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Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Will anything happen to me if the AMT is not re-established before 2011? | According to pages 6 & 7 of the instructions for form 1040 in 2009 AMT was only temporarily patched for the year. Congress can't politically afford to drastically cut AMT exemptions by 30 to 40%, and may even retroactively change it, if it isn't passed by the end of the year (despite the constitution forbidding ex post facto laws) : What’s New for 2009 ... Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount has increased to $46,700 ($70,950 if married filing jointly or a qualifying widow(er); $35,475 if married filing separately)... What’s New for 2010 ... Alternative minimum tax (AMT) exemption amount. The AMT exemption amount is scheduled to decrease to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately). So, if you are married, and several regular tax deductions push your income below the AMT exemption amount of $45,000, it's quite possible you would be required to pay AMT, even if you didn't last year. There is a work sheet for AMT in the instructions for line 43, but the IRS also provides an AMT calculator. According to page 146 (E-8) of the instructions for form 1040 AMT is paid as: the smallest amount you are allowed to report as your taxable income (Form 1040, line 43). It is also the smallest amount you are allowed to report as your alternative minimum taxable income (AMTI) on Form 6251, line 29. If the [AMT calculation] is larger than your taxable income would otherwise be, enter the amount from column (c) on Form 1040, line 43 [or ...] Form 6251, line 29. As always, congress finds ways to further complicate things by making a few credits and losses deductible against the absolute minimum you're expected to pay taxes on, making the AMT a misnomer. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Iraqi Dinars. Bad Investment, or Worst Investment? | "Iraq is a US vassal/puppet state. I'm not sure what 500 South Vietnamese Dong were worth in 1972, but today the paper currency is worth $10 in mint condition. I'd suggest blackjack or craps as an alternate ""investment""." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | How is a probability cone read? | A number of ways exist to calculate the chances of a particular outcome. Options, for example, use current price, cost of money, and volatility among other factors to price the chance of an underlying asset reaching a certain price in a certain timeframe. A graphical forecast simply puts these calculations into a visual format. That said, it appears the image you offer shows the prediction as it existed in the past along with how the stock has done since. A disclaimer - The odds of a fair die being rolled to a given number are 1 in 6. It's a fact. With stocks, on the other hand, models try to simulate real life and many factors can't be accounted for. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Does an industry 'standard' have any affect on when a stock might split? | You ask if Tesla being a car company should feel a pressure to split their stock because their share price is much higher than the other car companies. But is Tesla a car company? It was founded by Elon Musk who founded PayPal and SpaceX. He sees him self as the next generation of entrepreneurs that came after Jobs and Gates. So he compares Tesla ($142) companies to Google ($856), Amazon ($284) and eBay ($52). But even if you see Tesla as a car company, Musk sees it more like Audi ($828) or BMW ($100) then he does Ford ($16.30) just because the base price of their models ($80,000+) is much greater than Ford or GM. The theory is that keeping the share price in a lower range helps investors. But since 40% of the company is owned by mutual funds is that really a concern? Therefore most small investors get the company though a mutual fund. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What can a CPA do that an EA cannot, and vice versa? | Enrolled Agents typically specialize only in tax matters. Their status allows them to represent clients before the IRS (which a CPA can also do) See the IRS site regarding Enrolled Agents Their focus is much narrower than a CPA and you would only hire them for advice or representation with tax related matters. (e.g. you'd not hire an enrolled agent to do an external audit) A CPA is a much broader certification, covering accounting in general, of which taxes are only a portion. A CPA may or may not specialize in tax matters, so if you have a tax related issue, especially an audit, review or appeal, you may want to query a prospective CPA as to their experience with tax matters and representing clients, appeals, etc. You would likely be better off with an EA than a CPA who eschews tax work and specializes in other things such as financial auditsOn the other hand if you have need of advice that is more generalized to accounting, audits, etc then you'd want to talk with a CPA as opposed to an EA |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Ex-dividend date: How long do I have to hold a stock in order to get the next dividend? | You only have to own it for a day (or rather for some amount of time before the close of trading the day before the ex-dividend date). This is governed by exchange rules based on the date of record and payable date set by the company. You might want to look at this article or this one for more details. It should be difficult to make money from changes due to the dividend distribution since it is well known and expected. The exchanges have established rules for handling the various details that can come up, and traders account for the change where appropriate (as in option pricing). Also, note that the favorable U.S. tax treatment of dividends requires a 60-day ownership period for the stock. |
Share your insights or perspective on the financial matter presented in the input. | When can you use existing real estate as collateral to buy more? | You put 20% down and already owe the 80% or $80k, so you don't have the ability to borrow $100k or even $20k for that matter. As LittleAdv stated, the banks have really tightened their lending criteria. Borrowing out more than 80% carries a high premium if you can get it at all. In your example, you want the property to increase in value by at least 10% to borrow $10K. |
Share your insights or perspective on the financial matter presented in the input. | Are buying and selling futures based on objective data? | "If you're simply a futures speculator, then yes, it does seem like gambling. If you're a farmer producing a few thousand bushels of wheat, futures can be a mechanism for you to hedge against certain kinds of market risk. Same if you're running a heating oil company, etc. I just read somewhere that the bad spring weather in South Dakota has prevented farmers from getting corn planted -- nothing is in the ground yet. This is ""objective data"" from which you might infer that this year's corn harvest could be late and/or smaller than normal. So maybe if you're a buyer for General Mills, you use corn futures to control your costs. In this case you'd have some idea based on experience what to expect for the price of corn, what your production line requires for input, how much you can charge for finished product, etc. These all factor in to the price you'd be willing to pay for corn futures." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | When I google a ticker like XLE or something, I see a price which updates frequently (about every second or so), where can I find this for options? | you can try CME DataSuite. Your broker gives you real time options quotes. If you do not have one you can open a scottrade account with just $500 deposit. When I moved my money from scottrade to ameritrade they did not close my account even till this day I can access my scottrade account and see real time quotes and the same research they offered me before. You can try withdrawing your deposit and see if it stays open like mine did. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Using Fibonacci Extensions to set profit targets? | fibonacci levels (retracements,expansions, arcs) are all arbitrary numbers with no statistical significance. that said thousands of traders world over use, view and depend on fib numbers in their trading ranging from forex, stock commodities etc the point is if it's traded a fibonacci number has been used on it, because of this unanimity on their significance & application the fibonacci's thus act as valid anchors since so many traders are looking at the same levels (self-fulfilling prophecy). the values of the fib numbers are all equally significant i.e the 23.6. 38.2, 50, or 61.8 are statistically all equally likely to occur. you just have to be vigilant as your trade approaches the fib levels. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What numbers to look for investment returns | "(Value of shares+Dividends received)/(Initial investment) would be the typical formula though this is more of a percentage where 1 would indicate that you broke even, assuming no inflation to be factored. No, you don't have to estimate the share price based on revenues as I would question how well did anyone estimate what kind of revenues Facebook, Apple, or Google have had and will have. To estimate the value of shares, I'd likely consider what does my investment strategy use as metrics: Is it discounted cash flow, is it based on earnings, is it something else? There are many ways to determine what a stock ""should be worth"" that depending on what you want to believe there are more than a few ways one could go." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Reducing taxable income in US in December | Assuming that what you want to do is to counter the capital gains tax on the short term and long term gains, and that doing so will avoid any underpayment penalties, it is relatively simple to do so. Figure out the tax on the capital gains by determining your tax bracket. Lets say 25% short term and 15% long term or (0.25x7K) + (0.15*8K) or $2950. If you donate to charities an additional amount of items or money to cover that tax. So taking the numbers in step 1 divide by the marginal tax rate $2950/0.25 or $11,800. Money is easier to donate because you will be contributing enough value that the IRS may ask for proof of the value, and that proof needs to be gathered either before the donation is given or at the time the donation is given. Also don't wait until December 31st, if you miss the deadline and the donation is counted for next year, the purpose will have been missed. Now if the goal is just to avoid the underpayment penalty, you have two other options. The safe harbor is the easiest of the two to determine. Look at last years tax form. Look for the amount of tax you paid last year. Not what was withheld, but what you actually paid. If all your withholding this year, is greater than 110% of the total tax from last year, you have reached the safe harbor. There are a few more twists depending on AGI Special rules for farmers, fishermen, and higher income taxpayers. If at least two-thirds of your gross income for tax year 2014 or 2015 is from farming or fishing, substitute 662/3% for 90% in (2a) under the General rule, earlier. If your AGI for 2014 was more than $150,000 ($75,000 if your filing status for 2015 is married filing a separate return), substitute 110% for 100% in (2b) under General rule , earlier. See Figure 4-A and Publication 505, chapter 2 for more information. |
