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8102 | When do I sell a stock that I hold as a long-term position? | [
{
"docid": "378173",
"title": "",
"text": "\"If you are already invested in a particular stock, I like JoeTaxpayer's answer. Think about it as if you are re-buying the stocks you own every day you decide to keep them and don't set emotional anchor points about what you paid for them or what they might be worth tomorrow. These lead to two major logical fallacies that investor's commonly fall prey to, Loss Aversion and Sunk Cost, both of which can be bad for your portfolio in the long run. To avert these natural tendencies, I suggest having a game plan before you purchase a stock based on on your investment goals for that stock. For example a combination of one or more of the following: I'm investing for the long term and I expect this stock to appreciate and will hold it until (specific event/time) at which point I will (sell it all/sell it gradually over a fixed time period) right around the time I need the money. I'm going to bail on this stock if it falls more than X % from my purchase price. I'm going to cash out (all/half/some) of this investment if it gains more than x % from my purchase price to lock in my returns. The important thing is to arrive at a strategy before you are invested and are likely to be more emotional than rational. Otherwise, it can be very hard to sell a \"\"hot\"\" stock that has suddenly jumped in price 25% because \"\"it has momentum\"\" (gambler's fallacy). Conversely it can be hard to sell a stock when it drops by 25% because \"\"I know it will bounce back eventually\"\" (Sunk Cost/Loss Aversion Fallacy). Also, remember that there is opportunity cost from sticking with a losing investment because your brain is saying \"\"I really haven't lost money until I give up and sell it.\"\" When logically you should be thinking, \"\"If I move my money to a more promising investment I could get a better return than I am likely to on what I'm holding.\"\"\""
}
] | [
{
"docid": "546932",
"title": "",
"text": "If you are looking at long-term investments then you can look to Dheer's answer and see that it doesn't matter whether the money is large or small, the return will be the same. When it comes to shorter-term investments, it can actually pay to be a smaller investor. Consider a stock that may not be trading in high volume. If I want to take a position for 2,000 shares, I can probably buy it quite quickly without moving the market considerably. If I was managing your hypothetical portfolio opening a position for 1,000,000 shares, it can cause the price to go up significantly because I have to execute the order very carefully in order to not tip my hand to the market that I want a million shares. Algorithmic traders will see the volume increasing on those shares and will raise their asking price. High speed traders and market makers will also cause a lot of purchasing overhead. Then later when it comes time to sell, I will lose a percentage to the price drop as I start flooding the market with available shares."
},
{
"docid": "507276",
"title": "",
"text": "\"Are these all of the taxes or is there any additional taxes over these? Turn-over tax is not for retail investors. Other taxes are paid by the broker as part of transaction and one need not worry too much about it. Is there any \"\"Income tax\"\" to be paid for shares bought/holding shares? No for just buying and holding. However if you buy and sell; there would be a capital gain or loss. In stocks, if you hold a security for less than 1 year and sell it; it is classified as short term capital gain and taxes at special rate of 15%. The loss can be adjusted against any other short term gain. If held for more than year it is long term capital gain. For stock market, the tax is zero, you can't adjust long term losses in stock markets. Will the money received from selling shares fall under \"\"Taxable money for FY Income tax\"\"? Only the gain [or loss] will be tread as income not the complete sale value. To calculate gain, one need to arrive a purchase price which is price of stock + Brokerage + STT + all other taxes. Similar the sale price will be Sales of stock - Brokerage - STT - all other taxes. The difference is the gain. Will the \"\"Dividend/Bonus/Buy-back\"\" money fall under taxable category? Dividend is tax free to individual as the company has already paid dividend distribution tax. Bonus is tax free event as it does not create any additional value. Buy-Back is treated as sale of shares if you have participated. Will the share-holder pay \"\"Dividend Distribution Tax\"\"? Paid by the company. What is \"\"Capital Gains\"\"? Profit or loss of buying and selling a particular security.\""
},
{
"docid": "422183",
"title": "",
"text": "\"I don't agree that the market as a whole is a ponzi scheme, but there are some ponzi-like aspects to it. If you buy high quality stocks like Coca Cola, Johnson and Johnson, AT&T, Verizon, Kraft, Wells Fargo (the vanilla bank, not one of the crazy ones), IBM, Berkshire Hathaway etc and simply hold onto them for the next 10-20 years, you will make money. Even over the last decade, when stocks \"\"went nowhere\"\", you still came out ahead through the dividend payments. It was just at an unsatisfactory rate of return. Also \"\"the market\"\" consists of a lot more than just stocks. Corporate bonds are a big market and I always recommend people to look at bonds. If you cannot judge whether a company is credit worthy, how can you invest in the common stock? I've made a lot more money myself in the bond market than in the stock market. However, for many stocks, they do look a lot like ponzi schemes. This is true, in particular, with many of the tech stocks (Cuban was a tech investor, so that is probably where his sentiment is coming from). You have many of these companies that create great products. However, they never have positive cash flow because all the money is spent to develop new products. As the share price goes up, the company issues new shares to fund research, stock options to employees to enrich them, etc. However, eventually, they run into a string of bad research that do not yield a new product and the share price plunges. Perhaps the company goes bankrupt. So you have a company that developed great products, but the shareholders never got a penny in dividends and the final shareholders have paper worth zero. Take a look at Research in Motion for example. Creating the Blackberry has to be one of the biggest successes in tech over the last decade. However, has the shareholders gotten any richer? Only if they traded amongst themselves, nobody got a dividend. What happened to the many billions of dollars they made during the peak popularity years of Blackberry? It went to executives, employees, and was squandered on development that did not effectively defend the phone's dominant market position. Now the stock price is back down to the pre-prime years, and if a shareholder held onto it throughout the entire period, he would not have received a single penny. And this is a profitable enterprise, things look even more bizarre when you start looking at the tech companies that have NEVER had a positive earnings quarter and no plans to ever have positive earnings (something like Pandora comes to mind). Often, management at these more bizarre companies run the company as a toy - to play with their own ideas and to issue themselves stock as compensation. And of course, they sell a lot of the stock to cash in before they delve into the next risky venture. They have no intention of ever enriching anybody who holds into the stock in the long run. If for some reason they make money, they will put it all into their next toy project until one of them fails and wipes everything out. If you invest in a profitable business with reasonable management, you will generally come out ahead. Some businesses get displaced by unpredictable circumstances and they go bankrupt. But on average, if a company is good at doing something and they pay out the earnings, you come out ahead. You get in trouble when businesses are good at something, and they take all the money they make and put it into doing something they are not good at. A business might only provide good cashflow for 10-20 years when the product is popular and before competitors cut into margins. If that money is squandered, the long term shareholder may ultimately have very terrible results. The long term shareholder ends up being the guy who keeps going all-in on a 80%-chance-to-win bet (that is what management is doing when they bet the company on the next unproven product), but eventually he gets zeroed out on one loss. This is why if you look at Buffett's investments, they are all in simple businesses that spits off cash to the owner/shareholder. Businesses like soft drinks, snacks, rail roads, vanilla banking, utility-like energy companies, insurance, etc. You might be good at judging the odds of whether a business will succeed or not (aka make more money than your original investment or not). But you don't want management of that company to make a wildly different bet for you. Just because they are great at operating a company doesn't mean they are good enough at judging odds or disciplined enough to make those bets for you. I may have predicted accurately that Business X will be a great success, but if manage takes those profits and goes all in on Business Y, without giving me a chance to cash out, that may have disasterous results.\""
},
{
"docid": "16175",
"title": "",
"text": "\"The best strategy for RSU's, specifically, is to sell them as they vest. Usually, vesting is not all in one day, but rather spread over a period of time, which assures that you won't sell in one extremely unfortunate day when the stock dipped. For regular investments, there are two strategies I personally would follow: Sell when you need. If you need to cash out - cash out. Rebalance - if you need to rebalance your portfolio (i.e.: not cash out, but reallocate investments or move investment from one company to another) - do it periodically on schedule. For example, every 13 months (in the US, where the long term cap. gains tax rates kick in after 1 year of holding) - rebalance. You wouldn't care about specific price drops on that day, because they also affect the new investments. Speculative strategies trying to \"\"sell high buy low\"\" usually bring to the opposite results: you end up selling low and buying high. But if you want to try and do that - you'll have to get way more technical than just \"\"dollar cost averaging\"\" or similar strategies. Most people don't have neither time nor the knowledge for that, and even those who do rarely can beat the market (and never can, in the long run).\""
},
{
"docid": "344372",
"title": "",
"text": "I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge."
},
{
"docid": "121765",
"title": "",
"text": "The short answer: it depends. The long answer.. Off the top of my head, there are quite a number of factors that an analyst may look at when analyzing a stock, to come up with a recommendation. Some example factors to look at include: The list goes on. Quite literally, any and all factors are fair game for a recommendation. So, the question isn't really what analysts do with financial data, it is what do analysts do with financial data that meets your investment needs? As an example, if you have two analysts, one who is focused on growth stocks, and one who is focused on dividend growth, they may have completely different views on a company. If both analysts were to analyze Apple (AAPL) 5 years ago, the dividend analyst would likely say SELL or at the most HOLD, because back then Apple did not have a dividend. However, an analyst focused on growth would likely have said BUY, because Apple appeared to be on a clear upward trend in terms of growth. Likewise, if you have analysts who are focused on shorting stocks, and ones who are focused on deep value investing, the sell analyst may be selling SELL because they are confident the stock will go down in price, so you can make money on the short position. Conversely, the deep value investor may be saying BUY, because they believe that based on the companies strong balance sheet, and recent shake-ups in management the stock will eventually turn around. Two completely different views for the same company: the analyst focused on shorting is looking to make money by capitalizing on falling share price, while the analyst focused on deep value is looking for unloved companies in a tailspin whom s/he believe will turn around, the thesis being that if you dollar-cost-average as the price drops, when it corrects, you'll reap the rewards. That all said, to answer the question about what analysts look for: So really, you should be looking for analysts who align with your investment style, and use those recommendations as a starting point for your own purchases. Personally, I am a dividend investor, so I have passed many BUY recommendations from analysts and my former broker because those were based on growth stories. That does not mean that the analysts, my former broker, or myself, are wrong. But we were all incorrect given the context of how I invest, and what they recommend."
},
{
"docid": "451737",
"title": "",
"text": "\"Does your job give you access to \"\"confidential information\"\", such that you can only buy or sell shares in the company during certain windows? Employees with access to company financial data, resource planning databases, or customer databases are often only allowed to trade in company securities (or derivatives thereof) during certain \"\"windows\"\" a few days after the company releases its quarterly earnings reports. Even those windows can be cancelled if a major event is about to be announced. These windows are designed to prevent the appearance of insider trading, which is a serious crime in the United States. Is there a minimum time that you would need to hold the stock, before you are allowed to sell it? Do you have confidence that the stock would retain most of its value, long enough that your profits are long-term capital gains instead of short-term capital gains? What happens to your stock if you lose your job, retire, or go to another company? Does your company's stock price seem to be inflated by any of these factors: If any of these nine warning flags are the case, I would think carefully before investing. If I had a basic emergency fund set aside and none of the nine warning flags are present, or if I had a solid emergency fund and the company seemed likely to continue to justify its stock price for several years, I would seriously consider taking full advantage of the stock purchase plan. I would not invest more money than I could afford to lose. At first, I would cash out my profits quickly (either as quickly as allowed, or as quickly as lets me minimize my capital gains taxes). I would reinvest in more shares, until I could afford to buy as many shares as the company would allow me to buy at the discount. In the long-run, I would avoid having more than one-third of my net worth in any single investment. (E.g., company stock, home equity, bonds in general, et cetera.)\""
},
{
"docid": "583378",
"title": "",
"text": "There's a lot of hype about HFT. It involves computers doing things that people don't really understand and making a bunch of rich guys a bunch of money, and there was a crisis and so we hate rich wall street guys this year, and so it's a hot-button issue. Meh. There's some reason for concern about the safety of the markets, but I think there's also a lot more of people trying to sell you a newspaper. Remember that while HFT may mean there are a lot of trades, the buying and the selling add up to the same thing. Meanwhile, people who buy stock to hold on to it for significant periods of time will still affect the quantity of stock out there on the market, applying pressure to the price, buying and selling at the prices that they think the security is worth. As a result, it's unlikely that high-frequency trading moves the stock price very far from the price that the rest of the market would determine for very long; if it did, the lower-frequency traders could take advantage of it, buying if it's too low and selling if it's too high. How long do you plan to hold a stock? If you're trying to do day-trading, you might have some trouble; these people are competing with you to do the same thing, and have significant resources at their disposal. If you're holding onto your stock for years on end (like you probably should be doing with most stock) then a trivial premium or discount on the price probably isn't going to be a big deal for you."
},
{
"docid": "292045",
"title": "",
"text": "\"When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior to 4Pm EST on expiration Friday. First ask yourself why you want to keep the shares. Is it to write another option? Is it to hold for a longer term strategy? Assuming this is a covered call writing account, you should consider \"\"rolling\"\" the option. This involves buying back the near-term option and selling the later date option of a similar or higher strike. Make sure to check to see if there is an upcoming earnings report in the latter month because you may want to avoid writing a call in that situation. I never write a call when there's an upcoming ER prior to expiration. Good luck. Alan\""
},
{
"docid": "232540",
"title": "",
"text": "Well it would appear that you had a wash sale that canceled out a loss position. Without seeing the entire report, I couldn't tell you exactly what was happening or how you triggered § 1091. But just from the excerpted images, it appears as though your purchase of stock was layered into multiple tranches - perhaps you acquired more of the stock in the 61-day period than you sold (possibly because of a prior holding). If in the 61-day period around the sale of stock (30 days before and 30 days after), you also acquire the same stock (including by contract or option), then it washes out your loss. If you held your stock for a while, then in a 61-day period bought more, and sold some, then any loss would be washed out by the acquisition. Of course it is also a wash sale if your purchase of the stock follows your sale, rather than precedes it. Your disallowed loss goes into the basis of your stock holding, so will be meaningful when you do have a true economic sale of that stock. From IRS Pub 550: A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. Looking at your excerpted account images, we can see a number of positions sold at a loss (sale proceeds less than basis) but each one is adjusted to a zero loss. I suspect the fuller picture of your account history and portfolio will show a more complicated and longer history with this particular stock. That is likely the source of the wash sale disallowed loss notations. You might be able to confirm that all the added numbers are appearing in your current basis in this stock (or were reflected upon your final exit from the stock)."
},
{
"docid": "360059",
"title": "",
"text": "\"There are people (well, companies) who make money doing roughly what you describe, but not exactly. They're called \"\"market makers\"\". Their value for X% is somewhere on the scale of 1% (that is to say: a scale at which almost everything is \"\"volatile\"\"), but they use leverage, shorting and hedging to complicate things to the point where it's nothing like a simple as making a 1% profit every time they trade. Their actions tend to reduce volatility and increase liquidity. The reason you can't do this is that you don't have enough capital to do what market makers do, and you don't receive any advantages that the exchange might offer to official market makers in return for them contracting to always make both buy bids and sell offers (at different prices, hence the \"\"bid-offer spread\"\"). They have to be able to cover large short-term losses on individual stocks, but when the stock doesn't move too much they do make profits from the spread. The reason you can't just buy a lot of volatile stocks \"\"assuming I don't make too many poor choices\"\", is that the reason the stocks are volatile is that nobody knows which ones are the good choices and which ones are the poor choices. So if you buy volatile stocks then you will buy a bunch of losers, so what's your strategy for ensuring there aren't \"\"too many\"\"? Supposing that you're going to hold 10 stocks, with 10% of your money in each, what do you do the first time all 10 of them fall the day after you bought them? Or maybe not all 10, but suppose 75% of your holdings give no impression that they're going to hit your target any time soon. Do you just sit tight and stop trading until one of them hits your X% target (in which case you start to look a little bit more like a long-term investor after all), or are you tempted to change your strategy as the months and years roll by? If you will eventually sell things at a loss to make cash available for new trades, then you cannot assess your strategy \"\"as if\"\" you always make an X% gain, since that isn't true. If you don't ever sell at a loss, then you'll inevitably sometimes have no cash to trade with through picking losers. The big practical question then is when that state of affairs persists, for how long, and whether it's in force when you want to spend the money on something other than investing. So sure, if you used a short-term time machine to know in advance which volatile stocks are the good ones today, then it would be more profitable to day-trade those than it would be to invest for the long term. Investing on the assumption that you'll only pick short-term winners is basically the same as assuming you have that time machine ;-) There are various strategies for analysing the market and trying to find ways to more modestly do what market makers do, which is to take profit from the inherent volatility of the market. The simple strategy you describe isn't complete and cannot be assessed since you don't say how to decide what to buy, but the selling strategy \"\"sell as soon as I've made X% but not otherwise\"\" can certainly be improved. If you're keen you can test a give strategy for yourself using historical share price data (or current share price data: run an imaginary account and see how you're doing in 12 months). When using historical data you have to be realistic about how you'd choose what stocks to buy each day, or else you're just cheating at solitaire. When using current data you have to beware that there might not be a major market slump in the next 12 months, in which case you won't know how your strategy performs under conditions that it inevitably will meet eventually if you run it for real. You also have to be sure in either case to factor in the transaction costs you'd be paying, and the fact that you're buying at the offer price and selling at the bid price, you can't trade at the headline mid-market price. Finally, you have to consider that to do pure technical analysis as an individual, you are in effect competing against a bank that's camped on top of the exchange to get fastest possible access to trade, it has a supercomputer and a team of whizz-kids, and it's trying to find and extract the same opportunities you are. This is not to say the plucky underdog can't do well, but there are systematic reasons not to just assume you will. So folks investing for their retirement generally prefer a low-risk strategy that plays the averages and settles for taking long-term trends.\""
},
{
"docid": "580733",
"title": "",
"text": "I think the dividend fund may not be what youre looking for. You mentioned you want growth, not income. But I think of dividend stocks as income stocks, not growth. They pay a dividend because these are established companies that do not need to invest so much in capex anymore, so they return it to shareholders. In other words, they are past their growth phase. These are what you want to hold when you have a large nest egg, you are ready to retire, and just want to make a couple percent a year without having to worry as much about market fluctuations. The Russel ETF you mentioned and other small caps are I think what you are after. I recently made a post here about the difference between index funds and active funds. The difference is very small. That is, in any given year, many active ETFs will beat them, many wont. It depends entirely on the market conditions at the time. Under certain conditions the small caps will outperform the S&P, definitely. However, under other conditioned, such as global growth slowdown, they are typically the first to fall. Based on your comments, like how you mentioned you dont want to sell, I think index funds should make up a decent size portion of your portfolio. They are the safest bet, long term, for someone who just wants to buy and hold. Thats not to say they need be all. Do a mixture. Diversification is good. As time goes on dont be afraid to add bond ETFs either. This will protect you during downturns as bond prices typically rise under slow growth conditions (and sometimes even under normal conditions, like last year when TLT beat the S&P...)"
},
{
"docid": "593644",
"title": "",
"text": "NSCC illiquid charges are charges that apply to the trading of low-priced over-the counter (OTC) securities with low volumes. Open net buy quantity represents the total unsettled share amount per stock at any given time during a 3-day settlement cycle. Open net buy quantity must be less than 5,000,000 shares per stock for your entire firm Basically, you can't hold a long position of more than 5 million shares in an illiquid OTC stock without facing a fee. You'll still be assessed this fee if you accumulate a long position of this size by breaking your purchase up into multiple transactions. Open net sell quantity represents the total unsettled share amount per stock at any given time during a 3-day settlement cycle. Open net sell quantity must be less than 10% percent of the 20-day average volume If you attempt to sell a number of shares greater than 10% of the stock's average volume over the last 20 days, you'll also be assessed a fee. The first link I included above is just an example, but it makes the important point: you may still be assessed a fee for trading OTC stocks even if your account doesn't meet the criteria because these restrictions are applied at the level of the clearing firm, not the individual client. This means that if other investors with your broker, or even at another broker that happens to use the same clearing firm, purchase more than 5 million shares in an individual OTC stock at the same time, all of your accounts may face fees, even though individually, you don't exceed the limits. Technically, these fees are assessed to the clearing firm, not the individual investor, but usually the clearing firm will pass the fees along to the broker (and possibly add other charges as well), and the broker will charge a fee to the individual account(s) that triggered the restriction. Also, remember that when buying OTC/pink sheet stocks, your ability to buy or sell is also contingent on finding someone else to buy from/sell to. If you purchase 10,000 shares one day and attempt to sell them sometime in the future, but there aren't enough buyers to buy all 10,000 from you, you might not be able to complete your order at the desired price, or even at all."
},
{
"docid": "107045",
"title": "",
"text": "Rich's answer captures the basic essence of short selling with example. I'd like to add these additional points: You typically need a specially-privileged brokerage account to perform short selling. If you didn't request short selling when you opened your account, odds are good you don't have it, and that's good because it's not something most people should ever consider doing. Short selling is an advanced trading strategy. Be sure you truly grok selling short before doing it. Consider that when buying stock (a.k.a. going long or taking a long position, in contrast to short) then your potential loss as a buyer is limited (i.e. stock goes to zero) and your potential gain unlimited (stock keeps going up, if you're lucky!) Whereas, with short selling, it's reversed: Your loss can be unlimited (stock keeps going up, if you're unlucky!) and your potential gain is limited (i.e. stock goes to zero.) The proceeds you receive from a short sale – and then some – need to stay in your account to offset the short position. Brokers require this. Typically, margin equivalent to 150% the market value of the shares sold short must be maintained in the account while the short position is open. The owner of the borrowed shares is still expecting his dividends, if any. You are responsible for covering the cost of those dividends out of your own pocket. To close or cover your short position, you initiate a buy to cover. This is simply a buy order with the intention that it will close out your matching short position. You may be forced to cover your short position before you want to and when it is to your disadvantage! Even if you have sufficient margin available to cover your short, there are cases when lenders need their shares back. If too many short sellers are forced to close out positions at the same time, they push up demand for the stock, increasing price and deepening their losses. When this happens, it's called a short squeeze. In the eyes of the public who mostly go long buying stock, short sellers are often reviled. However, some people and many short sellers believe they are providing balance to the market and preventing it sometimes from getting ahead of itself. [Disambiguation: A short sale in the stock market is not related to the real estate concept of a short sale, which is when a property owner sells his property for less than he owes the bank.] Additional references:"
},
{
"docid": "474981",
"title": "",
"text": "\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \"\"Don't let the tax tail wag the investing dog.\"\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\""
},
{
"docid": "273761",
"title": "",
"text": "\"As you note, your question is inherently opinion-based. That said, if I were in your situation I would sell the stock all at once and buy whatever it is you want to buy (hopefully some index ETF or mutual fund). According to what I see, the current value of the HD stock is about $8500 and the JNJ stock is worth less than $500. With a total investment of less than $10,000, any gain you are likely to miss by liquidating now is not going to be huge in absolute terms. This is doubly true since you were given the stock, so you have no specific reason to believe it will do well at all. If you had picked it yourself based on careful analysis, it could be worth keeping if you \"\"believed in yourself\"\" (or even if you just wanted to test your acumen), but as it is the stock is essentially random. Even if you want to pursue an aggressive allocation, it doesn't make sense to allocate everything to one stock for no reason. If you were going to put everything in one stock, you'd want it to be a stock you had analyzed and picked. (I still think it would be a bad idea, but at least it would be a more defensible idea.) So I would say the risk of your lopsided allocation (just two companies, with more than 90% of the value in just one) outweighs any risk of missing out on a gain. If news breaks tomorrow that the CEO of Home Depot has been embezzling (or if Trump decides to go on the Twitter warpath for some reason), your investment could disappear. Another common way to think about it is: if you had $9000 today to buy stocks with, would you buy $8500 worth of HD and $500 worth of JNJ? If not, it probably doesn't make sense to hold them just because you happen to have them. The only potential exception to my advice above would be tax considerations. You didn't mention what your basis in the stock is. Looking at historical prices, it looks like if all the stock was 20 years old you'd have a gain of about $8000, and if all of it was 10 years old you'd have a gain of about $6000. If your tax situation is such that selling all the stock at once would push you into a higher tax bracket, it might make sense to sell only enough to fit into your current bracket, and sell the rest next year. However, I think this situation is unlikely because: A) since the stock has been held for a long time, most of the gains will be at the lower long-term rate; B) if you have solid income, you can probably afford the tax; and C) if you don't have solid income, your long-term capital gains rate will likely be zero.\""
},
{
"docid": "232880",
"title": "",
"text": "A long put - you have a small initial cost (the option premium) but profit as the stock goes down. You have no additional risk if the shock rises, even a lot. Short a stock - you gain if the stock drops, but have unlimited risk if it rises, the call mitigates this, by capping that rising stock risk. The profit/loss graph looks similar to the long put when you hold both the short position and the long call. You might consider producing a graph or spreadsheet to compare positions. You can easily sketch put, call, long stock, short stock, and study how combinations of positions can synthetically look like other positions. Often, when a stock has no shares to short, the synthetic short can help you put your stock position in place."
},
{
"docid": "361929",
"title": "",
"text": "Yes it is viable but uncommon. As with everything to do with investment, you have to know what you are doing and must have a plan. I have been successful with long term trading of CFDs for about 4 years now. It is true that the cost of financing to hold positions long term cuts into profits but so do the spreads when you trade frequently. What I have found works well for me is maintaining a portfolio that is low volatility, (e.g. picking a mix of positions that are negatively correlated) has a good sharpe ratio, sound fundamentals (i.e. co-integrated assets - or at least fairly stable correlations) then leveraging a modest amount."
},
{
"docid": "300698",
"title": "",
"text": "One answer in four days tells you this is a niche, else there should be many replies by now. The bible is McMillan on Options Note - I link to the 1996 edition which starts at 39 cents, the latest revision will set you back $30 used. The word bible says it all, it offers a great course in options, everything you need to know. You don't get a special account for option trading. You just apply to your regular broker, so depending what you wish to do, the amount starts at You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience."
}
] |
8102 | When do I sell a stock that I hold as a long-term position? | [
{
"docid": "90294",
"title": "",
"text": "For what it's worth -- and I realize this isn't directly an answer to the question -- one of the advantages of sticking with mutual funds, beyond their being inherently diversified, is that it removes a lot of the temptation to try to time the market. When you need money, you sell shares in such a way that it maintains your preferred investment ratio, and simply don't worry about which stocks are actually involved. (I've gotten 15% APR this year across all my investments, for absolutely minimal effort. That's quite good enough for me.)"
}
] | [
{
"docid": "561997",
"title": "",
"text": "I think your premise is slightly flawed. Every investment can add or reduce risk, depending on how it's used. If your ordering above is intended to represent the probability you will lose your principal, then it's roughly right, with caveats. If you buy a long-term government bond and interest rates increase while you're holding it, its value will decrease on the secondary markets. If you need/want to sell it before maturity, you may not recover your principal, and if you hold it, you will probably be subject to erosion of value due to inflation (inflation and interest rates are correlated). Over the short-term, the stock market can be very volatile, and you can suffer large paper losses. But over the long-term (decades), the stock market has beaten inflation. But this is true in aggregate, so, if you want to decrease equity risk, you need to invest in a very diversified portfolio (index mutual funds) and hold the portfolio for a long time. With a strategy like this, the stock market is not that risky over time. Derivatives, if used for their original purpose, can actually reduce volatility (and therefore risk) by reducing both the upside and downside of your other investments. For example, if you sell covered calls on your equity investments, you get an income stream as long as the underlying equities have a value that stays below the strike price. The cost to you is that you are forced to sell the equity at the strike price if its value increases above that. The person on the other side of that transaction loses the price of the call if the equity price doesn't go up, but gets a benefit if it does. In the commodity markets, Southwest Airlines used derivatives (options to buy at a fixed price in the future) on fuel to hedge against increases in fuel prices for years. This way, they added predictability to their cost structure and were able to beat the competition when fuel prices rose. Even had fuel prices dropped to zero, their exposure was limited to the pre-negotiated price of the fuel, which they'd already planned for. On the other hand, if you start doing things like selling uncovered calls, you expose yourself to potentially infinite losses, since there are no caps on how high the price of a stock can go. So it's not possible to say that derivatives as a class of investment are risky per se, because they can be used to reduce risk. I would take hedge funds, as a class, out of your list. You can't generally invest in those unless you have quite a lot of money, and they use strategies that vary widely, many of which are quite risky."
},
{
"docid": "545267",
"title": "",
"text": "\"Very interesting question. While searching i also found that some precious metal ETFs (including IAU) gains are taxed at 28% because IRS considers it \"\"collectible\"\", rather than the usual long term 15% for stocks and stock holding ETFs. As for capital gain tax you have to pay now my guess it's because of the following statement in the IAU prospectus (page 34): When the trust sells gold, for example to pay expenses, a Shareholder will recognize gain or loss ....\""
},
{
"docid": "273761",
"title": "",
"text": "\"As you note, your question is inherently opinion-based. That said, if I were in your situation I would sell the stock all at once and buy whatever it is you want to buy (hopefully some index ETF or mutual fund). According to what I see, the current value of the HD stock is about $8500 and the JNJ stock is worth less than $500. With a total investment of less than $10,000, any gain you are likely to miss by liquidating now is not going to be huge in absolute terms. This is doubly true since you were given the stock, so you have no specific reason to believe it will do well at all. If you had picked it yourself based on careful analysis, it could be worth keeping if you \"\"believed in yourself\"\" (or even if you just wanted to test your acumen), but as it is the stock is essentially random. Even if you want to pursue an aggressive allocation, it doesn't make sense to allocate everything to one stock for no reason. If you were going to put everything in one stock, you'd want it to be a stock you had analyzed and picked. (I still think it would be a bad idea, but at least it would be a more defensible idea.) So I would say the risk of your lopsided allocation (just two companies, with more than 90% of the value in just one) outweighs any risk of missing out on a gain. If news breaks tomorrow that the CEO of Home Depot has been embezzling (or if Trump decides to go on the Twitter warpath for some reason), your investment could disappear. Another common way to think about it is: if you had $9000 today to buy stocks with, would you buy $8500 worth of HD and $500 worth of JNJ? If not, it probably doesn't make sense to hold them just because you happen to have them. The only potential exception to my advice above would be tax considerations. You didn't mention what your basis in the stock is. Looking at historical prices, it looks like if all the stock was 20 years old you'd have a gain of about $8000, and if all of it was 10 years old you'd have a gain of about $6000. If your tax situation is such that selling all the stock at once would push you into a higher tax bracket, it might make sense to sell only enough to fit into your current bracket, and sell the rest next year. However, I think this situation is unlikely because: A) since the stock has been held for a long time, most of the gains will be at the lower long-term rate; B) if you have solid income, you can probably afford the tax; and C) if you don't have solid income, your long-term capital gains rate will likely be zero.\""
},
{
"docid": "478600",
"title": "",
"text": "\"The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more than one year. If the option is exercised (calling away your stock) then you add the premium to your sale price on the stock and then compute the capital gain. So in this case you can end up treating the premium as a long-term capital gain. See IRS pub 550 http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010619 Search for \"\"Writers of puts and calls\"\"\""
},
{
"docid": "218695",
"title": "",
"text": "RSU are taxed when vested, based on their value at that point, as salary. If you don't sell to cover, you need to pay the taxes, if you sell to cover - you sell the portion that is worth the taxes (brokers do that automatically, and remit the taxes on your behalf). Once paid your taxes, it becomes a regular stock position - short term gains if you sell within a year after vesting, long term if you wait for more than a year. The consideration whether to wait or sell is as with any other investment, them being previously restricted has no meaning. You calculate the gain for each position, so the fact that you have more than one position is not a problem. The RSU income and the taxes paid will appear on your W2, so when the broker reports proceeds, you can show the basis and thus calculate the gain. See this question for some useful answers on how to report the RSU sale on your taxes."
},
{
"docid": "210514",
"title": "",
"text": "That is such a vague statement, I highly recommend disregarding it entirely, as it is impossible to know what they meant. Their goal is to convince you that index funds are the way to go, but depending on what they consider an 'active trader', they may be supporting their claim with irrelevant data Their definition of 'active trader' could mean any one or more of the following: 1) retail investor 2) day trader 3) mutual fund 4) professional investor 5) fund continuously changing its position 6) hedge fund. I will go through all of these. 1) Most retail traders lose money. There are many reasons for this. Some rely on technical strategies that are largely unproven. Some buy rumors on penny stocks in hopes of making a quick buck. Some follow scammers on twitter who sell newsletters full of bogus stock tips. Some cant get around the psychology of trading, and thus close out losing positions late and winning positions early (or never at all) [I myself use to do this!!]. I am certain 99% of retail traders cant beat the market, because most of them, to be frank, put less effort into deciding what to trade than in deciding what to have for lunch. Even though your pension funds presentation is correct with respect to retail traders, it is largely irrelevant as professionals managing your money should not fall into any of these traps. 2) I call day traders active traders, but its likely not what your pension fund was referring to. Day trading is an entirely different animal to long or medium term investing, and thus I also think the typical performance is irrelevant, as they are not going to manage your money like a day trader anyway. 3,4,5) So the important question becomes, do active funds lose 99% of the time compared to index funds. NO! No no no. According to the WSJ, actively managed funds outperformed passive funds in 2007, 2009, 2013, 2015. 2010 was basically a tie. So 5 out of 9 years. I dont have a calculator on me but I believe that is less than 99%! Whats interesting is that this false belief that index funds are always better has become so pervasive that you can see active funds have huge outflows and passive have huge inflows. It is becoming a crowded trade. I will spare you the proverb about large crowds and small doors. Also, index funds are so heavily weighted towards a handful of stocks, that you end up becoming a stockpicker anyway. The S&P is almost indistinguishable from AAPL. Earlier this year, only 6 stocks were responsible for over 100% of gains in the NASDAQ index. Dont think FB has a good long term business model, or that Gilead and AMZN are a cheap buy? Well too bad if you bought QQQ, because those 3 stocks are your workhorses now. See here 6) That graphic is for mutual funds but your pension fund may have also been including hedge funds in their 99% figure. While many dont beat their own benchmark, its less than 99%. And there are reasons for it. Many have investors that are impatient. Fortress just had to close one of its funds, whose bets may actually pay off years from now, but too many people wanted their money out. Some hedge funds also have rules, eg long only, which can really limit your performance. While important to be aware of this, that placing your money with a hedge fund may not beat a benchmark, that does not automatically mean you should go with an index fund. So when are index funds useful? When you dont want to do any thinking. When you dont want to follow market news, at all. Then they are appropriate."
},
{
"docid": "344372",
"title": "",
"text": "I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge."
},
{
"docid": "100128",
"title": "",
"text": "Here's an excerpt from the Charles Schwab website which I think will help evaluate your position: The simple answer to your question is no, the value of a gift of stock for gift tax liability is NOT the donor's cost basis, but rather the fair market value of the stock at the time the gift is given. So let's say you purchased 100 shares of XYZ stock at $50 a share. Your cost basis is $5,000. Now the stock is $80 a share and you give it as a gift. The value of your gift for gift tax purposes is $8,000. In 2015, you can give up to $14,000 to an unlimited number of individuals each year without paying a gift tax or even reporting the gifts. If you give over that amount to any individual, however, you must report the gift on your tax return, but you don't have to pay taxes until you give away more than the current lifetime limit of $5,430,000—for the amount above and beyond $14,000 per person per year. So in the example above, there would be no gift tax liability. However, if the stock happened to be $150 a share, the value of the gift would be $15,000. You'd then have to report it and $1,000 would be applied toward your $5,430,000 lifetime exclusion. You will need to pay a gift tax on the current value of the stock. I'm not familiar with the tax laws in India, but if your brother was in the US, he wouldn't pay taxes on that gift until he sells the stock. The recipient doesn’t have to worry about gift taxes. It's when the recipient decides to sell the stock that the issue of valuation comes up—for income taxes. And this is where things can get a bit more complicated. In general, when valuing a gift of stock for capital gains tax liability, it's the donor's cost basis and holding period that rules. As an example, let's say you receive a gift of stock from your grandfather. He bought it for $10 a share and it's worth $15 a share on the day you receive it. If you then sell the stock, whether for a gain or a loss, your cost basis will be the same as your grandfather’s: $10 per share. Sell it at $25 and you'll pay tax (at the short- or long-term rate, depending on how long he owned the stock) on a gain of $15 a share; sell it at $8 and your capital loss will be $2 a share. Ultimately, with a gift this large that also crosses international borders, you really should hire a professional who is experienced with these types of transactions. Their fees/commission will be completely offset by the savings in risk and paperwork. http://www.schwab.com/public/schwab/nn/articles/How-Do-You-Value-a-Gift-of-Stock-It-Depends-on-Whether-You-re-the-Giver-or-the-Receiver"
},
{
"docid": "138096",
"title": "",
"text": "\"If you're asking this question, you probably aren't ready to be buying individual stock shares, and may not be ready to be investing in the market at all. Short-term in the stock market is GAMBLING, pure and simple, and gambling against professionals at that. You can reduce your risk if you spend the amount of time and effort the pros do on it, but if you aren't ready to accept losses you shouldn't be playing and if you aren't willing to bet it all on a single throw of the dice you should diversify and accept lower potential gain in exchange for lower risk. (Standard advice: Index funds.) The way an investor, as opposed to a gambler, deals with a stock price dropping -- or surging upward, or not doing anything! -- is to say \"\"That's interesting. Given where it is NOW, do I expect it to go up or down from here, and do I think I have someplace to put the money that will do better?\"\" If you believe the stock will gain value from here, holding it may make more sense than taking your losses. Specific example: the mortgage-crisis market crash of a few years ago. People who sold because stock prices were dropping and they were scared -- or whose finances forced them to sell during the down period -- were hurt badly. Those of us who were invested for the long term and could afford to leave the money in the market -- or who were brave/contrarian enough to see it as an opportunity to buy at a better price -- came out relatively unscathed; all I have \"\"lost\"\" was two years of growth. So: You made your bet. Now you have to decide: Do you really want to \"\"buy high, sell low\"\" and take the loss as a learning experience, or do you want to wait and see whether you can sell not-so-low. If you don't know enough about the company to make a fairly rational decision on that front, you probably shouldn't have bought its stock.\""
},
{
"docid": "157347",
"title": "",
"text": "The product type and transaction direction are not linked. When you short sell a stock, you are still dealing with shares of an equity security. When you take delivery of a bond, you are buying that bond and holding a long position even though it's a debt security."
},
{
"docid": "528475",
"title": "",
"text": "\"This is an old post I feel requires some more love for completeness. Though several responses have mentioned the inherent risks that currency speculation, leverage, and frequent trading of stocks or currencies bring about, more information, and possibly a combination of answers, is necessary to fully answer this question. My answer should probably not be the answer, just some additional information to help aid your (and others') decision(s). Firstly, as a retail investor, don't trade forex. Period. Major currency pairs arguably make up the most efficient market in the world, and as a layman, that puts you at a severe disadvantage. You mentioned you were a student—since you have something else to do other than trade currencies, implicitly you cannot spend all of your time researching, monitoring, and investigating the various (infinite) drivers of currency return. Since major financial institutions such as banks, broker-dealers, hedge-funds, brokerages, inter-dealer-brokers, mutual funds, ETF companies, etc..., do have highly intelligent people researching, monitoring, and investigating the various drivers of currency return at all times, you're unlikely to win against the opposing trader. Not impossible to win, just improbable; over time, that probability will rob you clean. Secondly, investing in individual businesses can be a worthwhile endeavor and, especially as a young student, one that could pay dividends (pun intended!) for a very long time. That being said, what I mentioned above also holds true for many large-capitalization equities—there are thousands, maybe millions, of very intelligent people who do nothing other than research a few individual stocks and are often paid quite handsomely to do so. As with forex, you will often be at a severe informational disadvantage when trading. So, view any purchase of a stock as a very long-term commitment—at least five years. And if you're going to invest in a stock, you must review the company's financial history—that means poring through 10-K/Q for several years (I typically examine a minimum ten years of financial statements) and reading the notes to the financial statements. Read the yearly MD&A (quarterly is usually too volatile to be useful for long term investors) – management discussion and analysis – but remember, management pays themselves with your money. I assure you: management will always place a cherry on top, even if that cherry does not exist. If you are a shareholder, any expense the company pays is partially an expense of yours—never forget that no matter how small a position, you have partial ownership of the business in which you're invested. Thirdly, I need to address the stark contrast and often (but not always!) deep conflict between the concepts of investment and speculation. According to Seth Klarman, written on page 21 in his famous Margin of Safety, \"\"both investments and speculations can be bought and sold. Both typically fluctuate in price and can thus appear to generate investment returns. But there is one critical difference: investments throw off cash flow for the benefit of the owners; speculations do not. The return to the owners of speculations depends exclusively on the vagaries of the resale market.\"\" This seems simple and it is; but do not underestimate the profound distinction Mr. Klarman makes here. (and ask yourself—will forex pay you cash flows while you have a position on?) A simple litmus test prior to purchasing a stock might help to differentiate between investment and speculation: at what price are you willing to sell, and why? I typically require the answer to be at least 50% higher than the current salable price (so that I have a margin of safety) and that I will never sell unless there is a material operating change, accounting fraud, or more generally, regime change within the industry in which my company operates. Furthermore, I then research what types of operating changes will alter my opinion and how severe they need to be prior to a liquidation. I then write this in a journal to keep myself honest. This is the personal aspect to investing, the kind of thing you learn only by doing yourself—and it takes a lifetime to master. You can try various methodologies (there are tons of books) but overall just be cautious. Money lost does not return on its own. I've just scratched the surface of a 200,000 page investing book you need to read if you'd like to do this professionally or as a hobbyist. If this seems like too much or you want to wait until you've more time to research, consider index investing strategies (I won't delve into these here). And because I'm an investment professional: please do not interpret anything you've read here as personal advice or as a solicitation to buy or sell any securities or types of securities, whatsoever. This has been provided for general informational purposes only. Contact a financial advisor to review your personal circumstances such as time horizon, risk tolerance, liquidity needs, and asset allocation strategies. Again, nothing written herein should be construed as individual advice.\""
},
{
"docid": "165970",
"title": "",
"text": "The standard answer on any long term stock is hold on during the rough times. You have not lost anything until you sell. If your concern is just that you are not certain where the stock price is headed, unless you need the money now and can not afford to hold on to the stock then I would hold it."
},
{
"docid": "474981",
"title": "",
"text": "\"You have multiple issues buried within this question. First, we don't know your tax bracket. For my answer, I'll assume 25%. This simply means that in 2016, you'll have a taxable $37,650 or higher. The interesting thing is that losses and gains are treated differently. A 25%er's long term gain is taxed at 15%, yet losses, up to $3000, can offset ordinary income. This sets the stage for strategic tax loss harvesting. In the linked article, I offered a look at how the strategy would have resulted in the awful 2000-2009 decade producing a slight gain (1%, not great, of course) vs the near 10% loss the S&P suffered over that time. This was by taking losses in down years, and capturing long term gains when positive (and not using a carried loss). Back to you - a 15%er's long term gain tax is zero. So using a gain to offset a loss makes little sense. Just as creating a loss to offset the gain. The bottom line? Enjoy the loss, up to $3000 against your income, and only take gains when there's no loss. This advice is all superseded by my rule \"\"Don't let the tax tail wag the investing dog.\"\" For individual stocks, I would never suggest a transaction for tax purposes. You keep good stocks, you sell bad ones. Sell a stock to take a short term loss only to have it recover in the 30 day waiting period just once, and you'll learn that lesson. Learn it here for free, don't make that mistake at your own expense.\""
},
{
"docid": "506078",
"title": "",
"text": "Forex vs Day Trading: These can be one and the same, as most people who trade forex do it as day trading. Forex is the instrument you are trading and day trading is the time frame you are doing it in. If your meaning from your question was comparing trading forex vs stocks, then it depends on a number of things. Forex is more liquid so most professional traders prefer it as it can be easier to get in and out without being gapped. However, if you are not trading large amounts of money and you stay away from more volatile stocks, this should not matter too much. It may also depend on what you understand more and prefer to trade. You need to be comfortable with what you are trading. If on the other hand you are referring to day trading vs longer term trading and/or investing, then this can depend largely on the instrument you are trading and the time frame you are more comfortable with. Forex is used more for shorter term trading, from day trading to having a position open for a couple of days. Stocks on the other hand can be day traded to traded over days, weeks, months or years. It is much more common to have positions open for longer periods with stocks. Other instruments like commodities, can also be traded over different time frames. The shorter the time frame you trade the higher risk involved as you have to make quick decisions and be happy with making a lot of smaller gains with the potential to make a large loss if things go wrong. It is best once again to chose a time frame you are comfortable with. I tend to trade Australian stocks as I know them well and am comfortable with them. I usually trade in the medium to long term, however I let the market decide how long I am in a position and when I get out of it. I try to follow the trend and stay in a position as long as the trend continues. I put automatic stop losses on all my positions, so if the market turns against me I am automatically taken out. I can be in a position for as little as a day (can happen if I buy one day and the next day the stock falls by 15% or more) to over a year (as long as the trend continues). By doing this I avoid the daily market noise and let my profits run and keep my losses small. No matter what instrument you end up trading and the time frame you choose to trade in, you should always have a tested trading plan and a risk management strategy in place. These are the areas you should first gain knowledge in to further your pursuits in trading."
},
{
"docid": "583378",
"title": "",
"text": "There's a lot of hype about HFT. It involves computers doing things that people don't really understand and making a bunch of rich guys a bunch of money, and there was a crisis and so we hate rich wall street guys this year, and so it's a hot-button issue. Meh. There's some reason for concern about the safety of the markets, but I think there's also a lot more of people trying to sell you a newspaper. Remember that while HFT may mean there are a lot of trades, the buying and the selling add up to the same thing. Meanwhile, people who buy stock to hold on to it for significant periods of time will still affect the quantity of stock out there on the market, applying pressure to the price, buying and selling at the prices that they think the security is worth. As a result, it's unlikely that high-frequency trading moves the stock price very far from the price that the rest of the market would determine for very long; if it did, the lower-frequency traders could take advantage of it, buying if it's too low and selling if it's too high. How long do you plan to hold a stock? If you're trying to do day-trading, you might have some trouble; these people are competing with you to do the same thing, and have significant resources at their disposal. If you're holding onto your stock for years on end (like you probably should be doing with most stock) then a trivial premium or discount on the price probably isn't going to be a big deal for you."
},
{
"docid": "374797",
"title": "",
"text": "\"There's no free lunch. Here are some positions that should be economically equivalent (same risk and reward) in a theoretically-pure universe with no regulations or transaction costs: You're proposing to buy the call. If you look at the equivalent, stock plus protective put, you can quickly see the \"\"catch\"\"; the protective put is expensive. That same expense is embedded in the call option. See put-call parity on Wikipedia for more: http://en.wikipedia.org/wiki/Put%E2%80%93call_parity You could easily pay 10% a year or more for the protection, which could easily eat up most of your returns, if you consider that average returns on a stock index might be about 10% (nominal, not real). Another way to look at it is that buying the long call and selling a put, which is a synthetic long position in the stock, would give you the put premium. So by not selling the put, you should be worse off than owning the stock - worse than the synthetic long - by about the value of the put premium. Or yet another way to look at it is that you're repeatedly paying time value on the long call option as you roll it. In practical world instead of theory world, I think you'd probably get a noticeable hit to returns just from bid-ask and commissions, even without the cost of the protection. Options cost more. Digressing a bit, some practical complications of equivalency between different combinations of options and underlying are: Anyway, roughly speaking, any position without the \"\"downside risk\"\" is going to have an annual loss built in due to the cost of the protection. Occasionally the options market can do something weird due to supply/demand or liquidity issues but mostly the parity relationships hold, or hold closely enough that you can't profit once expenses are considered. Update: one note, I'm talking about \"\"vanilla\"\" options as traded in the US here, I guess there are some somewhat different products elsewhere; I'm not sure exactly which derivatives you mean. All derivatives have a cost though or nobody would take the other side of the trade.\""
},
{
"docid": "428619",
"title": "",
"text": "\"If the market is reasonably efficient, why wouldn't this become a self-defeating prophecy, with the eventual recovery priced in throughout the whole recession? Eventual, but when? That is a big unknown. In fact, even a recovery is not guaranteed. Japan's long deleveraging process is brought up often enough with regard to our current long and painful economic downturn. Given that the business cycle isn't predictable This is one of the big issues. If things were predictable, investing would be easy and there probably wouldn't be as much money to be made in it. owning stocks with a short time horizon is generally a bad idea Agreed. However, it does not mean that this does not happen. In fact, it happens every day. It's called day trading. Also, it is possible to make money that way, else it would not occur. So, strictly speaking, whether it is a good or bad idea comes down to specific situations. why would anyone buy stocks in the first place if they weren't prepared to ride out a recession if one happens? These things tend to happen at the worst times and they have a way of compounding or piling-up. E.g. you overextend yourself, the economy goes south, you find yourself jobless and unable to pay the mortgage, you are forced to liquidate some of your positions because you need cold, hard cash. Benjamin Graham is widely quoted to have stated that the stock market is a voting (opinion) machine in the short term and a weighing (fact) machine in the long term. This may not feel very satisfying to you: but, it is just the way it is. While the dissemination of information may be relatively efficient, the interpretation of that information is quite variable. It is not easy to put a number to most events. (By \"\"put a number\"\" I mean determine the impact to the balance sheet.) It is a complicated system, with many inputs and many actors, which have varying goals. While there may be an effective, Zen-like approach to investing, the markets cannot actually be simplified to \"\"buy low, sell high\"\" in practice. Or, more specific to your question \"\"buy and hold\"\" is a simple idea, that is not necessarily easy to implement. Prompted by JoeTaxpayer's comment, I went searching for one of my favorite quotes regarding the markets: \"\"Markets can remain irrational a lot longer than you and I can remain solvent.\"\" -- John Maynard Keynes And, I came across this one, which I think applies quite well to this question: \"\"The long run is a misleading guide to current affairs. In the long run we are all dead.\"\" -- John Maynard Keynes\""
},
{
"docid": "593644",
"title": "",
"text": "NSCC illiquid charges are charges that apply to the trading of low-priced over-the counter (OTC) securities with low volumes. Open net buy quantity represents the total unsettled share amount per stock at any given time during a 3-day settlement cycle. Open net buy quantity must be less than 5,000,000 shares per stock for your entire firm Basically, you can't hold a long position of more than 5 million shares in an illiquid OTC stock without facing a fee. You'll still be assessed this fee if you accumulate a long position of this size by breaking your purchase up into multiple transactions. Open net sell quantity represents the total unsettled share amount per stock at any given time during a 3-day settlement cycle. Open net sell quantity must be less than 10% percent of the 20-day average volume If you attempt to sell a number of shares greater than 10% of the stock's average volume over the last 20 days, you'll also be assessed a fee. The first link I included above is just an example, but it makes the important point: you may still be assessed a fee for trading OTC stocks even if your account doesn't meet the criteria because these restrictions are applied at the level of the clearing firm, not the individual client. This means that if other investors with your broker, or even at another broker that happens to use the same clearing firm, purchase more than 5 million shares in an individual OTC stock at the same time, all of your accounts may face fees, even though individually, you don't exceed the limits. Technically, these fees are assessed to the clearing firm, not the individual investor, but usually the clearing firm will pass the fees along to the broker (and possibly add other charges as well), and the broker will charge a fee to the individual account(s) that triggered the restriction. Also, remember that when buying OTC/pink sheet stocks, your ability to buy or sell is also contingent on finding someone else to buy from/sell to. If you purchase 10,000 shares one day and attempt to sell them sometime in the future, but there aren't enough buyers to buy all 10,000 from you, you might not be able to complete your order at the desired price, or even at all."
},
{
"docid": "121765",
"title": "",
"text": "The short answer: it depends. The long answer.. Off the top of my head, there are quite a number of factors that an analyst may look at when analyzing a stock, to come up with a recommendation. Some example factors to look at include: The list goes on. Quite literally, any and all factors are fair game for a recommendation. So, the question isn't really what analysts do with financial data, it is what do analysts do with financial data that meets your investment needs? As an example, if you have two analysts, one who is focused on growth stocks, and one who is focused on dividend growth, they may have completely different views on a company. If both analysts were to analyze Apple (AAPL) 5 years ago, the dividend analyst would likely say SELL or at the most HOLD, because back then Apple did not have a dividend. However, an analyst focused on growth would likely have said BUY, because Apple appeared to be on a clear upward trend in terms of growth. Likewise, if you have analysts who are focused on shorting stocks, and ones who are focused on deep value investing, the sell analyst may be selling SELL because they are confident the stock will go down in price, so you can make money on the short position. Conversely, the deep value investor may be saying BUY, because they believe that based on the companies strong balance sheet, and recent shake-ups in management the stock will eventually turn around. Two completely different views for the same company: the analyst focused on shorting is looking to make money by capitalizing on falling share price, while the analyst focused on deep value is looking for unloved companies in a tailspin whom s/he believe will turn around, the thesis being that if you dollar-cost-average as the price drops, when it corrects, you'll reap the rewards. That all said, to answer the question about what analysts look for: So really, you should be looking for analysts who align with your investment style, and use those recommendations as a starting point for your own purchases. Personally, I am a dividend investor, so I have passed many BUY recommendations from analysts and my former broker because those were based on growth stories. That does not mean that the analysts, my former broker, or myself, are wrong. But we were all incorrect given the context of how I invest, and what they recommend."
}
] |
8116 | A-B-C Class Shares: What's the difference? | [
{
"docid": "236482",
"title": "",
"text": "\"In most cases, the other classes of shares are preferred stock (example, JPM-F). Preferred stock usually pays higher dividends and shareholders get preferential treatment in the event that the company goes under. (Preferred shareholders are behind bondholders in line, but ahead of common stock holders) In other cases, different classes of shares have different voting rights or pricing. Examples include Berkshire Hathaway B shares. In the case of Berkshire Hathaway B shares, the stock has 1/500th of the rights and 1/10,000th of the voting rights of an \"\"A\"\" share. You need to be cautious about investing in anything other than common stock -- make sure that you understand what you are getting into. This is not to say that other share classes are 'bad' -- just that many preferred stocks are thinly traded and are difficult to buy and sell.\""
}
] | [
{
"docid": "79445",
"title": "",
"text": "Assuming no debt, as you've specified in the comments to your question, the assets should generally be distributed proportional to ownership share. BUT, without any sort of agreement, there might be contention on what each investor's share is and that might get fought out in court. With a corporation issuing shares, the corporate charter probably defines the relationship between different classes of shares (or specifies only one class). For a partnership though, you could conceivable have people making claims of ownership stake based on labor in addition to any cash that they put up. Messy if there's no up-front agreement."
},
{
"docid": "132738",
"title": "",
"text": "\"This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so \"\"earnings\"\" are taxed the same. However, for S-Corp there's a \"\"reasonable compensation\"\" requirement, so while B and C don't do any \"\"work\"\" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place.\""
},
{
"docid": "353911",
"title": "",
"text": "It does make sense to combine debts and pay off the worst (highest interest rate). However, if you can't get any loan, you should focus on the worst debt and pay that off. Then take the same amount of money you were paying to the next worse debt, and so on until you're clean. Let's look at an example. Debt A is at 5%, Debt B is at 10% and Debt C is at 15%. You are paying AB and C. On a monthly basis, you save 100€ to pay off C. Once C is payed off, you keep on saving 100€ and add whatever you were paying to Debt C to those savings. This way, you can pay off Debt B at an increased rate. When B is cleared, you save 100€ + whatever you were paying to Debt B and Debt C to clear Debt A. That's the theory."
},
{
"docid": "588484",
"title": "",
"text": "\"If you're not getting pay stubs showing withholding then you're working \"\"under the table\"\", which (a) is illegal, (b) is a deal for the employer because they don't have to pay any of the employment taxes including their share of your SocSec and (c) is screwing you because you'll still need to pay taxes on every dime they pay your but won't have anything set aside for it unless you're doing that yourself. Which I'm guessing you're not. Call the local labor board or whatever.\""
},
{
"docid": "237826",
"title": "",
"text": "I think our definition of investor is different. I don't typically think of the pre school teacher who pays into union pension is an investor, but they technically are. Which is where this disagreement stems from. Right, the person who doesn't know what the Dow and S&P are probably don't need to see statements periodically although can still invest with an advisor. So what develops trust other than track record? clients stay with him for a long time could be an answer. But why do they stay with them? B/c performance. Will a money manager who consistently loses money not get fired bc performance is a bad indicator? How do people determine good vs bad job other than based on their performance of that job?"
