still not a free society. SO what's left? The Euro. But it's got a long way to go to show it can remain stable. Give it 50 years and get back to me.", "title": "" }, { "docid": "5e5afc51d1353d82761f8f47c60eea56", "text": "You should also mention that the maidan was very unpopular in east ukraine and seen as encouraged by the west, as a possible expansion of NATO into the neutral zone. The situation is not easily distilled into pure Russian aggression. Many of them actually prefer authoritarian govt.", "title": "" }, { "docid": "c4928107daac55e5455a1f8a674e89ce", "text": "Use other currencies, if available. I'm not familiar with the banking system in South Africa; if they haven't placed any currency freezes or restrictions, you might want to do this sooner than later. In full crises, like Russian and Ukraine, once the crisis worsened, they started limiting purchases of foreign currencies. PayPal might allow currency swaps (it implies that it does at the bottom of this page); if not, I know Uphold does. Short the currency Brokerage in the US allow us to short the US Dollar. If banks allow you to short the ZAR, you can always use that for protection. I looked at the interest rates in the ZAR to see how the central bank is offsetting this currency crisis - WOW - I'd be running, not walking toward the nearest exit. A USA analogy during the late 70s/early 80s would be Paul Volcker holding interest rates at 2.5%, thinking that would contain 10% inflation. Bitcoin Comes with significant risks itself, but if you use it as a temporary medium of exchange for swaps - like Uphold or with some bitcoin exchanges like BTC-e - you can get other currencies by converting to bitcoin then swapping for other assets. Bitcoin's strength is remitting and swapping; holding on to it is high risk. Commodities I think these are higher risk right now as part of the ZAR's problem is that it's heavily reliant on commodities. I looked at your stock market to see how well it's done, and I also see that it's done poorly too and I think the commodity bloodbath has something to do with that. If you know of any commodity that can stay stable during uncertainty, like food that doesn't expire, you can at least buy without worrying about costs rising in the future. I always joke that if hyperinflation happened in the United States, everyone would wish they lived in Utah.", "title": "" }, { "docid": "f7c581c2f0f890db0f521dbf6c846ccc", "text": "SECTION \| CONTENT :--\|:-- Title \| NEW Майнинг FLEEX!Бонус 100 ГХС при регистрации!Регистрируйся и собирай сатоши биткоина на автомате! Description \| ¦ Ссылка на регистрацию в проектах: \| Fleex: https://goo.gl/D3M9eO =========================================== ¦ Бинарные опционы Олимп Трейд https://goo.gl/DKryBH ====== Вступайте в Мою команду! =============== ¦? Моя группа https://vk.com/criptovaluta2016 ====== Как связаться со мной =============== ¦? Я в VK №1: https://vk.com/a.alex81 ¦? Я в Одноклассниках: https://ok.ru/alex6373 ¦? Я в Facebook: https://www.facebook.com/Alex6373 ¦? Мой Skype: samara77221 ( добавляйтесь с пометкой от канала ... Length \| 0:02:58 ** ^(I am a bot, this is an auto-generated reply \| )^[Info](https://www.reddit.com/u/video_descriptionbot) ^\| ^[Feedback](https://www.reddit.com/message/compose/?to=video_descriptionbot&subject=Feedback) ^\| ^(Reply STOP to opt out permanently)", "title": "" }, { "docid": "afaaefdd2a2473b202198f3e2de30ae4", "text": "Al-Jazeera is a bit more complicated as they are state-funded by Qatar, but Qatar has a more complex internal power structure than Putin's virtual domibance if Russia and a far more complex regional situation having recently become ostracized by its neighbors. Again, plenty of decent articles but the real agenda is not necessarily journalism. Qatar, like Russia, very much wants to be considered a peer of the rest of the developed, primarily Western, world. Unsurprisingly, the next two World Cups (of football/soccer) of 2018 and 2022 are scheduled to be held in Russia and Qatar respectively. So news media is just one tool of this push for influence and soft-power.", "title": "" }, { "docid": "cd30a80bf11f649876b79b4edb52bffd", "text": "Oh I don't think its about money, though Saudi's show the middle finger to US sanctions opens the way for many more countries to do business with Russia and the economic benefits thereof. It the world telling America its opinion no longer matters This is about Russia exposing an American Israeli nexus in the Middle east and spreading terrorism and wars because of Israeli influence. That is far more damaging because when its just America and the Fed and Israel left and no one to buy those funny money US treasuries, because a confused America and an Apartheid Israel can't sell US $ 20 trillion of debt to each other", "title": "" }, { "docid": "33b9570c06ab3da6cd849486bfe538a9", "text": "> What exactly does Russia get from us, if anything, that they can't get somewhere else? Food, capital and human capital. > And if they get something I guarantee Putin has found a substitute source E.U. and the US produces some of the worlds best produce in terms of quality and quantity. Russia has no problem feeding their population. If they're cool with eating nothing but wheat and corn. > IMHO this is not as bad as the media wants you to believe. Actually it's gonna be pretty fucking bad for the Russian people. They are already suffering from inflation and GDP stagnation from the previous years sanctions.", "title": "" }, { "docid": "04107b88463d6fc6308c2a1e7903bf21", "text": "\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-10-03/putin-is-now-mr-middle-east-a-job-no-one-ever-succeeds-at) reduced by 92%. (I'm a bot) * > &quot;Putin has succeeded in making Russia a factor in the Middle East. That&#039;s why you see a constant stream of Middle Eastern visitors going to Moscow.\"\" > Russia has succeeded in keeping open channels of communication to all sides, from Iran to Saudi Arabia and the Palestinian radical Islamist group Hamas to Israel, said Ayham Kamel, Middle East and North Africa director at Eurasia Group. > While economics are a limiting factor for Russia, Putin also enjoys several advantages over American presidents, according to Paul Salem, vice president of the Middle East Institute in Washington. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/745wta/while_the_us_investigates_the_israelis_and_turks/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~221615 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: Russia^#1 Middle^#2 Syria^#3 Putin^#4 East^#5\"", "title": "" }, { "docid": "23dcb346982a8bdcf2ec460e8c272c4c", "text": "There are many different things that can happen, all or some. Taking Russia and Argentina as precedence - you may not be able to withdraw funds from your bank for some period of time. Not because your accounts will be drained, but because the cash supply will be restricted. Similar thing has also happened recently in Cyprus. However, the fact that the governments of Russia and Argentina limited the use of cash for a period of time doesn't mean that the US government will have to do the same, it my choose some other means of restraint. What's for sure is that nothing good will happen. Nothing will probably happen to your balance in the bank (Although Cyprus has shown that that is not a given either). But I'm not so sure about FDIC maintaining it's insurance if the bank fails (meaning if the bank defaults as a result of the chain effect - you may lose your money). If the government is defaulting, it might not have enough cash to take over the bank deposits. After the default the currency value will probably drop sharply (devaluation) which will lead to inflation. Meaning your same balance will be worth much less than it is now. So there's something to worry about for everyone.", "title": "" }, { "docid": "89dccb0371816c970e412c8606778298", "text": "Winter is coming... and Ukraine's gas bill is due. Don't expect the IMF backed plan to win over the currently sympathetic Ukrainians... when they are freezing to death and are being asked to take Greece like austerity measures. Don't expect EU voters to subsidize Ukraines gas bill. By march of next year... expect a full blown grand exodus of support for a western plan, especially in Ukraine.", "title": "" }, { "docid": "821245e7beb5d8e30b674dd75a162144", "text": "Let's stop right there. Are you implying that the Ukrainian military shot down MH17 and made it look as if Russia was involved, as well as enlisting the U.S. intelligence community in their coverup of murdering of a couple hundred citizens of an allied nation and member of NATO?", "title": "" }, { "docid": "5781c8a57c7c690407001d8a5d32531d", "text": "Russia is ruled by a tyrannical psychopath. Putin, being KGB/FSB just does a good job of hiding the author of his terrorist acts, mostly against other Russians. As well, the government has alliances with organized crime so that favors are repaid in less obvious ways, like not arresting someone known guilty or pressuring (on pain of death) journalists not to reveal certain facts and alliances. Putin has allied himself with anyone who will further his agenda. Currently he is allying with US fundamentalist, evangelist Christians and homophobes. He allows police to stand by as gays are terrorized and abducted and tortured through his patriotic Putin Youth. These idiots come from the depths of the human soul after everything decent and humane has been sold off for hard cash.", "title": "" }, { "docid": "6c1d8c8381385f696b1f9cc4fe5450fb", "text": "I don't but you sounded like a close minded Jesus loving teenage redneck couch-potato from bible belt who only watches FoxTV. I am aware that RT is an official Russian government channel but that doesn't change the fact that dollar is in trouble. But i don't blame you. US high schools probably not gonna teach you that ;) Here, you can read from a variety of other 'trusted' sources: http://online.wsj.com/news/articles/SB10001424052748703907004576279321350926848 http://business.financialpost.com/2013/10/15/us-dollar-supremacy-decline/ http://www.cnbc.com/id/101650260#. http://www.thenational.ae/business/industry-insights/markets/us-federal-reserve-powerless-to-halt-dollars-decline", "title": "" }, { "docid": "db2a1f2268973febdb8fa42dde26c39e", "text": "It really is dependent upon your goals. What are your short term needs? Do you need a car/clothing/high cost apartment/equipment when you start your career? For those kinds of things, a savings account might be best as you will need to have quick access to cash. Many have said that people need two careers, the one they work in and being an investor. You can start on that second career now. Open up some small accounts to get the feel for investing. This can be index funds, or something more specialized. I would put money earmarked for a home purchase in funds with a lower beta (fluctuation) and some in index funds. You probably would want to get a feel for what and where you will actually be doing in your career prior to making a leap into a home purchase. So figure you have about 5 years. That gives you time to ride out the waves in the market. BTW, good job on your financial situation. You are set up to succeed.", "title": "" } ]	fiqa
032beeb7f29743a75cad1645a4f0eafc	Why do some people say a house “not an investment”?	[ { "docid": "81f9e0cdef3a0e82ca2d085a310182fb", "text": "The below assessment is for primary residences as opposed to income properties. The truth is that with the exception of a housing bubble, the value of a house might outpace inflation by one or two percent. According to the US Census, the price of a new home per square foot only went up 4.42% between 1963 and 2008, where as inflation was 4.4%. Since home sizes increased, the price of a new home overall outpaced inflation by 1% at 5.4% (source). According to Case-Shiller, inflation adjusted prices increased a measly .4% from 1890-2004 (see graph here). On the other hand your down payment money and the interest towards owning that home might be in a mutual fund earning you north of eight percent. If you don't put down enough of a down payment to avoid PMI, you'll be literally throwing away money to get yourself in a home that could also be making money. Upgrades to your home that increase its value - unless you have crazy do-it-yourself skills and get good deals on the materials - usually don't return 100% on an investment. The best tend to be around 80%. On top of the fact that your money is going towards an asset that isn't giving you much of a return, a house has costs that a rental simply doesn't have (or rather, it does have them, but they are wrapped into your rent) - closing costs as a buyer, realtor fees and closing costs as a seller, maintenance costs, and constantly escalating property taxes are examples of things that renters deal with only in an indirect sense. NYT columnist David Leonhart says all this more eloquently than I ever could in: There's an interactive calculator at the NYT that helps you apply Leonhart's criteria to your own area. None of this is to say that home ownership is a bad decision for all people at all times. I'm looking to buy myself, but I'm not buying as an investment. For example, I would never think that it was OK to stop funding my retirement because my house will eventually fund it for me. Instead I'm buying because home ownership brings other values than money that a rental apartment would never give me and a rental home would cost more than the same home purchase (given 10 years).", "title": "" }, { "docid": "2ca3122b4ea0f4b65e23a55d740ddd19", "text": "When I purchased my house I struggled with this same idea. I felt sick to my stomach signing a contract stating how much money I now owe a bank. However, the lawyer I was using put it in terms that eased the nausea a little (I still hate owing that much money - but it's a little more palatable). His words, paraphrased: At the end of the day, you have to have a place to stay. Your mortgage payment is replacing your rent except in this case, you're paying yourself instead of someone else. You lose a little flexibility in being able to up and move with relative ease. However, you've lived in apartments, you know that rent almost only goes up. Your mortgage will not. He wrote out some numbers and basically showed that everything evened out except mortgage payments will give you property as opposed to paying for someone else's property. To answer your question though - others have already stated - you'll get a better return in the stock market (usually). But unless you're really really bad at real estate evaluation - you should make some money off your house when you decide to sell.", "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": "53fbb1f6938c4ea8cf0b4f2102e33a4b", "text": "\"A house is a funny kind of investment. Normally when you invest, you do it to make money. The return on a house, though, isn't principally real money, it's the imputed rent - money that you would have needed to pay to rent the house. The thing about this imputed rent is that you consume it right away. Getting a bigger house and putting more money into it doesn't save you any money, it's just a way to consume more \"\"house\"\" - so, unlike regular investing, it's not really responsible and doesn't contribute to your financial well-being.\"", "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": "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": "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": "e5a340536168fd77a61d7277e52ad74f", "text": "\"You're hearing alot of talk about housing (and by implication property) not being an investment today because on the downside of a market, the conventional wisdom is to be negative about buying things that have lost value. Just as it was dumb to listen to your coworker about hot .Com IPOs in 1999, it's dumb to listen to the real estate naysayers now. Here's another question along a similar vein: Were stocks a good investment in the spring of 2009? The conventional wisdom said: \"\"No, stocks are scary! Buy T-Bills or Gold Bullion!\"\". The people who made money said: \"\"Wait a second, Goldman Sachs is down like 75%? IBM is down like 30%, are they going anywhere? Time to buy.\"\" The wrong house is a poor investment in any economy. Buying a house in Detriot in 1970 was not a good move. Buying a house that needs $50k in work, not a good move. Buying a condo with a bankrupt HOA in Florida is not a good idea. But a good house that is well cared for is a great investment. I'm living in a house right now that is 80 years old, well maintained and affordable on a single income. A similar home a few blocks away sold in May for the same price as we paid in 2006. I'm paying about 20% less than I would for an apartment, and we'll think about moving in 2016 or 2017, by which time I'll probably have put $30-50k into the house. (Roof, kitchen, exterior painting, minor renovation)\"", "title": "" }, { "docid": "9af2b9eb9a52388362c67d7d73f4a9ce", "text": "\"I invested in single family homes and made ok. Houses can be an investment. (though the OP seems to equate \"\"house\"\" with primary residence) Just like any other investment buying houses has risks. I would not treat your primary residence or a vacation home as an investment. That is asking for trouble, but for many many years it was safe to assume that you would make a good return on it, and many people did. If you evaluate the numbers for purchase price, rental market, etc and find that rentals or flipping is worth your exposure then by all means, do it. But treating your primary residence as an investment apparently is what that comment means. Just like the stock market, many people have gotten wealthy on homes and there are lots of people who lost their shirts.\"", "title": "" }, { "docid": "5fe8deec27a0ed2312c70246cbca7f76", "text": "\"There's an old saying: \"\"Never invest in anything that eats or needs maintenance.\"\" This doesn't mean that a house or a racehorse or private ownership of your own company is not an investment. It just points out that constant effort is needed on your part, or on the part of somebody you pay, just to keep it from losing value. Common stock, gold, and money in the bank are three things you can buy and leave alone. They may gain or lose market value, but not because of neglect on your part. Buying a house is a complex decision. There are many benefits and many risks. Other investments have benefits and risks too.\"", "title": "" } ]	[ { "docid": "7360b35a07963916bbe09aa2a6d83bae", "text": "Buying a starter home is not a bad idea if you have a stable job and plan to stay in the area for a long time. Owning a house that you can afford is a very good idea. Purchasing a home that you do not want to live in long term is not a good idea. People who move frequently pay a lot in real estate commissions, as you've mentioned, but they also pay loan origination and title fees. Mortgage interest is tax-deductible, and many people consider home ownership to better than renting because of that fact alone. What they do not consider are costs of property taxes, HOA fees (common in condos and townhouses, but also possible in single family homes), and being tied to piece of real estate if the job market changes and they need to move. The easy rule of thumb is to consider the ratio of total price to one year of rent. If you could purchase for $200k, but you would rent for $800 per month then the price to rent ratio is 20.83. Depending on the market most homes fall between 10 and 20. When the ratio is less than 10, then you would be at a great disadvantage renting instead of purchasing, when the ratio is greater than 20, you would be foolish to buy instead of rent unless there was some other compelling factor motivating the purchase.", "title": "" }, { "docid": "1f175d50b874cfd98fd91db1fb224437", "text": "\"I am reminded of a dozen year old dialog. I asked my 6 year old, \"\"If we call a tail a leg, how many legs does a dog have?\"\" She replied, \"\"Four, you can call it anything you want, but the dog still has four legs.\"\" Early on in my marriage, my wife was heading out to the mall, and remarked that she was \"\"going to invest in a new pair of shoes.\"\" I explained to her that while I was happy she would have new shoes to wear, words have meaning, and unless she was going to buy the ruby red slippers Dorothy wore in the Wizard of Oz, or Elvis' Blue Suede Shoes, her's were not expected to rise in value and weren't an investment. Some discussion followed, and we agreed even the treadmill, which is now 20 years old, was not an 'investment' despite the fact that it saved us more than its cost in a combined 40 years of gym memberships we did not buy. In the end, no one who is financially savvy calls a lottery ticket an investment, and few who buy them acknowledge that it's simply throwing money away.\"", "title": "" }, { "docid": "8641fa0027d91b5f587af15502da9f77", "text": "> and investors would have stopped wanting to buy them, which would cause interest rates on homes to go up Unless you're lumping the MIP into the interest rate (which I assume you're not, given you mentioned it in the first sentence), the logic here doesn't follow.", "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": "c6e72211a67fc00a86f662a936cb55a2", "text": "For an investment to appreciate in value, one of two things needs to happen: 1) Demand for that particular item needs to increase. 2) The supply of that item needs to decrease. Houses are good because everyone needs a place to live, but there is a finite amount of land. No matter how much you invest in Manhatten real estate, Manhatten ain't growin'. The trick there is to find an area that people are going to want to live in when you're ready to sell. Specific vintages of wines and spirits are another good example, because it's literally impossible to create more of that vintage. Cars, and most consumer goods, usually don't appreciate because they don't last long enough. Most cars are resold within three to five years after the initial purchase. This is also why jewelry is a good investment; properly cared for, it can last centuries without wearing out. So, look for something durable that has a limited supply.", "title": "" }, { "docid": "0fd7661065006d5e4dc30e8d0620ff1f", "text": "> These people have no hope of ever making a return on their investment in their homes. That's... not really the point of a house. Thinking like this is how we got into the housing crisis. At the literal end of the day, it's somewhere to keep your stuff while you sleep.", "title": "" }, { "docid": "9df8d0c8d093cd3767f3871e8c58682e", "text": "Real Estate potentially has two components of profit, the increase in value, and the ongoing returns, similar to a stock appreciating and its dividends. It's possible to buy both badly, and in the case of stocks, there are studies that show the typical investor lags the market by many percent. Real estate is not a homogeneous asset class. A $200K house renting for $1,000 is a far different investment than a $100K 3 family renting for $2,000 total rents. Both exist depending on the part of the country you are in. If you simply divide the price to the rent you get either 16.7X or 4.2X. This is an oversimplification, and of course, interest rates will push these numbers in one direction or another. It's safe to say that at any given time, the ratio can help determine if home prices are too high, a bargain, or somewhere in between. As one article suggests, the median price tracks inflation pretty closely. And I'd add, that median home prices would track median income long term. To circle back, yes, real estate can be a good investment if you buy right, find good tenants, and are willing to put in the time. Note: Buying to rent and buying to live in are not always the same economic decision. The home buyer will very often buy a larger house than they should, and turn their own 'profit' into a loss. e.g. A buyer who would otherwise be advised to buy the $150K house instead of renting is talked into a bigger house by the real estate agent, the bank, the spouse. The extra cost of the $225K house is the 1/3 more cost of repair, utilities, interest, etc. It's identical to needing a 1000 sq ft apartment, but grabbing one that's 1500 sq ft for the view.", "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": "23b07eb1266ecd2d2c588e753e85a00b", "text": "\"Your agent doesn't understand what \"\"willing to sell\"\" means in the housing big market. Willing to sell doesn't mean they can wait forever to sell. It used to be these people were moving so they had to sell their house. Now the people who own houses don't need to sell it because they can just sit around and rent it to someone. If people are unwilling to list the house they are unwilling to sell the house.\"", "title": "" }, { "docid": "924b595836b4404f4be44823643bf657", "text": "In general people make a few key mistakes with property: 1) Not factoring in depreciation properly. Houses are perpetually falling down, and if you are renting them perpetually being trashed by the tenants as well - particularly in bad areas. Accurate depreciation costs can often run in the 5-20% range per year depending on the property/area. Add insurance to this as well. 2) Related to 1), they take the index price of house price rises as something they can achieve, when in reality a lot of the house price 'rise' is just everyone having to spend a lot of money keeping them standing up. No investor can actually track a house price graph due to 1) so be careful to make reasonable assumptions about actual achievable future growth. 3) Failure to price in the huge transaction costs (often 5%+ per sale) and capital gains/other taxes (depends on the exact tax structure where you are). These add up very fast if you are buying and selling at all frequently. 4) Costs in either time or fees to real estate rental agents. Having to fill, check, evict, fix and maintain rental properties is a lot more work than most people realise, and you either have to pay this in your own time or someone else’s. Again, has to be factored in. 5) Liquidity issues. Selling houses in down markets is very, very hard. They are not like stocks where they can be moved quickly. Houses can often sit on the market for years before sale if you are not prepared to take low prices. As the bank owns your house if you fail to pay the mortgage (rents collapse, loss of job etc) they can force you to fire sale it leaving you in a whole world of pain depending on the exact legal system (negative equity etc). These factors are generally correlated if you work in the same cities you are buying in so quite a lot of potential long tail risk if the regional economy collapses. 6) Finally, if you’re young they can tie you to areas where your earnings potential is limited. Renting can be immensely beneficial early on in a career as it gives you huge freedom to up sticks and leave fast when new opportunities arise. Locking yourself into 20yr+ contracts/activities when young can be hugely inhibiting to your earnings potential – particularly in fast moving jobs like software development. Without more details on the exact legal framework, area, house type etc it’s hard to give more specific advise, but in general you need a very large margin of safety with property due to all of the above, so if the numbers you’re running are coming out close, it’s probably not worth it, and you’re better of sticking with more hands off investments like stocks and bonds.", "title": "" }, { "docid": "ea3ea3129f15b84ea28c22db042b4d55", "text": "\"It very much comes down to question of semantics and your particular situation. Some people do not view a house (and most upgrades) as an investment, but rather an expense. I certainly agree that this is probably the case if you pay someone else to make the repairs and upgrades. However, if you are a serious DIYer, that may not be the case. Of course, if the house is a money pit and/or you were unfortunate to buy when prices where ridiculously high, you'll have a hard time making any money on this \"\"investment.\"\" To continue this game of semantics, you may also consider the value you extract from your home while you are living in it. On to the mortgage itself. Chances are that it is a long term, relatively low rate loan and that the interest is deductible. So, there are some disadvantages to paying it down early, even without early payment penalties. Paying down early on the principal is a disadvantage from a tax perspective. How much of a disadvantage hinges on the rate. Now, a debt is a liability on your personal balance sheet. It drags down any returns you may have from investing. However, a home lone is not generally subject to the cardinal rule of paying off your high interest debt before investing. It should not be relatively high and it pays for something necessary. It may be that any credit card debt you have may have paid for something considered necessary. However, with the relatively high interest rates, you have to question just how necessary any credit card debt really is. Not to mention that there is no tax advantage. So, it comes down to the fact that a home loan should be relatively low interest, paying for something you must have and that you hopefully have some tax advantage from the interest you pay on it.\"", "title": "" }, { "docid": "c517ef7ba52c41d23492de2239036a19", "text": "Investing in property hoping that it will gain value is usually foolish; real estate increases about 3% a year in the long run. Investing in property to rent is labor-intensive; you have to deal with tenants, and also have to take care of repairs. It's essentially getting a second job. I don't know what the word pension implies in Europe; in America, it's an employer-funded retirement plan separate from personally funded retirement. I'd invest in personally funded retirement well before buying real estate to rent, and diversify my money in that retirement plan widely if I was within 10-20 years of retirement.", "title": "" }, { "docid": "b2f64b01661f14f9e1080f97219715e8", "text": "I think it is just semantics, but this example demonstrates what they mean by that: If you put $100 in a CD today, it will grow and you will be able to take out a greater amount plus the original principal at a later time. If you put $100 extra on your house payment today, you may save some money in the long run, but you won't have an asset that you wouldn't otherwise have at the end of the term that you can draw on without selling the property. But of course, you can't live on the street, so you need another house. So ultimately you can't easily realize the investment. If you get super technical, you could probably rationalize it as an investment, just like you could call clipping coupons investing, but it all comes down to what your financial goals are. What the advisers are trying to tell you is that you shouldn't consider paying down your mortgage early as an acceptable substitute for socking away some money for retirement or other future expenses. House payments for a house you live in should be considered expenses, in my opinion. So my view is that paying off a note early is just a way of cutting expenses.", "title": "" }, { "docid": "0d53db2a6359730602809c28aeb5b3eb", "text": "Your friends are overlooking a couple of problems with house prices and salaries being out of whack: Home 'equity' is a paper gain unless you realize it by selling the house. If you don't, but use the 'home ATM', all you're doing is piling up more debt that's secured on an asset that has downside risk. Ask anybody who's refinanced their house to buy a new boat or SUV in 2006/2007. In other words you're remortgaging the chickens before the eggs hatched. Of course they're also forgetting that all this debt will have to be paid back at some point, and that usually takes income, not equity. In a certain sense the housing market is a pyramid scheme that requires an influx of new buyers to maintain prices. Very simply, if you can't sell your house to buy a bigger one because the first time buyer you're trying to sell it to can't afford the down payment or the payment on the mortgage, then you can't sell your house to buy a bigger/better/nicer one and the next person in the chain can't sell his/hers. Cue the domino effect. House prices are only sustainable if people actually can afford to buy houses and if there's a massive disconnect between house prices and salaries, then house prices will fall eventually. It might just take a little longer depending on the amount of creative financing options that will eventually dry up.", "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": "" } ]	fiqa
a4dcbd112d3f2d6f4c6330a7cf8dec8d	Latest China devaluation (24/08/2015) and the affect on house prices in UK	[ { "docid": "29f1a0668a3ff47e25354278cfa0aed8", "text": "No. There is no indication that the recent decline will have an impact on the house market in the UK. The reason(s) for the downward move these last few weeks are mainly due to: The last two points caused the Chinese government to decide to devaluate the Yuan. This in turn triggered an unforeseen panic attack among investors and speculators around the globe starting with the Chinese that are trading on borrowed money (not only on margin but also by using loans). The UK house prices are not influenced by the above factors, not even indirectly. The most important factors for house prices are in general: If you keep the above points in mind you should be able to decide whether now is the right time to buy a house in your area. Given that a lot of central banks (incl. BoE) are maintaining a low interest rate policy (except fed soon), now is a good time to take a mortgage. Sources used: I know interest rates are determined by the BoE which looks at the global picture to determine these rates but the main directive of a central bank is to maintain an inflation close to but not exactly 2 % as to spur on economic growth. As such, the value of a company as valuated on the stock market is not or barely taken into account. The negligible impact is the reason why I stated that the crash in the summer of 2015 doesn't even have an indirect impact. Also such a crash is very short lived. It's more the underlying reason for the fears that could cause issues if they drag on.", "title": "" } ]	[ { "docid": "4f913c933d7b38b26098bb3834a4bcb3", "text": "Yes I kow my questions are broad and debatable, I was looking to spark the interest of multiple perspectives/opinions. Regarding the strength of western economic fundamentals, I think a lot of it has to do with simply better performance by companies, especially in Western Europe. I think both this performance (companies' broad EPS growth) as well as less anxiety over the future of the Eurozone/PIIG debt crisis has engendered a broad feeling of positive animal spirits. Imo this has become a recursive self fulfilling prophesy in the markets as people's optimistic expectations of the future leads to higher investment, lending and risk taking, which results in growth, which then rewards and spurs further spending/investment. The other argument (especially in EU) is that the ECB's sustained accommodative monetary policy policy is finally trickling down into European asset prices just like they did for US equities from 2011-2015. Regarding your series of questions about China/NK, I was genuinely hoping for answers/opinions on those questions you proposed. I think China is playing Trump and the State Dept like a fiddle - stringing us along with this Kim debacle while they quietly consolidate sea territory (man-made military islands) & drilling rights in the South China Sea.", "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": "6b3edd3c63a7e3d6d2ba708edf2a95f8", "text": "\"This is the best tl;dr I could make, [original](http://cep.lse.ac.uk/pubs/download/brexit10.pdf) reduced by 98%. (I'm a bot) *** > Correlations with Brexit Vote and Area Initial Conditions Brexit Vote Correlations One obvious question arising from the overall patterns discussed above is how predicted impacts relate to vote shares in the referendum. > Figure 3: Brexit GVA Impact and Referendum Vote Share: Soft Brexit Hard Brexit Area Initial Conditions While the results so far imply a somewhat different narrative in terms of who is likely to lose most from Brexit, and how this relates to voting behaviour in the referendum, it is important to remember that the differences in expected impacts are swamped by existing disparities. > 10 \fFigure 4: Correlation of Brexit GVA Impact with Pre-Referendum Median Wage: Soft Brexit Hard Brexit Finally, it is also important to note that the places experiencing the biggest initial shock are not necessarily those that will experience the most negative effects once the economy has adjusted. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6pshdw/new_lse_study_the_areas_that_were_most_likely_to/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~176491 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: Brexit^#1 trade^#2 impact^#3 Area^#4 under^#5\"", "title": "" }, { "docid": "a51983803160439f6066f0ef2c496667", "text": "The Hong Kong Dollar has been pegged to the USD for nearly 30 years and the Hong Kong authorities have fairly strong means to defend the peg. So at first glance it would appear that there is really no difference as long as you are getting 7.75 HKD for each USD that you used to receive. However, the peg is arbitrary and could be lifted at any time like the removal of the CHF peg to EUR surprised a lot of people in early 2015. As mainland China becomes more integrated it is unclear what will happen to the HKD in the long run. Whether this matters really depends on your contracts. if your contracts are short dated you may only take a discount relative to USD for a few payments before you can try to renegotiate. It's also worth noting trading HKD for your local INR can be more expensive. Check your local rates.", "title": "" }, { "docid": "f19cf16d9f0b11974c57af4cb5fb7ada", "text": "It is likely a bit of both. Cooking the books AND an economic miracle. There will definitely be a downturn eventually, and it will be interesting what shakes out. At this stage, the Chinese model appears to be stronger than any alternatives.", "title": "" }, { "docid": "fc41920a42710dffa8387e0de43b0ec2", "text": "GBP has already lost part of his value just because of the fear of Brexit. An actual Brexit may not change GBP as much as expected, but a no-Brexit could rise GBP really a lot.", "title": "" }, { "docid": "2036f85326acff63a28e09147404b52d", "text": "\"Have to do a presentation for an International Business and Cultures class in about a month and the assigned WSJ article isn't quite clicking with me and looking for a kind soul here to put it into layman's terms I guess. If I am violating any policy or breaking a rule by posting the text from the article, please delete. Thank you for any reply! WASHINGTON--Finance officials trying to avert the next global economic crisis found time at a summit here to worry about something besides Brexit and European banks: China's mounting debts and its flagging economic overhauls. The country's surging credit growth, overcapacity in its steel and metals industries and its bloated housing market drew widespread complaints from finance officials and central bankers attending semiannual meetings of the International Monetary Fund and World Bank. Officials congratulated China for its efforts to get the yuan included in the IMF's international basket of currencies, known as special drawing rights, starting Oct. 1. And despite a couple of scares in the past year or so, the country's markets and economic growth have appeared to stabilize in recent months. But in a sign of how important the world's second-biggest economy is to global growth, China is increasingly being called out. U.S. Treasury Secretary Jacob Lew warned Beijing in unusually candid language about China's overproduction and overbuilding, which he suggested could become the biggest U.S. complaint about the country, as their earlier disputes over the country's exchange rate become less divisive. \"\"I'm talking about steel, I'm talking about aluminum, I'm talking about real estate--when you don't have market forces driving investment, when you don't have bad investments allowed to fail, you end up with resources allocated in a way that ultimately chokes the future of economic growth,\"\" Mr. Lew said at the Peterson Institute for International Economics on Thursday. The IMF zeroed in on a measure called current credit overhang, a widely followed international indicator of potential crises. The deviation of China's credit growth from its long-term trend has surged from zero during the financial crisis to up to 27%. Last year, banks' balance sheets grew to 286% of gross domestic product. \"\"More is needed, especially to curb excess credit growth, reduce the opacity of credit products, and ensure sound interbank funding structures,\"\" said Peter Dattels, deputy director of the fund's monetary and capital-markets department. China's policy makers are caught in a deepening trap, economists say. Dealing with the debt problem would require the country to start deleveraging. But slower credit growth is bound to hamper the overall economy. That could backfire by making it harder for companies to repay existing debt. Clamping down on credit would also raise the prospect of political unrest in a country that has grown accustomed to very rapid growth. Faced with such unappetizing prospects, the country's leaders have largely eschewed credit restraint in the hope that they will be able to deal with its economic problems over time. Part of the problem is the complicated and poorly disclosed structure of the country's swollen banking system, economists say. \"\"The increasing complexity, opaqueness of the shadow banking, both on the asset side, but even more on the funding side where a lot of the funding is short term, is not stable,\"\" Markus Rodlauer, the IMF's Asia-Pacific deputy director, told reporters on Thursday. \"\"It's still of a size that is manageable, but the trajectory is dangerous, and needs to be contained.\"\" China's appetite for steel and aluminum, which shrank abruptly in the past year or so, is of vital interest to commodity-exporting economies such as Russia and Brazil. For now, exporters appear to be confident that demand won't drop off again in the short term. \"\"China's growth is stabilized at a lower level,\"\" Brazilian Finance Minister Henrique Meirelles said in an interview. \"\"I don't see a further collapse coming.\"\" Still, much will depend on China's economic transition. \"\"They are trying to alter their priority from manufacturing to services, from export-oriented to domestic consumption,\"\" said Indian Finance Minister Arun Jaitley in an interview. \"\"In the transformational stage, there will be ripples.\"\" Chinese officials in Washington touted the country's annual GDP of between 6% and 7% and said growth has remained stable as economy transitions. \"\"If that transformation is successful, China will continue to have a stable share of global growth,\"\" People's Bank of China Deputy Governor Yi Gang said on Thursday. Ian Talley and Bob Davis contributed to this article. Credit: By William Mauldin\"", "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": "ee42ef375ffa65f018756fa459957830", "text": "December, 1, 2011 (03:00pm) :- China's manufacturing data's are slides to 49 below 50, a signal of contraction by which whole Chinese economy affected. Due to the European crisis, the global demand is weak which Chinese affected the most because china is the only market which manufactures the product an unbelievable cost. Global demand still weak this may be continues by next 2 - 3 months. Base metal prices are higher composed to 2010 levels, the profit levels also drooped by 5% to the manufactures. Base metals trends looking down in December. Cooper may be range Rs 370 - Rs 440 Zinc mzy be range Rs 97 - Rs 113. Nickel may be range Rs 870 - Rs 960. Lead may be range Rs 98 - Rs 112.", "title": "" }, { "docid": "20f3dfd40cb1bb4f27f925cc604f4f6d", "text": "Summarized article: The London-based investment bank Barclays Bank has agreed to pay penalties of $450 million to settle charges it attempted to manipulate key benchmark interest rates. The settlement is with the US Department of Justice, the U.S. Commodities Futures Trading Commission and the British Financial Services Authority (FSA). Investigators found that Barclays manipulated the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) which measures how much banks will charge each other for loans, and in turn, affects the cost of loans and mortgages to consumers. Between 2005 and 2009, Barclays staff would base its estimates for the Libor on the requests of its derivatives traders, who wanted to manipulate the rate to benefit their trading positions. The traders would ask their Barclays colleagues to adjust their rate estimates up or down to post a profit for the bank. The FSA said that Barclays appeared to have a wide acceptance of its derivatives traders lobbying its colleagues and found evidence through a trail of emails and instant messages. Barclays has admitted its actions fell short of industry standards but it is unclear if there was any impact to consumers. The FSA is investigating several major banks for similar violations. * For more summarized news, subscribe to the [/r/SkimThat](http://www.reddit.com/r/SkimThat) subreddit", "title": "" }, { "docid": "907eb18cce27c549d8d2eb9b8c2cc46e", "text": "\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-05-31/australia-home-prices-fall-in-may-as-lending-curbs-start-to-bite) reduced by 70%. (I'm a bot) *** > The monthly decline comes after regulators tightened lending curbs amid fears of a housing bubble, and the nation&#039;s banks raised interest rates - especially for interest-only loans which are popular with property investors seeking to take advantage of tax breaks. > The monthly drop was led by declines of 1.3 percent in Sydney and 1.7 percent in Melbourne, the two cities where prices have risen the fastest. > In Sydney, prices have gained 75 percent in the past five years, ranking it behind only Hong Kong as the world&#039;s least affordable housing market. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6ele2v/australian_house_prices_fell_in_may_for_the_first/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~133825 tl;drs so far.\"\") \| [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) \| [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") \| Top* keywords: housing^#1 percent^#2 prices^#3 demand^#4 property^#5\"", "title": "" }, { "docid": "914dcbba4ab9d561b1215bcf16e4db8c", "text": "\"This is the best tl;dr I could make, [original](http://www.bbc.co.uk/news/business-40934138) reduced by 61%. (I'm a bot) *** > The average price of a home in the UK went up by nearly &pound;2,000 to &pound;223,000 in June, according to official figures. > The Office for National Statistics figures show the wide variation in price movements across the UK. In the month of June, the average price of London home fell &pound;3,000 to &pound;482,000, while a house in the North East of England gained &pound;2,000 to &pound;130,000. > The biggest change was in Orkney where the average price is 28% higher than a year ago at &pound;148,000. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/6txyxk/house_price_growth_holding_steady/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~191667 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: price^#1 average^#2 while^#3 June^#4 London^#5\"", "title": "" }, { "docid": "59d1a34109ae14597a3015d1f5164e06", "text": "It actually has already started. People were protesting outside offices that sold defaulted WMPs across China. The government forced landlords to cut the leases of those wealth managers so that they wouldn't have a premises for investors to protest at. Lol. This news isn't new but it shouldn't be ignored either. China does have a problem.", "title": "" }, { "docid": "1b3ab468bd841ecc00e694259ed01d66", "text": "\"I am not an expert in this stuff, but my understanding is that the debt is in the form of US treasury securities, which mature at set rates and are paid at maturation. So technically, the US Treasury \"\"pays off\"\" a portion of its debt whenever the debt securities mature. Thus, if China (or any country) buys new Treasury securities at a slower rate than its currently held Treasury securities are maturing, the amount of US debt held by China will decrease. This is what I hear China has been doing recently.\"", "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": "" } ]	fiqa