Share your insights or perspective on the financial matter presented in the input. | Missing opportunity cost of mortgage prepayment | "You seem to really have your financial act together. Your combination of assets, and ongoing savings makes you the ideal candidate for paying it off. One way to look at it is that your mortgage offers you a place to 'invest' at a fixed 2-7/8% rate. ""I'd really like to not have a house payment"" is all I need to hear. The flip side is the lecture that talks about long term market returns, the fact that the combination of your deductible mortgage, but 15% cap gain rate means you need 2.5% return to break even, and odds are pretty high that will occur over the next 15 years. ""pretty high"" does not equal ""guaranteed"". And I won't debate the value of sleeping soundly vs an excess 5-8% return on this money that you'd maybe achieve. You haven't missed anything. In fact, though I advocate saving first, you are already doing that. This is above and beyond. Good work." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Is it possible to make money by getting a mortgage? | To keep the math simple, say you are in the 25% federal tax bracket. Your 4% mortgage effectively costs you 3%. Did Mr Advisor tell you what he suggests investing the money in? Borrowing at 3% net to put the money in .1% CDs makes little sense. And for most people, investing it in the stock market hoping to come out ahead, also makes little sense. Credentials or not, people like him give humans a bad name, and make me love my dog even more. I'd stay far away from this guy. Very far away. Edit - on further reflection (seeing mhoran's reference to $100K) it occurred to me that once a house is paid off, the only deductions allowed is for the first $100K of new mortgage or HELOC, absent a renovation or improvement of some kind. Given the limit and current 4% rates, it would seem to me that a rich retiree paying a fortune in taxes, isn't going to benefit much for a $4000 deduction. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Downside to temporarily lowering interest rates? | 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. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Moving from India to Europe - Bank accounts and Mutual funds | Once you become NRI or know for sure you would be one, you can't hold ordinary accounts. Convert existing savings account into NRO. Open new NRE account so it's easier to move funds. In simple terms an NRE type of account means you can repatriate the funds outside of India anytime without any paperwork, there are some tax benefits as well. MFU platform can be used for operating demat, else you need a brokerage account. If you have stocks, then existing demat need to be converted to NONPINS account, it's actually open new, move, close old. Any new stock you need to open a PINS Demat account. You can use NRO account of MFU, it creates some complexity of taxes... MFU NRE would be more easier for taxes and flexible for repatriation |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Is This Money Laundering? | This is price-setting algorithms running amok. From the page you link, follow the '2 new from $49,991.11' link and you will see that (at the time of writing), there are two vendors offering this item for $49991.11 (plus $16.37 shipping) and $49999.99. These are clearly not 'real' prices and yet they are suspiciously close to each other. This blog post examines this phenomenon in some detail. Basically, at most one of these vendors actually has this item in stock, but to drive traffic and sales they both offer it for sale anyway. If someone actually ordered it from the one who doesn't have it, they would have to buy it first - from someone else offering it for sale... who is setting their prices based on wider market pricing. You can say how a crazy price spiral might develop. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Pay cash for a home, get a reverse mortgage, and buy stock | 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. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Asking price went through the roof | As folks have explained in the comments: |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Odds of early assignment for a short in the money call | It depends how deep in the money it is, compared to the dividend. Even an in the money call has some time premium. As the call holder, if I exercise instead of selling the call, I am trading the potential for a dividend, which I won't receive, for getting that time premium back by selling. Given the above, you'll notice a slight distortion in options pricing as a dividend date approaches, as the option will reflect not just the time premium, but the fact that exercising with grab the dividend. Edit to address your comment - $10 stock, $9 strike, 50 cent div. If the option price is high, say $2, because there's a year till expiration, exercising makes no sense. If it's just $1.10, I gain 40 cents by exercising and selling after the dividend. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Options liquidity and trading positions larger than the daily volume? | You definitely cannot be guaranteed to get the bid or ask if you are selling more than are available/desired at those prices. What prices you do get depends on who is watching that contract and how willing they are to trade with you. This question is not much different from the question of whether you can easily get into or out of a large position in an illiquid small stock easily. You can get out quickly if you are willing to take pennies on the dollar, or you may get a reasonable price if you take a long time to get out of (or into) your position. You can't normally do both. In general taking large positions in illiquid assets is not something people want to do without lining up a buyer/seller beforehand. Instead see if you can achieve your objective with liquid investments. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How do I establish the cost basis of shares bought in an employee stock purchase program? | A public company should have a link for investor relations, which should help provide a trail of basis if this is a matter of company buyout, takeover, etc. This gets you close, but if you don't have an exact date, it will just be close, not exact. One clean way out of this, assuming the goal is to get rid of the stock and move on, is to donate the shares to charity. You will take the present value as a deduction, and be done. You can use a charitable gift fund such as those offered by Schwab or Fidelity, so if say, the shares are worth $20K, and you typically donate $5K per year, the fund lets you do this transaction at once, then send to the charities you wish over the next few years. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Is the ESPP discount profit? | The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward. The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss. Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this. My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | E*Trade commission | The commission is per trade, there is likely a different commission based on the type of security you're trading, stock, options, bonds, over the internet, on the phone, etc. It's not likely that they charge an account maintenance fee, but without knowing what kind of account you have it's hard to say. What you may be referring to is a fund expense ratio. Most (all...) mutual funds and exchange traded funds will charge some sort of expense costs to you, this is usually expressed as a percent of your holdings. An index fund like Vanguard's S&P 500 index, ticker VOO, has a small 0.05% expense ratio. Most brokers will have a set of funds that you can trade with no commission, though there will still be an expense fee charged by the fund. Read over the E*Trade fee schedule carefully. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Types of investments with built-in puts or similar safety features | "An index annuity is almost the same as Indexed Universal Life, except the equity-index annuity is an investment with a guaranteed minimum return, with sometimes a higher return that is a function of the gain in the stock market, but is not associated with a life insurance policy. After a time, you can convert the EIA to a lifetime income (the annuity part) or just cash it out. They often are very complicated, but are constructed by combining bonds with index options (puts) just like indexed universal life. Unfortunately these tend to have high fees and/or commissions, and high (early) surrender charges, which can make them a poor investment. Of course you could just ""roll your own"" by buying bonds and puts FINRAS bulletin on EIAs, pdf warning. Here's a description of one of these securities: pdf." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What type of investments should be in a TFSA, given its tax-free growth and withdrawal benefits? | 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? |
Share your insights or perspective on the financial matter presented in the input. | Where can I get AEX historical data - Amsterdam? | "Try the general stock exchange web page. http://www.aex.nl I did a quick trial myself and was able to download historical data for the AEX index for the last few years. To get to the data, I went to the menu point ""Koersen"" on the main page and chose ""Indices"". I then entered into the sub page for the AEX index. There is a price chart window in which you have to choose the tab ""view data"". Now you can choose the date range you need and then download in a table format such as excel or csv. This should be easy to import into any software. This is the direct link to the sub page: http://www.aex.nl/nl/products/indices/NL0000000107-XAMS/quotes" |
Share your insights or perspective on the financial matter presented in the input. | Why is the buy price different from the sell price of a stock? [duplicate] | When there is a difference between the two ... no trading occurs. Let's look at an example: Investor A, B, C, and D all buy/sell shares of company X. Investor A wants to sell 10 shares at $20 a share (Ask price $20 x10). Investor B wants to buy 15 shares at $10 a share (Bid price $10 x15). Since the bid price and ask price are different, no sale is made. Next Investor C comes along and wants to sell 5 shares at $14 (Ask price $14 x5). Still no sale. Investor D comes along and wants to buy 5 shares for $14 each. So a sale is finally made. At this point, the stock quote moves to $14. The ask price is $20 x10 and the bid price is $10 x15. No further trading will occur until another investor is willing to buy at $20 or sell at $10. Another discussion of this topic is shown on this post. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | What type of low-cost stock index exchange-traded fund (ETF) would give the best long-term total return? | Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns. Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market. If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market. |
Share your insights or perspective on the financial matter presented in the input. | What is the meaning of the net worth of a person? | "An individual's net worth is the value of the person's assets minus his debt. To find your net worth, add up the value of everything that you own: your house, your cars, your bank accounts, your retirement investments, etc. Then subtract all of your debt: mortgage, student loans, credit card debt, car loans, etc. If you sold everything you own and paid off all your debts, you would be left with your net worth. If Bill Gates' net worth is $86 Billion, he likely does not have that much cash sitting in the bank. Much of his net worth is in the form of assets: stocks, real estate, and other investments. If he sold everything that he has and paid any debts, he would theoretically have the $86 Billion. I say ""theoretically"" because in the amounts of stock that he owns, he could cause a price drop by selling it all at once." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How to calculate/reconcile conflicting P/E ratios? | The user who wrote the Zerohedge item: The CBS article: The Quora estimate is similar to the Zerohedge one (estimated a round value of 1000 PE and a price of 70-80). Note that it was 30 days after the first 2 items you quoted. You used the CBS numbers except you used the zerohedge price. It depends on which earnings were for each calculation. Past or future. The CBS numbers make the most sense because you can trace where they come from based on the links in their article. CBS based their price on the estimates made the day before the stock went on sale. The price in the zerohedge item was based on the early trading numbers. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Moving Coin Collection to Stapled Coin Pockets | "I would be wary of having coins in containers with cardboard. Ideally you want the coins to be in an airtight envelope made of plastic to minimize any chance of oxidation or reaction with chemicals in the air. Cheap, retail coins like you would find in a Whitman collection are not generally going to hold value well. Sometimes you can sell a collection and break even if you have a nice complete set, but in general VF coins with common dates will not appreciate at all. Investment coins usually are high-priced items that sell for thousands each, not the sort thing you find in Whitman folders. In general, collectibles are bad investments in the US because IRS rules tax gains as ordinary income. So, unless you sell them under the table or have really low income, you lose a lot of your profit. If you enjoy collecting, focus on the fun of it, worrying about investment in coin collections is a joy killer. A Parting Anecdote... When I was a kid I painstakingly assembled a lot of BU rolls, because that was the hot thing back then. I wrote on them ""DO NOT OPEN FOR 10 YEARS"". You know how much a 1980 BU roll of Lincoln cents is worth now, 40 years later? $2.00 on eBay. Some days I spend more on lunch than the worth of my entire Lincoln cent collection." |