},
{
"docid": "491829",
"title": "",
"text": "\"On your tax return's Schedule C, Line B, you need to enter the Principal Business or Professional Activity Code that corresponds to your business's activities. There is a list of these 6-digit codes at the end of the Schedule C instructions. (HTML version here, or you can look at the last two pages of the PDF version.) The directions at the top of this list reads: Select the category that best describes your primary business activity (for example, Real Estate). Then select the activity that best identifies the principal source of your sales or receipts (for example, real estate agent). Now find the six-digit code assigned to this activity (for example, 531210, the code for offices of real estate agents and brokers) and enter it on Schedule C or C-EZ, line B. (Emphasis mine.) Although there are a lot of codes, it is entirely possible that you won't find one that exactly matches what you do. The directions say to pick the \"\"best\"\" one that you can. First, pick the broad category. You haven't specified your business, but let's say that you are a freelance programmer (a common occupation for Stack Exchange users). The category you decide is best might be \"\"Professional, Scientific, & Technical Services.\"\" There are several subcategories and activity codes under this, and you might find one that fits your business. However, if you don't, at the end of most categories, there is an \"\"Other\"\" code. For our example, there is code 541990, which is \"\"All other professional, scientific, & technical services.\"\" If you can't even find a broad category that describes your business, there is the last code in the list: 999999, which is for \"\"Unclassified establishments (unable to classify).\"\"\""
},
{
"docid": "47163",
"title": "",
"text": "\"Depends on the country, whether its a currency issuer with floating exchange rate, and what the debt is denominated in. For instance, the US has no real debt, b/c its all in US dollars and can be printed at any time. It has no need to borrow anything, it issues its own currency. It used to be different 4 decades ago, on the gold standard, so in general people still think currency issuers need to borrow (or earn) to spend. Just a relic in thinking. But when the country does not issue its own currency, then it does need to earn or borrow in order to spend. In this case, it could borrow from anywhere that will lend it money. In US, a state would fit this description. Or Greece, as it borrowed Euros, for which it is not an issuer of. EDIT: just came across this blog http://pragcap.com/where-does-the-money-come-from Its title, \"\"Where does the money come from\"\". Maybe he saw this question. Anyway, the US does not need to borrow money. Why would it borrow what it creates? From the video: \"\"Thinking is hard, that's why we don't do it a lot\"\". Great line.\""
},
{
"docid": "72446",
"title": "",
"text": "It's important to distinguish between speculation and investing. Buying something because you hope to make money on market fluctuations is speculation. Buying something and expecting to make money because your money is providing actual economic value is investing. If Person A buys 100 shares of a stock with the intent of selling them in a few hours, and Person B buys 100 shares of the same stock with the intent of holding on to it for a year, then obviously at that point they both have the same risk. The difference comes over the course of the year. First, Person B is going to be making money from the economic value the company provides over the whole year, while the only way Person A can make money is from market fluctuation (the economic value the company provides over the course of an hour is unlikely to be significant). Person B is exposed to the risk of buying the stock, but that's counterbalanced by the profit from holding the stock for a year, while Person A just has the risk. Second, if Person A is buying a new stock every hour, then they're going to have thousands of transactions. So even though Person B assumed just as much risk as Person A for that one transaction, Person A has more total risk."
},
{
"docid": "361507",
"title": "",
"text": "The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election."
},
{
"docid": "383930",
"title": "",
"text": "Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal."
},
{
"docid": "316838",
"title": "",
"text": "\"The answer posted by Kirill Fuchs is incorrect according to my series 65 text book and practice question answers. The everyday investor buys at the ask and sells at the bid but the market maker does the opposite. THE MARKET MAKER \"\"BUYS AT THE BID AND SELLS AT THE ASK\"\", he makes a profit form the spread. I have posted a quiz question and the answer created by the Financial Industry Regulatory Authority (FINRA). To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker. The response is \"\"bid 15, ask 15.25.\"\" If the order is placed, the market maker must sell: A) 800 shares at $15.25 per share. B) 800 shares at $15 per share. C) 100 shares at $15.25 per share. D) 800 shares at no more than $15 per share. Your answer, sell 800 shares at $15.25 per share., was correct!. A market maker is responsible for honoring a firm quote. If no size is requested by the inquiring trader, a quote is firm for 100 shares. In this example, the trader requested an 800-share quote, so the market maker is responsible for selling 8 round lots of 100 shares at the ask price of $15.25 per share.\""
},
{
"docid": "32701",
"title": "",
"text": "Ive been that guy a few times. was this close to launching their computer across the room. they said vehicle B was equivalent to vehicle A and yet they also said that vehicle C which was made by the same company as B was somehow also equivalent as if Toyota or whoever made more than one vehicle in a given class. Equivalent my ass! I went on another trip with a large group of friends and they all took the rental place in the airport. The wife and I took the shuttle to one off campus because I was thinking about buying a mustang and they had them so I wanted to drive it around for the week to see how I fit. Thats the only reason I went to that place. I motherfucked the hell out of that asshole and the other cunt and still got nowhere. Hopefully those motherfuckers crashed their cars into a goddamn bridge on the way home. I hate the fucking lying."
},
{
"docid": "311214",
"title": "",
"text": "To follow up on Quid's comment, the share classes themselves will define what level of dividends are expected. Note that the terms 'common shares' and 'preferred shares' are generally understood terms, but are not as precise as you might believe. There are dozens/hundreds of different characteristics that could be written into share classes in the company's articles of incorporation [as long as those characteristics are legal in corporate law in the company's jurisdiction]. So in answering your question there's a bit of an assumption that things are working 'as usual'. Note that private companies often have odd quirks to their share classes, things like weird small classes of shares that have most of the voting rights, or shares with 'shotgun buyback clauses'. As long as they are legal clauses, they can be used to help control how the business is run between various shareholders with competing interests. Things like parents anticipating future family infighting and trying to prevent familial struggle. You are unlikely to see such weird quirks in public companies, where the company will have additional regulatory requirements and where the public won't want any shock at unexpected share clauses. In your case, you suggested having a non-cumulative preferred share [with no voting rights, but that doesn't impact dividend payment]: There are two salient points left related to payout that the articles of incorporation will need to define for the share classes: (1) What is the redemption value for the shares? [This is usually equal to the cost of subscribing for the shares in the first place; it represents how much the business will need to pay the shareholder in the event of redemption / recall] (2) What is the stated dividend amount? This is usually defined at a rate that's at or a little above a reasonable interest rate at the time the shares are created, but defined as $ / share. For example, the shares could have $1 / share dividend payment, where the shares originally cost $50 each to subscribe [this would reflect a rate of payment of about 2%]. Typically by corporate law, dividends must be paid to preferred shares, to the extent required based on the characteristics of the share class [some preferred shares may not have any required dividends at all], before any dividends can be paid to common shares. So if $10k in dividends is to be paid, and total preferred shares require $15k of non-cumulative dividends each year, then $0 will be paid to the common shares. The following year, $15k of dividends will once again need to be paid to the preferred shares, before any can be paid to the common shares."
},
{
"docid": "474384",
"title": "",
"text": "From 26 CFR 1.1012(c)(1)i): ... if a taxpayer sells or transfers shares of stock in a corporation that the taxpayer purchased or acquired on different dates or at different prices and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period of the stock. From 26 CFR 1.1012(c)(3): (i) Where the stock is left in the custody of a broker or other agent, an adequate identification is made if— (a) At the time of the sale or transfer, the taxpayer specifies to such broker or other agent having custody of the stock the particular stock to be sold or transferred, and ... So if you don't specify, the first share bought (for $100) is the one sold, and you have a capital gain of $800. But you can specify to the broker if you would rather sell the stock bought later (and thus have a lower gain). This can either be done for the individual sale (no later than the settlement date of the trade), or via standing order: 26 CFR 1.1012(c)(8) ... A standing order or instruction for the specific identification of stock is treated as an adequate identification made at the time of sale, transfer, delivery, or distribution."
},
{
"docid": "1034",
"title": "",
"text": "\"What you are describing is a very specific case of the more general principle of how dividend payments work. Broadly speaking, if you own common shares in a corporation, you are a part owner of that corporation; you have the right to a % of all of that corporation's assets. The value in having that right is ultimately because the corporation will pay you dividends while it operates, and perhaps a final dividend when it liquidates at the end of its life. This is why your shares have value - because they give you ownership of the business itself. Now, assume you own 1k shares in a company with 100M shares, worth a total of $5B. You own 0.001% of the company, and each of your shares is worth $50; the total value of all your shares is $50k. Assume further that the value of the company includes $1B in cash. If the company pays out a dividend of $1B, it will now be only worth $4B. Your shares have just gone down in value by 20%! But, you have a right to 0.001% of the dividend, which equals a $10k cash payment to you. Your personal holdings are now $40k worth of shares, plus $10k in cash. Except for taxes, financial theory states that whether a corporation pays a dividend or not should not impact the value to the individual shareholder. The difference between a regular corporation and a mutual fund, is that the mutual fund is actually a pool of various investments, and it reports a breakdown of that pool to you in a different way. If you own shares directly in a corporation, the dividends you receive are called 'dividends', even if you bought them 1 minute before the ex-dividend date. But a payment from a mutual fund can be divided between, for example, a flow through of dividends, interest, or a return of capital. If you 'looked inside' your mutual fund you when you bought it, you would see that 40% of its value comes from stock A, 20% comes from stock B, etc etc., including maybe 1% of the value coming from a pile of cash the fund owns at the time you bought your units. In theory the mutual fund could set aside the cash it holds for current owners only, but then it would need to track everyone's cash-ownership on an individual basis, and there would be thousands of different 'unit classes' based on timing. For simplicity, the mutual fund just says \"\"yes, when you bought $50k in units, we were 1/3 of the year towards paying out a $10k dividend. So of that $10k dividend, $3,333k of it is assumed to have been cash at the time you bought your shares. Instead of being an actual 'dividend', it is simply a return of capital.\"\" By doing this, the mutual fund is able to pay you your owed dividend [otherwise you would still have the same number of units but no cash, meaning you would lose overall value], without forcing you to be taxed on that payment. If the mutual fund didn't do this separate reporting, you would have paid $50k to buy $46,667k of shares and $3,333k of cash, and then you would have paid tax on that cash when it was returned to you. Note that this does not \"\"falsely exaggerate the investment return\"\", because a return of capital is not earnings; that's why it is reported separately. Note that a 'close-ended fund' is not a mutual fund, it is actually a single corporation. You own units in a mutual fund, giving you the rights to a proportion of all the fund's various investments. You own shares in a close-ended fund, just as you would own shares in any other corporation. The mutual fund passes along the interest, dividends, etc. from its investments on to you; the close-ended fund may pay dividends directly to its shareholders, based on its own internal dividend policy.\""
},
{
"docid": "307411",
"title": "",
"text": "The credit scale is deceptive, it goes: AAA, AA, A, BBB, BBB-, BB+, BB, B, CCC, CC, C, D. In reality it should be A,B,C,D,E, F, G,H, I, etc. The current scale does not reflect with clarity the ranking of risks and ratings. AA is much worse than AAA, but the uncertainty involved can be scary. Check out these corporate and sovereign debt credit ratings."
},
{
"docid": "500486",
"title": "",
"text": "First, it's not always the case that ETFs have lower expenses than the equivalent mutual funds. For example, in the Vanguard family of funds the expense ratio for the ETF version is the same as it is for the Admiral share class in the mutual fund version. With that in mind, the main advantages of a mutual fund over an equivalent ETF are: From a long-term investor's point of view, the main disadvantage of mutual funds relative to ETFs is the minimum account sizes. Especially if the fund has multiple share classes (i.e., where better classes get lower expense ratios), you might have to have quite a lot of money invested in the fund in order to get the same expense ratio as the ETF. There are some other differences that matter to more active investors (e.g., intraday trading, options, etc.), but for a passive investor the ones above are the major ones. Apart from those mutual funds and ETFs are pretty similar. Personally, I prefer mutual funds because I'm at a point where the fund minimums aren't really an issue, and I don't want to deal with the more fiddly aspects of ETFs. For investors just starting out the lower minimum investment for an ETF is a big win, as long as you can get commission-free trades (which is what I've assumed above.)"
},
{
"docid": "327560",
"title": "",
"text": "Generally, when I run across this kind of situation, I look for the Investor Relations section of the corporate website for a 'Stock Information' (or similar) tab or link. This usually contains information explaining the different shares classes, how they relate (if at all), voting and/or dividend rights, and taxation differences for the different classes. However, I have trouble finding such a page on a central BYD corporate investor relations page. I did find this page detailing the HK1211 shares: http://www.byd.com/investor/base_information.html. I don't know what or why, but something tells me this is an older page. Searching on, I also found this page which looks newer and clarifies that the difference you are seeing is between 'A' and 'H' shares. http://www.byd.cn/BYDEnglish/basic/article.jsp?articleId=1524676. (I'm guessing but I'd think somewhere in the announcements on this byd.cn site, you may find more details of any structural differences between share classes -- I just didn't want to page through them all.)"
},
{
"docid": "229756",
"title": "",
"text": "Slide 1 Blogspot: NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud - FC2 Knowhow deanciana Slide 2 NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton saeo.net — Current Class Dates (subject to change): Scheduled as Needed based on Student Demand. Email us atonlinetrain@nortonaudits.com if you are interested in this course. Description - This is an advanced-level class that takes an in-depth examination of severe noncompliance, clinical data fabrication and falsification, scientific misconduct and fraud cases. The course focus is on developing skills for preventing fraud and misconduct and preparing clinical research professionals to better handle severe noncompliance. Slide 3 Source: saeo.net #NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton #norton scientific reblog clintonmccage: NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton Current Class Dates (subject to change): Scheduled as Needed based on Student Demand. Email us atonlinetrain@nortonaudits.com if you are interested in this course. Slide 4 Description - This is an advanced-level class that takes an in-depth examination of severe noncompliance,clinical data fabrication and falsification, scientific misconduct and fraud cases. The course focus is on developing skills for preventing fraud and misconduct and preparing clinical research professionals to better handle severe noncompliance. Source: saeo.net #NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton #norton scientific reblog eddiemccrane: Slide 5 NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton Current Class Dates (subject to change): Scheduled as Needed based on Student Demand. Email us atonlinetrain@nortonaudits.com if you are interested in this course. Description - This is an advanced-level class that takes an in-depth examination of severe noncompliance, clinical data fabrication and falsification, scientific misconduct and fraud cases. The course focus is on developing skills for preventing fraud and misconduct and preparing clinical research professionals to better handle severe noncompliance. Slide 6 Source: saeo.net #NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton #norton scientific 1 note reblog pittturvey: Norton Scientific : Blogspot | Facebook Fraud Prevention | NORTON SCIENTIFIC SCAM-Detection and Prevention of Clinical Research Fraud and Misconduct A Norton : Social-bookmarking.net Current Class Dates (subject to change): Scheduled as Needed based on Student Demand. Email us atonlinetrain@nortonaudits.com if you are interested in this course. Slide 7 Description - This is an advanced-level class that takes an in-depth examination of severe noncompliance,clinical data fabrication and falsification, scientific misconduct and fraud cases. The course focus is on developing skills for preventing fraud and misconduct and preparing clinical research professionals to better handle severe noncompliance. Slide 8 Class Agenda/Modules - Instructors Make a Difference Defining Clinical Research Fraud and Misconduct Evaluation of Case History R.E.S.E.A.R.C.H. TM Skills Program Advanced Auditing and Monitoring Skills for Prevention Case Development"
}
] |
8116 | A-B-C Class Shares: What's the difference? | [
{
"docid": "433032",
"title": "",
"text": "Classes of shares are not necessarily standardized. Some share classes have preference above others in the event of a liquidation. Some share classes represent a different proportion of ownership interest. Any time you see multiple share classes, you need to research what is different for that specific corporation."
}
] | [
{
"docid": "316651",
"title": "",
"text": "These are plans similar to 401k plans. 457(b) plans available for certain government and non-profit organizations, 403(b) available for certain educational, hospital, religious and non-profit organizations. Your school apparently fits into both classes, so it has both. These plans don't have to allow ROTH contributions, but they may, so you have to check if there's an option. The main (but not only) difference from IRA is the limit: for 401(k), 403(b) and 457(b) plans the contribution limit is $17500, while for IRA its $5500 (for 2013). Additional benefit of 457(b) plan is that there's no 10% penalty on early withdrawal, just taxes (at ordinal rates)."
},
{
"docid": "383930",
"title": "",
"text": "Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal."
},
{
"docid": "32701",
"title": "",
"text": "Ive been that guy a few times. was this close to launching their computer across the room. they said vehicle B was equivalent to vehicle A and yet they also said that vehicle C which was made by the same company as B was somehow also equivalent as if Toyota or whoever made more than one vehicle in a given class. Equivalent my ass! I went on another trip with a large group of friends and they all took the rental place in the airport. The wife and I took the shuttle to one off campus because I was thinking about buying a mustang and they had them so I wanted to drive it around for the week to see how I fit. Thats the only reason I went to that place. I motherfucked the hell out of that asshole and the other cunt and still got nowhere. Hopefully those motherfuckers crashed their cars into a goddamn bridge on the way home. I hate the fucking lying."
},
{
"docid": "112153",
"title": "",
"text": "\"They may have planned on spending more money, but they haven't actually done so (just as I may plan to buy a new TV, but up until I've bought it I can change my mind). The ever increasing spending, and related debt, is just a symptom of our \"\"leaders\"\" failing to make choices and lead. If A is more important than B, then spend the money on A and forego B--don't buy both. And, if both are essential then raise the taxes to pay for them. All we've seen for the last 40 years is congress buying A, and B, and then throwing in C for good measure but never figuring out how to pay for them. They simply pass the debts on to future generations and that's what has to stop. If we need something now, we should pay for it now. We should not be signing away our children's futures expecting them to pay for things because we want them now.\""
},
{
"docid": "384213",
"title": "",
"text": "If the company's ownership is structured similarly to a typical start-up then an 1% employee ownership in a company which sells for 1 million will yield far less than 10k due to various liquidation preferences of the investors, different share classes, etc. It's pretty hard to get a specific number because it depends a lot on the details of earlier fundraising and stock grants. That said, unless the company is circling the drain and the sale was just to avoid BK, the share price you get should be higher unless the share class structure and acquisition deal are completely unfair."
},
{
"docid": "199354",
"title": "",
"text": "What I find hilarious about this is that the middle class thought they actually had that value in the first place. Looks like the hood has been pulled off and they now realize 'oh wait you mean Im actually very poor'. Yes, your house was not worth that much. In fact its value may still be inflated. This goes doubly true for the over extended and failing suburban sprawl 'experiment' that began in the 70s. Its all been stolen b/c a generation wasnt taught about how money actually works. Its sad but maybe now people will pay attention to politics and economics and do something about our disastrous policies."
},
{
"docid": "206727",
"title": "",
"text": "http://finance.yahoo.com/q/hp?s=EDV+Historical+Prices shows this which matches Vanguard: Mar 24, 2014 0.769 Dividend Your download link doesn't specify dates which makes me wonder if it is a cumulative distribution or something else as one can wonder how did you ensure that the URL is specifying to list only the most recent distribution and not something else. For example, try this URL which specifies date information in the a,b,c,d,e,f parameters: http://real-chart.finance.yahoo.com/table.csv?s=EDV&a=00&b=29&c=2014&d=05&e=16&f=2014&g=v&ignore=.csv"
},
{
"docid": "491829",
"title": "",
"text": "\"On your tax return's Schedule C, Line B, you need to enter the Principal Business or Professional Activity Code that corresponds to your business's activities. There is a list of these 6-digit codes at the end of the Schedule C instructions. (HTML version here, or you can look at the last two pages of the PDF version.) The directions at the top of this list reads: Select the category that best describes your primary business activity (for example, Real Estate). Then select the activity that best identifies the principal source of your sales or receipts (for example, real estate agent). Now find the six-digit code assigned to this activity (for example, 531210, the code for offices of real estate agents and brokers) and enter it on Schedule C or C-EZ, line B. (Emphasis mine.) Although there are a lot of codes, it is entirely possible that you won't find one that exactly matches what you do. The directions say to pick the \"\"best\"\" one that you can. First, pick the broad category. You haven't specified your business, but let's say that you are a freelance programmer (a common occupation for Stack Exchange users). The category you decide is best might be \"\"Professional, Scientific, & Technical Services.\"\" There are several subcategories and activity codes under this, and you might find one that fits your business. However, if you don't, at the end of most categories, there is an \"\"Other\"\" code. For our example, there is code 541990, which is \"\"All other professional, scientific, & technical services.\"\" If you can't even find a broad category that describes your business, there is the last code in the list: 999999, which is for \"\"Unclassified establishments (unable to classify).\"\"\""
},
{
"docid": "292893",
"title": "",
"text": "isn't it still a dilution of existing share holder stock value ? Whether this is dilution or benefit, only time will tell. The Existing value of Facebook is P, the anticipated value after Watsapp is P+Q ... it may go up or go down depending on whether it turns out to be the right decision. Plus if Facebook hadn't bought Watsapp and someone else may have bought and Facebook itself would have got diluted, just like Google Shadowed Microsoft and Facebook shadowed Google ... There are regulations in place to ensure that there is no diversion of funds and shady deals where only the management profits and others are at loss. Edit to littleadv's comments: If a company A is owned by 10 people for $ 10 with total value $100, each has 10% of the share in the said company. Now if a Company B is acquired again 10 ea with total value 100. In percentage terms everyone now owns 5% of the new combined company C. He still owns $10 worth. Just after this acquisition or some time later ..."
},
{
"docid": "361507",
"title": "",
"text": "The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election."
},
{
"docid": "453829",
"title": "",
"text": "At the most basic level, the employee is getting a share of ownership in the company and would get a percentage of the sales price. That said, as littleadv alluded to, different share classes have different priorities and get paid in different orders. In a bankruptcy, for example, some classes almost never get paid in practice because they are so far down the ladder of priority. The first step you should take would be to try to clarify what you are getting with the company itself. Failing that, contact a financial professional or an attorney in your area who can read the terms and give you a better understanding of the contract before you sign."
},
{
"docid": "385102",
"title": "",
"text": "Let's define better the situation and then analyze it: Start with: End with: Process: So B has the same amount of money, just in a different bank account, but A and C changed states. A now doesn't have money, and C does, as the result of the transaction between A, B and C. The gift tax issue I see is the transfer of money from A (you) to C (your brother). If you're a US tax resident then you have $14K exemption from gift tax per person per year. £20K is more than that, so it will be subject to the tax. The fact that a third person was involved as an intermediary is irrelevant - for the purpose of gift tax there's no distinction between using a bank for transfers or a private party. Keep in mind that paying tuition directly to the institution on behalf of your brother may help you mitigate your gift tax liability - tuition payment made on behalf of your brother is exempt from gift tax. But it has to be made directly to the institution, it cannot pass through your brother."
},
{
"docid": "282565",
"title": "",
"text": "A company typically goes public in order to bring in additional capital. In an IPO, the company (through its officials) will typically do so by issuing additional shares, and offering to sell those to investors. If they did not do that, then there would be no net capital gain for the company; if person A sells share in company C to person B, then company C does not benefit directly from the exchange. By issuing and selling additional shares, the total value of all stock in the company can increase. Being publicly traded also greatly increases the confidence in the valuation of the company, as a consequence of the perfect market theory. There is nothing in this that says that initial investors (cofounders, employees, etc.) need to sell their shares in the process. They might choose to do so, or they might not; or they might be prevented from doing so by terms of any agreements that they have signed or by insider trading laws. Compare What happens to internal stock when a company goes public? Depending on specifics, it might be reasonable for the company to perform a share split prior to the initial public offering. That, however, doesn't affect the total value of the shares, only the price per share."
},
{
"docid": "120441",
"title": "",
"text": "Under no circumstances can a contract between A and B be binding on C unless C (guest) is also party to the contract. Nor would a contract be upheld if it required B to exercise control they cannot reasonably be expected to have over C. Cue lawsuit from angry brides."
},
{
"docid": "496820",
"title": "",
"text": "When you invest (say $1000) in (say 100 shares) of a mutual fund at $10 per share, and the price of the shares changes, you do not have a capital gain or loss, and you do not have to declare anything to the IRS or make any entry on any line on Form 1040 or tell anyone else about it either. You can brag about it at parties if the share price has gone up, or weep bitter tears into your cocktail if the price has gone down, but the IRS not only does not care, but it will not let you deduct the paper loss or pay taxes on the paper gain. What you put down on Form 1040 Schedules B and D is precisely what the mutual fund will tell you on Form 1099-DIV (and Form 1099-B), no more, no less. If you did not report any of these amounts on your previous tax returns, you need to file amended tax returns, both Federal as well as State, A stock mutual fund invests in stocks and the fund manager may buy and sell some stocks during the course of the year. If he makes a profit, that money will be distributed to the share holders of the mutual fund. That money can be re-invested in more shares of the same mutual fund or taken as cash (and possibly invested in some other fund). This capital gain distribution is reported to you on Form 1099-DIV and you have to report sit on your tax return even if you re-invested in more share of the same mutual fund, and the amount of the distribution is taxable income to you. Similarly, if the stocks owned by the mutual fund pay dividends, those will be passed on to you as a dividend distribution and all the above still applies. You can choose to reinvest, etc, the amount will be reported to you on Form 1099-DIV, and you need to report it to the IRS and include it in your taxable income. If the mutual fund manager loses money in the buying and selling he will not tell you that he lost money but it will be visible as a reduction in the price of the shares. The loss will not be reported to you on Form 1099-DIV and you cannot do anything about it. Especially important, you cannot declare to the IRS that you have a loss and you cannot deduct the loss on your income tax returns that year. When you finally sell your shares in the mutual fund, you will have a gain or loss that you can pay taxes on or deduct. Say the mutual fund paid a dividend of $33 one year and you re-invested the money into the mutual fund, buying 3 shares at the then cost of $11 per share. You declare the $33 on your tax return that year and pay taxes on it. Two years later, you sell all 103 shares that you own for $10.50 per share. Your total investment was $1000 + $33 = $1033. You get $1081.50 from the fund, and you will owe taxes on $1081.50 - $1033 = $48.50. You have a profit of $50 on the 100 shares originally bought and a loss of $1.50 on the 3 shares bought for $11: the net result is a gain of $48.50. You do not pay taxes on $81.50 as the profit from your original $1000 investment; you pay taxes only on $48.50 (remember that you already paid taxes on the $33). The mutual fund will report on Form 1099-B that you sold 103 shares for $1081.50 and that you bought the 103 shares for an average price of $1033/103 = $10.029 per share. The difference is taxable income to you. If you sell the 103 shares for $9 per share (say), then you get $927 out of an investment of $1033 for a capital loss of $106. This will be reported to you on Form 1099-B and you will enter the amounts on Schedule D of Form 1040 as a capital loss. What you actually pay taxes on is the net capital gain, if any, after combining all your capital gains and losses for the year. If the net is a loss, you can deduct up to $3000 in a year, and carry the rest forward to later years to offset capital gains in later years. But, your unrealized capital gains or losses (those that occur because the mutual fund share price goes up and down like a yoyo while you grin or grit your teeth and hang on to your shares) are not reported or deducted or taxed anywhere. It is more complicated when you don't sell all the shares you own in the mutual fund or if you sell shares within one year of buying them, but let's stick to simple cases."
},
{
"docid": "550588",
"title": "",
"text": "\"I think history is repeating itself. Remember when Apple was \"\"better\"\" than the PC b/c it just worked in the 80's. But then what happened over time? The PC took over b/c it was an open platform. The fact that it didn't just work proved to be an asset in the long run. I see the same thing happening with smart phones and tablet. Sure, the iphone/ipad just work and android devices crash here and there, just like PC's back in the day, but I think history will repeat itself and the very thing that makes the iphone/ipad successful will ultimately be its undoing. Same old shit.\""
},
{
"docid": "79445",
"title": "",
"text": "Assuming no debt, as you've specified in the comments to your question, the assets should generally be distributed proportional to ownership share. BUT, without any sort of agreement, there might be contention on what each investor's share is and that might get fought out in court. With a corporation issuing shares, the corporate charter probably defines the relationship between different classes of shares (or specifies only one class). For a partnership though, you could conceivable have people making claims of ownership stake based on labor in addition to any cash that they put up. Messy if there's no up-front agreement."
},
{
"docid": "523393",
"title": "",
"text": "\"I did once read a book titled \"\"How I made a million dollars on the stock market\"\". It sounded realistic enough to be a true story. The author made it clear on the first page that (a) this was due to some exceptional circumstances, (b) that he would never again be able to pull off something like this, and (c) you would never be able to pull of something like this, except with extreme luck. (The situation was small company A with a majority shareholder, other small company B tries to gain control by buying all the shares, the majority shareholder of A trying to prevent this by buying as many shares as possible, share price shooting up ridiculously, \"\"smart\"\" traders selling uncovered shorts to benefit when the price inevitably drops, the book author buying $5,000 worth of shares because they were going up, and then one enormous short squeeze catching out the traders. And he claimed having sold his shares for over a million - before the price dropped back to normal). Clearly not a matter of \"\"playing your cards right\"\", but of having an enormous amount of luck.\""
},
{
"docid": "528516",
"title": "",
"text": "Some companies like Royal Dutch Shell have multiple share classes to suit the tax regimes in Holland and the UK the A shares have dutch withholding tax applied and the B shares dont. Also some split capital investment trusts have multiple share classes http://www.trustnet.com/Education/Split.aspx?ms=1"
}
] |
8121 | Can I calculate stock value with Williams%R if I know the last set? | [
{
"docid": "432424",
"title": "",
"text": "William %R is a momentum indicator used for measuring overbought and oversold levels, it is not used to predict the price of a stock. In fact, William %R, like all momentum indicators, is a lagging indicator - meaning the indicator level changes as the price of the stock changes. It ranges from 0 to -100. Usually when a reading is less than -80 the stock can be considered to be oversold, and when the reading is above -20 the stock can be considered overbought. When viewed together with the price chart, this can help provide a trader with entry and exit points into and out of a trade."
}
] | [
{
"docid": "542795",
"title": "",
"text": "So I did some queries on Google Scholar, and the term of art academics seem to use is target date fund. I notice divided opinions among academics on the matter. W. Pfau gave a nice set of citations of papers with which he disagrees, so I'll start with them. In 1969, Paul Sameulson published the paper Lifetime Portfolio Selection By Dynamic Stochaistic Programming, which found that there's no mathematical foundation for an age based risk tolerance. There seems to be a fundamental quibble relating to present value of future wages; if they are stable and uncorrelated with the market, one analysis suggests the optimal lifecycle investment should start at roughly 300 percent of your portfolio in stocks (via crazy borrowing). Other people point out that if your wages are correlated with stock returns, allocations to stock as low as 20 percent might be optimal. So theory isn't helping much. Perhaps with the advent of computers we can find some kind of empirical data. Robert Shiller authored a study on lifecycle funds when they were proposed for personal Social Security accounts. Lifecycle strategies fare poorly in his historical simulation: Moreover, with these life cycle portfolios, relatively little is contributed when the allocation to stocks is high, since earnings are relatively low in the younger years. Workers contribute only a little to stocks, and do not enjoy a strong effect of compounding, since the proceeds of the early investments are taken out of the stock market as time goes on. Basu and Drew follow up on that assertion with a set of lifecycle strategies and their contrarian counterparts: whereas a the lifecycle plan starts high stock exposure and trails off near retirement, the contrarian ones will invest in bonds and cash early in life and move to stocks after a few years. They show that contrarian strategies have higher average returns, even at the low 25th percentile of returns. It's only at the bottom 5 or 10 percent where this is reversed. One problem with these empirical studies is isolating the effect of the glide path from rebalancing. It could be that a simple fixed allocation works plenty fine, and that selling winners and doubling down on losers is the fundamental driver of returns. Schleef and Eisinger compare lifecycle strategy with a number of fixed asset allocation schemes in Monte Carlo simulations and conclude that a 70% equity, 30% long term corp bonds does as well as all of the lifecycle funds. Finally, the earlier W Pfau paper offers a Monte Carlo simulation similar to Schleef and Eisinger, and runs final portfolio values through a utility function designed to calculate diminishing returns to more money. This seems like a good point, as the risk of your portfolio isn't all or nothing, but your first dollar is more valuable than your millionth. Pfau finds that for some risk-aversion coefficients, lifecycles offer greater utility than portfolios with fixed allocations. And Pfau does note that applying their strategies to the historical record makes a strong recommendation for 100 percent stocks in all but 5 years from 1940-2011. So maybe the best retirement allocation is good old low cost S&P index funds!"
},
{
"docid": "8861",
"title": "",
"text": "\"Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of \"\"small account\"\" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100.\""
},
{
"docid": "542764",
"title": "",
"text": "\"A stock, at its most basic, is worth exactly what someone else will pay to buy it right now (or in the near future), just like anything else of value. However, what someone's willing to pay for it is typically based on what the person can get from it. There are a couple of ways to value a stock. The first way is on expected earnings per share, most of would normally (but not always) be paid in dividends. This is a metric that can be calculated based on the most recently reported earnings, and can be estimated based on news about the company or the industry its in (or those of suppliers, likely buyers, etc) to predict future earnings. Let's say the stock price is exactly $100 right now, and you buy one share. In one quarter, the company is expected to pay out $2 per share in dividends. That is a 2% ROI realized in 3 months. If you took that $2 and blew it on... coffee, maybe, or you stuffed it in your mattress, you'd realize a total gain of $8 in one year, or in ROI terms an annual rate of 8%. However, if you reinvested the money, you'd be making money on that money, and would have a little more. You can calculate the exact percentage using the \"\"future value\"\" formula. Conversely, if you wanted to know what you should pay, given this level of earnings per share, to realize a given rate of return, you can use the \"\"present value\"\" formula. If you wanted a 9% return on your money, you'd pay less for the stock than its current value, all other things being equal. Vice-versa if you were happy with a lesser rate of return. The current rate of return based on stock price and current earnings is what the market as a whole is willing to tolerate. This is how bonds are valued, based on a desired rate of return by the market, and it also works for stocks, with the caveat that the dividends, and what you'll get back at the \"\"end\"\", are no longer constant as they are with a bond. Now, in your case, the company doesn't pay dividends. Ever. It simply retains all the earnings it's ever made, reinvesting them into doing new things or more things. By the above method, the rate of return from dividends alone is zero, and so the future value of your investment is whatever you paid for it. People don't like it when the best case for their money is that it just sits there. However, there's another way to think of the stock's value, which is it's more core definition; a share of the company itself. If the company is profitable, and keeps all this profit, then a share of the company equals, in part, a share of that retained earnings. This is very simplistic, but if the company's assets are worth 1 billion dollars, and it has one hundred million shares of stock, each share of stock is worth $10, because that's the value of that fraction of the company as divided up among all outstanding shares. If the company then reports earnings of $100 million, the value of the company is now 1.1 billion, and its stock should go up to $11 per share, because that's the new value of one ten-millionth of the company's value. Your ROI on this stock is $1, in whatever time period the reporting happens (typically quarterly, giving this stock a roughly 4% APY). This is a totally valid way to value stocks and to shop for them; it's very similar to how commodities, for instance gold, are bought and sold. Gold never pays you dividends. Doesn't give you voting rights either. Its value at any given time is solely what someone else will pay to have it. That's just fine with a lot of people right now; gold's currently trading at around $1,700 an ounce, and it's been the biggest moneymaker in our economy since the bottom fell out of the housing market (if you'd bought gold in 2008, you would have more than doubled your money in 4 years; I challenge you to find anything else that's done nearly as well over the same time). In reality, a combination of both of these valuation methods are used to value stocks. If a stock pays dividends, then each person gets money now, but because there's less retained earnings and thus less change in the total asset value of the company, the actual share price doesn't move (much). If a stock doesn't pay dividends, then people only get money when they cash out the actual stock, but if the company is profitable (Apple, BH, etc) then one share should grow in value as the value of that small fraction of the company continues to grow. Both of these are sources of ROI, and both are seen in a company that will both retain some earnings and pay out dividends on the rest.\""
},
{
"docid": "260569",
"title": "",
"text": "In this case, it looks like the interest is simply the nominal daily interest rate times number of days in the period. From that you can use a spreadsheet to calculate the total payment by trial and error. With the different number of days in each period, any formula would be very complicated. In the more usual case where the interest charge for each period is the same, the formula is: m=P*r^n*(r-1)/(r^n-1) where * is multiplication ^ is exponentiation / is division (Sorry, don't know if there's a way to show formulas cleanly on here) P=original principle r=growth factor per payment period, i.e. interest rate + 100% divided by 100, e.g. 1% -> 1.01 n=number of payments Note the growth factor above is per period, so if you have monthly payments, it's the rate per month. The last payment may be different because of rounding errors, unequal number of days per period, or other technicalities. Using that formula here won't give the right answer because of the unequal periods, but it should be close. Let's see: r=0.7% times an average of 28.8 days per period gives 20.16% + 1 = 1.2016. n=5 P=500 m=500*1.2016^5*(1.2016-1)/(1.2016^5-1) =167.78 Further off than I expected, but ballpark."
},
{
"docid": "97948",
"title": "",
"text": "\"As a rental, this is not an ideal set of numbers. You manage to show a $255 'gain' but $275 is from payment to principal. So, from the start, you're out $20/wk. This ignores the $170K down payment, which has an opportunity cost, however you calculate it. You can assign the same rate as the mortgage, and it's nearly $10K/yr. Or the rate you feel your choice of stock market or alternate investment would rise. Either way, you can't ignore this money. Your mortgage rate isn't fixed. A 1% rise and it would jump to $1663 ($842/week) Ideally, a rental property is cash positive without counting principal paydown or even the tax refund. It's a risky proposition to buy and count on everything going right. I didn't mean to scare you off with \"\"1%\"\" but you should research the costs of repair and maintenance. Last year my Heat/AC system needed replacement. US$10K. This year, it's time to paint, and replace rotting trim, $7000. In the US we have property tax that can range from 1-2% of the house value. If you don't have this tax, that's great, just please confirm this.\""
},
{
"docid": "165246",
"title": "",
"text": "\"There is no fundamental, good reason, I think; \"\"that's just how it's done\"\" (which is what all the other answers seem to be saying, w/o coming out and admitting it). Just guessing, but I'll bet most of the reason is historical: Before up-to-the-moment quotes were readily available, that was a bit tedious to calculate/update the fund's value, so enacted-laws let it be done just once per day. (@NL7 quotes the security act of 1940, which certainly has been updated, but also still might contain the results of crufty rationales, like this.) There are genuinely different issues between funds and stocks, though: One share of a fund is fundamentally different from one share of stock: There is a finite supply of Company-X-stock, and people are trading that piece of ownership around, and barter to find an mutually-agreeable-price. But when you buy into a mutual-fund, the mutual-fund \"\"suddenly has more shares\"\" -- it takes your money and uses it to buy shares of the underlying stocks (in a ratio equal to its current holdings). As a consequence: the mutual fund's price isn't determined by two people bartering and agreeing on a price (like stock); there is exactly one sane way to price a mutual fund, and that's the weighted total of its underlying stock. If you wanted to sell your ownership-of-Mutual-Fund-Z to a friend at 2:34pm, there wouldn't be any bartering, you'd just calculate the value based on the stated-value of the underlying stock at that exact moment. So: there's no inherent reason you can't instantaneously price a mutual fund. BUT people don't really buy/sell funds to each other -- they go to the fund-manager and essentially make a deposit-or-withdraw. The fund-manager is only required by law to do it once a day (and perhaps even forbidden from doing it more often?), so that's all they do. [Disclaimer: I know very little about markets and finance. But I recognize answers that are 'just because'.]\""
},
{
"docid": "468016",
"title": "",
"text": "In general, you don't need to keep bills around for more than a few months. The exceptions are: anything that was itemized on your federal or state income taxes. You want to keep these around for seven years in case of an audit by the IRS brokerage statements buying/selling stocks, bonds, mutual funds, etc. You need to know how much you bought a stock for when you sell it, to calculate capital gains. information relating to major renovations to your house. This can be used to reduce the gain when you sell. anything relating to a business, again for tax and valuation purposes. When selling a house, the last years worth of utility bills might be useful, to show potential buyers. However, I get almost all of my recurring bills electronically now. They get saved and backed up. In that case, its easier to just keep everything than to selectively delete stuff. It takes very little space, is easier to find things than in paper files, and is much less hassle when moving than boxes full of paper."
},
{
"docid": "138830",
"title": "",
"text": "\"Stock price is set to the price with the highest transaction volume at any given time. The stock price you cited was only valid in the last transaction on a specific stock exchange. As such it is more of an \"\"historic\"\" value. Next trade will be done with the next biggest volume. Depending on the incoming bids and asks this could be higher or lower, but you can assume it will not be too far off if there is no crash underway. Simple example stock exchange:\""
},
{
"docid": "240894",
"title": "",
"text": "\"Gold may have some \"\"intrinsic value\"\" but it cannot be accurately determined by investors by any known valuation techniques. In fact, if you were to apply the dividend discount model of John Burr Williams - a variation of which is the basis of Discounted Cash Flow (DCF) analysis and the basis of most valuation techniques - gold would have zero intrinsic value because it produces no cash flow. Legendary focus investor Warren Buffett argues that investing in gold is pure speculation because of the reason mentioned above. As others have mentioned, gold prices are affected by supply and demand, but the bigger influence on the price of gold is how the economy is. Gold is seen as a store of value because, according to some, it does not \"\"lose value\"\" unlike paper currency during inflation. In inflationary times, demand increases so gold prices do go up, which is why gold behaves similar to a commodity but has far less uses. It is difficult to argue whether or not gold gains or loses value because we can't determine the intrinsic value of gold, and anyone who attempts to justify any given price is pulling blinders over your eyes. It is indisputable that, over history, gold represents wealth and that in the past century and the last decade, gold prices rise in inflationary conditions as people dump dollars for gold, and it has fallen when the purchasing power of currency increases. Many investors have talked about a \"\"gold bubble\"\" by arguing that gold prices are inflated because of inflation and the Fed's money policy and that once interest rates rise, the money supply will contract and gold will fall, but again, nobody can say with any reasonable accuracy what the fair value of gold at any given point is. This article on seeking alpha: http://seekingalpha.com/article/112794-the-intrinsic-value-of-gold gives a quick overview, but it is also vague because gold can't be accurately priced. I wouldn't say that gold has zero intrinsic value because gold is not a business so traditional models are inappropriate, but I would say that gold *certainly * doesn't have a value of $1,500 and it's propped so high only because of investor expectation. In conclusion, I do not believe you can accurately state whether gold is undervalued or overvalued - you must make judgments based on what you think about the future of the market and of monetary policy, but there are too many variables to be accurate consistently.\""
},
{
"docid": "110856",
"title": "",
"text": "No, they do not. Stock funds and bonds funds collect income dividends in different ways. Stock funds collect dividends (as well as any capital gains that are realized) from the underlying stocks and incorporates these into the funds’ net asset value, or daily share price. That’s why a stock fund’s share price drops when the fund makes a distribution – the distribution comes out of the fund’s total net assets. With bond funds, the internal accounting is different: Dividends accrue daily, and are then paid out to shareholders every month or quarter. Bond funds collect the income from the underlying bonds and keep it in a separate internal “bucket.” A bond fund calculates a daily accrual rate for the shares outstanding, and shareholders only earn income for the days they actually hold the fund. For example, if you buy a bond fund two days before the fund’s month-end distribution, you would only receive two days’ worth of income that month. On the other hand, if you sell a fund part-way through the month, you will still receive a partial distribution at the end of the month, pro-rated for the days you actually held the fund. Source Also via bogleheads: Most Vanguard bond funds accrue interest to the share holders daily. Here is a typical statement from a prospectus: Each Fund distributes to shareholders virtually all of its net income (interest less expenses) as well as any net capital gains realized from the sale of its holdings. The Fund’s income dividends accrue daily and are distributed monthly. The term accrue used in this sense means that the income dividends are credited to your account each day, just like interest in a savings account that accrues daily. Since the money set aside for your dividends is both an asset of the fund and a liability, it does not affect the calculated net asset value. When the fund distributes the income dividends at the end of the month, the net asset value does not change as both the assets and liabilities decrease by exactly the same amount. [Note that if you sell all of your bond fund shares in the middle of the month, you will receive as proceeds the value of your shares (calculated as number of shares times net asset value) plus a separate distribution of the accrued income dividends.]"
},
{
"docid": "489220",
"title": "",
"text": "On closer look, it appears that Google Finance relies on the last released 10-k statement (filing date 10/30/2013), but outstanding shares as of last 10-Q statement. Using these forms, you get ($37,037M / 5.989B ) = $6.18 EPS. I think this is good to note, as you can manually calculate a more up to date EPS value than what the majority of investors out there are relying on."
},
{
"docid": "342397",
"title": "",
"text": "Not sure why you're posting in r/finance; did you meant to post in /r/PersonalFinances ? Or /r/financialindependence ? Anyway, I'll play. There are 3 ways you can go about it, make it 4: 1. Commercial: find yourself a job/career that you'd do it for free. I once met a guy who was in your similar situation and he had a hot dog stand in the hearth of the financial district of a large US city; he did it for the fun and to be social. He'd be there only when the Stock Market was open and if the weather was good. You could also develop a more challenging career for the satisfaction of it: writer, artists, craftsman.... You could go back to school, or take an online class, or do an online degree for the pure satisfaction of it all 2. Start a company. Similar to #1 above, but this this 100% entrepreneurial. It could be just yourself, or enlist the help of the wife; full time or part time. This again, follow your passion; since you're set financially it should not that difficult to break even. With time you could grow and hire people, but that increase the complexity and you might find yourself managing the business and not actually getting the satisfaction of doing what you had set to do. 3. Volunteer: find a non profit whose mission aligns with your values, and volunteer there; 1 or a couple of organizations; if you're up to it with time you could climb up the ranks ... 4. Mentoring: there are a lot of people who dream about being in your situation. I am sure it was not luck but hard work as well. You could become a blogger, write a book (in your name or anonymously); or mentor directly someone, reddit and a web site is a good marketing start. If you have enough money (accredited investor) you could become an angel investor, or join an angel consortium to help people with your background to make something out of themselves. 5. A combination of 2 or more from the above."
},
{
"docid": "427859",
"title": "",
"text": "\"I think it's easiest to illustrate it with an example... if you've already read any of the definitions out there, then you know what it means, but just don't understand what it means. So, we have an ice cream shop. We started it as partners, and now you and I each own 50% of the company. It's doing so well that we decide to take it public. That means that we will be giving up some of our ownership in return for a chance to own a smaller portion of a bigger thing. With the money that we raise from selling stocks, we're going to open up two more stores. So, without getting into too much of the nitty gritty accounting that would turn this into a valuation question, let's say we are going to put 30% of the company up for sale with these stocks, leaving you and me with 35% each. We file with the SEC saying we're splitting up the company ownership with 100,000 shares, and so you and I each have 35,000 shares and we sell 30,000 to investors. Then, and this depends on the state in the US where you're registering your publicly traded corporation, those shares must be assigned a par value that a shareholder can redeem the shares at. Many corporations will use $1 or 10 cents or something nominal. And we go and find investors who will actually pay us $5 per share for our ice cream shop business. We receive $150,000 in new capital. But when we record that in our accounting, $5 in total capital per share was contributed by investors to the business and is recorded as shareholder's equity. $1 per share (totalling $30,000) goes towards actual shares outstanding, and $4 per share (totalling $120,000) goes towards capital surplus. These amounts will not change unless we issue new stocks. The share prices on the open market can fluctuate, but we rarely would adjust these. Edit: I couldn't see the table before. DumbCoder has already pointed out the equation Capital Surplus = [(Stock Par Value) + (Premium Per Share)] * (Number of Shares) Based on my example, it's easy to deduce what happened in the case you've given in the table. In 2009 your company XYZ had outstanding Common Stock issued for $4,652. That's probably (a) in thousands, and (b) at a par value of $1 per share. On those assumptions we can say that the company has 4,652,000 shares outstanding for Year End 2009. Then, if we guess that's the outstanding shares, we can also calculate the implicit average premium per share: 90,946,000 ÷ 4,652,000 == $19.52. Note that this is the average premium per share, because we don't know when the different stocks were issued at, and it may be that the premiums that investors paid were different. Frankly, we don't care. So clearly since \"\"Common Stock\"\" in 2010 is up to $9,303 it means that the company released more stock. Someone else can chime in on whether that means it was specifically a stock split or some other mechanism... it doesn't matter. For understanding this you just need to know that the company put more stock into the marketplace... 9,303 - 4,652 == 4,651(,000) more shares to be exact. With the mechanics of rounding to the thousands, I would guess this was a stock split. Now. What you can also see is that the Capital Surplus also increased. 232,801 - 90,946 == 141,855. The 4,651,000 shares were issued into the market at an average premium of 141,855 ÷ 4,651 == $30.50. So investors probably paid (or were given by the company) an average of $31.50 at this split. Then, in 2011 the company had another small adjustment to its shares outstanding. (The Common Stock went up). And there was a corresponding increase in its Capital Surplus. Without details around the actual stock volumes, it's hard to get more exact. You're also only giving us a portion of the Balance Sheet for your company, so it's hard to go into too much more detail. Hopefully this answers your question though.\""
},
{
"docid": "501032",
"title": "",
"text": "From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. From a strictly mathematical perspective, the divisor is not canceling out the units, and the S&P index is dollar denominated even though it's never quoted that way. A case in point is that the S&P is often said to have a P/E, and especially an E, the earnings attributed to one 'unit' of S&P. And if you buy a mutual fund sporting a low expense ratio, you can invest exactly that much money (the current S&P index value) and see the dividends accrue to your account, less the fee."
},
{
"docid": "389035",
"title": "",
"text": "Sometimes, but it was more common for the 'presentation' leg of the project to use Excel as the last step before passing the data on to the next team or pushing things into a powerpoint. For new projects, those were much more likely to be R end to end and yes, I often used an organization like you mention, extract and transform -> Fit Model and export predictions -> produce visuals and explanatory data. I did have a few examples where I used R to build on top of excel models, e.g. passing data that was already being calculated into a regression or producing a plot that excel couldn't easily do. In my case we had 10+ people who were good with excel and only 1 or 2 being proficient with R. If the majority of people were strong R users, I'm sure it would have had more predominance in our work."
},
{
"docid": "210939",
"title": "",
"text": "\"When we talk about compounding, we usually think about interest payments. If you have a deposit in a savings account that is earning compound interest, then each time an interest payment is made to your account, your deposit gets larger, and the amount of your next interest payment is larger than the last. There are compound interest formulas that you can use to calculate your future earnings using the interest rate and the compounding interval. However, your mutual fund is not earning interest, so you have to think of it differently. When you own a stock (and your mutual fund is simply a collection of stocks), the value of the stock (hopefully) grows. Let's say, for example, that you have $1000 invested, and the value goes up 10% the first year. The total value of your investment has increased by $100, and your total investment is worth $1100. If it grows by another 10% the following year, your investment is then $1210, having gained $110. In this way, your investment grows in a similar way to compound interest. As your investment pays off, it causes the value of the investment to grow, allowing for even higher earnings in the future. So in that sense, it is compounding. However, because it is not earning a fixed, predictable amount of interest as a savings account would, you can't use the compound interest formula to calculate precisely how much you will have in the future, as there is no fixed compounding interval. If you want to use the formula to estimate how much you might have in the future, you have to make an assumption on the growth of your investment, and that growth assumption will have a time period associated with it. For example, you might assume a growth rate of 10% per year. Or you might assume a growth rate of 1% per month. This is what you could use in a compound interest formula for your mutual fund investment. By reinvesting your dividends and capital gains (and not taking them out in cash), you are maximizing your \"\"compounding\"\" by allowing those earnings to cause your investment to grow.\""
},
{
"docid": "191588",
"title": "",
"text": "The values of 12, 26 and 9 are the typical industry standard setting used with the MACD, however other values can be substituted depending on your trading style and goals. The 26d EMA is considered the long moving average when in this case it is compared to the shorter 12d EMA. If you used a 5d EMA and a 10d EMA then the 10d EMA would be considered the long MA. It is based on what you are comparing it with. Apart from providing signals for a reversal in trend, MACD can also be used as an early indication to a possible end to a trend. What you look out for is divergence between the price and the MACD. See chart below of an example: Here I have used 10d & 3d EMAs and 1 for the signal (as I did not want the signal to show up). I am simply using the MACD as a momentum indicator - which work by providing higher highs in the MACD with higher highs in price. This shows that the momentum in the trend is good so the trend should continue. However the last high in price is not met with a higher high in the MACD. The green lines demonstrate bearish divergence between price and the MACD, which is an indication that the momentum of the trend is slowing down. This could provide forewarning that the trend may be about to end and to take caution - i.e. not a good time to be buying this stock or if you already own it you may want to tighten up your stop loss."
},
{
"docid": "316132",
"title": "",
"text": "\"Of course it can. This is a time value of money calculation. If I knew the maturity date, or current yield to maturity I'd be able to calculate the other number and advise how much rates need to rise to cause the value to drop from 18 to 17. For a 10 year bond, a rise today of .1% will cause the bond to drop about 1% in value. This is a back of napkin calculation, finance calculators offer precision. edit - when I calculate present value with 34 years to go, and 5.832% yield to maturity, I get $14.55. At 5.932, the value drops to $14.09, a drop of 3.1%. Edit - Geo asked me to show calculations. Here it goes - A) The simplest way to calculate present value for a zero coupon bond is to take the rate 5.832%, convert it to 1.05832 and divide into the face value, $100. I offer this as the \"\"four function calculator\"\" approach, so one enters $100 divided by 1.05832 and repeat for the number of years left. A bit of precision is lost if there's a fractional year involved, but it's close. The bid/ask will be wider than this error introduced. B) Next - If you've never read my open declaration of love for my Texas Instruments BA-35 calculator, here it is, again. One enters N=34 (for the years) FV = 100, Rate = 5.832, and then CPT PV. It will give the result, $14.56. C) Here is how to do it in Excel - The numbers in lines 1-3 are self evident, the equation in cell B4 is =-PV(B3/100,B1,0,B2) - please note there are tiny differences in the way to calculate in excel vs a calculator. Excel wants the rate to be .05832, so I divided by 100 in the equation cell. That's the best 3 ways I know to calculate present value. Geo, if you've not noticed, the time value of money is near and dear to me. It comes into play for bonds, mortgages, and many aspect of investing. The equations get more complex if there are payments each year, but both the BA-35 and excel are up to it.\""
},
{
"docid": "465172",
"title": "",
"text": "\"I spend hours researching two comparable products to try to save $3. Me too! I have also argued for hours with customer support to get $5/month off a bill (that's $60/year!), and I feel guilty every time I eat out or do something remotely luxurious, like getting fries with my $1 McChicken. Geez, even when I play video games, I hate spending the in-game currency. For me, it's obsessive-compulsive traits that cause it, but please note that I'm not claiming @Eddie has them. Just speaking for myself here, but I hope it helps. I still struggle with my miserliness, but I can share what works for me and what doesn't. I don't think I'm valuing my time nearly as much as I should. Me neither, but knowing that doesn't help; it makes it worse. For me, putting a dollar amount on how much I value my time does not work because that just complicates the problem and amplifies how much time I spend solving that multi-variable optimization problem. Consider trying to convince Monk not to avoid germs in order to build antibodies; it just makes him think more about germs, raising anxiety and making easy decisions (use a handkerchief to touch doorknobs) into a hard decision (should I touch it or should I not?). It also amplifies the regret whenever you finally make a certain choice (\"\"what if I did the calculation wrong?\"\" or \"\"what if I'm going to get sick tomorrow because I touched that doorknob?\"\"). Making the problem more complicated isn't the solution. So how to make it simpler? Make the decision ahead of time! For me, budgets are the key to reducing the anxiety associated with financial decision making. Every six months or so, my wife and I spend hours deciding how much to spend per month on things. We can really take our time analyzing it because we only have to do it occasionally. Once we set $50/month for restaurants, I no longer have to feel like a loser every time we eat out -- similarly for discretionary spending and everything else. TBH, I'm not sure exactly why it works -- why I don't regret the dollar amounts we put on every budget -- but it really does help. I join my coworkers for lunch on Fridays because I already decided that was okay. At that point, I can focus my OC-tendencies on eating every last gram of organic matter on my plate. Without directly touching the ketchup bottle, of course. :) Again, just speaking for myself, but having budgets has done wonders for my stress level with respect to finances. For me, budgets are less about restricting my spending and more about permitting me to spend! It's not perfect, but it helps. (Not that it's relevant, but I reworded this answer about 20 times and only hit 'Post' with great effort to suppress the need to keep editing it! I'll be refreshing every 30 seconds for updates.)\""
}
] |
8202 | What accounted for DXJR's huge drop in stock price? | [
{
"docid": "513258",
"title": "",
"text": "Imagine you have a bank account with $100 in it. You are thinking about selling this bank account, so ask for some bids on what it's worth. You get quotes of around $100. You decide to sell it, but before you do, you take $50 out of it to have in cash. Would you expect the market to still pay $100 for the account? The dividend is effectively the cash being withdrawn. The stock had on account a large amount of cash (which was factored into it's share price), it moved that cash out of it's account (to its shareholders), and as a result the stock instantly becomes priced lower as this cash is no longer part of it, just as it is in the bank account example."
}
] | [
{
"docid": "473510",
"title": "",
"text": "You should not buy soley for the dividend. The price of BHP is going down for a reason. If you hold until the full years dividend is paid you will make 11% (which is $110 if you bought $1000 worth of shares), but if the share price keeps dropping, you might lose 50% on the stock. So you make $110 on dividends but lose $500 on stock price drop. A perfect way to lose money."
},
{
"docid": "240215",
"title": "",
"text": "\"The process of borrowing shares and selling them is called shorting a stock, or \"\"going short.\"\" When you use money to buy shares, it is called \"\"going long.\"\" In general, your strategy of going long and short in the same stock in the same amounts does not gain you anything. Let's look at your two scenarios to see why. When you start, LOOT is trading at $20 per share. You purchased 100 shares for $2000, and you borrowed and sold 100 shares for $2000. You are both long and short in the stock for $2000. At this point, you have invested $2000, and you got your $2000 back from the short proceeds. You own and owe 100 shares. Under scenario A, the price goes up to $30 per share. Your long shares have gone up in value by $1000. However, you have lost $1000 on your short shares. Your short is called, and you return your 100 shares, and have to pay interest. Under this scenario, after it is all done, you have lost whatever the interest charges are. Under scenario B, the prices goes down to $10 per share. Your long shares have lost $1000 in value. However, your short has gained $1000 in value, because you can buy the 100 shares for only $1000 and return them, and you are left with the $1000 out of the $2000 you got when you first sold the shorted shares. However, because your long shares have lost $1000, you still haven't gained anything. Here again, you have lost whatever the interest charges are. As explained in the Traders Exclusive article that @RonJohn posted in the comments, there are investors that go long and short on the same stock at the same time. However, this might be done if the investor believes that the stock will go down in a short-term time frame, but up in the long-term time frame. The investor might buy and hold for the long term, but go short for a brief time while holding the long position. However, that is not what you are suggesting. Your proposal makes no prediction on what the stock might do in different periods of time. You are only attempting to hedge your bets. And it doesn't work. A long position and a short position are opposites to each other, and no matter which way the stock moves, you'll lose the same amount with one position that you have gained in the other position. And you'll be out the interest charges from the borrowed shares every time. With your comment, you have stated that your scenario is that you believe that the stock will go up long term, but you also believe that the stock is at a short-term peak and will drop in the near future. This, however, doesn't really change things much. Let's look again at your possible scenarios. You believe that the stock is a long-term buy, but for some reason you are guessing that the stock will drop in the short-term. Under scenario A, you were incorrect about your short-term guess. And, although you might have been correct about the long-term prospects, you have missed this gain. You are out the interest charges, and if you still think the stock is headed up over the long term, you'll need to buy back in at a higher price. Under scenario B, it turns out that you were correct about the short-term drop. You pocket some cash, but there is no guarantee that the stock will rise anytime soon. Your investment has lost value, and the gain that you made with your short is still tied up in stocks that are currently down. Your strategy does prevent the possibility of the unlimited loss inherent in the short. However, it also prevents the possibility of the unlimited gain inherent in the long position. And this is a shame, since you fundamentally believe that the stock is undervalued and is headed up. You are sabotaging your long-term gains for a chance at a small short-term gain.\""
},
{
"docid": "92267",
"title": "",
"text": "The 'normal' series of events when trading a stock is to buy it, time passes, then you sell it. If you believe the stock will drop in price, you can reverse the order, selling shares, waiting for the price drop, then buying them back. During that time you own say, -100 shares, and are 'short' those shares."