16b360e0dc57394952bba890d81c8168	Thinking of doing an MBA: Is an $80K top MBA school better than a $24K online MBA school?	[ { "docid": "0681be109399381fe948ecb67b895dda", "text": "If you can get into the top school, it's a no-brainer to go that route. An MBA at a top school will not only give you an education taught by world-renowned professors but also a large network of students and alumni.", "title": "" }, { "docid": "bbee5019ab0ce46cad0addc381d33d86", "text": "\"I met two MBA graduates from Harvard - both made VPs at large Canadian companies (i.e. $1B or greater annual revenue) after working 2-5 years as management consultants post-graduation - one is now a divisional president making over $500K in salary along. When I asked one of them (one that is not yet making $500K in salary) about the Harvard MBA difference, he said the brand-name and the network probably set it apart from others, since most MBA schools now uses the same material as Harvard's. I tend to agree with his thoughts - I never did felt the caliber of my professor had much to do with my ability to apply what I learn to practical use. In my own MBA education, the professor did more facilitation than \"\"teaching\"\". Apparently that is the norm, as MBA is less about being fed information than it is about demonstrating the ability to analyze and present information. Back to M.Attia's question, I would go with the highest ranked MBA education I could afford (both financially and lifestyle). A friend of mine was able to get his employer to pay for the $90K tuition fee from Rotman, along with job security for 5 years (not a bad idea in this economy). I settled for Lansbridge University in Fedricton because the flexibility of distance learning and cost was important to me, though I was able to get my employer to pay for the MBA after I started (I switched group within the company shortly after I started my MBA and my new boss was able to get the approval without locking me in).\"", "title": "" } ]	[ { "docid": "b4932c3b586345161e4b3ad94313b6f0", "text": "Instead of saying which one is better, which is too subjective, I think it is more important to understand what these institutions are. They are kind of different animals. Edward Jones pretty much a full service wealth manager. They meet with you in person, advise you on what retirement and savings accounts to get, they talk to you to evaluate your risk preferences. They will talk to you about planning for your kids' college and about your insurance situation. They will probably attend your kids' bar mitzvahs and stuff too. Of course, this isn't free. With Edward Jones you will pay a fixed percentage of your managed wealth to them every year. And they will likely put your money in expensive mutual funds. And those mutual funds will charge a special 12b-1 fee, which is a kickback to the wealth manager. Plan on giving 2% or so of your total wealth to the manager per year, plus whatever the mutual funds charge. I don't have experience with Betterment, but they appear to be a robo advisor. Robo advisors attempt to do the same kinds of things as wealth managers, but rely on computer algorithms and web pages to give you advice whenever possible. This makes some sense because most people aren't actually that special in terms of their financial situation. I don't know their cost structure, but presumably it will be significantly cheaper than Edward Jones. They will almost certainly put you in cheaper funds (index funds and ETF's). Think of it as a cost-conscious alternative to Edward Jones. Vanguard is a discount broker and a mutual fund family. Their funds are among the biggest and cheapest in the world. Fees on many of these funds will be a fraction of the equivalent funds Edward Jones will put you in. They will charge you nothing at all to manage your money. They will give you some assistance and advice if you call them but don't expect any house calls. They aren't particularly in the business of giving advice. If you know what you want to invest in, this is the cheapest way to do it by far. Basically you won't have to pay anything at all except the actual cost of the assets you are investing in. Which is the best? Depends on your own preferences and ability. If you do not want to learn about personal finance and don't particularly care about whether you are getting the best return--if you don't mind paying for a personal touch--Edward Jones might be a good choice. For most people who are comfortable asking this type of question online and interested in learning about finance even a little bit, I'd expect that Betterment or Vanguard will be a better choice. For people who are willing to learn a bit of finance and manage their own affairs, using Vanguard (or a close competitor, like Fidelity) will ultimately result in the most wealth generated (the least given away to the financial industry).", "title": "" }, { "docid": "5e7952fa9821465600801fe1c7d5eb50", "text": "MBA and CFA aren’t necessarily mutually exclusive. MBA teaches you a broader set of skills and, more importantly, gives you access to a network of alumni that can open doors for you. Network is perhaps the most valuable part of top MBA programs. CFA is a gold standard in finance and would give you a set of useful skills for wealth management. If you can get into top 10 business schools I would say do both. Otherwise, if you are absolutely sure about money management, then go for CFA. It’s cheaper and you can still earn income while pursuing it.", "title": "" }, { "docid": "c51f3bf024e13b86a62ac3ea69d3934b", "text": "You really need to back that up. If you are talking about graduate degrees it is a way different ballgame as math and science researchers generally pay similar tuition's after GA and TA stipends are given out. This takes cost out of the equation and higher prestige generally means accepting better students. Thus their success become difficult to separate between their ability and the education they got. As for undergrad degrees, the prestige doesn't matter. You'll actually find a lot of public universities on those lists right up next to their expensive cousins. Then there's this http://online.wsj.com/article/SB10001424052748703597204575483730506372718.html.", "title": "" }, { "docid": "3c27e230eaf65469e6428574a8b96a2e", "text": "Life is a lot more difficult if you accept the constraints that are sold to you. 80 hours per week for a $90k salary is completely unacceptable, imo, unless you're absolutely in love with your job and it's all you want to do anyway. You can earn money in proportion to how much value you create for people if you offer something of value. A degree in isolation, even from the best school in your field, is completely worthless though.", "title": "" }, { "docid": "9491a5ccc6a8d4d5090c7bcb819ab49a", "text": "Strictly from an ROI perspective, this is likely very dependent on your field. Some masters degrees (quant finance, business, engineering) will be well worth the debt, since a degree from the right university will yield a respectable ROI, whereas other degrees/fields (philosophy, fine arts, etc) will be basically a waste of money. Regardless of the field you can input your information into an ROI calculator and see what you get. I typically err on the side of using the lowest average reported salary for the degree programs you're considering (self reported salary data is notoriously inflated).", "title": "" }, { "docid": "7138725f3dbcb006f09126b7d6d79689", "text": "Lets do some math. There were 11,620 people who passed L3 last year and became charter holders. Now lets just take the top 25 MBA programs, that'd be 460 people/class graduating to reach this number. Actual numbers are MUCH lower than this. Trust me, I'm a big fan of the CFA, but I know some really dumb people who are charter holders because they learned to memorize a test. These same people would never get admitted to a top 10, no less 25 MBA program. One thing I will give you, there are WAY too many MBAs in general (partially because of all the part-time, night-time, executive ones)... But an MBA is very different then a CFA in that its banded by school and category. Everyone with a CFA has the same CFA; however, a Wharton degrees sure carries a lot more clout than a UMD one...", "title": "" }, { "docid": "05e4ac089a8690a40aa4b2afea423363", "text": "\"Well, you mentioned McKinsey earlier and that's a consulting firm. All of them draft from the Ivy's (plus the other top tiers) but it also helps to come from a school that is well known but not an Ivy. (NYU comes to mind) My friends from CUNY Honors Baruch got jobs in accounting pretty easily as CUNY Baruch has programs set up with different companies and a fairly established network in the accounting field. It's pretty good if all you want to do is accounting. In my experience, there's less of a \"\"prestige\"\" focus with IB's and accounting firms. The top consulting firms, on the other hand, are quite \"\"prestige\"\" focused. (worked in one that hired 80-90% from top tiered schools) It's hard to put an umbrella statement over everything because there are exceptions. And, networking can trump everything. You should be less concerned about schools and more about grades. A brand name won't help if you have an average GPA. To that point, take a major you'd do well at. Statistics, computer science, mathematical engineering are in demand but your major won't help if the work is too difficult/uninteresting leading to lower grades.\"", "title": "" }, { "docid": "2f451dad6b7535398924c6f1a507248d", "text": "> (1) The value of the MBA is in the network Really? That's the value? No, it's the letters behind your name that people look at when you submit an application / resume. If it's not there they pass you by. Furthermore, an MBA isn't the only way to build a network. Also, congrats on finding some great entry level jobs. When this kid is thinking about his 1st promotion and his peers already have an MBA, he's screwed. Great for the kids at your school... they're not eligible for anything other than entry level jobs without one. You're behind the trend. Sorry, you're giving the kid bad advice. It will not do him any harm to get it right away.", "title": "" }, { "docid": "b0bb7134b4976d519582afd0b2420571", "text": "The context actually was higher education and student debt load (which extends to cost). You can try to broaden it but the title of the thread, the linked article, the comment I replied to and my comments all reference higher education and costs. Once again, your comment is correct in a broader context, just not in the one we were in, at least not to all readers clearly. You want to be right but what you need to accept is that you just flubbed your post (tbh I agree with you on most points here) and should likely add some more detail to your statements.", "title": "" }, { "docid": "65849b6af39f281f0c0f515ccbff4816", "text": "[The website you mention](http://managementconsulted.com/consulting-jobs/2012-management-consulting-salaries-undergraduate-post-mba/# ) has starting salaries for those with undergrad degrees at $60,000, and as I mentioned above are not including bonus or 401k match. My information is 5 years old now and is not too far off. $60k to work 100 hours a week is not worth it, at least not to me. That's why I recommended to get his/her MBA so they can get into the business at a six figure salary. Source: I've been in the financial industry for 5 years now.", "title": "" }, { "docid": "75bb269b7ec88e5d23d40d83c676e404", "text": "I'm not sure why people are down voting you. There is no question the math and stats will be more intensive than what I used as an undergrad, but most of the programs I have talked to haven't suggested taking calc 3. But then again the programs i'm applying for aren't quant focused ones, defiantly not as quant heavy as a MS in comp finance would be. Just curious, if your already at a BB how come you decided to go back for the MS and not an MBA?", "title": "" }, { "docid": "151b09f1d7221a26c9ec266d34af4330", "text": "There are well established recruiting paths into the big bulge bracket banks. They recruit heavily from target schools, both undergrad and MBA. You don't just career switch into a front office role. If you want to become a banker, you would typically enter as an Analyst, with a two or three year stint directly out of undergrad. You would have needed to get top grades from a target school and be successfully chosen from a very, very competitive recruiting pool. If you already graduated, you will need a few years at a top firm, score 700+ on the gmat, get into a top bschool, deal with similar recruiting situations, and then enter as an Associate from your target MBA. Competition is so tight I see CFA on everyone's resume. Lots of MBAs. source: i work at a BB in NYC", "title": "" }, { "docid": "5bea9ae4ec1480817454bb904a92aff5", "text": "No evidence of 'elite prep school' so far based on my google search. Princeton and Goldman Sachs take a ton of normal people (extremely hardworking and clever of course but it's not about coming from the right family). It's not Morgan Stanley", "title": "" }, { "docid": "28d8f2f0118da72bebe3b0e500c306be", "text": "Comments in the blog are filled with butt-hurt dwllers with an MBA trying to argue his opinion. Most people in MBA's think they're going to be Steve Jobs. If they're well connected they'll get a good salary but Steve Jobs are guys that start a company rather than go to an MBA.", "title": "" }, { "docid": "181b0672e43cfc8f199e4e1bee8f3d4f", "text": "wow thanks for the info. So if i wanted a masters in finance, should i take math electives to get them out of the way earlier? I'm a senior in high school and I'm very interested in finance, but I'll admit not the best at math..", "title": "" } ]	fiqa
7de22154ab745b9d91db79b0acdda1b1	High Leverage Inflation Hedges for Personal Investors	[ { "docid": "8aca5ab77ad9a7c18b6ceeb4300f23be", "text": "$10k isn't really enough to make enough money to offset the extremely high risks in investing in options in this area. Taking risks is great, but a sure losing proposition isn't a risk -- it's a gamble. You're likely to get wiped out with leveraged options, since you don't have enough money to hedge your bets. Timing is critical... look at the swings in valuation in the stock market between the Bear Sterns and Lehman collapses in 2009. If you were highly leveraged in QQQQ that you bought in June 2009, you would have $0 in November. With $10k, I'd diversify into a mixture of foreign cash (maybe ETFs like FXF, FXC, FXY), emerging markets equities and commodities. Your goal should be to preserve investment value until buying opportunities for depressed assets come around. Higher interest rates that come with inflation will be devastating to the US economy, so if I'm betting on high inflation, I want to wait for a 2009-like buying opportunity. Then you buy depressed non-cyclical equities with easy to predict cash flows like utilities (ConEd), food manufacturers (General Mills), consumer non-durables (P&G) and alcohol/tobacco. If they look solvent, buying commodity ETFs like the new Copper ETFs or interests in physical commodities like copper, timber, oil or other raw materials with intrinsic value are good too. I personally don't like gold for this purpose because it doesn't have alot of industrial utility. Silver is a little better, but copper and oil are things with high intrinsic value that are always needed. As far as leverage goes, proceed with caution. What happens when you get high inflation? High cost of capital.", "title": "" }, { "docid": "50532dba417e7878dd4042a85918e8ac", "text": "Look into commodities futures & options. Unfortunately, they are not trivial instruments.", "title": "" }, { "docid": "1cbe110725fdde7f52a84a07676d1a3e", "text": "I assume you're looking for advice, not an actual guaranteed-to-appreciate answer, yes? If you believe Treasury bonds will increase as fast as inflation, that may be the way to go.", "title": "" } ]	[ { "docid": "d5469858d8cfd023db94dfea7688ed40", "text": "The major drawback to borrowing to invest (i.e. using leverage) is that your return on investment must be high enough to overcome the cost of finance. The average return on the S&P 500 is about 9.8% (from CNBC) a typical unsecured personal loan will have an interest rate of around 18-36% APR (from NerdWallet). This means that on average you will be paying more interest than you are receiving in returns so are losing money on the margin investment. Sometimes the S&P falls and over those periods you would be paying out interest having lost money so will have a negative return! You may have better credit and so be able to get a lower rate but I don't know your loan terms currently. Secured loans, such as remortgaging your house, will have lower costs but come with more life changing risks. The above assumes that you are getting financing by directly borrowing money, however, it is also possible to trade on margin. This is where you post a proportion of the value that you wish to trade with as collateral against a loan to buy the security. This form of finance is normally used by day traders and other short term holders of stocks. Although the financing costs here are low (I am not charged an interest rate on intraday margin trading) there are very high costs if you exceed the term of the loan. An example is that I am charged a fee if I hold a position overnight and my profits and losses are crystallised at that time. If I am in a losing position at that time the crystallisation process and fee can result in not having enough margin to recover the position and the loss of a potentially profit making position. Additionally if the amount of collateral cash (margin) posted is insufficient to cover the expected losses as calculated by your broker they will initiate a margin call asking for more collateral money. If you do not (or cannot) post this extra margin your losing position will be cashed out and you will take as a loss the total loss at that time. Since the market can change very rapidly, such as in a flash crash, this can result in your losing more money than you had in the first place. As this is essentially a loan you can be bankrupted by this. Overall using leverage to invest magnifies your potential profits but it also magnifies your potential losses. In many cases this magnification could be sufficient to lose you more money than you had originally invested. In addition to magnification you need to consider the cost of finance and that your return over the course of the loan needs to be higher than your cost of finance as well as inflation and other opportunity costs of capital. The S&P 500 is a relatively low volatility market in general so is unlikely to return losses in any given period that will mean that leverage of 1.25 times will take you into losses beyond your own capital investment but it is not impossible. The low level of risk automatically means that your returns are lower and so your cost of capital is likely to be a large proportion of your returns and your returns may not completely cover the cost of capital even when you are making money. The key thing if you are going to trade or invest on leverage is to understand the terms and costs of your leverage and discount them from any returns that you receive before declaring to yourself that you are profitable. It is even more important than usual to know how your positions are doing and whether you are covering your cost of capital when using leverage. It is also very important to know the terms of your leverage in detail, especially what will happen when and if your credit runs out for whatever reason be it the end of the financing period (the length of the loan) or your leverage ratio gets too high. You should also be aware of the costs of closing out the loan early should you need to do so and how to factor that into your investing decisions.", "title": "" }, { "docid": "5d7be5ad5ea9d477522e1a2195170154", "text": "See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation. Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall.", "title": "" }, { "docid": "931efdb6af74a7feffd7a87fd30575f2", "text": "Inflation is not applicable in the said example. You are better off paying 300 every month as the balance when invested will return you income.", "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": "e4d57b940f6bcc3cb7b72f3bb209aefc", "text": "This isn't totally wrong- there are hedge funds that are long 150% of AUM and short 50%. However, Rentech has said that holding a position for 8 seconds is long for them, so that's not what they're doing. I'd assume the 4X leverage most just refers to option positions that have delta 4 on average. They also may be borrowing money, which they can probably do extremely cheaply since they have a 35 year track record showing they're essentially risk-free.", "title": "" }, { "docid": "1204c1c74efccffe5263f5a5928bbdca", "text": "Buying individual/small basket of high dividend shares is exposing you to 50%+ and very fast potential downswings in capital/margin calls. There is no free lunch in returns in this respect: nothing that pays enough to help you pay your mortgage at a high rate won’t expose you to a lot of potential volatility. Main issue here looks like you have very poorly performing rental investments you should consider selling or switching up rental usage/how you rent them (moving to shorter term, higher yield lets, ditching any agents/handymen that are taking up capital/try and refinance to lower mortgage rates etc etc). Trying to use leveraged stock returns to pay for poorly performing housing investments is like spraying gasoline all over a fire. Fixing the actual issue in hand first is virtually always the best course of action in these scenarios.", "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": "d9bbc61c0b5fd43fc56b173a03e85470", "text": "You start taking on some big risks when go to absolute zero. Unlike your plane analogy, you don't have to fly or not fly - you can opt to take a safer hybrid form of transit. Or to extend the analogy: now you're driving or walking instead of flying, which, per mile traveled, is statistically more risky, even if the plane 'feels' and 'looks' riskier. Consider reading up a bit on the risks of all-cash/bonds (including: shortfall and inflation). Yes, real estate is a hedge, but most of your portfolio is still exposed to inflation. Why not also buy some Treasury Inflation-Protected Securities via a bond fund? Why not put 25% in the stock market to help do well when the markets do well? I think if you do some reading on this you'll find yourself shocked at the risks of being all-cash. FWIW, I'm a relatively conservative voice on investing subreddits - the guy who is usually saying 'hey be sure to keep some bonds!.' So I'm all about a safe/balanced portfolio, but tilt too far in either direction and you take on more risk, not less. You mentioned a pension and real estate. Those are presumably good inflation hedges and relatively stable holdings. The pension especially suggests you can take more stock risk, since you have that stable, bond-like holding. The weirdest thing to me is that you would be 'all in' during the good times. If you're this risk adverse when you see warning signs, I'm curious: were you 100% stocks before? Totally on/off like that seems kinda intense.", "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": "915530153fe8420174831d635f1a06ce", "text": "It's about how volatile the instrument is. Brokers are concerned not about you but about potential lawsuits stemming from their perceived inadequate risk management - letting you trade extremely volatile stocks with high leverage. On top of that they run the risk of losing money in scenarios where a trader shorts a stock with all of the funds, the company rises 100% or more by the next day, in which case the trader owes money to the broker. If you look in detail you'll see that many of the companies with high margin requirements are extremely volatile pharmaceutical companies which depend heavily of FDA approvals.", "title": "" }, { "docid": "237d225e0da24ae0ac9d26ba666568d8", "text": "i will not calculate it for you but just calculate the discounted cash flow (by dividing with 1.1 / 1.1^2 / 1.1^3 ...)of each single exercise as stated and deduct the 12.000 of the above sum. in the end compare which has the highest npv", "title": "" }, { "docid": "e8853208397ad305d6c63eab911edbb7", "text": "You can look at TIPS (which have some inflation protection built in). Generally short term bonds are better than long if you expect rates to rise soon. Other ways that you can protect yourself are to choose higher yield corporate bonds instead of government bonds, or to use foreign bonds. There are plenty of bond funds like Templeton Global or ETFs that offer such features. Find one that will work for you.", "title": "" }, { "docid": "637f9894595549c7a740ca88ecfd5fbc", "text": "\"Thanks for the article. A couple questions: - Is your basic investment premise that as defaults rise, investors will demand higher rates, and thus loans will become more expensive for borrowers? Why can't the lenders include a larger reserve to offset defaults (making loans less profitable for them?), or why doesn't this just wipe out the riskiest tranches of abs? Does it have to result in an implosion in supply? - \"\"Since 2009, car loans have exploded over $1.1 Trillion\"\"- wouldn't car loans increase significantly from the bottom of the Great Recession as the economy recovered? Also, the graph shows the billions of car loans. I think you'd have to look at an inflation adjusted loan origination, as cars do not cost the same today as they did 1970, so, you'd expect the total dollar value of loans to be much higher. - \"\"How many borrowers are using their cars as collateral for new debt?\"\" Are you asking how many are refinance their cars? I don't think this is a thing. Cars depreciate and most of the time, the value of the car is less than loan. People may be rolling over into a new car and loan but I don't think they are re-mortgaging their cars. I could be wrong but there has to be information available on this - \"\"We do this through purchasing long dated 1-2 year out-of-the-money PUT options on first order stocks\"\"- How do you know where the strike price on these stocks will be? If your very confident, you can sell a call above to offset the cost of the put. Or alternatively, why don't you buy a credit default swap on the abs tranches?\"", "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": "64179b9abe526e78ade3da280069e512", "text": "You are likely thinking of a individual variable insurance contract (IVIC) , better known as a segregated fund, or a principal-protected note (PPN). For a segregated fund, to get a full guarantee on invested capital, you need a 100/100 where the maturity value and death benefit are each 100% guaranteed. The PPN works similar to a long-term GIC (or CD) with a variable investment component. The thing is, neither of these things are cheap and the cost structure that is built in behind them makes it difficult to make any real above market rates of return. In both cases, if you try to break the contracts early then the guarantees are null and void and you get out what you get out.", "title": "" } ]	fiqa
aa6a88394da635c4f05bf02f3b73d726	Saving $1,000+ per month…what should I do with it?	[ { "docid": "556d779950d628f3bdb98b63bbbf4757", "text": "If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.", "title": "" }, { "docid": "55d0352e77cbf9feac3c222d54381206", "text": "Daniel, first of all, I'm jealous of your predicament. That said, I think you've gotten some good advice already, so I won't repeat what's been said. But I will throw out a few ideas that haven't come up. My first thought is that you may be underestimating upcoming expenses. It sounds like your current expenses are low, and that's great! I'm impressed that you're living below your means, and looking for the best way to use your extra cash. But you may not be thinking of a few things. You have a girlfriend, and maybe your relationship isn't such that you are planning a wedding quite yet. But, regardless of whether your current girlfriend is your future life partner or not, if you think marriage may be in your future at all, you'll save yourself a lot of stress if you've got some savings for a wedding in place before you're ready to commit. Next, what are you driving? If it's a good car that you expect to last you another 10 years, you're probably ok right now. But if you may need to replace your vehicle in the next few years, start saving now and you may be able to buy it outright. (I expect your interest rate on financing a car would be higher than your current student loan rates, so I would save for a car before paying down loans with such beautiful rates.) A house has already been discussed, and there was also mention of additional education, and both of those require a solid financial plan that begins far in advance. In summary, I think you need a lot more than $5K in savings. Sure, have some fun, and take advantage of opportunities to travel, etc, as they come along, but if you're able to bump your savings by $500 to $1000/month, I think you'll really be glad you did. When it comes time for a new car, or you find you're ready to settle down, it will be nice to have somewhere to draw from, and if there's only $5K in your savings, you may come to regret choices you made when you were 22.", "title": "" }, { "docid": "c7d3435a4e39ea6bed75f49d8497f61b", "text": "I like the other answers. But, here's one thing that concerns me that hasn't specifically been addressed yet: You mentioned your student loans are at low rates of interest. Are those rates fixed or variable? If those interest rates are variable, I would not count on rates remaining low indefinitely. If you could imagine those rates going up by say 2% or 4% or more over time, would such rates make you change your mind about the debt and the pace at which you're paying it off? I would suggest that as the economy recovers over the next couple of years, the spectre of inflation will force the Fed to raise interest rates. You don't want to be holding variable-rate debt when rates are rising. For that reason, if your loan rate is variable, I would increase your payment amount so you can eliminate your debt sooner than later. Also – You mention in one of your comments that buying a home is 4+ years away. That's not a long time, so I wouldn't commit the bulk of your savings to investing in the stock market, which can be temperamental over short periods of time. You don't want to be in a large loss position just when it's time to buy your first home. However, it may be worth having some of your skin in the game, so to speak. Personally, I would take a balanced approach: 1/3 debt repayment, 1/3 high interest cash savings, and 1/3 in some broad diversified index funds – and not all in the U.S. Although, I also like the idea of getting some travel in while young, so perhaps 1/4 allocations to the money stuff, and 1/4 towards travel? :-) Good luck.", "title": "" }, { "docid": "af3cf921fb277e45c7332b18aee7786e", "text": "In your situation I suggest: In terms of what to spend it on, one tax preparer I knew said he would ask his wealthy clients (ones with real net worth) what they spent their money on, and it was almost always travel. We agree, memories from our trips are ones that last a lifetime. I can't say much else you buy gives you the same long term payback in your personal life.", "title": "" }, { "docid": "22c8e351ddc1a5b4035a08fa02187530", "text": "Excellent responses so far. Because I am a math guy, I wanted to stress the power of compounding. It's great that you are thinking about saving and your future when you are so young. Definitely be displined about your saving and investing. You would be surprised how just a small amount can compound over the years. For example, if you were to start with $5000 and contribute $100 per month. Assuming that you can get 5% ROR (hard in today's world but shouldn't be down the road), your final principal after 28 years (when you are 50 years old) will be over $90,000, which of only $38,000 is what you contributed yourself. The rest is interest. You can play with the numbers here: http://www.math.com/students/calculators/source/compound.htm", "title": "" }, { "docid": "67c1d21cd147964789c000d38ef3992b", "text": "\"Since you already have an emergency fund in place, focus your extra funds on paying off debts like student loans. While some have advised you to play the stock market, not one person has mentioned the word \"\"risk\"\". You are gambling (\"\"investing\"\") your money in the hopes your money will grow. Your student loan is real liability. The longer you keep the loan, the more interest you will pay. You can pay off your student loan in 21 months if you pay $1,100 each month. After the 21 months, you can almost fully fund a 401(k) each year. That will be amazing at your age. Our company gives us the Vanguard Retirement Fund with a low expense ratio of 0.19%. It is passive automated investing where you don't have to think about it. Just add money and just let it ride.\"", "title": "" } ]	[ { "docid": "8a8a67ea7ce494e435405a0f4a50e3b6", "text": "Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account).", "title": "" }, { "docid": "7edfda479cd3187bb936a5557781d157", "text": "I think it's great idea. Many large brokerages give customers access to a pretty sizable list of zero commission, zero load funds. In this list of funds will certainly be an S&P 500 index. So you can open your account for free, deposit your $1,000 for free and invest it in an S&P index for no cost. You'll pay a very negligible amount in annual expense fees and you'll owe taxes on your gain if you have to use the money. I don't follow the school of thought that all investment money should be in retirement account jail. But I think if you have your spending under control, you have your other finances in order and just want to place money somewhere, you're on the right track with this idea.", "title": "" }, { "docid": "be1457dce52fb089a066c59174891798", "text": "\"First, I'd like to congratulate you on your financial discipline in paying off your loans and living well within your means. I have friends who make more than twice your salary with similar debt obligations, and they barely scrape by month to month. If we combine your student loan debt and unallocated income each month, we get about $1,350. You say that $378 per month is the minimum payment for your loans, which have an average interest rate of about 3.5%. Thus, you have about $1,350 a month to \"\"invest.\"\" Making your loan payments is basically the same as investing with the same return as the loan interest rate, when it comes down to it. An interest rate of 3.5% is...not great, all things considered, and barely above inflation. However, that's a guaranteed return of 3.5%, more or less like a bond. As noted previously, the stock market historically averages 10% before inflation over the long run. The US stock market is right around its historic high at this point (DJIA is at 20,700 today, April 6th, 2017 - historic high hit just over 21,000 on March 1, 2017). Obviously, no one can predict the future, but I get the feeling that a market correction may be in order, especially depending on how things go in Washington in the next weeks or months. If that's the case (again, we have no way of knowing if it is), you'd be foolish to invest heavily in any stocks at this point. What I would do, given your situation, is invest the $1,350/month in a \"\"portfolio\"\" that's 50/50 stocks and \"\"bonds,\"\" where the bonds here are your student loans. Here, you have a guaranteed return of ~3.5% on the bond portion, and you can still hedge the other 50% on stocks continuing their run (and also benefiting from dividends, capital gains, etc. over time). I would apply the extra loan payments to the highest-interest loan first, paying only the minimum to the others. Once the highest-interest loan is paid off, move onto the next one. Once you have all your loans paid off, your portfolio will be pretty much 100% stocks, at which point you may want to add in some actual bonds (say a 90/10 or 80/20 split, depending on what you want). I'm assuming you're pretty young, so you still have plenty of time to let the magic of compounding interest do its work, even if you happen to get into the market right before it drops (well, that, and the fact that you won't really have much invested anyway). Again, let me stress that neither I nor anyone else has any way of knowing what will happen with the market - I'm just stating my opinion and what my course of action would be if I were in your shoes.\"", "title": "" }, { "docid": "0ab2a8a407c36954c932ed6f3b091b88", "text": "I think the answer depends on whether you're trying to get out of debt and stay out, or if you just want this card paid off. That is, are you changing the way you deal with money and debt for good? If you just want this card paid off, and you're OK with going back into debt later, then @Mike Scott's advice is one way to go. I'd personally be nervous about leaving myself with no cash reserves at all. If you are planning to get out of debt and stay out, then you don't want to put yourself in a position where you're tempted to go back into debt as soon as you hit a speed bump. So, you need some cushion so that an emergency doesn't push you right back to the credit cards. If you've got a budget that you can live on, and that covers your usual expenses, and your job is relatively stable, then $1000 is probably enough of a cushion for most things. You can then pay off most of the credit card using the rest of your savings. If you're in an unstable job situation, then you'll want to keep more, if not all, of your savings as protection against the instability. Once the situation stabilizes, then throw the surplus savings at the debt. $1000 doesn't cover all possible emergencies, but it's generally a good tradeoff between prudence and paranoia.", "title": "" }, { "docid": "cc13c4bd1503bbb1b62c7955bea94d58", "text": "\"An alternative to a savings account is a money market account. Not a bank \"\"Money Market\"\" account which pays effectively the same silly rate as a savings account, but an actual Money Market investment account. You can even write checks against some Money Market investment accounts. I have several accounts worth about 13,000 each. Originally, my \"\"emergency fund\"\" was in a CD ladder. I started experimenting with two different Money market investment accounts recently. Here's my latest results: August returns on various accounts worth about $13k: - Discover Bank CD: $13.22 - Discover Bank CD: $13.27 - Discover Bank CD: $13.20 - Discover Savings: $13.18 - Credit Union \"\"Money Market\"\" Savings account: $1.80 - Fidelity Money Market Account (SPAXX): $7.35 - Vanguard Money market Account (VMFXX): $10.86 The actual account values are approximate. The Fidelity Money Market Account holds the least value, and the Credit Union account by far the most. The result of the experiment is that as the CDs mature, I'll be moving out of Discover Bank into the Vanguard Money Market account. You can put your money into more traditional equities mutual fund. The danger with them is the stock market may drop big the day before you want to make your withdrawl... and then you don't have the down payment for your house anymore. But a well chosen mutual fund will yield better. There are 3 ways a mutual fund increase in value: Here's how three of my mutual funds did in the past month... adjusted as if the accounts had started off to be worth about $13,000: Those must vary wildly month-to-month. By the way, if you look up the ticker symbols, VASGX is a Vanguard \"\"Fund of Funds\"\" -- it invests not 100% in the stock market, but 80% in the stock market and 20% in bonds. VSMGX is a 60/40 split. Interesting that VASGX grew less than VSMGX...but that assumes my spreadsheet is correct. Most of my mutual funds pay dividends and capital gains once or twice a year. I don't think any pay in August.\"", "title": "" }, { "docid": "f77161ebc75b3cf13e4813498cc4d564", "text": "There isn't any place you can put $300 and turn it into significant passive income. What you need to do instead is manage the active (work) income that you have so that your money goes farther, freeing income up for reducing debt and investing. Investing $300 one time won't add up to much, but investing $100 a month will turn into wealth over time. Making a monthly budget is the key to managing your income. In the process, you'll find out where your income is going, and you can be intentional about how much you want to spend on different things in your life. You can allocate some of your income to paying down debt and investing, which is what you need to do to get ahead. For some general guidelines on what to do with your money first, read this question: Oversimplify it for me: the correct order of investing. For more specifics on creating a budget, eliminating debt, and building wealth, I recommend the book The Total Money Makeover by Dave Ramsey.", "title": "" }, { "docid": "32e71fb321d39a1fceb84c0481f32a5c", "text": "Put £50 away as often as possible, and once it's built up to £500, invest in a stockmarket ETF. Repeat until you retire.", "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": "22ba2c6a256d23ebdf731deccab54e55", "text": "\"I wish I was in your shoes with the knowledge I have in my head. financial goal setting is a great plan at your age. In my humble opinion you don't want to save for anything... you want to invest as much as you can, create a corporation and have the corporation invest as much as possible. When there is enough monthly cash flow coming from your investments... have the corporation buy you a house, a car, take out an insurance policy on you as key employee... etc. As for the $11,000 laying around in cash as an emergency fund, no way! With returns as high as 1-3% per month invested properly keep it invested. Getting to your emergency cash reserve you have in a trading account is only a couple key strokes away. As for the 401k... If it is not making at least 25% yearly for the last 10 years (excluding your Contributions) do it yourself in a self directed IRA. Oh... I forgot to mention When your corporation buys your stuff... if set up correctly you can take them as a loss in the corporate ledger and you know any loss from one entity can offset profits from another, thus reducing any taxes you may have. My friend you are at the point of great beginnings, hard choices and an open door to what ever you want your future to look like. Decide what you want out of your money and don't take \"\"NO YOU CAN'T DO THAT\"\" as an answer. Find someone that will tell you these secrets, they are out there. Good luck.\"", "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": "9a98fba0c27c7f053d2da01a8f1a8a7a", "text": "I would put this money to a high-interest savings account. It will not earn you too much, but it will save it from inflation.", "title": "" }, { "docid": "0d1e91dd9b70da76f6ad1b4bb1a86ab0", "text": "Personally I solve this by saving enough liquid capital (aka checking and savings) to cover pretty much everything for six months. But this is a bad habit. A better approach is to use budget tracking software to make virtual savings accounts and place payments every paycheck into them, in step with your budget. The biggest challenge you'll likely face is the initial implementation; if you're saving up for a semi-annual car insurance premium and you've got two months left, that's gonna make things difficult. In the best case scenario you already have a savings account, which you reapportion among your various lumpy expenses. This does mean you need to plan when it is you will actually buy that shiny new Macbook Pro, and stick to it for a number of months. Much more difficult than buying on credit. Especially since these retailers hate dealing in cash.", "title": "" }, { "docid": "fa00b34cb37c39234a063ce5118d2230", "text": "Sure, you'd make an $8.33 during that first month with little extra risk. Sounds like free money, right? (Assuming no hidden fees in the fine print.) I don't know that the extra money is worth the time you will spend monitoring the account, especially after inflation claims its share of your pie. If you're going to use leverage to invest, you should probably pick an investment that will return at a much higher rate. If you can get an unsecured line of credit at 1%, there aren't a lot of downsides. Hopefully interest rates don't rise high enough to eat your earnings, but if they do, you can always liquidate your investments and pay the remainder of the loan.", "title": "" }, { "docid": "996646b3a3c87bc269fd93c685c9e848", "text": "You can earn significantly more than 0.99% in the stock market. I'd pay the $450/month and invest the rest in a (relatively conservative) stock market fund, making monthly withdrawals for the car note.", "title": "" }, { "docid": "d1cb69170f7e03a21020382812c5b1ed", "text": "Based on your question details, I doubt you'll like this answer...but first things first, you need to focus on rebuilding your credit and your savings. $1K isn't a huge loan amount, so I'm going to assume you've made some poor decisions in the past to get to this point. I'm a small business owner, and I make it a goal to have 3-6 months of expected expenses in an account, should my circumstances ever drastically change or something happen that would keep me from working. Without knowing your living situation and daily expenses, here's some general advice on building a small business without a loan: 1) Find steady, gainful employment anywhere you can. 2) Pay off outstanding debts and rebuild a savings account to rebuild your credit score. 3) If you need fast cash, sell some stuff you don't need (gaming systems, home electronics, etc.). Also, minimize your unnecessary expenses (dining out, etc.). 4) Once your debts are paid off, create a business startup savings plan (put away as much as you can afford every week, until you reach your goal. 5) Once your goal is reached, you can begin your flipping business. Open a bank account, and separate your profits into buckets for operations, self-pay, and taxes (if you declare this income, which I hope you do). For myself, I put away 35% for income taxes, which I do not touch until my taxes are paid. I put 40% away for daily operations -- this keeps my business running, allowing me to pay for the equipment I need, the products I deliver, and advertising to keep my business running. I pay myself 25%. This is a simple method, but it works well for me.", "title": "" } ]	fiqa