Share your insights or perspective on the financial matter presented in the input. | Can I place a stock limit order to buy above the current price? Can I place a stock limit order to sell below the current price? | You are better off just placing a market order if you want to buy or sell straight away and avoid the queues. A market order will guarantee the purchase or sale of your shares, but it won't guarantee the price. |
Share your insights or perspective on the financial matter presented in the input. | Valuation, pricing, and analysis of securities | Pricing would just be another way to describe valuation. I guess if you want to get technical, pricing - is the act of getting somethings valuation. While valuation - is the estimate of somethings worth. Security analysis - An examination and evaluation of the various factors affecting the value of a security. Side Note: While pricing is valuation, price is not. Price is how much the stock, or security costs most commonly determined by a market. Add On: The meaning of two words might matter depending on what context it is being used in. For example if we were talking about a market where an individual actually sets a price at random without doing any type of evaluation then this->answer that AlexR provides would better highlight the differences. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Why buy SPY when there is S&P500? | The S&P500 is an index, not an investment by itself. The index lists a large number of stocks, and the value of the index is the price of all the stocks added together. If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index. This, however, is impractical for just about everyone. Index mutual funds provide an easy way to make this investment. SPY is an ETF (exchange-traded mutual fund) that does the same thing. An index CFD (contract for difference) is not the same as an index mutual fund. There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Calculation of Loss for GM Bonds and Cost Basis of New Issues | "I will say in advance this is not a great answer, but I had a similar experience when I owned a CIT bond that defaulted. I ended up getting stock plus 5 newly issued bonds as a replacement for my defaulted bond. My broker had no clue on cost basis and didn't even try for the new securities, I called the ""hotline"" setup about CIT default and they knew nothing, and finally I read all the paperwork around the restructuring but it was less than transparent. So in the end I ended up claiming everything as a wash, no gain/no loss - which probably screwed me in the end as I believe I ended up down. It was a very small position for me and was not worth the headache :(" |
Share your insights or perspective on the financial matter presented in the input. | Using Loan to Invest - Paying Monthly Installments by Selling Originally Bought Shares | In addition to the answer from CQM, let me answer your 'am I missing anything?' question. Then I'll talk about how your approach of simplifying this is making it both harder and easier for you. Last I'll show what my model for this would look like, but if you aren't capable of stacking this up yourself, then you REALLY shouldn't be borrowing 10,000 to try to make money on the margin. Am I missing anything? YES. You're forgetting (1) taxes, specifically income tax, and (2) sales commissions//transaction fees. On the first: You have not considered anything in your financial model for taxes. You should include at least 25% of your expected returns going to taxes, because anything that you buy... and then sell within 12 months... is taxed as income. Not capital gains. On the second: you will incur sales commissions and/or transaction fees depending on the brokerage you are using for your plan. These tend to vary widely, but I would expect to spend at least $25 per sale. So if I were building out this model I would think that your break-even would have to at least cover: monthly interest + monthly principal payment income tax when sold commissions and broker's fees every time you sell holdings On over-simplifying: You have the right idea with thinking about both interest and principal in trying to sketch this out. But as I mentioned above, you're making this both harder and easier for yourself. You are making it harder because you are doing the math wrong. The actual payment for this loan (assuming it is a normal loan) can be found most easily with the PMT function in Excel: =PMT(rate,NPER,PV,FV)... =PMT(.003, 24, -10000, 0). That returns a monthly payment (of principal + interest) of 432.47. So you actually are over-calculating the payment by $14/month with your ballpark approach. However, you didn't actually have all the factors in the model to begin with, so that doesn't matter much. You are making it artificially easier because you have not thought about the impact of repaying principal. What I mean is this--in your question you indicate: I'm guessing the necessary profit is just the total interest on this loan = 0.30%($10000)(24) = $720 USD ? So I'll break even on this loan - if and only if - I make $720 from stocks over 24 months (so the rate of return is 720/(10000 + 720) = 6.716%). This sounds great-- all you need is a 6.716% total return across two years. But, assuming this is a normal loan and not an 'interest-only' loan, you have to get rid of your capital a little bit at a time to pay back the loan. In essence, you will pay back 1/3 of your principal the first year... and then you have to keep making the same Fixed interest + principal payments out of a smaller base of capital. So for the first few months you can cover the interest easily, but by the end you have to be making phenomenal returns to cover it. Here is how I would build a model for it (I actually did... and your breakeven is about 1.019% per month. At that outstanding 12.228% annual return you would be earning a whopping $4.) At least as far as the variables are concerned, you need to be considering: Your current capital balance (because month 1 you may have $10,000 but month 2 you have just 9,619 after paying back some principal). Your rate of return (if you do this in Excel you can play with it some, but you should save the time and just invest somewhere else.) Your actual return that month (rate of return * existing capital balance). Loan payment = 432 for the parameters you gave earlier. Income tax = (Actual Return) * (.25). With this kind of loan, you're not actually making enough to preserve the 10,000 capital and you're selling everything you've gained each month. Commission = ($25 per month) ... assuming that covers your trade fees and broker commissions. I guarantee you that this is not the deal breaker in the model, so don't get excited if you think I'm over-estimating this and you realize that Scottrade or somewhere will let you have trades at $7.95 each. Monthly ending balance == next month's starting capital balance. Stack it all up in Excel for 24 months and see for yourself if you like. The key thing you left out is that you're repaying each month out of capital that you'd like to use to invest with. This makes you need much higher returns. Even if your initial description wasn't clear and this is an interest-only loan, you're still looking at a rate of about 7.6% annually that you need to hit in order to just break even on the costs of holding the loan and transferring your gains into cash. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why are some funds only recommended for investors starting out? | "A suitable mix of index funds IS a great option if you don't want to spend a lot of time and effort micromanaging your money. If you find amusement in pushing numbers around, you may be able to do better. Notice: MAY. If you have multiple millions, you can hire someone of that sort to push the numbers around for you. They may do better for you. Notice: MAY. And remember that part of your additional gains have to go to pay them, which means they have to do better just to be worth having on staff in the first place. If you have more than that, there are some options available which smaller investors really can't get involved in. As one example: If you have enough money that you can lose $100K without especially noticing, you can get involved in venture capital and the like which require a large commitment AND are higher-risk but can yield higher returns. Anyone who's dismissing index funds as ""only for beginners"" is being foolish. But recommending them to beginners in particular is a good thing since they let you get into the market with fairly predictable risk/benefits without needing a massive investment in education and time." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | When to start investing in an index fund? Wait for a bear market, use dollar cost-averaging, or another approach? | "First: what's your risk tolerance? How long is your investment going to last? If it's a short-term investment (a few years) and you expect to break even (or better) then your risk tolerance is low. You should not invest much money in stocks, even index funds and ""defensive"" stocks. If, however, you're looking for a long-term investment which you will put money into continually over the next 30 years, the amount of stock you purchase at any given time is pretty small, so the money you might lose by timing the market wrong will also be rather small. Also, you probably do a remarkably poor job of knowing when to buy stocks. If you actually knew how to time the market to materially improve your risk-adjusted returns, you've missed your calling; you should be making six figures or more on Wall Street. :)" |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Do I have to sell worthless stock to claim a loss and clean up? | Generally, to be able to write off worthless securities, you need to show that they're indeed worthless. It's not necessarily easy, as you need to prove that there's no way they will regain any value in the future. What is usually done, instead, is very simple: you sell them. Many brokers are aware of this problem and will assist by buying these securities from you at a nominal price (E*Trade, for example, for $0.01, ScotTrade for $0.00), and providing a proper trade confirmation. This is a bona fide sale, so if the stock does regain value - it will be a profit for the broker. In this case - you just report it as a sale at loss. Check with your broker if they support such a solution. |