},
{
"docid": "295511",
"title": "",
"text": "When you buy a stock, the worst case scenario is that it drops to 0. Therefore, the most you can lose when buying a stock is 100% of your investment. When you short a stock, however, there's no limit on how high the stock can go. If you short a stock at 10, and it goes up to 30, then you've lost 200% on your investment. Therefore shorting stocks is riskier than buying stocks, since you can lose more than 100% of your investment when shorting. because the price might go up, but it will never be as big of a change as a regular price drop i suppose... That is not true. Stocks can sometimes go up significantly (50-100% or more) in a very short amount of time on a positive news release (such as an earnings or a buyout announcement). A famous example occurred in 2008, when Volkswagen stock quintupled (went up 400%) in less than 2 days on some corporate news: Porsche, for some reason, wants to control Volkswagen, and by building up its stake has driven up the price. Hedge funds, figuring the share price would fall as soon as Porsche got control and stopped buying, sold a lot of VW shares short. Then last weekend, Porsche disclosed that it owned 42.6 percent of the stock and had acquired options for another 31.5 percent. It said it wanted to go to 75 percent. The result: instant short-squeeze. The German state of Lower Saxony owns a 20 percent stake in VW, which it said it would not sell. That left precious few shares available for anyone else. The shorts scrambled to cover, and the price leaped from about €200, or about $265, to above €1,000."
},
{
"docid": "186453",
"title": "",
"text": "A few reasons. First, it's hard to buy a stock that has never gone up, and isn't necessarily wise to do so. Even if you just wait for a stock go down, what if you wait and it goes up two dollars, then drops 10 cents? Has it gone up or down? When should you buy it? In general, your idea is correct, the higher the price the less you should want the stock. But in some sense, the past price is irrelevant, you can't buy it at the past price. You should buy it now if it's the best option now. And that is based on your assessment of whether it's future prospects are worth the current price (and in fact enough worth enough to make buying the stock the best economic decision you can currently make). Finally, the price may have gone up for a reason. The company may have done something, or some information about the company may have become known, that affects it's future prospects. That might make it a better deal, perhaps even better than it was before the price increase."
},
{
"docid": "1203",
"title": "",
"text": "When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account."
},
{
"docid": "591694",
"title": "",
"text": "\"The correct answer to this question is: the person who the short sells the stock to. Here's why this is the case. Say we have A, who owns the stock and lends it to B, who then sells it short to C. After this the price drops and B buys the stock back from D and returns it to A. The outcome for A is neutral. Typically stock that is sold short must be held in a margin account; the broker can borrow the shares from A, collect interest from B, and A has no idea this is going on, because the shares are held in a street name (the brokerage's name) and not A. If A decides during this period to sell, the transaction will occur immediately, and the brokerage must shuffle things around so the shares can be delivered. If this is going to be difficult then the cost for borrowing shares becomes very high. The outcome for B is obviously a profit: they sold high first and bought (back) low afterwards. This leaves either C or D as having lost this money. Why isn't it D? One way of looking at this is that the profit to B comes from the difference in the price from selling to C and buying from D. D is sitting on the low end, and thus is not paying out the profit. D bought low, compared to C and this did not lose any money, so C is the only remaining choice. Another way of looking at it is that C actually \"\"lost\"\" all the money when purchasing the stock. After all, all the money went directly from C to B. In return, C got some stock with the hope that in the future C could sell it for more than was paid for it. But C literally gave the money to B, so how could anybody else \"\"pay\"\" the loss? Another way of looking at it is that C buys a stock which then decreases in value. C is thus now sitting on a loss. The fact that it is currently only a paper loss makes this less obvious; if the stock were to recover to the price C bought at, one might conclude that C did not lose the money to B. However, in this same scenario, D also makes money that C could have made had C bought at D's price, proving that C really did lose the money to B. The final way of seeing that the answer is C is to consider what happens when somebody sells a stock which they already hold but the price goes up; who did they lose out on the gain to? The person again is; who bought their stock. The person would buys the stock is always the person who the gain goes to when the price appreciates, or the loss comes out of if the price falls.\""
},
{
"docid": "226070",
"title": "",
"text": "\"In the long run (how long?) a shares price always reverts to being its proportional amount of the company's residual equity plus the net present value of its expected future cash flows. Or at least that's the theory. In practice PE ratio is used not as a way of measuring what the stock price itself will do but what the fundamental value of holding that share is compared to its price. It is a way of measuring what a company is worth compared to its price and comparing it against other companies to find companies where the underlying value of the company is underrepresented by the price. Comparing PE ratios within the same industry or sector is the most valid use for this (other than comparing previous years of the same company) and the validity of the comparison drops as the structure of the firm you are comparing with gets more different to that of the company. Each industry has its own \"\"typical\"\" average PE ratio and these differ wildly between industries so in a great many cases even comparing PE ratios between similar stocks in different industries isn't valid. Any weird pseudo PE ratio that you create for other instruments will be meaningless. In general the best way to compare investments across multiple instruments is by comparing returns. when comparing stocks to other instruments you may want to use the return on stock price or the return on capital employed (ROCE) depending on whether you want to compare the trading performance or the fundamental performance.\""
},
{
"docid": "330041",
"title": "",
"text": "\"First, you are not exactly \"\"giving\"\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \"\"no, I'd really only like $19 for it\"\"\""
},
{
"docid": "115652",
"title": "",
"text": "\"Of the two, an option is a more reliable but more expensive means to get rid of a stock. As sdg said, a put option is basically an insurance policy on the stock; you pay a certain price for the contract itself, which locks in a sale price up to a particular future date. If the stock depreciates significantly, you exercise the option and get the contract price; otherwise you let the contract expire and keep the stock. Long-term, these are bad bets as each expired contract will offset earnings, but if you foresee a near-term steep drop in the stock price but aren't quite sure, a put option is good peace of mind. A sell stop order is generally cheaper, but less reliable. You set a trigger price, say a loss of 10% of the stock's current value. If that threshold is reached, the stop order becomes a sell order and the broker will sell the stock on the market, take his commission (or a fixed price depending on your broker) and you get the rest. However, there has to be a buyer willing to buy at that price at the moment the trigger fires; if a stock has lost 10% rapidly, it's probably on the way down hard, and the order might not complete until you realize a 12% loss, or a 15%, or even 20%. A sell stop limit (a combination stop order and limit order) allows you to say that you want to sell if the stock drops to $X, but not sell if it drops below $X-Y. This allows you to limit realized losses by determining a band within which it should be sold, and not to sell above or below that price. These are cheaper because you only pay for the order if it is executed successfully; if you never need it, it's free (or very cheap; some brokers will charge a token service fee to maintain a stop or stop limit). However, if the price drops very quickly or you specify too narrow a band, the stock can drop through that band too quickly to execute the sell order and you end up with a severely depreciated stock and an unexercised order. This can happen if the company whose stock you own buys another company; VERY quickly, both stocks will adjust, the buying company will often plummet inside a few seconds after news of the merger is announced, based on the steep drop in working capital and/or the infusion of a large amount of new stock in the buying company to cover the equity of the purchased company. You end up with devalued stock and a worthless option (but one company buying another is not usually reason to sell; if the purchase is a good idea, their stock will recover). Another option which may be useful to you is a swaption; this basically amounts to buying a put option on one financial instrument and a call on another, rolled into one option contract specifying a swap. This allows you to pick something you think would rise if your stock fell and exchange your stock for it at your option. For example, say the stock on which you buy this swaption is an airline stock, and you contract the option to swap for oil. If oil surges, the airline's stock will tank sharply, and you win both ways (avoiding loss and realizing a gain). You'd also win if either half of this option realized a gain over the option price; oil could surge or the airline could tank and you could win. You could even do this \"\"naked\"\" since its your option; if the airline's stock tanks, you buy it at the crashed price to exercise the option and then do so. The downside is a higher option cost; the seller will be no fool, so if your position appears to be likely, anyone who'd bet against you by selling you this option will want a pretty high return.\""
},
{
"docid": "547553",
"title": "",
"text": "\"Most of the investors who have large holdings in a particular stock have pretty good exit strategies for those positions to ensure they are getting the best price they can by selling gradually into the volume over time. Putting a single large block of stock up for sale is problematic for one simple reason: Let's say you have 100,000 shares of a stock, and for some reason you decide today is the day to sell them, take your profits, and ride off into the sunset. So you call your broker (or log into your brokerage account) and put them up for sale. He puts in an order somewhere, the stock is sold, and your account is credited. Seems simple, right? Well...not so fast. Professionals - I'm keeping this simple, so please don't beat me up for it! The way stocks are bought and sold is through companies known as \"\"market makers\"\". These are entities which sit between the markets and you (and your broker), and when you want to buy or sell a stock, most of the time the order is ultimately handled somewhere along the line by a market maker. If you work with a large brokerage firm, sometimes they'll buy or sell your shares out of their own accounts, but that's another story. It is normal for there to be many, sometimes hundreds, of market makers who are all trading in the same equity. The bigger the stock, the more market makers it attracts. They all compete with each other for business, and they make their money on the spread between what they buy stock from people selling for and what they can get for it selling it to people who want it. Given that there could be hundreds of market makers on a particular stock (Google, Apple, and Microsoft are good examples of having hundreds of market makers trading in their stocks), it is very competitive. The way the makers compete is on price. It might surprise you to know that it is the market makers, not the markets, that decide what a stock will buy or sell for. Each market maker sets their own prices for what they'll pay to buy from sellers for, and what they'll sell it to buyers for. This is called, respectively, the \"\"bid\"\" and the \"\"ask\"\" prices. So, if there are hundreds of market makers then there could be hundreds of different bid and ask prices on the same stock. The prices you see for stocks are what are called the \"\"best bid and best ask\"\" prices. What that means is, you are being shown the highest \"\"bid\"\" price (what you can sell your shares for) and the best \"\"ask\"\" price (what you can buy those shares for) because that's what is required. That being said, there are many other market makers on the same stock whose bid prices are lower and ask prices are higher. Many times there will be a big clump of market makers all at the same bid/ask, or within fractions of a cent of each other, all competing for business. Trading computers are taught to seek out the best prices and the fastest trade fills they can. The point to this very simplistic lesson is that the market makers set the prices that shares trade at. They adjust those prices based (among other factors) on how much buying and selling volume they're seeing. If they see a wave of sell orders coming into the system then they'll start marking down their bid prices. This keeps them from paying too much for shares they're going to have to find a buyer for eventually, and it can sometimes slow down the pace of selling as investors and automated systems notice the price decline and decide to wait to sell. Conversely, if market makers see a wave of buy orders coming into the system, they'll start marking their ask prices up to maximize their gains, since they're selling you shares they bought from someone else, presumably at a lower price. But they typically adjust their prices up or down before they actually fill trades. (sneaky, eh?) Depending on how much volume there is on the shares of the company you're selling, and depending on whether there are more buyers than sellers at the moment, your share sell order may be filled at market by a market maker with no real consequence to the share's price. If the block is large enough then it's possible it will not all sell to one market maker, or it might not all happen in one transaction or even all at the same price. This is a pretty complex subject, as you can see, and I've cut a LOT of corners and oversimplified much to keep it comprehensible. But the short answer to your question is -- it depends. Hope this helps. Good luck!\""
},
{
"docid": "238634",
"title": "",
"text": "While JB King says some useful things, I think there is another fundamental reason why stock markets go down after disasters, either natural or man-made. There is a real impact on the markets - in the case of something like 9/11 due to closed airport, higher security costs, closer inspections on trade goods, tighter restrictions on visas, real payments for the rebuilding of destroyed buildings and insurance payouts for killed people, and eventually the cost of a war. But almost as important is the uncertainty and risk. Nobody knew what was going to happen in the days and weeks after an attack like that. Is there going to be another one a week later, or every week for the next year? Will air travel become essentially impractical? Will international trade be severely restricted? All those would have a huge, massive effect on the economy. You may argue that those things are very unlikely, even after something like 9/11. But even a small increase in the likelihood of a catastrophic economic crash is enough to start people selling. There is another thing that drives the market down. Even if most people are sure that there won't be a catastrophic economic crash, they know that other people think there might be and so will sell. That will drive the market down. If they know the market is going down, then sensible traders will start to sell, even if they think there is zero risk of a crash. This makes the effect worse. Eventually prices will drop so far that the people who don't think there is a crash will start to buy, so they can make a profit on the recovery. But that usually doesn't happen until there has been a substantial drop."
},
{
"docid": "535470",
"title": "",
"text": "\"With my current, limited knowledge (see end), I understand it the following way: Are share prices really described as \"\"memoryless\"\"? Yes. Is there a technical meaning of the term? What does it really mean? The meaning comes from Markov Models: Think of the behavior of the stock market over time as a Markov Chain, i.e. a probabilistic model with states and probabilistic transitions. A state is the current price of all stocks of the market, a transition is a step in time. Memoryless means that transitions that the stock market might make can be modelled by a relation from one state to another, i.e. it only depends on the current state. The model is a Markov Chain, as opposed to a more general Stochastic Process where the next state depends on more than the current state. So in a Markov Chain, all the history of one stock is \"\"encoded\"\" already in its current price (more precisely in all stock's prices). The memorylessness of stocks is the main statement of the Efficient Market Theory (EMT). If a company's circumstances don't change, then a drop in its share price is going to be followed by a rise later. So if the EMT holds, your statement above is not necessarily true. I personally belief the EMT is a good approximation - only large corporations (e.g. Renaissance Technologies) have enough ressources (hundreds of mathematicians, billions of $) to be able to leverage tiny non-random movements that stem from a not completely random, mostly chaotic market. The prices can of course change when the company's circumstances change, but they aren't \"\"memoryless\"\" either. A company's future state is influenced by its past. In the EMT, a stock's future state is only influenced by its past as much as is encoded in its current price (more precisely, the complete market's current state). Whether that price was reached by a drop or a rise makes no difference. The above is my believe, but I'm by far no finance expert. I am working professionally with probabilistic models, but have only read one book on finance: Kommer's \"\"Souverän investieren mit Indexfonds und ETFs\"\". It's supposed to contain many statements of Malkiel's \"\"A Random Walk Down Wall Street\"\".\""
},
{
"docid": "24822",
"title": "",
"text": "I don't like REITs because they are more closely correlated to the movement of the stock market. They don't really do the job of diversifying a portfolio because of that correlation. When the stock market dropped in 2008, REITs were hammered as well because the housing bubble burst. Bonds went up, and if you rebalanced (sold the bonds to buy more stock) then you came out much further ahead when the stock market recovered. The point of adding bonds for diversification is that they move in the opposite direction of equities; blunting the major drops (and providing buying opportunities). REITs don't fit that bill. REITs are not undergoing a correction like bonds because the price of real estate is a function of housing supply and buyer demand. Rising interest rates only make it a little harder for buyers to buy, so the effect of rising interest rates on real estate prices is muted. The other effects on real estate prices (more wealth in the economy for buyers) pushes in the opposite direction of the rising interest rates."
},
{
"docid": "144005",
"title": "",
"text": "As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps!"
},
{
"docid": "382339",
"title": "",
"text": "try to sell if today's google stock goes above 669$ This is Relative/Pegged-to-Primary Order with a Limit Price of $669 and an offset from National Best Offer of $0.00, but it is no different than an Market Order if the market price is $669 to begin with. do not sell if the stock keeps climbing beyond 669 unless there is a down tick of 20cents is seen This is a Trailing Stop Order with a Trailing Amount of $0.20. It sells if the market price dropped $0.20 from the peak. The two orders are contradictory. From your comments, I think the following is what you want: Submit Trailing Stop Order when market price is above $669. Cancel Trailing Stop Order before the end of the day and Submit Relative/Pegged-to-Primary Order to Sell."
},
{
"docid": "537862",
"title": "",
"text": "ChelseaFC rocked number 2, so before I try to answer number 1, I'll just mention that academics generally ignored negative *real* interest rates, and have always admitted that negative *nominal* rates were perfectly possible. There's nothing in his explanation that I think is controversial at this point though. As for number 1, a drop in a company's share price affects the company's ability to raise cash in the present and future. In a closely related issue, that drop can affect the company's ability to compensate its employees through options and restricted stock grants. In the long run (and I suspect you already know this), and drop in the share price affects the shareholders' wealth, and can lead them to demand that changes be made to be firm's operations (usually, changes made to who's running the firm). If a firm doesn't need more financing, and it doesn't pay any employees with stock or derivatives on its stock, then changes to its stock price won't affect the firm's operations in the slightest. Naturally, this assuming that the change in stock prices isn't indicative of changes to the economy, but that's a causal relationship in the other direction (the stock price reflects changes in operations, not the other way around)."
},
{
"docid": "102026",
"title": "",
"text": "It definitely depends on the exchange you are trading on. I'm not familiar with Scottrade, but a standard practice is to fulfill limit orders in the order they are placed. Most of the time, you wouldn't see stocks trade significantly under your bid price, but since penny stocks are very volatile, it's more likely their price could drop quickly past your bid and then return above it while only fulfilling a portion of the orders placed. Example 1. Penny stock priced at $0.12 2. Others place limit orders to buy at $0.10 3. You place limit order to buy at $0.10 4. Stock price drops to $0.07 and some orders are filled (anything $0.07 or higher) based on a first-come first-served basis 5. Due to the increase in purchases of the penny stock, the price rises above $0.10 before your order is filled ***EDIT*** - Adding additional clarification from comment section. A second example If the price drops from $0.12 to $0.07, then orders for all prices from $0.07 and above will start to be filled from the oldest order first. That might mean that the oldest order was a limit buy order for 100 shares at $0.09, and since that is above the current ask price, it will be filled first. The next order might be for 800 shares at $0.07. It's possible for a subset of these to be filled (let's say 400) before the share's price increases from the increased demand. Then, if the price goes above $0.10, your bid will not be filled during that time."
},
{
"docid": "420046",
"title": "",
"text": "You should be worried. You have made the mistake of entering an investment on the recommendation of family/friend. The last think you should do is make another mistake of just leaving it and hoping it will go up again. Your stock has dropped 37.6% from its high of $74.50. That means it has to go up over 60% just to reach the high of $74.50. You are correct this may never happen or if it does it could take a long, long time to get up to its previous highs. What is the company doing to turn its fortunes around? Take a look at some other examples: QAN.AX - Qantas Airways This stock reached a high of around $6 in late 2007 after a nice uptrend over a year and a half, it then dropped drastically at the start of the GFC, and has since kept falling and is now priced at just $1.15. QAN reported its first ever loss earlier this year, but its problems were evident much earlier. AAPL - Apple Inc. AAPL reach a high of just over $700 in September 2013, then dropped to around $400 and has recovered a bit to about $525 (still 25% below its highs) and looks to be at the start of another downtrend. How long will it take AAPL to get back to $700, more than 33% from its current price? TEN.AX - Ten Network Holdings Limited TEN reached a high of $4.26 in late 2004 after a nice uptrend during 2004. It then started a steep journey downwards and is still going down. It is now priced at just $0.25, a whopping 94% below its high. It will have to increase by 1600% just to reach its high of $4.26 (which I think will never happen). Can a stock come back from a drastic downtrend? Yes it can. It doesn't always happen, but a company can turn around and can reach and even surpass it previous highs. The question is how and when will this happen? How long will you keep your capital tied up in a stock that is going nowhere and has every chance of going further down? The most important thing with any investment is to protect your current capital. If you lose all your capital you cannot make any new investments until you build up more capital. That is why it is so important to have a risk management strategy and decide what is your get out point if things go against you before you get into any new investment. Have a stop loss. I would get out of your investment before you lose more capital. If you had set a stop loss at 20% off the stock's last highs, you would have gotten out at about $59.60, 28% higher than the current share price of $46.50. If you do further analysis on this company and find that it is improving its prospects and the stock price breaks up through its current ranging band, then you can always buy back in. However, do you still want to be in the stock if it breaks the range band on the downside? In this case who knows how low it can continue to go. N.B. This is my opinion, as others would have theirs, and what I would do in your current situation with this stock."
}
] |
8202 | What accounted for DXJR's huge drop in stock price? | [
{
"docid": "93971",
"title": "",
"text": "For all stocks, expected Dividends are a part of the price it is traded for - consider that originally, the whole idea of stocks was to participate in the earnings of the company = get dividends. The day the dividend is paid, that expectation is of course removed, and thereby the stock value reduced by just the amount of dividend paid. You will see that behavior for all stocks, everywhere. The dividend in your example is just uncommonly high relative to the stock price; but that is a company decision - they can decide whatever amount they want as a dividend. In other words, the day before dividend payments, investors value the stock at ~14 $, plus an expected dividend payment of 12 $, which adds to 26 $. The day after the dividend payment, investors still value the stock at ~14 $, plus no more dividend payment = 0 $. Nothing changed really in the valuation."
}
] | [
{
"docid": "92267",
"title": "",
"text": "The 'normal' series of events when trading a stock is to buy it, time passes, then you sell it. If you believe the stock will drop in price, you can reverse the order, selling shares, waiting for the price drop, then buying them back. During that time you own say, -100 shares, and are 'short' those shares."
},
{
"docid": "146091",
"title": "",
"text": "\"zPesk has a great answer about dividends generally, but to answer your question specifically about yield traps, here are a few things that I look for: As with everything, if it looks too good to be true, it probably is. A 17% yield is pretty out of this world, even for a REIT. And I wouldn't bet on it holding up. Compare a company's yield to that of others in the same industry (different industries have different \"\"standards\"\" for what is considered a high or low yield) Dividends have to come from somewhere, and that somewhere is cash flow. Look at the company's financial statements. Do they have sufficient cash flow to pay the dividend? Have there been any recent changes in their cash flow situation? How are earnings holding up? Debt levels? Cash on hand? Sudden moves in stock price. A sudden drop in the stock price will cause the yield to rise. Sometimes this indicates a bargain, but if the drop is due to a real worry about the company's financial health (see #2) it's probably an indication that a dividend cut is coming. What does their dividend history look like? Do they have a consistent track record of paying out good dividends for years and years? Companies with a track record of paying dividends consistently and/or increasing their dividend regularly are likely to continue to do so.\""
},
{
"docid": "3463",
"title": "",
"text": "You seem to think that stock exchanges are much more than they actually are. But it's right there in the name: stock exchange. It's a place where people exchange (i.e. trade) stocks, no more and no less. All it does is enable the trading (and thereby price finding). Supposedly they went into mysterious bankruptcy then what will happen to the listed companies Absolutely nothing. They may have to use a different exchange if they're planning an IPO or stock buyback, that's all. and to the shareholder's stock who invested in companies that were listed in these markets ? Absolutley nothing. It still belongs to them. Trades that were in progress at the moment the exchange went down might be problematic, but usually the shutdown would happen in a manner that takes care of it, and ultimately the trade either went through or it didn't (and you still have the money). It might take some time to establish this. Let's suppose I am an investor and I bought stocks from a listed company in NYSE and NYSE went into bankruptcy, even though NYSE is a unique business, meaning it doesn't have to do anything with that firm which I invested in. How would I know the stock price of that firm Look at a different stock exchange. There are dozens even within the USA, hundreds internationally. and will I lose my purchased stocks ? Of course not, they will still be listed as yours at your broker. In general, what will happen after that ? People will use different stock exchanges, and some of them migth get overloaded from the additional volume. Expect some inconveniences but no huge problems."
},
{
"docid": "160169",
"title": "",
"text": "Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways. In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference. Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not. One of you has to lose. And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s). Here's an example. Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY. It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with. But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay. Even if the list price is now lower, long term you expect the stock to be worth more than $28. Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do."
},
{
"docid": "393496",
"title": "",
"text": "\"As I understand it, Implied Volatility represents the expected gyrations of an options contract over it's lifetime. No, it represents that expected movement of the underlying stock, not the option itself. Yes, the value of the option will move roughly in the same direction the value of the stock, but that's not what IV is measuring. I even tried staring at the math behind the Options pricing model to see if that could make more sense for me but that didn't help. That formula is correct for the Black-Scholes model - and it is not possible (or at least no one has done it yet) to solve for s to create a closed-form equation for implied volatility. What most systems do to calculate implied volatility is plug in different values of s (standard deviation) until a value for the option is found that matches the quoted market value ($12.00 in this example). That's why it's called \"\"implied\"\" volatility - the value is implied from market prices, not calculated directly. The thing that sticks out to me is that the \"\"last\"\" quoted price of $12 is outside of the bid-ask spread of $9.20 to $10.40, which tells me that the underlying stock has dropped significantly since the last actual trade. If the Implied Vol is calculated based on the last executed trade, then whatever algorithm they used to solve for a volatility that match that price couldn't find a solution, which then choose to show as a 0% volatility. In reality, the volatility is somewhere between the two neighbors of 56% and 97%, but with such a short time until expiry, there should be very little chance of the stock dropping below $27.50, and the value of the option should be somewhere around its intrinsic value (strike - stock price) of $9.18.\""
},
{
"docid": "59714",
"title": "",
"text": "A futures contract is based upon a particular delivery date. In the case of a stock index futures contract is a cash settled futures contract based upon the stock index value at a particular point in time (i.e. this is when the final settlement is determined). In your example, the S&P 500 (SPX) is a price return index - that is, it is not affected by dividends and therefore dividends are not incorporated into the index value. Dividends will affect the price of the constituent stocks (not necessarily by the same amount as the dividend) so they do have influence on the stock index value. Since the dividends are known ahead of time (or at least can be estimated), this has already been factored into the futures price by the market. In terms of the impact of a dividend by AAPL, AAPL is approximaetely 3.6% of the index. Apple pays out dividends 4 times a year (currently paying out $0.52 dividends). Assuming the market is otherwise steady and AAPL drops by $0.52 due to the dividend and Apple is priced at around $105, this would result in a drop in the index of 0.0178% or around 0.35 points. Interesting fact: There are some futures contracts that are based upon Total Return indexes, such as the German DAX and the above logic would need to be reversed."
},
{
"docid": "499811",
"title": "",
"text": "Shorting Stocks: Borrowing the shares to sell now. Then buying them back when the price drops. Risk: If you are wrong the stock can go up. And if there are a lot of people shorting the stock you can get stuck in a short squeeze. That means that so many people need to buy the stock to return the ones they borrowed that the price goes up even further and faster. Also whoever you borrowed the stock from will often make the decision to sell for you. Put options. Risk: Put values don't always drop when the underlying price of the stock drops. This is because when the stock drops volatility goes up. And volatility can raise the value of an option. And you need to check each stock for whether or not these options are available. finviz lists whether a stock is optional & shortable or not. And for shorting you also need to find a broker that owns shares that they are willing to lend out."
},
{
"docid": "186453",
"title": "",
"text": "A few reasons. First, it's hard to buy a stock that has never gone up, and isn't necessarily wise to do so. Even if you just wait for a stock go down, what if you wait and it goes up two dollars, then drops 10 cents? Has it gone up or down? When should you buy it? In general, your idea is correct, the higher the price the less you should want the stock. But in some sense, the past price is irrelevant, you can't buy it at the past price. You should buy it now if it's the best option now. And that is based on your assessment of whether it's future prospects are worth the current price (and in fact enough worth enough to make buying the stock the best economic decision you can currently make). Finally, the price may have gone up for a reason. The company may have done something, or some information about the company may have become known, that affects it's future prospects. That might make it a better deal, perhaps even better than it was before the price increase."
},
{
"docid": "13299",
"title": "",
"text": "\"First: do you understand why it dropped? Was it overvalued before, or is this an overreaction to some piece of news about them, or about their industry, or...? Arguably, if you can't answer that, you aren't paying enough attention to have been betting on that individual stock. Assuming you do understand why this price swing occurred -- or if you're convinced you know better than the folks who sold at that price -- do you believe the stock will recover a significant part of its value any time soon, or at least show a nice rate of growth from where it is now? If so, you might want to hold onto it, risking further losses against the chance of recovering part or all of what is -- at this moment -- only a loss on paper. Basically: if, having just seen it drop, you'd still consider buying it at the new price you should \"\"buy it from yourself\"\" and go on from here. That way at least you aren't doing exactly what you hope to avoid, buying high and selling low. Heck, if you really believe in the stock, you could see this as a buying opportunity... On the other hand, if you do not believe you would buy it now at its new price, and if you see an alternative which will grow more rapidly, you should take your losses and move your money to that other stock. Or split the difference if you aren't sure which is better but can figure out approximately how unsure you are. The question is how you move on from here, more than how you got here. What happened happened. What do you think will happen next, and how much are you willing to bet on it? On the gripping hand: This is part of how the market operates. Risk and potential reward tend to be pretty closely tied to each other. You can reduce risk by diversifying across multiple investments so no one company/sector/market can hurt you too badly --- and almost anyone sane will tell you that you should diversify -- but that means giving up some of the chance for big winnings too. You probably want to be cautious with most of your money and go for the longer odds only with a small portion that you can afford to lose on. If this is really stressing you out, you may not want to play with individual stocks. Mutual funds have some volatility too, but they're inherently diversified to a greater or lesser extent. They will rarely delight you, but they won't usually slap you this way either.\""
},
{
"docid": "22469",
"title": "",
"text": "It is very likely that the fund paid out a dividend in the form of reinvested shares. This happens with many funds, especially as we come to the end of the year. Here's a simplified example of how it works. Assume you invested $1000 and bought 100 units at $10/unit. Ignoring the daily price fluctuations, if the fund paid out a 20% dividend, you would get $200 and the unit price would drop to $8/unit. Assuming you chose to reinvest your dividends, you would automatically purchase another $200 worth of units at the new price (so 25 more units). You would now have 125 units @ $8/unit = $1000 invested. In your example, notice that you now have more shares than you originally purchased, but that the price dropped significantly. Your market value is above what you originally invested, so there was probably also a bit of a price increase for the day. You should see the dividend transaction listed somewhere in your account. Just to confirm, I did a quick search on ICENX and found that they did indeed pay a dividend yesterday."
},
{
"docid": "505351",
"title": "",
"text": "Very wealthy people usually have an investment manager who is constantly moving money between investments and accounts. They hold cash (or cash equivalent) accounts for use in a near-term buying opportunity, for example if they believe certain stocks will go down in price soon. This amount can vary from under 1% (for a money manager with no intention of any short-term trading) to over 20% (for a market pessimist who expects a huge price reduction shortly). In rare cases they will also hold significant cash because of a planned large purchase, but there's almost never a reason for that to exceed 1% of their net worth."
},
{
"docid": "226070",
"title": "",
"text": "\"In the long run (how long?) a shares price always reverts to being its proportional amount of the company's residual equity plus the net present value of its expected future cash flows. Or at least that's the theory. In practice PE ratio is used not as a way of measuring what the stock price itself will do but what the fundamental value of holding that share is compared to its price. It is a way of measuring what a company is worth compared to its price and comparing it against other companies to find companies where the underlying value of the company is underrepresented by the price. Comparing PE ratios within the same industry or sector is the most valid use for this (other than comparing previous years of the same company) and the validity of the comparison drops as the structure of the firm you are comparing with gets more different to that of the company. Each industry has its own \"\"typical\"\" average PE ratio and these differ wildly between industries so in a great many cases even comparing PE ratios between similar stocks in different industries isn't valid. Any weird pseudo PE ratio that you create for other instruments will be meaningless. In general the best way to compare investments across multiple instruments is by comparing returns. when comparing stocks to other instruments you may want to use the return on stock price or the return on capital employed (ROCE) depending on whether you want to compare the trading performance or the fundamental performance.\""
},
{
"docid": "330041",
"title": "",
"text": "\"First, you are not exactly \"\"giving\"\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \"\"no, I'd really only like $19 for it\"\"\""
},
{
"docid": "71924",
"title": "",
"text": "\"A big part of the answer depends on how \"\"beaten down\"\" the stock is, how long it will take to recover from the drop, and your taste for risk. If you honestly believe the drop is a temporary aberration then averaging down can be a good strategy to lower your dollar-cost average in the stock. But this is a huge risk if you're wrong, because now you're going to magnify your losses by piling on more stock that isn't going anywhere to the shares you already own at a higher cost. As @Mindwin pointed out correctly, the problem for most investors following an \"\"average down\"\" strategy is that it makes them much less likely to cut their losses when the stock doesn't recover. They basically become \"\"married\"\" to the stock because they've actualized their belief the stock will bounce back when maybe it never will or worse, drops even more.\""
},
{
"docid": "591694",
"title": "",
"text": "\"The correct answer to this question is: the person who the short sells the stock to. Here's why this is the case. Say we have A, who owns the stock and lends it to B, who then sells it short to C. After this the price drops and B buys the stock back from D and returns it to A. The outcome for A is neutral. Typically stock that is sold short must be held in a margin account; the broker can borrow the shares from A, collect interest from B, and A has no idea this is going on, because the shares are held in a street name (the brokerage's name) and not A. If A decides during this period to sell, the transaction will occur immediately, and the brokerage must shuffle things around so the shares can be delivered. If this is going to be difficult then the cost for borrowing shares becomes very high. The outcome for B is obviously a profit: they sold high first and bought (back) low afterwards. This leaves either C or D as having lost this money. Why isn't it D? One way of looking at this is that the profit to B comes from the difference in the price from selling to C and buying from D. D is sitting on the low end, and thus is not paying out the profit. D bought low, compared to C and this did not lose any money, so C is the only remaining choice. Another way of looking at it is that C actually \"\"lost\"\" all the money when purchasing the stock. After all, all the money went directly from C to B. In return, C got some stock with the hope that in the future C could sell it for more than was paid for it. But C literally gave the money to B, so how could anybody else \"\"pay\"\" the loss? Another way of looking at it is that C buys a stock which then decreases in value. C is thus now sitting on a loss. The fact that it is currently only a paper loss makes this less obvious; if the stock were to recover to the price C bought at, one might conclude that C did not lose the money to B. However, in this same scenario, D also makes money that C could have made had C bought at D's price, proving that C really did lose the money to B. The final way of seeing that the answer is C is to consider what happens when somebody sells a stock which they already hold but the price goes up; who did they lose out on the gain to? The person again is; who bought their stock. The person would buys the stock is always the person who the gain goes to when the price appreciates, or the loss comes out of if the price falls.\""
},
{
"docid": "319434",
"title": "",
"text": "Your logic is not wrong. But the risk is more significant than you seem to assume. Essentially you are proposing taking a 2.6% loan to buy stocks. Is that a good strategy? On average, probably. But if your stocks crash you might have significant liabilities. In 1929, the Dow Jones dropped 89%. In 1989, >30%. In 2008-9, 54%. This is a huge risk if this is money that you owe in taxes. If you operate the same system year after year the chance of it going horribly wrong increases."
},
{
"docid": "473586",
"title": "",
"text": "\"There obviously is not such a list of companies, because if there were the whole world would immediately invest in them. Their price would rise like a rocket and they would not be undervalued anymore. Some people think company A should be worth x per share, some people think it should be worth y. If the share price is currently higher than what someone thinks it should be, they sell it, and if it is lower than they think it should be they buy it. The grand effect of this all is that the current market price of the share is more or less the average of what all investors together think it should currently be worth. If you buy a single stock, hoping that it's undervalued and will rise, you may be right but you may equally well be wrong. It's smarter to diversify over lots of stocks to reduce the impact of this risk, it evens out. There are \"\"analysts\"\" who try to make a guess of which stocks will do better, and they give paid advice or you can invest in their funds -- but they invariably do worse than the average of the market as a whole, over the long term. So the best advice for amateurs is to invest in index funds that cover a huge range of companies and try to keep their costs very low.\""
},
{
"docid": "576624",
"title": "",
"text": "As said by others, buying shares of a company will not support it directly. But let's think about two example companies: Company A, which has 90 % stocks owned by supporters, and Company B, which has only 1 % of stocks owned by supporters. Both companies release bad news, for example profits have decreased. In Company B, most investors might want to sell their stock quickly and the price will plummet. In Company A, the supporters continue believing in the company and will not want to sell it. The price will drop less (usually, but it can drop even more if the sellers of Company A are very desperate to get rid of the stock). So, why is it important for the company to have a high stock price? In the short-term, it's not important. One example is that the company can release more stocks and receive more financing by doing that. Other reasons are listed here: http://www.investopedia.com/articles/basics/03/020703.asp"
},
{
"docid": "231295",
"title": "",
"text": "The stock tends to drop by the amount of the dividend -- or if you prefer to think of it this way, the stock price has been pushed up by the amount of the dividend before it was paid out. Really, all this shift does is factor out the impending dividend's effect on the real purchase cost of the stock. As such it's pretty much irrelevant except that, of course, the dividend is short-term gain that you have to pay taxes on almost immediately. Which also tends to get figured into the price folks are willing to pay for the stock. Conclusion: no, there's no real opportunity here. There's a slight tax reason to avoid buying right before dividends are paid, but that's about it. Basic principle: If it's simple and obvious,the market has already accounted for it."
}
] |
8230 | Why would this kind of penny stock increase so much in value? | [
{
"docid": "319599",
"title": "",
"text": "Well I'm not going to advise whether it's a good idea to invest in this company (though often OTC is pretty scary), but it DOES have a product (vivio, an ad blocker), it did post financials and it's trading on the OTC-QB (which is better than the pink sheets), so you need to look these over and study up on the product to decide if it is overpriced or not. What might have occurred (viz the Patriot Berry Farm becoming Cyberfort) is that the latter bought up the stock of the former (this is, I believe, called using a shell, which is not necessarily a bad thing) and is using this as a way to be registered, i.e. sell to non-accredited investors via the OTC market. So I'm really just answering your third question: yes, you have to do a lot of due diligence to see if buying this stock is a good deal or not. It might be the next big thing. Or it might not. It certainly is the case that low trading volume allows a relatively small trade to really change the stock price, so the penny stocks do tend to be easier to 'inflate'. Side comment: the bid/ask spreads are pretty big, with a best bid of 0.35 and best ask of 0.44."
}
] | [
{
"docid": "564069",
"title": "",
"text": "\"The short answer: zero. dg99's answer gives some good reasons why. You will basically never be able to achieve diversification with individual stocks that is anywhere close to what you can get with mutual funds. Owning individual stocks exposes you to much greater risk in that random one-off events that happen to affect one of the companies you own can have a disproportionate effect on your assets. (For instance, some sort of scandal involving a particular company can cause its stock to tank.) There are only two reasons I can see to invest in individual stocks: a. You have some unique opportunity to acquire stock that other people might not be able to get (or get at that price). This can be the case if you work for a privately-held company that allows you to buy stock (or options), or allows you to participate in its IPO. Even then, you should not go too crazy, since having too much stock in the company you work for can double your pain if the company falls on hard times (you may lose your job and your investment). b. For fun. If you like tracking stocks and trying to beat the market, you may want to test your skills at this by using a small proportion of your investable cash (no more than 10%). In this case you're not so much hoping to increase your returns as to just enjoy investing more. This can also have a psychological benefit in that it allows you to \"\"blow off steam\"\" and indulge your desire to make decisions, while allowing your passive investments (index funds) to shoulder the load of actually gaining value.\""
},
{
"docid": "154841",
"title": "",
"text": "The short answer, probably not much. Unless you have a controlling interest in the company. If at least 50%+1 of the shareholder votes are in favor of the dilution then it can be done. There are some SEC rules that should protect against corporate looting and theft like what the Severin side is trying to make it appear as happened. However it would appear that Severin did something stupid. He signed away all of his voting right to someone who would use them to make his rights basically worthless. Had he kept his head in the game he could probably have saved himself. But he didn't. If your average startup started issuing lots of stock and devaluing existing shares significantly then I would expect it would be harder to find investors willing to watch as their investment dwindled. But if you are issuing a limited amount stock to get leverage to grow bigger then it is worth it. In the .com bubble there were quite a few companies that just issued stock to buy other companies. Eventually most of these companies got delisted because they diluted them selves to much when they were overvalued. Any company not just a startup can dilute its shares. Many if not most major companies issue stock to raise capital. This capital is then generally used to build the business further and increase the value of all shares. Most of the time this dilution is very minor (<.1%) and has little if any impact on the stock. There are rules that have to be followed as listed companies are regulated by the SEC. There are less regulations with private corporations. It looks like the dilution was combined with the buyout of the Florida company which probably contributed to the legality of the dilution. With options they are generally issued at a set price. This may be higher or lower than the reported sell price of the stock when the option is issued. The idea is over time the stock will increase in value so that those people who hold on to their options can buy the stock for the price listed on the option. I worked at an ISP start up in the 90's that made it pretty well. I left before the options were issued but I had friends still there that were issued an option at $16 a share the value of the stock at the time of the issue of the option was about 12. Well the company diluted the shares and used them to acquire more ISP's unfortunately this was about the time that DSL And cable internet took off so the dial up market tanked. The value eventually fell to .10 they did a reverse split and when they did the called in all options. The options did not have a positive cash value at any time. Had RMI ever made it big then the options could have been worth millions. There are some people from MS and Yahoo that were in early that made millions off of their options. This became a popular way for startups to attract great talent paying peanuts. They invested their time in the business hoping to strike gold. A lot of IT people got burned so this is less popular among top talent as the primary compensation anymore."
},
{
"docid": "277305",
"title": "",
"text": "Hah, good luck getting those kind of terms. There's always another fresh-faced new grad with dollar signs in his eyes who doesn't know enough to ask about outstanding shares, dilution, or preferences. Very few startups are looking for penny-ante 'investor' employees who can only put <$100k. That's what co-founders are for. Actual employees are lucky if they can properly value their options, let alone control how much it ends up being worth in the end."
},
{
"docid": "196404",
"title": "",
"text": "\">1.) The US mint is a private business. There's your first flaw of any argument about currency before we talk further. Policies are set by the US Congress, and the Mint operates under the auspices of the US Treasury. You don't point out how any of this relates to anything, so I guess no point in going any further. >2.) That small percentage value of the penny \"\"not being worth your time\"\" is a huge fallacy. It might not be worth anything to him, but I generally would be intent on getting a few cents back that are due to me. Similarly, using his example of 3 cents adding 2 seconds to the transaction ends up at a rate of $54/hr. That's quite a bit of money to be considered. If we assume that any penny related transaction is equally likely to have 1 - 4 pennies involved, and we take the 2 second figure as accurate, then we come up with $45 per hour. However, there is the time of the cashier and anyone behind you to consider. That 2 seconds is multiplied by everyone, but only you get the pennies. If we figure you have to wait as often as you receive pennies on the whole, then the figure gets slashed, I'm guessing under $10 an hour. Your figure also fails to account for what would happen if the penny were removed from circulation. Most likely outcome would be that transactions where you'd make 1 or 2 pennies would be rounded down and transactions where you'd have gained 3 or 4 pennies would be rounded up. You aren't actually (on the whole) gaining or losing any money at all. >3.) No machines take pennies. Fair enough. Not really the fault of the penny itself, but more so a fault of brash inflation. This isn't about establishing guilt. Pennies are tools and symbols, if they don't serve their purpose, then maybe we should consider removing them. >4.) Supposing the penny does get removed, the axe gets held above the neck of the nickle inevitably. Then the dime, and so on. So? >You'll also see a massive disruption in handling of accounting principles and tax rates due to being forced into /5 rates. All adjustable, yes, but it does cause a whole new mess of issues in it's own right. This can be acknowledged. One might take issue with massive, but a transition would not be free of labor and education costs. >5.) Lincoln's face has nothing to do with this argument. 25 seconds worth of video wasted (that's about 35 pennies worth). Maybe it didn't hit home with you, but the videographer obviously felt he was addressing someone's concern. The psychological impact of change or the not-strictly-scientificattachment to traditions or history would have to be taken into account in a fair evaluation of implementing a big change.\""
},
{
"docid": "352485",
"title": "",
"text": "The answer is that other than a small number of applications (the approx. 10% of gold production that goes to 'industrial uses') gold does not have intrinsic value beyond being pretty and rare (and useful for making jewelry.) There are a number of 'industrial' applications and uses for gold (see other answers for a list) but the volume consumed this way is fairly small, especially relative to the capacity to mine new gold and reclaim existing gold. If you removed investment, and jewelry usage (especially culturally driven jewelry usage) then there's no way the remaining uses for industry and dentistry could sustain the price levels we currently see for gold. Furthermore, and perhaps more importantly, the best data I can find for this shows the total number of tons consumed for industrial uses has been shrinking for several years now, and that was prior to recent price increases, so it is difficult to tie that reduced demand to increasing prices. And one might postulate in a 'collapsed society' you seem to be referring to in your question, that a lot of the recent industrial demand (e.g. the '50 cents of gold in each cellphone') could quite possibly disappear entirely. The argument many people use for gold having value is usually 'been used as money for thousands of years'. But this confuses gold having a value of its own with the reasons why something makes a useful currency. Gold has a large number of characteristics that make it an ideal currency, and of all the elements available it is perhaps the best physical element to serve as a currency. BUT just as with a dollar bill, just because it is a good currency, does NOT give it an intrinsic value. Any currency is only worth what someone will trade you for it. The value is set by the economy etc., not the medium used as a currency. So yes, people will probably always use gold as money, but that doesn't make the money worth anything, it's just a medium of exchange. Incidentally two other things should be noted. The first is that you have a problem when the medium itself used for a currency becomes worth more than the face value. Hence why we stopped using silver in coins, and there were concerns over pennies due to the price of copper. This leads to the second point, which is that currently, gold is TOO RARE to suffice as a world currency, hence why all countries went off the gold standard years ago. The size of national and global economies was growing faster than the supply of gold, and hence it was becoming impossible to have enough gold to back all the currencies (inflation concerns aside)."
},
{
"docid": "241175",
"title": "",
"text": "Can a company not bargain with a dying company for example and buy a falling stock at lower than market value? Of course. If the shareholders agree to it. But why would they, if the market value is higher, agree to sell to someone who offers less? If there's a compelling reason - it can happen. It might happen during a hostile takeover, for example. In the case of buying the company for more than market value, are the stocks bought for significantly more, or slightly more than the current market value? Again, depends on how valuable the shareholders think the company is. If the shareholders think that the company has a potential which has not yet affected the stock price, they'll want a higher premium (and they'd think that, otherwise why would they hold the stock?). How much higher? Depends on the bargaining abilities of the sides."
},
{
"docid": "566205",
"title": "",
"text": "\"I'm not a financial expert, but saying that paying a $1 dividend will reduce the value of the stock by $1 sounds like awfully simple-minded reasoning to me. It appears to be based on the assumption that the price of a stock is equal to the value of the assets of a company divided by the total number of shares. But that simply isn't true. You don't even need to do any in-depth analysis to prove it. Just look at share prices over a few days. You should easily be able to find stocks whose price varied wildly. If, say, a company becomes the target of a federal investigation, the share price will plummet the day the announcement is made. Did the company's assets really disappear that day? No. What's happened is that the company's long term prospects are now in doubt. Or a company announces a promising new product. The share price shoots up. They may not have sold a single unit of the new product yet, they haven't made a dollar. But their future prospects now look improved. Many factors go into determining a stock price. Sure, total assets is a factor. But more important is anticipated future earning. I think a very simple case could be made that if a stock never paid any dividends, and if everyone knew it would never pay any dividends, that stock is worthless. The stock will never produce any profit to the owner. So why should you be willing to pay anything for it? One could say, The value could go up and you could sell at a profit. But on what basis would the value go up? Why would investors be willing to pay larger and larger amounts of money for an asset that produces zero income? Update I think I understand the source of the confusion now, so let me add to my answer. Suppose that a company's stock is selling for, say, $10. And to simplify the discussion let's suppose that there is absolutely nothing affecting the value of that stock except an expected dividend. The company plans to pay a dividend on a specific date of $1 per share. This dividend is announced well in advance. Everyone knows that it will be paid, and everyone is extremely confidant that in fact the company really will pay it -- they won't run out of money or any such. Then in a pure market, we would expect that as the date of that dividend approaches, the price of the stock would rise until the day before the dividend is paid, it is $11. Then the day after the dividend is paid the price would fall back to $10. Why? Because the person who owns the stock on the \"\"dividend day\"\" will get that $1. So if you bought the stock the day before the dividend, the next day you would immediately receive $1. If without the dividend the stock is worth $10, then the day before the dividend the stock is worth $11 because you know that the next day you will get a $1 \"\"refund\"\". If you buy the stock the day after the dividend is paid, you will not get the $1 -- it will go to the person who had the stock yesterday -- so the value of the stock falls back to the \"\"normal\"\" $10. So if you look at the value of a stock immediately after a dividend is paid, yes, it will be less than it was the day before by an amount equal to the dividend. (Plus or minus all the other things that affect the value of a stock, which in many cases would totally mask this effect.) But this does not mean that the dividend is worthless. Just the opposite. The reason the stock price fell was precisely because the dividend has value. BUT IT ONLY HAS VALUE TO THE PERSON WHO GETS IT. It does me no good that YOU get a $1 dividend. I want ME to get the money. So if I buy the stock after the dividend was paid, I missed my chance. So sure, in the very short term, a stock loses value after paying a dividend. But this does not mean that dividends in general reduce the value of a stock. Just the opposite. The price fell because it had gone up in anticipation of the dividend and is now returning to the \"\"normal\"\" level. Without the dividend, the price would never have gone up in the first place. Imagine you had a company with negligible assets. For example, an accounting firm that rents office space so it doesn't own a building, its only tangible assets are some office supplies and the like. So if the company liquidates, it would be worth pretty much zero. Everybody knows that if liquidated, the company would be worth zero. Further suppose that everyone somehow knows that this company will never, ever again pay a dividend. (Maybe federal regulators are shutting the company down because it's products were declared unacceptably hazardous, or the company was built around one genius who just died, etc.) What is the stock worth? Zero. It is an investment that you KNOW has a zero return. Why would anyone be willing to pay anything for it? It's no answer to say that you might buy the stock in the hope that the price of the stock will go up and you can sell at a profit even with no dividends. Why would anyone else pay anything for this stock? Well, unless their stock certificates are pretty and people like to collect them or something like that. Otherwise you're supposing that people would knowingly buy into a pyramid scheme. (Of course in real life there are usually uncertainties. If a company is dying, some people may believe, rightly or wrongly, that there is still hope of reviving it. Etc.) Don't confuse the value of the assets of a company with the value of its stock. They are related, of course -- all else being equal, a company with a billion dollars in assets will have a higher market capitalization than a company with ten dollars in assets. But you can't calculate the price of a company's stock by adding up the value of all its assets, subtracting liabilities, and dividing by the number of shares. That's just not how it works. Long term, the value of any stock is not the value of the assets but the net present value of the total future expected dividends. Subject to all sorts of complexities in real life.\""
},
{
"docid": "64943",
"title": "",
"text": "This seemed very unrealistic, I mean who would do that? But to my immense surprise the market price increased to 5.50$ in the following week! Why is that? This is strange. It seems that people mistakenly [?] believe that the company should be at 5.5 and currently available cheap. This looks like irrational behaviour. Most of the past 6 months the said stock in range bound to 4.5 to 5. The last time it hit around 5.5 was Feb. So this is definitely strange. If the company had set a price of 6.00$ in the rights offering, would the price have increased to 6$? Obviously the company thinks that their shares are worth that much but why did the market suddenly agree? Possibly yes, possible no. It can be answered. More often the rights issue are priced at slight discount to market price. Why did this happen? Obviously management thinks that the company is worth that much, but why did the market simply believe this statement without any additional information? I don't see any other information; if the new shares had some special privileges [in terms of voting rights, dividends, etc] then yes. However the announcements says the rights issues is for common shares."
},
{
"docid": "481978",
"title": "",
"text": "I have heard that people say the greater earning means greater intrinsic value of the company. Then, the stock price is largely based on the intrinsic value. So increasing intrinsic value due to increasing earning will lead to increasing stock price. Does this make sense ? Yes though it may be worth dissecting portions here. As a company generates earnings, it has various choices for what it can do with that money. It can distribute some to shareholders in the form of dividends or re-invest to generate more earnings. What you're discussing in the first part is those earnings that could be used to increase the perceived value of the company. However, there can be more than a few interpretations of how to compute a company's intrinsic value and this is how one can have opinions ranging from companies being overvalued to undervalued overall. Of Mines, Forests, and Impatience would be an article giving examples that make things a bit more complex. Consider how would you evaluate a mine, a forest or a farm where each gives a different structure to the cash flow? This could be useful in running the numbers here."
},
{
"docid": "14065",
"title": "",
"text": "\"In 2014 the IRS announced that it published guidance in Notice 2014-21. In that notice, the answer to the first question describes the general tax treatment of virtual currency: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. As it's property like any other, capital gains if and when you sell are taxed. As with any capital gains, you're taxed on the \"\"profit\"\" you made, that is the \"\"proceeds\"\" (how much you got when you sold) minus your \"\"basis\"\" (how much you paid to get the property that you sold). Until you sell, it's just an asset (like a house, or a share of stock, or a rare collectible card) that doesn't require any reporting. If your initial cryptocurrency acquisition was through mining, then this section of that Notice applies: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income. That is to say, when it was mined the market value of the amount generated should have been included in income (probably on either Line 21 Other Income, or on Schedule C if it's from your own business). At that point, the market value would also qualify as your basis. Though I doubt there'd be a whole lot of enforcement action for not amending your 2011 return to include $0.75. (Technically if you find a dollar bill on the street it should be included in income, but usually the government cares about bigger fish than that.) It sounds like your basis is close enough to zero that it's not worth trying to calculate a more accurate value. Since your basis couldn't be less than zero, there's no way that using zero as your basis would cause you to pay less tax than you ought, so the government won't have any objections to it. One thing to be careful of is to document that your holdings qualify for long-term capital gains treatment (held longer than a year) if applicable. Also, as you're trading in multiple cryptocurrencies, each transaction may count as a \"\"sale\"\" of one kind followed by a \"\"purchase\"\" of the other kind, much like if you traded your Apple stock for Google stock. It's possible that \"\"1031 like kind exchange\"\" rules apply, and in June 2016 the American Institute of CPAs sent a letter asking about it (among other things), but as far as I know there's been no official IRS guidance on the matter. There are also some related questions here; see \"\"Do altcoin trades count as like-kind exchanges?\"\" and \"\"Assuming 1031 Doesn't Apply To Cryptocurrency Trading\"\". But if in fact those exchange rules do not apply and it is just considered a sale followed by a purchase, then you would need to report each exchange as a sale with that asset's basis (probably $0 for the initial one), and proceeds of the fair market value at the time, and then that same value would be the basis of the new asset you're purchasing. Using a $0 basis is how I treat my bitcoin sales, though I haven't dealt with other cryptocurrencies. As long as all the USD income is being reported when you get USD, I find it unlikely you'll run into a lot of trouble, even if you technically were supposed to report the individual transactions when they happened. Though, I'm not in charge of IRS enforcement, and I'm not aware of any high-profile cases, so it's hard to know anything for sure. Obviously, if there's a lot of money involved, you may want to involve a professional rather than random strangers on the Internet. You could also try contacting the IRS directly, as believe-it-or-not, their job is in fact helping you to comply with the tax laws correctly. Also, there are phone numbers at the end of Notice 2014-21 of people which might be able to provide further guidance, including this statement: The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718\""
},
{
"docid": "591229",
"title": "",
"text": "I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture."
},
{
"docid": "139089",
"title": "",
"text": "The penny pilot program has a dramatic effect on increasing options liquidity. Bids can be posted at .01 penny increments instead of .05 increments. A lot of money is lost dealing with .05 increments. Issues are added to the penny pilot program based on existing liquidity in both the stock and the options market, but the utility of the penny pilot program outweighs the discretionary liquidity judgement that the CBOE makes to list issues in that program. The reason the CBOE doesn't list all stocks in the penny pilot program is because they believe that their data vendors cannot handle all of the market data. But they have been saying this since 2006 and storage and bandwidth technology has greatly improved since then."