c9e51e891fa0d912b52234cc5ef31954	Why is being “upside down” on a mortgage so bad?	[ { "docid": "1cf25b396336b8d45239902015ca96f3", "text": "I can think of a few reasons why they seem like a bigger deal to people than similar situations with other loans. As you point out, though, being underwater on your home loan is a less serious condition than having large student loans and a poor paying job, for example. If the student loan situation ever comes to a head, we may have people talking about student loans in hushed tones.", "title": "" }, { "docid": "6933bbfd0b40ce34f74b37a9feceb427", "text": "The problem comes when the borrower cannot afford his home. If a borrower buys more home than they can afford, as long as he can sell the house for more than he owes, he's not in a disastrous situation. He can sell the house, pay off the mortgage, and choose more affordable housing instead. If he is upside-down on his home, he doesn't have that option. He's stuck in his home. If he sells it, he will have to come up with extra money to pay off the mortgage (which he doesn't have, because he is in a home he can't afford). It used to be commonplace for banks to issue mortgages for 100% of the value of the home. As long as the home keeps appreciating, everybody is happy. But if the house drops in value and the homeowner finds himself unable to make house payments, both the homeowner and the bank are at risk. Recent regulations in the U.S. have made no-down-payment mortgages less common.", "title": "" }, { "docid": "67950a909e2aa75f79dd6aabe0117043", "text": "Here's a real-life example of why being underwater can be a tad annoying: Your options are: You must choose one.", "title": "" }, { "docid": "318b176230b8586dd9fc2cab38336566", "text": "tl;dr: when everything is going great, it's not really a problem. It's when things change that it's a problem. Finally, home loans are extended over extremely long periods (i.e. 15 or 30 years), making any fluctuations in their value short-lived - even less reason to be obsessed over their current value relative to the loan. Your post is based on the assumption that you never move. In that case, you are correct - being underwater on a mortgage is not a problem. The market value of your house matters little, except if you sell it or it gets reassessed. The primary problem arises if you want to sell. There are a variety of reasons you might be required to move: In all of these scenarios it is a major problem if you cannot sell. Your options generally are: In the first option, you will destroy your credit. This may or may not be a problem. The second is a major inconvenience. The third is ideal, but often people in this situation have money related problems. Student loans can deferred if needed. Mortgages cannot. A car is more likely to be a lower payment as well as a lower amount underwater. Generally, the problem comes when people buy a mortgage assuming certain things - whether that's appreciation, income stability/growth, etc. When these change they run into these problems and that is exactly a moment where being underwater is a problem.", "title": "" }, { "docid": "e82749a12bb0dc7acbcdae7eb3ee76e6", "text": "\"For most people \"\"home ownership\"\" is a long term lifestyle strategy (i.e. the intention is to own a home for several decades, regardless of how many times one particular house might be \"\"swapped\"\" for a different one. In an economic environment with steady monetary inflation, taking out a long-term loan backed by a tangible non-depreciating \"\"permanent\"\" asset (e.g. real estate) is in practice a form of investing not borrowing, because over time the monetary value of the asset will increase in line with inflation, but the size of the loan remains constant in money terms. That strategy was always at risk in the short term because of temporary falls in house prices, but long-term inflation running at say 5% per year would cancel out even a 20% fall in house prices in 4 years. Downturns in the economy were often correlated with rises in the inflation rate, which fixed the short-term problem even faster. Car and student loans are an essentially different financial proposition, because you know from the start that the asset will not retain its value (unless you are \"\"investing in a vintage car\"\" rather than \"\"buying a means of personal transportation\"\", a new car will lose most of its monetary value within say 5 years) or there is no tangible asset at all (e.g. taking out a student loan, paying for a vacation trip by credit card, etc). The \"\"scariness\"\" over home loans was the widespread realization that the rules of the game had been changed permanently, by the combination of an economic downturn plus national (or even international) financial policies designed to enforce low inflation rates - with the consequence that \"\"being underwater\"\" had been changed from a short term problem to a long-term one.\"", "title": "" }, { "docid": "31f3543c8e405cbb50b673e8d7e143fa", "text": "The largest problem and source of anxiety / ruin for homeowners during the housing market collapse was caused by the inability to refinance. Many people had bought homes which they were stretched to afford, by using variable-rate mortgages. These would typically offer a very attractive initial rate, with an annual cap on the potential increase of rate. Many of these people intended to refinance their variable-rate to a fixed rate once terms were more favorable. If their house won't appraise for the value needed to obtain a new loan, they are stuck in their current contract with potentially unfavorable rates in the later years (9.9% above prime was not unheard of.) Also, many people, especially those in areas of high inflation in the housing market, used a financial device known as a Balloon Mortgage, which essentially forced you to get a new loan after some number of years (2, 5, 10) when the entire note became due. Some of those loans offered payments less than Principal + Interest! So, say you move near Los Angeles and can't afford the $1.2M for the 3-bedroom ranch in which you wish to live. You might work out a deal with your mortgage broker/banker in which you agree contractually to only pay $500/month, with a balloon payment of $1.4M due in 5 years, which seemed like a good deal since you (and everyone else,) actually expect the house to be 'worth' $1.5M in 5 years. This type of thing was done all the time back in the day. Now, imagine the housing bubble bursts and your $1.2M home is suddenly only valued at, perhaps, $750k. You still owe $1.4M sometime in the next several years (maybe very soon, depending on timing,) and can only get approved financing for the current $750k value -- so you're basically anticipating becoming homeless and bankrupt within the same year. That is a source of much anxiety about being upside-down on a loan. See this question for an unfortunate example.", "title": "" }, { "docid": "c16feacf5f4d1e6d957730d1bd4acfe6", "text": "Sample Numbers: Owe $100k on house. House (after 'crash') valued at: $50K. Reason for consternation: What rational person pays $100k for property that is only worth half that amount? True Story: My neighbor paid almost $250K (a quarter-of-a-million dollars - think about that..) for a house that when he walked (ran!) away from it was sold by the bank for $88K. Unless he declares bankruptcy (and forgoes all his other assets, including retirement savings) he still owes the bank the difference. And even with bankruptcy, he may still owe the bank - this should cause anyone to be a bit concerned about being up-side down in a mortgage loan.", "title": "" }, { "docid": "1316b83e689b972455fb64b38ce31903", "text": "Being underwater a little is not all that scary, but those who talk of being underwater are typically underwater by quite a lot. The amount of money they owe is large compared to their yearly income. Consider a metaphor. I put you in a hole. Its only 1 foot deep. You're not too concerned. If you want to leave, you can step out of it. Now we look at a deeper hole, 3 feet. Now you're still not too concerned. You can't just walk out, but if you need to get out you can wiggle your way up. 6 feet. Now you start getting nervous. Climbing out is getting trickier and trickier. You may not be able to move in response to a changing enviornment around you, because you're stuck in a hole. Now make the hole 10 feet. Now you can't reach the edges. Now you're in trouble. You have lost all mobility. You can't get out under your own power. Now if something bad happens (such as losing your job or a sudden health issue), you can't move around to solve the problem. This is the issue that arise from underwater mortgages. Say you lose your job because the job market in your area dried up (think Detroit in the big auto manufacturer crash). You need to move. You are legally endebted to a lender for your existing underwater house by more than you can sell it for. You need to pay for the privilege to sell it. You still owe payments on it, so if you just buy a new house (or rent) in the new state, you're paying for twice as much property. You can't just shuffle the underwaterness from your old house to your new house because the new lender has no interest in giving a loan for more than the value of the new home. The only options you have to play with is renting the old house, which many underwater families did, or bankrupcy. If the area you were in is depressed, you may not be able to rent the house for enough to cover your mortgage. This is the fear of being underwater. You have a piece of paper which claims some lender can take money from you that you may or may not have, and that the US government will allow them to take your assets, if need be, to settle the score. If you're underwater by a few thousand, it's typically not a big deal. If you're underwater by 80 or 90 thousand dollars, which some people were, that's a lot of money to be endebted for without the assets to recover them. If you subscribe to the realtor story that the market will recover, all you have to do is scrape by, holding on, until the market rises again. However, those who are underwater recognize that the reason much of this occurred is that we entered a bubble because realtors kept saying the market could only go up. Fool me once....", "title": "" }, { "docid": "7f3147f6adedde8e9a6bfd15489cca35", "text": "And then there is the issue of people who actually don't intend to reduce the size of their loan. They only want to pay the interest, so their debt with the bank remains constant. If you are upside down, it means you will not have the financial means to remove the debt. If, for some reason, you are no longer able to pay the bank, you might lose the house. After that you will have no house, but you still have a debt with the bank.", "title": "" }, { "docid": "a59570049a42e56497a59511e25abb8e", "text": "I think part of why it is perceived is so bad is because the fluctuations in housing prices are relatively large, especially compared to the amount needed to put a down payment. This is not an uncommon scenario: And this is not even being underwater, just being even. Imagine how much worse it feels if your dream of home ownership has turned into just a pile of debt.", "title": "" } ]	[ { "docid": "95eb20ad4d8b177f6dcec3183a702b99", "text": "There's nothing wrong with it. Living in a two-family house and renting the downstairs was a fairly standard path to the middle class and home ownership in the 20th century. Basically, if market conditions are good, you'll have someone else paying your mortgage. The disadvantage of the situation is that you're a landlord. So you have to deal with your tenant, who is also a neighbor. Most tenants are fine, but the occasional difficult person may come out of the woodwork. That model of achieving home ownership became less popular in the late 60's-early 70's when the law allowed two incomes to be used for mortgage underwriting. Also, as suburbanization became a national trend, absentee landlords became more common Sounds like you are in the right place at the right time, and have stumbled into a good deal.", "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": "623dfa0df8931700ed0fa255c994972d", "text": "\"This seems to be a very emotional thing for people and there are a lot of conflicting answers. I agree with JoeTaxpayer in general but I think it's worth coming at it from a slightly different angle. You are in Canada and you don't get to deduct anything for your mortgage interest like in the US, so that simplifies things a bit. The next thing to consider is that in an amortized mortgage, the later payments include increasingly more principal. This matters because the extra payments you make earlier in the loan have much more impact on reducing your interest than those made at the end of the loan. Why does that matter? Let's say for example, your loan was for $100K and you will end up getting $150K for the sale after all the transaction costs. Consider two scenarios: If you do the math, you'll see that the total is the same in both scenarios. Nominally, $50K of equity is worth the same as $50K in the bank. \"\"But wait!\"\" you protest, \"\"what about the interest on the loan?\"\" For sure, you likely won't get 2.89% on money in a bank account in this environment. But there's a big difference between money in the bank and equity in your house: you can't withdraw part of your equity. You either have to sell the house (which takes time) or you have to take out a loan against your equity which is likely going to be more expensive than your current loan. This is the basic reasoning behind the advice to have a certain period of time covered. 4 months isn't terrible but you could have more of a cushion. Consider things like upcoming maintenance or improvements on the house. Are you going to need a new roof before you move? New driveway or landscape improvements? Having enough cash to make a down-payment on your next home can be a huge advantage because you can make a non-contingent offer which will often be accepted at a lower value than a contingent offer. By putting this money into your home equity, you essentially make it inaccessible and there's an opportunity cost to that. You will also earn exact 0% on that equity. The only benefit you get is to reduce a loan which is charging you a tiny rate that you are unlikely to get again any time soon. I would take that extra cash and build more cushion. I would also put as much money into any tax sheltered investments as you can. You should expect to earn more than 2.89% on your long-term investments. You really aren't in debt as far as the house goes as long as you are not underwater on the loan: the net value of that asset is positive on your balance sheet. Yes you need to keep making payments but a big account balance covers that. In fact if you hit on hard times and you've put all your extra cash into equity, you might ironically not being able to make your payments and lose the home. One thing I just realized is that since you are in Canada, you probably don't have a fixed-rate on your mortgage. A variable-rate loan does make the calculation different. If you are concerned that rates may spike significantly, I think you still want to increase your cushion but whether you want to increase long-term investments depends on your risk tolerance.\"", "title": "" }, { "docid": "042f8e55c75b6d2ffa8b5a61201fb7ec", "text": "Well typically you're borrowing a shit ton of money for 30 years so yeah you're paying a lot in interest over that period. But your situation sounds especially bad, that's over a 10% constant assuming 80% LTV. What are you being quoted, like >9% interest?", "title": "" }, { "docid": "a822a0aff7439e7c5b0ded019cb7eb34", "text": "\"They're not all \"\"bad at math borrowers\"\". How would you like it if you applied for a mortgage, very carefully reviewed all the paperwork, and then the mortgage broker simply transposes your signature to another set of documents with different rates? People got screwed because the companies often screwed them. For every person with zero income who got a home, who's no worse off now than before, there's dozens who got refinanced and later thrown out on the street when their rates magically reset.\"", "title": "" }, { "docid": "0c5a2cc4c919a57f3865f7c4dea5f03b", "text": "Many mortgages penalize early payment, and I assume it's possible to disallow it altogether. It makes sense why they don't want early payment. If you pay off the loan early, it is usually because you re-financed it to a loan with a lower rate. You would do this when the interest rate is low (lower than when you got your original loan). If you pay it off early, that means they will have to re-invest the money again, or they will lose money if they just have it sitting around. However, recall above that people pay it off early when the interest rate is low; that is the worst time for them to re-invest this into another mortgage, because the rate will not be as good for them as the one you were originally going to keep paying.", "title": "" }, { "docid": "2ff9da401e9a1c69880e5a83ea5ad0c2", "text": "Banks and lenders have become a bit more conservative since the housing crisis. 80% is a typical limit. The reason is to minimize the lender's risk if declining property values would put the borrower upside-down on the loan. http://www.bankrate.com/finance/home-equity/how-much-equity-can-you-cash-out-of-home.aspx", "title": "" }, { "docid": "f9ad0656b5ebff9bb89342abd2b89beb", "text": "Wrong way round. Transitional arrangements are non-binding guidelines that the lenders can observe if they choose to. The borrower - like your friend - doesn't get to choose whether to use them or not. Your friend obviously can't afford the property, so if you do this, all I can say is congratulations on buying your new house, and I hope you got a deal on the mortgage.", "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": "7dcc878a79104a3e26c4ed3ba82668fb", "text": "In a process called collateralization, your mortgage is combined with others to form a security that other can invest in. When done right, this process provides liquidity, more money to be lent for more loans. When done wrong, bad things happen. My mortgage happens to be held by the issuing bank. Yours was sold into such a pool of mortgages. One effect of this is the reselling of the servicing of the loan. I've had other mortgages that were sold every year, but I never paid ahead. With this bank, I'm on my fifth refinance, but the bank keeps the loan in house no matter what. I don't know if there's any correlation, it depends on the originating bank, in my opinion.", "title": "" }, { "docid": "acc09c5d98f893e55f4d2b9ce0497689", "text": "Disclosure: I work for Wells Fargo Home Mortgage. This is normal. The bank is giving you a discount on the interest rate in exchange for the automatic payments. Unfortunately, the bank has the power here; they have your mortgage, and they have the right to call your loan in full at any time, and foreclose on your house if you don't pony up. It's okay to not like being pushed around, but you need to know when to hold'em and when to fold'em, and your facing a royal flush with pair of 4s.", "title": "" }, { "docid": "b668b8d50603669e02d8e710687f881b", "text": "I'm not an expert on reverse mortgages but from my understanding the closing costs are much higher than traditional mortgages and the LTV is generally pretty low. So the bank makes money by not loaning out all that much compared to the value of the property and by charging high fees on the front end.", "title": "" }, { "docid": "c01e8d7d9223450cb7fbed67e81d0f26", "text": "So am I to understand that giving AAA ratings to financial instruments backed by toxic mortgages had nothing to do with this problem? That selling mortgages with one hand and betting on those mortgages to fail with other is a reasonable business practice? No doubt the push to give more poor people government backed loans exacerbated the problem, but making that claim that that was the only problem seems about as valid as claiming that Goldman Sachs was responsible for everything.", "title": "" }, { "docid": "d5afca16ee485c9157d01ff29ff09333", "text": "Hey OP, Don't listen to the negative comments, they don't know what they're talking about. I just got hired as an associate i-banker at the top investment bank in my country , which is roughly at the level of American bulge bracket banks. I'm an introvert. Yes, I like to drink and socialize, and part of the interview process involved cocktails and dinner with other candidates and several ibankers at all levels . But I-bankers are just geeks in suits. As long as you are comfortable in social settings , you don't need to be an alpha male or frat jock. I recommend meeting as many ibankers as possible. Have coffee chats and learn about the people that work in the industry. Good luck.", "title": "" }, { "docid": "ff7f5e3e13a45c7f27610ba45e5bad81", "text": "Stock is a part ownership of a business. First there has to be a business that people want to own part of because they expect to make a profit from that ownership. Nobody is going to be interested if the business isn't worth anything. In other words: sure, you could try to start a movie production house to make this film and others... But unless you are already a major player AND already have a lot of money invested in the studio, forget it. This isn't GoFundMe or Kickstarter. Nobody is going to buy stock because they want a copy of the DVD that you promise will be available in two years' time.", "title": "" } ]	fiqa
9c62aadb71d5256fed4bcee1640ccce8	What is the pitfall of using the Smith maneuver	[ { "docid": "661faa4d48f96d63ec1a4467fefc9842", "text": "The catch is that you're doing a form of leveraged investing. In other words, you're gambling on the stock market using money that you've borrowed. While it's not as dangerous as say, getting money from a loan shark to play blackjack in Vegas, there is always the chance that markets can collapse and your investment's value will drop rapidly. The amount of risk really depends on what specific investments you choose and how diversified they are - if you buy only Canadian stocks then you're at risk of losing a lot if something happened to our economy. But if your Canadian equities only amount to 3.6% of your total (which is Canada's share of the world market), and you're holding stocks in many different countries then the diversification will reduce your overall risk. The reason I mention that is because many people using the Smith Maneuver are only buying Canadian high-yield dividend stocks, so that they can use the dividends to accelerate the Smith Maneuver process (use the dividends to pay down the mortgage, then borrow more and invest it). They prefer Canadian equities because of preferential tax treatment of the dividend income (in non-registered accounts). But if something happened to those Canadian companies, they stand to lose much of the investment value and suddenly they have the extra debt (the amount borrowed from a HELOC, or from a re-advanceable mortgage) without enough value in the investments to offset it. This could mean that they will not be able to pay off the mortgage by the time they retire!", "title": "" } ]	[ { "docid": "b7f83a97dfce677a8cbbe76aa56d822a", "text": "> Smith earned $15 million in total compensation in 2016, including a $1.5-million base salary and $7.3 million in stock awards, according to the company’s securities filings. > As of Dec. 31, his pension was valued at $18.4 million, the filings showed. Smith is entitled to that pension “under any circumstances,” Gutzmer said.", "title": "" }, { "docid": "d331a7d58dd50ed1858f361b6e640d57", "text": "I will expand this to 401K's, 403B's, and the federal retirement program. There are 3 things to worry about when trading: The tax friendly retirement programs will remove the worry about taxes. Most will reduce or eliminate the concern about transaction fees. But some programs will limit the number of transactions per month. In the past few years the federal program has cracked down on people who were executing trades every day. While employees are able to execute trades without a fee, the costs related to each transaction were being absorbed into the cost of running the program. To keep the costs down they limited the number of transactions per month. Some private programs have limited the movement of money between some of the investment options.", "title": "" }, { "docid": "64a0080a7faeef7c5d3b8afb1106f8f2", "text": "\"If i do this, I would assume I have an equal probability to make a profit or a loss. The \"\"random walk\"\"/EMH theory that you are assuming is debatable. Among many arguments against EMH, one of the more relevant ones is that there are actually winning trading strategies (e.g. momentum models in trending markets) which invalidates EMH. Can I also assume that probabilistically speaking, a trader cannot do worst than random? Say, if I had to guess the roll of a dice, my chance of being correct can't be less than 16.667%. It's only true if the market is truly an independent stochastic process. As mentioned above, there are empirical evidences suggesting that it's not. is it right to say then that it's equally difficult to purposely make a loss then it is to purposely make a profit? The ability to profit is more than just being able to make a right call on which direction the market will be going. Even beginners can have a >50% chance of getting on the right side of the trades. It's the position management that kills most of the PnL.\"", "title": "" }, { "docid": "23a1942c7b909c8c0a16d1cbf824842e", "text": "If you plan to take profit at $1.00 then your profit will be $40. Then, if you set your stop at $0.88 then your loss if you get stopped will be $20. So your Reward : Risk = 2:1. Note, that this does not take into account brokerage in and out and any slippage from the price gapping past your stop loss.", "title": "" }, { "docid": "96347bc9f864460e64c7d4b3f9adb866", "text": "My understanding is that all ETF options are American style, meaning they can be exercised before expiration, and so you could do the staggered exercises as you described.", "title": "" }, { "docid": "90cf653a01b6f9a034dc013a6e16605f", "text": "\"value slip below vs \"\"equal a bank savings account’s safety\"\" There is no conflict. The first author states that money market funds may lose value, precisely due to duration risk. The second author states that money market funds is as safe as a bank account. Safety (in the sense of a bond/loan/credit) mostly about default risk. For example, people can say that \"\"a 30-year U.S. Treasury Bond is safe\"\" because the United States \"\"cannot default\"\" (as said in the Constitution/Amendments) and the S&P/Moody's credit rating is the top/special. Safety is about whether it can default, ex. experience a -100% return. Safety does not directly imply Riskiness. In the example of T-Bond, it is ultra safe, but it is also ultra risky. The volatility of 30-year T-Bond could be higher than S&P 500. Back to Money Market Funds. A Money Market Fund could hold deposits with a dozen of banks, or hold short term investment grade debt. Those instruments are safe as in there is minimal risk of default. But they do carry duration risk, because the average duration of the instrument the fund holds is not 0. A money market fund must maintain a weighted average maturity (WAM) of 60 days or less and not invest more than 5% in any one issuer, except for government securities and repurchase agreements. If you have $10,000,000, a Money Market Fund is definitely safer than a savings account. 1 Savings Account at one institution with amount exceeding CDIC/FDIC terms is less safe than a Money Market Fund (which holds instruments issued by 20 different Banks). Duration Risk Your Savings account doesn't lose money as a result of interest rate change because the rate is set by the bank daily and accumulated daily (though paid monthly). The pricing of short term bond is based on market expectation of the interest rates in the future. The most likely cause of Money Market Funds losing money is unexpected change in expectation of future interest rates. The drawdown (max loss) is usually limited in terms of percentage and time through examining historical returns. The rule of thumb is that if your hold a fund for 6 months, and that fund has a weighted average time to maturity of 6 months, you might lose money during the 6 months, but you are unlikely to lose money at the end of 6 months. This is not a definitive fact. Using GSY, MINT, and SHV as an example or short duration funds, the maximum loss in the past 3 years is 0.4%, and they always recover to the previous peak within 3 months. GSY had 1.3% per year return, somewhat similar to Savings accounts in the US.\"", "title": "" }, { "docid": "32d1ae25d45bff448b385f3f172f87f3", "text": "caveat: remember that complex derivatives can be very bad for your wealth (even if you FULLY understand them).", "title": "" }, { "docid": "cab8a85705f3c03341cab69c7efa553e", "text": "If you look at history, it shows that the more people predict corrections the less was the chance they came. That doesn't prove it stays so, though. 2017 is not any different than other years in the future: Independent of this, with less than ten years remaining until you need to draw from your money, it is a good idea to move away from high risk (and high gain); you will not have enough time to recover if it goes awry. There are different approaches, but you should slowly and continuously migrate your capital to less risky investments. Pick some good days and move 10% or 20% each time to low-risk, so that towards the end of the remaining time 90 or 100% are low or zero risk investments. Many investment banks and retirement funds offer dedicated funds for that, they are called 'Retirement 2020' or 'Retirement 2030'; they do exactly this 'slow and continuous moving over' for you; just pick the right one.", "title": "" }, { "docid": "dbd6058d06909749851d84b6f20389a9", "text": "You've asked for risks but neglected straight up costs. CD laddering will have some explicit and implicit costs:", "title": "" }, { "docid": "388f355419ddadce6e0fac4adf5e8be1", "text": "First I would be very careful using a short ETF. There could be some serious tracking error, especially if its levered. Second, when it comes to forex you are in the world of PIPS and high leverage. You would need to have significant capital to be able to hold out the swings as banks do their interventions. Plenty of people have been short waiting, and waiting, and waiting, unless you think you know something the market doesn't this seems like a pretty high risk strategy. I'd suggest buying options instead, but they will be expensive given the volatility.", "title": "" }, { "docid": "9b4a5fff5ef3a98fcf333a137464c7af", "text": "Deliberately breaking transactions into smaller units to avoid reporting requirements is called structuring and may attract the attention of the IRS and/or law enforcement agencies. I'm not sure what the specific laws are on structuring with respect to FBAR reporting requirements and/or electronic transfers (as opposed to cash transactions). However, there's been substantial recent publicity about cases where people had their assets seized simply because federal agents suspected they were trying to avoid reporting requirements (even if there was no hard evidence of this). It is safer not to risk it. Don't try to structure your transactions to avoid the reporting requirements.", "title": "" }, { "docid": "69c794fa0948f77a425d8f76ed1e36ca", "text": "This serves as very crucial for the new business manager who is not adept in prospecting the outcomes and for whom, the passages are new! A minor mistake on his part could plunge the whole new venture into the backlash mode which could be potentially dangerous!For More Info:- http://www.startupmentor.co.in/", "title": "" }, { "docid": "e4a0495fedb4a5edad9a887d78543dc5", "text": "\"Came across this very nice video which explains the \"\"Long Straddle\"\". Thought will share the link here: http://www.khanacademy.org/finance-economics/core-finance/v/long-straddle\"", "title": "" }, { "docid": "22ae57c52676b06d852420a2c9538018", "text": "There are several reasons it is not recommended to trade stocks pre- or post-market, meaning outside of RTH (regular trading hours). Since your question is not very detailed I have to assume you trade with a time horizon of at least more than a day, meaning you do not trade intra-day. If this is true, all of the above points are a non-issue for you and a different set of points becomes important. As a general rule, using (3) is the safest regardless of what and how you trade because you get price guarantee in trade for execution guarantee. In the case of mid to longer term trading (1 week+) any of those points is viable, depending on how you want to do things, what your style is and what is the most comfortable for you. A few remarks though: (2) are market orders, so if the open is quite the ride and you are in the back of the execution queue, you can get significant slippage. (1) may require (live) data of the post-market session, which is often not easy to come by for the entire US stock universe. Depending on your physical execution method (phone, fax, online), you may lack accurate information of the post-market. If you want to execute orders based on RTH and only want to do that after hours because of personal schedule constraints, this is not really important. Personally I would always recommend (3), independent of the use case because it allows you more control over your orders and their fills. TL;DR: If you are trading long-term it does not really matter. If you go down to the intra-day level of holding time, it becomes relevant.", "title": "" }, { "docid": "e4623e9f341a2fa3d253b34079c687a3", "text": "In common with many companies, Microsoft has been engaging in share buyback programmes, where it buys its own shares in the market and then cancels them. It's often a more tax-efficient way to distribute profits to the shareholders than paying a dividend. So there were more Microsoft shares in circulation in 1999 than there are now. See here for information.", "title": "" } ]	fiqa
dcb572f21f7098a83f2f115dd98c2a93	Why does the stock market index get affected when a terrorist attack takes place?	[ { "docid": "b3822687aed5e8f97cd11f47254d6a16", "text": "\"There are more than a few different ways to consider why someone may have a transaction in the stock market: Employee stock options - If part of my compensation comes from having options that vest over time, I may well sell shares at various points because I don't want so much of my new worth tied up in one company stock. Thus, some transactions may happen from people cashing out stock options. Shorting stocks - This is where one would sell borrowed stock that then gets replaced later. Thus, one could reverse the traditional buy and sell order in which case the buy is done to close the position rather than open one. Convertible debt - Some companies may have debt that come with warrants or options that allow the holder to acquire shares at a specific price. This would be similar to 1 in some ways though the holder may be a mutual fund or company in some cases. There is also some people that may seek high-yield stocks and want an income stream from the stock while others may just want capital appreciation and like stocks that may not pay dividends(Berkshire Hathaway being the classic example here). Others may be traders believing the stock will move one way or another in the short-term and want to profit from that. So, thus the stock market isn't necessarily as simple as you state initially. A terrorist attack may impact stocks in a couple ways to consider: Liquidity - In the case of the attacks of 9/11, the stock market was closed for a number of days which meant people couldn't trade to convert shares to cash or cash to shares. Thus, some people may pull out of the market out of fear of their money being \"\"locked up\"\" when they need to access it. If someone is retired and expects to get $x/quarter from their stocks and it appears that that may be in jeopardy, it could cause one to shift their asset allocation. Future profits - Some companies may have costs to rebuild offices and other losses that could put a temporary dent in profits. If there is a company that makes widgets and the factory is attacked, the company may have to stop making widgets for a while which would impact earnings, no? There can also be the perception that an attack is \"\"just the beginning\"\" and one could extrapolate out more attacks that may affect broader areas. Sometimes what recently happens with the stock market is expected to continue that can be dangerous as some people may believe the market has to continue like the recent past as that is how they think the future will be.\"", "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": "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": "08195dbfa4527437a69f5a81e359ea3e", "text": "Yes, you've got it right. The change in price is less meaningful as the instrument is further from the price of the underlying. As the delta moves less, the gamma is much less. Gamma is to delta as acceleration is to speed. Speed is movement relative to X, and acceleration is rate of change in speed. Delta is movement relative to S, and gamma is the rate of change in delta. Delta changes quickly when it is around the money, which is another way of saying gamma is higher. Delta is the change of the option price relative to the change in stock price. If the strike price is near the market price, then the odds of being in or out of the money could appear to be changing very quickly - even going back and forth repeatedly. Gamma is the rate of change of the delta, so these sudden lurches in pricing are by definition the gamma. This is to some extent a little mundane and even obvious. But it's a useful heuristic for analyzing prices and movement, as well as for focusing analyst attention on different pricing aspects. You've got it right. If delta is constant (zero 'speed' for the change in price) then gamma is zero (zero 'acceleration').", "title": "" }, { "docid": "f5f54af20589d8b843e3019749c8be70", "text": "Theoretically, it could be daily, but depending upon the number of companies in the index, it could be anywhere between daily or once a month or so. Apart from that, there is a periodic index review that happens once every quarter. The methodology for each index is also different, and you need to be aware of it (we had positions on literally hundreds of indices, and I knew the methodology of almost each of them). If you have say, 2 billion dollars tracking a certain index, even a miniscule change in the composition would be substantial for you. But for certain others, you may just need to buy and sell $10k worth of stocks, and we would not even bother.", "title": "" }, { "docid": "f09c3e77e04f0ac7490bda1d19836d71", "text": "For example, if the Dow, S&P 500, NASDAQ are all down does that necessarily mean the Canadian stock will get negatively impacted? Or is it primarily impacted by the Canadian market? The TWMJF stock makes up a very small part of the Canadian market so it affects the overall market, but this doesn't mean that the overall market affects this stock. So then the answer is: no, the TWMJF stock price will not necessarily follow either US or Canadian market indexes. However, there can be major events which can affect the markets, including the stocks which make up the markets. TWMJF will probably be more sensitive to Canadian events than US events.", "title": "" }, { "docid": "cd6d21819d04068e9eea9dada5e04ac5", "text": "The opening price is derived from new information received. It reflects the current state of the market. Opening Price Deviation (from Investopedia): Investor expectation can be changed by corporate announcements or other events that make the news. Corporations typically make news-worthy announcements that may have an effect on the stock price after the market closes. Large-scale natural disasters or man-made disasters such as wars or terrorist attacks that take place in the afterhours may have similar effects on stock prices. When this happens, some investors may attempt to either buy or sell securities during the afterhours. Not all orders are executed during after-hours trading. The lack of liquidity and the resulting wide spreads make market orders unattractive to traders in after-hours trading. This results in a large amount of limit or stop orders being placed at a price that is different from the prior day’s closing price. Consequently, when the market opens the next day, a substantial disparity in supply and demand causes the open to veer away from the prior day’s close in the direction that corresponds to the effect of the announcement, news or event.", "title": "" }, { "docid": "1e090411bf34d3e1a21c664640f3d881", "text": "Graphs are nothing but a representation of data. Every time a trade is made, a point is plotted on the graph. After points are plotted, they are joined in order to represent the data in a graphical format. Think about it this way. 1.) Walmart shuts at 12 AM. 2.)Walmart is selling almonds at $10 a pound. 3.) Walmart says that the price is going to reduce to $9 effective tomorrow. 4.) You are inside the store buying almonds at 11:59 PM. 5.) Till you make your way up to the counter, it is already 12:01 AM, so the store is technically shut. 6.) However, they allow you to purchase the almonds since you were already in there. 7.) You purchase the almonds at $9 since the day has changed. 8.) So you have made a trade and it will reflect as a point on the graph. 9.) When those points are joined, the curves on the graph will be created. 10.) The data source is Walmart's system as it reflects the sale to you. ( In your case the NYSE exchange records this trade made). Buying a stock is just like buying almonds. There has to be a buyer. There has to be a seller. There has to be a price to which both agree. As soon as all these conditions are met, and the trade is made, it is reflected on the graph. The only difference between the graphs from 9 AM-4 PM, and 4 PM-9 AM is the time. The trade has happened regardless and NYSE(Or any other stock exchange) has recorded it! The graph is just made from that data. Cheers.", "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": "9ffa2801a53684aa4778439927170236", "text": "As others have pointed out, the value of Apple's stock and the NASDAQ are most likely highly correlated for a number of reasons, not least among them the fact that Apple is part of the NASDAQ. However, because numerous factors affect the entire market, or at least a significant subset of it, it makes sense to develop a strategy to remove all of these factors without resorting to use of an index. Using an index to remove the effect of these factors might be a good idea, but you run the risk of potentially introducing other factors that affect the index, but not Apple. I don't know what those would be, but it's a valid theoretical concern. In your question, you said you wanted to subtract them from each other, and only see an Apple curve moving around a horizontal line. The basic strategy I plan to use is similar but even simpler. Instead of graphing Apple's stock price, we can plot the difference between its stock price on business day t and business day t-1, which gives us this graph, which is essentially what you're looking for: While this is only the preliminaries, it should give you a basic idea of one procedure that's used extensively to do just what you're asking. I don't know of a website that will automatically give you such a metric, but you could download the price data and use Excel, Stata, etc. to analyze this. The reasoning behind this methodology builds heavily on time series econometrics, which for the sake of simplicity I won't go into in great detail, but I'll provide a brief explanation to satisfy the curious. In simple econometrics, most time series are approximated by a mathematical process comprised of several components: In the simplest case, the equations for a time series containing one or more of the above components are of the form that taking the first difference (the procedure I used above) will leave only the random component. However, if you want to pursue this rigorously, you would first perform a set of tests to determine if these components exist and if differencing is the best procedure to remove those that are present. Once you've reduced the series to its random component, you can use that component to examine how the process underlying the stock price has changed over the years. In my example, I highlighted Steve Jobs' death on the chart because it's one factor that may have led to the increased standard deviation/volatility of Apple's stock price. Although charts are somewhat subjective, it appears that the volatility was already increasing before his death, which could reflect other factors or the increasing expectation that he wouldn't be running the company in the near future, for whatever reason. My discussion of time series decomposition and the definitions of various components relies heavily on Walter Ender's text Applied Econometric Time Series. If you're interested, simple mathematical representations and a few relevant graphs are found on pages 1-3. Another related procedure would be to take the logarithm of the quotient of the current day's price and the previous day's price. In Apple's case, doing so yields this graph: This reduces the overall magnitude of the values and allows you to see potential outliers more clearly. This produces a similar effect to the difference taken above because the log of a quotient is the same as the difference of the logs The significant drop depicted during the year 2000 occurred between September 28th and September 29th, where the stock price dropped from 26.36 to 12.69. Apart from the general environment of the dot-com bubble bursting, I'm not sure why this occurred. Another excellent resource for time series econometrics is James Hamilton's book, Time Series Analysis. It's considered a classic in the field of econometrics, although similar to Enders' book, it's fairly advanced for most investors. I used Stata to generate the graphs above with data from Yahoo! Finance: There are a couple of nuances in this code related to how I defined the time series and the presence of weekends, but they don't affect the overall concept. For a robust analysis, I would make a few quick tweaks that would make the graphs less appealing without more work, but would allow for more accurate econometrics.", "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": "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": "f10d6d6f9f9b10e95316e161f5f668cc", "text": "The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself. The Index is more sensitive to changes in the larger capitalised stocks due to their larger weighting in the Index. Example: If a company has a weighting of 10% and its price goes up by 10%, and all other stocks in the Index don't go up or down, then this will cause the All Ords Index to go up by 1% (10% of 10%).", "title": "" }, { "docid": "9a0db602af711368a0219b1c7845726c", "text": "\"Stock price is set to the price with the highest transaction volume at any given time. The stock price you cited was only valid in the last transaction on a specific stock exchange. As such it is more of an \"\"historic\"\" value. Next trade will be done with the next biggest volume. Depending on the incoming bids and asks this could be higher or lower, but you can assume it will not be too far off if there is no crash underway. Simple example stock exchange:\"", "title": "" }, { "docid": "b7c4a0d571de62eb3406e5bca11eef0d", "text": "You can definitely affect the price - putting in a buy increases the demand for the stock, causing a permanent price move. Also if you hammer the market trying to execute too quickly you can hit offers that are out of the money and move the price temporarily before it stabilizes to its new equilibrium. True, as an individual investor your trades will be negligible in size and the effect will be nonexistent. But if you are a hedge fund putting in a buy for 5% of dtv, you can have a price impact. not 50%, but at least a handful of bps.", "title": "" }, { "docid": "cb44aa9c88eed2b53e5cbd2e480982bf", "text": "If you are in a position to have information that will impact the shares of a stock or index fund and you use that information for either personal gain or to mitigate the losses that you would have felt then it is insider trading. Even if in the end your quiet period passes with little or no movement of the stocks in question. It is the attempt to benefit from or the appearance of the attempt to benefit from inside information that creates the crime. This is the reason for the quiet periods to attempt to shield the majority of the companies employees from the appearance of impropriety, as well as any actual improprieties. With an index you are running a double edged sword because anything that is likely to cause APPLE to drop 10% is likely to give a bump to Motorola, Google, and its competitors. So you could end up in jail for Insider trading and lose your shirt on a poor decision to short a Tech ETF on knowledge that will cause Apple to take a hit. It is certainly going to be harder to find the trade but the SEC is good at looking around for activity that is inconsistent with normal trading patterns of individuals in a position to have knowledge with the type of market impact you are talking about.", "title": "" }, { "docid": "2272a5d2f2b5c88cf72bfd3066ffabc1", "text": "It will depend largely on your broker what type of stop and trailing stop orders they provide. Saying that, I have not come across any brokers yet that offer limit orders with trailing stop orders. Unlike a standard stop order where you can either make it a market stop order or a limit stop order, usually most brokers have trailing stop orders as market orders only, where you can either set the trailing stop to be a dollar value or percentage from the most recent high. Remember also, that trailing stop orders will be based on the intra-day highs and not the highest closing price. That means that if the share price spikes up during the day your trailing stop will move up, and if the price then spikes down you may be stopped out prematurely, after which the price might rally again. For this reason I try to base my trailing stops on the highest closing price by using standard stop loss orders and moving it up manually after the close of trade if the share price has closed at a new high. This takes a few minutes each evening (depending on how many stocks you have to check and adjust the stops for) but gives you more control. Using this method will also enable you to set limit orders attached to your stop loss triggers, and you won't have to keep your trailing too close to the last high price thus potentially causing you to get stopped out prematurely. Slightly off track but may be handy if you set profit targets, my broker has recently introduced Trailing Take Profit Orders. The way it works is, say you have a profit target of 50%, so you buy at $2 and want to take profits if the price reaches $3, you could set your Trailing Take Profit Trigger at say $3.10 or above and set a Trail by Amount of say $0.10. So if the price after hitting $3.10 falls to $3.00 you will be stopped out and collect your profits. If the price moves up to $3.30 and then falls to $3.20, you will be stopped out at $3.20 and make some extra profits. If the price continues going up the Trailing Take Profit will continue to move up always $0.10 below the highest price reached. I think this would be a very useful order if you were range trading where you could set the Trailing Take Profit trigger near recent resistance so you can get out if prices start reversing at or around the resistance, but continue profiting if the price breaks through the resistance.", "title": "" } ]	fiqa