Share your insights or perspective on the financial matter presented in the input. | Efficient markets hypothesis and performance of IPO shares after lock-up period | There are rules that prevent two of the reactive measures you suggest from occurring. First, on the date of and shortly following an IPO, there is no stock available to borrow for shorting. Second, there are no put options available for purchase. At least, none that are listed, of the sort you probably have in mind. In fact, within a day or two of the LinkedIn IPO, most (all?) of the active equity traders I know were bemoaning the fact that they couldn't yet do exactly what you described i.e. buying puts, or finding shares to sell short. There was a great deal of conviction that LinkedIn shares were overpriced, but scant means available to translate that market assessment into an influence of market value. This does not mean that the Efficient Markets Hypothesis is deficient. Equilibrium is reached quickly enough, once the market is able to clear as usual. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Is the stock market too risky for long term retirement funds? Why should a 20- or 30-something person invest in stocks? | "I would start with long term data. It would show how 40 years worth of stock investing puts the investor so far ahead of the ""safe"" investor that they can afford to lose half and still be ahead. But - then I would explain about asset allocation, and how the soon to be retired person had better be properly allocated if they weren't all along so that the impact of down years is mitigated. The retiree is still a long term investor as life spans of 90 are common. Look at the long term charts for the major indexes. So long as you average in, reinvest earnings (dividends) and stay diversified, you will be ahead. The market is still not where it was at the end of 2001, but in the decade, our worth has risen from 5X our income to 12.5X. This was not genius, just a combination of high savings and not panicking." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Cons of withdrawing money from an Roth IRA account? | First thing to note is that contributions (i.e. the total of all the amounts that you directly contributed into Roth IRA at any point in time) to a Roth IRA can be withdrawn at any time, without needing any reason, without any tax or penalty. Early withdrawal (early because you are under 59.5) of earnings, on the other hand, will incur tax and penalty. (I didn't go into withdrawal of conversions as those are a little more complex.) When you withdraw, contributions come out first, so as long as you don't withdraw more than the amount of past contributions, you won't have any tax or penalty. And if it's not going to have tax, it doesn't really matter if you do it this year or next year. If you need to dip into the earnings, however, then maybe it would be better to do this year so it will be taxed at lower rates. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Income tax laibility in India for Stock traded in USA as a resident Indian | my tax liabilities in India on my stock profit in US You would need to pay tax on the profit in India as well after you have become resident Indian. India and US have a double tax avoidance treaty. Hence if you have already paid tax in US, you can claim benefit and pay balance if any. For example if you US tax liability is 20 USD and Indian liability is USD 30, you just need to pay 10 USD. If the Indian tax liability is USD 20 or less you don't need to pay anything. what if in future I transfer all my US money to India? The funds you have earned in US while you were Non-Resident is tax free in India. You can bring it back any-time within a period of 7 years. |
Share your insights or perspective on the financial matter presented in the input. | Borrowing money to buy shares for cashflow? | 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. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Calculating a stock's price target | The price-earnings ratio is calculated as the market value per share divided by the earnings per share over the past 12 months. In your example, you state that the company earned $0.35 over the past quarter. That is insufficient to calculate the price-earnings ratio, and probably why the PE is just given as 20. So, if you have transcribed the formula correctly, the calculation given the numbers in your example would be: 0.35 * 4 * 20 = $28.00 As to CVRR, I'm not sure your PE is correct. According to Yahoo, the PE for CVRR is 3.92 at the time of writing, not 10.54. Using the formula above, this would lead to: 2.3 * 4 * 3.92 = $36.06 That stock has a 52-week high of $35.98, so $36.06 is not laughably unrealistic. I'm more than a little dubious of the validity of that formula, however, and urge you not to base your investing decisions on it. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Is it better to buy U.S ADRs or stock in native stock exchange for a foreigner? | It depends. An ADR might be exposed to a larger market (let's say American) with more volume and thus lower spreads, and thus cheaper. But it can also be the other way around, that the ADR serves a smaller market than the home market. I would go for the largest market, with the most volume so it's quicker and cheaper to buy/sell. Often ADR has less shares, meaning that the availability is lower and the prices higher (more expensive). This is often the case with Asian stocks where governments try to limit their company's exposure to foreigners. As a general rule I would buy the 'home' stock instead of ADR. From a tax standpoint it's also easier to comply with local laws. Your local accountant will be more familiar dealing with local stocks. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Exercise an out of the money option | It is possible to exercise an out of the money option contract. Reasons to do this: You want a large stake of voting shares at any price without moving the market and could not get enough options contracts at a near the money strike price, so you decided to go out of the money. Then exercised all the contracts and suddenly you have a large influential position in the stock and nobody saw it coming. This may be favorable if the paper loss is less than the loss of time value that would have been incurred if you chose contracts near the money at further expiration dates, in search of liquidity. Some convoluted tax reason. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why is there so much variability on interest rate accounts | "In answering your question as it's written: I don't think you're really ""missing"" something. Different banks offer different rates. Online banks, or eBanking solutions, such as CapitalOne, Ally, Barclays, etc., typically offer higher interest rates on basic savings accounts. There are differences between Money Market accounts and Standard Savings accounts, but primarily it comes down to how you can access your cash. This may vary based on bank, but Ally has a decent blurb about it: Regular savings accounts are easy to open and, when you choose an online bank like Ally Bank, you tend to get interest rates that are more competitive than brick-and-mortar counterparts, according to Bankrate.com. Additionally, as a member of the FDIC, Ally Bank gives you peace of mind knowing that the money in your Ally Bank Online Savings Account is insured to the maximum allowed by the law. Money market accounts are easy to open, too. And again, online banks may offer better rates than traditional banks. Generally, you have a bit more flexibility of access with a money market account than you do with a savings account. You can access funds in your Ally Bank Money Market Account through electronic fund transfers, checks, debit cards and ATM withdrawals. With savings accounts, your access is limited to electronic funds transfers or telephone withdrawals (and in-person withdrawals at traditional banks). Both types of accounts are subject to federal transaction limits. Here's a bit more information about a Money Market Account and why the rate might be a little bit higher (from thesimpledollar.com): A money market deposit account is a bit different. The restrictions on what a bank can do with that money are somewhat looser – they can often invest that money in things such as treasury notes, certificates of deposit, municipal bonds, and so on in addition to the tight restrictions of a normal savings accounts. In other words, the bank can take your money and invest it in other investments that are very safe. Now outside of your question, if you have $100K that you want to earn interest on, I'd suggest looking at options with higher rates of return rather than a basic savings account which will top out around 1% or so. What you do with that money is dependent on how quickly you need access to it, and there are a lot of Q&A's on this site that cover suggestions." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Gold futures' margin | The initial margin is $5940 and maintenance margin $5400. A simple search of Comex Gold Margin gives the CME group site. You then need to specify CMX metals to see the margins. Gold is currently about $1300. A gold future is 100 oz. So the full contract is worth $130K. You want to 'go long' so you enter into a contract for Dec '14. You put up $5940, and if gold rises, you gain $100 for each $1 it goes up. Likewise on the downside. If gold drops $5.40, you lost $540 and will get a call to end the position or to put up more money. It's similar to stock margin requirements, only the numbers are much lower, your leverage with futures is over 20 to 1. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What happens to personal data I disclose for joining an employee stock plan? | You aren't getting a straight answer because nobody knows why those regulations are the way they are. Everyone has to give this information to open the brokerage account or for any access to the US financial system whether it is with a bank account, or a brokerage account. Everyone also typically gives this information to their employer to be employed at all for IRS regulations. The SEC isn't going to do anything with the data, unless you do something illegal related to the stock market, then they will know who you are. The IRS isn't going to do anything with the data, unless you are noncompliant in paying taxes, then they will know who you are. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Why are index funds called index funds? | "Because they track an index. Edited: The definition of the word in this case meaning ""something used or serving to point out; a sign, token, or indication"" from Meaning #3 I presume therefore you are asking what an index is? There are many variations of what makes up an Index but in short it is a representation of some part of a market. An extremely simplistic calculation would be to take a basket of stocks, and sum their prices. If one stock moves up a dollar, and one moves down a dollar, the index has effectively not changed, as it is presumed that the loss in one is offset by the gain in the other." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How do investment banks evaluate a private firm going public? Is it based on the assets owned by the company? | "Will the investment bank evaluate the worth of my company more than or less than 50 crs. Assuming the salvage value of the assets of 50 crs (meaning that's what you could sell them for to someone else), that would be the minimum value of your company (less any outstanding debts). There are many ways to calculate the ""value"" of a company, but the most common one is to look at the future potential for generating cash. The underwriters will look at what your current cash flow projections are, and what they will be when you invest the proceeds from the public offering back into the company. That will then be used to determine the total value of the company, and in turn the value of the portion that you are taking public. And what will be the owner’s share in the resulting public company? That's completely up to you. You're essentially selling a part of the company in order to bring cash in, presumably to invest in assets that will generate more cash in the future. If you want to keep complete control of the company, then you'll want to sell less than 50% of the company, otherwise you can sell as much or as little as you want." |