},
{
"docid": "358164",
"title": "",
"text": "\"The effect of making a single purchase, of size and timing described, would not cause market disequilibrium, it would only hurt you (and your P&L). As @littleadv said, you would be unlikely to get your order filled. You asked about making a \"\"sudden\"\" purchase. Let's say you placed the order and were willing to accept a series of partial fills e.g. in 5,000 or 10,000 share increments at a time, over a period of hours. This would be a more moderate approach. Even spread out over the span of a day, this remains unwise. A better approach would be to buy small lots over the course of a week or month. But your transaction fees would increase. Investors make money in pink sheets and penny stocks due to increases in share price of 100% (on the low end), with a relatively small number of shares. It isn't feasible to earn speculator profits by purchasing huge blocks (relative to number of shares outstanding) of stock priced < $1.00 USD and profit from merely 25% price increases on large volume.\""
},
{
"docid": "476859",
"title": "",
"text": "\"What drives the stock of bankrupt companies? Such stock is typically considered \"\"distressed assets\"\". Technically, what drives it is what drives every stock - supply and demand. A more interesting question is of course, why would there be demand? First, who exerts the buying pressure on the stock? Typically, three types of entities: The largest ones are financial institutions specializing in distressed assets (frequently, alternatives specialists - hedge funds, private equity firms etc...). Usually, they invest in distressed debt or distressed preferred equity; but sometimes distressed equity as well. Why? We will discuss their motivations separately in this answer. Second one are existing equity holders. Why? Short answer, behavioral psychology and behavioral economics. Many investors - especially non-professionals - insist on holding distressed stocks due to variety of investment fallacies (sunk cost etc...); usually constructing elaborate theories of why and how the company and the stock will recover Sometimes, people who buy into penny stock scams, pump and dump schemes etc... Why? \"\"There's a sucker born every minute.\"\" - P.T. Barnum Let's find out why an investment professional would invest in distressed equity? First, the general process is always the same. Company's assets are used to pay off its liabilities; in accordance with applicable law. There are two ways this can be done - either through selling the company; OR through bankruptcy process. The liabilities are paid according to seniority. The seniority priorities rules are covered by 11 U.S. Code § 507 - Priorities A company in bankruptcy can have one of 2 outcomes: Buyout. Some buyer might decide that the company's assets are worth something to them as a whole; and buy the whole enterprise; rather than risk it being destroyed piecemeal in bankruptcy proceedings. In that case, the proceeds from the sale will be used to fund the liabilities as discussed above. This option is one of the possible reasons people might consider investing in distressed equity. For example, if the company is in bankruptcy because it can't get enough financing right now, but is likely to have good profits in the future. The chances are, some buyer will buy it for a premium that includes those future profits; and that sale amount might possibly exceed the liabilities. Bankruptcy. The assets are sold and liabilities are covered according to priorities. In that case, the investors in distressed equity might be hoping that there are un-obvious assets whose value would also put the total assets above claimed liabilities. Additional possible beneficial factor is that unsecured debtors must file with the court in order to be paid; and the claim must be validated. Some might fail on either count; so total amount of liabilities might lessen once the bankruptcy process goes through. Assets Now, here's where things get interesting. Of course, companies have usual assets. Real estate, inventory, plants, cash, etc... These are all able to be sold to cover liabilities, and at first glance are possibly not enough to cover liabilities, leaving equity holders with nothing (and even that's not a certainty - bankruptcy is simply inability to service debt payments; and while it correlates to assetsliquid assets, not full asset valuation). But some assets are less sure, and are thus rarely included in such calculations. These may include: Chances of winning appeals if specific existing liabilities are results of litigation, e.g. tax appeals, court judgement appeals etc... Clawbacks and lawsuits against former executives, especially in cases where the company's financial distress resulted from executive malfeasance. I was personally involved in one such case as an equity holder, where the company assets were valued at $X; had liabilities of $X*2; but had a real possibility of winning about $X*3 in a lawsuit against former CEO accused of various malfeasance including fraud and insider trading. As such, the best case scenario was literally 100% profit on holding that distressed equity.\""
},
{
"docid": "258706",
"title": "",
"text": "\"That's like a car dealer advertising their \"\"huge access\"\" to Chevrolet. All brokers utilize dark pools nowadays, either their own or one belonging to a larger financial institution. Why? Because that's a primary source of broker income. Example: Under current US regulations the broker is under no obligation to pass these orders to actual (a.k.a. lit) exchanges. Instead it can internalize them in its dark pool as long as it \"\"improves the price\"\". So: If a broker doesn't run its own dark pool, then it sends the orders to the dark pool run by a larger institution (JPMorgan, Credit Suisse, Getco, Knight Capital) and gets some fraction of the dark pool's profit in return. Are Mom and Pop negatively impacted by this? Not for most order types. They each even got a free penny out of the deal! But if there were no dark pools, that $1.00 difference between their trade prices would have gone half ($0.50) to Mom's counterparty and half ($0.50) to Pop's counterparty, who could be someone else's Mom and someone else's Pop. So ... that's why brokers all use dark pools, and why their advertisement of their dark pool access is silly. They're basically saying, \"\"We're going to occasionally throw you a free penny while making 49 times that much from you\"\"! (Note: Now apply the above math to a less liquid product than AAPL. Say, where the spread is not $0.01, but more like $0.05. Now Mom and Pop still might make a penny each, while the broker can make $4.98 on a 100 share trade!)\""
},
{
"docid": "481683",
"title": "",
"text": "\"Here are my reasons as to why bonds are considered to be a reasonable investment. While it is true that, on average over a sufficiently long period of time, stocks do have a high expected return, it is important to realize that bonds are a different type of financial instrument that stocks, and have features that are attractive to certain types of investors. The purpose of buying bonds is to convert a lump sum of currency into a series of future cash flows. This is in and of itself valuable to the issuer because they would prefer to have the lump sum today, rather than at some point in the future. So we generally don't say that we've \"\"lost\"\" the money, we say that we are purchasing a series of future payments, and we would only do this if it were more valuable to us than having the money in hand. Unlike stocks, where you are compensated with dividends and equity to take on the risks and rewards of ownership, and unlike a savings account (which is much different that a bond), where you are only being paid interest for the time value of your money while the bank lends it out at their risk, when you buy a bond you are putting your money at risk in order to provide financing to the issuer. It is also important to realize that there is a much higher risk that stocks will lose value, and you have to compare the risk-adjusted return, and not the nominal return, for stocks to the risk-adjusted return for bonds, since with investment-grade bonds there is generally a very low risk of default. While the returns being offered may not seem attractive to you individually, it is not reasonable to say that the returns offered by the issuer are insufficient in general, because both when the bonds are issued and then subsequently traded on a secondary market (which is done fairly easily), they function as a market. That is to say that sellers always want a higher price (resulting in a lower return), and buyers always want to receive a higher return (requiring a lower price). So while some sellers and buyers will be able to agree on a mutually acceptable price (such that a transaction occurs), there will almost always be some buyers and sellers who also do not enter into transactions because they are demanding a lower/higher price. The fact that a market exists indicates that enough investors are willing to accept the returns that are being offered by sellers. Bonds can be helpful in that as a class of assets, they are less risky than stocks. Additionally, bonds are paid back to investors ahead of equity, so in the case of a failing company or public entity, bondholders may be paid even if stockholders lose all their money. As a result, bonds can be a preferred way to make money on a company or government entity that is able to pay its bills, but has trouble generating any profits. Some investors have specific reasons why they may prefer a lower risk over time to maximizing their returns. For example, a government or pension fund or a university may be aware of financial payments that they will be required to make in a particular year in the future, and may purchase bonds that mature in that year. They may not be willing to take the risk that in that year, the stock market will fall, which could force them to reduce their principal to make the payments. Other individual investors may be close to a significant life event that can be predicted, such as college or retirement, and may not want to take on the risk of stocks. In the case of very large investors such as national governments, they are often looking for capital preservation to hedge against inflation and forex risk, rather than to \"\"make money\"\". Additionally, it is important to remember that until relatively recently in the developed world, and still to this day in many developing countries, people have been willing to pay banks and financial institutions to hold their money, and in the context of the global bond market, there are many people around the world who are willing to buy bonds and receive a very low rate of return on T-Bills, for example, because they are considered a very safe investment due to the creditworthiness of the USA, as well as the stability of the dollar, especially if inflation is very high in the investor's home country. For example, I once lived in an African country where inflation was 60-80% per year. This means if I had $100 today, I could buy $100 worth of goods, but by next year, I might need $160 to buy the same goods I could buy for $100 today. So you can see why simply being able to preserve the value of my money in a bond denominated in USA currency would be valuable in that case, because the alternative is so bad. So not all bondholders want to be owners or make as much money as possible, some just want a safe place to put their money. Also, it is true for both stocks and bonds that you are trading a lump sum of money today for payments over time, although for stocks this is a different kind of payment (dividends), and you only get paid if the company makes money. This is not specific to bonds. In most other cases when a stock price appreciates, this is to reflect new information not previously known, or earnings retained by the company rather than paid out as dividends. Most of the financial instruments where you can \"\"make\"\" money immediately are speculative, where two people are betting against each other, and one has to lose money for the other to make money. Again, it's not reasonable to say that any type of financial instrument is the \"\"worst\"\". They function differently, serve different purposes, and have different features that may or may not fit your needs and preferences. You seem to be saying that you simply don't find bond returns high enough to be attractive to you. That may be true, since different people have different investment objectives, risk tolerance, and preference for having money now versus more money later. However, some of your statements don't seem to be supported by facts. For example, retail banks are not highly profitable as an industry, so they are not making thousands of times what they are paying you. They also need to pay all of their operating expenses, as well as account for default risk and inflation, out of the different between what they lend and what they pay to savings account holders. Also, it's not reasonable to say that bonds are worthless, as I've explained. The world disagrees with you. If they agreed with you, they would stop buying bonds, and the people who need financing would have to lower bond prices until people became interested again. That is part of how markets work. In fact, much of the reason that bond yields are so low right now is that there has been such high global demand for safe investments like bonds, especially from other nations, such that bond issues (especially the US government) have not needed to pay high yields in order to raise money.\""
},
{
"docid": "472632",
"title": "",
"text": "I love giving non-answer answers. It will depend on you. Suppose you are embarrassed by driving older cars, your significant other doesn't like having you drive an older car, you don't really maintain the car well, it develops a variety of problems, acquires a few dents and you really worry about reliability. Then the value of the car will probably drop rather quickly below the blue book value and you should sell it. On the other hand, if you don't care how the car looks, it runs pretty well (fewer repairs than you would expect), you maintain it yourself (aka cheaply) and do a good job at that, and have plenty of friends who owe you a favor and will give you a ride if your car won't start, there will probably never be a time that the value to you drops below the 'official' blue book value (what others will pay), so you would drive it until the engine drops out of the chassis. The blue book value represents some kind of rough consensus about what a car of that age and exterior condition is worth to the typical person; it will be the discrepancy between the 'typical' person and you that determines whether you'll sell. An illustration of this: I know a few people who (1) don't care what their car looks like and (2) are very handy at repairs. These people started out by buying cheap used cars and ran them until they basically fell to pieces. However, even though their 'taste' in cars didn't changes, as their incomes increased, it finally reached the point where doing their own repairs was too much of a time sink, so the value of really old cars dropped in their minds and they shifted to buying newer cars and selling them before they completely fell apart. That's why this is a hard question to answer."
},
{
"docid": "287239",
"title": "",
"text": "\"Penny stocks are only appealing to the brokers who sell the penny stocks and the companies selling \"\"penny stock signals!\"\". Generally penny stocks provide abysmal returns to the average investor (you or me). In \"\"The Missing Risk Premium\"\", Falkenstein does a quick overview on average returns to penny stock investors citing the following paper \"\"Do Investors Overpay for Stocks with Lottery-Like Payoffs? An Examination of the Returns on OTC Stocks\"\". Over the 2000 to 2009 time period, average investors lost nearly half their investment. A comparable investment in the S&P over this period would have been flat see here. There is a good table in the book/paper showing that the average annual return for stocks priced at either a penny or ten cents range from -10 percent (for medium volume) to -30% to -40% for low or high volume. A different paper, \"\"Too Good to Ignore? A Primer on Listed Penny Stocks\"\" that cites the one above finds that listed, as opposed to OTC \"\"Pink Sheet\"\" penny stocks\"\", have better returns, but provide no premium for the additional risk and low liquidity. The best advice here is that there is no \"\"quick win\"\" in penny stocks. These act more like lottery tickets and are not appropriate for the average investor. Stear clear!\""
},
{
"docid": "263321",
"title": "",
"text": "\"which means the current total is $548,100. Is that correct? Yep Unfortunately the \"\"current\"\" GM stock is different than the GM stock of 1989. GM went bankrupt in 2011. It's original stock changed to Motors Liquidation Company (MTLQQ) and is essentially worthless today. There was no conversion from the old stock to the new stock. What do I do with these certificates? Can I bring them to my bank, or do I need to open an account with a stock company like Fidelity? See here for some instructions on cashing them in (or at least registering them electronically). I've never dealt with physical stocks, but I presume that a broker is going to charge you something for registering them vs. direct registration, though I have no idea how much that would be. I read somewhere that I only have to pay taxes when I cash out these stocks. But are these rules any different because I inherited the stocks? You will pay capital gains tax on the increase in value from the time your father died to the time you sell the shares. If that time is more than one year (and the stock has gone up in value) you will pay a 15% tax on the total increase. If you have held them less than one year, they will be short-term capital gains which will count as regular income, and you will pay whatever your marginal tax rate is. If you sell the stock at a loss, then you'll be able to deduct some or all of that loss from your income, and may be able to carry forward losses for a few years as well. I did not catch that the stock you mention was GM stock. GM went bankrupt in 2011, so it's likely that the stock you own is worthless. I have edited the first answer appropriately but left the other two since they apply more generally. In your case the best you get is a tax deduction for the loss in value from the date your father died.\""
}
] |
8230 | Why would this kind of penny stock increase so much in value? | [
{
"docid": "363204",
"title": "",
"text": "\"Disregarding the particular example and focusing on the actual questions: YES, definitely, the whole concept of \"\"pump and dump scheme\"\" refers to the many cases when this was intentionally done; Everything has a limit, but the limit can be quite high, especially if starting from a low value (a penny stock) and if the stock is low volume, then inflating ten or hundred times over a real value may be possible; and any value might be infinitely times overvalued for a company that turns out to have a value of zero. Yes, unless it's done very blatantly, you should expect that the \"\"inflator\"\" has much more experience in hiding the signs of inflation than the skill of average investor to notice them.\""
}
] | [
{
"docid": "476859",
"title": "",
"text": "\"What drives the stock of bankrupt companies? Such stock is typically considered \"\"distressed assets\"\". Technically, what drives it is what drives every stock - supply and demand. A more interesting question is of course, why would there be demand? First, who exerts the buying pressure on the stock? Typically, three types of entities: The largest ones are financial institutions specializing in distressed assets (frequently, alternatives specialists - hedge funds, private equity firms etc...). Usually, they invest in distressed debt or distressed preferred equity; but sometimes distressed equity as well. Why? We will discuss their motivations separately in this answer. Second one are existing equity holders. Why? Short answer, behavioral psychology and behavioral economics. Many investors - especially non-professionals - insist on holding distressed stocks due to variety of investment fallacies (sunk cost etc...); usually constructing elaborate theories of why and how the company and the stock will recover Sometimes, people who buy into penny stock scams, pump and dump schemes etc... Why? \"\"There's a sucker born every minute.\"\" - P.T. Barnum Let's find out why an investment professional would invest in distressed equity? First, the general process is always the same. Company's assets are used to pay off its liabilities; in accordance with applicable law. There are two ways this can be done - either through selling the company; OR through bankruptcy process. The liabilities are paid according to seniority. The seniority priorities rules are covered by 11 U.S. Code § 507 - Priorities A company in bankruptcy can have one of 2 outcomes: Buyout. Some buyer might decide that the company's assets are worth something to them as a whole; and buy the whole enterprise; rather than risk it being destroyed piecemeal in bankruptcy proceedings. In that case, the proceeds from the sale will be used to fund the liabilities as discussed above. This option is one of the possible reasons people might consider investing in distressed equity. For example, if the company is in bankruptcy because it can't get enough financing right now, but is likely to have good profits in the future. The chances are, some buyer will buy it for a premium that includes those future profits; and that sale amount might possibly exceed the liabilities. Bankruptcy. The assets are sold and liabilities are covered according to priorities. In that case, the investors in distressed equity might be hoping that there are un-obvious assets whose value would also put the total assets above claimed liabilities. Additional possible beneficial factor is that unsecured debtors must file with the court in order to be paid; and the claim must be validated. Some might fail on either count; so total amount of liabilities might lessen once the bankruptcy process goes through. Assets Now, here's where things get interesting. Of course, companies have usual assets. Real estate, inventory, plants, cash, etc... These are all able to be sold to cover liabilities, and at first glance are possibly not enough to cover liabilities, leaving equity holders with nothing (and even that's not a certainty - bankruptcy is simply inability to service debt payments; and while it correlates to assetsliquid assets, not full asset valuation). But some assets are less sure, and are thus rarely included in such calculations. These may include: Chances of winning appeals if specific existing liabilities are results of litigation, e.g. tax appeals, court judgement appeals etc... Clawbacks and lawsuits against former executives, especially in cases where the company's financial distress resulted from executive malfeasance. I was personally involved in one such case as an equity holder, where the company assets were valued at $X; had liabilities of $X*2; but had a real possibility of winning about $X*3 in a lawsuit against former CEO accused of various malfeasance including fraud and insider trading. As such, the best case scenario was literally 100% profit on holding that distressed equity.\""
},
{
"docid": "559915",
"title": "",
"text": "\"... which is why the entire \"\"it costs 1.8 cents to make a penny\"\" argument is meaningless. We're not losing 0.8 cents per penny made. If that was true, we'd also be ***gaining*** $99.877 for every $100 bill that was printed ([which costs 12.3 cents to make](http://mentalfloss.com/article/68650/how-much-does-it-cost-manufacture-us-paper-money)) - which would more than offset the non-existent \"\"loss\"\" that people seem to think we incur producing pennies.\""
},
{
"docid": "402967",
"title": "",
"text": "Many of the major indices retreated today because of this news. Why? How do the rising budget deficits and debt relate to the stock markets? The major reason for the market retreating is the uncertainty regarding the US Dollar. If the US credit rating drops that will have an inflationary effect on the currency (as it will push up the cost of US Treasuries and reduce confidence in the USD). If this continues the loss of USD confidence could bring an end to the USD as the world's reserve currency which could also create inflation (as world banks could reduce their USD reserves). This can make US assets appear overvalued. Why is there such a large emphasis on the S&P rating? S&P is a large trusted rating agency so the market will respond to their analysis much like how a bank would respond to any change in your rating by Transunion (Consumer Credit Bureau) Does this have any major implications for the US stock markets today, in the short term and in July? If you are a day-trader I'm sure it does. There will be minor fluctuations in the market as soon as news comes out (either of its extension or any expected delays in passing that extension). What happens when the debt ceiling is reached? Since the US is in a deficit spending situation it needs to borrow more to satisfy its existing obligations (in short it pays its debt with more debt). As a result, if the debt ceiling isn't raised then eventually the US will be unable to pay its existing obligations. We would be in a default situation which could have devastating affects on the value of the USD. How hard the hit will depend on how long the default situation lasts (the longer we go without an increased ceiling after the exhaustion point the more we default on). In reality, Congress will approve a raise, but they will drag it out to the last possible minute. They want to appear as if they are against it, but they understand the catastrophic effects of not doing so."
},
{
"docid": "102026",
"title": "",
"text": "It definitely depends on the exchange you are trading on. I'm not familiar with Scottrade, but a standard practice is to fulfill limit orders in the order they are placed. Most of the time, you wouldn't see stocks trade significantly under your bid price, but since penny stocks are very volatile, it's more likely their price could drop quickly past your bid and then return above it while only fulfilling a portion of the orders placed. Example 1. Penny stock priced at $0.12 2. Others place limit orders to buy at $0.10 3. You place limit order to buy at $0.10 4. Stock price drops to $0.07 and some orders are filled (anything $0.07 or higher) based on a first-come first-served basis 5. Due to the increase in purchases of the penny stock, the price rises above $0.10 before your order is filled ***EDIT*** - Adding additional clarification from comment section. A second example If the price drops from $0.12 to $0.07, then orders for all prices from $0.07 and above will start to be filled from the oldest order first. That might mean that the oldest order was a limit buy order for 100 shares at $0.09, and since that is above the current ask price, it will be filled first. The next order might be for 800 shares at $0.07. It's possible for a subset of these to be filled (let's say 400) before the share's price increases from the increased demand. Then, if the price goes above $0.10, your bid will not be filled during that time."
},
{
"docid": "352485",
"title": "",
"text": "The answer is that other than a small number of applications (the approx. 10% of gold production that goes to 'industrial uses') gold does not have intrinsic value beyond being pretty and rare (and useful for making jewelry.) There are a number of 'industrial' applications and uses for gold (see other answers for a list) but the volume consumed this way is fairly small, especially relative to the capacity to mine new gold and reclaim existing gold. If you removed investment, and jewelry usage (especially culturally driven jewelry usage) then there's no way the remaining uses for industry and dentistry could sustain the price levels we currently see for gold. Furthermore, and perhaps more importantly, the best data I can find for this shows the total number of tons consumed for industrial uses has been shrinking for several years now, and that was prior to recent price increases, so it is difficult to tie that reduced demand to increasing prices. And one might postulate in a 'collapsed society' you seem to be referring to in your question, that a lot of the recent industrial demand (e.g. the '50 cents of gold in each cellphone') could quite possibly disappear entirely. The argument many people use for gold having value is usually 'been used as money for thousands of years'. But this confuses gold having a value of its own with the reasons why something makes a useful currency. Gold has a large number of characteristics that make it an ideal currency, and of all the elements available it is perhaps the best physical element to serve as a currency. BUT just as with a dollar bill, just because it is a good currency, does NOT give it an intrinsic value. Any currency is only worth what someone will trade you for it. The value is set by the economy etc., not the medium used as a currency. So yes, people will probably always use gold as money, but that doesn't make the money worth anything, it's just a medium of exchange. Incidentally two other things should be noted. The first is that you have a problem when the medium itself used for a currency becomes worth more than the face value. Hence why we stopped using silver in coins, and there were concerns over pennies due to the price of copper. This leads to the second point, which is that currently, gold is TOO RARE to suffice as a world currency, hence why all countries went off the gold standard years ago. The size of national and global economies was growing faster than the supply of gold, and hence it was becoming impossible to have enough gold to back all the currencies (inflation concerns aside)."
},
{
"docid": "154841",
"title": "",
"text": "The short answer, probably not much. Unless you have a controlling interest in the company. If at least 50%+1 of the shareholder votes are in favor of the dilution then it can be done. There are some SEC rules that should protect against corporate looting and theft like what the Severin side is trying to make it appear as happened. However it would appear that Severin did something stupid. He signed away all of his voting right to someone who would use them to make his rights basically worthless. Had he kept his head in the game he could probably have saved himself. But he didn't. If your average startup started issuing lots of stock and devaluing existing shares significantly then I would expect it would be harder to find investors willing to watch as their investment dwindled. But if you are issuing a limited amount stock to get leverage to grow bigger then it is worth it. In the .com bubble there were quite a few companies that just issued stock to buy other companies. Eventually most of these companies got delisted because they diluted them selves to much when they were overvalued. Any company not just a startup can dilute its shares. Many if not most major companies issue stock to raise capital. This capital is then generally used to build the business further and increase the value of all shares. Most of the time this dilution is very minor (<.1%) and has little if any impact on the stock. There are rules that have to be followed as listed companies are regulated by the SEC. There are less regulations with private corporations. It looks like the dilution was combined with the buyout of the Florida company which probably contributed to the legality of the dilution. With options they are generally issued at a set price. This may be higher or lower than the reported sell price of the stock when the option is issued. The idea is over time the stock will increase in value so that those people who hold on to their options can buy the stock for the price listed on the option. I worked at an ISP start up in the 90's that made it pretty well. I left before the options were issued but I had friends still there that were issued an option at $16 a share the value of the stock at the time of the issue of the option was about 12. Well the company diluted the shares and used them to acquire more ISP's unfortunately this was about the time that DSL And cable internet took off so the dial up market tanked. The value eventually fell to .10 they did a reverse split and when they did the called in all options. The options did not have a positive cash value at any time. Had RMI ever made it big then the options could have been worth millions. There are some people from MS and Yahoo that were in early that made millions off of their options. This became a popular way for startups to attract great talent paying peanuts. They invested their time in the business hoping to strike gold. A lot of IT people got burned so this is less popular among top talent as the primary compensation anymore."
},
{
"docid": "137353",
"title": "",
"text": "\"My question boiled down: Do stock mutual funds behave more like treasury bonds or commodities? When I think about it, it seems that they should respond the devaluation like a commodity. I own a quantity of company shares (not tied to a currency), and let's assume that the company only holds immune assets. Does the real value of my stock ownership go down? Why? On December 20, 1994, newly inaugurated President Ernesto Zedillo announced the Mexican central bank's devaluation of the peso between 13% and 15%. Devaluing the peso after previous promises not to do so led investors to be skeptical of policymakers and fearful of additional devaluations. Investors flocked to foreign investments and placed even higher risk premia on domestic assets. This increase in risk premia placed additional upward market pressure on Mexican interest rates as well as downward market pressure on the Mexican peso. Foreign investors anticipating further currency devaluations began rapidly withdrawing capital from Mexican investments and selling off shares of stock as the Mexican Stock Exchange plummeted. To discourage such capital flight, particularly from debt instruments, the Mexican central bank raised interest rates, but higher borrowing costs ultimately hindered economic growth prospects. The question is how would they pull this off if it's a floatable currency. For instance, the US government devalued the US Dollar against gold in the 30s, moving one ounce of gold from $20 to $35. The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it was stored in United States Bullion Depository at Fort Knox and other locations. The act also changed the nominal price of gold from $20.67 per troy ounce to $35. But now, the US Dollar is not backed by anything, so how do they devalue it now (outside of intentionally inflating it)? The Hong Kong Dollar, since it is fixed to the US Dollar, could be devalued relative to the Dollar, going from 7.75 to 9.75 or something similar, so it depends on the currency. As for the final part, \"\"does the real value of my stock ownership go down\"\" the answer is yes if the stock ownership is in the currency devalued, though it may rise over the longer term if investors think that the value of the company will rise relative to devaluation and if they trust the market (remember a devaluation can scare investors, even if a company has value). Sorry that there's too much \"\"it depends\"\" in the answer; there are many variables at stake for this. The best answer is to say, \"\"Look at history and what happened\"\" and you might see a pattern emerge; what I see is a lot of uncertainty in past devaluations that cause panics.\""
},
{
"docid": "242663",
"title": "",
"text": "\"Some thoughts on your questions in order, Duration: You might want to look at the longest-dated option (often a \"\"LEAP\"\"), for a couple reasons. One is that transaction costs (spread plus commission, especially spread) are killer on options, so a longer option means fewer transactions, since you don't have to keep rolling the option. Two is that any fundamentals-based views on stocks might tend to require 3-5 years to (relatively) reliably work out, so if you're a fundamental investor, a 3-6 month option isn't great. Over 3-6 months, momentum, short-term news, short squeezes, etc. can often dominate fundamentals in determining the price. One exception is if you just want to hedge a short-term event, such as a pending announcement on drug approval or something, and then you would buy the shortest option that still expires after the event; but options are usually super-expensive when they span an event like this. Strike: Strike price on a long option can be thought of as a tradeoff between the max loss and minimizing \"\"insurance costs.\"\" That is, if you buy a deeply in-the-money put or call, the time value will be minimal and thus you aren't paying so much for \"\"insurance,\"\" but you may have 1/3 or 1/2 of the value of the underlying tied up in the option and subject to loss. If you buy a put or call \"\"at the money,\"\" then you might have only say 10% of the value of the underlying tied up in the option and subject to loss, but almost the whole 10% may be time value (insurance cost), so you are losing 10% if the underlying stock price stays flat. I think of the deep in-the-money options as similar to buying stocks on margin (but the \"\"implied\"\" interest costs may be less than consumer margin borrowing rates, and for long options you can't get a margin call). The at-the-money options are more like buying insurance, and it's expensive. The commissions and spreads add significant cost, on top of the natural time value cost of the option. The annual costs would generally exceed the long-run average return on a diversified stock fund, which is daunting. Undervalued/overvalued options, pt. 1: First thing is to be sure the options prices on a given underlying make sense at all; there are things that \"\"should\"\" hold, for example a synthetic long or short should match up to an actual long or short. These kinds of rules can break, for example on LinkedIn (LNKD) after its IPO, when shorting was not permitted, the synthetic long was quite a bit cheaper than a real long. Usually though this happens because the arbitrage is not practical. For example on LNKD, the shares to short weren't really available, so people doing synthetic shorts with options were driving up the price of the synthetic short and down the price of the synthetic long. If you did actually want to be long the stock, then the synthetic long was a great deal. However, a riskless arbitrage (buy synthetic long, short the stock) was not possible, and that's why the prices were messed up. Another basic relationship that should hold is put-call parity: http://en.wikipedia.org/wiki/Put%E2%80%93call_parity Undervalued/overvalued options, pt. 2: Assuming the relationship to the underlying is sane (synthetic positions equivalent to actual positions) then the valuation of the option could focus on volatility. That is, the time value of the option implies the stock will move a certain amount. If the time value is high and you think the stock won't move much, you might short the option, while if the time value is low and you think the stock will move a lot, you might buy the option. You can get implied volatility from your broker perhaps, or Morningstar.com for example has a bunch of data on option prices and the implied components of the price model. I don't know how useful this really is though. The spreads on options are so wide that making money on predicting volatility better than the market is pretty darn hard. That is, the spread probably exceeds the amount of the mispricing. The price of the underlying is more important to the value of an option than the assumed volatility. How many contracts: Each contract is 100 shares, so you just match that up. If you want to hedge 100 shares, buy one contract. To get the notional value of the underlying multiply by 100. So say you buy a call for $30, and the stock is trading at $100, then you have a call on 100 shares which are currently priced at $10,000 and the option will cost $30*100=3,000. You are leveraged about 3 to 1. (This points to an issue with options for individual investors, which is that one contract is a pretty large notional value relative to most portfolios.)\""
},
{
"docid": "480337",
"title": "",
"text": "\"So, if an out-of-the-money option (all time value) has a price P (say $3.00), and there are N days... The extrinsic value isn't solely determined by time value as your quote suggests. It's also based on volatility and demand. Here is a quote from http://www.tradingmarkets.com/options/trading-lessons/the-mystery-of-option-extrinsic-value-767484.html distinguishing between extrinsic time value and extrinsic non-time value: The time value of an option is entirely predictable. Time value premium declines at an accelerating rate, with most time decay occurring in the last one to two months before expiration. This occurs on a predictable curve. Intrinsic value is also predictable and easily followed. It is worth one point for every point the option is in the money. For example, a call with a strike of 30 has three points of intrinsic value when the current value of the underlying stock is $33 per share; and a 40 put has two points of intrinsic value when the underlying stock is worth $38. The third type of premium, extrinsic value, increases or decreases when the underlying stock changes and when the distance between current value of stock and strike of the option get closer together. As a symptom of volatility, extrinsic value may be greater for highly volatile underlying stock, and lower for less volatile stocks. Extrinsic value is the only classification of option premium that is unpredictable. The SPYs you point out probably had a volatility component affecting value. This portion is a factor of expectations or uncertainty. So an event expected to conclude prior to expiration, but of unknown outcome can cause theta to be higher than p/n. For example, a drug company is being sued and the outcome of a trial will determine whether that company pays out millions or not. The extrinsic will be higher than p/n prior to the outcome of the trial then drops after. Of course, the most common situation where this happens is earnings. After the announcement, it's not unusual to see a dramatic drop in the extrinsic portion of options. This is why sometimes a new option trader gets angry when buying calls prior to earnings. When 'surprise' good earnings are announced as hoped, the rise is stock price is largely offset by a fall in extrinsic value giving call holders little or no gain! As for the reverse situation where theta is lower than p/n would expect? Well you can actually have negative theta meaning the extrinsic portion rises over time. (this statement is a little confusing because theta is usually described as negative, but since you describe it as a positive number, negative here means the opposite of what you'd expect). This is a quote from \"\"Option Volatility & Pricing\"\". Keep in mind that they use 'positive' theta to mean the time value increases up over time: Is it ever possible for an option to have a positive theta such that if nothing changes the option will be worth more tomorrow than it is today? When futures options are subject to stock-type settlement, as they currently are in the United States, the carrying cost on a deeply in-the-money option, either a call or a put, can, under some circumstances, be greater than the volatility component. If this happens, and the option is European (no early exercise permitted), it will have a theoretical value less than parity (less than intrinsic value). As expiration approaches, the value of the option will slowly rise to parity. Hence, the option will have a positive theta. Sheldon Natenberg. Option Volatility & Pricing: Advanced Trading Strategies and Techniques (Kindle Locations 1521-1525). Kindle Edition.\""
},
{
"docid": "497629",
"title": "",
"text": "\"hey numb nuts, I've been working with blockchain implementation since before you became an armchair investor. blockchain technology is an implementation of security by consensus, it can be between 2 people, and 100 million. bitcoin's incentive is the mother of all pyrimid schemes,\"\"put value into this, so it has value, so you can get value out of it\"\". It was never suppose to be industrialized in the way it has been, and it's become an amoral waste of resources. further evidence can be found in the fact that bitcoin HAD no value except as a currency before people started hacking contracts and the like into it. Etherium is admirable in that it actually has some kind of intent of value built into it, but it's simply not good enough for high demand applications. in a private chain, mining doesn't operate with an increasing cost, it *could* be done by a single system, which is good enough for an internal chain. The security comes from the immutability of the chain that is generated which is what everyone subscribed to the chain gains. once something is added, no amount of hacking a centralized system could change the confirmed blocks, an attacker might be able to add a bunch of new blocks, but you could (with consensus) roll back the entire chain. as a simple example: a company has several partners who it coordinates exchange rates with. they set the value and they want to share that with their partners, while keeping an entirely tamper proof history of the set values. they start the chain, and allow their partners to subscribe to it. they can then set their system to add a block every hour, which contains the set values. now every partner is keeping a consensus based record of what the trading values were when. If for whatever reason an audit was required (ie say they suspect someone was trading higher/lower than they should have) they can audit the chain and see exactly what everyone agreed would be the price at the time the exchanges were made. if a partner messed with his chain to cover whatever shadiness he would be involved in, the other's would refute it. It would be exceptionally hard for any single bad actor to alter all the chains. the incentive in a private chain is rolled into business incentives for record keeping. They gain value by keeping certain types of records secure in this manor, therefore it is worth it to do, they don't need a literal payout to keep their own records secure. this is why companies want to use the blockchain, immutable records, secured by even loose consensus are more secure than a centralized database, but with little to no increase in operation overhead. It then further gains value in that it could lead to distributed & geosafe recorder keeping and management. TLDR: lol you armchair finance guys.\""
},
{
"docid": "241297",
"title": "",
"text": ">Could you have transfered millions of dollars worth of tulips around the world in minutes, securely and for pennies on the dollar? The only reason that is more complicated with dollars has to do with our underlying financial infrastructure. It has little to do with any real technological problems. >Authorities don't get say whether Bitcoin is *allowed* to exist or not. Why not? Criminal court cases have already found Bitcoin as something akin to a commodity. There is no reason someone in government can't regulate or outright ban it the way China did. And as the head of a major bank Dimon is in an excellent position to manipulate the value of Bitcoin and destroy it if he chose to do so. >Why would Bitcoin be better for *only* those things? Bitcoin has not done anything other than be a commodity people purchase as an investment. It's ballooned too high on value to be useful for cash transctions for any normal person."
},
{
"docid": "6369",
"title": "",
"text": "Most penny stocks go to zero because most businesses fail. You stated in your original post that you were wondering specifically about companies with no assets. These are exactly the kind that fail and go to zero. There are many holes within the regulatory structure that allow for many accounting tricks in penny stock land. And even in areas that are adequately regulated, there will be few to no remedies for the optimistic penny stock shareholder speculator."
},
{
"docid": "257413",
"title": "",
"text": "Large companies whose shares I was looking at had dividends of the order of ~1-2%, such as 0.65%, or 1.2% or some such. My savings account provides me with an annual return of 4% as interest. Firstly inflation, interest increases the numeric value of your bank balance but inflation reduces what that means in real terms. From a quick google it looks like inflation in india is currently arround 6% so your savings account is losing 2% in real terms. On the other hand you would expect a stable company to maintain a similar value in real terms. So the dividend can be seen as real terms income. Secondly investors generally hope that their companies will not merely be stable but grow in value over time. Whether that hope is rational is another question. Why not just invest in options instead for higher potential profits? It's possible to make a lot of money this way. It's also possible to lose a lot of money this way. If your knowlage of money is so poor you don't even understand why people buy stocks there is no way you should be going near the more complicated financial products."
},
{
"docid": "190687",
"title": "",
"text": "\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \"\"tax exempt\"\", but each time you sell, you \"\"reset the counter\"\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\""
},
{
"docid": "161895",
"title": "",
"text": "The reason to do a stock split is to get the price of the stock down to an affordable range. If your stock costs $100,000 per share, you are seriously cutting in to the number of people who can afford to buy it. I can think of two reasons NOT to do a stock split. The biggest is, Why bother? If your stock is trading at a reasonable price, why change anything? It takes time and effort, which equals money, to do a stock split. If this serves no purpose, you're just wasting that effort. The other reason is that you don't want to drive your stock price down too low. Low prices are normally associated with highly speculative start-up companies, and so can give a wrong impression of your company. Also, low prices make it difficult for the price to reflect small changes. If your stock is trading at $10.00, a 1/2 of 1% change is 5 cents. But if it's trading at $1.50, a 1/2 of 1% change is a fraction of a penny. Does it go up by that penny or not? You've turned a smooth scale into a series of hurdles."
},
{
"docid": "593",
"title": "",
"text": "\"Insurance companies on average make money by selling insurance, which means you lose money on average by dealing with them. The insurance is not gambling where the house always wins. This expression is literal in gambling, because that's how they set the odds. Insurance isn't necessarily similar. Example. Suppose there's 10% chance that $10,000 the boat sinks due to a defect. So, on average your loss is going to be $1,000. The variability of your loss measured as its standard deviation is $2,846. The variability of loss is a measure of risk. Now, let's look at two $10,000 boats. There's 1% chance that they both sink, and 18% chance that only one of them sinks. So, the expected loss is, unsurprisingly, $2,000. However, the variability of expected loss is $3,842, not quite twice the risk (variability) of a single boat accident. If you imagine that instead of a couple of boats the insurance has 100 boats, the variability of their loss (hence their risk) will increase only by a factor of 10, not 100 compared to a single boat. This means that their risk in relative terms is smaller than yours, the individual insurer's. What I tried to show was that it is possible to both of you and the insurer to benefit from the arrangement. It doesn't mean that it happens in every case, but generally it does. That's why in actuarial science there's a term fair price. UPDATE I was trying to avoid talking about utility here, because it's an involved subject, but you're dragging the discussion in this direction :) You're right that expected value cannot explain the insurance. The reason is that there's another concept that's necessary in addition to the objective measures such as expected value and risk: I mean the utility function or risk-aversion. So, in short you need to maximize expected utility, not the expected payout. Here's a toy example with the same boat. Assume that insurance is $150, and they pay the entire boat's value in case of accident, i.e. $10,000. You're given two choices effectively. At the end of the year, you have either of the following: You're right that the expected value in the second option can be higher in the second option. Let's say the probability of the loss is 10%, in this case the expected value would $9,900, which is higher than certain value of option 1. Why then some people choose option 2? The reason is that we don't maximize the expected payout, but we maximize the utility, according to modern microeconomics and game theory. Utility is some kind of an function that reflects your preference given the uncertain choices. Every person has their own preferences, and utility function. Let's say that yours is exponential with a=10000. In this case we can calculate the expected utility as follows: The math works out in such a way that it accounts for your risk tolerance. Depending on how much you love or hate risk, your expected utilities for these option will come out differently. For this given toy example it turned out that the expected utility is higher with insurance, so this person should get it. However, for different values of a parameter \"\"a\"\" in the function, it may not make a sense to insure. Some people are risk averse, some are risk lovers in certain situations. That's the reason why given the same options we make different choices. You may say that you don't value certainty enough to buy this insurance. The bottom line is that nobody can tell you that you're wrong to not buy an insurance. If your risk tolerance is high it may not make a sense for you. Having said this all, I must note that sometimes the society doesn't accept your preferences and utility function. Yes, you tell me today that you accept the risk, but tomorrow when the boat sinks you may come to me and say that you can't pay the student loan because of the hardship. That's the reason why it's mandatory to get liability insurance on cars, for instance.\""
},
{
"docid": "14065",
"title": "",
"text": "\"In 2014 the IRS announced that it published guidance in Notice 2014-21. In that notice, the answer to the first question describes the general tax treatment of virtual currency: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. As it's property like any other, capital gains if and when you sell are taxed. As with any capital gains, you're taxed on the \"\"profit\"\" you made, that is the \"\"proceeds\"\" (how much you got when you sold) minus your \"\"basis\"\" (how much you paid to get the property that you sold). Until you sell, it's just an asset (like a house, or a share of stock, or a rare collectible card) that doesn't require any reporting. If your initial cryptocurrency acquisition was through mining, then this section of that Notice applies: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income. That is to say, when it was mined the market value of the amount generated should have been included in income (probably on either Line 21 Other Income, or on Schedule C if it's from your own business). At that point, the market value would also qualify as your basis. Though I doubt there'd be a whole lot of enforcement action for not amending your 2011 return to include $0.75. (Technically if you find a dollar bill on the street it should be included in income, but usually the government cares about bigger fish than that.) It sounds like your basis is close enough to zero that it's not worth trying to calculate a more accurate value. Since your basis couldn't be less than zero, there's no way that using zero as your basis would cause you to pay less tax than you ought, so the government won't have any objections to it. One thing to be careful of is to document that your holdings qualify for long-term capital gains treatment (held longer than a year) if applicable. Also, as you're trading in multiple cryptocurrencies, each transaction may count as a \"\"sale\"\" of one kind followed by a \"\"purchase\"\" of the other kind, much like if you traded your Apple stock for Google stock. It's possible that \"\"1031 like kind exchange\"\" rules apply, and in June 2016 the American Institute of CPAs sent a letter asking about it (among other things), but as far as I know there's been no official IRS guidance on the matter. There are also some related questions here; see \"\"Do altcoin trades count as like-kind exchanges?\"\" and \"\"Assuming 1031 Doesn't Apply To Cryptocurrency Trading\"\". But if in fact those exchange rules do not apply and it is just considered a sale followed by a purchase, then you would need to report each exchange as a sale with that asset's basis (probably $0 for the initial one), and proceeds of the fair market value at the time, and then that same value would be the basis of the new asset you're purchasing. Using a $0 basis is how I treat my bitcoin sales, though I haven't dealt with other cryptocurrencies. As long as all the USD income is being reported when you get USD, I find it unlikely you'll run into a lot of trouble, even if you technically were supposed to report the individual transactions when they happened. Though, I'm not in charge of IRS enforcement, and I'm not aware of any high-profile cases, so it's hard to know anything for sure. Obviously, if there's a lot of money involved, you may want to involve a professional rather than random strangers on the Internet. You could also try contacting the IRS directly, as believe-it-or-not, their job is in fact helping you to comply with the tax laws correctly. Also, there are phone numbers at the end of Notice 2014-21 of people which might be able to provide further guidance, including this statement: The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718\""
},
{
"docid": "15040",
"title": "",
"text": "\"> They deficit spend. They increase prosperity and thus demand. But what I'm saying is that there are more efficient ways of accomplishing this that doesn't involve any debt whatsoever. If the the debt money being spent is coming from your paycheck in the form of an increased cost of living then merely increasing the ratio of wages to capital returns would provide the same benefit without debt. In fact, this means of driving demand is so efficient that if you take it too far it'll drive stagflation when the cost to capital returns exceeds an optimal ratio. >The interesting side effect is, that they are making the economy do better Yes, it certainly does over a limited number of years following the debt incurred. But it is ONLY an economic benefit because that same demand has already been taken from the economy in the form of wage suppression. As a ratio of returns and not absolute values. If those wage returns were too high relative to returns, like in the 1970s in the US, then driving more demand through debt spending would be the opposite of a benefit. It's ONLY a short term benefit because that demand has already been taken from your wages. >The government gives you more income than it takes from you in taxes. This is true in more ways than one, and I'm not absolutely certain in which sense you mean it. In terms of say the earned income tax credit, it's nowhere near enough to cover the losses incurred through wage suppression. In terms of teachers, infrastructure up to a point, etc., these things have a productive return on investment. >Every bit of cut spending removes income from the population. No. Not that the spending cuts being done are anything but harmful and costing the economy. But paying people to count flies on roadkill is not helpful at all. And if it results in a net positive it's because the economy is in a bad state of mismanagement, with wages (as an aggregate ratio of returns) too suppressed for a healthy economy. It's like cutting people and saying it benefits the economy by increasing the sale of band-aids and driving demand for doctors. Of course the band-aids help, but it doesn't mean the policies that makes it a benefit anything but a cost. Once wages, as an aggregate ratio of returns, exceeds an optimal ratio, [like in the 1970s](http://www-tc.pbs.org/prod-media/newshour/photos/2012/12/06/Andrew_Smithers_chart_blog_main_horizontal.JPG), then every new increase in demand results in a new deficit in supply that cannot be met due to constraints on capital returns. I call this a supply constrained economy, as opposed to the demand constrained economy we now live in. In this kind of economic environment there would even be any short term benefits to funding consumption with debt. So basically you have two choices. Make everybody wealthy enough to match supply, while trying not to exceed it to avoid triggering too much inflation and encouraging investment in new productive capacity. Or suppressing wage returns too much relative to total returns inducing excessively low, and potentially negative, inflation. Making almost everybody much poorer than necessary. Then trying to fix the imbalance between supply and demand through debt spending. I would call the second choice a fools choice. But none of this means that funding for teachers, social workers, etc., should go away. These things need their funding, and we should be paying the taxes to fund them. Not pretending that debt spending will let of have our cake and eat it to. It's like a pot luck dinner in which people bring IOUs in place of dishes until people are leaving dinner hungry because there's not enough to go around. >Our economic trouble has nothing to do with efficiency and how much work needs to be done, and everything to do with how much money people have to spend. That is in fact true in our present economic circumstances. But that situation was created by wage suppression relative to total returns in aggregate. But, as the 1970s demonstrated, the opposite can also be true. This realization is what drove the Reagan revolution. Only the Fed policy operates, monetary easing and all, on the assumption that this is driven by the employment rate, or [NAIRU](https://en.wikipedia.org/wiki/NAIRU). It's not. It's driven by the aggregate ratio between capital to labor returns. And leads to bad economic conditions differently at both extremes. Which is why they find our present economic situation an enigmatic mystery. The mistake of thinking \"\"how much money people have to spend,\"\" i.e., strictly demand side driven economics, is what created the economic problems that lead to Reagan. Only now the power structure takes the opposite extreme. In which supply side driven economics has become an article of faith. This is why the older generation, like myself, say and believe such bat shit crazy things about the economy today. The same older generation now that now drives politics. Because they came of age in the 1970s when what you are saying would have been a phenomenally bad policy. A policy that gave us stagflation that many classical Keynesian's thought impossible before then. They can't believe something that was so bad can now be a good thing. But it in fact is. Because the important thing for prosperity and growth is the optimal balance between supply and demand. Not the argument over whether the economy is supply side driven or demand side driven. Because either of those agendas can push the economy out of balance. Automation will pretty certainly change everything about economics in the coming years. But that is not why we are in the situation we are in at this particular moment.\""
},
{
"docid": "118485",
"title": "",
"text": "\"There are a couple of misconceptions I think are present here: Firstly, when people say \"\"interest\"\", usually that implies a lower-risk investment, like a government bond or a money market fund. Some interest-earning investments can be higher risk (like junk bonds offered by near-bankrupt companies), but for the most part, stocks are higher risk. With higher risk comes higher reward, but obviously also the chance for a bad year. A \"\"bad year\"\" can mean your fund actually goes down in value, because the companies you are invested in do poorly. So calling all value increases \"\"interest\"\" is not the correct way to think about things. Secondly, remember that \"\"Roth IRA fund\"\" doesn't really tell you what's \"\"inside\"\" it. You could set up your fund to include only low-risk interest earning investments, or higher risk foreign stocks. From what you've said, your fund is a \"\"target retirement date\"\"-type fund. This typically means that it is a mix of stocks and bonds, weighted higher to bonds if you are older (on the theory of minimizing risk near retirement), and higher to stocks if you are younger (on the theory of accepting risk for higher average returns when you have time to overcome losses). What this means is that assuming you're young and the fund you have is typical, you probably have ~50%+ of your money invested in stocks. Stocks don't pay interest, they give you value in two ways: they pay you dividends, and the companies that they are a share of increase in value (remember that a stock is literally a small % ownership of the company). So the value increase you see as the increase due to the increase in the mutual fund's share price, is part of the total \"\"interest\"\" amount you were expecting. Finally, if you are reading about \"\"standard growth\"\" of an account using a given amount of contributions, someone somewhere is making an assumption about how much \"\"growth\"\" actually happens. Either you entered a number in the calculator (\"\"How much do you expect growth to be per year?\"\") or it made an assumption by default (probably something like 7% growth per year - I haven't checked the math on your number to see what the growth rate they used was). These types of assumptions can be helpful for general retirement planning, but they are not \"\"rules\"\" that your investments are required by law to follow. If you invest in something with risk, your return may be less than expected.\""
}
] |
8247 | Tax on Stocks or ETF's | [
{
"docid": "42521",
"title": "",
"text": "\"If you sell a stock, with no distributions, then your gain is taxable under §1001. But not all realized gains will be recognized as taxable. And some gains which are arguably not realized, will be recognized as taxable. The stock is usually a capital asset for investors, who will generate capital gains under §1(h), but dealers, traders, and hedgers will get different treatment. If you are an investor, and you held the stock for a year or more, then you can get the beneficial capital gain rates (e.g. 20% instead of 39.6%). If the asset was held short-term, less than a year, then your tax will generally be calculated at the higher ordinary income rates. There is also the problem of the net investment tax under §1411. I am eliding many exceptions, qualifications, and permutations of these rules. If you receive a §316 dividend from a stock, then that is §61 income. Qualified dividends are ordinary income but will generally be taxed at capital gains rates under §1(h)(11). Distributions in redemption of your stock are usually treated as sales of stock. Non-dividend distributions (that are not redemptions) will reduce your basis in the stock to zero (no tax due) and past zero will be treated as gain from a sale. If you exchange stock in a tax-free reorganization (i.e. contribute your company stock in exchange for an acquirer's stock), you have what would normally be considered a realized gain on the exchange, but the differential will not be recognized, if done correctly. If you hold your shares and never sell them, but you engage in other dealings (short sales, options, collars, wash sales, etc.) that impact those shares, then you can sometimes be deemed to have recognized gain on shares that were never sold or exchanged. A more fundamental principle of income tax design is that not all realized gains will be recognized. IRC §1001(c) says that all realized gains are recognized, except as otherwise provided; that \"\"otherwise\"\" is substantial and far-ranging.\""
}
] | [
{
"docid": "140989",
"title": "",
"text": "\"I frequently advise to go 401(k) up to the match. With no match, I'm not so sure. If you are in the 15% bracket, I'd skip the 401(k). Your standard deduction is $5800 this year, do you itemize? I ask because the 15% bracket ends at $34,500, and I don't know if you manage enough deductions to get under that. But - I'd only pt into the 401(k) what would otherwise be taxed at 25%, no more. Even then only if the 401(k) expenses were pretty reasonable. Will all the hoopla over retirement accounts, we easily forget the beauty of the investment in ETFs long term. You buy the SPY (S&P 500 ETF) and hold it forever. The gains are all deferred until you sell, and then they have a favored rate. You control the timing of the sale with no risk of penalty. The expenses are low, and over time, can make up for the lack of tax deduction (The pretax deposit) vs the 401(k) account. You die and the beneficiaries have a stepped up basis with no tax due (under whatever the limit is that year). Long term, I'd go with low cost ETFs and pay the mortgage at the minimum payments. Even without itemizing, 4.2% is pretty low compared to the expected return over the next decade in stocks. I recommend a look at Fairmark to help understand your marginal rate. Your gross doesn't matter as much as that line on 1040 \"\"taxable income.\"\" This will tell you if you are in the 25% bracket and if so, how deep. Edit - If one's taxable income, line 43 on your 1040, I believe, puts him into the 15% bracket, there are issues using a pretax 401(k). The priority should be to use a Roth IRA or Roth 401(k). Being so close to that 25% bracket at 26 tells me you will grow, and/o marry into it over time, that's the ideal time to use the pre-tax 401(k) to stay at 15%. i.e. deposit just enough to bring your taxable income right to that line of 15/25%.\""
},
{
"docid": "436904",
"title": "",
"text": "This is Ellie Lan, investment analyst at Betterment. To answer your question, American investors are drawn to use the S&P 500 (SPY) as a benchmark to measure the performance of Betterment portfolios, particularly because it’s familiar and it’s the index always reported in the news. However, going all in to invest in SPY is not a good investment strategy—and even using it to compare your own diversified investments is misleading. We outline some of the pitfalls of this approach in this article: Why the S&P 500 Is a Bad Benchmark. An “algo-advisor” service like Betterment is a preferable approach and provides a number of advantages over simply investing in ETFs (SPY or others like VOO or IVV) that track the S&P 500. So, why invest with Betterment rather than in the S&P 500? Let’s first look at the issue of diversification. SPY only exposes investors to stocks in the U.S. large cap market. This may feel acceptable because of home bias, which is the tendency to invest disproportionately in domestic equities relative to foreign equities, regardless of their home country. However, investing in one geography and one asset class is riskier than global diversification because inflation risk, exchange-rate risk, and interest-rate risk will likely affect all U.S. stocks to a similar degree in the event of a U.S. downturn. In contrast, a well-diversified portfolio invests in a balance between bonds and stocks, and the ratio of bonds to stocks is dependent upon the investment horizon as well as the individual's goals. By constructing a portfolio from stock and bond ETFs across the world, Betterment reduces your portfolio’s sensitivity to swings. And the diversification goes beyond mere asset class and geography. For example, Betterment’s basket of bond ETFs have varying durations (e.g., short-term Treasuries have an effective duration of less than six months vs. U.S. corporate bonds, which have an effective duration of just more than 8 years) and credit quality. The level of diversification further helps you manage risk. Dan Egan, Betterment’s Director of Behavioral Finance and Investing, examined the increase in returns by moving from a U.S.-only portfolio to a globally diversified portfolio. On a risk-adjusted basis, the Betterment portfolio has historically outperformed a simple DIY investor portfolio by as much as 1.8% per year, attributed solely to diversification. Now, let’s assume that the investor at hand (Investor A) is a sophisticated investor who understands the importance of diversification. Additionally, let’s assume that he understands the optimal allocation for his age, risk appetite, and investment horizon. Investor A will still benefit from investing with Betterment. Automating his portfolio management with Betterment helps to insulate Investor A from the ’behavior gap,’ or the tendency for investors to sacrifice returns due to bad timing. Studies show that individual investors lose, on average, anywhere between 1.2% to 4.3% due to the behavior gap, and this gap can be as high as 6.5% for the most active investors. Compared to the average investor, Betterment customers have a behavior gap that is 1.25% lower. How? Betterment has implemented smart design to discourage market timing and short-sighted decision making. For example, Betterment’s Tax Impact Preview feature allows users to view the tax hit of a withdrawal or allocation change before a decision is made. Currently, Betterment is the only automated investment service to offer this capability. This function allows you to see a detailed estimate of the expected gains or losses broken down by short- and long-term, making it possible for investors to make better decisions about whether short-term gains should be deferred to the long-term. Now, for the sake of comparison, let’s assume that we have an even more sophisticated investor (Investor B), who understands the pitfalls of the behavior gap and is somehow able to avoid it. Betterment is still a better tool for Investor B because it offers a suite of tax-efficient features, including tax loss harvesting, smarter cost-basis accounting, municipal bonds, smart dividend reinvesting, and more. Each of these strategies can be automatically deployed inside the portfolio—Investor B need not do a thing. Each of these strategies can boost returns by lowering tax exposure. To return to your initial question—why not simply invest in the S&P 500? Investing is a long-term proposition, particularly when saving for retirement or other goals with a time horizon of several decades. To be a successful long-term investor means employing the core principles of diversification, tax management, and behavior management. While the S&P might look like a ‘hot’ investment one year, there are always reversals of fortune. The goal with long-term passive investing—the kind of investing that Betterment offers—is to help you reach your investing goals as efficiently as possible. Lastly, Betterment offers best-in-industry advice about where to save and how much to save for no fee."
},
{
"docid": "30774",
"title": "",
"text": "The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share."