dcd2ac3b3cbfeff27b7b60249c3eb145	strategy for the out of favour mining sector	[ { "docid": "5cc436c8a115dcb100a2e11d74384478", "text": "At this particular time, I would strongly suggest holding on and not bailing. I've been following this sector pretty closely for 10+ years now. It has taken an absolute beating since 2011 (up to 90% down in many areas), and has been in a slow downward grind all year. Given the cyclical nature of the markets, you're far far closer to a long term bottom, and have a much better risk/reward outlook now vs say, four, or even two years ago. Personally, I'm planning on jumping into the sector heavily as soon as I see signs of a wash-out, desperation low, where people like yourself start selling in panic and frustration. I may very likely start cost-averaging into it even now, although I personally feel we may get one more major bottom around the spring 2016 time-frame, coupled with a general market deflation scare, which might surprise many by its severity. But at the same time, the sector might turn up from here and not look back, since I think many share my view and are just patiently waiting, and with so many buyers waiting in support, it may never crash hard. In any case, I personally feel that we're approaching the cheap buying opportunity of a lifetime in this sector within the next year (precious metals miners that is, base metals may still falter if the economy is still iffy, and just look at the baltic dry index as an indicator of world trade and productivity... not looking so hot). If you've suffered this long already, and it is just a small portfolio portion, just keep hanging in there. And by next summer, if we get a confirmed panic low, and a subsequent strong, high-volume, consistent bounce pattern up past summer 2015 levels, then I'd start adding even more on dips and enjoy the ride.", "title": "" }, { "docid": "18db0e4ca9c70f63f9dfd4813596faf3", "text": "\"I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2). While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further. This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities. Consider that the ECB's actions were \"\"tighter\"\" than expected and the Fed plans to raise rates, or claims so. Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities. If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country. Yet, it's not doing that. The whole \"\"China crisis\"\" is completely oversold in the West; China is saying one thing (\"\"oh no\"\"), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies. You know how many bailouts ExxonMobil has received compared to Goldman Sachs? You know who owns more real wealth? Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates. Hard times strengthen good companies. This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get? Zero. At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think \"\"investing in miners is a VERY BAD idea.\"\" What do they think is a good idea? \"\"Duh, Snapchat and Twitter, bruh!\"\" Then there's the old saying, \"\"Be greedy when everyone's fearful and fearful when everyone's greedy.\"\" Finally, miners own hard assets. Benjamin Graham used to point this out with the \"\"dead company\"\" strategy like finding a used cigarette with one more smoke. You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE! Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply. Remember, investors are part owners in companies - take more control to limit the supply. Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose. When you own assets debt free, you can cut the supply. This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation. The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key.\"", "title": "" } ]	[ { "docid": "a5c24dda372ef6aacc271ce6f77061ca", "text": "I would recommend that go through some forums where commodities topics be discussed so that if you have some issues related any point in commodities investment you will easily get your question sort out.", "title": "" }, { "docid": "f3b46a3bcf094f4b1063d750d505eb04", "text": "From Vanguard's Best practices for portfolio rebalancing:", "title": "" }, { "docid": "8fd26276e78483ab169d223d20198f1b", "text": "Employment, output and inflation are your feedback. Too little spending manifests as a an output gap with elevated unemployment and low inflation. Too much spending shows up as full employment, full capacity and rising inflation as additional dollars just bid up prices. Get it right and you have full employment with price stability. So are we there yet? Well, it's not a static point we reach and cross but a dynamic balance in every period based on what's going on in the non-government sectors. Lately we've been leaning towards too little and the result is a tepid, stagnant recovery dragging on for years with elevated unemployment, weak growth and a persistant [output gap](http://lostoutputclock.com/).", "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": "ee7673f671ed5a34d53c823b8f4fd189", "text": "For an investor , I understand its a higher return on investment; but I was wondering if an investor is actually investing in the minerals, or the means of delivery such as ports, rail, trucks, roads, etc; or is that abstracted away", "title": "" }, { "docid": "e57000db4a48e0c6eb6ebb6c74266973", "text": "a) Nothing would support this company going back to $.50 per share b) Fundamentally the market for this sectors has been obliterated and the fundamentals don't look like they will improve. Similar companies experience what this one is and will be going through, they borrow the hilt and hope they can pump enough oil and sell the oil at a high price. Oil goes below, WAYYY below the price they can sell it at and even break even, so they are burning cash until they declare bankruptcy. This company is not an exception. So here is what to look at on their balance sheet: assets and liabilities. Liabilities are debt. Their debt is over 50% of their assets, that debt has interest and there is NO WAY they are making a profit. Their website's last financial statement is from September 30th.. LOL, so they haven't even released a quarterly financial statement in two quarters straight, so have they released anything? Given what we know about the dire state of the entire oil drilling industry, lets see if these guys are the exception to the rule (spoiler; they aren't) February 15th, 2015 http://www.marketwatch.com/story/strategic-oil-gas-ltd-provides-operations-update-2015-02-19-16173591 The Company prudently elected to stop the winter Muskeg drilling program in order to preserve capital. So now they aren't even getting new assets to resale, they aren't making any money from that operation, their debt still has interest payments though. Approximately 700 Boe/d of production has been shut-in by suspending operations at Bistcho, Cameron Hills and Larne, which are not economic at current commodity prices. Predictable. Also, you should notice from their actual financial statements (from 6 months ago, lol) (when the price of oil was over 100% higher than it is today, lol), this company already wasn't a good performer. They have been financing themselves by doing private placements, by issuing shares to investors that are not you, and diluting the share value of ALL OTHER SHAREHOLDERS. Dead in the water. I got this from skimming their financial report, without even being familiar with how canadian companies report. Its just bad news. You shouldn't be married to this investment.", "title": "" }, { "docid": "7e1b72a5a28d65b5d87e882185f51eca", "text": "The solution is spending restraint during the growth periods and prudent application of counter-cyclical fiscal policy, especially during the slow periods. The USA embarked on a strange experiment lead be Greenspan of excessively low interest rates for a prolonged period of time. Periods of strong economic growth should feature high interest rates, periods of reduced economic growth can then be countered somewhat through monetary policy. The government should also endeavour to run surplus budgets during the good times and not be afraid of turning those into deficit budgets in the downturns. If you run a deficit budget during a period of strong economic growth, together with low cash rates you have nowhere to move when the cycle reverses. The solution now? That is difficult. I would say that the solution now would be to raise revenues through corporate taxes and similarly increase government spending on investments aimed at stimulating the economy. Use this time to invest in the much needed infrastructure maintenance and upgrades that the USA needs. These need to be fast-tracked into action and I would therefore consider fixing infrastructure as more important than installing new infrastructure. There are probably long-term structural adjustments that need to be looked at too, but I am not intimately familiar with the USA as I am Australian. It is clear however that Austerity during economic downturns does not help end the recession (or benign growth). It is clear to me as an observer however that employment appears to be the big issue in the USA right now, so cutting jobs is not a smart move. Edit: I'll point out that my opinion comes from the Australian experience, our government ran surplus budgets during our period of recent growth and our reserve bank kept interest rates high. When the GFC hit us in 2008 the government almost instantly reversed its fiscal policy, going so far as mailing $900 cheques to every Australian just to get cash flowing in the economy, they then embarked upon infrastructure spending programs. Similarly the reserve bank were able to quickly and dramatically reduce interest rates. The result was that we saw 1 quarter of mildly negative growth, and positive growth ever since (hence no recession). We ran a textbook example of counter-cyclical fiscal and monetary policy which is today lauded by economists over. We now have 5% unemployment, low government debt (relative to the OECD) and high economic growth (relative to the OECD).", "title": "" }, { "docid": "7075e33c922159b54d3a00ce2738b205", "text": "Early stage investors by their nature prefer opportunities which are disruptive to existing technologies. They look for a ‘big idea’ in a relatively small but rapidly expanding market. They don’t tend to be attracted to marginal improvements which yield marginal returns. They’re in the business of betting on the nature of the next new world.", "title": "" }, { "docid": "449486b08cb08ed650a7895ee6fe80d7", "text": "\"One cannot apply a \"\"one size fits all\"\" approach to any and all economic situations. We are currently in a recession/depression/whatever due to a lack of demand. Please tell me what would be the best way to get out of this particular scenario.\"", "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": "e5a8e535668584f0c0edc1e3564513d8", "text": "Capital circulation doesn't work in the model of everyone producing products they can all already produce independently, and the money going to raw material and 3D printer inputs are a fixed cost to all construction, which outside of asteroid mining has limitations. The Economy needs a stable cycle for capital, the challenge with this automation is that the requirement for capital circulation appears vulnerable to instability.", "title": "" }, { "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": "5af803ad1057bd5c372ba42af3916233", "text": "\"I think the last sentence sums up what needs to be done: \"\"The answer is a rebooted capitalism for a new economic era, using the power of the state where it is necessary to fix market failures and to break up vested interests, but also recognising the unique power of entrepreneurs to produce abundance out of scarcity and dynamism out of stagnation.\"\" Capitalism is far from dead and is still by far the best economic policy available, it's just changing a bit specifically on a few minor points.\"", "title": "" }, { "docid": "7c81dbb5bcf9de91c3000669d11ebe0d", "text": "As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you.", "title": "" }, { "docid": "b528f29ebaead09e2665fc7058ec1a55", "text": "Institute of Supply Management, specifically their Report on Business. Good forward looking indicator. As far as the weekly report, I'd probably read it, maybe even contribute, but I more of a lurker on this sub. I saw your question and have had some similar experiences so I thought I could help you out.", "title": "" } ]	fiqa
c0b7b0e5dc7abf5ba4795f2cbd2181cc	Is inflation inapplicable in a comparison of paying off debt vs investing?	[ { "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": "1d75d9d5c4aa7f516fd700eac2a55788", "text": "I'd agree, inflation affects the value of the dollar you measure anything in. So, it makes your debt fade away at the same rate it eats away at dollar denominated assets. I'd suggest that one should also look at the tax effect of the debt or assets as well. For example, my 3.5% mortgage costs me 2.625% after tax. But a 4% long term cap gain in stocks, costs me .6% in tax for a net 3.4%.", "title": "" } ]	[ { "docid": "28cb52ce5df1834d18b6d82d80833025", "text": "Yes, there's a difference. If you've borrowed $100, then under inflation your salary will (presumably) increase, and tomorrow your debt will only be worth $99. But under demurrage, you'll still owe $100.", "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": "0f7068685da6d41e4de33c1724134345", "text": "From Wikipedia: Investment has different meanings in finance and economics. In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling. The second part of the question can be addressed by analyzing the change in gold price vs inflation year by year over the long term. As Chuck mentioned, there are periods in which it didn't exceed inflation. More important, over any sufficiently long length of time the US stock market will outperform. Those who bought at the '87 peak aren't doing too bad, yet those who bought in the last gold bubble haven't kept up with inflation. $850 put into gold at the '80 top would inflate today to $2220 per the inflation calculator. You can find with a bit of charting some periods where gold outpaced inflation, and some where it missed. Back to the definition of investment. I think gold fits speculation far better than it does investment. I've heard the word used in ways I'd disagree with, spend what you will on the shoes, but no, they aren't an investment, I tell my wife. The treadmill purchase may improve my health, and people may use the word colloquially, but it's not an investment.", "title": "" }, { "docid": "fa327188e0f66a6892b1eb4a93527697", "text": "Yes, in 2 ways: As you mention, the price of a home generally grows with inflation - along with other factors (supply and demand in local markets, etc.). Through financing. If you finance 80% of your purchase today, in 2014 dollars, you will pay back in future dollars. Those future dollars are worth less, because of inflation.", "title": "" }, { "docid": "a37eaad18e2c46e41dca3d6ce66a1da1", "text": "Whether or not it is logical probably depends on individual circumstance. When you take on (or maintain) debt, you are choosing to do two things: The first is clear. This is what you describe very well in your answer. It is a straightforward analysis of interest rates. The fixed cost of the debt can then be directly compared to expected return on investments that are made with the newly available cash flow. If you can reasonably expect to beat your debt interest rate, this is an argument to borrow and invest. Add to this equation an overwhelming upside, such as a 401k match, and the argument becomes very compelling. The second cost listed is more speculative in nature, but just as important. When you acquire debt, you are committing your future cash flow to payments. This exposes you to the risk of too little financial margin in the future. It also exposes you to the risk of any negatives that come with non-payment of debt (repossession, foreclosure, credit hit, sleeping at night, family tension, worst-case bankruptcy) Since the future tends to be difficult to predict, this risk is not so easy to quantify. Clearly the amount and nature of the debt is a large factor here. This would seem to be highly personal, with different individuals having unique financial or personal resources or income earning power. I will never say someone is illogical for choosing to repay their debts before investing in a 401k. I can see why some would always choose to invest to the match.", "title": "" }, { "docid": "5fef389da72a3933fc59fbc4e3eb5879", "text": "I concur that you should probably go with option 1. And that is coming from a guy that refinanced all three of his properties with down to 20% equity 3 years ago to lock in either 4% 30 year fixed or 2.75% 15 year mortgage. And I will not pay them off early because I do think I can do better than that in the market even if inflation is 0% for the next 30 years. Just imagine when the fed stops manipulating tax rates. I could be making more than 4% just in a checking account.", "title": "" }, { "docid": "7d70dfe7af0a5ccacb9cdbbf24852a54", "text": "Hmm, looking at the macro economy, hoarding money will decrease the monetary supply, so the Fed will offset that with increases to the monetary supply to achieve target interest rates. Which will lead to higher inflation, hurting your savings minus debt. Exactly what's going on in the rest of the economy. For investment sake, can't you find something with at least some sort of return, rather than getting nothing with physical currency?", "title": "" }, { "docid": "1a35f96a14a089886783b22be0a55d45", "text": "\"As you're saving up for an expenditure instead of investing for the long run, I would stay away from any sort of \"\"parking facility\"\" where you run the risk of not having the principal protected. The riskier investments that would potentially generate a bigger return also carry a bigger downside, ie you might not be able to get the money back that you put in. I'd shop around for a CD or a MMA/regular savings account with a half-decent interest rate. And yes, I'm aware that the return you might get is probably still less than inflation.\"", "title": "" }, { "docid": "6bd0f4fb65ecc39d9507ec35125ae6e1", "text": "There are two components to any non-trivial financial decision: Assuming that all things remain equal, borrowing money at a low rate while investing for a higher return is a no-brainer. The problem is, all things do not remain equal. For example: I think that you need to assess your position and preferences. I'd err on the side of being in less debt.", "title": "" }, { "docid": "62eedc6dd5f5c6e5b6f0fb1bbee1c9a8", "text": "You're losing money. And a lot of it. Consider this: the inflation is 2-4% a year (officially, depending on your spending pattern your own rate might be quite higher). You earn about 1/2%. I.e.: You're losing 3% a year. Guaranteed. You can do much better without any additional risk. 0.1% on savings account? Why not 0.9%? On-line savings account (Ally, CapitalOne-360, American Express, E*Trade, etc) give much higher rates than what you have. Current Ally rates are 0.9% on a regular savings account. 9 times more than what you have, with no additional risk: its a FDIC insured deposit. You can get a slightly higher rate with CDs (0.97% at the same bank for 12 months deposit). IRA - why is it in CD's? Its the longest term investment you have, that's where you can and should take risks, to maximize your compounding returns. Not doing that is actually more risky to you because you're guaranteeing compounding loss, of the said 3% a year. On average, more volatile stock investments have shown to be not losing money over periods of decades, even if they do lose money over shorter periods. Rental - if you can buy a property that you would pay the same amount of money for as for a comparable rental - you should definitely buy. Your debt will be secured by the property, and since you're paying the same amount or less - you're earning the equity. There's no risk here, just benefits, which again you chose to forgo. In the worst case if you default and walk away from the property you lost exactly (or less) what you would have paid for a rental anyway. 14 years old car may be cheaper than 4 years old to buy, but consider the maintenance, licensing and repairs - will it not some up to more than the difference? In my experience - it is likely to. Bottom line - you think you're risk averse, but you're exactly the opposite of that.", "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": "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": "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": "2df67d91e2c1c9ae4457d083be5beb0c", "text": "I think you're missing Simon Moore's point. His point is that, due to low inflation, the returns on almost all asset classes should be less than they have been historically, so we shouldn't rebalance our portfolio or withdraw from the market and hold cash based on the assumption that stocks (or any other asset) seem to be underperforming relative to historical trends. His last paragraph is written in case someone might misunderstand him, he is not advocating to hold cash, just that investors should not expect as good returns as has happened historically, since those happened in higher inflation environments. To explain: If the inflation rate historically has been 5% and now it's 2%, and the risk-free-market return should be about 2%, then historically the return on a risk-free asset would be 7% (2%+5%), and now it should be expected to be 4% (2%+2%). So, if you have had a portfolio over some time you might be concerned that the rate of return is worsening, but Simon's point is that before you sell off your stocks / switch investment brokers, you should try to figure out if inflation is the cause of the performance loss. On the subject of cash: cash always loses value over time from inflation, since inflation is a measure of the increase in prices over time-- it's a part of the definition of what inflation is. That said, cash holdings lose value more slowly when inflation is lower, so they are relatively less worse than before. The future value of cash doesn't go up in low inflation (you'd need deflation for that), it just decreases at a lower rate, that is, it becomes less expensive to hold- but there still is a price. As an addendum, unless a completely new economic paradigm is adopted by world leaders, we will always see cash holdings decrease in value over time, since modern economics holds that deflation is one of the worst things that can happen to an economy.", "title": "" }, { "docid": "b71efbb3f5044251b6e0a556fed686ed", "text": "\"If you haven't been a US resident (not citizen, different rules apply) at the time you sold the stock in Europe but it was inside the same tax year that you moved to the US, you might want to have a look at the \"\"Dual Status\"\" part in IRS publication 519.\"", "title": "" } ]	fiqa
83d8c3c8578c14fa405f5c77efab72ba	UK student loans, early repayment/avoiding further debt	[ { "docid": "9ab7a895569eedf19577c89144cf4853", "text": "\"I think you're right that from a pure \"\"expected future value\"\" perspective, it makes sense to pay this loan off as quickly as possible (including not taking the next year's loan). The new student loans with the higher interest rates have changed the balance enough that it's no longer automatically better to keep it going as long as possible. The crucial point in your case, which isn't true for many people, is that you will likely have to pay it off eventually anyway and so in terms of net costs over your lifetime you will do best by paying it off quickly. A few points to set against that, that you might want to consider: Not paying it off is a good hedge against your career not going as well as you expect, e.g. if the economy does badly, you have health problems, you take a career break for any reason. If that happens, you would end up not being forced to pay it off, so will end up gaining from not having done so voluntarily. The money you save in that case could be more valuable to you that the money you would lose if your career does go well. Not paying it off will increase your net cash earlier in life when you are more likely to need it, e.g. for a house deposit. Having more free cash could increase your options, making it possible to buy a house earlier in life. Or it could mean you have a higher deposit when you do buy, reducing the interest rate on the entire mortgage balance. The savings from that could end up being more than the 6% interest on the loan even though when you look at the loan in isolation it seems like a very bad rate.\"", "title": "" } ]	[ { "docid": "64bf683b2cb764773bfa0664236dc782", "text": "Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.", "title": "" }, { "docid": "4e5fd662a672e4645120d38ef17e20f9", "text": "The main benefit of paying off the loan early is that it's not on your mind, you don't have to worry about missing a payment and incurring the full interest due at that point. Your loan may not be set up that way, but most 0% interest loans are set up so that there is interest that's accruing, but you don't pay it so long as all your payments are on time, oftentimes they're structured so that one late payment causes all of that deferred interest to be due. If you put the money in the bank you'd make a small amount of interest and also not have to worry about funds availability for your car payment. If you use the money for some other purpose, you're at greater risk of something going wrong in the next 21 months that causes you to miss a payment and being hit with a lot of interest (if applicable to your loan). If you already have an emergency fund (at least 3-6 months of expenses) then I would pay the loan off now so you don't have to think about it. If you don't have an emergency fund, then I'd bank the money and keep making payments, and pay it off entirely when you have funds in excess of your emergency fund to do so.", "title": "" }, { "docid": "159a621b71425fbbf701fb689de69bd5", "text": "\"You may have misunderstood some parts of the system. If you make a pension contribution in any given year, the tax relief is based on your income for that year - the gross pension contribution is subtracted from your gross income and you only end up paying tax based on the reduced gross income. So if the higher rate threshold is £40K, you have income for the year of £65K, and you make a gross contribution of £25K, then you'll get tax relief at 40% on the whole contribution, i.e. £10K. If your income for the year is less, e.g. £50K, then you'll get tax relief at 40% on £10K and at 20% on the other £15K, i.e. £7K. So if you're significantly into the higher-rate band, it's usually not worth making a contribution large enough to reduce you to basic-rate tax - better to wait till the next tax year for the rest. Overall, while you probably could do what you suggest subject to the caveats below, why not just spread the pension contribution over the three years, rather than making it all up front? If you are confident you can invest the money at better than the 3.4% interest on the loan, then it might make sense to borrow, but you should be pretty clear that you're deliberately borrowing to invest (otherwise known as investing with leverage). Or you might know that your income is going to drop next year. Another clarification, as your comment on another answer mentions: basic-rate tax relief is claimed directly by your pension provider (\"\"relief at source\"\"), whereas the higher-rate part of the relief comes straight to you via your tax return. So for the above £25K gross contribution example, you'd hand over £20K initially and then get £5K back at the end of the tax year, leaving you with £15K less in your pocket. If you did want to make a £20K net contribution and had enough higher-rate salary to cover it, the gross contribution you'd end up with would be £33,333, and you'd need to find £6,666 more temporarily. Note that there are also limits on the annual contribution you can make of £40K (the \"\"annual allowance\"\"), but you can carry forward allowances from three previous years so it's very unlikely to be relevant.\"", "title": "" }, { "docid": "16ee117db6c744f258caf872585d7bbc", "text": "\"Also, since I'm guessing OP isn't flush with cash, not having to come up with additional money to pay the student loans for some time will provide some short-term \"\"debt relief\"\"... possibly reducing the possibility of racking up more CC debt.\"", "title": "" }, { "docid": "855d8ad77cb3a8fe38f6b938f1cb5f12", "text": "\"The more I think about this the more I think you are actually better off letting it go to collections. At least then you would be able to agree an affordable repayment schedule based on your real budget, and having a big dent in your credit score because it's gone to collections doesn't actually put you in any worse position (in terms of acquiring credit in the future) than you are now. Whoever is the creditor on your original loan is (IMO) quite unreasonable demanding a payment in full on a given date, especially given that you say you've only been made aware of this debt recently. The courts are usually much more reasonable about this sort of thing and recognise that a payment plan over several years with an affordable monthly payment is MUCH more likely to actually get the creditor their money back than any other strategy. They will also recognise and appreciate that you have made significant efforts to obtain the money. I'm also worried about your statement about how panicked and \"\"ready to give up\"\" you are. Is there someone you can talk to? Around here (UK) we have debt counselling bureaus - they can't help with money for the actual debt itself, but they can help you with strategies for dealing with debt and will explain all parts of the process to you, what your rights and responsibilities are if it does go to court, etc. If you have something similar I suggest you contact them, even just to speak to someone and find out that this isn't the end of the world. It's a sucky situation but in a few years you'll be able to look back and at least laugh wryly at it.\"", "title": "" }, { "docid": "8c97110c32f226e776d5bfe11a4844d3", "text": "I would strongly encourage you to either find specifically where in your written contract the handling of early/over payments are defined and post it for us to help you, or that you go and visit a licensed real estate attorney. Even at a ridiculously high price of 850 pounds per hour for a top UK law firm (and I suspect you can find a competent lawyer for 10-20% of that amount), it would cost you less than a year of prepayment penalty to get professional advice on what to do with your mortgage. A certified public accountant (CPA) might be able to advise you, as well, if that's any easier for you to find. I have the sneaking suspicion that the company representatives are not being entirely forthcoming with you, thus the need for outside advice. Generally speaking, loans are given an interest rate per period (such as yearly APR), and you pay a percentage (the interest) of the total amount of money you owe (the principle). So if you owe 100,000 at 5% APR, you accrue 5,000 in interest that year. If you pay only the interest each year, you'll pay 50,000 in interest over 10 years - but if you pay everything off in year 8, at a minimum you'd have paid 10,000 less in interest (assuming no prepayment penalties, which you have some of those). So paying off early does not change your APR or your principle amount paid, but it should drastically reduce the interest you pay. Amortization schedules don't change that - they just keep the payments even over the scheduled full life of the loan. Even with prepayment penalties, these are customarily billed at less than 6 months of interest (at the rate you would have payed if you kept the loan), so if you are supposedly on the hook for more than that again I highly suspect something fishy is going on - in which case you'd probably want legal representation to help you put a stop to it. In short, something is definitely and most certainly wrong if paying off a loan years in advance - even after taking into account pre-payment penalties - costs you the same or more than paying the loan off over the full term, on schedule. This is highly abnormal, and frankly even in the US I'd consider it scandalous if it were the case. So please, do look deeper into this - something isn't right!", "title": "" }, { "docid": "bf547c64f68826493b6f0b0ba432373d", "text": "Simple rule for UK student loans. Never repay early. (http://www.moneysavingexpert.com/students/student-loans-repay) They are not real debt: only payable over threshold and wiped after 30 years (ish). They do not appear as debt with Credit Agencies. If you have other debt, it is almost certainly at a higher rate or worse terms and should be paid off first If you don't have debt, then you can put the cash to better use: whether saving, mortgage deposit or avoiding worse debt in the future.", "title": "" }, { "docid": "82177fa2a3f39219cfffa3912a10a53f", "text": "A loan from a bank with no real purpose could be a bad idea and end up costing you more money than it needs to. As someone with a loan and credit card debts accrued over university, I would say avoid it if at all possible. Certainly don't sign up to a large loan if you have no current plans for the money (car, house repair, etc). It sounds as though you're fairly careful with your money, but just want a bit of extra security in case a purchase you didn't account for slips by. If this is the case and you're set on obtaining a source of credit, I'd suggest getting an overdraft if you haven't already. Overdrafts are a lot more flexible, and are better for short term debt that you plan to pay off immediately, such as unexpected charges coming in at the end of the month. It's worth mentioning that this is from the perspective of a UK banking customer. Overdraft conditions will vary depending on the country.", "title": "" }, { "docid": "e3ee988439f40ec0a196798f8437c0e5", "text": "a) Talk to the financial aid counselors at your school. There's a very good chance they have at least a partial solution for you. Let them know your dependency status has changed (if it has). I declared myself to be financially independent from my parents (I really was) and qualified for more aide. b) How much austerity are you willing to endure? I once spent two years eating beans & rice twice a day (lots of protein and other nutrients) while I worked full-time and went back to school to pursue a second degree part-time. I also shunned all forms of recreation (not even a movie) to save money (and so I could focus on staying current with assignments). During another period in my life, I gave up cable, cell-phone, land-line (and used Skype only), and avoided unnecessary use of my car, so I could clear a debt. You'd be amazed at how much you can squeeze from a budget if you're willing to endure austerity temporarily. c) Consider going to school part-time, taking as few as one course at a time if allowed. It's a lot easier to pay for one or two courses than to pay for 4 or 5. It may take longer, but at least you won't lose your credits and it won't take forever.", "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": "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": "ad0028567b8dc2822bbcb30238ef587a", "text": "\"Concise answers to your questions: Depends on the loan and the bank; when you \"\"accelerate\"\" repayment of a loan by applying a pre-payment balance to the principal, your monthly payment may be reduced. However, standard practice for most loan types is that the repayment schedule will be accelerated; you'll pay no less each month, but you'll pay it off sooner. I can neither confirm nor deny that an internship counts as job experience in the field for the purpose of mortgage lending. It sounds logical, especially if it were a paid internship (in which case you'd just call it a \"\"job\"\"), but I can't be sure as I don't know of anyone who got a mortgage without accruing the necessary job experience post-graduation. A loan officer will be happy to talk to you and answer specific questions, but if you go in today, with no credit history (the student loan probably hasn't even entered repayment) and a lot of unknowns (an offer can be rescinded, for instance), you are virtually certain to be denied a mortgage. The bank is going to want evidence that you will make good on the debt you have over time. One $10,000 payment on the loan, though significant, is just one payment as far as your credit history (and credit score) is concerned. Now, a few more reality checks: $70k/yr is not what you'll be bringing home. As a single person without dependents, you'll be taxed at the highest possible withholdings rate. Your effective tax rate on $70k, depending on the state in which you live, can be as high as 30% (including all payroll/SS taxes, for a 1099 earner and/or an employee in a state with an income tax), so you're actually only bringing home 42k/yr, or about $1,600/paycheck if you're paid biweekly. To that, add a decent chunk for your group healthcare plan (which, as of 2014, you will be required to buy, or else pay another $2500 - effectively another 3% of gross earnings - in taxes). And even now with your first job, you should be at least trying to save up a decent chunk o' change in a 401k or IRA as a retirement nest egg. That student loan, beginning about 6 months after you leave school, will cost you about $555/mo in monthly payments for the next 10 years (if it's all Stafford loans with a 50/50 split between sub/unsub; that could be as much as $600/mo for all-unsub Stafford, or $700 or more for private loans). If you were going to pay all that back in two years, you're looking at paying a ballpark of $2500/mo leaving just $700 to pay all your bills and expenses each month. With a 3-year payoff plan, you're turning around one of your two paychecks every month to the student loan servicer, which for a bachelor is doable but still rather tight. Your mortgage payment isn't the only payment you will make on your house. If you get an FHA loan with 3.5% down, the lender will demand PMI. The city/county will likely levy a property tax on the assessed value of land and building. The lender may require that you purchase home insurance with minimum acceptable coverage limits and deductibles. All of these will be paid into escrow accounts, managed by your lending bank, from a single check you send them monthly. I pay all of these, in a state (Texas) that gets its primary income from sales and property tax instead of income, and my monthly payment isn't quite double the simple P&I. Once you have the house, you'll want to fill the house. Nice bed: probably $1500 between mattress and frame for a nice big queen you can stretch out on (and have lady friends over). Nice couch: $1000. TV: call it $500. That's probably the bare minimum you'll want to buy to replace what you lived through college with (you'll have somewhere to eat and sleep other than the floor of your new home), and we're already talking almost a month's salary, or payments of up to 10% of your monthly take-home pay over a year on a couple of store credit cards. Plates, cookware, etc just keeps bumping this up. Yes, they're (theoretically) all one-time costs, but they're things you need, and things you may not have if you've been living in dorms and eating in dining halls all through college. The house you buy now is likely to be a \"\"starter\"\", maybe 3bed/2bath and 1600 sqft at the upper end (they sell em as small as 2bd/1bt 1100sqft). It will support a spouse and 2 kids, but by that point you'll be bursting at the seams. What happens if your future spouse had the same idea of buying a house early while rates were low? The cost of buying a house may be as little as 3.5% down and a few hundred more in advance escrow and a couple other fees the seller can't pay for you. The cost of selling the same house is likely to include all the costs you made the seller pay when you bought it, because you'll be selling to someone in the same position you're in now. I didn't know it at the time I bought my house, but I paid about $5,000 to get into it (3.5% down and 6 months' escrow up front), while the sellers paid over $10,000 to get out (the owner got married to another homeowner, and they ended up selling both houses to move out of town; I don't even know what kind of bath they took on the house we weren't involved with). I graduated in 2005. I didn't buy my first house until I was married and pretty much well-settled, in 2011 (and yes, we were looking because mortgage rates were at rock bottom). We really lucked out in terms of a home that, if we want to or have to, we can live in for the rest of our lives (only 1700sqft, but it's officially a 4/2 with a spare room, and a downstairs master suite and nursery/office, so when we're old and decrepit we can pretty much live downstairs). I would seriously recommend that you do the same, even if by doing so you miss out on the absolute best interest rates. Last example: let's say, hypothetically, that you bite at current interest rates, and lock in a rate just above prime at 4%, 3.5% down, seller pays closing, but then in two years you get married, change jobs and have to move. Let's further suppose an alternate reality in which, after two years of living in an apartment, all the same life changes happen and you are now shopping for your first house having been pre-approved at 5%. That one percentage point savings by buying now, on a house in the $200k range, is worth about $120/mo or about $1440/yr off of your P&I payment ($921.42 on a $200,000 home with a 30-year term). Not chump change (over 30 years if you had been that lucky, it's $43000), but it's less than 5% of your take-home pay (month-to-month or annually). However, when you move in two years, the buyer's probably going to want the same deal you got - seller pays closing - because that's the market level you bought in to (low-priced starters for first-time homebuyers). That's a 3% commission for both agents, 1% origination, 0.5%-1% guarantor, and various fixed fees (title etc). Assuming the value of the house hasn't changed, let's call total selling costs 8% of the house value of $200k (which is probably low); that's $16,000 in seller's costs. Again, assuming home value didn't change and that you got an FHA loan requiring only 3.5% down, your down payment ($7k) plus principal paid (about another $7k; 6936.27 to be exact) only covers $14k of those costs. You're now in the hole $2,000, and you still have to come up with your next home's down payment. With all other things being equal, in order to get back to where you were in net worth terms before you bought the house (meaning $7,000 cash in the bank after selling it), you would need to stay in the house for 4 and a half years to accumulate the $16,000 in equity through principal payments. That leaves you with your original $7,000 down payment returned to you in cash, and you're even in accounting terms (which means in finance terms you're behind; that $7,000 invested at 3% historical average rate of inflation would have earned you about $800 in those four years, meaning you need to stick around about 5.5 years before you \"\"break even\"\" in TVM terms). For this reason, I would say that you should be very cautious when buying your first home; it may very well be the last one you'll ever buy. Whether that's because you made good choices or bad is up to you.\"", "title": "" }, { "docid": "3d34c21a2d3c48e716c0f7c03fbe1e8d", "text": "\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. So the \"\"malicious\"\" friend B is prescribing to the theory that if one of those conditions becomes true, friend A will not have to pay back the loan. The longer you drag it out, the more chance you have to fulfill a condition. Given that 2 of these methods require a commitment, my guess is that they are thinking more along the lines of the first one, which is horrible. Financially, it makes no sense to delay paying back your loans because deferred loans are only interest-free until you graduate and are past your grace period, after which they will begin accruing interest. Unsubsidized loans accrue interest from the day you get them, only their payback is deferred until you graduate and exhaust your grace period. Anytime you ask for forbearance, you are still accruing interest and it is capitalizing into your principal — you are just given a chance to delay payback due to financial hardship, bad health, or loss of job. Therefore, at no point are you benefiting beyond the time you are in school and getting an education, still looking for a job, or dealing with health issues. In the current market, no CD, no savings account, and no investment will give you substantially more return that will offset the loss of the interest you are accruing. Even those of us in the old days getting 4.X % rates would not do this. There was a conditional consolidation offer the DOE allowed which could bring all your loans under one roof for a competitive 5.x-6.x % rate allowing you a single payment, but even then you would benefit if you had rates that were substantially higher. From a credit worthiness aspect, you are hurt by the outstanding obligation and any default along the way, so you really want to avoid that — paying off or down your loans are a good way to ensure you don't shoot yourself in the foot.\"", "title": "" }, { "docid": "9182607a4ada87e464e537e88a5480b0", "text": "Forgive me as I do not know much about your fine country, but I do know one thing. You can make 5% risk free guaranteed. How, from your link: If you make a voluntary repayment of $500 or more, you will receive a bonus of 5 per cent. This means your account will be credited with an additional 5 per cent of the value of your payment. I'd take 20.900 of that amount saved and pay off her loan tomorrow and increase my net worth by 22.000. I'd also do the same thing for your loan. In fact in someways it is more important to pay off your loan first. As I understand it, you will eventually have to pay your loan back once your income rises above a threshold. Psychologically you make attempt to retard your future income in order to avoid payback. Those decisions may not be made overtly but it is likely they will be made. So by the end of the day (or as soon as possible), I'd have a bank balance of 113,900 and no student loan debt. This amounts to a net increase in net worth of 1900. It is a great, safe, first investment.", "title": "" }, { "docid": "73f46ebcfc2e50b94d835095573d2fd9", "text": "You should definitely pay the remaining loan amount as quickly as possible. A loan in bad debts means that Bank has written it off books as its a education loan and there is no collateral. The defaults do get report to CIBIL [Credit Information Bureau India] and as such you will have difficulties getting credit card / new loans in future. Talk to the Bank Manager and ask can you regularize the loan? There are multiple options you would need to talk and find out; 1. You can negotiate and arrive at a number. Typically more than the principal outstanding and less than interest and penalties charged. 2. You can request to re-do the monthly payments with new duration, this will give you more time. 3. May one time large payment and subsequent amount in monthly payments. At the end its Bank's discretion whether to accept your terms or not.", "title": "" } ]	fiqa