Share your insights or perspective on the financial matter presented in the input. | Invest in ESPP Single Stock or General Market | Other than the guaranteed 5% bonus (assuming you sell it right away), no benefits. Keep in mind that the price from which the discount is calculated is not necessarily the market price at the date of the ESPP purchase, so the actual discount may be more than 5% (depending on the volatility of the stock - much more). |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Why do I see multiple trades of very small quantities? | "Or it could be a Robinhood user just messing around with their free commissions. I've seen ""people that work for organizations"" and other analysts go crazy over some completely benign activity. It is like playing poker with a newbie, unpredictable." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | What is the meaning of “Closed Short” ,“Opened Long” ,“Scaled Out” and “Scaled In”? | Opened Long - is when you open a long position. Long means that you buy to open the position, so you are trying to profit as the price rises. So if you were closing a long position you would sell it. Closed Short - is when you close out a short position. Short means that you sell to open and buy back to close. With a short position you are trying to profit as the price falls. Scaled Out - means you get out of a position in increments as the price climbs (for long positions). Scaled In - means you set a target price and then invest in increments as the stock falls below that price (for long positions). |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Do I pay taxes on a gift of mutual funds? | I gift my daughter stock worth $1000. No tax issue. She sells it for $2000, and has a taxable gain of $1000 that shows up on her return. Yes, you need to find out the date of the gift, as that is the date you value the fund for cost basis. The $3500 isn't a concern, as the gift seems to have been given well before that. It's a long term capital gain when you sell it. And, in a delightfully annoying aspect of our code, the dividends get added to basis each year, as you were paying tax on the dividend whether or not you actually received it. Depending on the level of dividends, your basis may very well be as high as the $6500 current value. (pls ask if anything here needs clarification) |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Buy US ETF as foreigner — a bad idea? | Here're some findings upon researches: Two main things to watch out for: Estate tax and the 30% tax withholding. These 2 could be get around by investing in Luxembourg or Ireland domiciled ETF. For instance there's no tax withholding on Ireland domiciled ETF dividend, and the estate tax is not as high. (source: BogleHead forums) Some Vanguard ETF offered in UK stock market: https://www.vanguard.co.uk/uk/mvc/investments/etf#docstab. Do note that the returns of S&P 500 ETF (VUSA) are adjusted after the 30% tax withholding! Due to VUSA's higher TER (0.09%), VOO should remain a superior choice. The FTSE Emerging Markets and All-World ETFs though, are better than their US-counterparts, for non-US residents. Non-US residents are able to claim back partials of the withhold tax, by filing the US tax form 1040NR. In 2013, non-US resident can claim back at least $3,900. Kindly correct me if anything is inaccurate. |
Share your insights or perspective on the financial matter presented in the input. | How are dividends for shareholders of banks paid? | Why? Balance sheet is balance sheet, why is it complicated? Bank shareholders get dividends in exactly the same way as any other company shareholders do: the company ends up with net profits, which the board of directors decides to distribute to shareholders based on certain amount per share. If at all. Not all the profits are distributed, and in fact - there are companies who don't distribute dividends at all. Apple, for example, hasn't ever distributed dividends until very very recently. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Less than a year at my first job out of college, what do I save for first? | On paper the whole 6 months living costs sounds (and is) great, but in real life there are a lot of things that you need to consider. For example, my first car was constantly falling apart and was an SUV that got 16MPG. I have to travel for work (about 300 miles per week) so getting a sedan that averages close to 40MPG saves me more in gas and maintenance than the monthly payment for the new car costs. When our apartment lease was up, the new monthly rent would have been $1685 per month, we got a 30 year mortgage with a monthly payment of $1372. So buying a house actually let us put aside more each month. We have just under 3 months of living expenses set aside (1 month in liquid assets, 2 months in a brokerage account) and I worry about it. I wish we had a better buffer, but in our case the house and car made more sense as an early investment compared to just squirreling away all our savings. Also, do you have any debt? Paying off debt (student loans, credit card debt, etc.) should often take top priority. Have some rainy day funds, of course, but pay down debts, and then create a personal financial plan for what works best in your situation. That would be my suggestion. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Do US mutual funds and ETFs pay taxes on dividends? | "Mutual funds don't pay taxes themselves, they distribute any dividends or capital gains to the shareholders. Thus, if you hold a mutual fund in a tax-advantaged account like a 401k or IRA then the distribution isn't a taxable event while in a regular taxable account you would have to pay taxes on the distributions. From Forbes: There can be foreign companies on US stock exchanges that would still work the same way. Unilever for example is an Anglo-Dutch multinational listed on the NYSE as ""UN.""" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Open Interest vs Volume for Stock Options | What if there is only one trading day and the volume is smaller than the open interest on that one trading day. This is assuming there is no open interest before that day? I pulled this from a comment. This can't happen. We have zero open interest on day one. On day 2, I buy 10 contracts. Volume is 10 and now open interest is also 10. Tomorrow, if I don't sell, open interest starts at 10 and will rise by whatever new contracts are traded. This is an example. I removed the stock name. This happens to be the Jan'17 expiration. The 10 contract traded on the $3 strike happen to be mine. You can see how open interest is cumulative, representing all outstanding contracts. It's obvious to me the shares traded as high as $5 at some point which created the interest (i.e. the desire) to trade this strike. Most activity tends to occur near the current price. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Does an Executed Limit Order Imply a Spot Price? | Think of all the limit orders waiting in line, first organized by price, and then by the time the order was placed (earlier orders are closer to the front of the line). In order for your buy order to trade, there must be no other limit orders of 10.01 or higher, or the sellers order would have matched with them instead. So once your order is filled, the price is 10.00, even if just for a millisecond, because there was a trade at 10.00, even though the price might go right back up after the trade. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What is the role of a manager in a passively managed index fund? | "There still is some buying and selling to do in a passively-managed fund. The stocks might pay dividends. If the fund manager didn't reinvest these dividends, the fund would begin to accumulate a cash position, which would cause it to stray from being an index fund. Stocks come and go from an index as well; if the fund is to maintain a composition that matches a particular index, this must be taken into account as well. The role of the manager is to ensure that the fund maintains the composition that it was intended to replicate. It doesn't involve as much ""stock picking"" that active managers do. The manager has less leeway as to what s/he buys and sells, but there still is work involved." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What are good Monthly Income Funds? [Canada] | @sharam - big question. I am going to answer part of it, but not as directly as you might like. You mention 4-6 cents per unit per month, but fail to give a unit price, so it is hard to tell how much return you are really looking for. Given the amount you have to invest, depending on your time horizon, you will do much better outside of mutual funds. Many funds in this category have fees in the 2% range. You actually have enough money to have a diversified portfolio on your own, without recourse to funds. If you want to use a fund-like product, I encourage you to look at well established ETFs (Exchange Traded Funds). They are basically like mutual funds that trade on the open stock market. One good example in this category is iShares XDV Good Luck |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Are there any benefits to investing with a group of friends vs. by myself? | In most markets, there are fixed fees known as commissions. For instance, with a retail broker in the stock market, you can expect every trade to cost you $7.00 as an example, it is $7.00 regardless of if you place a trade for $25 or $25,000. You will see that just opening the trade, with a smaller amount, will eat up all of your profits and a majority of your capital, but if you opened the trade with more capital through the investment group, then the $7.00 commission will be much less of a tax on your trade. Basically, the only advantage is that the tax of commissions will be less if you have a larger account, if the commission is a fixed dollar value, which is not always true either. regardless, at $25 per month, not many markets will be accessible. There is also the possible educational aspect of investing with a group of people, or it can simply be clashing ideals. |
Share your insights or perspective on the financial matter presented in the input. | Is it a good idea to put everything in the S&P500? | At a very high-level, the answer is yes, that's a good idea. For money that you want to invest on the scale of decades, putting money into a broad, market-based fund has historically given the best returns. Something like the Vanguard S&P 500 automatically gives you a diverse portfolio, with super low expenses. As it sounds like you understand, the near-term returns are volatile, and if you really think you might want this money in the next few years, then the stock market might not be the best choice. As a final note, as one of the comments mentioned, it makes sense to hold a broad, market-based fund for your IRA as well, if possible. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Can heavy demand for options drive up or down a stock price? | You will tend to find as options get closer to expiry (within 2 months of expiry) they tend to be traded more. Also the closer they are to being in the money they more they are traded. So there tends to be more demand for these options than long dated ones that are far out of the money. When there is this higher demand there is less need for a market maker to step in to assure liquidity, thus there should be no effect on the underlying stock price due to the high demand for options. I would say that market makers would mainly get involved in providing liquidity for options way out of the money and with long periods until expiry (6+ months), where there is little demand to start with and open interest is usually quite low. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What is this type of risk-free investment called? | This sounds a lot like an Equity-indexed Annuity. They date from about 1996 (there is a bit of skepticism about them, as they are tricky to understand for the typical investor). For instance, an equity indexed annuity pays a portion of the gain in an index (like S&P 500) when the stock market rises, and guarantees you won't lose if it falls. In an arbitrage sense, it is roughly equivalent to buying a mixture of bonds and index (call) options. There are a lot of complicated 'tweaks' on these, such as annual ratchet/annual reset, interest caps, etc. There is quite a bit of debate about whether they are too good to be true, so I'd read a few articles with pros and cons before buying one. These are also commonly called FIA (Fixed indexed annuities). |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Getting (historical) Standard & Poor Stock Guides | I haven't seen one of these in quite some time. Back in the 1970s, maybe the 1980s, stock brokers would occasionally send their retail clients a complimentary copy once in a while. Also, I remember the local newspaper would offer a year-end edition for a few dollars (maybe $3) and that edition would include the newspaper company's name on the cover. They were very handy little guides measuring 5 1/2 x 8 (horizontal) with one line devoted to each company. They listed hundreds of publicly traded companies and had basic info on each company. As you stated, for further info you needed to go to the library and follow-up with the big S&P and/or Moody's manuals. That was long before the internet made such info available at the click of a button on a home computer! |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What is the most effective saving money method? | In a word: budgeting. In order to have money left over at the end of the month, you need to be intentional about how you spend it. That is all a budget is: a plan for spending your money. Few people have the discipline and abundance of income necessary to just wing it and not overspend. By making a plan at home ahead of time, you can decide how much you will spend on food, entertainment, etc, and ensure you have enough money left over for things like rent/mortgage and utility bills, and still have enough for longer-term savings goals like a car purchase or retirement. If you don't have a plan, it's simply not reasonable to expect yourself to know if you have enough money for a Venti cup as you drive past the Starbucks. A good plan will allow you to spend on things that are important to you while ensuring that you have enough to meet your obligations and long-term goals. Another thing a budget will do for you is highlight where your problem is. If your problem is that you are spending too much money on luxuries, the budget will show you that. It might also reveal to you that your rent is too high, or your energy consumption is too great. On the other hand, you might realize after budgeting that your spending is reasonable, but your income is too low. In that case, you should focus on spending more of your time working or looking for a better paying job. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | How can I find stocks with very active options chains? | "Just as a matter of research, apparently there is a way to find high option volumes such as a site here: https://www.barchart.com/options/volume-leaders/stocks However, that information is going to be heavily skewed by ""underlying security that moved a lot more than expected and probably got a lot of positions filled incidentally today"", but I think it is a good place to start building up a list of securities with a lot of option interest. There is also a tab there for ETFs. This will not tell you exactly that a particular stock always has high option volume, but most of the ones that show up there repeatedly and across multiple strike prices will meet your criteria." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Approximation of equity value for company in default | "Generally ""default"" means that the company cannot pay off their debts, and since debt holders get paid before equity holders, their equity would be effectively worthless. That said, companies can emerge from Chapter 11 bankruptcy (reorganization) and retain equity value, but it is rare. Most times, stocks are de-listed or frozen on stock exchanges, and company's reorganization plan will cancel all existing equity shares, instead focusing all of their attention on paying back as much debt as possible. If the company issues new equity after reorganizing, it might provide a way for holders of the original equity to exchange their shares for the new equity, but it is rare, and the value is usually significantly less that the value of the original equity." |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What are the differences between a REIT and an MLP? | "A REIT is a real estate investment trust. It is a company that derives most of its gross income from and holds most of its assets in real estate investments, which, in this case, include either real property, mortgages, or both. They provide a way for investors to get broad exposure in a real estate market without going to buy a bunch of properties themselves. It also provides diversification within the real estate segment since REITs will often (but not necessarily) have either way more properties than an individual could get or have very large properties (like a few resorts) that would be too expensive for any one investor. By law, they must pay at least 90% of their taxable income as dividends to investors, so they typically have a good dividend rate (possibly but not necessarily) at the expense of growth of the stock price. Some of those dividends may be tax advantaged and some will not. An MLP is a master limited partnership. These trade on the exchange like corporations, but they are not corporations. (Although often used in common language as synonyms, corporation and company are not the same thing. Corporation is one way to organize a company under the law.) They are partnerships, and when you buy a share you become a partner in the company. This is an alternative form of ownership to being a shareholding. In this case you are a limited partner, which means that you have limited liability as with stock. The shares may appreciate or not, just like a stock, and you can generally sell them back to the market for a capital gain or loss under the same rules as a stock. The main difference here from a practical point of view is taxes: Partnerships (of any type) do no pay tax - Instead their income and costs are passed to the individual partners, who must then include it on their personal returns (Form 1040, Schedule E). The partnership will send each shareholder a Schedule K-1 form at tax time. This means you may have ""phantom income"" that is taxable even though cash never flowed through your hands since you'll have to account for the income of the partnership. Many partnerships mitigate this by making cash distributions during the year so that the partners do actually see the cash, but this is not required. On the other hand, if it does happen, it's often characterized as a return of capital, which is not taxable in the year that you receive it. A return of capital reduces your cost basis in the partnership and will eventually result in a larger capital gain when you sell your shares. As with any investment, there are pros and cons to each investment type. Of the two, the MLP is probably less like a ""regular"" stock since getting the Schedule K-1 may require some extra work at tax time, especially if you've never seen one before. On the other hand, that may be worth it to you if you can find one that's appreciating in value and still returning capital at a good rate since this could be a ""best of everything"" situation where you defer tax and - when you eventually do pay, you pay at favorable capital gains rates - but still manage to get your cash back in hand before you sell. (In case not clear, my comments about tax are specific to the US. No idea how this is treated elsewhere.) By real world example, I guess you meant a few tickers in each category? You can find whole lists online. I just did a quick search (""list of MLP"" and ""list of REIT""), found a list, and have provided the top few off of the first list that I found. The lists were alphabetical by company name, so there's no explicit or implicit endorsement of these particular investments. Examples of REIT: Examples of MLP:" |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Using pivot points to trade in the short term | Pivots Points are significant levels technical analysts can use to determine directional movement, support and resistance. Pivot Points use the prior period's high, low and close to formulate future support and resistance. In this regard, Pivot Points are predictive or leading indicators. There are at least five different versions of Pivot Points. I will focus on Standard Pivot Points here as they are the simplest. If you are looking to trade off daily charts you would work out your Pivot Points from the prior month's data. For example, Pivot Points for first trading day of February would be based on the high, low and close for January. They remain the same for the entire month of February. New Pivot Points would then be calculated on the first trading day of March using the high, low and close for February. To work out the Standard Pivot Points you use the High, Low and Close from the previous period (i.e. for daily charts it would be from the previous month) in the following formulas: You will now have 5 horizontal lines: P, R1, R2, S1 and S2 which will set the general tone for price action over the next month. A move above the Pivot Point P suggests strength with a target to the first resistance R1. A break above first resistance shows even more strength with a target to the second resistance level R2. The converse is true on the downside. A move below the Pivot Point P suggests weakness with a target to the first support level S1. A break below the first support level shows even more weakness with a target to the second support level S2. The second resistance and support levels (R2 & S2) can also be used to identify potentially overbought and oversold situations. A move above the second resistance level R2 would show strength, but it would also indicate an overbought situation that could give way to a pullback. Similarly, a move below the second support level S2 would show weakness, but would also suggest a short-term oversold condition that could give way to a bounce. This could be used together with a momentum indicator such as RSI or Stochastic to confirm overbought or oversold conditions. Pivot Points offer a methodology to determine price direction and then set support and resistance levels, however, it is important to confirm Pivot Point signals with other technical analysis indicators, such as candle stick reversal patterns, stochastic and general Support and Resistance Levels in the price action. These pivot points can be handy but I actually haven’t used them for trade setups and entries myself. I prefer to use candle sticks together with stochastic to determine potential turning points and then take out trades based on these. You can then use the Pivot Points Resistance and Support levels to help you estimate profit targets or areas to start becoming cautious and start tightening your stops. Say, for example, you have gone long from a signal you got a few days ago, you are now in profit and the price is now approaching R2 whilst the Stochastic is approaching overbought, you might want to start tightening your stop loss as you might expect some weakness in the price in the near future. If prices continue up you keep increasing your profits, if prices do reverse then you keep the majority of your existing profits. This would become part of your trade management. If you are after finding potential market turning points and take out trades based on these, then I would suggest using candlestick charting reversal patterns for your trade setups. The patterns I like to use most in my trading can be described as either the Hammer or One White Soldier for Bullish reversals and Shooting Star or One Black Crow for Bearish reversals. Below are diagrams of where to place your entries and exits on both Bullish and Bearish reversal patterns. Bullish Reversal Pattern So after some period of weakness in the price you would look for a bullish day where the price closes above the previous day’s high, you place your buy order here just before market close and place your initial stop just below the low of the day. You would apply this either