},
{
"docid": "260305",
"title": "",
"text": "An ETF consists of two componenets : stocks and weightage of each stock. Assuming the ETF tracks the average of the 5 stock prices you bought and equal weightage was given to each stock , an increase in 20% in any one of the five stocks will cause the price of the ETF to increase by 4% also This does not take into consideration tracking error && tracking difference , fund expense ratio which may affect the returns of the ETF also"
},
{
"docid": "48718",
"title": "",
"text": "\"You can hold a wide variety of investments in your TFSA account, including stocks such as SLF. But if the stocks are being purchased via a company stock purchase plan, they are typically deposited in a regular margin account with a brokerage firm (a few companies may issue physical stock certificates but that is very rare these days). That account would not be a TFSA but you can perform what's called an \"\"in-kind\"\" transfer to move them into a TFSA that you open with either the same brokerage firm, or a different one. There will be a fee for the transfer - check with the brokerage that currently holds the stock to find out how costly that will be. Assuming the stock gained in value while you held it outside the TFSA, this transfer will result in capital gains tax that you'll have to pay when you file your taxes for the year in which the transfer occurs. The tax would be calculated by taking the value at time of transfer, minus the purchase price (or the market value at time of purchase, if your plan allowed you to buy it at a discounted price; the discounted amount will be automatically taxed by your employer). 50% of the capital gain is added to your annual income when calculating taxes owed. Normally when you sell a stock that has lost value, you can actually get a \"\"capital loss\"\" deduction that is used to offset gains that you made in other stocks, or redeemed against capital gains tax paid in previous years, or carried forward to apply against gains in future years. However, if the stock decreased in value and you transfer it, you are not eligible to claim a capital loss. I'm not sure why you said \"\"TFSA for a family member\"\", as you cannot directly contribute to someone else's TFSA account. You can give them a gift of money or stocks, which they can deposit in their TFSA account, but that involves that extra step of gifting, and the money/stocks become their property to do with as they please. Now that I've (hopefully) answered all your questions, let me offer you some advice, as someone who also participates in an employee stock purchase plan. Holding stock in the company that you work for is a bad idea. The reason is simple: if something terrible happens to the company, their stock will plummet and at the same time they may be forced to lay off many employees. So just at the time when you lose your job and might want to sell your stock, suddenly the value of your stocks has gone way down! So you really should sell your company shares at least once a year, and then use that money to invest in your TFSA account. You also don't want to put all your eggs in one basket - you should be spreading your investment among many companies, or better yet, buy index mutual funds or ETFs which hold all the companies in a certain index. There's lots of good info about index investing available at Canadian Couch Potato. The types of investments recommended there are all possible to purchase inside a TFSA account, to shelter the growth from being taxed. EDIT: Here is an article from MoneySense that talks about transferring stocks into a TFSA. It also mentions the importance of having a diversified portfolio!\""
},
{
"docid": "351896",
"title": "",
"text": "The tax consequence is that if you wait until January of 2011 to invest, you won't have the option to sell as a long-term capital gain in 2011. However, this is not a huge point in practice: If your income this year was very low, but will go up in 2011, you might want to convert some or all of it into a roth ira this year. This would let you pay the tax on it at your low tax rate for this year, rather than at the likely higher rate when you retire. An investment consequence is the fact that your money is sitting there, earning a lower expected rate of return than it could be. Not knowing your situation, I can't say how aggressive your holdings will be. Taking a fairly aggressive portfolio, 9% expected yearly return, and not investing for a month, you lose about .75% on average. Not huge, but something to consider. Remember that any decision you make here isn't permanent. If your previous allocation in the 401(k) was 100% in stock funds, you could put it in something like VTI, Vanguard's total US stock market ETF."
},
{
"docid": "499827",
"title": "",
"text": "The other alternative: just invest it in tax-efficient investments. You will have limited tax-deferral options outside of your 401k, but don't let that limit you. You can invest in a variety of ETFs, stocks and mutual funds for growth, and tax-free investments like municipal bonds as you get older and need to draw income."
},
{
"docid": "207929",
"title": "",
"text": "I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules."
},
{
"docid": "113786",
"title": "",
"text": "\"There are two umbrellas in investing: active management and passive management. Passive management is based on the idea \"\"you can't beat the market.\"\" Passive investors believe in the efficient markets hypothesis: \"\"the market interprets all information about an asset, so price is equal to underlying value\"\". Another idea in this field is that there's a minimum risk associated with any given return. You can't increase your expected return without assuming more risk. To see it graphically: As expected return goes up, so does risk. If we stat with a portfolio of 100 bonds, then remove 30 bonds and add 30 stocks, we'll have a portfolio that's 70% bonds/30% stocks. Turns out that this makes expected return increase and lower risk because of diversification. Markowitz showed that you could reduce the overall portfolio risk by adding a riskier, but uncorrelated, asset! Basically, if your entire portfolio is US stocks, then you'll lose money whenever US stocks fall. But, if you have half US stocks, quarter US bonds, and quarter European stocks, then even if the US market tanks, half your portfolio will be unaffected (theoretically). Adding different types of uncorrelated assets can reduce risk and increase returns. Let's tie this all together. We should get a variety of stocks to reduce our risk, and we can't beat the market by security selection. Ideally, we ought to buy nearly every stock in the market so that So what's our solution? Why, the exchange traded fund (ETF) of course! An ETF is basically a bunch of stocks that trade as a single ticker symbol. For example, consider the SPDR S&P 500 (SPY). You can purchase a unit of \"\"SPY\"\" and it will move up/down proportional to the S&P 500. This gives us diversification among stocks, to prevent any significant downside while limiting our upside. How do we diversify across asset classes? Luckily, we can purchase ETF's for almost anything: Gold ETF's (commodities), US bond ETF's (domestic bonds), International stock ETFs, Intl. bonds ETFs, etc. So, we can buy ETF's to give us exposure to various asset classes, thus diversifying among asset classes and within each asset class. Determining what % of our portfolio to put in any given asset class is known as asset allocation and some people say up to 90% of portfolio returns can be determined by asset allocation. That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. You can readjust your portfolio holdings periodically, but otherwise there is no rapid trading. Now the other umbrella is active management. The unifying idea is that you can generate superior returns by stock selection. Active investors reject the idea of efficient markets. A classic and time proven strategy is value investing. After the collapse of 07/08, bank stocks greatly fell, but all the other stocks fell with them. Some stocks worth $100 were selling for $50. Value investors quickly snapped up these stocks because they had a margin of safety. Even if the stock didn't go back to 100, it could go up to $80 or $90 eventually, and investors profit. The main ideas in value investing are: have a big margin of safety, look at a company's fundamentals (earnings, book value, etc), and see if it promises adequate return. Coke has tremendous earnings and it's a great company, but it's so large that you're never going to make 20% profits on it annually, because it just can't grow that fast. Another field of active investing is technical analysis. As opposed to the \"\"fundamental analysis\"\" of value investing, technical analysis involves looking at charts for patterns, and looking at stock history to determine future paths. Things like resistance points and trend lines also play a role. Technical analysts believe that stocks are just ticker symbols and that you can use guidelines to predict where they're headed. Another type of active investing is day trading. This basically involves buying and selling stocks every hour or every minute or just at a rapid pace. Day traders don't hold onto investments for very long, and are always trying to predict the market in the short term and take advantage of it. Many individual investors are also day traders. The other question is, how do you choose a strategy? The short answer is: pick whatever works for you. The long answer is: Day trading and technical analysis is a lot of luck. If there are consistent systems for trading , then people are keeping them secret, because there is no book that you can read and become a consistent trader. High frequency trading (HFT) is an area where people basically mint money, but it s more technology and less actual investing, and would not be categorized as day trading. Benjamin Graham once said: In the short run, the market is a voting machine but in the long run it is a weighing machine. Value investing will work because there's evidence for it throughout history, but you need a certain temperament for it and most people don't have that. Furthermore, it takes a lot of time to adequately study stocks, and people with day jobs can't devote that kind of time. So there you have it. This is my opinion and by no means definitive, but I hope you have a starting point to continue your study. I included the theory in the beginning because there are too many monkeys on CNBC and the news who just don't understand fundamental economics and finance, and there's no sense in applying a theory until you can understand why it works and when it doesn't.\""
},
{
"docid": "533477",
"title": "",
"text": "Does the price only start the day based on the previous day's rebalancing? No, the tracker will open at the price according to the stock it is tracking. So for example, if the ETF closed at $10 but the tracked stock continued trading and was priced $15 when the ETF reopened the ETF will open at $15. (Example is for a non-leveraged ETF.)"
},
{
"docid": "159822",
"title": "",
"text": "\"ETFs are well suited to day trading, but you should be mindful of the bid-ask spread. See article: Commission-free ETFs are a great way to save money, but watch the bid-ask spread too. Bid-ask spread is largely a function of liquidity, or the volume of buyers and sellers for an asset during a particular moment in time. ... It may be more difficult to trade certain assets that are less liquid, where bid-ask spreads can be higher. Think some penny stocks. If you have the choice, compare the spreads of the ETF and the target stock. Longer-term \"\"keep & hold\"\" trading on ETFs tracking futures can be somewhat disadvantageous. Futures contracts roll-over every month. Exchange traders have to sell and buy in on the next contract. ETFs don't reflect the price differential between the futures contract. See here for more detail on that: Positioning For An Oil ETF Rebound? Watch For Contango Contango occurs when the price on a futures contract is higher than the expected future spot price, which creates the upward sloping curve on future commodity prices over time. Essentially, the phenomenon reflects a current spot price that is lower than the futures price. ... While this phenomena is a normal occurrence in the futures market, contango can have a negative effect on ETFs.\""
},
{
"docid": "7712",
"title": "",
"text": "Here is a simple example of how daily leverage fails, when applied over periods longer than a day. It is specifically adjusted to be more extreme than the actual market so you can see the effects more readily. You buy a daily leveraged fund and the index is at 1000. Suddenly the market goes crazy, and goes up to 2000 - a 100% gain! Because you have a 2x ETF, you will find your return to be somewhere near 200% (if the ETF did its job). Then tomorrow it goes back to normal and falls back down to 1000. This is a fall of 50%. If your ETF did its job, you should find your loss is somewhere near twice that: 100%. You have wiped out all your money. Forever. You lose. :) The stock market does not, in practice, make jumps that huge in a single day. But it does go up and down, not just up, and if you're doing a daily leveraged ETF, your money will be gradually eroded. It doesn't matter whether it's 2x leveraged or 8x leveraged or inverse (-1x) or anything else. Do the math, get some historical data, run some simulations. You're right that it is possible to beat the market using a 2x ETF, in the short run. But the longer you hold the stock, the more ups and downs you experience along the way, and the more opportunity your money has to decay. If you really want to double your exposure to the market over the intermediate term, borrow the money yourself. This is why they invented the margin account: Your broker will essentially give you a loan using your existing portfolio as collateral. You can then invest the borrowed money, increasing your exposure even more. Alternatively, if you have existing assets like, say, a house, you can take out a mortgage on it and invest the proceeds. (This isn't necessarily a good idea, but it's not really worse than a margin account; investing with borrowed money is investing with borrowed money, and you might get a better interest rate. Actually, a lot of rich people who could pay off their mortgages don't, and invest the money instead, and keep the tax deduction for mortgage interest. But I digress.) Remember that assets shrink; liabilities (loans) never shrink. If you really want to double your return over the long term, invest twice as much money."
},
{
"docid": "461018",
"title": "",
"text": "stocks represent ownership in a company. their price can go up or down depending on how much profit the company makes (or is expected to make). stocks owners are sometimes paid money by the company if the company has extra cash. these payments are called dividends. bonds represent a debt that a company owes. when you buy a bond, then the company owes that debt to you. typically, the company will pay a small amount of money on a regular basis to the bond owner, then a large lump some at some point in the future. assuming the company does not file bankrupcy, and you keep the bond until it becomes worthless, then you know exactly how much money you will get from buying a bond. because bonds have a fixed payout (assuming no bankrupcy), they tend to have lower average returns. on the other hand, while stocks have a higher average return, some stocks never return any money. in the usa, stocks and bonds can be purchased through a brokerage account. examples are etrade, tradeking, or robinhood.com. before purchasing stocks or bonds, you should probably learn a great deal more about other investment concepts such as: diversification, volatility, interest rates, inflation risk, capital gains taxes, (in the usa: ira's, 401k's, the mortgage interest deduction). at the very least, you will need to decide if you want to buy stocks inside an ira or in a regular brokerage account. you will also probably want to buy a low-expense ration etf (e.g. an index fund etf) unless you feel confident in some other choice."
},
{
"docid": "304023",
"title": "",
"text": "\"ETF Creation and Redemption Process notes the process: While ETF trading occurs on an exchange like stocks, the process by which their shares are created is significantly different. Unless a company decides to issue more shares, the supply of shares of an individual stock trading in the marketplace is finite. When demand increases for shares of an ETF, however, Authorized Participants (APs) have the ability to create additional shares on demand. Through an \"\"in kind\"\" transfer mechanism, APs create ETF units in the primary market by delivering a basket of securities to the fund equal to the current holdings of the ETF. In return, they receive a large block of ETF shares (typically 50,000), which are then available for trading in the secondary market. This ETF creation and redemption process helps keep ETF supply and demand in continual balance and provides a \"\"hidden\"\" layer of liquidity not evident by looking at trading volumes alone. This process also works in reverse. If an investor wants to sell a large block of shares of an ETF, even if there seems to be limited liquidity in the secondary market, APs can readily redeem a block of ETF shares by gathering enough shares of the ETF to form a creation unit and then exchanging the creation unit for the underlying securities. Thus, the in-kind swap to the underlying securities is only done by APs so the outflow would be these individuals taking a large block of the ETF and swapping it for the underlying securities. The APs would be taking advantage of the difference between what the ETF's trading value and the value of the underlying securities.\""
},
{
"docid": "429827",
"title": "",
"text": "Can they change the weights? Yes. Will they? It depends. are ETF's fixed from their inception to their de-listing? It's actually not possible for weights to be fixed, since different assets have different returns. So the weights are constantly changing as long as the market is moving. Usually after a certain period or a substantial market move, fund managers would rebalance and bring the weights back to a certain target. The target weights - what your question is really about - aren't necessarily the same as the initial weights, but often times they are. It depends on the objective of the ETF (which is stated in prospectus). In your example, if the manager drops the weight of the most volatile one, the returns of the ETF and the 5 stocks could be substantially different in the next period. This is not desirable when the ETFs objective is to track performance of those 5 stocks. Most if not all ETFs are passively-managed. The managers don't get paid for active management. So they don't have incentive to adjust the weights if their funds are tracking the benchmarks just fine."
},
{
"docid": "487399",
"title": "",
"text": "I am not preparing for a sudden, major, catastrophic collapse in the US dollar. I am, however, preparing for a significant but gradual erosion of its value through inflation over the space of several years to a decade. To that end, I've invested most of my assets in the stock market (roughly 80%) through major world index funds, and limited my bond exposure (maintaining a small stake in commodity ETFs: gold, silver, platinum and palladium) due to both inflation risk and the inevitability of rising interest rates. I don't think most companies mind overmuch if the dollar falls gradually, as the bulk of their value is in their continuing income stream, not in a dollar-denominated bank account. I also try to keep what I can in tax-deferred accounts: If, after several years, your stocks were up 100% but inflation reduced the dollar's value by 50%, you're still stuck paying taxes on the entire gain, even though it was meaningless. I'm also anticipating tax hikes at some point (though not as a result of the dollar falling). It helps that I'm young and can stand a lot of investment risk."
},
{
"docid": "49168",
"title": "",
"text": "The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)"
},
{
"docid": "190687",
"title": "",
"text": "\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \"\"tax exempt\"\", but each time you sell, you \"\"reset the counter\"\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\""
},
{
"docid": "350082",
"title": "",
"text": "I know of no way to answer your question without 'spamming' a particular investment. First off, if you are a USA citizen, max out your 401-K. Whatever your employer matches will be an immediate boost to your investment. Secondly, you want your our gains to be tax deferred. A 401-K is tax deferred as well as a traditional IRA. Thirdly, you probably want the safety of diversification. You achieve this by buying an ETF (or mutual fund) that then buys individual stocks. Now for the recommendation that may be called spamming by others : As REITs pass the tax liability on to you, and as an IRA is tax deferred, you can get stellar returns by buying a mREIT ETF. To get you started here are five: mREITs Lastly, avoid commissions by having your dividends automatically reinvested by using that feature at Scottrade. You will have to pay commissions on new purchases but your purchases from your dividend Reinvestment will be commission free. Edit: Taking my own advice I just entered orders to liquidate some positions so I would have the $ on hand to buy into MORL and get some of that sweet 29% dividend return."
}
] |
8247 | Tax on Stocks or ETF's | [
{
"docid": "475170",
"title": "",
"text": "\"No, not really. This depends on the situation and the taxing jurisdiction. Different countries have different laws, and some countries have different laws for different situations. For example, in the US, some investments will be taxed as you described, others will be taxed as \"\"mark to market\"\", i.e.: based on the FMV difference between the end of the year and the beginning of the year, and without you actually making any transactions. Depends on the situation.\""
}
] | [
{
"docid": "190687",
"title": "",
"text": "\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \"\"tax exempt\"\", but each time you sell, you \"\"reset the counter\"\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\""
},
{
"docid": "261902",
"title": "",
"text": "\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \"\"substantially identical stock or securities.\"\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \"\"substantially identical.\"\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\""
},
{
"docid": "295993",
"title": "",
"text": "ETFs are legally required to publicly disclose their positions at every point in time. The reason for this is that for an ETF to issue shares of ETF they do NOT take cash in exchange but underlying securities - this is called a creation unit. So people need to know which shares to deliver to the fund to get a share of ETF in exchange. This is never done by retail clients, however, but by nominated market makers. Retail persons will normally trade shares only in the secondary market (ie. on a stock exchange), which does not require new shares of the ETF to be issued. However, they do not normally make it easy to find this information in a digestible way, and each ETF does it their own way. So typically services that offer this information are payable (as somebody has to scrape the information from a variety of sources or incentivise ETF providers to send it to them). If you have access to a Bloomberg terminal, this information is available from there. Otherwise there are paid for services that offer it. Searching on Google for ETF constituent data, I found two companies that offer it: See if you can find what you need there. Good luck. (etfdb even has a stock exposure tool freely available that allows you to see which ETFs have large exposure to a stock of your choosing, see here: http://etfdb.com/tool/etf-stock-exposure-tool/). Since this data is in a table format you could easily download it automatically using table parsing tools for your chosen programming language. PS: Don't bother with underlying index constituents, they are NOT required to be made public and index providers will normally charge handsomely for this so normally only institutional investors will have this information."
},
{
"docid": "280530",
"title": "",
"text": "Most people carry a diversity of stock, bond, and commodities in their portfolio. The ratio and types of these investments should be based on your goals and risk tolerance. I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for. If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs). Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k. You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds. If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money."
},
{
"docid": "358997",
"title": "",
"text": "What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though."
},
{
"docid": "65702",
"title": "",
"text": "\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\""
},
{
"docid": "311192",
"title": "",
"text": "\"Bit hesitant to put this in an answer as I don't know if specific investment advice is appropriate, but this has grown way too long for a comment. The typical answer given for people who don't have the time, experience, knowledge or inclination to pick specific stocks to hold should instead invest in ETFs (exchange-traded index funds.) What these basically do is attempt to simulate a particular market or stock exchange. An S&P 500 index fund will (generally) attempt to hold shares in the stocks that make up that index. They only have to follow an index, not try to beat it so are called \"\"passively\"\" managed. They have very low expense ratios (far below 1%) and are considered a good choice for investors who want to hold stock without significant effort or expense and who's main goal is time in the market. It's a contentious topic but on average an index (and therefore an index fund) will go even with or outperform most actively managed funds. With a sufficiently long investment horizon, which you have, these may be ideal for you. Trading in ETFs is also typically cheap because they are traded like stock. There are plenty of low-fee online brokers and virtually all will allow trading in ETFs. My broker even has a list of several hundred popular ETFs that can be traded for free. The golden rule in investing is that you should never buy into something you don't understand. Don't buy individual stock with little information: it's often little more than gambling. The same goes for trading platforms like Loyal3. Don't use them unless you know their business model and what they stand to gain from your custom. As mentioned I can trade certain funds for free with my broker, but I know why they can offer that and how they're still making money.\""
},
{
"docid": "30774",
"title": "",
"text": "The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share."
},
{
"docid": "458635",
"title": "",
"text": "\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \"\"designated stock exchange\"\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \"\"mutual funds, GICs and saving deposits\"\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\""
},
{
"docid": "576890",
"title": "",
"text": "I would personally suggest owning Mutual Funds or ETF's in a tax sheltered account, such as a 401k or an IRA, especially Roth options if available. This lets you participate in the stock market while ensuring that you have diversified portfolio, and the money is managed by an expert. The tax sheltered accounts (or tax free in the case of Roth accounts) increase your savings, and simplify your life as you don't need to worry about taxes on earnings within those accounts, as long as you leave the money in. For a great beginner's guide see Clark's Investment Guide (Easy)."
},
{
"docid": "140989",
"title": "",
"text": "\"I frequently advise to go 401(k) up to the match. With no match, I'm not so sure. If you are in the 15% bracket, I'd skip the 401(k). Your standard deduction is $5800 this year, do you itemize? I ask because the 15% bracket ends at $34,500, and I don't know if you manage enough deductions to get under that. But - I'd only pt into the 401(k) what would otherwise be taxed at 25%, no more. Even then only if the 401(k) expenses were pretty reasonable. Will all the hoopla over retirement accounts, we easily forget the beauty of the investment in ETFs long term. You buy the SPY (S&P 500 ETF) and hold it forever. The gains are all deferred until you sell, and then they have a favored rate. You control the timing of the sale with no risk of penalty. The expenses are low, and over time, can make up for the lack of tax deduction (The pretax deposit) vs the 401(k) account. You die and the beneficiaries have a stepped up basis with no tax due (under whatever the limit is that year). Long term, I'd go with low cost ETFs and pay the mortgage at the minimum payments. Even without itemizing, 4.2% is pretty low compared to the expected return over the next decade in stocks. I recommend a look at Fairmark to help understand your marginal rate. Your gross doesn't matter as much as that line on 1040 \"\"taxable income.\"\" This will tell you if you are in the 25% bracket and if so, how deep. Edit - If one's taxable income, line 43 on your 1040, I believe, puts him into the 15% bracket, there are issues using a pretax 401(k). The priority should be to use a Roth IRA or Roth 401(k). Being so close to that 25% bracket at 26 tells me you will grow, and/o marry into it over time, that's the ideal time to use the pre-tax 401(k) to stay at 15%. i.e. deposit just enough to bring your taxable income right to that line of 15/25%.\""
},
{
"docid": "487399",
"title": "",
"text": "I am not preparing for a sudden, major, catastrophic collapse in the US dollar. I am, however, preparing for a significant but gradual erosion of its value through inflation over the space of several years to a decade. To that end, I've invested most of my assets in the stock market (roughly 80%) through major world index funds, and limited my bond exposure (maintaining a small stake in commodity ETFs: gold, silver, platinum and palladium) due to both inflation risk and the inevitability of rising interest rates. I don't think most companies mind overmuch if the dollar falls gradually, as the bulk of their value is in their continuing income stream, not in a dollar-denominated bank account. I also try to keep what I can in tax-deferred accounts: If, after several years, your stocks were up 100% but inflation reduced the dollar's value by 50%, you're still stuck paying taxes on the entire gain, even though it was meaningless. I'm also anticipating tax hikes at some point (though not as a result of the dollar falling). It helps that I'm young and can stand a lot of investment risk."
},
{
"docid": "499827",
"title": "",
"text": "The other alternative: just invest it in tax-efficient investments. You will have limited tax-deferral options outside of your 401k, but don't let that limit you. You can invest in a variety of ETFs, stocks and mutual funds for growth, and tax-free investments like municipal bonds as you get older and need to draw income."
},
{
"docid": "112208",
"title": "",
"text": "You can check the website for the company that manages the fund. For example, take the iShares Nasdaq Biotechnology ETF (IBB). iShares publishes the complete list of the fund's holdings on their website. This information isn't always easy to find or available, but it's a place to start. For some index funds, you should just be able to look up the index the fund is trying to match. This won't be perfect (take Vanguard's S&P 500 ETF (VOO); the fund holds 503 stocks, while the S&P 500 index is comprised of exactly 500), but once again, it's a place to start. A few more points to keep in mind. Remember that many ETF's, including equity ETF's, will hold a small portion of their assets in cash or cash-equivalent instruments to assist with rebalancing. For index funds, this may not be reflected in the index itself, and it may not show up in the list of holdings. VOO is an example of this. However, that information is usually available in the fund's prospectus or the fund's site. Also, I doubt that many stock ETF's, at least index funds, change their asset allocations all that frequently. The amounts may change slightly, but depending on the size of their holdings in a given stock, it's unlikely that the fund's manager would drop it entirely."
},
{
"docid": "9672",
"title": "",
"text": "\"You're talking about money in a savings account, and avoiding the risks posed by an ongoing crisis, and avoiding risk. If you are risk-averse, and likely to need your money in the short term, you should not put your money in the stock market, even in \"\"safe\"\" stocks like P&G/Coca-Cola/etc. Even these safe stocks are at risk of wild price swings in the short- to intermediate-term, especially in the event of international crises such as major European debt defaults and the like. These stocks are suitable for long-term growth objectives, but they are not as a replacement for a savings account. Coca-Cola lost a third of its value between 2007 and 2009. (It's recovered, and is currently doing better than ever.) P&G went from $74/share to $46/share. (It's partially recovered and back at $63). On the other hand, these stocks may indeed be suitable as long-term investments to protect you against local currency inflation. And yes, they even pay dividends. If you're after this investment, a good option is probably a sector-specific exchange-traded fund, such as a consumer-staples ETF. It will likely be more diversified and safer than anything you could come up with using a list of individual stocks. You can also investigate recommendations that show up when you search for a \"\"defensive ETF\"\". If you do not wish to buy the ETF directly, you can also look at listings of the ETF's holdings. Read the prospectus for an idea of the risks associated with these funds. You can buy these funds with any brokerage that gives you access to US stock exchanges.\""
},
{
"docid": "113786",
"title": "",
"text": "\"There are two umbrellas in investing: active management and passive management. Passive management is based on the idea \"\"you can't beat the market.\"\" Passive investors believe in the efficient markets hypothesis: \"\"the market interprets all information about an asset, so price is equal to underlying value\"\". Another idea in this field is that there's a minimum risk associated with any given return. You can't increase your expected return without assuming more risk. To see it graphically: As expected return goes up, so does risk. If we stat with a portfolio of 100 bonds, then remove 30 bonds and add 30 stocks, we'll have a portfolio that's 70% bonds/30% stocks. Turns out that this makes expected return increase and lower risk because of diversification. Markowitz showed that you could reduce the overall portfolio risk by adding a riskier, but uncorrelated, asset! Basically, if your entire portfolio is US stocks, then you'll lose money whenever US stocks fall. But, if you have half US stocks, quarter US bonds, and quarter European stocks, then even if the US market tanks, half your portfolio will be unaffected (theoretically). Adding different types of uncorrelated assets can reduce risk and increase returns. Let's tie this all together. We should get a variety of stocks to reduce our risk, and we can't beat the market by security selection. Ideally, we ought to buy nearly every stock in the market so that So what's our solution? Why, the exchange traded fund (ETF) of course! An ETF is basically a bunch of stocks that trade as a single ticker symbol. For example, consider the SPDR S&P 500 (SPY). You can purchase a unit of \"\"SPY\"\" and it will move up/down proportional to the S&P 500. This gives us diversification among stocks, to prevent any significant downside while limiting our upside. How do we diversify across asset classes? Luckily, we can purchase ETF's for almost anything: Gold ETF's (commodities), US bond ETF's (domestic bonds), International stock ETFs, Intl. bonds ETFs, etc. So, we can buy ETF's to give us exposure to various asset classes, thus diversifying among asset classes and within each asset class. Determining what % of our portfolio to put in any given asset class is known as asset allocation and some people say up to 90% of portfolio returns can be determined by asset allocation. That pretty much sums up passive management. The idea is to buy ETFs across asset classes and just leave them. You can readjust your portfolio holdings periodically, but otherwise there is no rapid trading. Now the other umbrella is active management. The unifying idea is that you can generate superior returns by stock selection. Active investors reject the idea of efficient markets. A classic and time proven strategy is value investing. After the collapse of 07/08, bank stocks greatly fell, but all the other stocks fell with them. Some stocks worth $100 were selling for $50. Value investors quickly snapped up these stocks because they had a margin of safety. Even if the stock didn't go back to 100, it could go up to $80 or $90 eventually, and investors profit. The main ideas in value investing are: have a big margin of safety, look at a company's fundamentals (earnings, book value, etc), and see if it promises adequate return. Coke has tremendous earnings and it's a great company, but it's so large that you're never going to make 20% profits on it annually, because it just can't grow that fast. Another field of active investing is technical analysis. As opposed to the \"\"fundamental analysis\"\" of value investing, technical analysis involves looking at charts for patterns, and looking at stock history to determine future paths. Things like resistance points and trend lines also play a role. Technical analysts believe that stocks are just ticker symbols and that you can use guidelines to predict where they're headed. Another type of active investing is day trading. This basically involves buying and selling stocks every hour or every minute or just at a rapid pace. Day traders don't hold onto investments for very long, and are always trying to predict the market in the short term and take advantage of it. Many individual investors are also day traders. The other question is, how do you choose a strategy? The short answer is: pick whatever works for you. The long answer is: Day trading and technical analysis is a lot of luck. If there are consistent systems for trading , then people are keeping them secret, because there is no book that you can read and become a consistent trader. High frequency trading (HFT) is an area where people basically mint money, but it s more technology and less actual investing, and would not be categorized as day trading. Benjamin Graham once said: In the short run, the market is a voting machine but in the long run it is a weighing machine. Value investing will work because there's evidence for it throughout history, but you need a certain temperament for it and most people don't have that. Furthermore, it takes a lot of time to adequately study stocks, and people with day jobs can't devote that kind of time. So there you have it. This is my opinion and by no means definitive, but I hope you have a starting point to continue your study. I included the theory in the beginning because there are too many monkeys on CNBC and the news who just don't understand fundamental economics and finance, and there's no sense in applying a theory until you can understand why it works and when it doesn't.\""
},
{
"docid": "160170",
"title": "",
"text": "What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:"
},
{
"docid": "427842",
"title": "",
"text": "There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account."
},
{
"docid": "161019",
"title": "",
"text": "Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund."
}
] |
8247 | Tax on Stocks or ETF's | [
{
"docid": "321114",
"title": "",
"text": "If you receive dividends on an investment, those are taxed."
}
] | [
{
"docid": "419985",
"title": "",
"text": "There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund)."
},
{
"docid": "28291",
"title": "",
"text": "\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \"\"emerging markets\"\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\""
},
{
"docid": "112208",
"title": "",
"text": "You can check the website for the company that manages the fund. For example, take the iShares Nasdaq Biotechnology ETF (IBB). iShares publishes the complete list of the fund's holdings on their website. This information isn't always easy to find or available, but it's a place to start. For some index funds, you should just be able to look up the index the fund is trying to match. This won't be perfect (take Vanguard's S&P 500 ETF (VOO); the fund holds 503 stocks, while the S&P 500 index is comprised of exactly 500), but once again, it's a place to start. A few more points to keep in mind. Remember that many ETF's, including equity ETF's, will hold a small portion of their assets in cash or cash-equivalent instruments to assist with rebalancing. For index funds, this may not be reflected in the index itself, and it may not show up in the list of holdings. VOO is an example of this. However, that information is usually available in the fund's prospectus or the fund's site. Also, I doubt that many stock ETF's, at least index funds, change their asset allocations all that frequently. The amounts may change slightly, but depending on the size of their holdings in a given stock, it's unlikely that the fund's manager would drop it entirely."
},
{
"docid": "49168",
"title": "",
"text": "The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)"
},
{
"docid": "129070",
"title": "",
"text": "You could use a stock-only ISA and invest in Exchange Traded Funds (ETFs). ETFs are managed mutual funds that trade on open exchanges in the same manner as stocks. This changes the specific fund options you have open to you, but there are so many ETFs at this point that any sector you want to invest in is almost certainly represented."
},
{
"docid": "102501",
"title": "",
"text": "Theoretically there is limited demand for risky investments, so higher-risk asset classes should outperform lower-risk asset classes over sufficiently long time periods. In practice, I believe this is true, but it could be several decades before a risky portfolio starts to outperform a more conservative one. Stocks are considered more risky than most assets. Small-cap stocks and emerging market stocks are particularly high-risk. I would consider low-fee ETFs in these areas, like VB or VWO. If you want to seek out the absolute riskiest investments, you could pick individual stocks of companies in dire financial situations, as Bank of America was a couple years ago. Most importantly, if you don't expect to need the money soon, I would maximize your contribution to tax-advantaged accounts since they will grow exponentially faster than taxable accounts. Over 50 years, a 401(k) or IRA will generally grow at least 50% more than a taxable account, maybe more depending on the tax-efficiency of your investments. Try to contribute the maximum ($17,500 for most people in 2014) if you can. If you can save more than that, I'd suggest contributing a Roth 401k rather than a traditional 401(k) - since Roth contributions are post-tax, the effective contribution limit is higher. Also contribute to a Roth IRA (up to $5,500 in 2014), using a backdoor Roth if necessary."
},
{
"docid": "272840",
"title": "",
"text": "Without making specific recommendations, it is worthwhile to point out the differing tax treatments for a Roth IRA: investments in a Roth IRA will not be taxed when you withdraw them during retirement (unless they change the law on that or something crazy). So if you are thinking about investing in some areas with high risk and high potential reward (e.g. emerging market stocks) then the Roth IRA might be the place to do it. That way, if the investment works out, you have more money in the account that won't ever be taxed. We can talk about the possible risks of certain kinds of investments, but this is not an appropriate forum to recommend for or against them specifically. Healthcare stocks are subject to political risk in the current regulatory climate. BRICs are subject to political risks regarding the political and business climate in the relevant nations, and the growth of their economies need not correspond with growth in the companies you hold in your portfolio. Energy stocks are subject to the world economic climate and demand for oil, unless you're talking alternative-energy stocks, which are subject to political risk regarding their subsidies and technological risk regarding whether or not their technologies pan out. It is worth pointing out that any ETF you invest in will have a prospectus, and that prospectus will contain a section discussing the risks which could affect your investment. Read it before investing! :)"
},
{
"docid": "237133",
"title": "",
"text": "\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \"\"cost of doing business\"\".\""
},
{
"docid": "427842",
"title": "",
"text": "There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account."
},
{
"docid": "407571",
"title": "",
"text": "\"Okay. An ETF is an \"\"Exchange Traded Fund\"\". It trades like a stock, on the stock market. Basically by buying one ETF, you can have ownership in the underlying companies that make up the ETF. So, if you buy QCLN, a green energy ETF, you own Tesla, First Solar Inc, SunPower Corporation, Vivint Solar, Advanced energy industries and a bunch of other companies that are involved in clean energy. It allows you to gain exposure to a sector without having to buy individual companies. There are ETFs for lots of different things. Technology ETFs, Healthcare ETFs, Consumer Staples ETFs, Utilities ETFs, etc. REITS are essentially the same thing, except they own real estate.\""
},
{
"docid": "358997",
"title": "",
"text": "What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though."
},
{
"docid": "487399",
"title": "",
"text": "I am not preparing for a sudden, major, catastrophic collapse in the US dollar. I am, however, preparing for a significant but gradual erosion of its value through inflation over the space of several years to a decade. To that end, I've invested most of my assets in the stock market (roughly 80%) through major world index funds, and limited my bond exposure (maintaining a small stake in commodity ETFs: gold, silver, platinum and palladium) due to both inflation risk and the inevitability of rising interest rates. I don't think most companies mind overmuch if the dollar falls gradually, as the bulk of their value is in their continuing income stream, not in a dollar-denominated bank account. I also try to keep what I can in tax-deferred accounts: If, after several years, your stocks were up 100% but inflation reduced the dollar's value by 50%, you're still stuck paying taxes on the entire gain, even though it was meaningless. I'm also anticipating tax hikes at some point (though not as a result of the dollar falling). It helps that I'm young and can stand a lot of investment risk."
},
{
"docid": "160170",
"title": "",
"text": "What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:"
},
{
"docid": "321637",
"title": "",
"text": "\"If you need less than $125k for the downpayment, I recommend you convert your mutual fund shares to their ETF counterparts tax-free: Can I convert conventional Vanguard mutual fund shares to Vanguard ETFs? Shareholders of Vanguard stock index funds that offer Vanguard ETFs may convert their conventional shares to Vanguard ETFs of the same fund. This conversion is generally tax-free, although some brokerage firms may be unable to convert fractional shares, which could result in a modest taxable gain. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—do not allow the conversion of bond index fund shares to bond ETF shares of the same fund; the other eight Vanguard bond ETFs allow conversions.) There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473. Once you convert from conventional shares to Vanguard ETFs, you cannot convert back to conventional shares. Also, conventional shares held through a 401(k) account cannot be converted to Vanguard ETFs. https://personal.vanguard.com/us/content/Funds/FundsVIPERWhatAreVIPERSharesJSP.jsp Withdraw the money you need as a margin loan, buy the house, get a second mortgage of $125k, take the proceeds from the second mortgage and pay back the margin loan. Even if you have short term credit funds, it'd still be wiser to lever up the house completely as long as you're not overpaying or in a bubble area, considering your ample personal investments and the combined rate of return of the house and the funds exceeding the mortgage interest rate. Also, mortgage interest is tax deductible while margin interest isn't, pushing the net return even higher. $125k Generally, I recommend this figure to you because the biggest S&P collapse since the recession took off about 50% from the top. If you borrow $125k on margin, and the total value of the funds drop 50%, you shouldn't suffer margin calls. I assumed that you were more or less invested in the S&P on average (as most modern \"\"asset allocations\"\" basically recommend a back-door S&P as a mix of credit assets, managed futures, and small caps average the S&P). Second mortgage Yes, you will have two loans that you're paying interest on. You've traded having less invested in securities & a capital gains tax bill for more liabilities, interest payments, interest deductions, more invested in securities, a higher combined rate of return. If you have $500k set aside in securities and want $500k in real estate, this is more than safe for you as you will most likely have a combined rate of return of ~5% on $500k with interest on $500k at ~3.5%. If you're in small cap value, you'll probably be grossing ~15% on $500k. You definitely need to secure your labor income with supplementary insurance. Start a new question if you need a model for that. Secure real estate with securities A local bank would be more likely to do this than a major one, but if you secure the house with the investment account with special provisions like giving them copies of your monthly statements, etc, you might even get a lower rate on your mortgage considering how over-secured the loan would be. You might even be able to wrap it up without a down payment in one loan if it's still legal. Mortgage regulations have changed a lot since the housing crash.\""
},
{
"docid": "65702",
"title": "",
"text": "\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\""
},
{
"docid": "426591",
"title": "",
"text": "\"Former financial analyst here, happy to help you. First off, you are right to not be entirely trusting of advisors and attorneys. They are usually trustworthy, but not always. And when you are new to this, the untrustworthy ones have a habit of reaching you first - you're their target market. I'll give you a little breakdown of how to plan, and a starting investment. First, figure out your future expenses. A LOT of that money may go to medical bills or associated care - don't forget the costs of modifications and customizations to items so you can have a better quality of life. Cars can be retrofit to assist you with a wheelchair, you can build a chair lift into a staircase, things like that which will be important for mobility - all depending on the lingering medical conditions. Mobility and independence will be critically important for you. Your past expenses are the best predictor of future expenses, so filter out the one-time legal and medical costs and use those to predict. Second, for investing there is a simple route to get into the stock market, and hopefully you will hear it a lot: Exchange Traded Funds (ETFs). You'll hear \"\"The S&P 500 increased by 80 points today...\"\" on the news; the S&P is a combination of 500 different stocks and is used to gauge the market overall. You can buy an exchange traded fund as a stock, and it's an investment in all those components. There's an ETF for almost anything, but the most popular ones are for those big indexes. I would suggest putting a few hundred thousand into an S&P 500 indexed ETF (do it at maybe $10,000 per month, so you spread the money out and ensure you don't buy at a market peak), and then let it sit there for many years. You can buy stocks through online brokerages like Scottrade or ETrade, and they make it fairly easy - they even have local offices that you can visit for help. Stocks are the easiest way to invest. Once you've done this, you can also open a IRA (a type of retirement account with special tax benefits) and contribute several thousand dollars to it per year. I'll be happy to give more advice if/when you need it, but there are a number of good books for beginning investors that can explain it better than I. I would suggest that you avoid real estate, especially if you expect to move overseas, as it is significantly more complicated and has maintenance costs and taxes.\""
},
{
"docid": "159076",
"title": "",
"text": "\"Couple of clarifications to start off: Index funds and ETF's are essentially the same investments. ETF's allow you to trade during the day but also make you reinvest your dividends manually instead of doing it for you. Compare VTI and VTSAX, for example. Basically the same returns with very slight differences in how they are run. Because they are so similar it doesn't matter which you choose. Either index funds and ETF's can be purchased through a regular taxable brokerage account or through an IRA or Roth IRA. The decision of what fund to use and whether to use a brokerage or IRA are separate. Whole market index funds will get you exposure to US equity but consider also diversifying into international equity, bonds, real estate (REITS), and emerging markets. Any broker can give you advice on that score or you can get free advice from, for example, Future Advisor. Now the advice: For most people in your situation, you current tax rate is currently very low. This makes a Roth IRA a very reasonable idea. You can contribute $5,500 for 2015 if you do it before April 15 and you can contribute $5,500 for 2016. Repeat each year. You won't be able to get all your money into a Roth, but anything you can do now will save you money on taxes in the long run. You put after-tax money in a Roth IRA and then you don't pay taxes on it or the gains when you take it out. You can use Roth IRA funds for college, for a first home, or for retirement. A traditional IRA is not recommended in your case. That would save you money on taxes this year, when presumably your taxes are already low. Since you won't be able to put all your money in the IRA, you can put the rest in a regular taxable brokerage account (if you don't just want to put it in a savings account). You can buy the same types of things as you have in your IRA. Note that if your stocks (in your regular brokerage account) go up over the course of a year and your income is low enough to be in the 10 or 15% tax bracket and you have held the stock for at least a year, you should sell before the end of the year to lock in your gains and pay taxes on them at the capital gains rate of 0%. This will prevent you from paying a higher rate on those gains later. Conversely, if you lose money in a year, don't sell. You can sell and lock in losses during years when your taxes are high (presumably, after college) to reduce your tax burden in those years (this is called \"\"tax loss harvesting\"\"). Sounds like crazy contortions but the name of the game is (legally) avoiding taxes. This is at least as important to your overall wealth as the decision of which funds to buy. Ok now the financial advisor. It's up to you. You can make your own financial decisions and save the money but it requires you putting in the effort to be educated. For many of us, this education is fun. Also consider that if you use a regular broker, like Fidelity, you can call up and they have people who (for free) will give you advice very similar to what you will get from the advisor you referred to. High priced financial advisors make more sense when you have a lot of money and complicated finances. Based on your question, you don't strike me as having those. To me, 1% sounds like a lot to pay for a simple situation like yours.\""
},
{
"docid": "207929",
"title": "",
"text": "I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules."
},
{
"docid": "7712",
"title": "",
"text": "Here is a simple example of how daily leverage fails, when applied over periods longer than a day. It is specifically adjusted to be more extreme than the actual market so you can see the effects more readily. You buy a daily leveraged fund and the index is at 1000. Suddenly the market goes crazy, and goes up to 2000 - a 100% gain! Because you have a 2x ETF, you will find your return to be somewhere near 200% (if the ETF did its job). Then tomorrow it goes back to normal and falls back down to 1000. This is a fall of 50%. If your ETF did its job, you should find your loss is somewhere near twice that: 100%. You have wiped out all your money. Forever. You lose. :) The stock market does not, in practice, make jumps that huge in a single day. But it does go up and down, not just up, and if you're doing a daily leveraged ETF, your money will be gradually eroded. It doesn't matter whether it's 2x leveraged or 8x leveraged or inverse (-1x) or anything else. Do the math, get some historical data, run some simulations. You're right that it is possible to beat the market using a 2x ETF, in the short run. But the longer you hold the stock, the more ups and downs you experience along the way, and the more opportunity your money has to decay. If you really want to double your exposure to the market over the intermediate term, borrow the money yourself. This is why they invented the margin account: Your broker will essentially give you a loan using your existing portfolio as collateral. You can then invest the borrowed money, increasing your exposure even more. Alternatively, if you have existing assets like, say, a house, you can take out a mortgage on it and invest the proceeds. (This isn't necessarily a good idea, but it's not really worse than a margin account; investing with borrowed money is investing with borrowed money, and you might get a better interest rate. Actually, a lot of rich people who could pay off their mortgages don't, and invest the money instead, and keep the tax deduction for mortgage interest. But I digress.) Remember that assets shrink; liabilities (loans) never shrink. If you really want to double your return over the long term, invest twice as much money."
}
] |
8247 | Tax on Stocks or ETF's | [
{
"docid": "465313",
"title": "",
"text": "I think the answer you are looking for is: You are not taxed on the original basis (purchase cost) of your investment. If you pay $30 a share, and sell at $35, the $5 per share gain is taxable at time of sale. But the $30 basis cost doesn't enter into tax calculations at all. (So it's important to keep good records on your investments and how much you paid for them at purchase.)"
}
] | [
{
"docid": "586010",
"title": "",
"text": "The money that you put into the ETF is not tax-exempt in the usual sense of the word. It is your money and you don't owe any taxes on it any more unless Congress (or the state that you reside in) imposes a wealth tax at some time in the future. What you will owe taxes on are any dividends or capital gains that the ETF distributes to you each year (even if you have opted to automatically re-invest those amounts into the ETF), and the capital gains when you sell shares of the ETF."
},
{
"docid": "65702",
"title": "",
"text": "\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank password/token to your beneficiary. Have him transfer out holdings within hours of death. Create a Trust, that survives even after death of an individual. P.S. ETF is treated as Stock (a company that owns other companies), regardless of the nature of the holdings. P.S.2 Above suggestions are only applicable to nonresident alien of the US.\""
},
{
"docid": "276983",
"title": "",
"text": "You haven't looked very far if you didn't find index tracking exchange-traded funds (ETFs) on the Toronto Stock Exchange. There are at least a half dozen major exchange-traded fund families that I'm aware of, including Canadian-listed offerings from some of the larger ETF providers from the U.S. The Toronto Stock Exchange (TSX) maintains a list of ETF providers that have products listed on the TSX."
},
{
"docid": "261902",
"title": "",
"text": "\"The IRS rules are actually the same. 26 U.S. Code § 1091 - Loss from wash sales of stock or securities In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed... What you should take away from the quote above is \"\"substantially identical stock or securities.\"\" With stocks, one company may happen to have a high correlation, Exxon and Mobil come to mind, before their merger of course. With funds or ETFs, the story is different. The IRS has yet to issue rules regarding what level of overlap or correlation makes two funds or ETFs \"\"substantially identical.\"\" Last month, I wrote an article, Tax Loss Harvesting, which analyses the impact of taking losses each year. I study the 2000's which showed an average loss of 1% per year, a 9% loss for the decade. Tax loss harvesting made the decade slightly positive, i.e. an annual boost of approx 1%.\""
},
{
"docid": "48691",
"title": "",
"text": "\"And you have hit the nail on the head of holding gold as an alternative to liquid currency. There is simply no way to reliably buy and sell physical gold at the spot price unless you have millions of dollars. Exhibit A) The stock symbol GLD is an ETF backed by gold. Its shares are redeemable for gold if you have more than 100,000 shares then you can be assisted by an \"\"Authorized Participant\"\". Read the fund's details. Less than 100,000 shares? no physical gold for you. With GLD's share price being $155.55 this would mean you need to have over 15 million dollars, and be financially solvent enough to be willing to exchange the liquidity of shares and dollars for illiquid gold, that you wouldn't be able to sell at a fair price in smaller denominations. The ETF trades at a different price than the gold spot market, so you technically are dealing with a spread here too. Exhibit B) The futures market. Accepting delivery of a gold futures contract also requires that you get 1000 units of the underlying asset. This means 1000 gold bars which are currently $1,610.70 each. This means you would need $1,610,700 that you would be comfortable with exchanging for gold bars, which: In contrast, securitized gold (gold in an ETF, for instance) can be hedged very easily, and one can sell covered calls to negate transaction fees, hedge, and collect dividends from the fund. quickly recuperating any \"\"spread tax\"\" that you encounter from opening the position. Also, leverage: no bank would grant you a loan to buy 4 to 20 times more gold than you can actually afford, but in the stock market 4 - 20 times your account value on margin is possible and in the futures market 20 times is pretty normal (\"\"initial margin and maintenance margin\"\"), effectively bringing your access to the spot market for physical gold more so within reach. caveat emptor.\""
},
{
"docid": "30774",
"title": "",
"text": "The biggest challenge with owning any individual stock is price fluctuation, which is called risk. The scenarios you describe assume that the stock behaves exactly as you predict (price/portfolio doubles) and you need to consider risk. One way to measure risk in a stock or in a portfolio is Sharpe Ratio (risk adjusted return), or the related Sortino ratio. One piece of advice that is often offered to individual investors is to diversify, and the stated reason for diversification is to reduce risk. But that is not telling the whole story. When you are able to identify stocks that are not price correlated, you can construct a portfolio that reduces risk. You are trying to avoid 10% tax on the stock grant (25%-15%), but need to accept significant risk to avoid the 10% differential tax ($1000). An alternative to a single stock is to invest in an ETF (much lower risk), which you can buy and hold for a long time, and the price/growth of an ETF (ex. SPY) can be charted versus your stock to visualize the difference in growth/fluctuation. Look up the beta (volatility) of your stock compared to SPY (for example, IBM). Compare the beta of IBM and TSLA and note that you may accept higher volatility when you invest in a stock like Tesla over IBM. What is the beta of your stock? And how willing are you to accept that risk? When you can identify stocks that move in opposite directions, and mix your portfolio (look up beta balanced portolio), you can smooth out the variability (reduce the risk), although you may reduce your absolute return. This cannot be done with a single stock, but if you have more money to invest you could compose the rest of your portfolio to balance the risk for this stock grant, keep the grant shares, and still effectively manage risk. Some years ago I had accumulated over 10,000 shares (grants, options) in a company where I worked. During the time I worked there, their price varied between $30/share and < $1/share. I was able to liquidate at $3/share."
},
{
"docid": "458635",
"title": "",
"text": "\"This page from the CRA website details the types of investments you can hold in a TFSA. You can hold individual shares, including ETFs, traded on any \"\"designated stock exchange\"\" in addition to the other types of investment you have listed. Here is a list of designated stock exchanges provided by the Department of Finance. As you can see, it includes pretty well every major stock exchange in the developed world. If your bank's TFSA only offers \"\"mutual funds, GICs and saving deposits\"\" then you need to open a TFSA with a different bank or a stock broking company with an execution only service that offers TFSA accounts. Almost all of the big banks will do this. I use Scotia iTrade, HSBC Invest Direct, and TD, though my TFSA's are all with HSBC currently. You will simply provide them with details of your bank account in order to facilitate money transfers/TFSA contributions. Since purchasing foreign shares involves changing your Canadian dollars into a foreign currency, one thing to watch out for when purchasing foreign shares is the potential for high foreign exchange spreads. They can be excessive in proportion to the investment being made. My experience is that HSBC offers by far the best spreads on FX, but you need to exchange a minimum of $10,000 in order to obtain a decent spread (typically between 0.25% and 0.5%). You may also wish to note that you can buy unhedged ETFs for the US and European markets on the Toronto exchange. This means you are paying next to nothing on the spread, though you obviously are still carrying the currency risk. For example, an unhedged S&P500 trades under the code ZSP (BMO unhedged) or XUS (iShares unhedged). In addition, it is important to consider that commissions for trades on foreign markets may be much higher than those on a Canadian exchange. This is not always the case. HSBC charge me a flat rate of $6.88 for both Toronto and New York trades, but for London they would charge up to 0.5% depending on the size of the trade. Some foreign exchanges carry additional trading costs. For example, London has a 0.5% stamp duty on purchases. EDIT One final thing worth mentioning is that, in my experience, holding US securities means that you will be required to register with the US tax authorities and with those US exchanges upon which you are trading. This just means fill out a number of different forms which will be provided by your stock broker. Exchange registrations can be done electronically, however US tax authority registration must be submitted in writing. Dividends you receive will be net of US withholding taxes. I am not aware of any capital gains reporting requirements to US authorities.\""
},
{
"docid": "9672",
"title": "",
"text": "\"You're talking about money in a savings account, and avoiding the risks posed by an ongoing crisis, and avoiding risk. If you are risk-averse, and likely to need your money in the short term, you should not put your money in the stock market, even in \"\"safe\"\" stocks like P&G/Coca-Cola/etc. Even these safe stocks are at risk of wild price swings in the short- to intermediate-term, especially in the event of international crises such as major European debt defaults and the like. These stocks are suitable for long-term growth objectives, but they are not as a replacement for a savings account. Coca-Cola lost a third of its value between 2007 and 2009. (It's recovered, and is currently doing better than ever.) P&G went from $74/share to $46/share. (It's partially recovered and back at $63). On the other hand, these stocks may indeed be suitable as long-term investments to protect you against local currency inflation. And yes, they even pay dividends. If you're after this investment, a good option is probably a sector-specific exchange-traded fund, such as a consumer-staples ETF. It will likely be more diversified and safer than anything you could come up with using a list of individual stocks. You can also investigate recommendations that show up when you search for a \"\"defensive ETF\"\". If you do not wish to buy the ETF directly, you can also look at listings of the ETF's holdings. Read the prospectus for an idea of the risks associated with these funds. You can buy these funds with any brokerage that gives you access to US stock exchanges.\""
},
{
"docid": "7712",
"title": "",
"text": "Here is a simple example of how daily leverage fails, when applied over periods longer than a day. It is specifically adjusted to be more extreme than the actual market so you can see the effects more readily. You buy a daily leveraged fund and the index is at 1000. Suddenly the market goes crazy, and goes up to 2000 - a 100% gain! Because you have a 2x ETF, you will find your return to be somewhere near 200% (if the ETF did its job). Then tomorrow it goes back to normal and falls back down to 1000. This is a fall of 50%. If your ETF did its job, you should find your loss is somewhere near twice that: 100%. You have wiped out all your money. Forever. You lose. :) The stock market does not, in practice, make jumps that huge in a single day. But it does go up and down, not just up, and if you're doing a daily leveraged ETF, your money will be gradually eroded. It doesn't matter whether it's 2x leveraged or 8x leveraged or inverse (-1x) or anything else. Do the math, get some historical data, run some simulations. You're right that it is possible to beat the market using a 2x ETF, in the short run. But the longer you hold the stock, the more ups and downs you experience along the way, and the more opportunity your money has to decay. If you really want to double your exposure to the market over the intermediate term, borrow the money yourself. This is why they invented the margin account: Your broker will essentially give you a loan using your existing portfolio as collateral. You can then invest the borrowed money, increasing your exposure even more. Alternatively, if you have existing assets like, say, a house, you can take out a mortgage on it and invest the proceeds. (This isn't necessarily a good idea, but it's not really worse than a margin account; investing with borrowed money is investing with borrowed money, and you might get a better interest rate. Actually, a lot of rich people who could pay off their mortgages don't, and invest the money instead, and keep the tax deduction for mortgage interest. But I digress.) Remember that assets shrink; liabilities (loans) never shrink. If you really want to double your return over the long term, invest twice as much money."
},
{
"docid": "280530",
"title": "",
"text": "Most people carry a diversity of stock, bond, and commodities in their portfolio. The ratio and types of these investments should be based on your goals and risk tolerance. I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for. If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs). Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k. You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds. If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money."
},
{
"docid": "127566",
"title": "",
"text": "Probably the easiest way for individual investors is oil ETFs. In particular, USO seems to be fairly liquid and available. You should check carefully the bid/ask spreads in this volatile time. There are other oil ETFs and leveraged and inverse oil ETFs exist as well, but one should heed the warnings about leveraged ETFs. Oil futures are another possibility though they can be more complicated and tough to access for an individual investor. Note that futures have a drift associated with them as well. Be careful close or roll any positions before delivery, of course, unless you have a need for a bunch of actual barrels of oil. Finally, you can consider investing in commodities ETFs or Energy stocks or stock ETFs that are strongly related to the price of oil. As Keshlam mentions, care is advised in all these methods. Many people thought oil reached its bottom a few weeks back then OPEC decided to do nothing and the price dropped even further."
},
{
"docid": "28291",
"title": "",
"text": "\"If you want a ~12% rate of return on your investments.... too bad. For returns which even begin to approach that, you need to be looking at some of the riskiest stuff. Think \"\"emerging markets\"\". Even funds like Vanguard Emerging Markets (ETF: VWO, mutual fund, VEIEX) or Fidelity Advisor Emerging Markets Income Trust (FAEMX) seem to have yields which only push 11% or so. (But inflation is about nil, so if you're used to normal 2% inflation or so, these yields are like 13% or so. And there's no tax on that last 2%! Yay.) Remember that these investments are very risky. They go up lots because they can go down lots too. Don't put any money in there unless you can afford to have it go missing, because sooner or later you're likely to lose something half your money, and it might not come back for a decade (or ever). Investments like these should only be a small part of your overall portfolio. So, that said... Sites which make investing in these risky markets easy? There are a good number, but you should probably just go with vanguard.com. Their funds have low fees which won't erode your returns. (You can actually get lower expense ratios by using their brokerage account to trade the ETF versions of their funds commission-free, though you'll have to worry more about the actual number of shares you want to buy, instead of just plopping in and out dollar amounts). You can also trade Vanguard ETFs and other ETFs at almost any brokerage, just like stocks, and most brokerages will also offer you access to a variety of mutual funds as well (though often for a hefty fee of $20-$50, which you should avoid). Or you can sign up for another fund providers' account, but remember that the fund fees add up quickly. And the better plan? Just stuff most of your money in something like VTI (Vanguard Total Stock Market Index) instead.\""
},
{
"docid": "102501",
"title": "",
"text": "Theoretically there is limited demand for risky investments, so higher-risk asset classes should outperform lower-risk asset classes over sufficiently long time periods. In practice, I believe this is true, but it could be several decades before a risky portfolio starts to outperform a more conservative one. Stocks are considered more risky than most assets. Small-cap stocks and emerging market stocks are particularly high-risk. I would consider low-fee ETFs in these areas, like VB or VWO. If you want to seek out the absolute riskiest investments, you could pick individual stocks of companies in dire financial situations, as Bank of America was a couple years ago. Most importantly, if you don't expect to need the money soon, I would maximize your contribution to tax-advantaged accounts since they will grow exponentially faster than taxable accounts. Over 50 years, a 401(k) or IRA will generally grow at least 50% more than a taxable account, maybe more depending on the tax-efficiency of your investments. Try to contribute the maximum ($17,500 for most people in 2014) if you can. If you can save more than that, I'd suggest contributing a Roth 401k rather than a traditional 401(k) - since Roth contributions are post-tax, the effective contribution limit is higher. Also contribute to a Roth IRA (up to $5,500 in 2014), using a backdoor Roth if necessary."