91099ce550e53afcc6e3e80d6e621038	When to buy and sell bonds	[ { "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": "76387521a38442fc0b802325612e1599", "text": "\"Why does the yield go up if the country is economically unstable? The yield will rise when instability increases because the risk of default increases. If the case of Greece, the instability of government finances resulted in a 50% \"\"haircut\"\" for bond holders in 2011. In other words, bond holders suffered a 50% write down in the nominal value of their bonds. This means that holding these bonds until maturity will mean they will only receive half of the original nominal value of the bond, and that is assuming no further write downs occur. Why does selling a bond drive up the yield? Significant selling of bonds means that sellers are worried about future prospects. Sellers will outnumber buyers, so sellers will have to reduce their offer price in order to attract new buyers. 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? If you think that it is highly unlikely that Greece will default and the prices and yields are attractive, then Greek bonds may look like an attractive investment. However, keep in mind the fate of bond holders in 2011. They were attracted to Greek bonds by the price and yield, but they suffered a 50% haircut.\"", "title": "" } ]	[ { "docid": "46985454ed5256255c157beed1491d00", "text": "\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \"\"agents\"\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\"", "title": "" }, { "docid": "1d061afb0577cd1166e1f687175edde2", "text": "I let someone else pick and chose which junk bonds to buy and which to sell. So instead of holding individual bonds in my portfolio I hold an ETF that is managed by a man with a PHD and which buys junk bonds. I get a yearly 15.5% ROI, paid monthly. Buy and hold and you can get a good return for the rest of your life. It is only speculation when you sell.", "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": "2b49a84cc6307004df52a8092a033866", "text": "\"You are asking multiple questions here, pieces of which may have been addressed in other questions. A bond (I'm using US Government bonds in this example, and making the 'zero risk of default' assumption) will be priced based on today's interest rate. This is true whether it's a 10% bond with 10 years left (say rates were 10% on the 30 yr bond 20 years ago) a 2% bond with 10 years, or a new 3% 10 year bond. The rate I use above is the 'coupon' rate, i.e. the amount the bond will pay each year in interest. What's the same for each bond is called the \"\"Yield to Maturity.\"\" The price adjusts, by the market, so the return over the next ten years is the same. A bond fund simply contains a mix of bonds, but in aggregate, has a yield as well as a duration, the time-and-interest-weighted maturity. When rates rise, the bond fund will drop in value based on this factor (duration). Does this begin to answer your question?\"", "title": "" }, { "docid": "e2174f138c71e1504c17ffbbe56eb991", "text": "\"If I don't need this money for decades, meaning I can ride out periodical market crashes, why would I invest in bonds instead of funds that track broad stock market indexes? You wouldn't. But you can never be 100% sure that you really won't need the money for decades. Also, even if you don't need it for decades, you can never be 100% certain that the market will not be way down at the time, decades in the future, when you do need the money. The amount of your portfolio you allocate to bonds (relative to stocks) can be seen as a measure of your desire to guard against that uncertainty. I don't think it's accurate to say that \"\"the general consensus is that your portfolio should at least be 25% in bonds\"\". For a young investor with high risk tolerance, many would recommend less than that. For instance, this page from T. Rowe Price suggests no more than 10% bonds for those in their 20s or 30s. Basically you would put money into bonds rather than stocks to reduce the volatility of your portfolio. If you care only about maximizing return and don't care about volatility, then you don't have to invest in bonds. But you probably actually do care about volatility, even if you don't think you do. You might not care enough to put 25% in bonds, but you might care enough to put 10% in bonds.\"", "title": "" }, { "docid": "80d84c637b2391c22cd0374fda950391", "text": "\"Investment strategies abound. Bonds can be part of useful passive investment strategy but more active investors may develop a good number of reasons why buying and selling bonds on the short term. A few examples: Also, note that there is no guarantee in bonds as you imply by likening it to a \"\"guaranteed stock dividend\"\". Bond issuers can default, causing bond investors to lose part of all of their original investment. As such, if one believes the bond issuer may suffer financial distress, it would be ideal to sell-off the investment.\"", "title": "" }, { "docid": "9b06e7307088dc7210864a5d44d88371", "text": "I am understanding the OP to mean that this is for an emergency fund savings account meant to cover 3 to 6 months of living expenses, not a 3-6 month investment horizon. Assuming this is the case, I would recommend keeping these funds in a Money Market account and not in an investment-grade bond fund for three reasons:", "title": "" }, { "docid": "62f3d7b741fce8fcb3f608bb101fc0c5", "text": "\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \"\"the Market.\"\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\"", "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": "e431c2f9d469ccc33da64dbcf88180e7", "text": "Short-term to intermediate-term corporate bond funds are available. The bond fund vehicle helps manage the credit risk, while the short terms help manage inflation and interest rate risk. Corporate bond funds will have fewer Treasuries bonds than a general-purpose short-term bond fund: it sounds like you're interested in things further out along the risk curve than a 0.48% return on a 5-year bond, and thus don't care for the Treasuries. Corporate bonds are generally safer than stocks because, in bankruptcy, all your bondholders have to be paid in full before any equity-holders get a penny. Stocks are much more volatile, since they're essentially worth the value of their profits after paying all their debt, taxes, and other expenses. As far as stocks are concerned, they're not very good for the short term at all. One of the stabler stock funds would be something like the Vanguard Equity Income Fund, and it cautions: This fund is designed to provide investors with an above-average level of current income while offering exposure to the stock market. Since the fund typically invests in companies that are dedicated to consistently paying dividends, it may have a higher yield than other Vanguard stock mutual funds. The fund’s emphasis on slower-growing, higher-yielding companies can also mean that its total return may not be as strong in a significant bull market. This income-focused fund may be appropriate for investors who have a long-term investment goal and a tolerance for stock market volatility. Even the large-cap stable companies can have their value fall dramatically in the short term. Look at its price chart; 2008 was brutal. Avoid stocks if you need to spend your money within a couple of years. Whatever you choose, read the prospectus to understand the risks.", "title": "" }, { "docid": "0dbc624215009d4ce02125d8bbff2fad", "text": "\"Bonds are priced \"\"very high\"\" because their price is compared to their yields. With the current interest rates, which are very low, the bond yields will be low. However, bond issuers still need the money, so there still will be high par value, and investors will not sell bonds at a loss unless there's a better investment (=bonds with better yields). Once the rates start going up, you'll see bonds with current rates dropping in value significantly. Once alternatives appear, people holding them will start dumping them to move the money somewhere more profitable. Similarly the stocks - since there's no other investment alternatives (yields on the bonds are low, interests are low), people invest more in the stocks. Once the rates go up, the investors will start rebalancing portfolios and cashing out.\"", "title": "" }, { "docid": "c3f5aa8893ae0fea90232779fcb22b47", "text": "Yes, if you want income and are willing to commit to hold a bond to maturity, you can hold the bond, get the scheduled payments, and get your principal returned at the end. US Savings Bonds are non-marketable (you cannot trade them, but can redeem early) bonds designed for this purpose. The value of a marketable bond will vary over its lifetime as interest rates change and the bond matures. If you buy a 30 year US Treasury bond at par value (100) on September 1, 2011, it yielded 3.51%. If rates fall, the value of your bond will increase over 100. If rates rise, the value will decrease below 100. How much the value changes depends on the type of bond and the demand for it. But if your goal is to buy and hold, you don't need to worry about it.", "title": "" }, { "docid": "d1f834db0aa4222f7fcf6262e15b5ace", "text": "If it had immediate purchase power of $525, can I use that to buy more $500 bonds over and over again? Your idea is flawed. You can't just make money out of thin air, unless you are running a Ponzi scheme.", "title": "" }, { "docid": "91ac0fed77d4e280fa2c49c0ad065fa6", "text": "\"'Buy and Hold' Is Still a Winner: An investor who used index funds and stayed the course could have earned satisfactory returns even during the first decade of the 21st century. by By Burton G. Malkiel in The Wall Street Journal on November 18, 2010: \"\"The other useful technique is \"\"rebalancing,\"\" keeping the portfolio asset allocation consistent with the investor's risk tolerance. For example, suppose an investor was most comfortable choosing an initial allocation of 60% equities, 40% bonds. As stock and bond prices change, these proportions will change as well. Rebalancing involves selling some of the asset class whose share is above the desired allocation and putting the money into the other asset class. From 1996 through 1999, annually rebalancing such a portfolio improved its return by 1 and 1/3 percentage points per year versus a strategy of making no changes.\"\" Mr. Malkiel is a professor of economics at Princeton University. This op-ed was adapted from the upcoming 10th edition of his book \"\"A Random Walk Down Wall Street,\"\" out in December by W.W. Norton. http://online.wsj.com/article/SB10001424052748703848204575608623469465624.html\"", "title": "" }, { "docid": "d156356356a6817ede7064657b1d9b6d", "text": "Keep in mind that the bond market is dominated by US Treasury securities... if there were an S&P 500 for bonds, the US would take positions 1-400. Be careful that you understand what's in your bond funds -- you may not be as diversified as you think.", "title": "" } ]	fiqa
5877570c7f5c29d407ca98b2ed9477d7	Why are currency forwards needed?	[ { "docid": "ab25a613fdb672925f18ec5c484f974a", "text": "Can't I achieve the exact same effect and outcome by exchanging currency now and put that amount of USD in a bank account to gain some interest, then make the payment from one year from now? Sure, assuming that the company has the money now. More commonly they don't have that cash now, but will earn it over the time period (presumably in Euros) and will make the large payment at some point in time. Using a forward protects them from fluctuations in the exchange rate between now and then; otherwise they'd have to stow away USD over the year (which still exposes them to exchange rate fluctuations).", "title": "" }, { "docid": "9c7b4c73d0cfa05f6db8ec14315332e2", "text": "Suppose you're a European Company, selling say a software product to a US company. As much as you might want the US company to pay you in Euros they might insist (or you'll lose the contract) that you agree pricing in USD. The software is licensed on a yearly recurring amount, say 100K USD per year payable on the 1st January every year. In this example, you know that on the 1st Jan that 100K USD will arrive in your USD bank account. You will want to convert that to Euros and to remove uncertainty from your business you might take out an FX Forward today to remove your currency risk. If in the next 9 months the dollar strengthens against the Euro then notionally you'll have lost out by taking out the forward. Similarly, you've notionally gained if the USD weakens against the EURO. The forward gives you the certainty you need to plan your business.", "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": "" }, { "docid": "4bebec0aa0906edd17ddf97af3fa375b", "text": "What is the point of this? Can't I achieve the exact same effect and outcome by exchanging currency now and put that amount of USD in a bank account to gain some interest, then make the payment from one year from now? This is for companies, not individuals. Companies usually take loans, because they think they can make more money (e.g. 10%) than the interest on the loan (e.g. 5%). Putting money on a bank account to earn interest there would give them even less (e.g. 1%). So with your option, instead of earning 10% interest, they'd earn 1%* interest. If the cost of the currency forward is less than these 9%* difference, the forward saves them money. If they have excess cash and they don't know how to invest that money, your option may be preferable *Simple numbers chosen for simplicity, not accuracy.", "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": "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": "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": "149c4682dfbc9647724e92e4509ee2da", "text": "Think of it this way: C + (-P) = forward contract. Work it out from there. Anyways, this stack is meant for professionals, not students, I think.", "title": "" }, { "docid": "0ad570b519c3229f5443070b43fbbf39", "text": "You need a blog, or a thread of your own. I want to learn about this, and you appear to be quite knowledgeable and thorough in your explanations. Would it be possible for you to make a thread, or reply, or pm explaining some of the pro's and cons of fiat money?", "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": "769fedc5864efb06a210234aa369d097", "text": "Borrowing money from the Federal Reserve (or other central banks) requires full collateral, generally in terms of treasury bonds. In that sense it is only a source of liquidity - getting short term money by pledging guaranteed future cash flows, not random commercial loans. To get a dollar from FR today requires freezing a dollar that you already had. Private deposits, on the other hand, require only a keeping a fraction of them as reserves, so you can use the rest of the money for new loans.", "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": "306f3a6fe8fd8857a8f456e4e684ea13", "text": "\"To expand a bit on @MSalters's answer ... When I read your question title I assumed that by \"\"retirement funds\"\" you meant target-date funds that are close to their target dates (say, the 2015 target fund). When I saw that you were referring to all target-date funds, it occurred to me that examining how such funds modify their portfolios over time would actually help answer your question. If you look at a near-term target fund you can see that a smaller percent is invested internationally, the same way a smaller percent is invested in stocks. It's because of risk. Since it's more likely that you will need some of the money soon, and since you'll be cashing out said money in US Dollars, it's risky to have too much invested in foreign currencies. If you need money that's currently invested in a foreign currency and that currency happens to be doing poorly against USD at the moment, then you'll lose money simply because you need it now. This is the same rationale that goes into target-date funds' moving from stocks to bonds over time. Since the value of a stock portfolio has a lot more natural volatility than the value of a bond portfolio, if you're heavily invested in stocks when you need to withdraw money, there's a higher probability that you'll need to cash out just when stocks happen to be doing relatively poorly. Being invested more in bonds around when you'll need your money is less risky. Similarly, being more invested in US dollars than in foreign currencies around when you'll need your money is also less risky.\"", "title": "" }, { "docid": "2237029210f2414fe0ef52b4b015cee7", "text": "\"It's simply supply and demand. First, demand: If you're an importer trying to buy from overseas, you'll need foreign currency, maybe Euros. Or if you want to make a trip to Europe you'll need to buy Euros. Or if you're a speculator and think the USD will fall in value, you'll probably buy Euros. Unless there's someone willing to sell you Euros for dollars, you can't get any. There are millions of people trying to exchange currency all over the world. If more want to buy USD, than that demand will positively influence the price of the USD (as measured in Euros). If more people want to buy Euros, well, vice versa. There are so many of these transactions globally, and the number of people and the nature of these transactions change so continuously, that the prices (exchange rates) for these currencies fluctuate continuously and smoothly. Demand is also impacted by what people want to buy and how much they want to buy it. If people generally want to invest their savings in stocks instead of dollars, i.e., if lots of people are attempting to buy stocks (by exchanging their dollars for stock), then the demand for the dollar is lower and the demand for stocks is higher. When the stock market crashes, you'll often see a spike in the exchange rate for the dollar, because people are trying to exchange stocks for dollars (this represents a lot of demand for dollars). Then there's \"\"Supply:\"\" It may seem like there are a fixed number of bills out there, or that supply only changes when Bernanke prints money, but there's actually a lot more to it than that. If you're coming from Europe and want to buy some USD from the bank, well, how much USD does the bank \"\"have\"\" and what does it mean for them to have money? The bank gets money from depositors, or from lenders. If one person puts money in a deposit account, and then the bank borrows that money from the account and lends it to a home buyer in the form of a mortgage, the same dollar is being used by two people. The home buyer might use that money to hire a carpenter, and the carpenter might put the dollar back into a bank account, and the same dollar might get lent out again. In economics this is called the \"\"multiplier effect.\"\" The full supply of money being used ends up becoming harder to calculate with this kind of debt and re-lending. Since money is something used and needed for conducting of transactions, the number of transactions being conducted (sometimes on credit) affects the \"\"supply\"\" of money. Demand and supply blur a bit when you consider people who hoard cash. If I fear the stock market, I might keep all my money in dollars. This takes cash away from companies who could invest it, takes the cash out of the pool of money being used for transactions, and leaves it waiting under my mattress. You could think of my hoarding as a type of demand for currency, or you could think of it as a reduction in the supply of currency available to conduct transactions. The full picture can be a bit more complicated, if you look at every way currencies are used globally, with swaps and various exchange contracts and futures, but this gives the basic story of where prices come from, that they are not set by some price fixer but are driven by market forces. The bank just facilitates transactions. If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official \"\"basket of goods\"\" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis.\"", "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": "58da3db7d725927a0b0ee7ec22639054", "text": "I think you answered yourself. The rate difference is because of the base rates differences, and it's not worth moving money around because the rate conversions (even if the currency rates don't fluctuate) will eat up the difference.", "title": "" }, { "docid": "209158c83940631e2c9f741f0da36157", "text": "As mentioned in several other answers, the main reason for high rates is to maximize profit. However, here is another, smaller effect: The typical flow of getting money from an ATM: Suppose you have a minute to consider the offer, then in that time the currency may drop or rise (which you can see from an external source of information). Therefore this opens a window for abuse. For real major currencies these huge switches are rare, but they do happen. And when 1 or 2 minor currencies are involved these switches are more common. Just looking at a random pair for today (Botswana Pula to Haitian Gourde) I immediately spotted a moment where the exchange rate jumped by more than 2 %. This may not be the best example, but it shows why a large margin is desirable. Note that this argument only holds for when the customer knows in advance what the exchange rate would be, for cases where it is calculated afterwards I have not found any valid excuse for such large margins (except that it allows them to offer other services at a lower price because these transaction).", "title": "" }, { "docid": "e5edb2b7684003ea4f01ab69a4c02e39", "text": "why should I have any bias in favour of my local economy? The main reason is because your expenses are in the local currency. If you are planning on spending most of your money on foreign travel, that's one thing. But for most of us, the bulk of our expenses are incurred locally. So it makes sense for us to invest in things where the investment return is local. You might argue that you can always exchange foreign results into local currency, and that's true. But then you have two risks. One risk you'll have anywhere: your investments may go down. The other risk with a foreign investment is that the currency may lose value relative to your currency. If that happens, even a good performing investment can go down in terms of what it can return to you. That fund denominated in your currency is really doing these conversions behind the scenes. Unless the bulk of your purchases are from imports and have prices that fluctuate with your currency, you will probably be better off in local investments. As a rough rule of thumb, your country's import percentage is a good estimate of how much you should invest globally. That looks to be about 20% for Australia. So consider something like 50% local stocks, 20% local bonds, 15% foreign stocks, 5% foreign bonds, and 10% local cash. That will insulate you a bit from a weak local currency while not leaving you out to dry with a strong local currency. It's possible that your particular expenses might be more (or less) vulnerable to foreign price fluctuations than the typical. But hopefully this gives you a starting point until you can come up with a way of estimating your personal vulnerability.", "title": "" }, { "docid": "c8331b83bbbd50d34c1de1b1590da0a5", "text": "The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.", "title": "" }, { "docid": "479c8b6628202b3947d4a2c9b7c84bbf", "text": "\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \"\"buy the home now with a mortgage\"\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\"", "title": "" } ]	fiqa
1795478b449d7ea6cee0d754edac5efd	How do euro hedged index funds work?	[ { "docid": "90b990119812669ab920916a9ac08514", "text": "\"When you invest in an S&P500 index fund that is priced in USD, the only major risk you bear is the risk associated with the equity that comprises the index, since both the equities and the index fund are priced in USD. The fund in your question, however, is priced in EUR. For a fund like this to match the performance of the S&P500, which is priced in USD, as closely as possible, it needs to hedge against fluctuations in the EUR/USD exchange rate. If the fund simply converted EUR to USD then invested in an S&P500 index fund priced in USD, the EUR-priced fund may fail to match the USD-priced fund because of exchange rate fluctuations. Here is a simple example demonstrating why hedging is necessary. I assumed the current value of the USD-priced S&P500 index fund is 1,600 USD/share. The exchange rate is 1.3 USD/EUR. If you purchase one share of this index using EUR, you would pay 1230.77 EUR/share: If the S&P500 increases 10% to 1760 USD/share and the exchange rate remains unchanged, the value of the your investment in the EUR fund also increases by 10% (both sides of the equation are multiplied by 1.1): However, the currency risk comes into play when the EUR/USD exchange rate changes. Take the 10% increase in the price of the USD index occurring in tandem with an appreciation of the EUR to 1.4 USD/EUR: Although the USD-priced index gained 10%, the appreciation of the EUR means that the EUR value of your investment is almost unchanged from the first equation. For investments priced in EUR that invest in securities priced in USD, the presence of this additional currency risk mandates the use of a hedge if the indexes are going to track. The fund you linked to uses swap contracts, which I discuss in detail below, to hedge against fluctuations in the EUR/USD exchange rate. Since these derivatives aren't free, the cost of the hedge is included in the expenses of the fund and may result in differences between the S&P500 Index and the S&P 500 Euro Hedged Index. Also, it's important to realize that any time you invest in securities that are priced in a different currency than your own, you take on currency risk whether or not the investments aim to track indexes. This holds true even for securities that trade on an exchange in your local currency, like ADR's or GDR's. I wrote an answer that goes through a simple example in a similar fashion to the one above in that context, so you can read that for more information on currency risk in that context. There are several ways to investors, be they institutional or individual, can hedge against currency risk. iShares offers an ETF that tracks the S&P500 Euro Hedged Index and uses a over-the-counter currency swap contract called a month forward FX contract to hedge against the associated currency risk. In these contracts, two parties agree to swap some amount of one currency for another amount of another currency, at some time in the future. This allows both parties to effectively lock in an exchange rate for a given time period (a month in the case of the iShares ETF) and therefore protect themselves against exchange rate fluctuations in that period. There are other forms of currency swaps, equity swaps, etc. that could be used to hedge against currency risk. In general, two parties agree to swap one quantity, like a EUR cash flow, payments of a fixed interest rate, etc. for another quantity, like a USD cash flow, payments based on a floating interest rate, etc. In many cases these are over-the-counter transactions, there isn't necessarily a standardized definition. For example, if the European manager of a fund that tracks the S&P500 Euro Hedged Index is holding euros and wants to lock in an effective exchange rate of 1.4 USD/EUR (above the current exchange rate), he may find another party that is holding USD and wants to lock in the respective exchange rate of 0.71 EUR/USD. The other party could be an American fund manager that manages a USD-price fund that tracks the FTSE. By swapping USD and EUR, both parties can, at a price, lock in their desired exchange rates. I want to clear up something else in your question too. It's not correct that the \"\"S&P 500 is completely unrelated to the Euro.\"\" Far from it. There are many cases in which the EUR/USD exchange rate and the level of the S&P500 index could be related. For example: Troublesome economic news in Europe could cause the euro to depreciate against the dollar as European investors flee to safety, e.g. invest in Treasury bills. However, this economic news could also cause US investors to feel that the global economy won't recover as soon as hoped, which could affect the S&P500. If the euro appreciated against the dollar, for whatever reason, this could increase profits for US businesses that earn part of their profits in Europe. If a US company earns 1 million EUR and the exchange rate is 1.3 USD/EUR, the company earns 1.3 million USD. If the euro appreciates against the dollar to 1.4 USD/EUR in the next quarter and the company still earns 1 million EUR, they now earn 1.4 million USD. Even without additional sales, the US company earned a higher USD profit, which is reflected on their financial statements and could increase their share price (thus affecting the S&P500). Combining examples 1 and 2, if a US company earns some of its profits in Europe and a recession hits in the EU, two things could happen simultaneously. A) The company's sales decline as European consumers scale back their spending, and B) the euro depreciates against the dollar as European investors sell euros and invest in safer securities denominated in other currencies (USD or not). The company suffers a loss in profits both from decreased sales and the depreciation of the EUR. There are many more factors that could lead to correlation between the euro and the S&P500, or more generally, the European and American economies. The balance of trade, investor and consumer confidence, exposure of banks in one region to sovereign debt in another, the spread of asset/mortgage-backed securities from US financial firms to European banks, companies, municipalities, etc. all play a role. One example of this last point comes from this article, which includes an interesting line: Among the victims of America’s subprime crisis are eight municipalities in Norway, which lost a total of $125 million through subprime mortgage-related investments. Long story short, these municipalities had mortgage-backed securities in their investment portfolios that were derived from, far down the line, subprime mortgages on US homes. I don't know the specific cities, but it really demonstrates how interconnected the world's economies are when an American family's payment on their subprime mortgage in, say, Chicago, can end up backing a derivative investment in the investment portfolio of, say, Hammerfest, Norway.\"", "title": "" } ]	[ { "docid": "dee286912eecf7642f76c9459dad14e7", "text": "The market is efficient, but it is not perfectly efficient. There are entities out there that consistently, legitimately, and significantly outperform the market because of asymmetric information (not necessarily insider trading) and their competitive advantage (access to data and proprietary, highly sophisticated models). I say this despite most hedge funds performing worse than their respective benchmarks. For most people (even very smart people) it makes a lot of sense to invest in index funds with a reasonable asset allocation (based on desired volatility, tax situation, rebalancing methods etc.). The usual example that is cited is RT's Medallion Fund because it has enjoyed quite dramatic returns. Other groups that have been successful include Citadel and Soros Fund Management.", "title": "" }, { "docid": "3f766ea6c521a6a09ca1ba818400d965", "text": "An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want.", "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": "4fb7f63577c30378b44879d1bd601330", "text": "You will have to rebalance every time your Boolean Buy flag is true. You buy 20% of each fund then next week you have to sell down to 10% of your first 5 funds and buy 10% of the second 5.", "title": "" }, { "docid": "f299af237d1d4dab58344bd5567b7576", "text": "Hedge funds are typically just funds structured and operated in a way that make them exempt from various securities regulations, most notably the Investment Company Act of 1940 and the Investment Advisers Act of 1940. This allows them to operate freely of restrictions on traditional fund such as those related to management compensation, public disclosures, investor liquidity, and portfolio concentration and use of leverage. In order to achieve this, hedge funds are typically open only to a limited number of wealthy or sophisticated investors and are restricted in how and to whom they can advertise.", "title": "" }, { "docid": "7f41528167b11270066075f83661d86c", "text": "\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \"\"basket\"\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \"\"DJI 30\"\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\"", "title": "" }, { "docid": "1e640c432f9c2f8e44e602ec3db6e3b1", "text": "Currency hedge means that you are somewhat protected from movements in currency as your investment is in gold not currency. So this then becomes less speculative and concentrates more on your intended investment. EDIT The purpose of the GBSE ETF is aimed for investors living in Europe wanting to invest in USD Gold and not be effected by movements in the EUR/USD. The GBSE ETF aims to hedge against the effects of the currency movements in the EUR/USD and more closely track the USD Gold price. The 3 charts below demonstrate this over the past 5 years. So as is demonstrated the performance of the GBSE ETF closely matches the performance of the USD Gold price rather than the EUR Gold price, meaning someone in Europe can invest in the fund and get the appropriate similar performance as investing directly into the USD Gold without being affected by currency exchange when changing back to EUR. This is by no way speculative as the OP suggests but is in fact serving the purpose as per the ETF details.", "title": "" }, { "docid": "454b5f61b51d0fce1c2ce6ac104530b8", "text": "The biggest hedge funds seem to be copying the large mutual fund company strategy. Launch many funds. Take positions with high beta to the sector or asset class that is the focus of the fund. Wait and see which asset classes outperform. (For Och-Ziff: Their massive bullish bet on credit!) Promote the outperforming funds and their portfolio manager to gullible investors.", "title": "" }, { "docid": "8a5ec08ff4502d32945ad123e3b86821", "text": "There is no evidence that QE had a negative effect on hedge fund alpha. If you claim, that hedge funds are not able to deliver positive risk adjusted return in up markets - this is wrong assumption. It's been proven, that with the leverage they get, hedge funds can perform better in bullish markets. We recently investigated the performance of 180 Danish funds in the past two decades. We found no evidence that they could outperform their relative benchmarks. Not even that, but we also assumed zero costs for investor, where in reality costs can range from 2 to 5%. Danish funds not only fail in term of positive risk adjusted return, but they also struggle to cover their costs. TL:DR The lover the cost - the higher the return. Evidence says - Go passive!", "title": "" }, { "docid": "c8331b83bbbd50d34c1de1b1590da0a5", "text": "The currency market, more often referred as Forex or FX, is the decentralized market through which the currencies are exchanged. To trade currencies, you have to go through a broker or an ECN. There are a lot's of them, you can find a (small) list of brokers here on Forex Factory. They will allow you to take very simple position on currencies. For example, you can buy EUR/USD. By doing so, you will make money if the EUR/USD rate goes up (ie: Euro getting stronger against the US dollar) and lose money if the EUR/USD rate goes down (ie: US dollar getting stronger against the Euro). In reality, when you are doing such transaction the broker: borrows USD, sell it to buy EUR, and place it into an Euro account. They will charge you the interest rate on the borrowed currency (USD) and gives you the interest and the bought currency (EUR). So, if you bought a currency with high interest rate against one with low interest rate, you will gain the interest rate differential. But if you sold, you will lose the differential. The fees from the brokers are likely to be included in the prices at which you buy and sell currencies and in the interest rates that they will charge/give you. They are also likely to gives you big leverage to invest far more than the money that you deposited in their accounts. Now, about how to make money out of this market... that's speculation, there are no sure gains about it. And telling you what you should do is purely subjective. But, the Forex market, as any market, is directed by the law of supply and demand. Amongst what impacts supply and demands there are: Also, and I don't want to judge your friends, but from experience, peoples are likely to tell you about their winning transaction and not about their loosing ones.", "title": "" }, { "docid": "be31b0d0a6d96cd68b06fdd5cbdf2958", "text": "This is great. Thanks! So, just assuming a fund happened to average out to libor plus 50 for a given year, would applying that rate to the notional value of the index swaps provide a reasonable estimate of the drag an ETF investor would experience due to the cost associated with the index swaps? For instance, applying this to the hypothetical I linked to in the original question, they assumed fund assets of $100M with 2x leverage achieved through $85M of S&P500 stocks, $25M of S&P500 futures, and a notional value of the S&P500 swaps at $90M. So the true costs to an ETF investor would be: expense ratio + commissions on the $85M of S&P500 holdings + costs associated with $25M of futures contracts + costs associated with the $90M of swaps? And the costs associated with the $90M of swaps might be roughly libor plus 50?", "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": "b3a1c1a22b4ef798a3315cc961bded21", "text": "In your other question about these funds you quoted two very different yields for them. That pretty clearly says they are NOT tracking the same index.", "title": "" }, { "docid": "8cd20273e0629c4575627b1c7bed9f18", "text": "\"i know that hedge funds shouldn't be compared with index funds. they do different things. they serve different functions. but when the headline is they are reporting big gains, and then they report that \"\"Ken Griffin’s main Wellington and Kensington funds at Citadel rose almost 7 percent.\"\" YTD, and \"\"Andreas Halvorsen’s Viking and an equity-focused quantitative fund at Renaissance are up more than 9 percent this year through July\"\" as reporting \"\"Big Gains\"\" it's a little silly when an index fund like SCHB is up 10.7% YTD with an ER of 0.03.\"", "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": "" } ]	fiqa
88ab72425836181240dbca0559640727	Is Cost of Living overstated?	[ { "docid": "8fdeaaf29db0432b2ef85b3665e61326", "text": "New York City is high cost-of-living, and I have absolutely no clue why people live there. It's a tough place, and the taxes are oppressive. People buy a studio apartment for $150,000 that has 175 square feet (that's not a typo) plus a $700/month maintenance fee that continues after the mortgage is paid off. And that's just what the fee is now. Our rental house (which used to be our primary residence) at 1,300 square feet has a (15-year) mortgage payment of about $800, and $1,000 per year in property taxes. And my area isn't particularly low cost-of-living. High cost-of-living is just that. More money flies out the door just for the privilege of living there. You make good investments with real estate by buying property at a good price in a good location. Those deals are everywhere, but in high CoL locations you're probably more susceptible to price fluctuations which will trap you in your property if your mortgage goes underwater. Anyway, that's a long way of saying that I don't buy your recommendation to get property in high CoL areas. There are desirable low CoL places to live, too.", "title": "" }, { "docid": "2ff23e2d2bb06bd8523ff154e314517d", "text": "\"I do not believe there is a strong correlation between CPI (Consumer Price Index) and housing value appreciation. Take, for example, New York City which has the highest CPI in the US. A great deal of the CPI number is skewed by Manhattan. One can live in Brooklyn or Queens and avoid some of NYC's high CPI. I would say that housing appreciation occurs because of the human activity in the area. That same human activity is what drives the CPI. There are other contributing factors, like limits on economies of scale. You simply cannot set down a Super Walmart in much of NYC, so goods are distributed over a larger number of stores. (Sure, NYC is a port city, but the goods are distributed within the city by trucks.) The San Francisco Bay Area is another high CPI area in the US. Here, as well, it is the location that draws people. While NYC is mostly about economic activity, the SF Bay Area is a mix of the draw of a great location and the economic activity that occurs due to the large number of people living there. I know of a house in Oakland that sold for approximately $350k, in 2004/05. It was located not too far from the \"\"Killing Fields,\"\" as they were known locally. It was not the worst neighborhood in Oakland, but it was not very far from it. This was for a shabby, single-story unit which I believe had 5 (maybe 6) rooms. That is a lot of money for a house that required a lot of attention and was in a bad neighborhood. I have no idea how the housing market is after the housing bubble, but the higher value areas had the most room to fall and many of them fell hard. Ultimately, it is supply and demand that determines the CPI and housing values. This supply and demand is determined by the human activity in the area and some practical considerations regarding the area. A final note: If we are talking about a primary residence, it should not necessarily be looked at as an investment. First and foremost, it is a necessity. Second, if you need to hire people for the maintenance and/or upgrades, that will eat into your gains. Contractors are not cheap, especially where they are in high demand. Finally, the tax incentive is actually not that great. Sure, you take what you can get, but its impact is relatively marginal.\"", "title": "" }, { "docid": "5579ea39c42b4f75f3772c3d06dffd75", "text": "I live in Upstate NY. It's a great, reasonable cost place to live -- provided that you have a job. In NYC, there are probably a few hundred jobs with duties similar to mine in a 45-minute radius. Upstate, there may be 5-6.", "title": "" }, { "docid": "bdaad658b80ae1ec0572bf80e2448973", "text": "\"after 30 years, you'd have a million dollar house vs a quarter million dollar house. You've captured three quarters of a million dollars in rent, given my napkin math hypothetical. As I figure the math, a 250,000 house appreciating to a million dollar house in 30 years requires a sustained ~4.9% appreciation every year--seems unrealistic. The historical rate of inflation, on average, has been closer to 3-3.5%; a 3% appreciation would give a final value of $589k. This also doesn't taken into account the idea that you may have bought a property during a housing bubble, and so then you wouldn't get 3% year-over-year returns. But also, in terms of \"\"capturing rent\"\", you are not factoring in necessary or possible costs that renting doesn't have: mortgage interest and insurance, maintenance, property tax, insurance, buying and selling associated fees, and, importantly, opportunity costs (in that the money not tied up in the house could be invested elsewhere). So it is not such a slam dunk as you make it out. Many use the NY Times buy/rent calculator to compare renting vs. buying.\"", "title": "" }, { "docid": "a328fd0364358971e61164699dc0c2d5", "text": "I'm not convinced that cost of living is related to ensuring greater appreciation of assets over time, especially over a 30 year window. The importance of regional differences in cost of living to anyone's decision-making should be weighted by the percentage of their income spent on indexed items. That is, for people who spend 35%, or even 50% of their salary on indexed items, regional variances in cost of living are far more important than for people who spend 10% of their salaries on these items. Essentially, as income goes up, the significance of cost of living goes down. See http://macromon.wordpress.com/2011/02/02/how-u-s-income-groups-get-squeezed-by-food-prices/ for a pretty picture of the relevance of cost of living across income groups (for food & gas, which are often not included in indexes due to volatility). So, if you are wondering whether cost of living is overstated, perhaps it's because you are in an income group that doesn't need to worry about it as much. Whether it's overstated or not will depend on how much one makes and spends.", "title": "" }, { "docid": "6568d63e1e16bc385ef85b971d630528", "text": "\"You mention: High rent places are usually also high property value places. Given the tax incentives, it seems like a good long term idea to grab a house, so if we assume you have the option of working and buying a house in a high CoL or a low CoL city, I think you'd prefer the high cost. Because essentially, after 30 years, you'd have a million dollar house vs a quarter million dollar house. You've captured three quarters of a million dollars in rent, given my napkin math hypothetical. I think you're forgetting about some of the associated costs with \"\"owning\"\" a home, including:\"", "title": "" } ]	[ { "docid": "73f9842bbef1bfb5be3e22a0539ca8c9", "text": "\"I have a client who is a janitor, makes over 100k. This is a fact. NYC not being \"\"typical\"\" is the whole point. Cost of living is much higher but still get lumped in with everyone else when they make these arbitrary income cutoffs for things.\"", "title": "" }, { "docid": "f0b65fb782bd8bac5c0cd845a5edde63", "text": "\"Without factoring in cost of living that's a pretty ignorant statement. 100k a year in SF really isn't that much. Similar situation in NYC. Most other places in the country that statement might be true but when your average 1200 sq ft 3 bedroom house costs north of 800,000. 100,000 a year stops feeling like a \"\"fuckton\"\"\"", "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": "eec182bb21347815259ce0c5d7b463a9", "text": "\"This is the best tl;dr I could make, [original](https://www.aier.org/blog/social-security-cost-living-adjustment-likely-largest-2011) reduced by 81%. (I'm a bot) *** > With inflation ticking upward in 2017, retirees are likely to see the largest cost-of-living adjustment in their Social Security benefits since 2011. > Our forecasted increase for the cost-of-living adjustment would add between $23 and $29 to the average Social Security beneficiary&#039;s monthly check, higher than any adjustment since 2011 but still below the average annual adjustment since 2011 of 2.3 percent. > The Social Security Administration calculates the cost-of-living adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers. * [Extended Summary*](http://np.reddit.com/r/autotldr/comments/75k0hx/social_security_cost_of_living_adjustment_likely/) \| [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~225800 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: adjustment^#1 percent^#2 year^#3 CPI-W^#4 average^#5\"", "title": "" }, { "docid": "55e17e5d9fdaa33a53ba1eb5fc047d16", "text": "See thats just plain wrong. Minimum wage increases will not increase the total costs of living that puts it on par with the minimum wage. So many studies have been done on this exact question. This mentality is like saying in china that people should only make cents an hour because if they make anymore the cost of living will go up as well. Here are some good reads for you :) http://letjusticeroll.org/news/001185-raising-minimum-wage-does-not-increase-unemployment http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5650&updaterx=2010-10-08+11:40:17 http://www.dadychery.org/fr/2012/01/03/eight-states-raise-minimum-wage/ So many studies prove your statement wrong.", "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": "c68ee828cbea05fa9263ae42d7312bf9", "text": "All my computers have come through bartering in some form or another. I now own 2, and the only thing ever purchased was certain limited parts. It's not very appropriate to the cost of electronics as a proxy for the affordability of the cost of living. If that proxy was even mildly valid you could rent a decent apartment for $200 bucks or less, and furniture, food, etc., would be nearly free. The electronics cost proxy is absurd. Basically, 35 years ago almost nobody owned a computer. While the cost of living has skyrocketed what sense does it make to claim that the cost of something that people didn't even own then is a valid proxy of the cost of the things they require to live?", "title": "" }, { "docid": "ebd3895854370b28209a6e70773545b9", "text": "No, it actually is very real. You pay $340 for a single room and are talking about 2-bedroom rents. At Nebraska's minimum wage of $9/hr or $18k/year, $700 for two bedrooms is just barely affordable if you take a standard rule of keeping monthly rent less than 1/40th of your annual gross salary. It is unaffordable at the Federal minimum wage which was the point of the article.", "title": "" }, { "docid": "27a8d3cc5991bb7e125d0e970957bff9", "text": "\"I wasn't on minimum wage. I was finding that housing in the Boston area was increasing in price faster than my $80k/year salary. And yes, it is a fallacy because your statement is essentially tautological: \"\"if you want a lower price for housing, go to where prices on housing are lower (and don't mind the additional costs of time or money spent commuting).\"\"\"", "title": "" }, { "docid": "0aec920a2ac09cda16c87d87b70717c5", "text": "\"http://www.nytimes.com/2010/09/12/jobs/12search.html \"\"Where you live and the cost of living there has only a small influence on that number, he added. (That may be a revelation to some Manhattanites.)\"\" I can't find the source I was talking about, but that's close. There's also what kewidogg said, people gravitate to places that make them happy.\"", "title": "" }, { "docid": "0cfb85f4f409dad6f7a21cd944322d40", "text": "\"No, virtually ever item in the CPI is adjusted using hedonics, which by definition can only be used to lower inflation, not adjust it up. Hedonics is not necessarily bad, but it doesn't actually reflect inflation, it reflects standard of living vs. purchasing power, which is not useful for a purely monetary measure. It also does not correctly reflect that despite the fact that a 1970's 20\"\" TV cannot from an economic standpoint be directly compared to a 2012 20\"\" TV, if the price is the same (adjusted for inflation), inflation represents how the value of the dollar has accrued vs the value of a 20\"\" TV, which is what the definition of inflation is. So, no, I don't think you're correct on this. This is also kind of glossing over the fact that the CPI essentially makes the bold argument that energy and transportation prices never affect inflation.\"", "title": "" }, { "docid": "49942f0f2f72466778fed5dd88f92962", "text": "\"But when you focus just on taxes on work, as the OECD does in a new report out this morning, the U.S. starts looking a little less like a low-tax paradise. The total \"\"tax wedge\"\" -- which measures \"\"the difference between labour costs to the employer and the corresponding net take-home pay of the employee\"\" -- was 31.7 percent of labor costs for the average single U.S. worker with no children in 2016, higher than in 10 other OECD countries. https://www.bloomberg.com/view/articles/2017-04-11/why-the-u-s-overtaxes-labor https://www.ssa.gov/oact/progdata/taxRates.html\"", "title": "" }, { "docid": "b7089553b51cc256baf371ae747cacfe", "text": "The long-run goal is to eliminate poverty through wealth creation. If that makes for some weird new social interactions, I'd say that's a reasonable cost. I mention comparing to earlier periods simply as a measure of progress to determine whether or not there is a problem that needs correction, such as a specific group in society experiencing real wage stagnation, or truly anemic growth rates relative to earlier periods. It's the slope of the trend line for each group that I'd be worried about, where linear or exponential is good, and logarithmic should indicate a potential crisis. Ultimately, I believe that it's not a persons absolute circumstances that matter, but the rate at which those circumstances are improving throughout their lives that most strongly affects their subjective well-being (but that's just my theory). As for real estate costs, you're absolutely correct that this is a problem, but it's as easily explainable problem. Supply is artificially constrained in most of the US due to the need for explicit government permission (in the form of building permits and zoning laws) in order to build new units. Basic economics says that when supply is artificially restricted, prices will rise. In areas where government is restrictive, such as San Francisco, prices rise sharply. In places where government is more permissive, like Houston, prices remain much more reasonable.", "title": "" }, { "docid": "22e5d70c66a4c55c4d25da666aa4d951", "text": "Studies suggest people aren't comfortable around others who are way poorer or richer than they. You sound like a rational adult. You would be surprised how weird people associate with money. Also, if we compare to earlier period it can only account as far as the same people in question were alive e.g not a generation before. Why? Because people can't understand how it was to live differently without actual experience. Yes, the majority of the world lives better today but we also have much higher expectations, that needs to be accounted for. Another matter is the rising cost of living expenses. Real estate doesn't seem to be dropping and that easily adds to financial anxiety when due to globalisation and technology the job markets become unstable.", "title": "" }, { "docid": "b69b9e20d4ec892aafc0733c89716ea9", "text": "\"This is only a concern if the payments can be realistically controlled by a central authority. What you're asking is only relevant when dealing with a centrally planned economy. I'm also not sure why you're talking about high payments surrounding basic living. What is \"\"basic living\"\"? What is considered high? You're presupposing information into the question, which is a form of leading and taints the discussion.\"", "title": "" } ]	fiqa