for an uptrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the support line. The trade is reinforced if the Stochastic is in or near the oversold and crossing back upwards, volume on the up day is higher than volume on the down days, and the market as a whole is moving up as well. The benefit with this entry is that you are in early so you capture any bullish move up at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves up you would move your stop loss to just below the low of each day. Alternative Bullish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop buy order to buy at the open of next trading day just above the high of the bullish green candle. Your stop is placed exactly the same, just below the low of the green bullish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bullish news prior to and at the next open, so miss out on some potential profits if prices do gap up at the open. This may also increase your loss on the trade if the prices gaps up then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. Bearish Reversal Pattern So after some short period of strength in the price you would look for a bearish day where the price closes below the previous day’s low, you place your sell short order here just before market close and place your initial stop just above the high of the day. You would apply this either for an downtrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the resistance line. The trade is reinforced if the Stochastic is in or near the overbought and crossing back downwards, volume on the up day is higher than volume on the up days, and the market as a whole is moving down as well. The benefit with this entry is that you are in early so you capture any bearish move down at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves down you would move your stop loss to just above the high of each day. Alternative Bearish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop sell short order to sell at the open of next trading day just below the low of the bearish red candle. Your stop is placed exactly the same, just above the high of the red bearish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bearish news prior to and at the next open, so miss out on some potential profits if prices do gap down at the open. This may also increase your loss on the trade if the prices gaps down then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. You could also trade other candle stick patterns is similar ways. And with the long entries you can also use them to get into the market with longer term trend following strategies, you would usually just use a larger stop for longer term trading. To determine the size of your order you would use the price difference between your entry and your stop. You should not be risking more than 1% of your trading capital on any one trade. So if your trading capital is $20,000 your risk per trade should be $200. If you were looking to place your buy at 5.00 and had your initial stop at $4.60, you would divide $200 by $0.40 to get 500 stocks to buy. Using this form of money management you keep your losses down to a maximum of $200 (some trades may be a bit higher due to some slippage which you should allow for in your trading plan), which becomes your R-multiple. Your aim is to have your average win at 3R or higher (3 x your average loss), which will give you a positive expectancy even with a win ratio under 50%. Once you have written down your trading rules you can search stock charts for potential setups. When you find one you can backtest the chart for similar setup over the past few years. For each setup in the past jot down the prices you would have entered at, where you would have set your stop, work out your R, and go day by day, moving your stop as you go, and see where you would have been stopped out. Work out your profit or loss in terms of R for each setup and then add them up. If you get a positive R multiple, then this may be a good stock to trade on this setup. If you get a negative R multiple, then maybe give this stock a miss and look for the next setup. You can setup watch-lists of stocks that perform well for both long setups and short setups, and then trade these stocks when you get a new signal. It can take some time starting off, but once you have got your watch-lists for a particular setup, you just need to keep monitoring those stocks. You can create other watch-lists for other type of setups you have backtested as well. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | A good investment vehicle for saving for a mortgage down payment? | When you are saving for money you need in 5 years or less the only real option is a savings account. I know the return is nothing at this point, but if you cannot take the risk of losing all of your money that's the only thing I would recommend. Now you could try a good growth stock mutual fund if, when you look up in 2 - 3 years and you have lost money you wait it out until it grows enough to get what you lost back then buy your house. I would not do the second option because I wouldn't want to be stuck renting while waiting for the account to recover, and actually thinking about it that way you have more risk. 3 years from now if you have lost money and don't yet have enough saved you will have to continue paying rent, and no mutual fund will out preform that. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Does it make sense to talk about an ETF or index in terms of technical indicators? | Yes, it makes sense. Like Lagerbaer says, the usefulness of technical indicators can not be answered with a simple yes or no. Some people gain something from it, others do not. Aside from this, applying technical indicators (or any other form of technical analysis - like order flow) to instruments which are composed of other instruments, such as indexes (more accurately, a derivative of it), does make sense. There are many theories why this is the case, but personally i believe it is a mixture of self fulfilling prophecy, that the instruments the index is composed of (like the stocks in the S&P500) are traded in similar ways as the index (or rather a trade-able derivative of it like ETFs and futures), and the idea that TA just represents human emotion and interaction in trading. This is a very subjective topic, so take this with a grain of salt, but in contrast to JoeTaxpayer i believe that yields are not necessary in order to use TA successfully. As long as the given instrument is liquid enough, TA can be applied and used to gain an edge. On the other hand, to answer your second question, not all stocks in an index correlate all the time, and not all of them will move in sync with the index. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Is there data and proof that a diversified portfolio can generate higher returns than the S&P 500 Index? | 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? |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Why do mutual fund trading limitations exist? e.g. 90 day transfer limits? | Mutual funds (that are not exchange-traded funds) often need to sell some of their securities to get cash when a shareholder redeems some shares. Such transactions incur costs that are paid (proportionally) by all the shareholders in the fund, not just the person requesting redemption, and thus the remaining shareholders get a lower return. (Exchange-traded funds are traded as if they are shares of common stock, and a shareholder seeking a redemption pays the costs of the redemption). For this reason, many mutual funds do not allow redemptions for some period of time after a purchase, or purchases for some period of time after a redemption. The periods of time are chosen by the fund, and are stated in the prospectus (which everyone has acknowledged has been received before an investment was made). |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | How to chose index funds, mutual funds from a plethora of options (TD Ameritrade) | I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Commencing a Pension from an SMSF | No. Disclaimer - As a US educated fellow, I needed to search a bit. I found an article 7 Common SMSF Pension Errors. It implied that there are minimum payments required each year as with our US retirement accounts. These minimums are unrelated to the assets within the account, just based on the total value. The way I read that, there would be a point where you'd have to sell a property or partial interest to be sure you have the cash to distribute each year. I also learned that unlike US rules, which permit a distribution of stock as part of a required minimum distribution, in Australia, the distribution must be in cash (or a deposited check, of course.) |
Share your insights or perspective on the financial matter presented in the input. | Index ETF or Index mutual fund - standard brokerage account | The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Pay off entire mortgage or put into investments | I like this option, rather than exposing all 600k to market risk, I'd think of paying off the mortgage as a way to diversify my portfolio. Expose 400k to market risk, and get a guaranteed 3.75% return on that 200k (in essence). Then you can invest the money you were putting towards your mortgage each month. The potential disadvantage, is that the extra 200k investment could earn significantly more than 3.75%, and you'd lose out on some money. Historically, the market beats 3.75%, and you'd come out ahead investing everything. There's no guarantee. You also don't have to keep your money invested, you can change your position down the road and pay off the house. I feel best about a paid off house, but I know that my sense of security carries opportunity cost. Up to you to decide how much risk you're willing to accept. Also, if you don't have an emergency fund, I'd set up that first and then go from there with investing/paying off house. |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Changing the price in a limit order | This depends on the stock exchange in question. Generally if you modify an existing order [including GTC], these are internally treated as Cancel/Replace Orders. Depending on the action, you may lose the time priority position and a new position would get assigned. More here. (f) Cancel/Replace Orders. Depending on how a quote or order is modified, the quote or order may change priority position as follows: (1) If the price is changed, the changed side loses position and is placed in a priority position behind all orders of the same type (i.e., customer or non-customer) at the same price. (2) If one side's quantity is changed, the unchanged side retains its priority position. (3) If the quantity of one side is decreased, that side retains its priority position. (4) If the quantity of one side is increased, that side loses its priority position and is placed behind all orders of the same type at the same price. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Do algorithmic trading platforms typically have live-data access to stock data? | "Algorithmic trading doesn't necessarily require live feeds. It is a very generic term describing trading based on the decisions made by a machine and not a person. One very prominent type of algo-trading is ""high frequency trading"". For HFT to be effective, not only do you need live feeds (which are provided by the exchanges electronically), you need them before others get them. That's why HFT traders put their machines as close as possible (physically) to the exchange data centers, sometimes even renting racks at the same datacenters from the exchanges themselves." |
Utilize your financial knowledge, give your answer or opinion to the input question or subject. | Warrant shares/UNIT | "A warrant is similar to a call option (the right to buy stock at a certain price), with the difference that warrants are filled by the issuing company with new shares, diluting the existing shareholders' ownership. The language is a bit confusing, but how I interpret it is: So your 9,000 shares will get you 3,000 shares and 3,000 warrants (the right to buy shares at a maximum price of 0.27 between April 2, 2018 and April 30, 2018. I think the phrase ""The subscription price is SEK 0.27 per Unit"" means that you can buy each unit for 0.27 SKE (which gets you one share and one option to buy another share." |