},
{
"docid": "32944",
"title": "",
"text": "\"To short: Of course, you may always buy some index correlated ETF that eliminates the above. They use stock futures on the index, and you simply buy the \"\"shorting ETF\"\" in your non-margin account. However, they are surprisingly high cost, and despite the intended correlation, have significant drag. It's a much safer way to short the market (you have great choice in which market ETF) and eliminates the single stock risk.\""
},
{
"docid": "159822",
"title": "",
"text": "\"ETFs are well suited to day trading, but you should be mindful of the bid-ask spread. See article: Commission-free ETFs are a great way to save money, but watch the bid-ask spread too. Bid-ask spread is largely a function of liquidity, or the volume of buyers and sellers for an asset during a particular moment in time. ... It may be more difficult to trade certain assets that are less liquid, where bid-ask spreads can be higher. Think some penny stocks. If you have the choice, compare the spreads of the ETF and the target stock. Longer-term \"\"keep & hold\"\" trading on ETFs tracking futures can be somewhat disadvantageous. Futures contracts roll-over every month. Exchange traders have to sell and buy in on the next contract. ETFs don't reflect the price differential between the futures contract. See here for more detail on that: Positioning For An Oil ETF Rebound? Watch For Contango Contango occurs when the price on a futures contract is higher than the expected future spot price, which creates the upward sloping curve on future commodity prices over time. Essentially, the phenomenon reflects a current spot price that is lower than the futures price. ... While this phenomena is a normal occurrence in the futures market, contango can have a negative effect on ETFs.\""
},
{
"docid": "321637",
"title": "",
"text": "\"If you need less than $125k for the downpayment, I recommend you convert your mutual fund shares to their ETF counterparts tax-free: Can I convert conventional Vanguard mutual fund shares to Vanguard ETFs? Shareholders of Vanguard stock index funds that offer Vanguard ETFs may convert their conventional shares to Vanguard ETFs of the same fund. This conversion is generally tax-free, although some brokerage firms may be unable to convert fractional shares, which could result in a modest taxable gain. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—do not allow the conversion of bond index fund shares to bond ETF shares of the same fund; the other eight Vanguard bond ETFs allow conversions.) There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473. Once you convert from conventional shares to Vanguard ETFs, you cannot convert back to conventional shares. Also, conventional shares held through a 401(k) account cannot be converted to Vanguard ETFs. https://personal.vanguard.com/us/content/Funds/FundsVIPERWhatAreVIPERSharesJSP.jsp Withdraw the money you need as a margin loan, buy the house, get a second mortgage of $125k, take the proceeds from the second mortgage and pay back the margin loan. Even if you have short term credit funds, it'd still be wiser to lever up the house completely as long as you're not overpaying or in a bubble area, considering your ample personal investments and the combined rate of return of the house and the funds exceeding the mortgage interest rate. Also, mortgage interest is tax deductible while margin interest isn't, pushing the net return even higher. $125k Generally, I recommend this figure to you because the biggest S&P collapse since the recession took off about 50% from the top. If you borrow $125k on margin, and the total value of the funds drop 50%, you shouldn't suffer margin calls. I assumed that you were more or less invested in the S&P on average (as most modern \"\"asset allocations\"\" basically recommend a back-door S&P as a mix of credit assets, managed futures, and small caps average the S&P). Second mortgage Yes, you will have two loans that you're paying interest on. You've traded having less invested in securities & a capital gains tax bill for more liabilities, interest payments, interest deductions, more invested in securities, a higher combined rate of return. If you have $500k set aside in securities and want $500k in real estate, this is more than safe for you as you will most likely have a combined rate of return of ~5% on $500k with interest on $500k at ~3.5%. If you're in small cap value, you'll probably be grossing ~15% on $500k. You definitely need to secure your labor income with supplementary insurance. Start a new question if you need a model for that. Secure real estate with securities A local bank would be more likely to do this than a major one, but if you secure the house with the investment account with special provisions like giving them copies of your monthly statements, etc, you might even get a lower rate on your mortgage considering how over-secured the loan would be. You might even be able to wrap it up without a down payment in one loan if it's still legal. Mortgage regulations have changed a lot since the housing crash.\""
},
{
"docid": "418150",
"title": "",
"text": "If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs."
},
{
"docid": "160170",
"title": "",
"text": "What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:"
},
{
"docid": "529638",
"title": "",
"text": "\"The recommendations you read were, very probably, talking about US listed funds in US dollars. The mexican Bolsa de Valores says that they list over 600 mutual funds so \"\"Yes\"\" you can invest in Mexico using Pesos if that is what you want. You need a Corredor de Bolsa or mexico broker. Here they are. Most international investors use exchange traded funds ETF because theirs fees are cheaper than mutual funds. The ETF are mostly listed and traded in us stock exchange. Here they are. US mutual funds are in dollars and, because you are living in Mexico, you will have a currency risk and probably taxes. Mexico mutual funds in Pesos do not carry any currency exposure unless the companies involved do business in the United States. You have to think about your currency exposure. B. Veo\""
}
] |
8271 | Income in zero-interest environment | [
{
"docid": "415511",
"title": "",
"text": "Dividends. There are blue chip companies that have paid and raised their dividends for 20 or more years. As an example: Altria (MO). There are also ETFs that specialize in such stocks such as SDY."
}
] | [
{
"docid": "549394",
"title": "",
"text": "\"You can make a contingent offer: \"\"I will buy this house if I sell my own.\"\" In a highly competitive environment, contingent offers tend to be ignored. (Another commentator described such a contingency clause as synonymous with \"\"Please Reject Me\"\".) You can get a bridge loan: you borrow money for a short term, at punishingly high interest. If your house doesn't sell, you're fscked. You pay for two mortgages (or even buy the other house for cash). If you can afford this, congratulations on, you know, being super-rich. Or you can do what I am doing: selling one house and then living at my mom's until I buy another one. (You will have to stay at your own mom's house; my mom's house will be full, of course.) Edit: A commentator with the disturbingly Kafkaesque name of \"\"R.\"\" made the not-unreasonable suggestion that you buy both and rent out one or the other. Consider this possibility, but remember: On the other hand, if the stars align, you might not want to extricate yourself. If the tenant is paying the mortgage and a little more, you have an appreciating asset, and one you can borrow against. With a little work and a little judicious use of leverage, doing this over and over, you can accumulate a string of income-producing rental properties.\""
},
{
"docid": "107520",
"title": "",
"text": "Interesting. The answer can be as convoluted/complex as one wishes to make it, or back-of-envelope. My claim is that if one starts at 21, and deposits 10% of their income each year, they will likely hit a good retirement nest egg. At an 8% return each year (Keep in mind, the last 40 years produced 10%, even with the lost decade) the 10% saver has just over 15X their final income as a retirement account. At 4% withdrawal, this replaces 60% of their income, with social security the rest, to get to nearly 100% or so replacement. Note - I wrote an article about Social Security Benefits, showing the benefit as a percent of final income. At $50K it's 42%, it's a higher replacement rate for lower income, but the replacement rate drops as income rises. So, the $5000 question. For an individual earning $50K or less, this amount is enough to fund their retirement. For those earning more, it will be one of the components, but not the full savings needed. (By the way, a single person has a standard deduction and exemption totaling $10150 in 2014. I refer to this as the 'zero bracket.' The next $8800 is taxed at 10%. Why go 100% Roth and miss the opportunity to fund these low or no tax withdrawals?)"
},
{
"docid": "10558",
"title": "",
"text": "\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \"\"agents\"\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\""
},
{
"docid": "122114",
"title": "",
"text": "\"Good question. And it depends a bit on your current plan, your future income, and the plan you are moving too. Mostly you want to roll out of your existing 401K. There will likely be a fee, and your investment choices are limited. You will want to do a direct transfer, and going with a quality company such as Fidelity or Vanguard. Both of those have zero fees for accounts and pretty good customer service. However, if your future income is likely to be high there is something else to consider. If you are over the limits do a ROTH, and are considering doing a \"\"Backdoor ROTH\"\" a key success for this strategy is keeping your roll over IRA balance low (or zero). So you may want to either leave the 401K where it is, or roll it to your new 401K plan. In that case you will have to call the two 401K custodians, and select the best choice as far as fees and fund choice.\""
},
{
"docid": "510883",
"title": "",
"text": "Schwab suggests investors do the following in the face of tighter monetary policy in the near term: > * Consider limiting the average duration in their portfolios to the short to intermediate term to mitigate the risk of rising interest rates as the program begins. > * Consider using bond ladders to spread out maturities of bonds in a portfolio, as a way to manage through a rising-interest-rate environment. > * Focus on high-credit-quality bonds, as volatility may pick up as the Fed reduces liquidity."
},
{
"docid": "177908",
"title": "",
"text": "profit has nothing to do with the level of interest rates. Is this correct? In theory, yes. The difference that you're getting at is called net interest margin. As long as this stays constant, so does the bank's profit. According to this article: As long as the interest rate charged on loans doesn't decline faster than the interest rate received on deposit accounts, banks can continue to operate normally or even reduce their bad loan exposure by offering lower lending rates to already-proven borrowers. So banks may be able to acquire the same net interest margin with lower risk. However the article also mentions new research from a federal agency: Their findings show that net interest margins (NIMs) get worse during low-rate environments, defined as any time when a country's three-month sovereign bond yield is less than 1.25%. So in theory banks should remain profitable when interest rates are low, but this may not actually be the case."
},
{
"docid": "553328",
"title": "",
"text": "\"I am neither a lawyer nor a tax accountant, and if you're dealing with serious money I suggest you consult a professional. But my understanding is: If you make a loan at zero interest or at below-market rates, the IRS will consider the difference between the interest that you do charge and the market rate to be a gift. That is, if someone could get a loan from a bank and he'd pay $1000 in interest for the year, but instead you loan him the money as a friend interest free, than as far as the IRS is concerned you have given him a $1000 gift, and you could potentially have to pay gift tax. Or they might \"\"impute\"\" the interest to you and tax you on $1000 of additional income. If you have no agreement on repayment terms, if it's all, \"\"Hey Joe, just pay me back when you can\"\", then the IRS is likely to consider the entire \"\"loan\"\" to be a gift. There's an annual exclusion on gifts -- I think it's now $13,000 -- so if you loan your buddy fifty bucks to tide him over until next pay day, the IRS isn't going to get involved in that. They're worried about more serious money. And yes, the IRS does \"\"police loan rates\"\". The IRS examines exact numbers for all sorts of things. If, say, you go on a 100-mile overnight business trip, and the company gives you $10,000 for travel expenses, the IRS is likely to say that this is not a tax-deductible travel expense at all but a sham to hide part of your salary from taxes. Or if you donate a pair of old socks to charity and declare a $500 charitable contribution deduction, the IRS will say that that is not a realistic value for a pair of old socks and disallow the deduction. Etc. A small discrepancy from market rates can be justified for any number of reasons. If the book value of a used car is $5000 and you sell it to your neighbor for $4900, the IRS is unlikely to question it, there are any number of legitimate business reasons why you had to give a discount to make the sale. But if you sell it to him for $50, they may declare that this is not a sale but a gift. Etc.\""
},
{
"docid": "590364",
"title": "",
"text": "Bonds released at the same time have different interest rates because they have different levels of risks and liquidity associated. Risk will depend on the company / country / municipality that offers the bond: their financial position, and their resulting ability to make future payments & avoid default. Riskier organizations must offer higher interest rates to ensure that investors remain willing to loan them money. Liquidity depends on the terms of the loan - principal-only bonds give you minimal liquidity, as there are no ongoing interest payments, and nothing received until the bond's maturity date. All bonds provide lower liquidity if they have longer maturity dates. Bonds with lower liquidity must have higher returns to compensate for the fact that you will have to give up your cash for a longer period of time. Bonds released at different times will have different interest rates because of what the general 'market rate' for interest was in those periods. ie: if a bond is released in 2016 with interest rates approaching 0%, even a high risk bond would have a lower interest rate than a bond released in the 1980s, when market rates were approaching 20%. Some bonds offer variable interest tied to some market indicator - those will typically have higher interest at the time of issuance, because the bondholder bears some risk that the prevailing market rate will drop. Note regarding sale of bonds after market rates have changed: The value of your bonds will fluctuate with the market. If a bond was offered with 1% interest, and next year interest rates go up and a new identical bond is offered for 2% interest, when you sell your old bond you will take a loss, because the market won't want to pay full price for it anymore. Whether you should sell lower-interest rate bonds depends on how you feel about the factors above - do you want junk bonds that have stock-like levels of returns but high risks of default, maturing in 30 years? Or do you want AAA+ Bonds that have essentially 0% returns maturing in 30 days? If you are paying interest on debt, it is quite likely that you could achieve a net income benefit by selling the bonds, and paying off debt [assuming your debt has a higher interest rate than your low-rate bonds]. Paying off debt is sometimes referred to as a 'zero risk return', because essentially there is no real risk that your lender would otherwise go bankrupt. That is, you will owe your bank the car loan until you pay it, and paying it is the only thing you can do to reduce it. However, some schools of thought suggest that maintaining savings + liquid investments makes sense even if you have some debt, because cash + liquid investments can cover you in some emergencies that credit cards can't help you with. ie: if you lose your job, perhaps your credit could be pulled and you would have nothing except for your liquid savings to tide you over. How much you should save in this way is a matter of opinion, but often repeated numbers are either 3 months or 6 months worth [which is sometimes taken as x months of expenses, and sometimes as x months of after-tax income]. You should look into this issue further; there are many questions on this site that discuss it, I'm sure."
},
{
"docid": "529528",
"title": "",
"text": "According to TurboTax, it is perfectly legal to final as an individual with zero income. But, alas, according to Entities, by the IRS, you must file as a partnership or a corporation even if you have zero income. As for my two cents, I can only see it being advantageous for filing on expense purposes, but as you have no income, the point is mute. Hope it all goes over well as the forms are due March 15."
},
{
"docid": "16626",
"title": "",
"text": "\"Here's a number-crunching example of how the \"\"Zero interest rate\"\" offer is misleading. Suppose the offer is that a car \"\"costs $24,000.00 with zero percent financing over 24 months\"\" or as an alternative, \"\"$3,000.00 off for cash\"\". Ignore the hype: the quoted prices and the quoted interest rates. Look at what really happens to two people who take advantage of the two offers, One person hands over $21,000.00 cash, and leaves with the new car. The second promises to make 24 payments of $1000.00, one a month, starting in one month's time, and also leaves with the same make and model new car. The two people have received exactly the same benefit, so the two payment schemes must have the same value. A mortgage program will tell you that paying off a $21,000.00 loan by making 24 monthly payments of $1000.00 requires an interest rate of 1.10% a month, or an effective annual rate of 14.03%.\""
},
{
"docid": "253907",
"title": "",
"text": "Zero positive feedback (except my performance review), cold attitude (friendly with others), regularly does not invite me, and only me, to meetings that affect me, etc. Outside of work, makes it really uncomfortable to talk to him, but is great to everyone else. It seems more personal than professional, and he just comes off as cold to only myself. I really just want to bring this up to make work more pleasant; it's not really a 'hostile work environment'."
},
{
"docid": "261197",
"title": "",
"text": "If the bank wants to close your account, they will do just that. Having a small ongoing balance isn't going to prompt them to keep it open. Typically, the risk is for a card with zero usage to be closed, as it's a cost to them to keep the account open, and it has no revenue. To avoid this, it's a good idea to use that card or cards for a regular purchase, say, gasoline. A non-impulse buy, and just pay in full to avoid interest. There's no need to keep a balance accruing interest. Keep in mind - A bill contains a month of charges. The bill for December is issued on the 31st, but due January 25th or so. When you pay it in full you do not have zero balance, you have the charges from January. This accomplishes your goal, will no interest."
},
{
"docid": "582553",
"title": "",
"text": "Very rarely would an investor be happy with a 4% yield independent of anything else that might happen in the future. For example, if in 3 years for some reason or other inflation explodes and 30 year bond yields go up to 15% across the board, they would be kicking themselves for having locked it up for 30 years at 4%. However, if instead of doing that the investor put their money in a 3 year bond at 3% say, they would have the opportunity to reinvest in the new rate environment, which might offer higher or lower yields. This eventually leads fixed income investors to have a bond portfolio in which they manage the average maturity of their bond portfolio to be somewhere between the two extremes of investing it all in super short term/ low yield money market rates vs. super long term bonds. As they constantly monitor and manage their maturing investments, it inevitably leads them to managing interest rate risk as they decide where to reinvest their incremental coupons by looking at the shape of the yield curve at the time and determining what kind of risk/reward tradeoffs they would have to make."
},
{
"docid": "452837",
"title": "",
"text": "\"My grandma left a 50K inheritance You don't make clear where in the inheritance process you are. I actually know of one case where the executor (a family member, not a professional) distributed the inheritance before paying the estate taxes. Long story short, the heirs had to pay back part of the inheritance. So the first thing that I would do is verify that the estate is closed and all the taxes paid. If the executor is a professional, just call and ask. If a family member, you may want to approach it more obliquely. Or not. The important thing is not to start spending that money until you're sure that you have it. One good thing is that my husband is in grad school and will be done in 2019 and will then make about 75K/yr with his degree profession. Be a bit careful about relying on this. Outside the student loans, you should build other expenses around the assumption that he won't find a job immediately after grad school. For example, we could be in a recession in 2019. We'll be about due by then. Paying off the $5k \"\"other debt\"\" is probably a no brainer. Chances are that you're paying double-digit interest. Just kill it. Unless the car loan is zero-interest, you probably want to get rid of that loan too. I would tend to agree that the car seems expensive for your income, but I'm not sure that the amount that you could recover by selling it justifies the loss of value. Hopefully it's in good shape and will last for years without significant maintenance. Consider putting $2k (your monthly income) in your checking account. Instead of paying for things paycheck-to-paycheck, this should allow you to buy things on schedule, without having to wait for the money to appear in your account. Put the remainder into an emergency account. Set aside $12k (50% of your annual income/expenses) for real emergencies like a medical emergency or job loss. The other $16k you can use the same way you use the $5k other debt borrowing now, for small emergencies. E.g. a car repair. Make a budget and stick to it. The elimination of the car loan should free up enough monthly income to support a reasonable budget. If it seems like it isn't, then you are spending too much money for your income. Don't forget to explicitly budget for entertainment and vacations. It's easy to overspend there. If you don't make a budget, you'll just find yourself back to your paycheck-to-paycheck existence. That sounds like it is frustrating for you. Budget so that you know how much money you really need to live.\""
},
{
"docid": "144775",
"title": "",
"text": "Dividends yield and yield history are often neglected, but are very important factors that you should consider when looking at a stock for long-term investment. The more conservative portion of my portfolio is loaded up with dividend paying stocks/MLPs like that are yielding 6-11% income. In an environment when deposit and bond yields are so poor, they are a great way to earn reasonably safe income."
},
{
"docid": "85003",
"title": "",
"text": "\"I'd lean toward using the $3,000 from the emergency fund although depending on your monthly bills, a $2,000 emergency fund (or even a $5,000 one) may be a bit small. But here are a couple of other options for you: Zero-interest balance transfers: If you have cards and have a zero balance on them, your credit card companies are keen to see you put a balance on them. Find out if they're offering any \"\"12 months no interest on balance transfers\"\" offers (or if any of their rivals is), since of course the car loan is an outstanding balance you can transfer (you're not asking them for cash). Put the $3,000 on that zero-balance transfer option, get rid of the car, and pay the $300/mo to pay down the balance on the card. 10 months later, two months before the end of the free period, you're at zero again — without dipping into your emergency fund. You'll also now have a history with that card company of paying back, which may lead them to attempt to entice you to go into more debt (which you'll resist, of course) by increasing the limit. (If you don't want a higher limit, just tell them to reduce it again.) A $3,000 unsecured loan with no pre-payment penalty provided the math works out. The interest may be expensive (unless you find something with a teaser rate for the first X months), but if you find an option, do the math on it to see if it's actually more expensive than carrying the car payments, insurance, etc. on a depreciating asset. It may not be as expensive as the 20% rate or whatever makes it sound (but again, do the math), and if you apply your $300/mo to it, within (say) 11 months you're clear again — with a nice little paid-back loan on your credit report. Both of these ensure that you still have your emergency fund at your disposal, and both capitalize on the fact that right now, you're probably a good credit risk. If you dip into your emergency fund, and an emergency happens (like loss of a job) and you find yourself short of funds, you may have trouble securing further credit at that point to cover the gap in your emergency fund.\""
},
{
"docid": "595739",
"title": "",
"text": "\"It's a pretty lengthy explanation but to put it into a few bullet points: * Nuclear power produces zero carbon emissions * They take up the smallest amount of space relative to the energy produced compared to all other forms of power production * Nuclear power can utilize the existing infrastructure and provide ultra reliable, clean energy * Updating to current reactor technology largely reduces the \"\"radioactive waste\"\" problem (see fast breeder tech) * Updating to current reactor technology largely solves safety issues * Moving to next-gen MSRs (Molten-Salt Reactors) introduce a higher efficiency, ultra-safe design, with no risk of \"\"melt-down\"\" or concern about weapons conversions * Some MSRs ([such as a LFTR](https://www.nei.org/Issues-Policy/Protecting-the-Environment)) show signs of being potentially world changing and making energy ridiculously cheap with no radioactive waste That's a primer to start. :)\""
},
{
"docid": "361507",
"title": "",
"text": "The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election."
},
{
"docid": "279534",
"title": "",
"text": "Utilization is near real-time. What that means is that what is reported is what is taken in terms of debt-to-income (DTI) ratios. When a mortgage broker pulls your credit, they will pull the latest balances with the minimum payments. This is what is taken to determine DTI along with your gross monthly income. If you do not pay your account in full before the statement date, then you more than likely will have to wait an additional statement cycle before it reports to the credit bureaus. Therefore, your utilization is dynamic and the history of your utilization month-to-month is not recorded forever. Only the current balance. What is maintained and reported is your payment history. So you want to never be late if you want to be approved anytime soon for a mortgage. A lower DTI will not help your interest rate. As long as you stay away from the maximum DTI for the mortgage vehicle you are attempting to be approved for (VA, FHA, Conventional, etc), then your DTI should not be a concern. If you are borderline at the time of underwriting, you can take the opportunity and pay off the balances. The mortgage company can then do what is called a credit supplement which entails contacting those lenders where you have proven you have a zero balance and manually input the zero balance cards, that have not yet reported to the bureaus, in your final application to the mortgage company for underwriting approval."
}
] |
8271 | Income in zero-interest environment | [
{
"docid": "376709",
"title": "",
"text": "\"anything that produces steady income will produce a \"\"real return\"\" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise.\""
}
] | [
{
"docid": "590364",
"title": "",
"text": "Bonds released at the same time have different interest rates because they have different levels of risks and liquidity associated. Risk will depend on the company / country / municipality that offers the bond: their financial position, and their resulting ability to make future payments & avoid default. Riskier organizations must offer higher interest rates to ensure that investors remain willing to loan them money. Liquidity depends on the terms of the loan - principal-only bonds give you minimal liquidity, as there are no ongoing interest payments, and nothing received until the bond's maturity date. All bonds provide lower liquidity if they have longer maturity dates. Bonds with lower liquidity must have higher returns to compensate for the fact that you will have to give up your cash for a longer period of time. Bonds released at different times will have different interest rates because of what the general 'market rate' for interest was in those periods. ie: if a bond is released in 2016 with interest rates approaching 0%, even a high risk bond would have a lower interest rate than a bond released in the 1980s, when market rates were approaching 20%. Some bonds offer variable interest tied to some market indicator - those will typically have higher interest at the time of issuance, because the bondholder bears some risk that the prevailing market rate will drop. Note regarding sale of bonds after market rates have changed: The value of your bonds will fluctuate with the market. If a bond was offered with 1% interest, and next year interest rates go up and a new identical bond is offered for 2% interest, when you sell your old bond you will take a loss, because the market won't want to pay full price for it anymore. Whether you should sell lower-interest rate bonds depends on how you feel about the factors above - do you want junk bonds that have stock-like levels of returns but high risks of default, maturing in 30 years? Or do you want AAA+ Bonds that have essentially 0% returns maturing in 30 days? If you are paying interest on debt, it is quite likely that you could achieve a net income benefit by selling the bonds, and paying off debt [assuming your debt has a higher interest rate than your low-rate bonds]. Paying off debt is sometimes referred to as a 'zero risk return', because essentially there is no real risk that your lender would otherwise go bankrupt. That is, you will owe your bank the car loan until you pay it, and paying it is the only thing you can do to reduce it. However, some schools of thought suggest that maintaining savings + liquid investments makes sense even if you have some debt, because cash + liquid investments can cover you in some emergencies that credit cards can't help you with. ie: if you lose your job, perhaps your credit could be pulled and you would have nothing except for your liquid savings to tide you over. How much you should save in this way is a matter of opinion, but often repeated numbers are either 3 months or 6 months worth [which is sometimes taken as x months of expenses, and sometimes as x months of after-tax income]. You should look into this issue further; there are many questions on this site that discuss it, I'm sure."
},
{
"docid": "529528",
"title": "",
"text": "According to TurboTax, it is perfectly legal to final as an individual with zero income. But, alas, according to Entities, by the IRS, you must file as a partnership or a corporation even if you have zero income. As for my two cents, I can only see it being advantageous for filing on expense purposes, but as you have no income, the point is mute. Hope it all goes over well as the forms are due March 15."
},
{
"docid": "42335",
"title": "",
"text": "\"You literally just said \"\"Why control prices when we can change incomes?\"\". If you want to change the incomes of everyone working, you have to add money somewhere. The monetary system is not a zero sum game. You don't have a fixed amount of money. The disparity of wealth has nothing to do with actual money. It has to do with real hard assets, which you have a finite amount of and ARE zero sum. I'm done with this pretend discussion as it appears you can't have one or stay on the same topic between comments.\""
},
{
"docid": "212348",
"title": "",
"text": "It’s not misleading at all. People making the highest incomes already pay the vast majority of income taxes. Something like 40% of Americans pay zero net federal income tax. These people have ZERO skin in the game and yet they think they should have a seat at the table demanding more! The entitlement is sickening. The current tax regime already soaks the rich. You can play all the mental gymnastics you want, but you can’t change the facts."
},
{
"docid": "93828",
"title": "",
"text": "You can make a start to learn how to make better investing decisions by learning and understanding what your current super funds are invested in. Does the super fund give you choices of where you can invest your funds, and how often does it allow you to change your investment choices each year? If you are interested in one area of investing over others, eg property or shares, then you should learn more on this subject, as you can also start investing outside of superannuation. Your funds in superannuation are taxed less but you are unable to touch them for another 30 to 35 years. You also need to consider investing outside super to help meet your more medium term goals and grow your wealth outside of super as well. If you are interested in shares then I believe you should learn about both fundamental and technical analysis, they can help you to make wiser decisions about what to invest in and when to invest. Above is a chart of the ASX200 over the last 20 years until January 2015. It shows the Rate Of Change (ROC) indicator below the chart. This can be used to make medium to long term decisions in the stock market by investing when the ROC is above zero and getting out of the market when the ROC is below zero. Regarding your aggressiveness in your investments, most would say that yes because you are still young you should be aggressive because you have time on your side, so if there is a downturn in your investments then you still have plenty of time for them to recover. I have a different view, and I will use the stock market as an example. Refer back to the chart above, I would be more aggressive when the ROC is above zero and less aggressive when the ROC is below zero. How can you relate this to your super fund? If it does provide you to change your investment choices, then I would be invested in more aggressive investments like shares when the ROC crosses above zero, and then when the ROC moves below zero take a less aggressive approach by moving your investments in the super fund to a more balanced or capital guaranteed strategy where less of your funds are invested in shares and more are invested in bonds and cash. You can also have a similar approach with property. Learn about the property cycles (remember super funds usually invest in commercial and industrial property rather than houses, so you would need to learn about the commercial and industrial property cycles which would be different to the residential property cycle). Regarding your question about SMSFs, if you can increase your knowledge and skills in investing, then yes switching to a SMSF will give you more control and possibly better returns. However, I would avoid switching your funds to a SMSF right now. Two reasons, firstly you would want to increase your knowledge as mentioned above, and secondly you would want to have at least $300,000 in funds before switching to a SMSF or else the setup and compliance costs would be too high as a percentage of your funds at the moment ($70,000). You do have time on your side, so whilst you are increasing your funds you can use that time to educate yourself in your areas of interest. And remember a SMSF is not only an investment vehicle whilst you are building your funds during your working life, but it is also an investment vehicle when you are retired and it becomes totally tax free during this phase, where any investment returns are tax free and any income you take out is also tax free."
},
{
"docid": "141565",
"title": "",
"text": "\"Bingo, great question. I'm not the original poster, \"\"otherwiseyep\"\", but I am in the economics field (I'm a currency analyst for a Forex broker). I also happen to strongly disagree with his posts on the origin of money. To answer your question: the villagers are forced to use the new notes by their government, which demands that their income taxes be paid with the new currency. This is glossed over by otherwiseyep, which is unfortunate because it misleads people who are new to economics into believing the system of fiat money we have now is natural/emergent (created from the bottom-up) and not enforced from the top-down. Legal tender laws enforced in each nation's courts mean that all contracts can be settled in the local fiat currency, regardless of whether the receiver of the money wants a different currency. These laws (and the income tax) create an artificial \"\"root demand\"\" for the fiat currency, which is what gives it its value. We don't just *decide* that green paper has value. We are forced to accumulate it by the government. Fiat currencies are not money. We call them money, but in fact they are credit derivatives. Let me explain: A currency's value is inextricably tied to the nation's bond market. When investors buy a nation's bonds, they are loaning that nation money. The investor expects to receive interest payments on the bonds. The interest rate naturally rises as the bonds are perceived to be more-risky, and naturally falls as the bonds are perceived to be less-risky. The risk comes from the fact that governments sometimes get really close to not being able to pay their interest payments. They get into so much debt, and their tax-revenue shrinks as their economy worsens. That drives up the interest rate they must pay when they issue new bonds (ie add debt). So the value of a currency comes from tax revenue (interest payments). If a government misses an interest payment, or doesn't fully pay it, the market considers this a \"\"credit event\"\" and investors sell their bonds and freak out. Selling bonds has the effect of driving interest rates even higher, so it's a vicious cycle. If the government defaults, there's massive deflation because all debt denominated in that currency suddenly skyrockets due to the higher interest rates. This creates a chain of cascading defaults - one person defaults, which leads another person, and another, and so on. Everyone was in debt to everyone else, somewhere along the chain. In order to counteract this deflation (which ultimately leads to the kind of depression you saw in 1930's US), governments will print print print, expanding the credit supply via the banks. So this is what you see happening today - banks are constantly being bailed out all over the Western world, governments are cutting programs to be able to meet their interest payments, and central banks are expanding credit supplies and bailing out their buddies. Real money has ZERO counterparty risk. What is counterparty risk? It's just the risk that the guy who owes you something won't honor his debt. Gold and silver and salt and oil aren't IOU's. So they can be real money.\""
},
{
"docid": "340530",
"title": "",
"text": "The problem with having no debt at all and relying totally on your income from working is that if you lose your job you'll have no income. Now there are 2 types of debt: good debt and bad debt. You should stay away from bad debt. But good debt is good — it should produce an income higher than the interest payments on the debt. Good debt will help you supplement your income from work and eventually replace your income from work. I have over $2M in good debt, have been semi-retired since 42, and sleep very well at night. By the way I also have zero bad debt. As Joe says, you have to be at a level you are comfortable with, can sleep at night, and try to limit your bad debt by showing some delayed gratification when you are starting off."
},
{
"docid": "488470",
"title": "",
"text": "I wouldn't say it's an 'Office' collaboration tool. When I (briefly) played around with it in an organisation it was mainly for internal social, think along the lines of a corporate Facebook with discussion threads, interest groups and general banter. For a large organisation, it certainly has a place in helping breaking down department walls, encouraging employee discussion on interests/business issues in a a slightly more formal environment cf. Twitter/Facebook."
},
{
"docid": "10558",
"title": "",
"text": "\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \"\"agents\"\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\""
},
{
"docid": "357717",
"title": "",
"text": "\"Not to detract from the other answers at all (which are each excellent and useful in their own right), but here's my interpretation of the ideas: Equity is the answer to the question \"\"Where is the value of the company coming from?\"\" This might include owner stakes, shareholder stock investments, or outside investments. In the current moment, it can also be defined as \"\"Equity = X + Current Income - Current Expenses\"\" (I'll come back to X). This fits into the standard accounting model of \"\"Assets - Liabilities = Value (Equity)\"\", where Assets includes not only bank accounts, but also warehouse inventory, raw materials, etc.; Liabilities are debts, loans, shortfalls in inventory, etc. Both are abstract categories, whereas Income and Expense are hard dollar amounts. At the end of the year when the books balance, they should all equal out. Equity up until this point has been an abstract concept, and it's not an account in the traditional (gnucash) sense. However, it's common practice for businesses to close the books once a year, and to consolidate outstanding balances. When this happens, Equity ceases to be abstract and becomes a hard value: \"\"How much is the company worth at this moment?\"\", which has a definite, numeric value. When the books are opened fresh for a new business year, the Current Income and Current Expense amounts are zeroed out. In this situation, in order for the big equation to equal out: Assets - Liabilities = X + Income - Expeneses the previous net value of the company must be accounted for. This is where X comes in, the starting (previous year's) equity. This allows the Assets and Liabilities to be non-zero, while the (current) Income and Expenses are both still zeroed out. The account which represents X in gnucash is called \"\"Equity\"\", and encompasses not only initial investments, but also the net increase & decreases from previous years. While the name would more accurately be called \"\"Starting Equity\"\", the only problem caused by the naming convention is the confusion of the concept Equity (X + Income - Expenses) with the account X, named \"\"Equity\"\".\""
},
{
"docid": "68404",
"title": "",
"text": "\"This is a supplement to the additional answers. One way to generate \"\"passive\"\" income is by taking advantage of high interest checking / saving accounts. If you need to have a sum of liquid cash readily available at all times, you might as well earn the most interest you can while doing so. I'm not on any bank's payroll, so a Google search can yield a lot on this topic and help you decide what's in your best interest (pun intended). More amazingly, some banks will reward you straight in cash for simply using their accounts, barring some criteria. There's one promotion I've been taking advantage of which provides me $20/month flat, irrespective of my account balance. Again, I am not on anyone's payroll, but a Google search can be helpful here. I'd call these passive, as once you meet the promotion criteria, you don't need to do anything else but wait for your money. Of course, none of this will be enough to live off of, but any extra amount with minimal to zero time investment seems to be a good deal. (if people do want links for the claims I make, I will put these up. I just do not want to advertise directly for any banks or companies.)\""
},
{
"docid": "510692",
"title": "",
"text": "\"Depending on the nature of the expenses, you will enter them under Deductions, on lines 9 through 20. Did you rent an office? Add the rental expense to line 13. Fee for a business license? Line 14. Everything else that doesn't fall into any specific category goes on line 20 (You'll need to attach a small statement that breaks out the expense categories, e.g. office supplies, phone, legal fees, etc.) Expenses that are entered in the Income section are costs directly related to sales, such as merchant fees that you pay to a bank if you take payments by credit card. Since you said the partnership has \"\"zero money coming in,\"\" I assume that it currently has no revenues, so all the fields in the Income section would be zero.\""
},
{
"docid": "510883",
"title": "",
"text": "Schwab suggests investors do the following in the face of tighter monetary policy in the near term: > * Consider limiting the average duration in their portfolios to the short to intermediate term to mitigate the risk of rising interest rates as the program begins. > * Consider using bond ladders to spread out maturities of bonds in a portfolio, as a way to manage through a rising-interest-rate environment. > * Focus on high-credit-quality bonds, as volatility may pick up as the Fed reduces liquidity."
},
{
"docid": "361507",
"title": "",
"text": "The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election."
},
{
"docid": "552383",
"title": "",
"text": "\"Aside from employer 401(k) matches (which may double your money immediately), paying off debts is almost always the best place to start. Paying off a debt early is a zero-risk operation and will earn you N% (where N is your interest rate). Is that a good deal for a zero-risk return? The closest equivalent today (Aug 24, 2012) is that you can earn about 2.68% on 10-year Treasury bonds. Unless you have a really, really good interest rate (or the interest is tax-deductible), paying off your loan will offer an excellent risk-adjusted return, so you should do that. The \"\"really good\"\" interest rate is typically a mortgage or student loans. (Mortgage interest is also tax-deductible, at least for now.) In those cases, you're not going to gain nearly as much by paying the loan early, and the loan is large - larger than the amount you want to have in risk-free investments. You want to invest for returns, as well! So you can save for retirement instead (in a 401(k) or similar account) and take on a little risk.\""
},
{
"docid": "247822",
"title": "",
"text": "\"This is the best tl;dr I could make, [original](https://www.theguardian.com/environment/2017/jun/29/climate-change-income-inequality-environment) reduced by 88%. (I'm a bot) ***** > Climate change is likely to worsen existing inequalities in the US, with the poorest areas of the country poised to lose as much as 20% of their income by the end of the century if greenhouse gases are not significantly reduced. > The new study, conducted by a trio of US universities and published in Science, warns that unchecked climate change will prove costly for the whole country. > Donald Trump hasn&#039;t acknowledged an economic cost to climate change and has instead pulled the US out of the Paris climate agreement and started dismantling various environmental regulations with the stated goal of boosting growth. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6kcl4f/new_research_shows_that_by_2100_the_economic_loss/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~155623 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **Climate**^#1 **temperature**^#2 **change**^#3 **country**^#4 **research**^#5\""
},
{
"docid": "518624",
"title": "",
"text": "\"The other answer has mentioned \"\"factual resident\"\", and you have raised the existence of a U.S./Canada tax treaty in your comment, and provided a link to a page about determining residency. I'd like to highlight part of the first link: You are a factual resident of Canada for tax purposes if you keep significant residential ties in Canada while living or travelling outside the country. The term factual resident means that, although you left Canada, you are still considered to be a resident of Canada for income tax purposes. Notes If you have established ties in a country that Canada has a tax treaty with and you are considered to be a resident of that country, but you are otherwise a factual resident of Canada, meaning you maintain significant residential ties with Canada, you may be considered a deemed non-resident of Canada for tax purposes. [...] I'll emphasize that \"\"considered to be a resident of Canada for income tax purposes\"\" means you do need to file Canadian income tax returns. The Notes section does indicate the potential treaty exemption that you mentioned, but it is only a potential exemption. Note the emphasis (theirs, not mine) on the word \"\"may\"\" in the last paragraph above. Please don't assume \"\"may\"\" is necessarily favorable with respect to your situation. The other side of the \"\"may\"\" coin is \"\"may not\"\". The Determining your residency status page you mentioned in your comment says this: If you want the Canada Revenue Agency's opinion on your residency status, complete either Form NR74, Determination of Residency Status (Entering Canada) or Form NR73, Determination of Residency Status (Leaving Canada), whichever applies, and send it to the International and Ottawa Tax Services Office. To get the most accurate opinion, provide as many details as possible on your form. So, given your ties to Canada, I would suggest that until and unless you have obtained an opinion from the Canada Revenue Agency on your tax status, you would be making a potentially unsafe assumption if you yourself elect not to file your Canadian income tax returns based on your own determination. You could end up liable for penalties and interest if you don't file while you are outside of Canada. Tax residency in Canada is not a simple topic. For instances, let's have a look at S5-F1-C1, Determining an Individual’s Residence Status. It's a long page, but here's one interesting piece: 1.44 The Courts have stated that holders of a United States Permanent Residence Card (otherwise referred to as a Green Card) are considered to be resident in the United States for purposes of paragraph 1 of the Residence article of the Canada-U.S. Tax Convention. For further information, see the Federal Court of Appeal's comments in Allchin v R, 2004 FCA 206, 2004 DTC 6468. [...] ... whereas you are in the U.S. on a TN visa, intended to be temporary. So you wouldn't be exempt just on the basis of your visa and the existence of the treaty. The CRA would look at other circumstances. Consider the \"\"Centre of vital interests test\"\": Centre of vital interests test [...] “If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.” [emphasis on last sentence is mine] Anyway, I'm acquainted with somebody who left Canada for a few years to work abroad. They assumed that living in the other country for that length of time (>2 years) meant they were non-resident here and so did not have to file. Unfortunately, upon returning to Canada, the CRA deemed them to have been resident all that time based on significant ties maintained, and they subsequently owed many thousands of dollars in back taxes, penalties, and interest. If it were me in a similar situation, I would err on the side of caution and continue to file Canadian income taxes until I got a determination I could count on from the people that make the rules.\""
},
{
"docid": "452837",
"title": "",
"text": "\"My grandma left a 50K inheritance You don't make clear where in the inheritance process you are. I actually know of one case where the executor (a family member, not a professional) distributed the inheritance before paying the estate taxes. Long story short, the heirs had to pay back part of the inheritance. So the first thing that I would do is verify that the estate is closed and all the taxes paid. If the executor is a professional, just call and ask. If a family member, you may want to approach it more obliquely. Or not. The important thing is not to start spending that money until you're sure that you have it. One good thing is that my husband is in grad school and will be done in 2019 and will then make about 75K/yr with his degree profession. Be a bit careful about relying on this. Outside the student loans, you should build other expenses around the assumption that he won't find a job immediately after grad school. For example, we could be in a recession in 2019. We'll be about due by then. Paying off the $5k \"\"other debt\"\" is probably a no brainer. Chances are that you're paying double-digit interest. Just kill it. Unless the car loan is zero-interest, you probably want to get rid of that loan too. I would tend to agree that the car seems expensive for your income, but I'm not sure that the amount that you could recover by selling it justifies the loss of value. Hopefully it's in good shape and will last for years without significant maintenance. Consider putting $2k (your monthly income) in your checking account. Instead of paying for things paycheck-to-paycheck, this should allow you to buy things on schedule, without having to wait for the money to appear in your account. Put the remainder into an emergency account. Set aside $12k (50% of your annual income/expenses) for real emergencies like a medical emergency or job loss. The other $16k you can use the same way you use the $5k other debt borrowing now, for small emergencies. E.g. a car repair. Make a budget and stick to it. The elimination of the car loan should free up enough monthly income to support a reasonable budget. If it seems like it isn't, then you are spending too much money for your income. Don't forget to explicitly budget for entertainment and vacations. It's easy to overspend there. If you don't make a budget, you'll just find yourself back to your paycheck-to-paycheck existence. That sounds like it is frustrating for you. Budget so that you know how much money you really need to live.\""
},
{
"docid": "507871",
"title": "",
"text": "PSB taxed at higher rates. PSB is taxed at 39.5% in Ontario, as the article mentioned. But if you pay all the net income to yourself as salary, you expense it and zero it out on the corporate level. So who cares what tax rate it is if the taxable income is zero? No-one. Same goes for the US, by the way. Personal Service Corporations are taxed at flat 35% Federal tax rate. But if you pour all the income into your salary - its moot, because there's no net income to pay tax of. If it's too complicated to figure out, maybe it would be wise to hire a tax accountant to provide counsel to you before you make decisions about your business."
}
] |
8275 | Buy/Selling prices at the stock exchange represent someone Selling/Buying at that price? | [
{
"docid": "294867",
"title": "",
"text": "You don't see Buying and Selling. You see Bid and Ask. Best Bid--Highest Price someone is willing to pay to buy a stock. Best Ask - Lowest price someone is willing to accept to sell a stock. As for your second question, if you can look up Accumulation/Distribution Algorithm and Iceberg Order, you will get basic idea."
}
] | [
{
"docid": "115652",
"title": "",
"text": "\"Of the two, an option is a more reliable but more expensive means to get rid of a stock. As sdg said, a put option is basically an insurance policy on the stock; you pay a certain price for the contract itself, which locks in a sale price up to a particular future date. If the stock depreciates significantly, you exercise the option and get the contract price; otherwise you let the contract expire and keep the stock. Long-term, these are bad bets as each expired contract will offset earnings, but if you foresee a near-term steep drop in the stock price but aren't quite sure, a put option is good peace of mind. A sell stop order is generally cheaper, but less reliable. You set a trigger price, say a loss of 10% of the stock's current value. If that threshold is reached, the stop order becomes a sell order and the broker will sell the stock on the market, take his commission (or a fixed price depending on your broker) and you get the rest. However, there has to be a buyer willing to buy at that price at the moment the trigger fires; if a stock has lost 10% rapidly, it's probably on the way down hard, and the order might not complete until you realize a 12% loss, or a 15%, or even 20%. A sell stop limit (a combination stop order and limit order) allows you to say that you want to sell if the stock drops to $X, but not sell if it drops below $X-Y. This allows you to limit realized losses by determining a band within which it should be sold, and not to sell above or below that price. These are cheaper because you only pay for the order if it is executed successfully; if you never need it, it's free (or very cheap; some brokers will charge a token service fee to maintain a stop or stop limit). However, if the price drops very quickly or you specify too narrow a band, the stock can drop through that band too quickly to execute the sell order and you end up with a severely depreciated stock and an unexercised order. This can happen if the company whose stock you own buys another company; VERY quickly, both stocks will adjust, the buying company will often plummet inside a few seconds after news of the merger is announced, based on the steep drop in working capital and/or the infusion of a large amount of new stock in the buying company to cover the equity of the purchased company. You end up with devalued stock and a worthless option (but one company buying another is not usually reason to sell; if the purchase is a good idea, their stock will recover). Another option which may be useful to you is a swaption; this basically amounts to buying a put option on one financial instrument and a call on another, rolled into one option contract specifying a swap. This allows you to pick something you think would rise if your stock fell and exchange your stock for it at your option. For example, say the stock on which you buy this swaption is an airline stock, and you contract the option to swap for oil. If oil surges, the airline's stock will tank sharply, and you win both ways (avoiding loss and realizing a gain). You'd also win if either half of this option realized a gain over the option price; oil could surge or the airline could tank and you could win. You could even do this \"\"naked\"\" since its your option; if the airline's stock tanks, you buy it at the crashed price to exercise the option and then do so. The downside is a higher option cost; the seller will be no fool, so if your position appears to be likely, anyone who'd bet against you by selling you this option will want a pretty high return.\""
},
{
"docid": "151132",
"title": "",
"text": "\"First, keep in mind that there are generally 2 ways to buy a corporation's shares: You can buy a share directly from the corporation. This does not happen often; it usually happens at the Initial Public Offering [the first time the company becomes \"\"public\"\" where anyone with access to the stock exchange can become a part-owner], plus maybe a few more times during the corporations existence. In this case, the corporation is offering new ownership in exchange for a price set the corporation (or a broker hired by the corporation). The price used for a public offering is the highest amount that the company believes it can get - this is a very complicated field, and involves many different methods of evaluating what the company should be worth. If the company sets the price too low, then they have missed out on possible value which would be earned by the previous, private shareholders (they would have gotten the same share % of a corporation which would now have more cash to spend, because of increased money paid by new shareholders). If the company sets the price too high, then the share subscription might only be partially filled, so there might not be enough cash to do what the company wanted. You can buy a share from another shareholder. This is more common - when you see the company's share price on the stock exchange, it is this type of transaction - buying out other current shareholders. The price here is simply set based on what current owners are willing to sell at. The \"\"Bid Price\"\" listed by an exchange is the current highest bid that a purchaser is offering for a single share. The \"\"Ask Price\"\" is the current lowest offer that a seller is offering to sell a single share they currently own. When the bid price = the ask price, a share transaction happens, and the most recent stock price changes.\""
},
{
"docid": "525231",
"title": "",
"text": "\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,[email protected]), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\""
},
{
"docid": "78053",
"title": "",
"text": "\"Joke warning: These days, it seems that rogue trading programs are the big market makers (this concludes the joke) Historically, exchange members were market makers. One or more members guaranteed a market in a particular stock, and would buy whatever you wanted to sell (or vice-versa). In a balanced market -- one where there were an equal number of buyers and sellers -- the spread was indeed profit for them. To make this work, market makers need an enormous amount of liquidity (ability to hold an inventory of stocks) to deal with temporary imbalances. And a day like October 29, 1929, can make that liquidity evaporate. I say \"\"historically,\"\" because I don't think that any stock market works this way today (I was discussing this very topic with a colleague last week, went to Wikipedia to look at the structure of the NYSE, and saw no mention of exchange members as market makers -- in fact, it appears that the NYSE is no longer a member-based exchange). Instead, today most (all?) trading happens on \"\"electronic crossing networks,\"\" where the spread is simply the difference between the highest bid and lowest ask. In a liquid stock, there will be hundreds if not thousands of orders clustered around the \"\"current\"\" price, usually diverging by fractions of a cent. In an illiquid stock, there may be a spread, but eventually one bid will move up or one ask will move down (or new bids will come in). You could claim that an entity with a large block of stock to move takes the role of market maker, but it doesn't have the same meaning as an exchange market maker. Since there's no entity between the bidder and asker, there's no profit in the spread, just a fee taken by the ECN. Edit: I think you have a misconception of what the \"\"spread\"\" is. It's simply the difference between the highest bid and the lowest offer. At the instant a trade takes place, the spread is 0: the highest bid equals the lowest offer, and the bidder and seller exchange shares for money. As soon as that trade is completed, the spread re-appears. The only way that a trade happens is if buyer and seller agree on price. The traditional market maker is simply an entity that has the ability to buy or sell an effectively unlimited number of shares. However, if the market maker sets a price and there are no buyers, then no trade takes place. And if there's another entity willing to sell shares below the market maker's price, then the buyers will go to that entity unless the market's rules forbid it.\""
},
{
"docid": "10726",
"title": "",
"text": "Is my observation that the currency exchange market is indirect correct? Is there a particular reason for this? Why isn't currency traded like stocks? I guess yes. In Stocks its pretty simple where the stock is held with a depository. Hence listing matching is simple and the exchange of money is via local clearing. Currency markets are more global and there is no one place where trades happen. There are multiple places where it happens and is loosely called Fx market place. Building a matching engine is also complex and confusing. If we go with your example of currency pair, matches would be difficult. Say; If we were to say all transactions happen in USD say, and list every currency as item to be purchased or sold. I could put a trade Sell Trade for Quantity 100 Stock Code EUR at Price 1.13 [Price in USD]. So there has to be a buy at a price and we can match. Similarly we would have Stock Code for GBP, AUD, JPY, etc. Since not every thing would be USD based, say I need to convert GBP to EUR, I would have to have a different set of Base currency say GBP. So here the quantity would All currencies except GBP which would be price. Even then we have issues, someone using USD as base currency has quoted for Stock GBP. While someone else using GBP has quoted for Stock USD. Plus moving money internationally is expensive and doing this for small trades removes the advantages. The kind of guarantees required are difficult to achieve without established correspondence bank relationships. One heavily traded currency pair, the exchange for funds happens via CLS Bank."
},
{
"docid": "529001",
"title": "",
"text": "It doesn't matter which exchange a share was purchased through (or if it was even purchased on an exchange at all--physical share certificates can be bought and sold outside of any exchange). A share is a share, and any share available for purchase in New York is available to be purchased in London. Buying all of a company's stock is not something that can generally be done through the stock market. The practical way to accomplish buying a company out is to purchase a controlling interest, or enough shares to have enough votes to bind the board to a specific course of action. Then vote to sell all outstanding shares to another company at a particular fixed price per share. Market capitalization is an inaccurate measure of the size of a company in the first place, but if you want to quantify it, you can take the number of outstanding shares (anywhere and everywhere) and multiply them by the price on any of the exchanges that sell it. That will give you the market capitalization in the currency that is used by whatever exchange you chose."
},
{
"docid": "472537",
"title": "",
"text": "The price of a share has two components: Bid: The highest price that someone who wants to buy shares is willing to pay for them. Ask: The lowest price that someone who has a share is willing to sell it for. The ask is always higher than the bid, since if they were equal the buyer and seller would have a deal, make a transaction, and that repeats until they are not equal. For stock with high volume, there is usually a very small difference between the bid and ask, but a stock with lower volume could have a major difference. When you say that the share price is $100, that could mean different things. You could be talking about the price that the shares sold for in the most recent transaction (and that might not even be between the current bid and ask), or you could be talking about any of the bid, the ask, or some value in between them. If you have shares that you are interested in selling, then the bid is what you could immediately sell a share for. If you sell a share for $100, that means someone was willing to pay you $100 for it. If after buying it, they still want to buy more for $100 each, or someone else does, then the bid is still $100, and you haven't changed the price. If no one else is willing to pay more than $90 for a share, then the price would drop to $90 next time a transaction takes place and thats what you would be able to immediately sell the next share for."
},
{
"docid": "166854",
"title": "",
"text": "This all happens at once and quickly. Not in order. So the HFT floods the exchange with orders. This is independent of anything. They would be doing this no matter what. Simply in anticipation of finding someone who will want what they're trying to buy. They then notice someone wants what they have a buy order for. They, at the same time, cancel all orders that don't fit this criteria. At the same time, they're testing this guy to see what his price is. So while they're testing this guy they're cancelling all orders that are above his strike price for that stock. They let the right order go through, for a lower price. If they can't get a lower price, they just forget it. However, they probably can because they were in line first. They're buying before this guy and AFTER they know what he wants to pay. Then, they sell it to him."
},
{
"docid": "253926",
"title": "",
"text": "\"The dow jones is an index of 30 stocks that's weighted based on the price per share of these stocks. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Prices are the result of supply and demand. Demand is defined as simply as \"\"I want this badly enough to pay cash for it\"\", \"\"supply is \"\"I own this and don't want to own it, therefore I'll sell it\"\" When investors go about deciding they'd like to buy some stock from people who own it and are wanting to sell it, a market is generated and a price both are willing to sell/buy at is found. If the price is too high/low, you won't sell or buy. The price has to be \"\"right\"\" based on your own personal valuation. Since these trades are done through an exchange and are so common, literally millions of shares are traded per day, you get the best price available at that moment for your shares. If person A is only willing to give you 100 dollars and person B is willing to give you 100.01, screw person A. I'm selling shares to person B. When this done on a macro-level (millions of shares traded per day) the exchanges will track and make public the \"\"price movement\"\" of what the market is willing to give for each and every publicly traded stock. TLDR: SUPPLY AND DEMAND. DOW USES THEIR OWN METHODS.\""
},
{
"docid": "69790",
"title": "",
"text": "Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, short the stock, as its price will go down as future earnings fail to materialize. The current price represents the price at which just as much pressure pushes the price up as down. That means people agree it's reasonably approximating the expected future value. Imagine if I needed money now and sold at auction whatever salary I make in 2019. How much will I make in 2019? I might be disabled. I might be a high earner. Who knows? But if I auction off those earnings, whatever price it sells for represents everyone's best estimate of that value. But each participant in the auction can estimate that value however they want. If you want to know what something is worth, you see what you can sell it for."
},
{
"docid": "538915",
"title": "",
"text": "\"Market price is just the bid or offer price of the last sell or buy order in the market. The price that you actually receive or pay will be the price that the person buying the stock off you or selling it to you will accept. If there are no other participants in the market to make up the other side of your order (i.e. to buy off you if you are selling or to sell to you if you are buying) the exchange pays large banks to be \"\"market makers\"\"; they fulfil your order using stocks that they don't want to either buy or sell just so that you get your order filled. When you place an order outside of market hours the order is kept on the broker's order books until the market reopens and then, at market opening time there is an opening \"\"auction\"\" at which orders are matched to opposing orders (i.e. each buy order will be matched with a sell) at a price determined by auction. You will not know what price the order was filled at until it has been filled. If you want to guarantee a price you can do so by placing a limit order that says not to pay more than a certain price for any unit of the stock.\""
},
{
"docid": "123911",
"title": "",
"text": "\"Are there any known protections against obvious typos in the stock systems themselves? Do you know of stock exchanges which flags or rejects obviously wrong buy or sell orders (e.g., selling something for 0.1% of its highest buy order, or buying something at 1000 times the current sell order)? Does the stock exchange \"\"community\"\" have some sort of \"\"rules of conduct\"\" for this? Yes and No. Most Stock Exchanges for certain set of stocks have circuit breakers that are more to restrict panic selling or artificial drop in prices. The kind of controls you are mentioning can't be put on individual trades; as stock exchanges are meant to guarantee / provide neutral ground for the price to be determined by demand / supply. There are quite a few companies that have quickly lost value and become worthless with a day or two. Hence it becomes difficult to determine if something is error by an individual or not. Once an order is submitted to the exchange, it can't afford the to and fro to verify ... as even few seconds make a different in volatile markets. The kind of errors reported are difficult for an individual to make as he would not own the kind of stocks and the stock broker will stop the trade from being placed.\""
},
{
"docid": "203040",
"title": "",
"text": "\"SELL -10 VERTICAL $IYR 100 AUG 09 32/34 CALL @.80 LMT 1) we are talking about options, these are a derivative product whose price is based on 6 variables. 2) options allow you to create risk out of thin air, and those risks come with shapes, and the only limit is your imagination (and how much your margin/borrowing costs are). Whereas a simple asset like the shares for $IYR only has a linear risk profile. stock goes up, you make money, stock goes down, you lose money, and that risk graph looks linear. a \"\"vertical\"\" has a nonlinear risk profile 3) a vertical is a type of \"\"spread\"\" that requires holding options that expire at the same time, but at different strike prices. 3b) This particular KIND of vertical is called a bear call spread (BCS). Since you are bearish (this makes money if the stock goes down, or stays in a very specific range) but are using calls which are a bullish options product. 4) -10 means you are selling the vertical. +10 means you are buying the vertical. A \"\"long\"\" vertical is initiated by buying an option closer to the money, and selling an option at a higher strike price. This would be +X A \"\"short\"\" vertical is initiated by selling an option closer to the money and buying an option at a higher strike price. The quantity would be -X 5) 32/34 stands for the strike prices. so you would be selling 10 call options at the 32 strike price, and buying 10 call options at the 34 strike price, both options expire in August 6) LMT stands for limit order, and $.80 is the limit order price that is desired. OPENING a vertical spread requires knowledge of options as well as how to send orders. MANAGING a vertical requires even more finesse, as you can \"\"leg-in\"\" and \"\"leg-out\"\" of spreads, without sending the entire order to the exchange floor at once. There is much to learn.\""
},
{
"docid": "215118",
"title": "",
"text": "\"Bull means the investor is betting on a rising market. Puts are a type of stock option where the seller of a put option promises to buy 100 shares of stock from the buyer of the put option at a pre-agreed price called the strike price on any day before expiration day. The buyer of the put option does not have to sell (it is optional, thats why it is called buying an option). However, the seller of the put is required to make good on their promise to the buyer. The broker can require the seller of the put option to have a deposit, called margin, to help make sure that they can make good on the promise. Profit... The buyer can profit from the put option if the stock price moves down substantially. The buyer of the put option does not need to own the stock, he can sell the option to someone else. If the buyer of the put option also owns the stock, the put option can be thought of like an insurance policy on the value of the stock. The seller of the put option profits if the stock price stays the same or rises. Basically, the seller comes out best if they can sell put options that no one ends up using by expiration day. A spread is an investment consisting of buying one option and selling another. Let's put bull and put and spread together with an example from Apple. So, if you believed Apple Inc. AAPL (currently 595.32) was going up or staying the same through JAN you could sell the 600 JAN put and buy the 550 put. If the price rises beyond 600, your profit would be the difference in price of the puts. Let's explore this a little deeper (prices from google finance 31 Oct 2012): Worst Case: AAPL drops below 550. The bull put spread investor owes (600-550)x100 shares = $5000 in JAN but received $2,035 for taking this risk. EDIT 2016: The \"\"worst case\"\" was the outcome in this example, the AAPL stock price on options expiry Jan 18, 2013 was about $500/share. Net profit = $2,035 - $5,000 = -$2965 = LOSS of $2965 Best Case: AAPL stays above 600 on expiration day in JAN. Net Profit = $2,035 - 0 = $2035 Break Even: If AAPL drops to 579.65, the value of the 600 JAN AAPL put sold will equal the $2,035 collected and the bull put spread investor will break even. Commissions have been ignored in this example.\""
},
{
"docid": "202913",
"title": "",
"text": "Graphs are nothing but a representation of data. Every time a trade is made, a point is plotted on the graph. After points are plotted, they are joined in order to represent the data in a graphical format. Think about it this way. 1.) Walmart shuts at 12 AM. 2.)Walmart is selling almonds at $10 a pound. 3.) Walmart says that the price is going to reduce to $9 effective tomorrow. 4.) You are inside the store buying almonds at 11:59 PM. 5.) Till you make your way up to the counter, it is already 12:01 AM, so the store is technically shut. 6.) However, they allow you to purchase the almonds since you were already in there. 7.) You purchase the almonds at $9 since the day has changed. 8.) So you have made a trade and it will reflect as a point on the graph. 9.) When those points are joined, the curves on the graph will be created. 10.) The data source is Walmart's system as it reflects the sale to you. ( In your case the NYSE exchange records this trade made). Buying a stock is just like buying almonds. There has to be a buyer. There has to be a seller. There has to be a price to which both agree. As soon as all these conditions are met, and the trade is made, it is reflected on the graph. The only difference between the graphs from 9 AM-4 PM, and 4 PM-9 AM is the time. The trade has happened regardless and NYSE(Or any other stock exchange) has recorded it! The graph is just made from that data. Cheers."