ff4d6adf2a8c1c1e3f2395ceeced6ab1	How can a person protect his savings against a country default?	[ { "docid": "647740b4ae71f5a6f13b36593cb3f041", "text": "The default of the country will affect the country obligations and what's tied to it. If you have treasury bonds, for example - they'll get hit. If you have cash currency - it will get hit. If you're invested in the stock market, however, it may plunge, but will recover, and in the long run you won't get hit. If you're invested in foreign countries (through foreign currency or foreign stocks that you hold), then the default of your local government may have less affect there, if at all. What you should not, in my humble opinion, be doing is digging holes in the ground or probably not exchange all your cash for gold (although it is considered a safe anchor in case of monetary crisis, so may be worth considering some diversifying your portfolio with some gold). Splitting between banks might not make any difference at all because the value won't change, unless you think that one of the banks will fail (then just close the account there). The bottom line is that the key is diversifying, and you don't have to be a seasoned investor for that. I'm sure there are mutual funds in Greece, just pick several different funds (from several different companies) that provide diversified investment, and put your money there.", "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": "25a38b50c7fa018f6d9168ae1325fc2f", "text": "\"Since you are going to be experiencing a liquidity crisis that even owning physical gold wouldn't solve, may I suggest bitcoins? You will still be liquid and people anywhere will be able to trade it. This is different from precious metals, whereas even if you \"\"invested\"\" in gold you would waste considerable resources on storage, security and actually making it divisible for trade. You would be illiquid. Do note that the bitcoin currency is currently more volatile than a Greek government bond.\"", "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": "c47466f7880e9e6b6d3a19c680ce234d", "text": "Bank and most Credit Union deposit accounts (including CDs) are guaranteed by the Federal government by the FDIC and NCUA, respectively. Some state-chartered credit unions use private insurance, you'll want to be careful about storing lots of money in those institutions.", "title": "" }, { "docid": "d701e65d752ded1d87e896f088aea506", "text": "\"Somehow I just stumbled onto this thread... > You essentially robbed the person holding the debt (since you promised to pay it off). Depends on leverage, with fractional reserve lending. Banks are permitted to loan out 30x their actual assets, or more. If I have $1 but can loan out $30, and anything more than $1 gets paid back, I haven't lost any money. In addition, I can write off the amount defaulted, and the government will pay me back for certain types of loans. With student loans, since they are almost impossible to discharge, gov't will pursue the borrower for years and decades, and ultimately collect more interest. Here is an article on it: http://online.wsj.com/article/SB10001424052748704723104576061953842079760.html > According to Kantrowitz, the government stands to earn $2,010.44 more in interest from a $10,000 loan that defaulted than if it had been paid in full over a 20-year term, and $6,522.00 more than if it had been paid back in 10 years. Alan Collinge, founder of borrowers' rights advocacy Student Loan Justice, said the high recovery rates provide a \"\"perverted incentive\"\" for the government to allow loans to go into default. Kantrowitz estimates the recovery rate would need to fall to below 50% in order for default prevention efforts to become more lucrative than defaults themselves. Not to mention: http://studentloanjustice.org/defaults-making-money.html > So essentially, the Department is given a choice: Either do nothing and get nothing, or outlay cash with the knowledge that this outlay will realize a 22 percent return, ultimately (minus the governments cost of money and collection costs). From this perspective, it is clear that based solely on financial motivations, and without specific detailed knowledge of the loan (i.e. borrower characteristics, etc.), the chooser would clearly favor the default scenario, for not only the return, but perhaps the potential savings in subsidy payment as well, And don't forget the penalties accruing to the person defaulting; they will probably have to move out of the country in order to escape collection. And let's factor in the huge ROI the lender sees by creating an indentured servant class. Plus, the gov't will issue as much currency as it wants, to make itself whole. And how much of a loss IS the loss, when the whole of the loan amount went right back into the local economy, paying professors, janitors, landlords, grocery stores, etc.? And don't forget all THOSE taxes (income and sale) that the gov't collects. Government will collect ~30%-50% of the loan immediately as income and sales tax, plus a portion of it every time the money changes hands (I pay income tax, then use some of my after-tax money to pay you for a product or service, and you still have to pay tax on that money, and so on). So it's more complicated than having \"\"robbed the person holding the debt\"\". Banks at 30x leverage don't lose money as long as they get back 1/30th of the total amount lent out, including interest, fees, and penalties, before considering write-offs and government repayment. In fact, the point of over-leverage is so you CAN make loans that have risk attached. If you could only lend what you actually had, you would have to stay away from anything risky because it would be too easy to lose money. Having virtual $ to bet means you can serve market segments that have higher risk. This makes MORE money for the banks, that's why they do it. They are already playing with funny money, so they don't lose any even if you default and move to another country. And the money you \"\"spent\"\" has also made its way back to them in various amounts, such as your professor's mortgage payments, auto loan, etc. Your taking on debt already helped the bank get its OTHER loans repaid. So, roughly speaking, if you took out $90,000 and $3,000 of that made its way back to the bank through various means, they haven't lost any money, because it only cost them $3,000 actual dollars in the first place.\"", "title": "" }, { "docid": "d996dffe8ff062a55256fe700838aff1", "text": "\"Usually when the government defaults, the currency gets devalued. So as a debtor, that's a good thing -- your debt gets devalued. The \"\"catch\"\" is that your income and buying power is also devalued. So unless you happen to own the type of assets that become more valuable during those circumstances (real property, farms, utilities, certain industrial things, etc) you're looking at tough times ahead.\"", "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": "0389ef13c4efdfebeb2cfe9c55344eb3", "text": "\"This might not map well, because personal finance is not the global economy; but let's start by talking about this in terms of the cost of a loan vs the gain of an investment. If you can buy a house with a mortgage at 3%, but make 7% on average in the stock market... You should take as looong as possible to pay that off, and invest every penny you can spare in the markets. Heck, if you can take on even more debt at 3%, you should still do the same. Now imagine you have the power to literally print money, but, doing so is effectively a form of \"\"loan\"\" to yourself. We call the \"\"interest\"\" on that loan \"\"inflation\"\", and it comes out to roughly 2%, basically the same rate that US treasuries pay (they aren't strictly locked, but they rarely drift far apart). So, if you can print money at 1%, you should rationally print as much money as you possibly can to buy US treasuries at 2+%. But someone has to take that money off your hands - Pallets of money siting in a warehouse aren't worth any more than the paper they're made of. There we get into trade imbalances... Whether printing money costs you 0.1% or 10% or 1000% per year depends on whether your country is, on average, making or losing money on international trade (I'm glossing over a hell of a lot there, as full disclosure), and by how much. If you're printing money as fast as you can just to buy food to stay alive with zero exports, you're screwed; if your country exports $10 to the US (or equivalents) for every $1 you import, the rest of that is essentially \"\"invested\"\" in USD, in that you didn't need to print it yourself just to feed your people.\"", "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": "43cc3e1388828369619c2a9314438375", "text": "Savings accounts have limitations in case a bank goes belly up and you have a higher amount in the account (more than the insured amount). Mostly big corporations or pension funds cannot rely on a bank to secure their cash but a government bond is secured (with some fine print) and hence they are willing to take negative interest rates.", "title": "" }, { "docid": "301bfdde2a9a2b9e9e1161c2eb7aba16", "text": "You can't both enforce saving and have access to the money -- from what you say, it's clear that if you can access the money you will spend it. Can you find an account that allows one withdrawal every six months but no more, which should help to cut down on the impulse buys but still let you get at your money in an emergency?", "title": "" }, { "docid": "9bdaaccecc7a6d0050c1aae306971a78", "text": "\"By protected you mean what exactly? In the US, generally you'd get a promissory note signed by B saying \"\"B promises to repay A such and such amount on such and such terms\"\". In case of default you can sue in a court of law, and the promissory note will be the evidence for your case. In case of B declaring bankruptcy, you'd submit the promissory note to the bankruptcy court to get in line with all the other creditors. Similarly in all the rest of the world, you make a contract, you enforce the contract in courts.\"", "title": "" }, { "docid": "3e3d6a2ce2c219ca85fe488f106792ae", "text": "\"While you have asked for general principles, I am going to seize onto a specific example you gave in order to illustrate the difficulties here: Argentina. Argentina's bonds are probably not safer than US treasuries. Argentina is presently in the business of seizing foreign oil businesses (Repsol YPF) while championing leftist causes. At the very least this indicates an elevated level of political risk: S&P, which affirmed Argentina's ratings five notches into junk territory at B, said policies such as those enacted since the country's October presidential election could also weaken Argentina's macroeconomic framework and external liquidity... \"\"Actions of this type continue to shorten the economic planning horizon in the country and contribute to Argentina's deteriorating economic and political links with the international community.\"\" -- \"\"S&P Lowers Argentina Outlook To Negative\"\". The Wall Street Journal, 23 April 2012 You're not going to be able to capture that sort of a risk with raw budget numbers. It's hard enough to figure out creditworthiness for a business; for an entire nation it's even harder. That's why credit-rating firms, as faulty as they may be, employ dozens of people to try and figure this sort of thing out. Additionally, there is a currency risk associated with buying bonds denominated in foreign currencies. It doesn't matter much if $nation repays all its bonds if they have so much inflation that the repayment is worth half of what it used to be (nor is it much help if your own nation's currency rises in value while your investment's value is stable elsewhere). Ultimately the value of a bond is \"\"how much money am I actually going to get back?\"\" and while operating a budget surplus isn't a bad sign in and of itself, it's hardly the complete picture. A fair accounting of the relative creditworthiness of any two nations needs to unite two massive fields of study: Macroeconomics and Politics. It is possible that the right sort of degree in economics, risk management, or a similar field of study could prepare you to know exactly what sort of research is necessary to make a meaningful analysis. :) Now, if you just want some commentary on which bonds are safe to buy, ask a credit-rating agency -- for example, read Standard and Poor's sovereign ratings - or find a mutual fund which may invest in international bonds at its own discretion and have someone else make the decisions.\"", "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": "ea4f6d41989081ee98b66fcdd1343613", "text": "Quality of life, success and happiness are three factors that are self define by each individual. Most of the time all three factors go hand by hand with your ability to generate wealth and save. Actually, a recent study showed that there were more happy families with savings than with expensive products (car, jewelry and others). These 3 factors, will be very difficult to maintain after someone commit such action. First, because you will fear every interaction with the origin of the money. Second, because every individual has a notion of wrong doing. Third, for the reasons that Jaydles express. Also, most cards, will call you and stop the cards ability to give money, if they see an abusive pattern. Ether, skipping your country has some adverse psychological impact in the family and individual that most of the time 100K is not enough to motivate such change. Thanks for reading. Geo", "title": "" }, { "docid": "44714eb2b7b27e40ad6de9cdbbec0533", "text": "\"I'll try to give you some clues on how to find an answer to your question, rather than answering directly the question asked. Why not answer it directly? Well, I can, but it won't help you (or anyone else) much in two months when the rates change again. Generally, you won't find such in brick-and-mortar banks. You can save some time and only look at online banks. Examples: ING Direct (CapitalOne), CapitalOne, Amex FSB, E*Trade, Ally, etc. There are plenty. Go to their web sites, look for promotions, and compare. Sometimes you can find coupons/promotions which will yield more than the actual savings rate. For example, ING frequently have a $50 promotion for opening a new account. You need to understand that rates change frequently, and the highest rate account today may become barely average in a week. There are plenty of sites that offer various levels of comparison information. One of the most comprehensive ones (IMHO) is Bankrate.com. Another place to look is MoneyRates.com. These sites provide various comparisons, and you can also find some promotions advertised there. There are more similar sites. Also, search the Internet and you can find various blog posts with additional promotions – frequently banks give \"\"referral bonuses\"\" to provide incentive for clients to promote the banks. Do some due diligence on the results that appear promising. Not much. You won't find any savings account that would keep the value (purchasing power) of your money over the long term. Keeping money in savings accounts is a sure way to lose value because the inflation rate is much higher than even high-yield savings accounts. But, savings accounts are safe (insured by FDIC/NCUA up to the limit), and very convenient to keep short term savings – such as an emergency fund – that you cannot afford to lose to investments. Sometimes you'll get slightly better rates by locking up your money in a Certificate of Deposit (CD), but not significantly higher when the CD is short-term.\"", "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": "" } ]	fiqa
d97ac382cc64c48761c4ce649bf19cd9	Should I invest in the world's strongest currency instead of my home currency?	[ { "docid": "605eb7aa548de18d74c5f4e178dd3731", "text": "First, currencies are not an investment; they are a medium of exchange; that is, you use currency to buy goods and services and/or investments. The goods and services you intend to buy in your retirement are presumably going to be bought in your country; to buy these you will need your country's currency. The investments you intend to buy now require the currency of whatever country they are located in. If you want to buy shares in Microsoft you need USD; if you want shares in BHP-Billiton you need AUD or GBP (It is traded on two exchanges), if you want property in Kuwait you need KWD and if you want bonds in your country you need IDR. When you sell these later to buy the goods and services you were saving for you need to convert from whatever currency you get for selling them into whatever currency you need to buy. When you invest you are taking on risk for which you expect to be compensated for - the higher the risk you take the better the returns had better be because there is always the chance that they will be negative, right down to losing it all if you are unlucky. There is no 100% safe investment; if you want to make sure you get full value for your money spend it all right now! If you invest overseas then, in addition to all the other investment risks, you are adding currency risk as well. That is, the risk that when you redeem your investments the overseas currency will have fallen relative you your currency. One of the best ways of mitigating risk is diversification; which allows the same return at a lower risk (or a higher return at the same risk). A pure equity portfolio is not diversified across asset classes (hopefully it is diversified across the equities). Equities are a high risk-high yield class; particularly in a developing economy like Indonesia. If you are very young with a decades long investment horizon this may be OK but even then, a diversified portfolio will probably offer better rewards at the same risk. Diversifying into local cash, bonds and property with a little foreign equities, bonds and property will serve you better than worrying about the strength of the IDR. Oh, and pay a professional for some real advice rather than listening to strangers on the internet.", "title": "" }, { "docid": "a3041f3b2f3e082b53a5789066773d5b", "text": "Currency speculation is a very risky investment strategy. But when you are looking for which currency to denote your savings in, looking at the unit value is quite pointless. What is important is how stable the currency is in the long term. You certainly don't want a currency which is prone to inflation, because it means any savings denoted in that currency constantly lose purchasing power. Rather look for a currency which has a very low inflation rate or is even deflating. Another important consideration is how easy it is to exchange between your local currency and the currency you want to own. A fortune in some exotic currency is worth nothing when no local bank will exchange it into your local currency. The big reserve currencies like US Dollar, Euro, Pound Sterling and Japanes yen are usually safe bets, but there are regional differences which can be easily converted and which can't. When the political relations between your country and the countries which manage these currencies is unstable, this might change over night. To avoid these problems, rather invest into a diverse portfolio of commodities and/or stocks. The value of these kinds of investments will automatically adjust to inflation rate, so you won't need to worry about currency fluctuation.", "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": "2fb7b6d8a5c9f61e3a60aebdd6f41562", "text": "The best thing is to diversify across multiple currencies. USD and EUR seem reliable. But not 100% reliable to keep all your investments in this types of currencies. Invest part of your savings in USD, part - in EUR, and part in your home country's currency. Apart from investing I recommend you to have certain sum in cash and certain on your bank account.", "title": "" } ]	[ { "docid": "d7541f07a95a913977a15cc8030734b8", "text": "\"I still don't understand this \"\"analysis.\"\" Even when the US became the world's largest economy in 1880, the British Pound remained the reserve currency of choice until the 1950s, some seventy years later! Investors prefer stability and property rights and the US has both, especially when considering the alternatives, i.e. Euro tax takings on bank deposits in Cyprus. What about the yuan? China may have recently surpassed US economic power, but it is very likely in the midst of a massive credit bubble. China has also been fudging some of their numbers and in many cases, chooses not to keep economic records at all. The fact that many Chinese elites themselves are buying property in Vancouver and the US as a safe harbor also does not bode well for their systemic problems IMO. I'm sticking with the dollar for now.\"", "title": "" }, { "docid": "e0f0da2c0e5a4bfa04bda19efad7eb01", "text": "There are some ETF's on the Indian market that invest in broad indexes in other countries Here's an article discussing this Be aware that such investments carry an additional risk you do not have when investing in your local market, which is 'currency risk' If for example you invest in a ETF that represents the US S&P500 index, and the US dollar weakens relative to the indian rupee, you could see the value if your investment in the US market go down, even if the index itself is 'up' (but not as much as the change in currency values). A lot of investment advisors recommend that you have at least 75% of your investments in things which are denominated in your local currency (well technically, the same currency as your liabilities), and no more than 25% invested internationally. In large part the reason for this advice is to reduce your exposure to currency risk.", "title": "" }, { "docid": "fe4513005bf90450c2695629c0f31560", "text": "Taking into account that you are in Cyprus, a Euro country, you should not invest in USD as the USA and China are starting a currency war that will benefit the Euro. Meaning, if you buy USD today, they will be worth less in a couple of months. As for the way of investing your money. Look at it like a boat race, starting on the 1st of January and ending on the 31st of December each year. There are a lot of boats in the water. Some are small, some are big, some are whole fleets. Your objective is to choose the fastest boat at any time. If you invest all of your money in one small boat, that might sink before the end of the year, you are putting yourself at risk. Say: Startup Capital. If you invest all of your money in a medium sized boat, you still run the risk of it sinking. Say: Stock market stock. If you invest all of your money in a supertanker, the risk of it sinking is smaller, and the probability of it ending first in the race is also smaller. Say: a stock of a multinational. A fleet is limited by it's slowest boat, but it will surely reach the shore. Say: a fund. Now investing money is time consuming, and you may not have the money to create your own portfolio (your own fleet). So a fund should be your choice. However, there are a lot of funds out there, and not all funds perform the same. Most funds are compared with their index. A 3 star Morningstar rated fund is performing on par with it's index for a time period. A 4 or 5 star rated fund is doing better than it's index. Most funds fluctuate between ratings. A 4 star rated fund can be mismanaged and in a number of months become a 2 star rated fund. Or the other way around. But it's not just luck. Depending on the money you have available, your best bet is to buy a number of star rated, managed funds. There are a lot of factors to keep into account. Currency is one. Geography, Sector... Don't buy for less than 1.000€ in one fund, and don't buy more than 10 funds. Stay away from Gold, unless you want to speculate (short term). Stay away from the USD (for now). And if you can prevent it, don't put all your eggs in one basket.", "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": "bf5b32f35f7abee59654d27bc3adecab", "text": "There are legitimate multi currency mutual funds/efts. But I don't think their rate of return will produce the extra money you're looking for any faster than any other kind of investment with comparable risks. To make money fast, you have to accept nontrivial risk of losing money fast, which isn't what you seem to have in mind.", "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": "3b449602794cc259348a97fddc5cf7f8", "text": "From a purely financial standpoint, you should invest using whatever dollars get you the best rate. The general rule of thumb that I've come across is that if you are making another person/company change your money into another nation's currency, they will likely charge a higher exchange rate than you could get yourself. However, it really depends on your situation, how easy it is for you to exchange money, what your exchange rate is, and what your broker is charging you to exchange to USD (if on the off chance this is truly nothing, then stick with CAD). Don't worry about the strength of the USD to CAD too much because converting your money before you make purchases doesn't allow you to buy more shares. For the vast majority of people, trying to work with national currency exchange rates makes things unnecessarily complex.", "title": "" }, { "docid": "3f8d64a7173e83e85807bda067af93aa", "text": "If S&P crashes, these currencies will appreciate. Note that the above is speculation, not fact. There is definitely no guarantee that, say, the CHF/CAD currency pair is inversely linked to the performance of the US stock market when measured in USD, let alone to the performance of the US stock market as measured in CAD. How can a Canadian get exposure to a safe haven currency like CHF and JPY? I don't want a U.S. dollar denominated ETF. Three simple options come to mind, if you still want to pursue that: Have money in your bank account. Go to your bank, tell them that you want to buy some Swiss francs or Japanese yen. Walk out with a physical wad of cash. Put said wad of cash somewhere safe until needed. It is possible that the bank will tell you to come back later as they might not have the physical cash available at the branch office, but this isn't anything really unusual; it is often highly recommended for people who travel abroad to have some local cash on hand. Contact your bank and tell them that you want to open an account denominated in the foreign currency of your choice. They might ask some questions about why, there might be additional fees associated with it, and you'll probably have to pay an exchange fee when transferring money between it and your local-currency-denominated accounts, but lots of banks offer this service as a service for those of their customers that have lots of foreign currency transactions. If yours doesn't, then shop around. Shop around for money market funds that focus heavily or exclusively on the currency area you are interested in. Look for funds that have a native currency value appreciation as close as possible to 0%. Any value change that you see will then be tied directly to the exchange rate development of the relevant currency pair (for example, CHF/CAD). #1 and #3 are accessible to virtually anyone, no large sums of money needed (in principle). Fees involved in #2 may or may not make it a practical option for someone handling small amounts of money, but I can see no reason why it shouldn't be a possibility again in principle.", "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": "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": "584e97bf18950c72068556fa29320d5b", "text": "You are not missing something basic. Putting money in the bank will cost you in terms of purchasing power. The same thing has been true in the US and other places for a long time now. The real interest rate is negative--there is too much aggregate wealth being saved compared to the number of profitable lending opportunities. That means any truly risk-free investment will not make as much money as you will lose to inflation. If the real interest rate appears to be positive in your home country it means one of the following is happening: Capital controls or other barriers are preventing foreigners from investing in your home country, keeping the interest rate there artificially high Expected inflation is not being measured very accurately in your home country Inflation is variable and unpredictable in your home country, so investors are demanding high interest rates to compensate for inflation risk. In other words, bank accounts are not risk-free in your home country. If you find any securities that are beating inflation, you can bet they are taking on risk. Investing in risky securities is fine, but just understand that it's not a substitute for a risk-free bank account. Part of every interest rate is compensation for the time-value-of-money and the rest is compensation for risk. At present, the global time-value-of-money is negative.", "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": "" }, { "docid": "9b58296e546e1efce9613746b1a82bd7", "text": "Yes. But the question is do you want to have gold? If you are going to buy gold anyway, and if you can get a good conversion rate between USD:gold, then why not? If you are looking to use your earnings on things that you cannot buy using gold, then I'd recommend you take USD instead. Have fun!", "title": "" }, { "docid": "e27b4d067c78c5636685afe87425080c", "text": "No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.", "title": "" }, { "docid": "51876fb7fa8f2f1b1c5fc654650a5ef4", "text": "The other obvious suggestion I guess is to buy cheap stocks and bonds (maybe in a dollar denominated fund). If the US dollar rises you'd then get both the fund's US gains plus currency gains. However, no guarantee the US dollar will rise or when. Perhaps a more prudent approach is to simply diversify. Buy both domestic and foreign stocks and bonds. Rebalance regularly.", "title": "" } ]	fiqa
ea1f964230a275e3f149f2ec04654c03	How to read a mutual fund spec sheet?	[ { "docid": "0dccc0a63323e2c74165cf05e445984b", "text": "\"The 0.14% is coming out of the assets of the fund itself. The expense ratio can be broken down so that on any given day, a portion of the fund's assets are set aside to cover the administrative cost of running the fund. A fund's total return already includes the expense ratio. This depends a lot on what kind of account in which you hold the fund. If you hold the fund in an IRA then you wouldn't have taxes from the fund itself as the account is sheltered. There may be notes in the prospectus and latest annual and semi-annual report of what past distributions have been as remember the fund isn't paying taxes but rather passing that along in the form of distributions to shareholders. Also, there is something to be said for what kinds of investments the fund holds as if the fund is to hold small-cap stocks then it may have to sell the stock if it gets too big and thus would pass on the capital gains to shareholders. Other funds may not have this issue as they invest in large-cap stocks that don't have this problem. Some funds may invest in municipal bonds which would have tax-exempt interest that may be another strategy for lowering taxes in bond funds. Depending on the fund quite a broad range actually. In the case of the Fidelity fund you link, it is a \"\"Fund of funds\"\" and thus has a 0% expense ratio as Fidelity has underlying funds that that fund holds. What level of active management are you expecting, what economies of scale does the fund have to bring down the expense ratio and what expense ratio is typical for that category of fund would come to mind as a few things to consider. That Fidelity link is incorrect as both Morningstar and Fidelity's site list an expense ratio for the fund of funds at .79%. I'd expect an institutional US large-cap index fund to have the lowest expense ratio outside of the fund of fund situation while if I were to pick an actively managed fund that requires a lot of research then the expense ratio may well be much higher though this is where you have to consider what strategy do you want the fund to be employing and how much of a cost are you prepared to accept for that? VTTHX is Vanguard Target Retirement 2035 Fund which has a .14% expense ratio which is using index funds in the fund of funds system.\"", "title": "" }, { "docid": "398e0210b897b26b43d1e3f1a3761f2f", "text": "It says expense ratio of 0.14%. What does it mean? Essentially it means that they will take 0.14% of your money, regardless of the performance. This measures how much money the fund spends out of its assets on the regular management expenses. How much taxes will I be subject to This depends on your personal situation, not much to do with the fund (though investment/rebalancing policies may affect the taxable distributions). If you hold it in your IRA - there will be no taxes at all. However, some funds do have measures of non-taxable distributions vs dividends vs. capital gains. Not all the funds do that, and these are very rough estimates anyway. What is considered to be a reasonable expense ratio? That depends greatly on the investment policy. For passive index funds, 0.05-0.5% is a reasonable range, while for actively managed funds it can go up as much as 2% and higher. You need to compare to other funds with similar investment policies to see where your fund stands.", "title": "" } ]	[ { "docid": "c0a93a2864c882c0bd2a61c81dce41d0", "text": "I like to look at Alpha, Beta, St. Dev., Sharpe Ratio, and R-Squared. It's also good to know how they work together. i.e.: Say you're comparing a fund to an index and the fund has a low beta, but the r-squared is low (<70 is low for my usage). The beta loses some significance in that instance. You want to be able to look at these 5 metrics, know what they mean on their own, and what they say about each other. Sorry if that was poorly worded, Mondays...", "title": "" }, { "docid": "6aa7994d1eb6dfbbd1f75c1cafa06219", "text": "A general mutual fund's exact holdings are not known on a day-to-day basis, and so technical tools must work with inexact data. Furthermore, the mutual fund shares' NAV depends on lots of different shares that it holds, and the results of the kinds of analyses that one can do for a single stock must be commingled to produce something analogous for the fund's NAV. In other words, there is plenty of shooting in the dark going on. That being said, there are plenty of people who claim to do such analyses and will gladly sell you their results (actually, Buy, Hold, Sell recommendations) for whole fund families (e.g. Vanguard) in the form of a monthly or weekly Newsletter delivered by US Mail (in the old days) or electronically (nowadays). Some people who subscribe to such newsletters swear by them, while others swear at them and don't renew their subscriptions; YMMV.", "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": "0a7f714f0a3b50be1430a11363a34698", "text": "Aswath Damodaran's [Investment Valuation 3rd edition](http://www.amazon.com/Investment-Valuation-Techniques-Determining-University/dp/1118130731/ref=sr_1_12?ie=UTF8&qid=1339995852&sr=8-12&keywords=aswath+damodaran) (or save money and go with a used copy of the [2nd edition](http://www.amazon.com/gp/offer-listing/0471414905/ref=dp_olp_used?ie=UTF8&condition=used)) He's a professor at Stern School of Business. His [website](http://pages.stern.nyu.edu/~adamodar/) and [blog](http://aswathdamodaran.blogspot.com/) are good resources as well. [Here is his support page](http://pages.stern.nyu.edu/~adamodar/New_Home_Page/Inv3ed.htm) for his Investment Valuation text. It includes chapter summaries, slides, ect. If you're interested in buying the text you can get an idea of what's in it by checking that site out.", "title": "" }, { "docid": "c1cfbd0fec76678e5f433988678292d4", "text": "\"Assuming that the ETF is tracking an index, is there a reason for not looking at using details on the index? Typically the exact constituents of an index are proprietary, and companies will not publish them publicly without a license. S&P is the heavyweight in this area, and the exact details of the constituents at any one time are not listed anywhere. They do list the methodology, and announcements as to index changes, but not a full list of actual underlying constituents. Is there a easy way to automatically (ie. through an API or something, not through just reading a prospectus) get information about an ETF's underlying securities? I have looked for this information before, and based on my own searches, in a word: no. Index providers, and providers of APIs which provide index information, make money off of such services. The easiest way may be to navigate to each provider and download the CSV with the full list of holdings, if one exists. You can then drop this into your pipeline and write a program to pull the data from the CSV file. You could drop the entire CSV into Excel and use VBA to automagically pull the data into a usable format. For example, on the page for XIU.TO on the Blackrock site, after clicking the \"\"All Holdings\"\" tab there is a link to \"\"Download holdings\"\", which will provide you with a CSV. I am not sure if all providers look at this. Alternatively, you could write the ETF company themselves.\"", "title": "" }, { "docid": "4a03c953af7e493438d0b7e0261d42eb", "text": "\"Everything you are doing is fine. Here are a few practical notes in performing this analysis: Find all the primary filing information on EDGAR. For NYSE:MEI, you can use https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000065270&type=10-K&dateb=&owner=exclude&count=40 This is the original 10-K. To evaluate earnings growth you need per share earnings for the past three years and 10,11,12 years ago. You do NOT need diluted earnings (because in the long term share dilution comes out anyway, just like \"\"normalized\"\" earnings). The formula is avg(Y_-1+Y_-2+Y_-3) / is avg(Y_-10+Y_-11+Y_-12) Be careful with the pricing rules you are using, the asset one gets complicated. I recommend NOT using the pricing rules #6 and #7 to select the stock. Instead you can use them to set a maximum price for the stock and then you can compare the current price to your maximum price. I am also working to understand these rules and have cited Graham's rules into a checklist and worksheet to find all companies that meet his criteria. Basically my goal is to bottom feed the deals that Warren Buffett is not interested in. If you are interested to invest time into this project, please see https://docs.google.com/document/d/1vuFmoJDktMYtS64od2HUTV9I351AxvhyjAaC0N3TXrA\"", "title": "" }, { "docid": "a286b75a29218a3fd4c1ff216ddc054a", "text": "Annual-report expense ratios reflect the actual fees charged during a particular fiscal year. Prospectus Expense Ratio (net) shows expenses the fund company anticipates will actually be borne by the fund's shareholders in the upcoming fiscal year less any expense waivers, offsets or reimbursements. Prospectus Gross Expense Ratio is the percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio. All of these ratios are gathered from a fund's prospectus.", "title": "" }, { "docid": "44e7a7cb513b863434091609d159ded7", "text": "I'm responsible for all our hedging. Since we sell the energy to end users we do mostly fixed buys, swaps and calls. I'm a excel guru and dabble a little in SQL. we have Crystal Ball as well but i have no idea how to use it. I guess I'm trying to figure out if there is a tool that people use to help me analyze the spreads. or perhaps some reading material to help me through this. This is what i've been working towards for so long and i really don't want to fuck this up", "title": "" }, { "docid": "bff3fef09ee5bd2fb14dbdb7c3e95eb9", "text": "To supplement Ben's answer: Following 'smart money' utilizes information available in a transparent marketplace to track the holdings of professionals. One way may be to learn as much as possible about fund directors and monitor the firms holdings closely via prospectus. I believe certain exchanges provide transaction data by brokers, so it may be possible for a well-informed individual to monitor changes in a firms' holdings in between prospectus updates. An example of a play on 'smart money': S&P500 companies are reviewed for weighting and the list changes when companies are dropped or added. As you know there are ETFs and funds that reflect the holdings of the SP500. Changes to the list trigger 'binary events' where funds open or close a position. Some people try to anticipate the movements of the SP500 before 'smart money' adjusts their positions. I have heard some people define smart money as people who get paid whether their decisions are right or wrong, which in my opinion, best captures the term. This Udemy course may be of interest: https://www.udemy.com/tools-for-trading-investing/", "title": "" }, { "docid": "707b61081a6c7cf8ec495fe81bd48389", "text": "Reading financial statements is important, in the sense that it gives you a picture of whether revenues and profits are growing or shrinking, and what management thinks the future will look like. The challenge is, there are firms that make computers read filings for them and inform their trading strategy. If the computer thinks the stock price is below the growth model, it's likely to bid the stock up. And since it's automated it's moving it faster than you can open your web browser. Does this mean you shouldn't read them? In a sense, no. The only sensible trading strategy is to assume you hold things for as long as their fundamentals exceed market value. Financial statements are where you find those fundamentals. So you should read them. But your question is, is it worth it for investors? My answer is no; the market generally factors information in quickly and efficiently. You're better off sticking to passive mutual funds than trying to trade. The better reason to learn to read these filings is to get a better sense of your employer, potential employers, competitors and even suppliers. Knowing what your margins are, what your suppliers margins and acquisitions are, and what they're planning can inform your own decision making.", "title": "" }, { "docid": "35c459b8792369297e41681430c55724", "text": "Mutual funds are collections of investments that other people pay to join. It would be simpler to calculate the value of all these investments at one time each day, and then to deem that any purchases or sales happen at that price. The fund diversifies rather than magnifies risk, looking to hold rather than enjoy a quick turnaround. Nobody really needs hourly updated price information for an investment they intend to hold for decades. They quote their prices on a daily basis and you take the daily price. This makes sense for a vehicle that is a balanced collection of many different assets, most of which will have varying prices over the course a day. That makes pricing complicated. This primer explains mutual fund pricing and the requirements of the Investment Company Act of 1940, which mandates daily price reporting. It also illustrates the complexity: How does the fund pricing process work? Mutual fund pricing is an intensive process that takes place in a short time frame at the end of the day. Generally, a fund’s pricing process begins at the close of the New York Stock Exchange, normally 4 p.m. Eastern time. The fund’s accounting agent, which may be an affiliated entity such as the fund’s adviser, or a third-party servicer such as the fund’s administrator or custodian bank, is usually responsible for calculating the share price. The accounting agent obtains prices for the fund’s securities from pricing services and directly from brokers. Pricing services collect securities prices from exchanges, brokers, and other sources and then transmit them to the fund’s accounting agent. Fund accounting agents internally validate the prices received by subjecting them to various control procedures. For example, depending on the nature and extent of its holdings, a fund may use one or more pricing services to ensure accuracy. Note that under Rule 22c-1 forward pricing, fund shareholders receive the next daily price, not the last daily price. Forward pricing makes sense if you want shareholders to get the most accurate sale or purchase price, but not if you want purchasers and sellers to be able to make precise calculations about gains and losses (how can you be precise if the price won't be known until after you buy or sell?).", "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": "915ee91396f3b08a0d4af728c8f3d5da", "text": "\"According to the IRS, you must have written confirmation from your broker \"\"or other agent\"\" whenever you sell shares using a method other than FIFO: Specific share identification. If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure your gain or loss. You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices and times, if you: Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred. If you don't have a stockbroker, I'm not sure how you even got the shares. If you have an actual stock certificate, then you are selling very specific shares and the purchase date corresponds to the purchase date of those shares represented on the certificate.\"", "title": "" }, { "docid": "b6a62a2fce4ea7b69f9998722e5496b0", "text": "\"I think for this a picture is worth a thousand words. This is a \"\"depth chart\"\" that I pulled from google images, specifically because it doesn't name any security. On the left you have all of the \"\"bids\"\" to buy this security, on the right you have the \"\"asks\"\" to sell the security. In the middle you have the bid/ask spread, this is the space between the highest bid and the lowest ask. As you can see you are free to place you order to the market to buy for 232, and someone else is free to place their order to the market to sell for 234. When the bid and the ask match there's a transaction for the maximum number of available shares. Alternatively, someone can place a market order to buy or sell and they'll just take the current market price. Retail investors don't really get access to this kind of chart from their brokers because for the most part the information isn't terribly relevant at the retail level.\"", "title": "" }, { "docid": "94fd0ac68a72a65937095c6edeaedb74", "text": "Thanks very much. 12b1 is a form that explains how a fund uses that .25-1% fee, right? So that's part of the puzzle im getting at. I'm not necessarily trying to understand my net fees, but more who pays who and based off of what. For a quick example, betterment bought me a bunch of vanguard ETFs. That's cool. But vanguard underperformed vs their blackrock and ssga etfs. I get that vanguard has lower fees, but the return was less even taking those into account. I'm wondering, first what sort of kickback betterment got for buying those funds, inclusive of wholesale deals, education fees etc. I'm also wondering how this food chain goes up and down the sponsor, manager tree. I'm sure it's more than just splitting up that 1%", "title": "" } ]	fiqa