Share your insights or perspective on the financial matter presented in the input. | US Taxes - Handling Capital Losses from previous years with current capital gains | No one can advise you on whether to hold this stock or sell it. Your carried losses can offset short or long term gains, but the long term losses have to be applied to offset long term gains before any remaining losses can offset short term gains. Your question doesn't indicate how long you have to hold before the short term gains become long term gains. Obviously the longer the holding period, the greater the risk. You also must avoid a wash sale (selling to lock in the gains/reset your basis then repurchasing within a month). All of those decisions hold risks that you have to weigh. If you see further upside in holding it longer, keep the investment. Don't sell just to try to maximize tax benefits. |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Wardrobe: To Update or Not? How-to without breaking the bank | New clothes isn't exactly an emergency expense :) so I would strongly suggest that you budget for it on a monthly basis. This doesn't mean you have to go spend the money every month, just put a reasonable amount of money into the clothes budget/savings every month and when you need a new shirt or two, take the money out of the saved money and go shopping. If you buy a piece or two of good quality clothing at a time you'd also not run into the situation where all your clothes fall apart at the same time. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | How does the yield on my investments stack up against other investors? | "It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is ""time weighted"" and is just the raw return if you invested all money at time A and took it all out at time B. They also show ""investor return"" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend ""beating the market"" (or ""matching the market"" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is ""the point"" - I feel ""the point"" is to achieve your financial goals.)" |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What is the valuation of a company based on? | "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." |
Share your insights or perspective on the financial matter presented in the input. | First Job, should I save or invest? | There is no absolute answer to this as it depends on your particular situation, but some tips: As to investing versus saving, you need to do some of both: Be careful about stockpiling too much in bank accounts. Inflation will eat that money up over time to the tune of 3-4%/year. You are young and have a longer investment horizon for retirement, take advantage of that and accept a little more risk while you can. |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | A calculator that takes into account portfolio rebalancing? | "My answer is Microsoft Excel. Google ""VBA for dummies"" (seriously) and find out if your brokerage offers an 'API'. With a brief understanding of coding you can get a spreadsheet that is live connected to your brokers data stream. Say you have a spreadsheet with the 1990 value of each in the first two columns (cells a1 and b1). Maybe this formula could be the third column, it'll tell you how much to buy or sell to rebalance them. then to iterate the rebalance, set both a2 and b2 to =C1 and drag the formula through row 25, one row for each year. It'll probably be a little more work than that, but you get the idea." |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | Does implied volatility always rise as earnings announcements approach? | Changes in implied volatility are caused by many things, of course, and it is tough to isolate the effect you are describing, but let's try to generalize for a moment. Implied volatility is generally a measure of how much expect uncertainty there is about the future price of the stock. Uncertainty generally is higher in periods including earnings announcements because it is significant new information about the company's fortunes can make for significant changes in the price. However, you could easily have the case where the earnings are good and for some reason the market is very certain that the earnings will be good and near a certain level. In that case the price would rise, but the implied volatility could well be lower because the market believes that there will be no significant new information in the earnings announcement. |
Share your insights or perspective on the financial matter presented in the input. | Should I early exercise unvested ISOs when the FMV is above the strike price? | In the question you cited, I assumed immediate exercise, that is why you understood that I was talking about 30 days after grant. I actually mentioned that assumption in the answer. Sec. 83(b) doesn't apply to options, because options are not assets per se. It only applies to restricted stocks. So the 30 days start counting from the time you get the restricted stock, which is when you early-exercise. As to the AMT, the ISO spread will be considered AMT income in the year of the exercise, if you file the 83(b). For NQSO it is ordinary income. That's the whole point of the election. You can find more detailed explanation on this website. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | What is a “margin-call” and how are they enforced? | "Simplest way to answer this is that on margin, one is using borrowed assets and thus there are strings that come with doing that. Thus, if the amount of equity left gets too low, the broker has a legal obligation to close the position which can be selling purchased shares or buying back borrowed shares depending on if this is a long or short position respectively. Investopedia has an example that they walk through as the call is where you are asked to either put in more money to the account or the position may be closed because the broker wants their money back. What is Maintenance Margin? A maintenance margin is the required amount of securities an investor must hold in his account if he either purchases shares on margin, or if he sells shares short. If an investor's margin balance falls below the set maintenance margin, the investor would then need to contribute additional funds to the account or liquidate stocks in the account to bring the account back to the initial margin requirement. This request is known as a margin call. As discussed previously, the Federal Reserve Board sets the initial margin requirement (currently at 50%). The Federal Reserve Board also sets the maintenance margin. The maintenance margin, the amount of equity an investor needs to hold in his account if he buys stock on margin or sells shares short, is 25%. Keep in mind, however, that this 25% level is the minimum level set, brokerage firms can increase, but not decrease this level as they desire. Example: Determining when a margin call would occur. Assume that an investor had purchased 500 shares of Newco's stock. The shares were trading at $50 when the transaction was executed. The initial margin requirement on the account was 70% and the maintenance margin is 30%. Assume no transaction costs. Determine the price at which the investor will receive a margin call. Answer: Calculate the price as follows: $50 (1- 0.70) = $21.43 1 - 0.30 A margin call would be received when the price of Newco's stock fell below $21.43 per share. At that time, the investor would either need to deposit additional funds or liquidate shares to satisfy the initial margin requirement. Most people don't want ""Margin Calls"" but stocks may move in unexpected ways and this is where there are mechanisms to limit losses, especially for the brokerage firm that wants to make as much money as possible. Cancel what trade? No, the broker will close the position if the requirement isn't kept. Basically think of this as a way for the broker to get their money back if necessary while following federal rules. This would be selling in a long position or buying in a short sale situation. The Margin Investor walks through an example where an e-mail would be sent and if the requirement isn't met then the position gets exited as per the law." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | irr calculation on stock with dividends | "Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend. They are included in the final value and the return is termed ""total return"". If the dividends are taken in cash, the return based on the final value is ""net return"". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel" |
Based on your financial expertise, provide your response or viewpoint on the given financial question or topic. | What's the smartest way to invest money gifted to a child? | I was in a similar situation with my now 6 year old. So I'll share what I chose. Like you, I was already funding a 529. So I opened a custodial brokerage account with Fidelity and chose to invest in very low expense index fund ETFs which are sponsored by Fidelity, so there are no commissions. The index funds have a low turnover as well, so they tend to be minimal on capital gains. As mentioned in the other answer, CDs aren't paying anything right now. And given your long time to grow, investing in the stock market is a decent bet. However, I would steer clear of any insurance products. They tend to be heavy on fees and low on returns. Insurance is for insuring something not for investing. |
Share your insights or perspective on the financial matter presented in the input. | Do stock prices really go down by the amount of the dividend? | Ex-Dividend Price Behavior of Common Stocks would be a study from the Federal Reserve Bank of Minneapolis and University of Minnesota if you want a source for some data. Abstract This study examines common stock prices around ex-dividend dates. Such price data usually contain a mixture of observations - some with and some without arbitrageurs and/or dividend capturers active. Our theory predicts such mixing will result in a nonlinear relation between percentage price drop and dividend yield - not the commonly assumed linear relation. This prediction and another important prediction of theory are supported empirically. In a variety of tests, marginal price drop is not significantly different from the dividend amount. Thus, over the last several decades, one-for-one marginal price drop have been an excellent (average) rule of thumb. |
Offer your insights or judgment on the input financial query or topic using your financial expertise. | Do those who invest large amounts of money in stocks pay typical brokerage commissions? | "Other than the brokerage fee you should also consider the following: Some brokerages provide extra protection against the these and as you guessed it for a fee. However, there could be a small bonus associated with your trading at scale: You are probably qualified for rebates from the exchanges for generating liquidity. ""Fees and Credits applicable to Designated Market Makers (“DMMs”)"" https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf All in all, I will say that it will be really hard for you to avoid paying brokerage fee and yes, even Buffet pays it." |
Offer your thoughts or opinion on the input financial query or topic using your financial background. | Upcoming company merger with company I have stock in, help me interpret what is happening | "The ""par value"" is a technicality that you can ignore in this case, and it has nothing directly to do with the merger. When a company issues stock, it puts a ""par value"" on the shares. If it later issues more shares, they cannot be issued at less than par value. The rest of the notice seems to be as you said: If you hold until the merger takes effect, they are going to give you $25/share and your shares will be gone. As always, you can try to sell on the open market before that time instead, although you can bet that not too many people are going to want to give you more than $25/share at this point." |