},
{
"docid": "209209",
"title": "",
"text": "\"Just read the book Flash Boys by Michael Lewis. It describes this process in detail, albeit a bit more dramatically than it has to. Basically what \"\"HFTs\"\" (high frequency traders) do is they set up their line to the exchange so its microseconds faster than everyone else. Then they test out the market with tiny orders, seeing how fast it's getting filled - if these are getting filled immediately, it probably means there's a big order coming in from an investor. So the algorithm - and it's all algo-based obviously because no human can remotely hope to catch this - will detect that as soon as there's a spike in volume, it will buy all of the volume at the current price, and sell it back for higher, forcing the big investor to take on higher prices. Another case is that some HFTs can basically buy the entire trade book from an exchange like Nasdaq. So every time someone places a market order for 200 shares of a 6.5 stock, the HFT will see it, buy up all the current stock from say 6.5-6.6 and sell it back at 6.7. Not rocket science if you already get info about the trade coming in, in fact this is basically market making but performed by an \"\"evil HFT\"\" instead of a \"\"trustworthy bank.\"\" But honestly there are a lot more ways to make money from HFT than front-running, which isn't even possible anymore because exchanges no longer sell their books to HFTs.\""
},
{
"docid": "133760",
"title": "",
"text": "\"Buying pressure is when there are more buy orders than sell orders outstanding. Just because someone wants to buy a stock doesn't mean there's a seller ready to fill that order. When there's buying pressure, stock prices rise. When there's selling pressure, stock prices fall. There can be high volume where buying and selling are roughly equal, in which case share prices wouldn't move much. The market makers who actually fill buy and sell orders for stock will raise share prices in the face of buying pressure and lower them in the face of selling pressure. That's because they get to keep the margin between what they bought shares from a seller for and what they can sell them to a new buyer for. Here's an explanation from InvestorPlace.com about \"\"buying pressure\"\": Buying pressure can basically be defined as increasingly higher demand for a particular stock's shares. This demand for shares exceeds the supply and causes the price to rise. ... The strength or weakness of a stock determines how much buying or selling interest will be required to break support and resistance areas. I hope this helps!\""
},
{
"docid": "232261",
"title": "",
"text": "\"When you buy a put on a stock, you buy the right to sell the stock at fixed price, F, that his usually different from the market price, M. You paid a price, P, for the put. Your potential profit, going forward, is represented by the DIFFERENCE you get to collect between your fixed price F, and that market price M, plus the price you paid for the put, or F-(M+P). (This assumes that F>(M+P). P is fixed, but the smaller M gets, the larger the term F-(M+P), and therefore the higher your potential profit from owning the put. So when M \"\"tanks,\"\" the put goes higher. The $395 put is already in the money. If it were settled today, the value would be $395-$376 or $19. This, minus the cost of the put itself, represents your profit. The $365 put is \"\"out of the money.\"\" The stock has to fall $11 more before the put is exercised. But if the stock went down 8 points today, that is less than the $19 difference at the start of the day. Because there is time between now and October, there is a chance for the stock to go down further, thereby going into the money. The current value of the put is represented by this \"\"chance.\"\" Obviously, the chances of the stock going down $11 more (from today) is greater than the chance of it going down $19 more. On the other hand, the closer it gets to the expiration date, the less an out of the money put is worth. It's a race between the stock's fall, and the time to expiration.\""
},
{
"docid": "414036",
"title": "",
"text": "\"During market hours, there are a lot of dealers offering to buy and sell all exchange traded stocks. Dealers don't actually care about the company's fundamentals and they set their prices purely based on order flow. If more people start to buy than sell, the dealer notices his inventory going down and starts upping the price (both his bid and ask). There are also traders who may not be \"\"dealers\"\", but are willing to sell if the price goes high enough or buy if the price goes low enough. This keeps the prices humming along smoothly. During normal trading hours, if you buy something and turn around and sell it two minutes later, you'll probably be losing a couple cents per share. Outside normal market hours, the dealers who continue to have a bid and ask listed know that they don't have access to good price information -- there isn't a liquid market of continuous buying and selling for the dealer to set prices he considers safe. So what does he do? He widens the spread. He doesn't know what the market will open tomorrow at and doesn't know if he'll be able to react quickly to news. So instead of bidding $34.48 and offering at $34.52, he'll move that out to $33 and $36. The dealer still makes money sometimes off this because maybe some trader realized that he has options expiring tomorrow, or a short position that he's going to get a margin call on, or some kind of event that pretty much forces him to trade. Or maybe he's just panicking and overreacting to some news. So why not trade after hours? Because there's no liquidity, and trading when there's no liquidity costs you a lot.\""
}
] |
8296 | Can the beta of a stock be used as a lagging indicator for the stock w.r.t the market | [
{
"docid": "78675",
"title": "",
"text": "\"Just to be clear to start, beta is a statistical property. So if your beta is 0.8 over a period of time. Stock X moved on average 0.8 for a point move in the index. We might hope this property is persistent and it seems to be fairly persistent (predictable) but it doesn't have to be. Also it is important to note this is not a lag in time. Beta is a measure of the average size of a move in the stock at the same time as a move in the index. In your example both the stock and index are measured at end of day. You can say that the stock \"\"lags\"\" behind the index because it doesn't grow as quickly as the market when the market is growing, but this is not a lag in time just a lag in magnitude. People do occasionally calculate betas between a stock and lagged in time market prices, but this is not the commonly used meaning of beta. This might actually be a more useful measure as then you could bet on the future of the stock given what happened today in the market, but these \"\"betas\"\" tend to be much more unstable than the synchronized version and hard to trade on. When you calculated beta you choose a time scale, in this case daily. So if your calculation is on a day-to-day basis then you have only tested the relationship on a day-to-day basis not, for instance, on a week-to-week basis. Now day-to-day and week-to-week betas are often related and are generally reasonably close but they do not have to be. There can be longer term effects only picked up on the longer scale. Stock X could day-to-day with a (average) beta of 1 to the stock market, but could have even a negative beta year-to-year with the market if the stock is counter-cyclical to longer scale trends on the market. So beta can change with the time scale used in the calculation.\""
}
] | [
{
"docid": "79998",
"title": "",
"text": "The beta of a stock can be interpreted as the average relative movement of a stock with respect to the movement of a market index. In your case, the stock will move on average by 0.8. Thus over a longer time horizon, not on a daily, weekly basis."
},
{
"docid": "115207",
"title": "",
"text": "For the constant growth problem, I don't see why the answer would be anything other than the stock price grown for 3 years at the cost of equity determined from CAPM. Someone can correct me if the dividend is relevant. So: rs = rf + beta x (market premium) rs = 0.046 + 0.9 x (0.06) = 0.10 price now = $40.00 price after 3 years' growth = $40.00 x (1+0.10)^3 = $53.24 EDIT: https://www.quora.com/Why-are-dividend-yields-factored-into-beta two conflicting answers so you'll just have to figure it out"
},
{
"docid": "577585",
"title": "",
"text": "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."
},
{
"docid": "304398",
"title": "",
"text": "Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can backfire in some cases. In others, there can be a lot of buy and hold if one finds an index fund to hold forever which depending on the strategy is possible. Returns can vary widely as an index can be everything from buying gold stocks in Russia to investing in short-term Treasuries as there are many different indices as any given market can have an index which could be stocks, bonds, a combination of the two or something else in some cases so please consider asset allocation, types of accounts, risk tolerance and time horizon in making decisions or consider using a financial planner to assist in drawing up a plan with allocations and how frequently you want to rebalance as my suggestion here."
},
{
"docid": "61962",
"title": "",
"text": "Investopedia has this note where you'd want the contrapositive point: The interest rate, commonly bandied about by the media, has a wide and varied impact upon the economy. When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment. As for evidence, I'd question that anyone could really take out all the other possible economic influences to prove a direct co-relation between the Federal Funds rate and the stock market returns. For example, of the dozens of indices that are stock related, which ones would you want that evidence: Total market, large-cap, small-cap, value stocks, growth stocks, industrials, tech, utilities, REITs, etc. This is without considering other possible investment choices such as direct Real Estate holdings, compared to REITs that is, precious metals and collectibles that could also be used."
},
{
"docid": "3118",
"title": "",
"text": "Dividends are normally paid in cash, so don't generally affect your portfolio aside from a slight increase to 'cash'. You get a check for them, or your broker would deposit the funds into a money-market account for you. There is sometimes an option to re-invest dividends, See Westyfresh's answer regarding Dividend Re-Investment Plans. As Tom Au described, the dividends are set by the board of directors and announced. Also as he indicated just before the 'record' date, a stock which pays dividends is worth slightly more (reflecting the value of the dividend that will be paid to anyone holding the stock on the record date) and goes down by the dividend amount immediately after that date (since you'd now have to hold the stock till the next record date to get a dividend) In general unless there's a big change in the landscape (such as in late 2008) most companies pay out about the same dividend each time, and changes to this are sometimes seen by some as 'indicators' of company health and such news can result in movement in the stock price. When you look at a basic quote on a ticker symbol there is usually a line for Div/yeild which gives the amount of dividend paid per share, and the relative yeild (as a percentage of the stock price). If a company has been paying dividends, this field will have values in it, if a company does not pay a dividend it will be blank or say NA (depending on where you get the quote). This is the easiest way to see if a company pays a dividend or not. for example if you look at this quote for Google, you can see it pays no dividend Now, in terms of telling when and how much of a dividend has been paid, most financial sites have the option when viewing a stock chart to show the dividend payments. If you expand the chart to show at least a year, you can see when and how much was paid in terms of dividends. For example you can see from this chart that MSFT pays dividends once a quarter, and used to pay out 13 cents, but recently changed to 16 cents. if you were to float your mouse over one of those icons it would also give the date the dividend was paid."
},
{
"docid": "573612",
"title": "",
"text": "\"I reread your question. You are not asking about the validity of selling a particular stock after a bit of an increase but a group of stocks. We don't know how many. This is the S&P for the past 12 months. Trading at 1025-1200 or so means that 80-100 points is an 8% move. I count 4 such moves during this time. The philosophy of \"\"you can't go wrong taking a gain\"\" is tough for me to grasp as it offers no advice on when to get (back) in. Studies by firms such as Dalbar (you can google for some of their public material) show data that supports the fact that average investors lag the market by a huge amount. 20 years ending 12/31/08 the S&P returned 8.35%, investor equity returns showed 1.87%. I can only conclude that this is a result of buying high and selling low, not staying the course. The data also leads me to believe the best advice one can give to people we meet in these circumstances is to invest in index funds, keeping your expenses low as you can. I've said this since read Jack Bogle decades ago, and this advice would have yielded about 8.25% over the 20 years, beating the average investor by far, by guaranteeing lagging the average by 10 basis points or so. A summary of the more extensive report citing the numbers I referenced is available for down load - QAIB 2015 - Quantitative Analysis of Investor Behavior. It's quite an eye-opener and a worthy read. (The original report was dated 2009, but the link broke, so I've updated to the latest report, 2015)\""
},
{
"docid": "577062",
"title": "",
"text": "Historical volatility of a stock is going to be based on past performance, basically its current trend. That can be useful, but really is no indication of how it will perform in the future. Especially with a big swing in the market. Now if you're talking about implied volatility (IV) of an options contract, that's a little different. IV is derived from an option’s price and shows what the market “implies” about the stock’s volatility in the future. Thus it is based on the actions of active traders and market makers. So, it gives you a bit more insight into what's going on, but at times has less to do with fundamentals. I guess a good way to think of IV based on options contracts is as an educated opinion, of the market as a whole, with regards to how much that stock could likely move over a period of time (options expiration). Also note that IV represents the potential for a stock to move, but it does not forecast direction. I don't know of any studies off the top of my head, but I'm sure there have been plenty."
},
{
"docid": "433023",
"title": "",
"text": "Saxo Bank offers direct access to Athens Stock Exchange. Interactive Brokers is your next best bet, and as you probably already noticed, they do not have a free platform. They are open to US and non-US citizens. Although they do not currently have direct exposure to individual companies on the Athens Stock Exchange, the various european exchanges they do provide direct market access for will give a lot of exposure. There are a few Greek companies that trade on non-Greek stock exchanges, if you want exposure. There are also Greek ETFs which bundle several companies together or try to replicate Greek company indices."
},
{
"docid": "151104",
"title": "",
"text": "Lipper publishes data on the flow of funds in / out of stock and bond funds: http://www.lipperusfundflows.com Robert Shiller works on stock market confidence indices that are published by Yale: http://som.yale.edu/faculty-research/our-centers-initiatives/international-center-finance/data/stock-market-confidence"
},
{
"docid": "489933",
"title": "",
"text": "\"I would have to disagree with the other responders. In technical analysis of stock charts, various short and long term moving averages are used to give an indication of the trend of the stock in the short and long term, as compared to the current price. I would prefer to use the term moving average (MA) rather than average as the MA is recalculated every day (or at appropriate frequencies for your data) on the period you are using. I would also expand on the term \"\"moving average\"\". There are two that are commonly used Going back to the question, of the value of this number, For example if the current price is above the 200 day EWMA and also above the 30 day EWMA, then the stock is broadly trending upwards. Conversely if current price is below the 200 day EWMA and also below the 30 day EWMA, then the stock is broadly trending downwards. These numbers are chosen on the basis of the market you are trading in, the volatility and other factors. For another example of how a number of moving averages are used together, please have a read of Daryl Guppy's Multiple Moving Average, though this does not use moving averages as large as 200 days.\""
},
{
"docid": "340828",
"title": "",
"text": "REIT is to property as Mutual Fund is to stock. In others words, a REIT spreads your risk out over a greater number of properties, making the return safer, at the expense of both upside and downside risk. On average, both would average out to be the same. That said, you have a much wider range of outcomes when investing in a single property. As with stocks, over the long haul, unless you think you can somehow beat the market, divirsification is usually considered the better move. Technically, your ROI is the same, but your beta is much better in a REIT."
},
{
"docid": "597679",
"title": "",
"text": "\"Leverage here is referring to \"\"financial leverage\"\". This is the practice of \"\"levering\"\" [ie increasing, like the use of a lever to increase the amount of weight you can lift] the value of your investment by taking on debt. For example: if you have 100k in cash, you can buy a 100k rental property. Assume the property makes 10k a year, net of expenses [10%]. Now assume the bank will also give you a 100k mortgage, at 3%. You could take the mortgage, plus your cash, and buy a 200k rental property. This would earn you 20k from the rental property, less 3k a year in interest costs [the 3%]. Your total income would be 17k, and since you only used 100k of your own money, your rate of return would now be 17% instead of 10%. This is financial leveraging. Note that this increases your risk, because if your investment fails not only have you lost your own money, you now need to pay back the bank. \"\"Beta riders\"\" appears to be negative commentary on investors who use Beta to calculate the value of a particular stock, without regard to other quantitative factors. Therefore \"\"leveraged beta riders\"\" are those who take on additional risk [by taking on debt to invest], and invest in a manner that the author would perhaps considered \"\"blindly\"\" following Beta. However, I have never seen this term before, and it appears tainted by the author's views on Quants. A \"\"quant process driven discipline\"\" appears to be positive commentary on investors who use detailed quantitative analysis to develop rules which they rigorously follow to invest. I have never seen this exact phrasing before, and like the above, it appears tainted by the author's views on Quants. I am not providing any opinion on whether \"\"beta riding\"\" or \"\"quant processes\"\" are good or bad things; this is just my attempt to interpret the quote as you presented it. Note that I did not go to the article to get context, so perhaps something else in the article could skew the language to mean something other than what I have presented.\""
},
{
"docid": "360439",
"title": "",
"text": "\"Google Finance and Yahoo! Finance would be a couple of sites you could use to look at rather broad market information. This would include the major US stock markets like the Dow, Nasdaq, S & P 500 though also bond yields, gold and oil can also be useful as depending on which area one works the specifics of what are important could vary. If you were working at a well-known bond firm, I'd suspect that various bond benchmarks are likely to be known and watched rather than stock indices. Something else to consider here is what constitutes a \"\"finance practitioner\"\" as I'd imagine several accountants and actuaries may not watch the market yet there could be several software developers working at hedge funds that do so that it isn't just a case of what kind of work but also what does the company do.\""
},
{
"docid": "459979",
"title": "",
"text": "\"First, it's much safer to be shorting stocks over $5 than stocks under $5. I use 3 indicators to show that a stock has topped out and about to drop. Key is the timing cause the initial drop is often the biggest. More close you get in at the top, the higher the risk. Using 1D Charts ONLY: - MACD Indicator: I use the histogram, when it reaches a peak height, and the next day it is down 1 \"\"Step\"\". If you wait til the MACD lines cross, you are pretty late IMHO. Need to get in earlier. Timing is everything. - RSI(15) - Needs to topped out and above 67 meaning, \"\"Over bought\"\" - Do not buy when RSI is high above 70. Often stocks go on a Run up when RSI is over 70! - I use Stoch RSI or CCI to confirm my status on RSI. I like to see that all 3 indicators agree. This gives me a 75% chance that the stock will drop. It may take a day or 2.. so you need patience.\""
},
{
"docid": "311607",
"title": "",
"text": "Speaking from stock market point of view, superficially, TA is similarly applicable to day trading, short term, medium term and long term. You may use different indicators in FX compared to the stock market, but I would expect they are largely the same types of things - direction indicators, momentum indicators, spread indicators, divergence indicators. The key thing with TA or even when trading anything, is that when you have developed a system, that you back test it, to prove that it will work in bear, bull and stagnant markets. I have simple systems that are fine in strong bull markets but really poor in stagnant markets. Also have a trading plan. Know when you are going to exit and enter your trades, what criteria and what position size. Understand how much you are risking on each trade and actively manage your risk. I urge caution over your statement ... one weakened by parting the political union but ought to bounce back ... We (my UK based IT business) have already lost two potential clients due to Brexit. These companies are in FinServ and have no idea of what is going to happen, so I would respectfully suggest that you may have less knowledge than professionals, who deal in currency and property ... but one premise of TA is that you let the chart tell you what is happening. In any case trade well, and with a plan!"
},
{
"docid": "332435",
"title": "",
"text": "\"FTSE ethical investment index: http://www.ftse.com/products/indices/FTSE4Good \"\"The FTSE4Good Index is a series of ethical investment stock market indices launched in 2001 by the FTSE Group. A number of stock market indices are available, for example covering UK shares, US shares, European markets, and Japan, with inclusion based on a range of corporate social responsibility criteria. Research for the indices is supported by the Ethical Investment Research Services (EIRIS).\"\" - Wikipedia\""
},
{
"docid": "195089",
"title": "",
"text": "Willis Group Holdings Set to Join the S&P 500; Fossil Group to Join S&P MidCap 400; Adeptus Health to Join S&P SmallCap 600 notes in part for the S & P case: Willis Group Holdings plc (NYSE:WSH) will replace Fossil Group Inc. (NASD:FOSL) in the S&P 500, and Fossil Group will replace Towers Watson & Co. (NASD:TW) in the S&P MidCap 400 after the close of trading on Monday, January 4. Willis Group is merging with Towers Watson in a deal expected to be completed on or about that date pending final conditions. Post merger, Willis Group Holdings will change its name to Willis Towers Watson plc and trade under the ticker symbol “WLTW”. Fossil has a market capitalization that is more representative of the midcap market space. As of Jan. 8, Fossil is about $1.44B in market cap and Willis is $21.02B for those wondering. Apple with a market cap of $540.58B is 3.26% of the index making the entire index worth approximately $16,582.21B, so Fossil is worth .00868% of the overall index for those wanting some numbers here. Thus, if a company acquires another and becomes bigger than there can be replacements made in those indices that have an artificial number of small members. Alternatively, a member may be removed for lack of representation where it is just so small compared to other companies that may be a better fit as some indices could be viewed as actively managed in a sense. In contrast, there are indices like those from Russell, known for the Russell 2000 small-cap index: Q: Why don't you reconstitute the indexes more often than once a year? A: Maintaining representative indexes must be weighed against the costs associated with making frequent changes to index constituents (namely, buying and selling stocks). The Russell Indexes are annually reconstituted because our research has shown that this strikes a reasonable balance between accuracy and cost. We originally reconstituted our indexes quarterly, then semi-annually, but found these options to be suboptimal. Our extensive research demonstrates that annual reconstitution accurately represents the capitalization segments and minimizes the turnover required to reflect the segments as they change. Thus there can be different scenarios. Then there can be the effect on index funds when price-weighted indices like the Dow Jones Industrial Average has a member that does a stock split that causes some rebalancing too. On the DJIA Divisor: The Dow Jones Industrial Average (DJIA) is a price-weighted index that is calculated by dividing the sum of the prices of the 30 component stocks (Dow Jones Industrial Average components) by a number called the DJIA Divisor or Dow Divisor . The index divisor is updated periodically and adjusted to offset the effect of stock splits, bonus issues or any change in the component stocks included in the DJIA. This is done in order to keep the index value consistent."
},
{
"docid": "127702",
"title": "",
"text": "I don't think you are reading the stock chart right. ORCL has a beta of 1.12 which means it has more volatility than the market as a whole. See image below for a fairly wild stock chart for a year. I would not truly consider ESPP participation investing, unless you intend to buy and hold the stock. If you intend to sell the stock soon after you are able, it is more speculation. ESPP's are okay based upon the terms. If the stock was a constant price, and you could sell right away, then an ESPP plan would be easy money. Often, employees are often given a 15% discount to purchase the stock. If you can sell it before any price drop, then you are guaranteed to make 15% on the money invested minus any commissions. Some employers make ESPP participants hold the stock for a year. This makes such a plan less of a value. The reasons are the stock can drop in price during that time, you could need the money, or (in the best case) your money is tied up longer making the ROI less. The reasons people invest in stock are varied and is far to much to discuss in a single post. Some of your colleagues are using the ESPP solely to earn the discount in their money."
}
] |
8296 | Can the beta of a stock be used as a lagging indicator for the stock w.r.t the market | [
{
"docid": "79998",
"title": "",
"text": "The beta of a stock can be interpreted as the average relative movement of a stock with respect to the movement of a market index. In your case, the stock will move on average by 0.8. Thus over a longer time horizon, not on a daily, weekly basis."
}
] | [
{
"docid": "178875",
"title": "",
"text": "You are correct that over a short term there is no guarantee that one index will out perform another index. Every index goes through periods of feat and famine. That uis why the advice is to diversify your investments. Every index does have some small amount of management. For the parent index (the S&P 500 in this case) there is a process to divide all 500 stocks into growth and value, pure growth and pure value. This rebalancing of the 500 stocks occurs once a year. Rebalancing The S&P Style indices are rebalanced once a year in December. The December rebalancing helps set the broad universe and benchmark for active managers on an annual cycle consistent with active manager performance evaluation cycles. The rebalancing date is the third Friday of December, which coincides with the December quarterly share changes for the S&P Composite 1500. Style Scores, market-capitalization weights, growth and value midpoint averages, and the Pure Weight Factors (PWFs), where applicable across the various Style indices, are reset only once a year at the December rebalancing. Other changes to the U.S. Style indices are made on an as-needed basis, following the guidelines of the parent index. Changes in response to corporate actions and market developments can be made at any time. Constituent changes are typically announced for the parent index two-to-five days before they are scheduled to be implemented. Please refer to the S&P U.S. Indices Methodology document for information on standard index maintenance for the S&P 500, the S&P MidCap 400,the S&P SmallCap 600 and all related indices. As to which is better: 500, growth,value or growth and value? That depends on what you the investor is trying to do."
},
{
"docid": "12879",
"title": "",
"text": "\"You can see how much of a percentage the S&P 500 is of the GDP over the past 10 years in this handy graph: https://fred.stlouisfed.org/graph/?g=oCZ When the stock market was doing poorly (2009) it was only 0.06% of GDP. When it's doing well (now) it's 0.12% of the GDP. It's also not useful to directly compare percentages like you're doing. Just because one averages 6% growth and one averages 3% growth, that doesn't mean that the 6% one will take over. It doesn't take much of a correction to wipe out decades of S&P vs GDP growth. You might also be interested in knowing that this ratio is similar to the \"\"Buffet Indicator\"\", how Warren Buffet decides if stocks are overvalued as a whole: https://www.advisorperspectives.com/dshort/updates/2017/04/04/market-cap-to-gdp-an-updated-look-at-the-buffett-valuation-indicator\""
},
{
"docid": "61962",
"title": "",
"text": "Investopedia has this note where you'd want the contrapositive point: The interest rate, commonly bandied about by the media, has a wide and varied impact upon the economy. When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment. As for evidence, I'd question that anyone could really take out all the other possible economic influences to prove a direct co-relation between the Federal Funds rate and the stock market returns. For example, of the dozens of indices that are stock related, which ones would you want that evidence: Total market, large-cap, small-cap, value stocks, growth stocks, industrials, tech, utilities, REITs, etc. This is without considering other possible investment choices such as direct Real Estate holdings, compared to REITs that is, precious metals and collectibles that could also be used."
},
{
"docid": "394226",
"title": "",
"text": "Theoretically, yes, you can only buy or sell whole shares (which is why you still have .16 shares in your account; you can't sell that fraction on the open market). This is especially true for voting stock; stock which gives you voting rights in company decisions makes each stock one vote, so effectively whomever controls the majority of one stock gets that vote. However, various stock management policies on the part of the shareholder, brokerage firm or the issuing company can result in you owning fractional shares. Perhaps the most common is a retirement account or other forward-planning account. In such situations, it's the dollar amount that counts; when you deposit money you expect the money to be invested in your chosen mix of mutual funds and other instruments. If the whole-shares rule were absolute, and you wanted to own, for instance, Berkshire Hathaway stock, and you were contributing a few hundred a month, it could take you your entire career of your contributions sitting in a money-market account (essentially earning nothing) before you could buy even one share. You are virtually guaranteed in such situations to end up owning fractions of shares in an investment account. In these situations, it's usually the fund manager's firm that actually holds title to the full share (part of a pool they maintain for exactly this situation), and your fractional ownership percentage is handled purely with accounting; they give you your percentage of the dividends when they're paid out, and marginal additional investments increase your actual holdings of the share until you own the whole thing. If you divest, the firm sells the share of which you owned a fraction (or just holds onto it for the next guy fractionally investing in the stock; no need to pay unnecessary broker fees) and pays you that fraction of the sale price. Another is dividend reinvestment; the company may indicate that instead of paying a cash dividend, they will pay a stock dividend, or you yourself may indicate to the broker that you want your dividends given to you as shares of stock, which the broker will acquire from the market and place in your account. Other common situations include stock splits that aren't X-for-1. Companies often aren't looking to halve their stock price by offering a two-for-one split; they may think a smaller figure like 50% or even smaller is preferable, to fine tune their stock price (and thus P/E ratio and EPS figures) similar to industry competitors or to companies with similar market capitalization. In such situations they can offer a split that's X-for-Y with X>Y, like a 3-for-2, 5-for-3 or similar. These are relatively uncommon, but they do happen; Home Depot's first stock split, in 1987, was a 3-for-2. Other ratios are rare, and MSFT has only ever been split 2-for-1. So, it's most likely that you ended up with the extra sixth of a share through dividend reinvestment or a broker policy allowing fractional-share investment."
},
{
"docid": "444241",
"title": "",
"text": "\"lol, please, calculate the correlation and let me know how close to 1 it is. And then let me know what kind of sensible economic model looks like SPX Level = const + beta * Fed Balance Sheet Level. That's a great way to just throw useful statistical inference out the fucking window. Edit: I'd also like to make it abundantly clear that this is a monumentally retarded \"\"correlation\"\" to consider in the first place. The Fed balance sheet prior to 2008 was relatively tiny and unchanging, and yet the stock market was just as volatile in prior years.\""
},
{
"docid": "433023",
"title": "",
"text": "Saxo Bank offers direct access to Athens Stock Exchange. Interactive Brokers is your next best bet, and as you probably already noticed, they do not have a free platform. They are open to US and non-US citizens. Although they do not currently have direct exposure to individual companies on the Athens Stock Exchange, the various european exchanges they do provide direct market access for will give a lot of exposure. There are a few Greek companies that trade on non-Greek stock exchanges, if you want exposure. There are also Greek ETFs which bundle several companies together or try to replicate Greek company indices."
},
{
"docid": "289466",
"title": "",
"text": "\"I expect that data may be copyright. Data that's published (e.g. on a newsfeed or web site) is subject to terms of use. Standard & Poor's web site says, about the Shiller indexes, Who do I contact at S&P to license my use of these indices? Questions regarding licensing the S&P/Case-Shiller Home Price Indices can be addressed to: Bo Chung Managing Director [email protected], +1.212.438.3519 As for 'recording' the information yourself, that may depend on how and where (e.g. from what source) you're recording it. If for example you tried to record prices from the Canadian MLS (Realtor's) network, they too have their own terms of use on the data they publish. Copyright laws vary from country to country (and terms of use certainly vary): for example see http://en.wikipedia.org/wiki/Feist_v._Rural which is case law about copyrighting a phone directory in the USA, and contrast that with http://en.wikipedia.org/wiki/Database_right which is European legislation. So who owns data if it is determined by free market? I guess that \"\"determined by free market\"\" means that buyers and sellers are publishing their offers-to-buy and their offers-to-sell, and I guess that the publisher (e.g. the stock exchange) has 'terms of use' about the data (the offers) that they're publishing.\""
},
{
"docid": "115207",
"title": "",
"text": "For the constant growth problem, I don't see why the answer would be anything other than the stock price grown for 3 years at the cost of equity determined from CAPM. Someone can correct me if the dividend is relevant. So: rs = rf + beta x (market premium) rs = 0.046 + 0.9 x (0.06) = 0.10 price now = $40.00 price after 3 years' growth = $40.00 x (1+0.10)^3 = $53.24 EDIT: https://www.quora.com/Why-are-dividend-yields-factored-into-beta two conflicting answers so you'll just have to figure it out"
},
{
"docid": "84610",
"title": "",
"text": "\"There are some euphemisms that are better known than others. A category of stocks that's suitable for \"\"widows and orphans\"\" would be stocks that are low beta, and perhaps high dividend. Safe (being relative) enough to put a window's money into. The term \"\"cake and underwear\"\" appears to me to be a Buffetism. And I'd interpret it to mean,\"\"not tech, not stocks that are either high growth or cyclic, but stocks that make things that have steady demand and that most consumers use.\"\" Google the phrase, only Buffet comes up.\""
},
{
"docid": "318735",
"title": "",
"text": "\"Emergency funds have a very specific and obvious benefit; you'll have money sitting around in case you need it. A lot of people think a big car repair or some unexpected home repair is an emergency, and that's fine. Emergency also expands up to \"\"I lost my job four months ago and we're a year in to a recession, the stock market is down 30% and I need to pay my rent or mortgage.\"\" Sure, you could just sell some of your stocks that have lost 30% and pay your rent. I know nobody likes to think about it, but the stock market can go down. I know nobody likes to think about it, but the economy can slink in to a recession. In fact, here's a small list of recent U.S. recessions: No competent investment adviser would advise that your emergency funds should be subject to market volatility because that completely defeats the purpose of an emergency fund. It's possible that this manager wants you to indicate a separate emergency fund to allocate a portion of your account to a low volatility US Treasury fund or something of the like, this would be materially different than investing in a broad market/large cap fund like VOO or VTI. The effects of inflation are not so bad that you should put your emergency money in the market. Who cares what inflation was if you have to sell an asset at a loss to pay rent? One last point. Index fund ETFs are not \"\"safe.\"\" Investing in diversified funds is safER than buying individual company stocks.\""
},
{
"docid": "260085",
"title": "",
"text": "\"Some technical indicators (e.g. Williams %R) indicate whether the market is overbought or oversold. ... Every time a stock or commodity is bought, it is also sold. And vice versa. So how can anything ever be over-bought or over-sold? But I'm sure I'm missing something. What is it? You're thinking of this as a normal purchase, but that's not really how equity markets operate. First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers, who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers. During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for Market Makers to accumulate a large number of shares, without end-investors being involved on both sides of the transaction. This is one example of how instruments can be over-bought or over-sold. Since Williams %R creates over-bought and over-sold signals based on historical averages of open / close prices, perhaps it's better to think of these terms as \"\"over-valued\"\" and \"\"under-valued\"\". Of course, there could be good reason for instruments to open or close outside their expected ranges, so Williams %R is just a tool to give you clues... not a real evaluation of the instrument's true value.\""
},
{
"docid": "339989",
"title": "",
"text": "\"Yes. The definition of unreasonable shows as \"\"not guided by or based on good sense.\"\" 100% years require a high risk. Can your one stock double, or even go up three fold? Sure, but that would likely be a small part of your portfolio. Overall, long term, you are not likely to beat the market by such high numbers. That said, I had 2 years of returns well over 100%. 1998, and 1999. The S&P was up 26.7% and 19.5%, and I was very leverage in high tech stock options. As others mentioned, leverage was key. (Mark used the term 'gearing' which I think is leverage). When 2000 started crashing, I had taken enough off the table to end the year down 12% vs the S&P -10%, but this was down from a near 50% gain in Q1 of that year. As the crash continued, I was no longer leveraged and haven't been since. The last 12 years or so, I've happily lagged the S&P by a few basis points (.04-.02%). Also note, Buffet has returned an amazing 15.9%/yr on average for the last 30 years (vs the S&P 11.4%). 16% is far from 100%. The last 10 year, however, his return was a modest 8.6%, just .1% above the S&P.\""
},
{
"docid": "573612",
"title": "",
"text": "\"I reread your question. You are not asking about the validity of selling a particular stock after a bit of an increase but a group of stocks. We don't know how many. This is the S&P for the past 12 months. Trading at 1025-1200 or so means that 80-100 points is an 8% move. I count 4 such moves during this time. The philosophy of \"\"you can't go wrong taking a gain\"\" is tough for me to grasp as it offers no advice on when to get (back) in. Studies by firms such as Dalbar (you can google for some of their public material) show data that supports the fact that average investors lag the market by a huge amount. 20 years ending 12/31/08 the S&P returned 8.35%, investor equity returns showed 1.87%. I can only conclude that this is a result of buying high and selling low, not staying the course. The data also leads me to believe the best advice one can give to people we meet in these circumstances is to invest in index funds, keeping your expenses low as you can. I've said this since read Jack Bogle decades ago, and this advice would have yielded about 8.25% over the 20 years, beating the average investor by far, by guaranteeing lagging the average by 10 basis points or so. A summary of the more extensive report citing the numbers I referenced is available for down load - QAIB 2015 - Quantitative Analysis of Investor Behavior. It's quite an eye-opener and a worthy read. (The original report was dated 2009, but the link broke, so I've updated to the latest report, 2015)\""
},
{
"docid": "25817",
"title": "",
"text": "\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \"\"Composite Index\"\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \"\"In most years 25 to 30 stocks in the S&P 500 are replaced,\"\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\""
},
{
"docid": "16491",
"title": "",
"text": "\"This is the best tl;dr I could make, [original](http://www.reuters.com/article/us-global-markets/feds-great-unwinding-lifts-dollar-china-rating-gets-the-chop-idUSKCN1BW03Z?il=0) reduced by 83%. (I'm a bot) ***** > NEW YORK - The U.S. Treasury yield curve flattened to a two-and-a half month low and key world stock markets fell on Thursday, as investors assessed indications from the U.S. Federal Reserve that it may raise interest rates a third time this year. > U.S. stocks pulled back from their all-time highs, though bank stocks cheered the prospect of higher interest rates which should help their profits. > China&#039;s markets were already closed by the time it came but it kept the pressure on emerging markets stocks. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/71lga0/feds_great_unwinding_lifts_dollar_china_rating/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~214093 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **percent**^#1 **market**^#2 **rate**^#3 **U.S.**^#4 **more**^#5\""
},
{
"docid": "542765",
"title": "",
"text": "Using Fundamental and Technical Analysis together is actually a good idea for longer term trading of up to 6 months or longer. The whole idea behind trading with Technical Analysis is to increase the probabilities of a trade going in the desired direction by using uncorrelated indicators that produce the same signal to buy or sell at the same time. For example, you might use a Moving Average (MA) as a buy signal when the price falls for a few days, hits the MA and then reverses and starts moving back up. If however, you also include a Stochastic Oscillator (SO) to indicate when the stock is oversold (under 20%), and if the price rebounds from the MA average at the same time as the Stochastic is crossing over in the oversold position, then this may be a higher probability trade. If you also only trade stocks that are Fundamentally healthy (as fundamentally good stocks are more likely to go up than fundamentally bad stocks) then this might increase the probabilities again. Then if you only buy when the market as a whole is moving up, then this will increase your chances again. A few weeks ago at a seminar, the presenter totalled the men in the room to be 76 and the women in the room to be 8. He then asked what will most likely be the next person to walk in the room - a man or a woman? The statistics are on the side of a wan walking in next. This is what we try to do with Technical Analysis, increase our chances when we take a trade. Of course a woman could be the next person to walk in the room, just like any trade can go against you, and this is why we use money management and risk management and take a small loss when a trade does go against you. Lets look at an example where you could incorporate FA with TA to increase your chances of profits: Above is a candlestick chart of Select Harvest (SHV), the green line above the price is the perceived value, the pink line is the 40 day MA, the blue line is the EPS, and the white lines is the Stochastic Oscillator (above 80% being overbought and below 20% is oversold). From Feb 2015 to start of Aug 2015 the stock was uptrending, since then the price reversed and started to downtrend. The stock was determined to be fundamentally good early in 2015 with the perceived value gradually increasing and greater than the share price, and the EPS starting to increase regularly from mid April. Thus, as the stock is seen as fundamentally healthy any price reversal in the vicinity of the MA could be seen as a buy opportunity. In fact there where 2 such opportunities on 31st March and 11th June where price had reversed and rebounded off the MA whist the SO crossed over in or near the oversold area. The price did reverse and then rebounded off the MA again on 9th July, however the SO was not in or near the oversold area on this occasion, so not as high in probability terms. The price still rebounded and went up again, however another momentum indicator (not shown here) shows some bearish divergence in this case - so another reason to possibly keep away at this point in time. A good signal to get out of the trade, that is your stop loss has not already taken you out, is when the price breaks and closes below the MA line. This occurred on 7th August. So if we had bought on the first signal on 31st March for $7.41 and sold when the priced broke through the MA on 7th August for $11.76, we would have made a profit of approx. 59% in just over 4 months. If bought on the second signal on 11th June for $9.98 and again sold on 7th August for $11.76, we would have made about 18% in under 2 months. So the fundamentals, the Price (in relation to MA) and the SO where all lining up to provide two high probability trades. Of course you would need to incorporate you risk management (including stops) in case the price did not continue upwards after you bought. If the market is also moving up on the day of the signal this will further increase your chances. Unless you day trade, which I would avoid, a good way to enter your trades after a signal is to enter a stop buy order after market close to buy if the price moves above the high of the signal day. That way if the market and the stock open and move lower during the day after the signal you avoid entering the trade altogether. This can be incorporated as part of your risk management and trading rules. After the price broke down through the MA we can see that a downtrend commenced which is still current today (in fact I just took a short trade on this stock yesterday). We can also see that the perceived value, whilst still above the price, has reached a peak and is currently moving downwards and the EPS after being flat for a few months has just moved down for the first time in 10 months. So maybe the fundamentals are starting to waver a bit on this stock. It may be a good stock to continue shorting into the future. So basically you can continue using Fundamental Analysis to select which stocks to buy, place them in a watch-list, and then use Technical Analysis to determine when these stocks are starting to uptrend and use a combination of uncorrelated indicators to produce higher probability signals for when to enter your trades."
},
{
"docid": "116134",
"title": "",
"text": "I didn't mean to imply that the perceived value of a company on the stock market somehow proved that the companies had not lost capital or value. But it sure is a clear datapoint to juxtapose against all of the other hard facts in play. Often, the stock market isn't wrong... even if it may lag. If these companies have all this loss, is that baked into the current price? But again I was just merely grasping for the details from the plethora of sources given. I surely missed the real meat of the data."
},
{
"docid": "332435",
"title": "",
"text": "\"FTSE ethical investment index: http://www.ftse.com/products/indices/FTSE4Good \"\"The FTSE4Good Index is a series of ethical investment stock market indices launched in 2001 by the FTSE Group. A number of stock market indices are available, for example covering UK shares, US shares, European markets, and Japan, with inclusion based on a range of corporate social responsibility criteria. Research for the indices is supported by the Ethical Investment Research Services (EIRIS).\"\" - Wikipedia\""
},
{
"docid": "72054",
"title": "",
"text": "\"Dividend-paying securities generally have predictable cash flows. A telecom, electric or gas utility is a great example. They collect a fairly predictable amount of money and sells goods at a fairly predictable or even regulated markup. It is easy for these companies to pay a consistent dividend since the business is \"\"sticky\"\" and insulated by cyclical factors. More cyclic investments like the Dow Jones Industrial Average, Gold, etc are more exposed to the crests and troughs of the economy. They swing with the economy, although not always on the same cycle. The DJIA is a basket of 30 large industrial stocks. Gold is a commodity that spikes when people are faced with uncertainty. The \"\"Alpha\"\" and \"\"Beta\"\" of a stock will give you some idea of the general behavior of a stock against the entire market, when the market is trending up and down respectively.\""
}
] |
8332 | Why do put option prices go higher when the underlying stock tanks (drops)? | [
{
"docid": "328794",
"title": "",
"text": "\"There are two components of option valuation, the value that's \"\"in the money\"\" and the \"\"time value.\"\" In the case of the $395 put, that option was already in the money and it will move less than the stock price by a bit as there will still be some time value there. $22.52 is intrinsic value (the right word for 'in the money') and the rest is time. The $365 strike is still out of the money, but as jldugger implied, the chance of it going through that strike is better as it's $6.66 closer. Looking at the options chain gives you a better perspective on this. If Apple went up $20 Monday, and down $20 Tuesday, these prices would be higher as implied volatility would also go higher. Now, I'd hardly call a drop of under 2% \"\"tanking\"\" but on the otherhand, I'd not call the 25% jump in the option price skyrocketing. Options do this all the time. Curious what prompted the question, are you interested in trading options? This stock in particular?\""
}
] | [
{
"docid": "133204",
"title": "",
"text": "\"Probably the biggest driver of the increased volumes that day was a change in sentiment towards the healthcare sector as a whole that caused many healthcare companies to experience higher volumes ( https://www.bloomberg.com/press-releases/2017-07-11/asset-acquisitions-accelerate-in-healthcare-sector-boosting-potential-revenue-growth ). Following any spike, not just sentiment related spikes, the market tends to bounce back to about where it had been previously as analysts at the investment banks start to see the stock(s) as being overbought or oversold. This is because the effect of a spike on underlying ratios such as the Sharpe ratio or the PE ratio makes the stock look less attractive to buyers and more attractive to sellers, including short sellers. Note, however, that the price is broadly still a little higher than it was before the spike as a result of this change in sentiment. Looking at the price trends on Bloomberg (https://www.bloomberg.com/quote/CDNA:US) the price had been steadily falling for the year prior to the spike but was levelling out at just over $1 in the few months immediately prior to the spike. The increased interest in the sector and the stock likely added to a general change in the direction of the price trend and caused traders (as opposed to investors) to believe that there was a change in the price trend. This will have lead to them trading the stock more heavily intraday exacerbating the spike. Note that there traders will include HFT bots as well as human traders. You question the legality of this volume increase but the simple answer is that we may never know if it was the target of traders manipulating the price or a case of insider trading. What we can see is that (taking \"\"animal spirits\"\" into account) without any evidence of illegality there are plenty of potential reasons why the spike may have occurred. Spikes are common where traders perceive a change in a trend as they rush to cash in on the change before other traders can and then sell out quickly when they realise that the price is fundamentally out of sync with the firm's underlying position. You yourself say that you have been watching the stock for some time and, by that fact alone, it is likely that others are for the same reasons that you are. Otherwise you wouldn't be looking at it. Where people are looking at a stock expecting it to take off or drop you expect volatility and volatility means spikes!\""
},
{
"docid": "194030",
"title": "",
"text": "\"Why do people keep talking about 401K's at work? That is NOT dollar cost averaging. DCA refers to when you have a large sum of money. Do you invest it all at once or spread it out over several smaller purchases over a period of time? There really isn't a \"\"when\"\" should I use it. It is simply a matter of where your preferences lie on the risk/reward scpectrum. DCA has lower risk and lower reward than lump sum investing. In my opinion, I don't like it. DCA only works better than lump sum investing if the price drops. But if you think the price is going to drop, why are you buying the stock in the first place? Example: Your uncle wins the lottery and gives you $50,000. Do you buy $50,000 worth of Apple now, or do you buy $10,000 now and $10,000 a quarter for the next four quarters? If the stock goes up, you will make more with lump-sum(LS) than you will with DCA. If the stock goes down, you will lose more with LS than you will with DCA. If the stock goes up then down, you will lose more with DCA than you will with LS. If the stock goes down then up, you will make more with DCA than you will with LS. So it's a tradeoff. But, like I said, the whole point of you buying the stock is that you think it's going to go up! So why pick the strategy that performs worse in that scenario?\""
},
{
"docid": "488009",
"title": "",
"text": "$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value."
},
{
"docid": "134419",
"title": "",
"text": "\"I can't speak authoritatively to your broader question about stocks in general, but in several years tracking AAPL closely, I can tell you that there's little apparent pattern to when their earnings call will be, or when it will be announced. What little I do know: - AAPL's calls tend to occur on a Tuesday more than any other day of the week - it's announced roughly a month in advance, but has been announced w/ less notice - it has a definite range of dates in which it occurs, typically somewhere in the 3rd week of the new quarter plus or minus a few days More broadly for #1: Given the underlying nature of what an option is, then yes, the day an earnings call date is announced could certainly influence the IV/price of options - but only for options that expire inside the \"\"grey area\"\" (~2 weeks long) window in which the call could potentially occur. Options expiring outside that grey area should experience little to no price change in reaction to the announcement of the date - unless the date was itself surprising, e.g. an earlier date would increase the premium on earlier dated options, a later date would increase the premium for later-dated options. As for #2: The exact date will probably always be a mystery, but the main factors are: - the historical pattern of earnings call dates (and announcements of those dates) which you can look up for any given company - when the company's quarter ends - potentially some influence in how long it takes the company to close out their books for the quarter (some types of businesses would be faster than others) - any special considerations for this particular quarter that affect reporting ability And finally: - a surprise of an earnings call occurring (substantively) later than usual is rarely going to be a good sign for the underlying security, and the expectation of catastrophe - while cratering the underlying - may also cause a disproportionate rise in IVs/prices due to fear\""
},
{
"docid": "257609",
"title": "",
"text": "If the call is in the money and you believe the reason for the price jump was an overreaction with a pullback on the horizon or you anticipate downward movement for other reasons, I will roll (sometimes for a strike closer to at the money) as long as the trade results in a net credit! You already have the statistical edge trading covered calls over everyone who purchased stock at the same point in time. This is because covered calls reduce your cost basis and increase your probability of profit. For people reading this who are not interested in the math behind probability of profit(POP) for covered calls, you should be aware of why POP is higher for covered calls (CC). With CCs you win when the stock price stays the same, you win when it goes down slightly, you win when the stock goes up. You have two more ways to win than someone who just buys stock, therefore a higher probability of making a buck! Another option: If your stock is going to be called at a loss, or the strike you want to roll to results in a net debit, or your cash funds are short of owning 100x shares and you are familiar with the stock, try writing a naked put for the price you want to buy at. At experation, if the naked put is exercised, your basis is reduced by the premium of the put you sold, and you can write a covered call against the stock you now own. If it expires worthless you keep the premium. This is also another way to increase your POP."
},
{
"docid": "69395",
"title": "",
"text": "\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\""
},
{
"docid": "471978",
"title": "",
"text": "\"You might consider learning how the \"\"matching\"\" or \"\"pairing\"\" system in the market operates. The actual exchange only happens when both a buyer and a seller overlap their respect quotes. Sometimes orders \"\"go to market\"\" for a particular volume. Eg get me 10,000 Microsoft shares now. which means that the price starts at the current lowest seller, and works up the price list until the volume is met. Like all market it trades, it has it's advantages, and it's dangers. If you are confident Microsoft is going to bull, you want those shares now, confident you'll recoup the cost. Where if you put in a priced order, you might get only none or some shares. Same as when you sell. If you see the price (which is the price of the last completed \"\"successful\"\" trade. and think \"\"I'm going to sell 1000 shares\"\". then you give the order to the market (or broker), and then the same as what happened as before. the highest bidder gets as much as they asked for, if there's still shares left over, they go to the next bidder, and so on down the price... and the last completed \"\"successful\"\" trade is when your last sale is made at the lowest price of your batch. If you're selling, and selling 100,000 shares. And the highest bidder wants 1,000,000 shares you'll only see the price drop to that guys bid. Why will it drop (off the quoted price?). Because the quoted price is the LAST sale, clearly if there's someone still with an open bid on the market...then either he wants more shares than were available (the price stays same), or his bid wasn't as high as the last bid (so when you sale goes through, it will be at the price he's offering). Which is why being able to see the price queues is important on large traders. It is also why it can be important put stops and limits on your trades, een through you can still get gapped if you're unlucky. However putting prices (\"\"Open Orders\"\" vs \"\"(at)Market Orders\"\") can mean that you're sitting there waiting for a bounce/spike while the action is all going on without you). safer but not as much gain (maybe ;) ) that's the excitement of the market, for every option there's advantages...and risks... (eg missing out) There are also issues with stock movement, shadowing, and stop hunting, which can influence the price. But the stuff in the long paragraphs is the technical reasons.\""
},
{
"docid": "226053",
"title": "",
"text": "Basically the first thing you should do before you invest your money is to learn about investing and learn about what you want to invest in. Another thing to think about is that usually low risk can also mean low returns. As you are quite young and have some savings put aside you should generally aim for higher risk higher return investments and then when you start to reach retirement age aim for less risky lower return investments. In saying that, just because an investment is considered high risk does not mean you have to be exposed to the full risk of that investment. You do this by managing your risk to an acceptable level which will allow you to sleep at night. To do this you need to learn about what you are investing in. As an example about managing your risk in an investment, say you want to invest $50,000 in shares. If you put the full $50,000 into one share and that share price drops dramatically you will lose a large portion of your money straight away. If instead you spent a maximum of $10,000 on 5 different shares, even if one of them falls dramatically, you still have another 4 which may be doing a lot better thus minimising your losses. To take it one step further you might say if anyone of the shares you bought falls by 20% then you will sell those shares and limit your losses to $2000 per share. If the worst case scenario occurred and all 5 of your shares fell during a stock market crash you would limit your total losses to $10,000 instead of $50,000. Most successful investors put just as much if not more emphasis on managing the risk on their investments and limiting their losses as they do in selecting the investments. As I am not in the US, I cannot really comment whether it is the right time to buy property over there, especially as the market conditions would be different in different states and in different areas of each state. However, a good indication of when to buy properties is when prices have dropped and are starting to stabilise. As you are renting at the moment one option you might want to look at is buying a place to live in so you don't need to rent any more. You can compare your current rent payment with the mortgage payment if you were to buy a house to live in. If your mortgage payments are lower than your rent payments then this could be a good option. But whatever you do make sure you learn about it first. Make sure you spend the time looking at for sale properties for a few months in the area you want to buy before you do buy. This will give you an indication of how much properties in that area are really worth and if prices are stable, still falling or starting to go up. Good luck, and remember, research, research and more research. Even if you are to take someone elses advice and recommendations, you should learn enough yourself to be able to tell if their advice and recommendations make sense and are right for your current situation."
},
{
"docid": "550643",
"title": "",
"text": "If you can afford the cost and risk of 100 shares of stock, then just sell a put option. If you can only afford a few shares, you can still use the information the options market is trying to give you -- see below. A standing limit order to buy a stock is essentially a synthetic short put option position. [1] So deciding on a stock limit order price is the same as valuing an option on that stock. Options (and standing limit orders) are hard to value, and the generally accepted math for doing so -- the Black-Scholes-Merton framework -- is also generally accepted to be wrong, because of black swans. So rather than calculate a stock buy limit price yourself, it's simpler to just sell a put at the put's own midpoint price, accepting the market's best estimate. Options market makers' whole job (and the purpose of the open market) is price discovery, so it's easier to let them fight it out over what price options should really be trading at. The result of that fight is valuable information -- use it. Sell a 1-month ATM put option every month until you get exercised, after which time you'll own 100 shares of stock, purchased at: This will typically give you a much better cost basis (several dollars better) versus buying the stock at spot, and it offloads the valuation math onto the options market. Meanwhile you get to keep the cash from the options premiums as well. Disclaimer: Markets do make mistakes. You will lose money when the stock drops more than the option market's own estimate. If you can't afford 100 shares, or for some reason still want to be in the business of creating synthetic options from pure stock limit orders, then you could maybe play around with setting your stock purchase bid price to (approximately): See your statistics book for how to set ndev -- 1 standard deviation gives you a 30% chance of a fill, 2 gives you a 5% chance, etc. Disclaimer: The above math probably has mistakes; do your own work. It's somewhat invalid anyway, because stock prices don't follow a normal curve, so standard deviations don't really mean a whole lot. This is where market makers earn their keep (or not). If you still want to create synthetic options using stock limit orders, you might be able to get the options market to do more of the math for you. Try setting your stock limit order bid equal to something like this: Where put_strike is the strike price of a put option for the equity you're trading. Which option expiration and strike you use for put_strike depends on your desired time horizon and desired fill probability. To get probability, you can look at the delta for a given option. The relationship between option delta and equity limit order probability of fill is approximately: Disclaimer: There may be math errors here. Again, do your own work. Also, while this method assumes option markets provide good estimates, see above disclaimer about the markets making mistakes."
},
{
"docid": "470226",
"title": "",
"text": "Apple closed Friday 9/23 at $403.40. This is what the Puts look like, note the 2013 expiration. (The rest is hypothetical, I am not advising this.) As a fan of Apple and feeling the stock may stay flat but won't tank, I sell you the $400 put for $64.65. In effect I am saying that I am ready willing and able to buy aapl for $400 (well, $40,000 for 100 shares) and I have enough margin in my account to do so, $20,000. If Apple keeps going up, I made my $6465 (again it's 100 shares) but no more. If it drops below $400, I only begin to lose money if it goes below $335.35. You, the put buyer are betting it will drop by this amount (more than 15% from today) and are willing to pay the price for this Put today."