b56c0bfde6b70598f571fd5817595234	Can the Securities Investor Protection Corporation (SIPC) itself go bankrupt?	[ { "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": "2ef4857918552045209a4b65c1bdbf03", "text": "Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund? SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. SIPC is free for ordinary investors. To get the same from elsewhere one has to pay the premium. Edit: The event we are saying is a large brokrage firm, takes all of the Margin Money from Customer Accounts and loses it and also sell off all the stocks actually shown as being held in customer account ... that would be to big. While its not clear as to what exactly will happens, my guess is that the limits per customers will go down as initial payments. Subsequent payments will only be done after recover of funds from the bankrupt firm. What normally happens when a brokrage firm goes down is some of the money from customers account is diverted ... stocks are typically safe and not diverted. Hence the way SIPC works is that it will give the money back to customer faster to individuals. In absence of SIPC individual investors would have had to fight for themselves.", "title": "" } ]	[ { "docid": "69980f8b29a899f4299b650eabfd8e83", "text": "Um, wut? It took a failure for the SIFI to be defined in the first place. It took the failure of Lehman and Bear Stearns for the US goverments to actively attempt precluding any more failures of what were yet-to-be-called, SIFI's. Is this really such a hard concept to grasp? Largely unforeseen failure first, further failure avoidance second.", "title": "" }, { "docid": "24e7fcdfb6bcd46bf5f29fde5e5fd71d", "text": "\"Of course, doing nothing would mean that Social Security won't be able to meet its full obligations two decades from now. But it's not going bankrupt. Bankrupt, as defined in Oxford English Dictionary: \"\"[U]nable to pay outstanding debts.\"\" Am I missing something?\"", "title": "" }, { "docid": "9847099de65fe2eb86b26c98f0d179cb", "text": "I don't know about the liquidation. The capital doesn't evaporate, its source just becomes the corporation itself. The corporation becomes the sole shareholder and acts at the behest of the board. The board then decides both board matters and shareholder matters. Once I talked that through, I realized no one would do this. If the board is in complete control, why clump the ownership together. The directors would be better served by clearly delineating their ownership interests by purchasing shares directly.", "title": "" }, { "docid": "cd64e0364d2155994fb14edafa14b040", "text": "You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It should be noted that SIPC does not protect investors against loss of value or bad advice. As far as having multiple brokerage accounts for security, I personally don’t think it’s necessary to have multiple accounts for that reason. Depending on account or transaction fees, it might not hurt to have multiple accounts. It can actually be beneficial to have multiple accounts so long as each account serves a purpose in your overall financial plan. For example, I have three brokerage accounts, each of which serves a specific purpose. One provides low cost stock and bond transactions, another provides superior market data, and the third provides low cost mutual fund transactions. If you’re worried about asset security, there are a few things you can do to protect yourself. I would recommend you begin by consulting a qualified financial advisor about your risk profile. You stated that a considerable portion of your total assets are in securities. Depending on your risk profile and the amount of your net worth held in securities, you might be better served by moving your money into lower risk asset classes. I’m not an attorney or a financial advisor. This is not legal advice or financial advice. You can and should consult your own attorney and financial advisor.", "title": "" }, { "docid": "c7238a79b7b4178cf71c34c008b89d9d", "text": "You can avoid companies that might go bankrupt by not buying the stock of companies with debt. Every quarter, a public company must file financials with the EDGAR system called a 10-Q. This filing includes unaudited financial statements and provides a continuing view of the company's financial position during the year. Any debt the company has acquired will appear on this filing and their annual report. If servicing the debt is costing the company a substantial fraction of their income, then the company is a bankruptcy risk.", "title": "" }, { "docid": "e5c96d25cabfb16b086f42e029b0ba1a", "text": "\"Not entirely. For a creditor to go after the \"\"parent company\"\" in one of these cases requires the courts to be willing to \"\"pierce the corporate veil\"\" (in legal parlance). Typically this is only done if the parent company set up the wholly-owned-subsidiary in order to perpetrate a fraud. In this case, the subsidiary has a totally legitimate function - to sequester risk. While you're right that the parent company may have to offer some form of credit guarantees to get the subsidiary to get a loan, often those guarantees still don't create nearly as much exposure for the parent company.\"", "title": "" }, { "docid": "fea1f03de6ce51af347954ec5a54b9f5", "text": "The S.E.C. is just a training camp for financial consultants hired by CEOs of multinational firms. Remember how many people were sent to jail after the financial collapse and the housing bubble? That's about how many you can expect to go to jail this time, too. The worst that will happen is minor fines dwarfed by the amount of money made in any illegal activity that may have occurred. It isn't so much that government has any real problem with white-collar financial crime per se; they just want to make sure they get a cut.", "title": "" }, { "docid": "7f0b2035b9854c22bee04b280dbc32aa", "text": "You should double-check what it means to be in [Chapter 11](http://en.wikipedia.org/wiki/Chapter_11,_Title_11,_United_States_Code) Yes, by filing for bankruptcy, the company gets some protection from creditors and some of their investment dries up, but it's the owners who take it on the nose first. Also, individuals can file for Chapter 11, too. It's not just corporations.", "title": "" }, { "docid": "a7d9132f205e3cc966b4f2f0534c76c4", "text": "Technically, of course. Almost any company can go bankrupt. One small note: a company goes bankrupt, not its stock. Its stock may become worthless in bankruptcy, but a stock disappearing or being delisted doesn't necessarily mean the company went bankrupt. Bankruptcy has implications for a company's debt as well, so it applies to more than just its stock. I don't know of any historical instances where this has happened, but presumably, the warning signs of bankruptcy would be evident enough that a few things could happen. Another company, e.g. another exchange, holding firm, etc. could buy out the exchange that's facing financial difficulty, and the companies traded on it would transfer to the new company that's formed. If another exchange bought out the struggling exchange, the shares of the latter could transfer to the former. This is an attractive option because exchanges possess a great deal of infrastructure already in place. Depending on the country, this could face regulatory scrutiny however. Other firms or governments could bail out the exchange if no one presented a buyout offer. The likelihood of this occurring depends on several factors, e.g. political will, the government(s) in question, etc. For a smaller exchange, the exchange could close all open positions at a set price. This is exactly what happened with the Hong Kong Mercantile Exchange (HKMex) that MSalters mentioned. When the exchange collapsed in May 2013, it closed all open positions for their price on the Thursday before the shutdown date. I don't know if a stock exchange would simply close all open positions at a set price, since equity technically exists in perpetuity regardless of the shutdown of an exchange, while many derivatives have an expiration date. Furthermore, this might not be a feasible option for a large exchange. For example, the Chicago Mercantile Exchange lists thousands of products and manages hundreds of millions of transactions, so closing all open positions could be a significant undertaking. If none of the above options were available, I presume companies listed on the exchange would actively move to other, more financially stable exchanges. These companies wouldn't simply go bankrupt. Contracts can always be listed on other exchanges as well. Considering the high level of mergers and acquisitions, both unsuccessful and successful, in the market for exchanges in recent years, I would assume that option 1 would be the most likely (see the NYSE Euronext/Deutsche Börse merger talks and the NYSE Euronext/ICE merger that's currently in progress), but for smaller exchanges, there is the recent historical precedent of the HKMex that speaks to #3. Also, the above answer really only applies to publicly traded stock exchanges, and not all stock exchanges are publicly-held entities. For example, the Shanghai Stock Exchange is a quasi-governmental organization, so I presume option 2 would apply because it already receives government backing. Its bankruptcy would mean something occurred for the government to withdraw its backing or that it became public, and a discussion of those events occurring in the future is pure speculation.", "title": "" }, { "docid": "beb1fdddf8e9c18e2038837e823bed0d", "text": "In the United States, the Securities Investor Protection Corporation protects the first $500,000 you have at a brokerage including up to $250,000 in cash. This means that if the firm holding your securities fails financially, you have some coverage. That insurance does not prevent your investment itself from losing money. Even traditionally save money market funds can potentially lose value in a situation called Breaking the buck. This means that the Net Asset Value of the fund falls below $1/share. Alas, during periods of market calamity, even traditionally safe stores of value are subject to increased risk.", "title": "" }, { "docid": "a62c1a1a6e6730478c6baf65f0c70e36", "text": "\"If Illinois cannot go bankruptcy This is missing a few, very important words, \"\"...under current law.\"\" The United States changed the law so as to allow Puerto Rico to go into a form of bankruptcy. So you cannot rely on a lack of legal support for bankruptcy to protect any bond investments you might make in Illinois. It is entirely possible for the federal government to add a law enabling a state to discharge its debts through a bankruptcy process. That's why the bonds have been downgraded. They are still fine now, but that could change at any time. I don't want to dive too deep into the politics on this stack, but I could quite easily see a bargain between US President Donald Trump and Democrats in Congress where he agreed to special privileges for pension debts owed to former employees in exchange for full discharge of all other debts. That would lead to a complete loss of value for the bonds that you are considering. There still seem to be other options now, but they seem to be getting closer and closer to that.\"", "title": "" }, { "docid": "3732c03ce8f43f586a8a38188d3be293", "text": "This sounds like a crazy idea, but in reality people don't make the wisest decisions when considering bankruptcy in Australia. My suggestion would be to get some advice from an insolvency specialist.", "title": "" }, { "docid": "489e404056f757fa10948fe9ba49e6e7", "text": "I know folks who have had two personal (chap. 7 both times) bankruptcies in the U.S., including one after the bankruptcy reforms of a few years ago. I did have the 10-year thing wrong, though. It's once every eight years for a chap. 7 liquidation, and once every six years for Chap. 13 restructuring.", "title": "" }, { "docid": "691830ea6b7e3ffbb4cf2dd14adc9f17", "text": "If it were possible to take a loan out for a SIPP investment in the future .. I would suggest having an equivalent invested amount already in an ISA .. simply to cover you in the event of a job loss including additional cash in a deposit account. Secondly .. to increase your chances of success with this strategy I would also suggest doing this when the odds are more in your favour during the bottoming out cycle of a market crash. Thirdly .. it depends on how knowledgeable you are about investment , I would suggest being invested globally & in many different sectors to take advantage of various price movements.", "title": "" }, { "docid": "b215c30565d3c958d20c8f7396cc7cc7", "text": "> Are you saying that OP was just unlucky because he didn't realize that forex wasn't covered under SIPC? Pretty much. Opening an investing account has tons of T&C. You're not going to read every single bit of it.", "title": "" } ]	fiqa
7cb38fbfe4b53ef357268c523da58457	Is it possible for me to keep my credit card APR at 0% permanently?	[ { "docid": "8b9620a800b6f6147c6c93aeefef92c5", "text": "If you pay your statement balance in full before the due date you will never pay a cent in interest no matter what your interest rate is.* In fact, I don't even know what my interest rates are. Credit card companies offer this sort of thing in the hopes you will spend more than you can afford to pay completely in those first 15 months. * Unless you use a cash advance, with those you will accrue interest immediately upon receiving the cash sometimes with an additional fee on top.", "title": "" }, { "docid": "e98a39641e112d9ac6b9f797f28319c9", "text": "\"Banks are in it to make money. But they're expected to provide a social good which powers our economy: secure money storage (bank accounts) and cashless transactions (credit/debit cards). And the government does not subsidize this. In fact, banks are being squeezed. Prudent customers dislike paying the proper cost of their account's maintenance (say, a $50/year fee for a credit card, or $9/month for a checking account) - they want it free. Meanwhile government is pretty aggressive about preventing \"\"fine print\"\" trickery that would let them recover costs other ways. However there isn't much sympathy for consumers who make trivial mistakes - whether they be technical (overdraft, late fee) or money-management mistakes (like doing balance transfers or getting fooled by promotional interest rates). So that's where banks are able to make their money: when people are imprudent. The upshot is that it's hard for a bank to make money on a prudent careful customer; those end up getting \"\"subsidized\"\" by the less-careful customers who pay fees and buy high-margin products like balance transfers. And this has created a perverse incentive: banks make more money when they actively encourage customers to be imprudent. Here, the 0% interest is to make you cocky about running up a balance, or doing balance transfers at a barely-mentioned fee of 3-5%. They know most Americans don't have $500 in the bank and you won't be able to promptly pay it off right before the 0% rate ends. (or you'll forget). And this works - that's why they do it. By law, you already get 0% interest on purchases when you pay the card in full every month. So if that's your goal, you already have it. In theory, the banks collect about 1.5% from every transaction you do, and certainly in your mind's eye, you'd think that would be enough to get by without charging interest. That doesn't work, though. The problem is, such a no-interest card would attract people who carry large balances. That would have two negative impacts: First the bank would have to spend money reborrowing, and second, the bank would have huge exposure to credit card defaults. The thing to remember is the banks are not nice guys and are not here to serve you. They're here to use you to make money, and they're not beneath encouraging you to do things that are actually bad for you. Caveat Emptor.\"", "title": "" }, { "docid": "8402cd85b94b8bfaaa6a10c0042a438d", "text": "No. There is no incentive for the card issuer to permanently loan you money for free (Even though they make a small amount of money with every transaction). Yes, there are many credit cards that offer introductory 0% APR, often lasting for a year, some even two years. In theory, you could keep applying for new cards with these terms, and continually transfer the balance to the new card (Though you would probably incur a fee for doing so).", "title": "" }, { "docid": "18669cc27884e61802f45f91344c1972", "text": "Banks don't care that you are responsible cardholder. They care to make money. Interest rates are basically 0% by government policy and the banks charge their responsible cardholders 20% interest rates. Think about that for one second, and realize they really do not care about your ability to avoid paying interest, they only need you to 'slip up' one month during your entire lifetime to make a profit from you. It is in their interest for you to get into a spending habit, from 0% promo rates, so that eventually a frivolous purchase or life changing event causes a balance to stay on the card for over one month.", "title": "" }, { "docid": "d81d8e93b552b7855ff1f70f96b57b5b", "text": "No. The intro rate is a gambit by the bank - they accept losing money in the short term but expect to gain money in the long term when your intro is over and you (hopefully) start paying interest. There's not much in it for them if you never get around to paying interest. Same can be said for people who close the card after their intro period, but that's different - the bank is correctly expecting that most people won't bother.", "title": "" } ]	[ { "docid": "9b0ab23855473235675f7b8af2abbde0", "text": "It's a good idea to have some emergency money so I would propose a plan that keeps some in your savings: If the 0% goes away, then consider paying it off, but by that time hopefully you have built up your savings a bit more. Also consider the ability to move the balance from the 2% cards to the 0% one, if that is possible.", "title": "" }, { "docid": "d4d9b4643ff543beead589bc07cf7501", "text": "\"I think so. I am doing this with our furniture. It doesn't cost me any more money to pay right now than it will to pay over the course of 3 years, and I can earn interest on the money I didn't spend. But know this: they aren't offering 0%, they are deferring interest for 3 years. If you pay it off before then great, if you don't you will owe all the accumulated interest. The key with these is that you always pay it, and on time. Miss a payment and you get hosed. If you don't pay on time you will owe the interest that is being deferred. They will also be financing this through a third party (like a major bank) and that company is now \"\"doing business with you\"\" which means in the US they can call you and solicit new services. I am willing to deal with those trade offs though, plus, as you say, you can always pay it off. WHY THEY DO IT (what is in it for them...) A friend of mine works for a major bank that often finances these deals here is how they work. Basically, banks do this to generate leads for their divisions that do cold calls. If you are a high credit, high income customer you go to a classic bank and request cash, if you are building credit or have bad credit, you go to a \"\"financial services\"\" branch. If you tend to finance things like cars and furniture, you get more cold calls.\"", "title": "" }, { "docid": "d6a60c618fd71bab36039cec4b9b3479", "text": "\"I would think it extremely unlikely that an issuer would cancel your card for having an ADB of approximately zero. The issuer charges the vendor that accepts a card a percentage of the transaction (usually up to ~3%, AMEX is generally higher) - so they are making money even if you carry no balance on your card (the specific language for various vendor-side (acceptor) credit card agreements boils down to \"\"we are essentially giving you, the vendor, a short-term loan and you will pay us for it). This why you see credit-card minimum purchase amounts at places like hot-dog stands - they're getting nailed on the percentage. This is also why, when given the choice between \"\"Debit or Credit\"\" for a particular card, I choose where to put the hit on the company I like less - the retailer or the bank.\"", "title": "" }, { "docid": "0b48baf42307cd1e28e47faa2d310556", "text": "Your utilization ratio history is irrelevant to its impact on your credit score. If you run up 80% of your utilization In January, then pay it back to 10% in March, your score in March will reflect the new reduced ratio with no memory of the 80% utilization last month. With that said, don't go around overspending just because you have 0% apr for a little bit. Spend what you would spend with cash.", "title": "" }, { "docid": "34bc46b28be1a7748e85a0ea7563b7e8", "text": "Do you know how many people end up with an 18-21% rate on their credit card? They started off with low teaser rates. There was an article about it recently on Yahoo. Mainly this comes from a lack of discipline, or an unforeseen emergency. However, lets assume, that you are a bit uncommon and have iron discipline. It comes down to a math question. What is the rate on your student loan? I am going to assume 6%, and lets say that you are now paying interest. So there is 7 months between now an then, you would pay $140 (4000 * .06/12 * 7) in interest if you left it on the student loan. Typically there is not really a free lunch with the zero percent interest rate CC. They often charge a 3% balance transfer fee, so you would pay that on the entire amount, about $120. Is it worth the $20? I would say not. However, those simple calculations are not really correct. Since you would have to pay the CC $588.6/month to take care of this, you have to shrink the balance on the student loan to do a true apples to apples comparison. So doing a little loan amortization, you can retire $4000 on the student loan only paying $583/month, and paying a total of $80.40 in interest. So it would cost you money to do what you are suggesting if there is a 3% transfer fee. Even if there is no transfer fee, you only save about $80 in interest. If it was me, I would direct my energy in other areas, like trying to bring in more money to make this student loan go away ASAP. Oh and GO STEELERS!", "title": "" }, { "docid": "59e5ecb0fe258452782762d4a7e06459", "text": "Even if you can get a credit card with a $0 limit, that doesn't necessarily mean that the charges won't succeed. Some of my credit cards have gone over limit by a significant amount (e.g. 140% of limit) without any transactions being declined. The limit just means that the bank is allowed to decline the transaction, but they are also allowed to approve it anyway. So basically what you would have is a credit card where any transaction can always be declined or approved.", "title": "" }, { "docid": "dded85e983b57d4276a66a7e975a4389", "text": "Yes, 0% APR = no interest. APR = Annual Percentage Rate. As in, the lender gets an annual percentage returned to them for lending you money. This is the opposite of APY, which is Annual Percentage Yield, or the money that an investment yields.", "title": "" }, { "docid": "a5fd677f5148dd5e154d02cf4ee19ad1", "text": "Dude- my background is in banking specifically dealing with these scenarios. Take my advice-look for a balance transfer offer-credit card at 0%. Your cost of capital is your good credit, this is your leverage. Why pay 4.74% when you can pay 0%. Find a credit card company with a balance transfer option for 0%. Pay no interest, and own the car outright. Places to start; check the mail, or check your bank, or check local credit unions. Some credit unions are very relaxed for membership, and ask if they have zero percent balance transfers. Good Luck!", "title": "" }, { "docid": "5af1dcf797340fb21e09e8aeffc86b22", "text": "it is possible that if you do not accept the offer, they will try offering you an even lower rate. if they offered you close to 0%, you could start carrying a balance and find a better use for the cash you would have spent paying it off. there are plenty of investments with a guaranteed return of over 0%. personally, i am using a 0% offer from one of my cards to invest in the stock market. i might lose that bet, but on average over the last 10 years, i have not. a pretty safe bet would be paying down your mortgage, or buying a cd that matures when the offer ends. that said, even a 10k$ balance might only pay you around 300$. is that worth the hassle to you?", "title": "" }, { "docid": "ffb06ce27518d327cca2437728abe156", "text": "Welcome to the world of personal finance. IMO, you are heading for trouble. To answer your question, the APR is the annual percentage rate, or what you pay to borrow money from the CC issuer. For example, if you charge $100, and the bill comes, and you pay $100 on or before the due date you pay nothing. If you pay the minimum payment, which would be around $15, you would then borrow $85 (100-15) and pay interest on that amount. The next month's balance would be 85 + any new charges + interest. The interest in this case can be estimated as follows: 85*.199/12 = 1.41. For your information that is a very high interest rate especially given the current market for borrowed money. Many people become saddled with debilitating debt starting off just like you are planning. If we were friends, I would implore you not to get a CC, instead save up and pay for things with cash.", "title": "" }, { "docid": "6904306c85387acaee0b30433944e2a0", "text": "Look for offers for 0% (or low) APR on balance transfers. It is more likely to get a promotional APR on balance transfer, than to lower the APR you already have. Of course, try to pay off the balance as long as you're in the period of the promotion, because otherwise you'll end up paying the high rate again. If you cannot get such an offer (low credit etc) - then just try to pay off ASAP and start rebuilding your credit, not much workarounds there. BTW: When you consider the balance transfer promotions - look at 3 things: The promotion period - when it ends, so that you'd know how much time you have to pay it off. The balance transfer fee - usually the balance transfer itself is not free, and you pay 3-5% on the transfer. If you have 0% APR for 12 months, it makes it effectively 5% APR (for the 5% fee), if the period is lesser - the APR is higher. Take that into the account. The APR after the promotion, in case you can't pay off in that time frame.", "title": "" }, { "docid": "43e4ed84fdb1f925cabfef36d8b03482", "text": "\"Whether or not the specific card in question is truly 0% interest rate for the first 12 months, such cards do exist. However, the bank does make money out of it on the average: Still, 12 months of not having to think about paying the bill. Nice. This is exactly what they want you to do. Then in 12 months, when you start thinking about it, you may find out that you don't have the cash immediately available and end up paying the (usually very large) interest. It is possible to game this system to keep the \"\"free\"\" money in investments for the 12 months, as long as you are very careful to always follow the terms and dates. Because even one mishap can take away the small profits you could get for a 12 month investment of a few thousand dollars, it is rarely worth the effort.\"", "title": "" }, { "docid": "175eb77b00771165926f3d2ac67c4b6d", "text": "I think is an excellent idea. Use free money or almost free to do a lump sump payment. My recommendation is to have a reminder to pay credit card before, almost finishing, the 0% APR period.", "title": "" }, { "docid": "5a5c0c6c03ff7beba4df4dde569f0efe", "text": "\"I've done exactly what you are describing and it was a great move for me. A few years back I had two credit cards. One had a $6000 balance and a fairly high interest rate that I was making steady payments to (including interest). The other was actually tied to a HELOC (home equity line of credit) whose interest rate was fixed to \"\"prime\"\", which was very low at the time, I think my effective rate on the card was around 3%. So, I pulled out one of the \"\"cash advance checks\"\" from the HELOC account and paid off the $6000 balance. Then I started making my monthly payments against the balance on the HELOC, and paid it off a bit more quickly and with less overall money spent because I was paying way less interest. Another, similar, tactic is to find a card that doesn't charge fees for balance transfers and that has a 0% interest rate for the first 12 months on transferred balances. I am pretty sure they are out there. Open an account on that card, transfer the balance to it, and pay it down within 12 months. And, try not to use the card for anything else if you can help it.\"", "title": "" }, { "docid": "af4c4656175187a75c39d3eddf6c605b", "text": "I also had a student loan and glad you are taking a good look on interest rate as it really makes a huge difference. One of the strategies I followed was since my credit improved as I stepped out of school. I took advantage of a good 0 percent credit card. I applied for discover and got a decent credit limit. There are 2 particular things you are looking for in a credit card in this situation Usually the initial $0 transaction charge is only for a couple of months so ensure you take advantage of that. What is the benefit: Imagine being able to pay off that higher interest rate balance with 0% and not have to worry about it immediately. That way you save on the interest you would be paying and stress as well Watch out for: Although you have to ensure that you do payoff the money you paid through the 0 percent credit card ( which may have been put off for a year or even 15 months or so) other wise you may have to pay it all at once as the offer is expiring. Note: for credit cards ensure to note when the 0% is expiring as that is usually not mentioned on the statement and you may have to call the customer service. I was in a similar situation and was able to pay it all off fairly quickly. I am sure you will as well.", "title": "" } ]	fiqa
de762bc07f7b04270dafcf9054e27d12	Understanding the phrase “afford to lose” better	[ { "docid": "5c31fd2ca20d45cccad3bed1bf0859cf", "text": "\"Well.... If you have alllll your money invested, and then there's a financial crisis, and there's a personal crisis at the same time (e.g. you lose your job) then you're in big trouble. You might not have enough money to cover your bills while you find a new job. You could lose your house, ruin your credit, or something icky like that. Think 2008. Even if there's not a financial crisis, if the money is in a tax-sheltered retirement account then withdrawing it will incur ugly penalities. Now, after you've got an emergency fund established, things are different. If you could probably ride out six to twelve months with your general-purpose savings, then with the money you are investing for the long term (retirement) there's no reason you shouldn't invest 100% of the money in stocks. The difference is that you're not going to come back for that money in 6 months, you're going to come back for it in 40 years. As for retirement savings over the long term, though, I don't think it's a good idea to think of your money in those terms. If you ever lose 100% of your money on the stock market while you've invested in diversified instruments like S&P500 index funds, you're probably screwed one way or another because that represents the core industrial base of the US economy, and you'll have better things to worry about, like looking for a used shotgun. Myself, I prefer to give the suggestion \"\"don't invest any money in stocks if you're going to need to take it out in the next 5 years or so\"\" because you generally shouldn't be worried about a 100% loss of all the money in stocks your retirement accounts nearly so much as you should be worried about weathering large, medium-term setbacks, like the dot-com bubble crash and the 2008 financial crisis. I save the \"\"don't invest money unless you can afford to lose it all\"\" advice for highly speculative instruments like gold futures or social-media IPOs. Remember also that while you might lose a lot of your money on the stock market, your savings accounts and bonds will earn you pathetic amounts by comparison, which you will slowly lose to inflation. If you've had your money invested for decades then even during a crash you may still be coming out ahead relative to bonds.\"", "title": "" }, { "docid": "844e727cb6711f204c235c018b8b8ca0", "text": "It's a phrase that has no meaning out of context. When I go to Las Vegas (I don't go, but if I did) I would treat what I took as money I plan to lose. When I trade stock options and buy puts or calls, I view it as a calculated risk, with a far greater than zero chance of having the trade show zero in time. A single company has a chance of going bankrupt. A mix of stocks has risk, the S&P was at less than half its high in the 2008 crash. The money I had in the S&P was not money I could afford to lose, but I could afford to wait it out. There's a difference. We're not back at the highs, but we're close. By the way, there are many people who would not sleep knowing that their statement shows a 50% loss from a prior high point. Those people should be in a mix more suited to their risk tolerance.", "title": "" }, { "docid": "5f218c61466d5c2c295984a1d83a152b", "text": "\"The way I approach \"\"afford to lose\"\", is that you need to sit down and figure out the amount of money you need at different stages of your life. I can look at my current expenses and figure out what I will always roughly be paying - bills, groceries, rent/mortgage. I can figure out when I want to retire and how much I want to live on - I generally group 401k and other retirement separately to what I want to invest. With these numbers I can figure out how much I need to save to achieve this goal. Maybe you want to purchase a house in 5 years - figure out the rough down payment and include that in your savings plan. Continue for all capital purchases that you can think you would aim for. Subtract your income from this and you have the amount of money you have greater discretion over. Subtracting current liabilities (4th of July holiday... christmas presents) and you have the amount you could \"\"afford to lose\"\". As to the asset allocation you should look at, as others have mentioned that the younger you the greater your opportunity is to recoup losses. Personally I would disagree - you should have some plan for the investment and use that goal to drive your diversification.\"", "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": "0fb727ba72d38d7cc1f514d4dc013e50", "text": "\"I think that people only use the phrase \"\"only spend what you can afford to lose\"\" when they are talking about the most risky or speculative investments, or even gambling. When talking about gambling, the following quote is a bottom line: The speculative investment that brought me to this question via google is how much should I invest in Bitcoin? I was tempted to put in 10% of my investments, not including the 6 month safety fund and not including equity in my home. Now thinking about this question, it seems that it depends on your income as a percentage of your investment income (which should grow in proportion to the whole over time). For example: Early stage of career, not much investment income: 20% Mid career: 5% Mid-late career, moving to more safe investments: 5% Late career, retirement: 1% Another way to calculate would be as a percentage of the amount you put into retirement savings per year. Maybe 10% of this figure when you're young and 1% nearer to retirement.\"", "title": "" }, { "docid": "60c540abcf82bfac279538fd755a87c3", "text": "\"The advice to \"\"Only invest what you can afford to lose\"\" is good advice. Most people should have several pots of money: Checking to pay your bills; short term savings; emergency fund; college fund; retirement. When you think about investing that is the funds that have along lead time: college and retirement. It is never the money you need to pay your bills. Now when somebody is young, the money they have decided to invest can be in riskier investments. You have time to recover. Over time the transition is made to less risky investments because the recovery time is now limited. For example putting all your college savings for your recent high school graduate into the stock market could have devastating consequences. Your hear this advice \"\"Only invest what you can afford to lose\"\" because too many people ask about hove to maximize the return on the down payment for their house: Example A, Example B. They want to use vehicles designed for long term investing, for short term purposes. Imagine a 10% correction while you are waiting for closing.\"", "title": "" }, { "docid": "86f6040b3e8eaec64c6e7b504c54c483", "text": "\"I think it's a silly statement. If you are prepared from the start that you might lose it then you shouldn't invest. You invest to earn not to lose. Most often losses are a result of fear. Remember you only lose when you sell lower than you bought for. So if you have the patience you will probably regain. I ask my clients many times how much do they want to earn and they all say \"\"as much as possible\"\". Last time I checked, that's not an objective and therefore a strategy can't be built for that. If there is a strategy then exiting a stock is easy, without a strategy you never know when to exit and then you are exposed to bottomless losses. I've successfully traded for many years with large amounts of money. I made money in the FC and in the bubble, both times it wasn't because I was prepared to lose but because I had an entry and exit strategy. If you have both the idea of investing what u are prepared to lose has little value.\"", "title": "" } ]	[ { "docid": "810598d503a4143d26ca148267fdc063", "text": "The average inflation rate in the US over the last 17 years is 2.17% per year. source So he has $30,000 now. If another 3 years go by and he doesnt invest it in anything whatsoever, he would have 30,000/(1.0217^3) = $28,128 equivalent buying power 3 years from now. I would not focus on how much money he is losing per year, but instead focus on the religious constraint of not gaining interest. What was the intent of the religious prophet or person who was discussing this issue? If he invested the money with a 1% interest rate, and split the profit down the middle, half of it for his savings and half of it given to a charity of his choice, would that be something that would be likely to change his behavior? Consider this approach if you're trying to help someone to understand the ramifications of a financial.", "title": "" }, { "docid": "7cf3a0af9562c14c623d6225f986f0ce", "text": "\"The key point to answer the question is to consider risk aversion. Assume I suggest a game to you: Throw a coin and if you win, you get $5, if you lose nothing happens. Will you play the game? Of course, you will - you have nothing to lose! What if I suggest this: If you win, you get $10,000,005 and if you lose you must pay $10,000,000 (I also accept cars, houses, spouses, and kidneys as payment). While the expected value of the second game is the same as for the first, if you lose the second game you are more or less doomed to spend the rest of your life in poverty or not even have a rest of your life. Therefore, you will not wish to play the second game. Well, maybe you do - but probably only if you are very, very rich and can easily afford a loss (even if you had $11,000,000 you won't be as happy with a possible raise to $21,000,005 as you'd be unhappy with dropping to a mere $1,000,000, so you'd still not like to play). Some model this by taking logarithms: If your capital grows from $500 to $1000 or from $1000 to $2000, in both cases it doubles, hence is considered the same \"\"personal gain\"\", effectively. And, voíla, the logartithm of your capital grows by the same amount in both cases. This refelcts that a rich man will not be as happy about finding a $10 note as a poor man will be about finding a nickel. The effect of an insurance is that you replace an uncertain event of great damage with a certain event of little damage. Of course, the insurance company plays the same game, with roles swapped - so why do they play? One point is that they play the game very often, which tends to nivel the risks - unless you do something stupid and insure all inhabitants of San Francisco (and nobody else) against eqarthquakes. But also they have enough capital that they can afford to lose the game. In a fair situation, i.e. when the insurance costs just as much as damage cost multiplied with probability of damage, a rational you would eagerly buy the insurance because of risk aversion. Therefore, the insurance will in effect be able to charge more than the statistically fair price and many will still (gnawingly) buy it, and that's how they make a living. The decision how much more one is willing to accept as insurance cost is also a matter of whether you can afford a loss of the insured item easily, with regrets, barely, or not all.\"", "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": "0a0eec08c6dc5f325bd54e3dfe206026", "text": "\"Other people have already demonstrated the effect of compound interest to the question. I'd like to add a totally different perspective. Note that the article says if you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors [...] you'll likely accumulate enough savings to retire comfortably. (the latter point may be the more practical mark than the somewhat arbitrary million (rupees? dollars?) My point here is that the group of people who do put away a substantial fraction of their (lower) early wages and keep them invested for decades show (at least) two traits that will make a very substantial difference to the average (western) person. They may be correlated, though: people who are not tempted or able to resist the temptation to spend (almost) their whole income may be more likely to not touch their savings or investments. (In my country, people like to see themselves as \"\"world champions in savings\"\", but if you talk to people you find that many people talk about saving for the next holidays [as opposed to saving for retirement].) Also, if you get going this way long before you are able to retire you reach a relative level of independence that can give you a much better position in wage negotiations as you do not need to take the first badly paid job that comes along in order to survive but can afford to wait and look and negotiate for a better job. Psychologically, it also seems to be easier to consistently keep the increase in your spending below the increase of your income than to reduce spending once you overspent. There are studies around that find homeowners on average substantially more wealthy than people who keep living in rental appartments (I'm mostly talking Germany, were renting is normal and does not imply poverty - but similar findings have also been described for the US) even though someone who'd take the additional money the homeowner put into their home over the rent and invested in other ways would have yielded more value than the home. The difference is largely attributed to the fact that buying and downpaying a home enforces low spending and saving, and it is found that after some decades of downpayment homeowners often go on to spend less than their socio-economic peers who rent. The group that is described in this question is one that does not even need the mental help of enforcing the savings. In addition, if this is not about the fixed million but about reaching a level of wealth that allows you to retire: people who have practised moderate spending habits as adults for decades are typically also much better able to get along with less in retirement than others who did went with a high consumption lifestyle instead (e.g. the homeowners again). My estimate is that these effects compound in a way that is much more important than the \"\"usual\"\" compounding effect of interest - and even more if you look at interest vs. inflation, i.e. the buying power of your investment for everyday life. Note that they also cause the group in question to be more resilient in case of a market crash than the average person with about no savings (note that market crashes lead to increased risk of job loss). Slightly off topic: I do not know enough how difficult saving 50 USD out of 50 USD in Pakistan is - and thus cannot comment whether the savings effort called for in the paper is equivalent/higher/lower than what you achieve. I find that trying to keep to student life (i.e. spending that is within the means of a student) for the first professional years can help kick-starting a nest egg (European experience - again, not sure whether applicable in Pakistan).\"", "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": "89a258a36de53233b54fd7978b2143a9", "text": "\"Chance favors the prepared mind - Einstein That being said, I liken it to a poker analogy. To win at poker you must play. To play you must already have something to put on the table. If you are betting your entire existence at every hand because you started poor you can win but it is far less likely to happen. You will make illogical decisions due to the fear or being destroyed. It's like how walking across a tightrope is easy when it is 6\"\" above the ground, but not 600 feet above the ground. Also, in the beggining of life there is a good chance you will flame out or mess up a few times. Rich kids can do this as much as they need to, over and over again, to learn and get their feet under them. Poor kids generally get one chance and if anything goes wrong it's back to the factory to work for several more years to save up money again. I believe they are calling this growing class of young people on the edge the \"\"precariat\"\".\"", "title": "" }, { "docid": "2e901a7a1a642e73ca745a90ec08f180", "text": "\"The title of your question is quite different then the content. The term \"\"Rat Race\"\" was coined in the 70's and refers to the endless cycle of working hard to consume more. Fortunately it is very easy not to participate in the cycle and probably will lead to more happiness. Just because one \"\"works\"\" does not mean they are participating in the \"\"rat race\"\", and I would recommend the following: When I think of \"\"rat race\"\" I picture a a bumper-to-bumper freeway of people struggling to get to work. For others it might be different, but that kind of rat race is easily avoided by the multitude of remote work opportunities. Some jobs allow you to work anywhere in the world. Avoiding the rugged consumerism also helps avoid the feelings of being a rat on the wheel. Sure one can like nice things, but do we have to have everything that Madison Ave is trying to sell us? No. Pick some nice things and pay cash. Debt, especially consumer debt, causes a person (in effect) to work for a bank. Avoiding debt will remove those feelings. Saving and investing also helps avoid those feelings. There is profound satisfaction in watching ones account balances grow. Once you see that your investment earnings can outpace your expenses, and then your salary you really feel like you are getting ahead. Above all else giving is a paramount and often overlooked part of a person's financial life. It causes one to be humble and recognize that most people, in this world, are less fortunate that us. It avoids runaway provide that justifies purchases that we cannot afford. So yea you can avoid the \"\"Rat Race\"\" and still work.\"", "title": "" }, { "docid": "00e2616a1be7163b3ca50a88a80a8c57", "text": "For big values the loss becomes negligible. Say you have a 10% chance to get 10 million $/€/Whatever, expected value 1m. You sell that chance for 990k, which loses you 10k of expected income. Why would you throw away 10k? Because in the face of getting almost 1m the 10k are insignificant, 1m and 990k will make you roughly equally rich. Also the richness increase from 1m to 10m is less than 10x since 1m gives you maybe 90% of the freedom that 10m does (depending on how well you can make 10m work for you, most people will just let it rot in the bank). Another way to look at it is to look at bankruptcy risk. Say I have 10k in the bank, which is nice. Those 10k cannot pay for a new house or 2 cars (mine and the one I hit), so I have a small risk of significant loss. If I buy an insurance I reduce my chance of going bankrupt from maybe 0.001% to 0% for a fairly small price. Usually you can buy insurance fairly cheap if you raise your deductible to maybe 5k (both for the house and the car) so that you shoulder the risk you can (shouldering risk = gaining money) and paying an insurance to shoulder the rest for you. That way you minimize the cost to remove the risk of bankruptcy. It makes sense to shoulder as much risk as you can (unless a fixed fee of the insurance makes in unfeasible) before paying others to do it for you so you can optimize your income while removing fatal risks.", "title": "" }, { "docid": "ad64b8995684cf9541d506b431cd2c60", "text": "\"I don't think \"\"cost of carry\"\" is the right word here. Yes, you have the opportunity cost (what you could have earned during that time if you had invested the money somehwere else) and then you also have interest rate risk and default risk.\"", "title": "" }, { "docid": "382415f3c945cb086cf025a9d8ea6b61", "text": "The principle behind the advice to not throw good money after bad is better restated in economics terms: sunk costs are sunk and irrelevant to today's decisions. Money lost on a stock is sunk and should not affect our decisions today, one way or the other. Similarly, the stock going up should not affect our decisions today, one way or the other. Any advice other than this is assuming some kind of mispricing or predictability in the market. Mispricings in general cannot be reliably identified and stock returns are not normally predictable. The only valid (efficient markets) reason I know of to allow money you have lost or made on a stock to affect your decision today is the tax implications (you may want to lock in gains if your tax rate is temporarily low or vice versa).", "title": "" }, { "docid": "2dae3046106ad0fb5fd19585130bbb51", "text": "cost of carry is a confusing term to use but this is what i was given to work with then again, once you factor in interest rate risk and default risk (if you do), what is a better term? it's not just cost of capital at that pt", "title": "" }, { "docid": "691507a8b59982fbc66bf4fc3f3fa831", "text": "\"It is called \"\"Opportunity Cost.\"\" Opportunity cost is the value you lose because of a decision you made. This is the book definition from Investopedia. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).\"", "title": "" }, { "docid": "4c59cd1269592dcf22c7348de2a45cf4", "text": "\"What it means is that you can always come up with alternative framings where the difference between two options is stated as a gain or a loss, but the effect is the same in either case. For instance, if I offer to sell a T-shirt for $10 and offer a cash discount of $1, you pay $10 if buying with a credit card or $9 if buying with cash. If I instead offer the shirt for $9 with a $1 surcharge for credit card use, you still pay $10 if buying with a credit card or $9 if buying with cash. The financial result is the same in either case, but psychologically people may perceive them differently and make different buying decisions. In a tax situation it may be more complicated since exemptions wouldn't directly reduce your tax, but only your taxable income. However, you can still see that, in general, having to pay $X more in tax for not doing some action (e.g., not purchasing health insurance) is the same as being able to pay $X less in tax as a reward for doing the action. Either way, doing the action results in you paying $X less than you would if you didn't do it; the only difference is in which behavior (doing it or not doing it) is framed as the \"\"default\"\" option. Again, these framings may differentially influence people's behavior even when the net result is the same.\"", "title": "" }, { "docid": "01d6fbf48cee0b91f9eaace2d3c0df0a", "text": "\"It will be helpful to establish some definitions: Long \"\"Long\"\" is financial slang for \"\"to have possession of an asset\"\", legally, and \"\"to debit an asset\"\", financially. Short \"\"Short\"\" is financial slang for \"\"to be liable for an asset\"\", legally, and \"\"to credit an asset\"\", financially. Option \"\"Option\"\" is financial slang for \"\"to have the right but not obligation to force the liable to perform action\"\", legally. Without limits and when taken to absurdity, this can mean slavery. For equities, this means \"\"to have the right but not the obligation to force the liable to buy/sell a specified asset at a specified price with a specified expiration for that right\"\" for a call/put, respectively. By the above, a call option is \"\"the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\". By the definition of \"\"long\"\" above, a call option is actually not long the underlying. By the definitions above and with a narrower scope applied to equities & indexes, to be \"\"long\"\" the call means \"\"to have the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\" while to be \"\"short\"\" the call means \"\"to have the obligation to be forced to sell a specified asset at a specified price with a specified expiration for that right\"\". So, to be \"\"long\"\" a call means to simply own the call.\"", "title": "" }, { "docid": "999a2dc2fff6a8b33603cd971c448913", "text": "\"Here is how the Visa network works: A Visa transaction is a carefully orchestrated process. When a Visa account holder uses a Visa card to buy a pair of shoes, it’s actually the acquirer — the merchant’s bank — that reimburses the merchant for the shoes. Then, the issuer — the account holder’s bank — reimburses the acquirer, usually within 24 to 48 hours. Lastly, the issuer collects from the account holder by withdrawing funds from the account holder’s bank account if a debit account is used, or through billing if a credit account is used. I read this to mean the Merchant's Bank (the Acquirer Bank) gives the merchant the money within 2 days via the Card Issuer's Bank. The issuing bank is the one that provides the \"\"credit\"\" feature since that bank won't get reimbursed until the shopper's bill is paid (or perhaps even longer if the shopper carries a balance). You'll notice the Credit Card company (Visa/MC/etc) is only involved in the process as a way of passing messages. Of course they take a fee for this service so seller ultimately get's less than the buyer bought the shoes for.\"", "title": "" } ]	fiqa
9d7e9298dd0dd24c06c2731087ef4d0f	First job: Renting vs get my parents to buy me a house	[ { "docid": "c111c0522cc65286db180692e724cb82", "text": "Rent. You have no idea whether you will still be in the same part of the country five years from now; you may not even be in the same country. A house is a boat anchor you really do not need or want at this time. It's also a set of obligations you may not want to take on yet. And buying is not automatically more financially advantageous than renting, when you remember that money not going into the house can go into your retirement plan or other investments.", "title": "" }, { "docid": "5569b2e4758a058d776eaa4895d53251", "text": "There is a mathematical way to determine the answer, if you know all the variables. (And that's a big if.) For example, suppose you rent for 4 years and the price of rent never increases. The total amount you will have paid is: 60048 = 28,800. If you currently have money sitting in the bank earning only a negligible amount of interest, and you can purchase the house for X, and then sell it for exactly what you paid 4 years from now, and you have 0 expenses otherwise, then purchasing it will save you 28,800 compared to renting. Obviously that makes some assumptions which are not possible. Now you need to calculate the variables: All of these variables can drastically effect the profit margin, and unfortunately they will vary greatly depending on your country, location, and the condition of the home. Once you estimate each of the variables, it's important to realize that if you purchase, your profit or loss can swing unexpectedly in either direction based on appreciation/depreciation which can be difficult to predict, in part because it is somewhat tied to the overall macro-economy of where you live (state or country). On the flip side, if you rent, it's pretty easy to calculate your cost as approximately 28,800 over 4 years. (Perhaps slightly more for modest rent increases.) Lastly, if you elect to purchase the house, realize that you're investing that money in real estate. You could just as easily rent and invest that money elsewhere, if you want to choose a more aggressive or conservative investment with your money.", "title": "" }, { "docid": "396cf4f9e48af1691a4698047bf15b23", "text": "\"Seriously. I can't tell you how many times I hear this scenario: Kid graduates college; kid runs out and signs lease on apartment \"\"because that's what you do\"\"; kid complains that he's in financial trouble and can't make ends meet. Housemate sharing is most famously displayed in hit shows like Big Bang Theory or New Girl. They get a much nicer place with better furnishings for way less money. (However don't hook up with close neighbors or friends of other housemates, they do it for awkward laughs but it really results in awkward departure.) It's more financially responsible. It means the rest of your financial life will have more slack. And when you move, obviously, it's no big deal, you just give all the notice you can, and go to the next town and find another housemate share. * I suspect a very significant factor is bringing home dates. Well, there's nothing sexy about taking your date to McDonalds because you can't afford anything more. See those shows... it works fine, you just have to be sensible about housemate choices. Pick housemates who view things the same way, and who themselves are invested in making the shared space attractive, and aren't going to mind some ...activities... once in awhile.\"", "title": "" }, { "docid": "00bc45f4513a8027b4136f5ed7c54c71", "text": "\"Say the price is $200K. Would I, as a real estate investor, want to buy such a house? If the rent is $600, that's $7200/yr. \"\"the local property tax rate is levied on the tax base, and the applicable tax rate ranges from 0.40% to 0.76%\"\" so, I'll assume .5%, just $1,000. There are rules of thumb that say half the rent will go to maintenance and other costs, if that seems high, say just $2000. We're left with $4000/yr. Less than 2% on the $200K investment. Italian bonds are yielding 8%. As an investor, if I couldn't get more than $2000/mo gross rent, I would not buy the house for $200K. As a parent, I'd have the money invested, have $16K/yr of income and help support you without taking all the risk the real estate investor has. Note: your question and my answer are in dollars, but I acknowledge the Italy tag, and used Italy property tax. My tax is 1.6% of home value in my US city. Edit: per the comment below, the 8% is incorrect. The return on the house purchase doesn't change, of course, but the safe yields are not that high, currently, 1%.\"", "title": "" }, { "docid": "ad7dd411b78ed106d727b35e9a098663", "text": "Having recently been given basically the same question it hinges on a few major factors. What does your apartment provide (e.g. heating, internet/etc)? My (personal) example. With my numbers (which includes taxes, insurance estimates, minor repairs to home as needed), also ignoring all costs that are shared (e.g. food, internet, car insurance, etc), I am only making a difference around $450 per month. In 5 years I would save ($450 * 12 * 5) $27,000. However I also have to pay costs for buying the house (transfer deed, laywer fees, home inspections, etc) which in my case cost around $3000. Not to mention selling a home has some costs (I think around $1500+ in my area) as well as the realitor taking a cut (which I also think is around 2.5% = $7,225. So we can probably estimate you would lose around $15000 at most, buying and selling the home when all final costs come in. Which means in my case I would at most be saving around $12,000... probably less (assuming I did not miss anything). So basically 12,000/(12*5) = $200 per month saved. TLDR: I don't think its worthwhile, because there is a lot of risks involved, and houses tend to require a lot of extra work/money. With apartments you have little/no risk, and can freely leave at the end.", "title": "" }, { "docid": "62e19fc212bb3018ffc2b2faf371bbf9", "text": "No one has considered the tax write off at the end of the year? Will the house be in the parent's name or his, and can one of them take a write off for taxes and interest at the end of each year? On a small salary this may mean he has no tax liability for the four years, and can possibly make up the extra buying costs.... also, look at the comps in the area for the past five years and see if home values have increased and turnover rate for the area will tell you if people are buying in that area...", "title": "" }, { "docid": "dd333f8f311aa1f844a430926d5d8df7", "text": "Firstly, I'm going to do what you said and analyze your question taking your entire family's finances into account. That means giving you an answer that maximizes your family's total wealth rather then just your own. If instead of that your question really was, should I let my parents buy me a house and live rent free, then obviously you should do that (assuming your parents can afford it and you aren't taking advantage people who need to be saving for retirement and not wasting it on a 25 y/o who should be able to support him / herself). This is really an easy question assuming you are willing to listen to math. Goto the new york times rent vs buy calculator and plug in the numbers: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html Firstly, if you do what you say you want to do buy the house all cash and live there for 4 years, it would be the equivalent of paying 1151 / month in rent once you factor in transaction costs, taxes, opportunity costs, etc. Take a look at the calculator, it's very detailed. This is why you should never buy houses all cash (unless its a negotiating tactic in a hot market, and even then you should refi after). Mortgage rates are super low right now, all that money sitting in the house is appreciating at maybe the rate of inflation (assuming the house value isn't going down which it can very easily do if you don't maintain it, another cost you need to factor in). Instead, you could be invested in the stock market getting 8%, the lost opportunity cost there is huge. I'm not even considering your suggestion that you hang onto the house after you move out in 4 years. That's a terrible idea. Investment properties should be at a maximum value of 10x the yearly rent. I wouldn't pay more then 72K for a house / apartment that rents for only 600 / month (and even then I would look for a better deal, which you can find if you time things right). Don't believe me? Just do the numbers. Renting your 200K house for 600 / month is 7200 / year. Figure you'll need to spend 1% / year (I'm being optimistic here) on maintanence / vacancy (and I'm not even considering your time dealing with tenants). Plus another 1% or so on property tax. That's 4K / year, so your total profit is 3200 which is a return of only 1.6% on your 200K. You can get 1% in an ally savings account for comparison. Really you are much better off investing in a diversified portfolio. You only need 6 months living expenses in cash, so unless your family is ridicuouly wealthy (In which case you should be asking your financial planner what to do and not stack exchange), I have no idea why your parents have 200K sitting around in a savings account earning 0. Open a vanguard account for them and put that money in VTI and your family will be much better off 5 years from now then if you buy that money pit (err house). If risk is a concern, diversify more. I have some money invested with a robo advisor. They do charge a small fee, but it's set it and forget it with auto diversification and tax loss harvesting. Bottom line is, get that money invested in something, having it sitting in a bank account earning 0 is probably the second worst thing you could do with next to buying this house.", "title": "" }, { "docid": "18200e84958930b5d0301287d46e7338", "text": "\"I would strongly try to influence circumstances so that buying is feasible. That means: Buy something where it is likely that you can resell it at the same price or even higher - or, at the least for significantly more than \"\"total cost of ownership - rent payed elsewhere\"\". For example, if it is in an area where you have good reasons to assume that prices will go up in the future. Or if the object needs refurbishing and you are sure that you can do it yourself. You will, no doubt, sell it later. You will near certainly not live in such a small house for all time. So the question of \"\"whether\"\" you will sell it is moot. So, when you have a potential house to buy, you will have to calculate everything very carefully, with an estimate of how long you will stay. You need to make your calculation as optimistic/pessimistic as you like (this is more a question of your character). Whatever calculation comes out better, wins. It goes without saying that if you miscalculate (for example, overestimating your ability or time to refurbish; forgetting to calculate non-obvious costs of refurbishing; being surprised by hidden damage to the object; misjudging the price development in the area) you run a considerable risk. So, the question of whether you are able to calculate the risks correctly will need to influence the calculation itself (add 20% or whatever risk buffer if you are not sure, etc.). But the potential is for you to have a very good start in the whole financial game of your life. Your house will likely be for a considerable time the biggest single part of costs in your life, and getting that under control from the get-go is a huge benefit.\"", "title": "" }, { "docid": "4900f448de7cf8f48a84a6a8aff850b2", "text": "Personally, I started renting out because I couldn't afford to buy a place but now I'm quite comfortably past that point. My three main issues are: These views aren't for everyone but I find it hard to seriously contemplate dealing with 2 while 1 and 3 are issues. To be honest, I found that I learned a lot sharing a place for the first few years and still enjoying it now. I don't really think you should bring it down to a financial issue unless your decision is already made.", "title": "" }, { "docid": "65cbf22276b93cd7390a5cf62b6ac436", "text": "As everyone is saying, this depends on a lot of variables. However... I had my dad help me with the downpayment on my house. In my case, the cost of mortgage payment and all maintenance expenses is still lower than paying rent. If I sell my house and walk away from the closing office with just $1 then I've still come out ahead compared to renting. The New York Times has a fantastic tool figure out if it's a good idea to buy vs. rent. http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 It's asks all the relevant questions, and then it tells you how cheap rent would have to be make it the better option.", "title": "" } ]	[ { "docid": "d1b2f77f6f2746a5125e75319fd7a577", "text": "3 years ago I wrote Student Loans and Your First Mortgage in response to this exact question by a fellow blogger in my state. What I focused on was the way banks qualify you for a loan, a percentage for the housing cost, and a higher number that also comprises all other debt. If the goal is speed-to-purchase, you make minimum payments on the student loan, and save for the $100K downpayment as fast as you can. The question back to you is whether the purchase is your priority, and how debt averse you are. I'd caution, if you work for a company with a matched 401(k), I'd still deposit to the match, but no more. Personal finance is just that, personal. We don't know your entire situation, your current rental expenses vs your total condo cost when you buy. If you are in a location where renting costs far more than your cost of ownership, Ben might change his mind a bit. If the reverse is true, you're living a college student's lifestyle with a room costing $400/mo sharing a house with friends, I'll back off and say to pay the loan and save until you can't tolerate the situation. You'll find there are few situations that have a perfect answer without having all the details.", "title": "" }, { "docid": "479c8b6628202b3947d4a2c9b7c84bbf", "text": "\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \"\"buy the home now with a mortgage\"\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\"", "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": "" }, { "docid": "fe2aca48fc1afdc119c92468c2111de1", "text": "\"The golden rule is \"\"Pay yourself first.\"\" This means that you should have some form of savings plan set up, preferably a monthly automatic withdrawal that comes out the day after your pay is deposited. 10% is a reasonable number to start with. You are in a wonderful situation because you are thinking about this 10-15 years before most of us do. Use this to your advantage. You are also in a good situation if you can defer the purchase of the house (assuming prices don't rise drastically in the next few years -- which they might.) If your home situation is acceptable, then sit down with the parents and present a plan. Something along the lines of: I'd like to move out and start my life. However, it would be advantageous to stay here for a few years to build up a down payment and reserve. I'm happy to help out with expenses, but do need a couple years of rent-free support to get started. Then go into monk mode for one year. It's doable, and you can save a lot of cash. Then you're on the road to freedom.\"", "title": "" }, { "docid": "dfe28ac207fb5729bfd3a25165f99c42", "text": "You earn $75,000 yearly and saved $30,000 while living at home, for two years, rent-free. I am assuming you have been making good money for at least 2 years. How is it possible you only put away $30,000 on $150,000 of income? Were you giving something to your parents each week as rent, so they don't lose their home? Second, if you're not sure if you will be relocated in a year or two it makes no sense to buy. House prices won't spike like they have in the past any time soon. In one year, you can save another $30,000 without suffering since you live rent free. Many couples don't even make $75,000 and they got a mortgage, 2 kids and car payments.", "title": "" }, { "docid": "e6bafc178dad29c3bf694d00227deaf5", "text": "\"If I were you, I would rent. Wait to buy a home. Here is why: When you say that renting is equal in cost to a 30-year mortgage, you are failing to consider several aspects. See this recent answer for a list of things that need to be considered when comparing buying and renting. You have no down payment. Between the two of you, you have $14,000, but this money is needed for both your emergency fund and your fiancée's schooling. In your words: \"\"we can’t reeaallllly afford a home.\"\" A home is a big financial commitment. If you buy a home before you are financially ready, it will be continuous trouble. If you need a cosigner, you aren't ready to buy a home. I would absolutely advise whoever you are thinking about cosigning for you not to do so. It puts them legally on the hook for a house that you can't yet afford. You aren't married yet. You should never buy something as big as a home with someone you aren't married to; there are just too many things that can go wrong. (See comments for more explanation.) Wait until you are married before you buy. Your income is low right now. And that is okay for now; you've been able to avoid the credit card debt that so many people fall into. However, you do have student loans to pay, and taking on a huge new debt right now would be potentially disastrous for you. Your family income will eventually increase when your fiancée gets her degree and gets a job, and at that time, you will be in a much better situation to consider buying a house. You need to move \"\"ASAP.\"\" Buying a house when you are in a hurry is a generally a bad idea. When you look for a home, you need to take some time looking so you aren't rushed into a bad deal that you will regret. Even if you decide you want to buy, you should first find a place to rent; then you can take your time finding the right house. To answer your question about escrow: When you own a house, two of the required expenses that you will have besides the mortgage payment are property taxes and homeowner's insurance. These are large payments that are only due once a year. The bank holding the mortgage wants to make sure that they get paid. So to help you budget for these expenses and to ensure that these expenses are paid, the bank will add these to your monthly mortgage payment, and set them aside in a savings account (called an escrow account). Then when these bills come due once a year, they are paid for out of the escrow account.\"", "title": "" }, { "docid": "de88ac28eeb99ef348f03fb8ac241146", "text": "is it a smart thing for an entry level employee with a basic pay to buy a property on debt ? This is opinion based and can't be conclusively answered by others. Only you can make the choice. Their reasoning is that, since I am paying for their house rent right now(I have been doing this ever since I got into graduate school), I could divert it to pay for the loan while getting a property in return If I understand this, you are currently NRI [as you are working in Japan], you would like to take a home loan in India and buy a property in India. In the current scenario, the EMI towards home loan do not equate to the Rent as property prices have gone up in most places. In 2002 - 2007, there was a time of low interest rates and low property prices, that along with tax breaks made it cheaper to buy than rent. Also note that since you are NRI, you do not get any income tax rebate on interest paid. If you buy please ensure that all the EMI's are paid from NRE account. This would in future help you repatriate funds out of India, if you plan to sell the house. But I am scared of getting into debt so early in my career. If I commit myself like that, it might make me less courageous in making career changes till I finish paying off that debt. This is a valid concern, if you need to pursue further studies, or take a break for a change in career, it would make it difficult. Also note there are additional costs of buying a house, apart from EMI, there property tax, if you staying in society, a monthly maintenance etc.", "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": "15f8ac47cd161d2a2b55ed104b4c581f", "text": "The biggest red flag is the fact that your parents may lose their house. There are multiple parts of the decision. The red flag comes in because you are stretching your finances to the max to afford the house you are interested in. Buying down the interest rate makes some sense depending on how long you plan on staying, but not a a way to afford house X. Of course a bigger down payment will also influence the size of the house. You are also buying something in case your parents need a place to live. What happens if that never occurs? You now have something bigger than you need. You are mixing investments and housing. There is no guarantee that you will even break-even on the house as a investment. It can take several years to make back the closing costs involved in buying and selling a house, based solely on stable price and your monthly payments. If the price drops you might never make the money back. You might be better off renting what you need now or waiting until the current house is lost and then renting what you need then.", "title": "" }, { "docid": "3034fffe2070ee8dac760c96a48e0dd4", "text": "Another reason, and to me the main reason not to buy a house if you're in your early 20s (regardless of your income), is mobility. If you rent, you can move pretty much whenever you want after the first year of your rental lease is up, even before then in some cases. If your fiancee finishes school and gets a great job offer in another city or state, you can move there pretty quickly. When you own a house, that is much harder to do. Your having two kids makes it harder in either case, but at this point in your lives you really don't know where your future will take you, geographically speaking, and renting gives you the option of moving easily if you have to.", "title": "" }, { "docid": "fe73ab1c09979528e333f386a0bfffa7", "text": "most of the people who lurk in money.se will probably tell you to spend as little as possible on a car, but that is a really personal decision. since you live with your parents, you can probably afford to waste a lot of money on a car. on the other hand, you already have a large income so you don't really have the normal graduate excuses for deferring student loans and retirement savings. for the sake of other people in a less comfortable position, here is a more general algorithm for making the decision:", "title": "" }, { "docid": "fd45428a5440e0c854325bd463132338", "text": "Altough this may vary a lot depending on where you live and your actual finance, here what convinced me buying a home instead of renting : Other benefits :", "title": "" }, { "docid": "df4a0faa381737651673d571cb03dcf9", "text": "\"My education on this topic at this age range was a little more free-form. We were given a weeklong project in the 6th grade, which I remember pretty clearly: Fast forward 6 years (we were 12). You are about to be kicked out of your parents' house with the clothes on your back, $1,000 cash in your pocket, your high school diploma, and a \"\"best of luck\"\" from your parents. That's it. Your mission is to not be homeless, starving and still wearing only the clothes on your back in 3 months. To do this, you will find an apartment, a job (you must meet the qualifications fresh out of high school with only your diploma; no college, no experience), and a means of transportation. Then, you'll build a budget that includes your rent, estimated utilities, gasoline (calculated based on today's prices, best-guess fuel mileage of the car, and 250% of the best-guess one-way distance between home and job), food (complete nutrition is not a must, but 2000cal/day is), toiletries, clothing, and anything else you want or need to spend your paycheck or nest egg on. Remember that the laundromat isn't free, and neither is buying the washer/dryer yourself. Remember most apartments aren't furnished but do have kitchen appliances, and you can't say you found anything on the side of the road. The end product of your work will be a narrative report of the first month of your new life, a budget for the full 3 months, plus a \"\"continuing\"\" budget for a typical month thereafter to prove you're not just lasting out the 3 months, and all supporting evidence for your numbers, from newspaper clippings to in-store mailers (the Internet and e-commerce were just catching on at the time, Craigslist and eBay didn't exist yet, and not everyone had home Internet to begin with). Extra Credit: Make your budget work with all applicable income and sales taxes. Extra Extra Credit: Have more than your original $1000 in the bank at the end of the 3 months, after the taxes in the Extra Credit. This is a pretty serious project for a 12-year-old. Not only were we looking through the classified ads and deciphering all the common abbreviations, we were were taking trips to the grocery store with shopping lists, the local Wal-Mart or Target, the mall, even Goodwill. Some students had photos of their local gas station's prices, to which someone pointed out that their new apartment would be on the other side of town where gas was more expensive (smart kid). Some students just couldn't make it work (usually the mistakes were to be expected of middle-class middle-schoolers, like finding a job babysitting and stretching that out full-time, only working one job, buying everything new from clothes to furniture, thinking you absolutely need convenience items you can do without, and/or trying to buy the same upscale car your dad takes to work), though most students were able to provide at least a plausible before-tax budget. A few made the extra credit work, which was a lot of extra credit, because not only were you filling out a 1040EZ for your estimated income taxes, you were also figuring FICA and Social Security taxes which even some adults don't know the rates for, and remember, no Internet. Given that the extra-extra credit required you to come out ahead after taxes (good luck), I can't remember that anyone got that far. The meta-lesson that we all learned? Life without a college education is rough.\"", "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": "dcc3acd371bdd4deaee29dc8a8fd546a", "text": "Yes, one is certainly better than the other. Which one depends on your priorities and the interest and tax rates on your student loan, your savings, and your (future) mortgage plus how much you can afford to save and still enjoy the lifestyle you want as well as how soon you want to move out. Basically, you havn't given enough information.", "title": "" } ]	fiqa
9e1db4eee02cd43cebd197a7591f2fed	Buying a house, Bank or rent to own?	[ { "docid": "6db08e9c57536d8c60ef7bb2883c6aff", "text": "\"It depends on the deal: and you didn't give any details. That said, there are some things that stand out regardless, and some more specific answers to your questions. First, Mortgage rates (at the bank) are absurdly low right now. Like 4%-5%; less than 4% for excellent credit. You say your credit is ok, so unless your landlord is willing to do a deal where they get no benefit (beyond the price of the house), the bank is the way to go. If you don't have much for a down payment, go with an FHA loan, where you need only 3.5% down. Second, there is another option in between bank mortgage and rent-to-own. And that is that where your landlord \"\"carries the note\"\". Basically, there is a mortgage, and it works like a bank mortgage, but instead of the bank owning the mortgage, your landlord does. Now, in terms of them carrying all of it, this isn't really helpful. Who wants to make 3-4% interest? But, there is an interesting opportunity here. With your ok credit, you can probably get pretty close to 4% interest at the bank IF the loan is for 80% LTV (loan to value; that is, 20% equity). At 80% LTV you also won't have PMI, so between the two that loan will be very cheap. Then, your accommodating landlord can \"\"carry\"\" the rest at, say, 6-7% interest, junior to the bank mortgage (meaning if you default, the bank gets first dibs on the value of the house). Under that scenario, your over all interest payment is very reasonable, and you wouldn't have to put any money down. Now for your other questions: If we rent to own are we building equity? Not usually. Like the other posters said, rent-to-own is whatever both parties agree on. But objectively, most rent-to-own agreements, whether for a TV or a house, are set up to screw the buyer. Sorry to be blunt, and I'm not saying your landlord would do that, this is just generally how it is with rent to own. You don't own it till you make the last payment, and if you miss a payment they repo the property. There is no recourse because, hey, it was a rental agreement! Of course the agreements vary, and people who offer rent to own aren't necessarily bad people, but it's like one of those payday loan places: They provide a valid service but no one with other options uses them. If we rent to own, can we escape if we have to (read: can't pay anymore). Usually, sure! Think about what you're saying: \"\"Here's the house back, and all that money I paid you? Keep it!\"\" It's a great deal if you're on the selling side. How does rent to own affect (or not) our credit? It all depends on how it's structured. But really, it comes down to are they going to do reporting to the credit bureaus? In a rent-to-own agreement between individuals, the answer is no. (individuals can't report to a credit bureau. it's kind of a big deal to be set up to be able to do that)\"", "title": "" }, { "docid": "8d7f2ec50f536b2657b9f925dc42462e", "text": "'Rent to own' is not a precise, single agreement. It can be whatever the seller and you agree to. It's a unique seller that would agree to this. Keep in mind, most sellers are needing to get their money in full to buy their next house. You might find an investor willing to work with you, but only for an inflated price, interest rate, or both. The ideal seller would be underwater (owing more than the value of the home) but needing to move. In which case, they are hoping to find someone to buy them some time to get situated in their new house before moving forward with you and the bank to arrange a sale. At its simplest, you might pay a premium on your rent to fix the price, giving you the option to buy during a particular period at that price. It can be a much higher premium where you are renting and paying extra until you hit 20%, at which point you agree to finance the balance either with a bank loan or through the seller. Buying a home you will live in is a personal decision. With no numbers offered, it's not like we can tell you if it's a wise purchase.", "title": "" }, { "docid": "3da4efe6540dfd85d329d83f22974972", "text": "\"With no numbers offered, it's not like we can tell you if it's a wise purchase. -- JoeTaxpayer We can, however, talk about the qualitative tradeoffs of renting vs owning. The major drawback which you won't hear enough about is risk. You will be putting a very large portion of your net worth in what is effectively a single asset. This is somewhat risky. What happens if the regional economy takes a hit, and you get laid off? Chances are you won't be the only one, and the value of your house will take a hit at the same time, a double-whammy. If you need to sell and move away for a job in another town, you will be taking a financial hit - that is, if you can sell and still cover your mortgage. You will definitely not be able to walk away and find a new cheap apartment to scrimp on expenses for a little while. Buying a house is putting down roots. On the other hand, you will be free from the opposite risk: rising rents. Once you've purchased the house, and as long as you're living in it, you don't ever need to worry about a local economic boom and a bunch of people moving into town and making more money than you, pushing up rents. (The San Francisco Bay Area is an example of where that has happened. Gentrification has its malcontents.) Most of the rest is a numbers game. Don't get fooled into thinking that you're \"\"throwing away\"\" money on renting - if you really want to, you can save money yourself, and invest a sum approximately equal to your down payment in the stock market, in some diversified mutual funds, and you will earn returns on that at a rate similar to what you would get by building equity in your home. (You won't earn outsized housing-bubble-of-2007 returns, but you shouldn't expect those in the housing market of today anyway.) Also, if you own, you have broad discretion over what you can do with the property. But you have to take care of the maintenance and stuff too.\"", "title": "" }, { "docid": "fb54fe287186b2675d77deae5d1dfc68", "text": "We have realized from our experience that rent to own is a scam. They want your money either way. We are at the buying part, and finding it difficult to find a lender to give us full money the seller is asking us for the the house. The house we have isn't valued at the same it was two years ago and now we are going to lose the house because we don't have the other $40 thousand they lied about at purchase price. We will not do this again but coming from bankruptcies in the past is hard as well.", "title": "" } ]	[ { "docid": "9dcde1f44c58e9694cf6dd845c37d03b", "text": "Having someone else paying you rent is always going to be the better deal financially. The question is, what does $450k buy in the neighborhood in which you want to live, vs $800k? I'm going to assume you can afford either option (buying a $450k home and not selling, or an $800k home and selling your current one) whether someone's paying you rent or not. Let's make up some numbers here; a $450k home, financed 80/20 (360k principal) at 4% for 30 years will cost you about $1720 in P&I payments per year (plus escrows such as RE taxes, PMI, and homeowners insurance where applicable). An $800k home financed 80/20 (640k principal) at 4% for 30yr will give you payments of about $3,055/mo before taxes and insurance. So, the worst case overall is that you buy a 450k home in the new neighborhood and are not, at any given time, collecting rent on the old property. That would (assuming the mortgage terms on both home loans were comparable) cost you $3440/mo and you'd be living in a $450k home in a neighborhood where 450k may not buy a home as nice as the one you moved out of. The question as I stated above is this; assuming you had a reliable tenant in your home for the entire remaining life of the loan on your current home, which is more acceptable to you: buying $450k of home (which might be a downgrade in sqft or amenities) and paying $2020 in P&I, or paying about a grand more ($3055/mo) for a much nicer home in the new location? Strictly from a money perspective, the renter is going to be the best option, IF you get reliable tenancy for the entire life of the mortgage on that house; you'll be paying $2020/mo for 30 years, which is $727,200, to end up with $950k of total home value (plus adjustments for actual home value appreciation/depreciation). That's the only way you'll come out ahead on any mortgage; have someone else pay most of it for you. If you don't rent, the $800k home will cost you $1,099,800, while two $450k homes will cost you $1,454,400. The percentage of home value over total payments for the 800k home would be 72% (you will have paid 137% of the value of the home), while you will have paid 153% of the value of two 450k homes.", "title": "" }, { "docid": "ba988bdbc979006c6e500c40c40d9704", "text": "Talk to a good tax accountant in the UK who deals with this sort of thing, as it sounds like most of the issues concern local tax. You actually have at least four different ways to do this transaction: You definitely need good local tax and legal advice. No matter how you do it, if the borrower defaults, it will be socially ugly and will involve some kind of collection or legal action if you want your money back. If it were me, I think I'd choose the lease with option to buy. At least that way you may be able to inspect the property from time to time, make sure it is kept up, and be able to get it back through eviction rather than foreclosure.", "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": "f292e4ab092aa4b4f4f03464fc96cfd4", "text": "You said 2 things that made me think you are one of the rare young couples barely making it but should attempt to buy rather than rent anyway.... Around my area, renting a place is about equivalent to just paying a monthly mortgage of a 30yr 3.5% APR of a home priced at around $250,500. and... Our ideal price range would be $100,000-160,000 with a 25-30yr mortgage at 3.5 - 5.4% The other answers suggesting that you should rent and the reasons given were excellent ones but because of those 2 points you made, this tells me that you would be willing to live in a much much more basic house if you owned rather than rented. Many renters rent rather than buy because they want a really nice place for their money and are willing to spend what it takes to get a nice place, but not you. If you buy, you would be willing to take a place worth half or even less than half what you would get if you rented. That tells me you might accept a place that needs a little work. Perhaps you and/or your fiancée have some skills needed to do a little of the work yourself. I hope you decide to buy rather than rent if you can swing it, and instead of taking a 2nd job, spend all your spare time working on your little investment. It's possible that by the time you're done fixing that house up some, through your own creative efforts or through the help you might get from your friends, you could end up with a $250,000 house, own it, and reap all the great benefits of owning rather than renting...or...better yet, sell that place for a nice profit, then turn around and buy the next one already fixed up with your newly acquired great credit to help you with the new mortgage, and ready for you to move in and enjoy. It's how my wife and I got started (only we didn't have the benefit of historically low interest rates) and if we can do it, I believe you can too. Here are a couple tips that might help out....1) Don't spend a lot of money to fix the place...try to find the time to do the simpler tasks yourself. If you don't have the skills, you can learn them on youtube or by picking the brains of all the great willing people working at your local discount home project superstore. 2) Cosmetics go a long way towards increasing the value of a house. a) needs paint and b) needs carpet but not a) major structural damage and b) needs roof. Regarding some of your other points... HOA, hopefully if you buy in a formal community, the HOA should be less than $200. If it's more than that, it might be harder to do as I suggest. Closing Costs, probably more like 4 - 5% Taxes, monthly if included in mortgage, normally quarterly or semi-annually if not Utilities...you're budgeting quite high for that. Depending on your area, you might only spend an average of $200/month, maybe even less. Insurance...see answer for taxes Regular maintenance, $1K a year might be about right but we better include irregular also, which comes up more often than you might think when owning, let's say $2 - $3 a year. Unexpected costs. Expect the unexpected but if the place needs a new roof or something big like that, then you didn't do your homework before buying.", "title": "" }, { "docid": "fe638c47505fa844419fd4a4523d8fb8", "text": "\"A person can finance housing expenses in one of two ways. You can pay rent to a landlord. Or you can buy a house with a mortgage. In essence, you become your own landlord. That is, insta the \"\"renter\"\" pays an amount equal to the mortgage to insta the \"\"landlord,\"\" who pays it to the bank to reduce the mortgage. Ideally, your monthly debt servicing payments (minus tax saving on interest) should approximate the rent on the house. If they are a \"\"lot\"\" more, you may have overpaid for the house and mortgage. The advantage is that your \"\"rent\"\" is applied to building up equity (by reducing the mortgage) in your house. (And mortgage payments are tax deductible to the extent of interest expense.) At the end of 30 years, or whatever the mortgage term, you have \"\"portable equity\"\" in the form a fully paid house, that you can sell to move another house in Florida, or wherever you want to retire. Sometimes, you will \"\"get lucky\"\" if the value of the house skyrockets in a short time. Then you can borrow against your appreciation. But be careful, because \"\"sky rockets\"\" (in housing and elsewhere) often fall to earth. But this does represent another way to build up equity by owning a house.\"", "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": "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": "749960a13c58456820dd69d8e93bd7c4", "text": "\"Whether or not you choose to buy is a complicated question. I will answer as \"\"what you should consider/think about\"\" as I don't think \"\"What should I do\"\" is on topic. First off, renting tends to look expensive compared to mortgages until you factor in the other costs that are included in your rent. Property taxes. These are a few grand a year even in the worst areas, and tend to be more. Find out what the taxes are ahead of time. Even though you can often deduct them (and your interest), you're giving up your standard deduction to do so - and with the low interest regime currently, unless your taxes are high you may not end up being better off deducting them. Home insurance. This depends on home and area, but is at least hundreds of dollars per year, and could easily run a thousand. So another hundred a month on your bill (and it's more than renter's insurance by quite a lot). Upkeep costs for the property. You've got a lot of up-front costs (buy a lawnmower, etc. types of things) plus a lot of ongoing costs (general repair, plumbing breaks, electrical breaks, whatnot). Sales commission, as Scott notes in comments. When you sell, you're paying about 6% commission; so you won't be above water, if housing prices stay flat, until you've paid off 6% of your loan value (plus closing costs, another couple of percent). You hit the 90% point on a 15 year about year 2, but on a 30 year you don't hit it until about year 5, so you might not be above water when you want to sell. Risk of decrease in value. Whenever you buy property, you take on the risk of losing value as well as the potential of gaining value. Don't assume that because prices are going up they will continue to; remember that a lot of investors are well aware of possible profits from rising prices and will be buying (and driving prices up) themselves. 2008 was a shock to a lot of people, even in areas where it seemed like prices should've still gone up; you never know what's going to happen. If you buy a house for 20% or so down, you have a bit of a safety net (if it drops 10-20% in value, you're still above water, though you do of course lose money), while if you buy it for 0% down and it drops 20% in value, you won't be able to sell (at all) for years. All that together means you should really take a hard look at the costs and benefits, make a realistic calculation including all actual costs, and then make a decision. I would not buy simply because it seems like a good idea to not pay rent. If you're unable to make any down payment, then you're also unable to deal with the risks in home ownership - not just decrease in value, but when your pipe bursts and ruins your basement, or when the roof needs a replacement because a tree falls on it. Yes, home insurance helps, but not always, and the deductible will still get you. Just to have some numbers: For my area, we pay about $8000 a year in property taxes on a $280k house ($200k mortgage), $1k a year in home insurance, so our escrow payment is about $750 a month. A 15 year for $200k is about $1400 a month, so $2200 or so total cost. We do live in a high property tax area, so someone in lower tax regimes would pay less - say 1800-1900 - but not that cheap. A 30 year would save you 500 or so a month, but you're still not all that much lower than rent.\"", "title": "" }, { "docid": "479c8b6628202b3947d4a2c9b7c84bbf", "text": "\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \"\"buy the home now with a mortgage\"\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\"", "title": "" }, { "docid": "0b1f1a708c3c219105edebf245ea2d08", "text": "Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ... But since you are asking here:", "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": "d5b1c411ac0912893cb09fe44fe2823a", "text": "Currently, in the US, you won't be able to get 4% return on a risk free investment (savings account, CDs, treasury bonds). If the banking system in India guarantees your money and the cost of transferring them to India is not prohibitive, that's the safest option. Buying a house usually is only worth it if you plan to live in it for a while, 5 years or more being the commonly cited figure. Every case is different, if you rent is very high, it might be worth to buy. I suggest posting another question specifically about that with more details about your situation. If you can tolerate a bit more risk, you might want to talk to a financial adviser and invest in the stock market.", "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": "b5df8a849a52d5c0667cc5f525bd7ab6", "text": "The rent versus buy question is a deeply personal one in which your personal desires for a living space need to be carefully combined with what makes economic sense. Do you want your own place with all the joys of having it be yours and all the pains of having to handle all the maintenance and be the one ultimately responsible? Have you tried living for a few months putting aside the amount required for not only a mortgage payment but the taxes and insurance on a house/condo in your price range to see if you can really afford it? You can use a real estate website such as trulia to see the assessments of some for sale homes and figure out tax values. The average home insurance in the US is around $900/year if I remember right - more for homes that are more expensive and less for less expensive ones, with flooding and other hazards as a factor. Make sure you can afford to pay for all these items. From a financial perspective realize that you'll always be spending money on your living space. Even if you pay for a house with cash you will be paying property tax and maintenance and would be wise to continue paying for insurance. The value of the house at that point is, as contributor fennec often says, the rent you aren't paying. I personally don't recommend trying to time the market. You can't predict the future - will real estate in your area be a double dip or has it bottomed and is it going up? What you can do is buy a home only when you are sure that you can deal with its relative lack of liquidity by staying there for a long time. Five years is usually a reasonable minimum. There is a way that I recommend figuring out if it is likely bad financial decision to buy, and that's by looking at a financial comparison of renting versus buying. In some cases even with the bursting of the bubble it is still a bad deal to buy. DC went from renting being more cost effective to buying, but San Francisco is one area where buying is still not necessarily the best choice. To figure out what the case is for your area, look at the New York Times rent versus buy calculator. Find a home for rent on craigslist similar to what you'd look to buy. Find a home for sale on one of the MLS aggregator sites that represents something you think you'd like. Plug in the numbers. Figure out how many years you'd have to stay in your purchase for it to be a good deal. In the likely event that the calculator says buy, start saving if that's what you really want. You're never going to be able to absolutely guarantee that you won't be upside down. What you can control is getting as much principal in that house as you can. The more you have, the less likely you will be upside down. Build a down payment now, reap the rewards later.", "title": "" }, { "docid": "2ba5a02c71bad97f35c6b35e044dc7d6", "text": "At its best, a HOA provides the same benefits as a condo association -- shared investment in the shared neighborhood resources/environment. At its worst, a HOA has the same problems as a condo association, potentially creating unreasonable constraints on what you can or can't do with your own property because your decisions might affect the value of someone else's property or demanding shared investment in something you don't consider worthwhile. Basically, if an HOA is active in your neighborhood, (A) make sure you know its history and biases before you buy, and (B) make sure you're active in it, or you may be unpleasantly surprised by its decisions.", "title": "" } ]	fiqa

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