},
{
"docid": "55022",
"title": "",
"text": "The most obvious use of a collateral is as a risk buffer. Just as when you borrow money to buy a house and the bank uses the house as a collateral, so when people borrow money to loan financial instruments (or as is more accurate, gain leverage) the lender keeps a percentage of that (or an equivalent instrument) as a collateral. In the event that the borrower falls short of margin requirements, brokers (in most cases) have the right to sell that collateral and mitigate the risk. Derivatives contracts, like any other financial instrument, come with their risks. And depending on their nature they may sometimes be much more riskier than their underlying instruments. For example, while a common stock's main risk comes from the movements in its price (which may itself result from many other macro/micro-economic factors), an option in that common stock faces risks from those factors plus the volatility of the stock's price. To cover this risk, lenders apply much higher haircuts when lending against these derivatives. In many cases, depending upon the notional exposure of the derivative, that actual dollar amount of the collateral may be more than the face value or the market value of the derivatives contract. Usually, this collateral is deposited not as the derivatives contract itself but rather as the underlying financial instrument (an equity in case of an option, a bond in case of a CDS, and so on). This allows the lender to offset the risk by executing a trade on that collateral itself."
},
{
"docid": "214003",
"title": "",
"text": "\"For personal investing, and speculative/ highly risky securities (\"\"wasting assets\"\", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some remaining value in those call options, and take a short-term loss. Or, you could try this. Let's say you own an exchange traded call option on a listed stock (very general case). I don't know how much time remains before the option's expiration date. Be that as it may, I could suggest this to effect a \"\"recovery\"\". You'll be long the call and short the stock. This is called a delta hedge, as you would be delta trading the stock. Delta refers to short-term price volatility. In other words, you'll short a single large block of the stock, then buy shares, in small increments, whenever the market drops slightly, on an intra-day basis. When the market price of the stock rises incrementally, you'll sell a few shares. Back and forth, in response to short-term market price moves, while maintaining a static \"\"hedge ratio\"\". As your original call option gets closer to maturity, roll it over into the next available contract, either one-month, or preferably three-month, time to expiration. If you don't want to, or can't, borrow the underlying stock to short, you could do a synthetic short. A synthetic short is a combination of a long put and a short call, whose pay-off replicates the short stock payoff. I personally would never purchase an unhedged option or warrant. But since that is what you own right now, you have two choices: Get out, or dig in deeper, with the realization that you are doing a lot of work just to trade your way back to a net zero P&L. *While you can make a profit using this sort of strategy, I'm not certain if that is within the scope of the money.stachexchange.com website.\""
},
{
"docid": "519781",
"title": "",
"text": "\"When the buyout happens, the $30 strike is worth $10, as it's in the money, you get $10 ($1000 per contract). Yes, the $40 strike is pretty worthless, it actually dropped in value today. Some deals are worded as an offer or intention, so a new offer can come in. This appears to be a done deal. From Chapter 8 of CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS - FEB 1994 with supplemental updates 1997 through 2012; \"\"In certain unusual circumstances, it might not be possible for uncovered call writers of physical delivery stock and stock index options to obtain the underlying equity securities in order to meet their settlement obligations following exercise. This could happen, for example, in the event of a successful tender offer for all or substantially all of the outstanding shares of an underlying security or if trading in an underlying security were enjoined or suspended. In situations of that type, OCC may impose special exercise settlement procedures. These special procedures, applicable only to calls and only when an assigned writer is unable to obtain the underlying security, may involve the suspension of the settlement obligations of the holder and writer and/or the fixing of cash settlement prices in lieu of delivery of the underlying security. In such circumstances, OCC might also prohibit the exercise of puts by holders who would be unable to deliver the underlying security on the exercise settlement date. When special exercise settlement procedures are imposed, OCC will announce to its Clearing Members how settlements are to be handled. Investors may obtain that information from their brokerage firms.\"\" I believe this confirms my observation. Happy to discuss if a reader feels otherwise.\""
},
{
"docid": "440458",
"title": "",
"text": "1) Yes, both of your scenarios would lead to earning $10 on the transaction, at the strike date. If you purchased both of them (call it Scenario 3), you would make $20. 2) As to why this transaction may not be possible, consider the following: The Call and Put pricing you describe may not be available. What you have actually created is called 'arbitrage' - 2 identical assets can be bought and sold at different prices, leading to a zero-risk gain for the investor. In the real marketplace, if an option to buy asset X in January cost $90, would an option to sell asset X in January provide $110? Without adding additional complexity about the features of asset x or the features of the options, buying a Call option is the same as selling a Put option [well, when selling a Put option you don't have the ability to choose whether the option is exercised, meaning buying options has value that selling options does not, but ignore that for a moment]. That means that you have arranged a marketplace where you would buy a Call option for only $90, but the seller of that same option would somehow receive $110. For added clarity, consider the following: What if, in your example, the future price ended up being $200? Then, you could exercise your call option, buying a share for $90, selling it for $200, making $110 profit. You would not exercise your put option, making your total profit $110. Now consider: What if, in your example, the future price ended up being $10? You would buy for $10, exercise your put option and sell for $110, making a profit of $100. You would not exercise your call option, making your total profit $100. This highlights that if your initial assumptions existed, you would earn money (at least $20, and at most, unlimited based on a skyrocketing price compared to your $90 put option) regardless of the future price. Therefore such a scenario would not exist in the initial pricing of the options. Now perhaps there is an initial fee involved with the options, where the buyer or seller pays extra money up-front, regardless of the future price. That is a different scenario, and gets into the actual nature of options, where investors will arrange multiple simultaneous transactions in order to limit risk and retain reward within a certain band of future prices. As pointed out by @Nick R, this fee would be very significant, for a call option which had a price set below the current price. Typically, options are sold 'out of the money' initially, which means that at the current share price (at the time the option is purchased), executing the option would lose you money. If you purchase an 'in the money' option, the transaction cost initially would by higher than any apparent gain you might have by immediately executing the option. For a more realistic Options example, assume that it costs $15 initially to buy either the Call option, or the Put option. In that case, after buying both options as listed in your scenarios you would earn a profit if the share price exceeded $120 [The $120 sale price less the $90 call option = $30, which is your total fee initially], or dropped below $80 [The $110 Put price less the $80 purchase price = $30]. This type of transaction implies that you expect the price to either swing up, or swing down, but not fall within the band between $80-$120. Perhaps you might do this if there was an upcoming election or other known event, which might be a failure or success, and you think the market has not properly accounted for either scenario in advance. I will leave further discussion on that topic [arranging options of different prices to create specific bands of profitability / loss] to another answer (or other questions which likely already exist on this site, or in fact, other resources), because it gets more complicated after that point, and is outside the root of your question."
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "212025",
"title": "",
"text": "The difference is whether your options qualify as incentive stock options (ISOs), or whether they are non-qualifying options. If your options meet all of the criteria for being ISOs (see here), then (a) you are not taxed when you exercise the options. You treat the sale of the underlying stock as a long term capital gain, with the basis being the exercise price (S). There is something about the alternative minimum tax (AMT) as they pertain to these kinds of options. Calculating your AMT basically means that your ISOs are treated as non-qualifying options. So if your exercise bumps you into AMT territory, too bad, so sad. If you exercise earlier, you do get a clock ticking, as you put it, because one of the caveats of having your options qualify as ISOs is that you hold the underlying stock (a) at least two years after you were granted the options and (b) at least one year after you exercise the options."
},
{
"docid": "5257",
"title": "",
"text": "The different levels are somewhat related to levels of risk. Writing a covered call is pretty low risk, in the sense that if I buy the stock but sell a call, I now have a lower cost for the stock, and however low the stock drops, I'm still slightly better off than the regular stock buyer. Covered call writing is often used to generate premium income from a stock portfolio, and less as a tool for speculation. Buying a call or put is simpler in execution, but the risk of losing the entire amount spent (I actually avoid the word invested here) due to leverage involved isn't just a possibility — it can be pretty likely depending on the strike price. Put writing and uncovered (naked) call writing can entail even higher risk relative to the premium received — consider extreme moves in the underlying to understand the potential losses involved. The more sophisticated trades are presumed to take a bit more experience and tolerance for risk and each broker has its own set of criteria to allow the client to trade at each level."
},
{
"docid": "243714",
"title": "",
"text": "\"The answer to the question, can I exercise the option right away? depends on the exercise style of the particular option contract you are talking about. If it's an American-style exercise, you can exercise at any moment until the expiration date. If it's an European-style exercise, you can only exercise at the expiration date. According to the CME Group website on the FOPs on Gold futures, it's an American-style exercise (always make sure to double check this - especially in the Options on Futures world, there are quite a few that are European style): http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html?optionProductId=192#optionProductId=192 So, if you wanted to, the answer is: yes, you can exercise those contracts before expiration. But a very important question you should ask is: should you? Option prices are composed of 2 parts: intrinsic value, and extrinsic value. Intrinsic value is defined as by how much the option is in the money. That is, for Calls, it's how much the strike is below the current underlying price; and for Puts, it's how much the strike is above the current underlying price. Extrinsic value is whatever amount you have to add to the intrinsic value, to get the actual price the option is trading at the market. Note that there's no negative intrinsic value. It's either a positive number, or 0. When the intrinsic value is 0, all the value of the option is extrinsic value. The reason why options have extrinsic value is because they give the buyer a right, and the seller, an obligation. Ie, the seller is assuming risk. Traders are only willing to assume obligations/risks, and give others a right, if they get paid for that. The amount they get paid for that is the extrinsic value. In the scenario you described, underlying price is 1347, call strike is 1350. Whatever amount you have paid for that option is extrinsic value (because the strike of the call is above the underlying price, so intrinsic = 0, intrinsic + extrinsic = value of the option, by definition). Now, in your scenario, gold prices went up to 1355. Now your call option is \"\"in the money\"\", that is, the strike of your call option is below the gold price. That necessarily means that your call option has intrinsic value. You can easily calculate how much: it has exactly $5 intrinsic value (1355 - 1350, undelrying price - strike). But that contract still has some \"\"risk\"\" associated to it for the seller: so it necessarily still have some extrinsic value as well. So, the option that you bought for, let's say, $2.30, could now be worth something like $6.90 ($5 + a hypothetical $1.90 in extrinsic value). In your question, you mentioned exercising the option and then making a profit there. Well, if you do that, you exercise your options, get some gold futures immediately paying $1350 for them (your strike), and then you can sell them in the market for $1355. So, you make $5 there (multiplied by the contract multiplier). BUT your profit is not $5. Here's why: remember that you had to buy that option? You paid some money for that. In this hypothetical example, you payed $2.30 to buy the option. So you actually made only $5 - $2.30 = $2.70 profit! On the other hand, you could just have sold the option: you'd then make money by selling something that you bought for $2.30 that's now worth $6.90. This will give you a higher profit! In this case, if those numbers were real, you'd make $6.90 - $2.30 = $4.60 profit, waaaay more than $2.70 profit! Here's the interesting part: did you notice exactly how much more profit you'd have by selling the option back to the market, instead of exercising it and selling the gold contracts? Exactly $1.90. Do you remember this number? That's the extrinsic value, and it's not a coincidence. By exercising an option, you immediately give up all the extrinsic value it has. You are going to convert all the extrinsic value into $0. So that's why it's not optimal to exercise the contract. Also, many brokers usually charge you much more commissions and fees to exercise an option than to buy/sell options, so there's that as well! Always remember: when you exercise an option contract, you immediately give up all the extrinsic value it has. So it's never optimal to do an early exercise of option contracts and individual, retail investors. (institutional investors doing HFT might be able to spot price discrepancies and make money doing arbitrage; but retail investors don't have the low commissions and the technology required to make money out of that!) Might also be interesting to think about the other side of this: have you noticed how, in the example above, the option started with $2.30 of extrinsic value, and then it had less, $1.90 only? That's really how options work: as the market changes, extrinsic value changes, and as time goes by, extrinsic value usually decreases. Other factors might increase it (like, more fear in the market usually bring the option prices up), but the passage of time alone will decrease it. So options that you buy will naturally decrease some value over time. The closer you are to expiration, the faster it's going to lose value, which kind of makes intuitive sense. For instance, compare an option with 90 days to expiration (DTE) to another with 10 DTE. One day later, the first option still has 89 DTE (almost the same as 90 DTE), but the other has 9 DTE - it relatively much closer to the expiration than the day before. So it will decay faster. Option buyers can protect their investment from time decay by buying longer dated options, which decay slower! edit: just thought about adding one final thought here. Probabilities. The strategy that you describe in your question is basically going long an OTM call. This is an extremely bullish position, with low probability of making money. Basically, for you to make money, you need two things: you need to be right on direction, and you need to be right on time. In this example, you need the underlying to go up - by a considerable amount! And you need this to happen quickly, before the passage of time will remove too much of the extrinsic value of your call (and, obviously, before the call expires). Benefit of the strategy is, in the highly unlikely event of an extreme, unanticipated move of the underlying to the upside, you can make a lot of money. So, it's a low probability, limited risk, unlimited profit, extremely bullish strategy.\""
},
{
"docid": "415705",
"title": "",
"text": "\"Firstly \"\"Most option traders don't want to actually buy or sell the underlying stock.\"\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \"\"short VEGA\"\" or \"\"short volatility\"\". So one way to think about \"\"buying\"\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \"\"money\"\" stackexchange rather than finance. You are most likely referring to \"\"warrants\"\" rather than \"\"options\"\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\""
}
] |
8332 | Why do put option prices go higher when the underlying stock tanks (drops)? | [
{
"docid": "232261",
"title": "",
"text": "\"When you buy a put on a stock, you buy the right to sell the stock at fixed price, F, that his usually different from the market price, M. You paid a price, P, for the put. Your potential profit, going forward, is represented by the DIFFERENCE you get to collect between your fixed price F, and that market price M, plus the price you paid for the put, or F-(M+P). (This assumes that F>(M+P). P is fixed, but the smaller M gets, the larger the term F-(M+P), and therefore the higher your potential profit from owning the put. So when M \"\"tanks,\"\" the put goes higher. The $395 put is already in the money. If it were settled today, the value would be $395-$376 or $19. This, minus the cost of the put itself, represents your profit. The $365 put is \"\"out of the money.\"\" The stock has to fall $11 more before the put is exercised. But if the stock went down 8 points today, that is less than the $19 difference at the start of the day. Because there is time between now and October, there is a chance for the stock to go down further, thereby going into the money. The current value of the put is represented by this \"\"chance.\"\" Obviously, the chances of the stock going down $11 more (from today) is greater than the chance of it going down $19 more. On the other hand, the closer it gets to the expiration date, the less an out of the money put is worth. It's a race between the stock's fall, and the time to expiration.\""
}
] | [
{
"docid": "206756",
"title": "",
"text": "How would this trade behave IRL? I don't know how the simulation handles limit orders and bid/ask spreads to know it's feasible, but buying at 4.04 when the current ask is 8.00 seems unlikely. That would mean that all other sell orders between 8.00 and 4.04 were fulfilled, which means that there were very few sellers or that sell pressure spiked, both of which seem unlikely. In reality, it seems more likely that your order would have sat there until the ask dropped to $4.04 (if it ever did), and then you'd have to wait until the bid rose to $7.89 in order to sell them at that price. However, that kind of swing in option prices in not unrealistic. Options near at-the-money tend to move in price at about 50% of the change in the underlying, so if amazon suddenly dropped by $5, the option price could drop by $2.60 (from 6.66 to $4.04), and then rise back to $7.89 if the price rose $8 (which would be 1% swing and not unheard of intra-day). But it sounds like you got very lucky (or the simulation doesn't handle option trading realistically) - I've traded options in the past and have had some breaks similar to yours. I've also had bad breaks where I lost my entire investment (the options expire out-of-the money). So it should be a very limited part of your portfolio, and probably only used for risk management (e.g. buying put options to lock in some gains but keeping some upside potential)."
},
{
"docid": "388362",
"title": "",
"text": "\"The other two answers seem basically correct, but I wanted to add on thing: While you can exercise an \"\"American style\"\" option at any time, it's almost never smart to do so before expiration. In your example, when the underlying stock reaches $110, you can theoretically make $2/share by exercising your option (buying 100 shares @ $108/share) and immediately selling those 100 shares back to the market at $110/share. This is all before commission. In more detail, you'll have these practical issues: You are going to have to pay commissions, which means you'll need a bigger spread to make this worthwhile. You and those who have already answered have you finger on this part, but I include it for completeness. (Even at expiration, if the difference between the last close price and the strike price is pretty close, some \"\"in-the-money\"\" options will be allowed to expire unexercised when the holders can't cover the closing commission costs.) The market value of the option contract itself should also go up as the price of the underlying stock goes up. Unless it's very close to expiration, the option contract should have some \"\"time value\"\" in its market price, so, if you want to close your position at this point, earlier then expiration, it will probably be better for you to sell the contract back to the market (for more money and only one commission) than to exercise and then close the stock position (for less money and two commissions). If you want to exercise and then flip the stock back as your exit strategy, you need to be aware of the settlement times. You probably are not going to instantly have those 100 shares of stock credited to your account, so you may not be able to sell them right away, which could leave you subject to some risk of the price changing. Alternatively, you could sell the stock short to lock in the price, but you'll have to be sure that your brokerage account is set up to allow that and understand how to do this.\""
},
{
"docid": "181924",
"title": "",
"text": "Option prices are computed by determining the cost of obtaining the option returns using a strategy that trades the underlying asset continuously. It sounds like what you are describing is rapidly trading the option in order to obtain returns similar to those of the stock. The equality goes both ways. If the option is appropriately priced, then a strategy that replicates stock returns using the option will cost the same as buying the stock. Because you can't trade continuously, you won't actually be able to replicate the stock return, and it may seem like you are making arbitrage profit (puts may seem abnormally expensive), but you do so by bearing tail risk (i.e., selling puts loses more money than owning the associated stock if an unusually bad event occurs)."
},
{
"docid": "260384",
"title": "",
"text": "\"Yes, you can insure against the fall in price of stock by purchasing a put option. You pay for a put and if the price of the share falls below the \"\"strike price\"\" of the put, then you can exercise the put. On exercise, the person who sold you the put contract agrees to buy the stock for the strike price, even though that strike price is higher than the market price. You can adjust the level of insurance by buying put options at higher or lower prices, or buying fewer put options than shares you own (leaving some shares uninsured). Alternatively, you can minimize your risk exposure by investing in an index or other fund, which gives you partial ownership in a large number of shares. That means on any given day, lots of shares do worse and lots of shares do better. You can reduce the need for insurance by purchasing a lower-risk, lower-growth financial product.\""
},
{
"docid": "236504",
"title": "",
"text": "What you have to remember is that Options are derivatives of another asset like stocks for example. The price of the Option is derived from the price of the underlying. If the underlying is a stock for example, as the price of the stock moves up and down during the trading day, so will the Market Maker's fair value for the Option. As Options are usually less liquid than the underlying stock, Market Makers are usually more active in 'Providing a Market' with Options. Thus if you place a limit order half way between the current Bid and Ask and the underlying stock price moves towards your limit order, the Market Maker will do their job and 'Provide a Market' at that price, thus executing your order."
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "69395",
"title": "",
"text": "\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\""
},
{
"docid": "581514",
"title": "",
"text": "In this type of strategy profit is made when the shares go down as your main position is the short trade of the common stock. The convertible instruments will tend to move in about the same direction as the underlying (what it can be converted to) but less violently as they are traded less (lower volatility and lower volume in the market on both sides), however, they are not being used to make a profit so much as to hedge against the stock going up. Since both the bonds and the preference shares are higher on the list to be repaid if the company declares bankruptcy and the bonds pay out a fixed amount of interest as well, both also help protect against problems that may occur with a long position in the common stock. Essentially the plan with this strategy is to earn fixed income on the bonds whilst the stock price drops and then to sell both the bonds and buy the stock back on the market to cover the short position. If the prediction that the stock will fall is wrong then you are still earning fixed income on the debt and are able to convert it into stock at the higher price to cover the short sale eliminating, or reducing, the loss made on the short sale. Effectively the profit here is made on the spread between the price of the bond, accounting for the conversion price, and the price of the stock and that fixed income is less volatile (except usually in the junk market) than stock."
},
{
"docid": "488009",
"title": "",
"text": "$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value."
},
{
"docid": "275199",
"title": "",
"text": "I think George's answer explains fairly well why the brokerages don't allow this - it's not an exchange rule, it's just that the brokerage has to have the shares to lend, and normally those shares come from people's margin, which is impossible on a non-marginable stock. To address the question of what the alternatives are, on popular stocks like SIRI, a deep In-The-Money put is a fairly accurate emulation of an actual short interest. If you look at the options on SIRI you will see that a $3 (or higher) put has a delta of -$1, which is the same delta as an actual short share. You also don't have to worry about problems like margin calls when buying options. The only thing you have to worry about is the expiration date, which isn't generally a major issue if you're buying in-the-money options... unless you're very wrong about the direction of the stock, in which case you could lose everything, but that's always a risk with penny stocks no matter how you trade them. At least with a put option, the maximum amount you can lose is whatever you spent on the contract. With a short sale, a bull rush on the stock could potentially wipe out your entire margin. That's why, when betting on downward motion in a microcap or penny stock, I actually prefer to use options. Just be aware that option contracts can generally only move in increments of $0.05, and that your brokerage will probably impose a bid-ask spread of up to $0.10, so the share price has to move down at least 10 cents (or 10% on a roughly $1 stock like SIRI) for you to just break even; definitely don't attempt to use this as a day-trading tool and go for longer expirations if you can."
},
{
"docid": "260803",
"title": "",
"text": "I sell a put for a strike price at the market. The stock rises $50 over the next couple months. I've gotten the premium, but lost the rest of the potential gain, yet had the downside risk the whole time. There's no free lunch. Edit - you can use a BS (Black-Scholes) calculator to create your own back testing. The calculator shows a 1% interest rate, 2% yield, and 15% volatility produce a put price almost identical to the pricing I see for S&P (the SPY ETF, specifically) $205 put. No answer here, including mine, gave any reference to a study. If one exists, it will almost certainly be on an index, not individual stocks. Note that Jack's answer referencing PUTX does exactly that. The SPY ETF and it put options. My suggestion here would, in theory, let you analyze this strategy for individual stock options as well. For SPY - With SPY at 204.40, this is the Put you'd look at - 12 times the premium is $33.36 or 16% the current price. The next part of the exercise is to see how the monthly ups and downs impact this return. A drop to $201 wipes out that month's premium. It happens that it now March 18th, and despite a bad start to the year, we are at break-even YTD. A peek back shows In Dec you picked up $2.87 premium, (1.4% the current price then) but in Jan, it closed for a loss of $12. Ouch. Now, if you started in January, you'd have picked up 2 month's premiums and today or Monday sell the 3rd. You'd have 2.8% profit so far, vs the S&P break even. Last, for now, when selling a naked put, you have to put up margin money. Not sure how much, but I use percent of the value of underlying stock to calculate returns. That choice is debatable, it just keeps percents clean. Else you put up no money and have infinite return."
},
{
"docid": "351833",
"title": "",
"text": "\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \"\"free\"\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \"\"normal.\"\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \"\"in the money\"\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \"\"cheap\"\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\""
},
{
"docid": "230666",
"title": "",
"text": "There are several ways to protect against (or even profit from) a market correction. Hedge funds do this by hedging, that is, buying a stock that they think is strong and selling short a paired stock that is weak. If you hold, say, a strong retail company in your portfolio, you might sell short an equal weight of a weak retail company. These are like buying insurance on your portfolio. If you own 300 shares of XYZ, currently trading at $68, you buy puts at a level at a strike price that lets you sleep at night. For example, you might buy 3 XYZ 6-month puts with a strike price of $60. A disadvantage is that the puts are wasting assets, that is, their time premium (which you paid for at the outset) becomes zero at expiration. (This is why it is like insurance. You wouldn't complain that your insurance premium was lost when you purchase insurance on your house and the house doesn't burn down, would you? Of course not. The purpose of the insurance is to protect your investment.) Note that as these puts are married, they only protect your portfolio. Instead of profiting from a correction, you would merely protect your portfolio during a correction. (No small feat!) If your portfolio is similar to the market, you can buy S&P index puts. If your market reflects a lot of technology, you can buy technology sector puts. Say you have a portfolio of $80K that reflects the market. You could buy out-of-the-market puts (again reflecting your tolerance for loss). Any losses in your portfolio after the puts go in-the-money would be (more or less) offset by gains in the puts. An advantage is that the bid/ask spread is smaller for the S&P. You would pay less for the protection. Also, the S&P puts are cash settled (meaning you get money put in your account on the business day after expiration day). A disadvantage is that the puts do not linearly go up as the market drops. (Delta hedging is a big deal in and of itself.) Another disadvantage is that they are wasting assets (see the Married puts section, previous). While the S&P puts can be used to maintain your market portfolio in the midst of a correction, you could purchase more puts than needed. If you had correctly timed the market, then your portfolio with puts would increase. (Your mileage may vary; some have predicted an imminent market crash way too often.) Collars involve selling out-of-the-money calls and using the premiums to buy out-of-the-money puts. There are many varieties of collars, but the most straightforward is to sell 1 call and buy 1 put for every 100 shares. (This can also be done for index puts and calls.) This has the effect of simultaneously: You get your insurance for almost free. But again, it is protecting your portfolio. As the name implies, you make money when the market goes bearish. Bear put spreads involve buying puts at a close strike price and selling an equal number of puts at a lower strike price than the first. You have a defined maximum loss (the premium you paid for the higher put minus the premium you received for the lower put). You have a defined maximum gain (the difference between strikes minus the defined maximum loss). Buy S&P 500 index puts. If you buy deep out-of-the-money puts, it won't cost much, but you have little probability of it paying off. But if they go in-the-money, there could be a sizable payoff. This is similar to putting one chip on red 18 on the roulette wheel. But rather than paying off 35:1, it is a variable payoff. If you're $1 in the money, you just get $100. If you're $12 in the money, you have a $1200 payoff. If you buy at-the-money puts, it will cost a lot, and your probability will be about 1 in 2 that you will pay off. In our roulette analogy, this is like putting 30 chips on the Even bet of the roulette wheel. The variable payoff is as in the previous paragraph. But you're more likely to get a payoff. And you will lose it all of the roulette ball lands on an Odd number, 0, or 00. (That is, the underlying of your put goes up or stays the same.) If your research shows you what good stocks to buy, it may also tell you which stocks are ripe for a fall. You could short-sell these stocks or buy puts on them. Similar to short-selling stocks or buying puts, you could sell short overpriced sectors or buy puts on them. There are ETFs that will allow you benefit from falling prices without needing to have a margin agreement or options agreement in place. Sorry to have a lengthy answer. Many other answers emphasize that one shouldn't try to time the market. But that is not the OP's question. Provided here are both:"
},
{
"docid": "226053",
"title": "",
"text": "Basically the first thing you should do before you invest your money is to learn about investing and learn about what you want to invest in. Another thing to think about is that usually low risk can also mean low returns. As you are quite young and have some savings put aside you should generally aim for higher risk higher return investments and then when you start to reach retirement age aim for less risky lower return investments. In saying that, just because an investment is considered high risk does not mean you have to be exposed to the full risk of that investment. You do this by managing your risk to an acceptable level which will allow you to sleep at night. To do this you need to learn about what you are investing in. As an example about managing your risk in an investment, say you want to invest $50,000 in shares. If you put the full $50,000 into one share and that share price drops dramatically you will lose a large portion of your money straight away. If instead you spent a maximum of $10,000 on 5 different shares, even if one of them falls dramatically, you still have another 4 which may be doing a lot better thus minimising your losses. To take it one step further you might say if anyone of the shares you bought falls by 20% then you will sell those shares and limit your losses to $2000 per share. If the worst case scenario occurred and all 5 of your shares fell during a stock market crash you would limit your total losses to $10,000 instead of $50,000. Most successful investors put just as much if not more emphasis on managing the risk on their investments and limiting their losses as they do in selecting the investments. As I am not in the US, I cannot really comment whether it is the right time to buy property over there, especially as the market conditions would be different in different states and in different areas of each state. However, a good indication of when to buy properties is when prices have dropped and are starting to stabilise. As you are renting at the moment one option you might want to look at is buying a place to live in so you don't need to rent any more. You can compare your current rent payment with the mortgage payment if you were to buy a house to live in. If your mortgage payments are lower than your rent payments then this could be a good option. But whatever you do make sure you learn about it first. Make sure you spend the time looking at for sale properties for a few months in the area you want to buy before you do buy. This will give you an indication of how much properties in that area are really worth and if prices are stable, still falling or starting to go up. Good luck, and remember, research, research and more research. Even if you are to take someone elses advice and recommendations, you should learn enough yourself to be able to tell if their advice and recommendations make sense and are right for your current situation."
},
{
"docid": "160169",
"title": "",
"text": "Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways. In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference. Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not. One of you has to lose. And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s). Here's an example. Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY. It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with. But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay. Even if the list price is now lower, long term you expect the stock to be worth more than $28. Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do."
},
{
"docid": "176883",
"title": "",
"text": "\"A 'Call' gives you the right, but not the obligation, to buy a stock at a particular price. The price, called the \"\"strike price\"\" is fixed when you buy the option. Let's run through an example - AAPL trades @ $259. You think it's going up over the next year, and you decide to buy the $280 Jan11 call for $12. Here are the details of this trade. Your cost is $1200 as options are traded on 100 shares each. You start to have the potential to make money only as Apple rises above $280 and the option trades \"\"in the money.\"\" It would take a move to $292 for you to break even, but after that, you are making $100 for each dollar it goes higher. At $300, your $1200 would be worth $2000, for example. A 16% move on the stock and a 67% increase on your money. On the other hand, if the stock doesn't rise enough by January 2011, you lose it all. A couple points here - American options are traded at any time. If the stock goes up next week, your $1200 may be worth $1500 and you can sell. If the option is not \"\"in the money\"\" its value is pure time value. There have been claims made that most options expire worthless. This of course is nonsense, you can see there will always be options with a strike below the price of the stock at expiration and those options are \"\"in the money.\"\" Of course, we don't know what those options were traded at. On the other end of this trade is the option seller. If he owns Apple, the sale is called a \"\"covered call\"\" and he is basically saying he's ok if the stock goes up enough that the buyer will get his shares for that price. For him, he knows that he'll get $292 (the $280, plus the option sale of $12) for a stock that is only $259 today. If the stock stays under $280, he just pocketed $12, 4.6% of the stock value, in just 3 months. This is why call writing can be a decent strategy for some investors. Especially if the market goes down, you can think of it as the investor lowering his cost by that $12. This particular strategy works best in a flat to down market. Of course in a fast rising market, the seller misses out on potentially high gains. (I'll call it quits here, just to say a Put is the mirror image, you have the right to sell a stock at a given price. It's the difference similar to shorting a stock as opposed to buying it.) If you have a follow up question - happy to help. EDIT - Apple closed on Jan 21, 2011 at $326.72, the $280 call would have been worth $46.72 vs the purchase price of $12. Nearly 4X return (A 289% gain) in just over 4 months for a stock move of 26%. This is the leverage you can have with options. Any stock could just as easily trade flat to down, and the entire option premium, lost.\""
},
{
"docid": "134419",
"title": "",
"text": "\"I can't speak authoritatively to your broader question about stocks in general, but in several years tracking AAPL closely, I can tell you that there's little apparent pattern to when their earnings call will be, or when it will be announced. What little I do know: - AAPL's calls tend to occur on a Tuesday more than any other day of the week - it's announced roughly a month in advance, but has been announced w/ less notice - it has a definite range of dates in which it occurs, typically somewhere in the 3rd week of the new quarter plus or minus a few days More broadly for #1: Given the underlying nature of what an option is, then yes, the day an earnings call date is announced could certainly influence the IV/price of options - but only for options that expire inside the \"\"grey area\"\" (~2 weeks long) window in which the call could potentially occur. Options expiring outside that grey area should experience little to no price change in reaction to the announcement of the date - unless the date was itself surprising, e.g. an earlier date would increase the premium on earlier dated options, a later date would increase the premium for later-dated options. As for #2: The exact date will probably always be a mystery, but the main factors are: - the historical pattern of earnings call dates (and announcements of those dates) which you can look up for any given company - when the company's quarter ends - potentially some influence in how long it takes the company to close out their books for the quarter (some types of businesses would be faster than others) - any special considerations for this particular quarter that affect reporting ability And finally: - a surprise of an earnings call occurring (substantively) later than usual is rarely going to be a good sign for the underlying security, and the expectation of catastrophe - while cratering the underlying - may also cause a disproportionate rise in IVs/prices due to fear\""
},
{
"docid": "186453",
"title": "",
"text": "A few reasons. First, it's hard to buy a stock that has never gone up, and isn't necessarily wise to do so. Even if you just wait for a stock go down, what if you wait and it goes up two dollars, then drops 10 cents? Has it gone up or down? When should you buy it? In general, your idea is correct, the higher the price the less you should want the stock. But in some sense, the past price is irrelevant, you can't buy it at the past price. You should buy it now if it's the best option now. And that is based on your assessment of whether it's future prospects are worth the current price (and in fact enough worth enough to make buying the stock the best economic decision you can currently make). Finally, the price may have gone up for a reason. The company may have done something, or some information about the company may have become known, that affects it's future prospects. That might make it a better deal, perhaps even better than it was before the price increase."
},
{
"docid": "194605",
"title": "",
"text": "There are a few situations in which it may be advantageous to exercise early. Wikipedia actually has a good explanation: Option Style, Difference in value To account for the American's higher value there must be some situations in which it is optimal to exercise the American option before the expiration date. This can arise in several ways, such as: An in the money (ITM) call option on a stock is often exercised just before the stock pays a dividend that would lower its value by more than the option's remaining time value. A put option will usually be exercised early if the underlying asset files for bankruptcy.[3] A deep ITM currency option (FX option) where the strike currency has a lower interest rate than the currency to be received will often be exercised early because the time value sacrificed is less valuable than the expected depreciation of the received currency against the strike. An American bond option on the dirty price of a bond (such as some convertible bonds) may be exercised immediately if ITM and a coupon is due. A put option on gold will be exercised early when deep ITM, because gold tends to hold its value whereas the currency used as the strike is often expected to lose value through inflation if the holder waits until final maturity to exercise the option (they will almost certainly exercise a contract deep ITM, minimizing its time value).[citation needed]"
}
] |
8332 | Why do put option prices go higher when the underlying stock tanks (drops)? | [
{
"docid": "445526",
"title": "",
"text": "Options pricing is based on the gap between strike and the current market, and volatility. That's why the VIX, a commonly accepted volatility index, is actually just a weighted blend of S&P 500 future options prices. A general rise in the price of options indicates people don't know whether it will go up or down next, and are therefore less willing to take that risk. But your question is why everything underwater in the puts chain went higher, and that's simple: now that Apple's down, the probability of falling a few more points is higher. Especially since Apple has gone through some recent rough times, and stocks in general are seen as risky these days."
}
] | [
{
"docid": "352894",
"title": "",
"text": "\"Offtopic, but what do you think of the idea of the stock market being a \"\"ponzi scheme\"\"? I've had this same idea that [Mark Cuban reiterated well by writing](http://blogmaverick.com/2008/09/08/talking-stocks-and-money/): >Ive said a lot of this before. The stock market is by definition a ponzi scheme. As long as money keeps on coming in, then there is someone to take the stocks from the sellers. If the amount of money coming in is reduced, the stocks, indexes, et al go down. What if, for who knows whatever reason, the amount of money going into stocks declined significantly ? Who would buy stock from the sellers. I mean goodness gracious, you could see something disastrous happen. Like the Nasdaq dropping from 5000, to under 2000 in just a few years. Its happened before, it can happen again. > >Which is exactly why we get all these nonsensical commercials from brokerages. To keep the money coming in . I wish someone would index the amount of money spent on marketing by mutual funds and brokerages to the Nasdaq and Dow and see if it correlates. > >Money inflows drives the business. We can get all the economic data we ever dreamed of getting, but if money inflows declined significantly for an extended period of time, then every rule of thumb would go out the window until money started flowing in. Yes it would flow in eventually as prices dropped. From big investors like me who wouldnt have gotten hurt by a huge market decline and could come in and buy huge chunks, or companies outright. > >You ? You probably would be like Charles Ponzi’s customers. You wouldnt be able to get your money out of the fund when it went down, and by the time you did, it would be too late. You would have been crushed. > >Ive said it before, a stock that doesnt pay dividends is valued like a baseball card. Just whatever you can sell it for. The concept that you own “your share” of the company is a joke. You are completely at the whim of the CEO and board who will dilute you on a daily basis with stock options, then try to buy back stock to cover it up and push up the price, rewarding the shareholders who get out, rather than those that continue to hold the shares. Meaning you. > >Have you ever seen Warren Buffet talk about buying 100 shares of anything k shares ? or does he take control of , or purchase a material percentage of a company ? > >If you have enough money to have influence , take control or buy it outright, then the stock market can work for you. Thats why I buy stock in public companies that relate to my other business entities. When i pick up the phone and call the CEO of a company i own shares in, they call me back very quickly. When I ask if there are business opportunities that make sense for the company and another company of mine to work together, I wont always get the business, but I will always get a meeting. If Im smart about the investments I make, the more important returns come from the relationships with the companies than the action of the stock. > >If the best you can do is buy shares that are going to be continuously diluted, then you are merely a sucker. There is a good chance that the shares you bought came from shares an insider who got stock options. You just helped dilute yourself with your first share purchase. > >The wealthy can make the stockmarket work for them. Individuals buying shares of stock in non dividend paying stocks… they work for the stockmarket. > >I know Ive painted a pretty bleak picture. > >The stockmarket isnt going away. Would it shock me if the whole thing collapsed ? yes. it would. Its just too engrained in our way of life in the USA. What would change my mind is if a better investment vehicle came along. > >The stockmarket used to be about investing capital in companies that came public or did secondary offerings. That money was used to create amazing businesses and return dividends back to people who truly were investors. There once was a day where most companies paid dividends higher than the interest rates on their bonds. Why ? Because stocks are inherently more risky. If a company goes belly up, bondholders collect first, shareholders usually last. People could buy and hold stocks, and get paid real cash money for being a shareholder in the company at rates far higher than the divident yields we see today. If the company did well, the dividends went up. Investors who held, actually got all their money back in dividends at some point and the rest was gravy. The good ole days. > >But that changed when mutual funds came along and started marketing the concept of growth as a way to attract investors. > >Its not inconceivable that the old mindset could comeback. That a new market of stocks could be created where companies didnt continuously dilute shareholders by issuing stock and options to themselves. Where earnings were earned for the same reason they are in private companies, to not only fund growth, but also provide cash back to investors. Now if that market existed today. Where I could buy 100 shares of stock, and even if it represented just 1/100000 of ownership in the company, I could have confidence that year after year, I would still own 1/100000th of that company, and if that company generated earnings , I would have at least some of that money returned to me. Well then, that wouldnt be a ponzi scheme. That would be a true market of stocks, and I would be happy to recommend to anyone to be careful, but buying stocks in that market could be something worth considering if your appetite for risk canhandle it.\""
},
{
"docid": "215118",
"title": "",
"text": "\"Bull means the investor is betting on a rising market. Puts are a type of stock option where the seller of a put option promises to buy 100 shares of stock from the buyer of the put option at a pre-agreed price called the strike price on any day before expiration day. The buyer of the put option does not have to sell (it is optional, thats why it is called buying an option). However, the seller of the put is required to make good on their promise to the buyer. The broker can require the seller of the put option to have a deposit, called margin, to help make sure that they can make good on the promise. Profit... The buyer can profit from the put option if the stock price moves down substantially. The buyer of the put option does not need to own the stock, he can sell the option to someone else. If the buyer of the put option also owns the stock, the put option can be thought of like an insurance policy on the value of the stock. The seller of the put option profits if the stock price stays the same or rises. Basically, the seller comes out best if they can sell put options that no one ends up using by expiration day. A spread is an investment consisting of buying one option and selling another. Let's put bull and put and spread together with an example from Apple. So, if you believed Apple Inc. AAPL (currently 595.32) was going up or staying the same through JAN you could sell the 600 JAN put and buy the 550 put. If the price rises beyond 600, your profit would be the difference in price of the puts. Let's explore this a little deeper (prices from google finance 31 Oct 2012): Worst Case: AAPL drops below 550. The bull put spread investor owes (600-550)x100 shares = $5000 in JAN but received $2,035 for taking this risk. EDIT 2016: The \"\"worst case\"\" was the outcome in this example, the AAPL stock price on options expiry Jan 18, 2013 was about $500/share. Net profit = $2,035 - $5,000 = -$2965 = LOSS of $2965 Best Case: AAPL stays above 600 on expiration day in JAN. Net Profit = $2,035 - 0 = $2035 Break Even: If AAPL drops to 579.65, the value of the 600 JAN AAPL put sold will equal the $2,035 collected and the bull put spread investor will break even. Commissions have been ignored in this example.\""
},
{
"docid": "154989",
"title": "",
"text": "\"Whether or not you make money here depends on whether you are buying or selling the option when you open your position. You certainly would not make money in the scenario where you are buying options at the open. If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put. We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60. Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a \"\"small\"\" premium - lets say a premium of something like $0.50. The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is \"\"well out of the money\"\", being about 27% below the underlying asset price, the premium would be small. So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable. However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000. For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position. The net profit would then total $5950 less an commissions payable.\""
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "160169",
"title": "",
"text": "Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways. In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference. Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not. One of you has to lose. And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s). Here's an example. Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY. It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with. But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay. Even if the list price is now lower, long term you expect the stock to be worth more than $28. Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do."
},
{
"docid": "469382",
"title": "",
"text": "If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario."
},
{
"docid": "226053",
"title": "",
"text": "Basically the first thing you should do before you invest your money is to learn about investing and learn about what you want to invest in. Another thing to think about is that usually low risk can also mean low returns. As you are quite young and have some savings put aside you should generally aim for higher risk higher return investments and then when you start to reach retirement age aim for less risky lower return investments. In saying that, just because an investment is considered high risk does not mean you have to be exposed to the full risk of that investment. You do this by managing your risk to an acceptable level which will allow you to sleep at night. To do this you need to learn about what you are investing in. As an example about managing your risk in an investment, say you want to invest $50,000 in shares. If you put the full $50,000 into one share and that share price drops dramatically you will lose a large portion of your money straight away. If instead you spent a maximum of $10,000 on 5 different shares, even if one of them falls dramatically, you still have another 4 which may be doing a lot better thus minimising your losses. To take it one step further you might say if anyone of the shares you bought falls by 20% then you will sell those shares and limit your losses to $2000 per share. If the worst case scenario occurred and all 5 of your shares fell during a stock market crash you would limit your total losses to $10,000 instead of $50,000. Most successful investors put just as much if not more emphasis on managing the risk on their investments and limiting their losses as they do in selecting the investments. As I am not in the US, I cannot really comment whether it is the right time to buy property over there, especially as the market conditions would be different in different states and in different areas of each state. However, a good indication of when to buy properties is when prices have dropped and are starting to stabilise. As you are renting at the moment one option you might want to look at is buying a place to live in so you don't need to rent any more. You can compare your current rent payment with the mortgage payment if you were to buy a house to live in. If your mortgage payments are lower than your rent payments then this could be a good option. But whatever you do make sure you learn about it first. Make sure you spend the time looking at for sale properties for a few months in the area you want to buy before you do buy. This will give you an indication of how much properties in that area are really worth and if prices are stable, still falling or starting to go up. Good luck, and remember, research, research and more research. Even if you are to take someone elses advice and recommendations, you should learn enough yourself to be able to tell if their advice and recommendations make sense and are right for your current situation."
},
{
"docid": "445943",
"title": "",
"text": "\"Supply and Demand, pure and simple! There are two basic forms of this - a change in the quantity demanded/supplied at any given price, and a true change in the amount of demand/supply itself. Please note that this can be distinct from the underlying change in the value of the company and/or its expected future cash flows, which are a function of both financial performance and future expectations. If more people want the stock that are willing to sell it at a given price at a given point in time, sellers will begin to offer the stocks at higher prices until the market is no longer willing to bear the new price, and vice versa. This will reduce the quantity of stocks demanded by buyers until the quantity demanded and the quantity supplied once again reach an equilibrium, at which point a transaction occurs. Because people are motivated to buy and sell for different reasons at different times, and because people have different opinions on a constant flow of new information, prices change frequently. This is one of the reasons why executives of a recent IPO don't typically sell all of their stock at once. In addition to legal restrictions and the message this would send to the market, if they flooded the market with additional quantities of stock supplied, all else being equal, since there is no corresponding increase in the quantity demanded, the price would drop significantly. Sometimes, the demand itself for a company's stock shifts. Unlike a simple change in price driven by quantity supplied versus quantity demanded, this is a more fundamental shift. For example, let's suppose that the current demand for rare earth metals is driven by their commercial applications in consumer electronics. Now if new devices are developed that no longer require these metals, the demand for them will fall, regardless of the actions of individual buyers and sellers in the market. Another example is when the \"\"rules of the game\"\" for an industry change dramatically. Markets are behavioral. In this sense prices are most directly driven by human behavior, which hopefully is based on well-informed opinions and facts. This is why sometimes the price keeps going up when financial performance decreases, and why sometimes it does not rise even while performance is improving. This is also why some companies' stock continues to rise even when they lose huge sums of money year after year. The key to understanding these scenarios is the opinions and expectations that buyers and sellers have of that information, which is expressed in their market behavior.\""
},
{
"docid": "501276",
"title": "",
"text": "\"Not cumulative volatility. It's cumulative probability density. Time value isn't linear because PDFs (probability distribution function) aren't linear. It's a type of distribution e.g. \"\"bell-curves\"\") These distributions are based on empirical data i.e. what we observe. BSM i.e. Black-Scholes-Merton includes the factors that influence an option price and include a PDF to represent the uncertainty/probability. Time value is based on historical volatility in the underlying asset price, in this case equity(stock). At the beginning, time value is high since there's time until expiration and the stock is expected to move within a certain range based on historical performance. As it nears expiration, uncertainty over the final value diminishes. This causes probability for a certain price range to become more likely. We can relate that to how people think, which affects the variation in the stock market price. Most people who are hoping for a value increase are optimistic about their chances of winning and will hold out towards the end. They see in the past d days, the stock has moved [-2%,+5%] so as a call buyer, they're looking for that upside. With little time remaining though, their hopes quickly drop to 0 for any significant changes beyond the market price. (Likewise, people keep playing the lottery up until a certain age when they're older and suddenly determine they're never going to win.) We see that reflected in the PDF used to represent options price movements. Thus your time value which is a function of probability decreases in a non-linear fashion. Option price = intrinsic value + time value At expiration, your option price = intrinsic value = stock price - strike price, St >= K, and 0 for St < K.\""
},
{
"docid": "416286",
"title": "",
"text": "So, this isn't always the case, but in the example provided the option is most likely in the money or near the money since the delta is nearly 1 - indicating that a $1 move in the underlying results in a $0.92 move in the option - this will happen when the expiration is very far out or the option is in the money. As expiration gets closer, movements in the underlying become more pronounced in the options because the probability of the stock price moving from its current position is lower. As the probability of the stock price moving goes down, the delta of in the money options approaches 100, eventually reaching 100 at expiration. Another way to word this is that the premium on in the money options shrinks as expiration approaches and the intrinsic value of the option increases as percentage of total value so that movements in the underlying stock price become a greater influence on the option price - hence a greater delta. Again, if the option is out of the money, this is not the case."
},
{
"docid": "69395",
"title": "",
"text": "\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\""
},
{
"docid": "42438",
"title": "",
"text": "Options are an indication what a particular segment of the market (those who deal a lot in options) think will happen. (and just because people think that, doesn't mean it will) Bearing in mind however that people writing covered-calls may due so simply as part of a strategy to mitigate downside risk at the expense of limiting upside potential. The presence of more people offering up options is to a degree an indication they are thinking the price will fall or hold steady, since that is in effect the 'bet' they are making. OTOH the people buying those options are making the opposite bet.. so who is to say which will be right. The balance between the two and how it affects the price of the options could be taken as an indication of market sentiment (within the options market) as to the future direction the stock is likely to take. (I just noticed that Blackjack posted the forumula that can be used to model all of this) To address the last part of your question 'does that mean it will go lower' I would say this. The degree to which any of this puts actual pressure on the stock of the underlying instrument is highly debatable, since many (likely most) people trading in a stock never look at what the options for that stock are doing, but base their decision on other factors such as price history, momentum, fundamentals and recent news about the company. To presume that actions in the options market would put pressure on a stock price, you would need to believe that a signficant fraction of the buyers and sellers were paying attention to the options market. Which might be the case for some Quants, but likely not for a lot of other buyers. And it could be argued even then that both groups, those trading options, and those trading stocks, are both looking at the same information to make their predictions of the likely future for the stock, and thus even if there is a correlation between what the stock price does in relation to options, there is no real causality that can be established. We would in fact predict that given access to the same information, both groups would by and large be taking similar parallel actions due to coming to similar conclusions regarding the future price of the stock. What is far MORE likely to pressure the price would be just the shear number of buyers or sellers, and also (especially since repeal of the uptick rule) someone who is trying to actively drive down the price via a lot of shorting at progressively lower prices. (something that is alleged to have been carried out by some hedge fund managers in the course of 'bear raids' on particular companies)"
},
{
"docid": "118360",
"title": "",
"text": "First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads."
},
{
"docid": "573077",
"title": "",
"text": "\"Being \"\"Long\"\" something means you own it. Being \"\"Short\"\" something means you have created an obligation that you have sold to someone else. If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT. If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them. While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price. The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed. Call and Put options. People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts. Call and Put options have 3 important components. The stock symbol they are actionable against (MSFT in this case), the \"\"strike price\"\" - $52 in this case, and an expiration, June. If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month). They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a \"\"contract\"\". If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10. If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions. This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option. Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value. You can also sell a Call. Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June. So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10. If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)! If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price. If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price. Again, this exercise scenario is overly simplified, but you should understand the process. A Put is the opposite of a Call. If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain. You might buy a $48 June MSFT Put because you fear the stock falling before June. If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss. You will have paid a premium for this right (maybe $0.52/share for example). If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more? Owning a Put can be treated like owning insurance on the stock from a loss in stock price. Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put. HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48. Imagine a scenario that MSFT drops to $30 on some drastically terrible news. While everybody else may buy the stock at $30, you are obligated to buy shares for $48. Not good! When you sold the option, somebody paid you a premium for buying that right from you. Often times you will always keep this premium. Sometimes though, you will have to buy a stock at a steep price compared to market. Now options strategies are combinations of buying and selling calls and puts on the same stock. Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call. I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short. The money I receive from the short $55 Call helps offset the cost of buying the $52 Call. If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me. There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from. A derivative is any financial device that is derived from some other factor. Options are one of the most simple types of derivatives. The value of the option is derived from the real stock price. Bingo? That's a derivative. Lotto? That is also a derivative. Power companies buy weather derivatives to hedge their energy requirements. There are people selling derivatives based on the number of sunny days in Omaha. Remember those calls and puts on stock prices? There are people that sell calls and puts based on the number of sunny days in Omaha. Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets \"\"free\"\" electricity from the sun and they sell that to their customers. On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source. If they own the \"\"Sunny Days in Omaha\"\" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days. For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative. The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model. Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk. The person selling the derivative profits if the number of sunny days is higher than average. The people selling these types of derivatives study the weather in order to make their offers appropriately. This particular example is a fictitious one (I don't believe there is a derivative called \"\"Sunny days in Omaha\"\"), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine. For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it. Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain. These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend...\""
},
{
"docid": "501504",
"title": "",
"text": "What financial instruments are there that are profitable when an underlying assets falls? The instrument you are looking for is called an Option, specifically a Put Option. It allows you, within the validity date, to sell ('Put') the respective shares to the option giver, at the predefined Strike Price. For example, let's assume APPL trades currently at 100 $ per share, and you think they will go down a lot. You buy one Put Option for 100 shares (they always come for larger amounts like 100s) for a Strike Price of 90 $, and pay 5 $ for it (it would be cheap if nobody believes they will fall that much). Note the last sentence under 2. - it is rather easy and very common when trading options to make complete losses. You have been warned. Are they available for IPOs? They could be available for IPOs, even before the IPO. However, someone has to put them out (some large bank, typically), which is some effort, and they would only do that if they expect enough interest and volume in the trade. most of the time, there will be no such options on the market. Are they available for foreign stocks?Yes, but again only selectively - only if the stock is well known and interesting enough for a broad audience."
},
{
"docid": "12432",
"title": "",
"text": "\"The blue line is illustrating the net profit or loss the investor will realise according to how the price of the underlying asset settles at expiry. The x-axis represents the underlying asset price. The y-axis represents the profit or loss. In the first case, the investor has a \"\"naked put write\"\" position, having sold a put option. The strike price of the put is marked as \"\"A\"\" on the x-axis. The maximum profit possible is equal to the total premium received when the option contract was sold. This is represented by that portion of the blue line that is horizontal and extending from the point above that point marked \"\"A\"\" on the x-axis. This corresponds to the case that the price of the underlying asset settles at or above the strike price on the day of expiry. If the underlying asset settles at a price less than the strike price on the day of expiry, then the option with be \"\"in the money\"\". Therefore the net settlement value will move from a profit to a loss, depending on how far in the money the option is upon expiry. This is represented by the diagonal line moving from above the \"\"A\"\" point on the x-axis and moving from a profit to a loss on the y-axis. The diagonal line crosses the x-axis at the point where the underlying asset price is equal to \"\"A\"\" minus the original premium rate at which the option was written - i.e., net profit = zero. In the second case, the investor has sold a put option with a strike price of \"\"B\"\" and purchase a put option with a strike price \"\"A\"\", where A is less than B. Here, the reasoning is similar to the first example, however since a put option has been purchase this will limit the potential losses should the underlying asset move down strongly in value. The horizontal line above the x-axis marks the maximum profit while the horizontal line below the x-axis marks the maximum loss. Note that the horizontal line above the x-axis is closer to the x-axis that is the horizontal line below the x-axis. This is because the maximum profit is equal to the premium received for selling the put option minus the premium payed for buying the put option at a lower strike price. Losses are limited since any loss in excess of the strike price \"\"A\"\" plus the premium payed for the put purchased at a strike price of \"\"A\"\" is covered by the profit made on the purchased put option at a strike price of \"\"A\"\".\""
},
{
"docid": "488009",
"title": "",
"text": "$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value."
},
{
"docid": "214003",
"title": "",
"text": "\"For personal investing, and speculative/ highly risky securities (\"\"wasting assets\"\", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some remaining value in those call options, and take a short-term loss. Or, you could try this. Let's say you own an exchange traded call option on a listed stock (very general case). I don't know how much time remains before the option's expiration date. Be that as it may, I could suggest this to effect a \"\"recovery\"\". You'll be long the call and short the stock. This is called a delta hedge, as you would be delta trading the stock. Delta refers to short-term price volatility. In other words, you'll short a single large block of the stock, then buy shares, in small increments, whenever the market drops slightly, on an intra-day basis. When the market price of the stock rises incrementally, you'll sell a few shares. Back and forth, in response to short-term market price moves, while maintaining a static \"\"hedge ratio\"\". As your original call option gets closer to maturity, roll it over into the next available contract, either one-month, or preferably three-month, time to expiration. If you don't want to, or can't, borrow the underlying stock to short, you could do a synthetic short. A synthetic short is a combination of a long put and a short call, whose pay-off replicates the short stock payoff. I personally would never purchase an unhedged option or warrant. But since that is what you own right now, you have two choices: Get out, or dig in deeper, with the realization that you are doing a lot of work just to trade your way back to a net zero P&L. *While you can make a profit using this sort of strategy, I'm not certain if that is within the scope of the money.stachexchange.com website.\""
}
] |
8351 | What happens when a calendar spread is assigned in a non-margin account? | [
{
"docid": "273142",
"title": "",
"text": "\"I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your \"\"insurance\"\" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations\""
}
] | [
{
"docid": "431349",
"title": "",
"text": "\"If you're making $80k, and you're consulting for an extra $400/wk or $20,800/yr, you're earning a total of $100,800. That's assuming you do it for a full calendar year of course. Either way, assuming you can deduct/exclude at least $11k of income (as almost everyone can), you're paying 25% on your marginal dollars. (This also assumes you're single; if you're married/filing jointly, this may not be true.) Note, you're right at the edge of the 25% bracket if you earn this in a full calendar year - but if you have a 401k, health insurance, or other reductions you'll be fine. Additionally, for this year you'll be under (again assuming single and no other income) because you aren't earning a full year's worth. Assuming your $80k is precisely taken care of by your regular withholding, then, you will literally pay 25%*$400/week in additional taxes - $100 per week. So if you are paid biweekly, you need to add $200/week in withholding on your W-4. If you expect to overpay taxes (if you own a house with a mortgage for example, you often do), you can reduce it some, but adding $200/biweekly paycheck should bring you right to where you were before the extra income. The general rule is to calculate your marginal (not effective) tax rate before the new income, assuming default withholding takes care of that, and then withhold the marginal rate for the new income [checking that the new income doesn't push the marginal rate up - if so, calculate in two parts, the part in the lower marginal rate and the part in the higher marginal rate]. You can google \"\"2014 tax brackets\"\", or look at the IRS tax tables for detailed information about marginal rates.\""
},
{
"docid": "542098",
"title": "",
"text": "\"In addition to the information in the other answer, I would suggest looking at an economic calendar. These provide the dates and values of many economic announcements, e.g. existing home sales, durable orders, consumer confidence, etc. Yahoo, Bloomberg, and the Wall Street Journal all provide such calendars. Yahoo provides links to the raw data where available; Bloomberg and the WSJ provide links to their article where appropriate. You could also look at a global economic calendar; both xe.com and livecharts.co.uk provide these. If you're only interested in the US, the Yahoo, Bloomberg, and WSJ calendars may provide a higher signal-to-noise ratio, but foreign announcements also affect US markets, so it's important to get as much perspective as possible. I like the global economic calendars I linked to above because they rate announcements on \"\"priority\"\", which is a quick way to learn which announcements have the greatest effect. Economic calendars are especially important in the context of an interview because you may be asked a follow-up question. For example, the US markets jumped in early trading today (5/28/2013) because the consumer confidence numbers exceeded forecasts (from the WSJ calendar, 76.2 vs 2.3). As SRKX stated, it's important to know more than the numbers; being able to analyze the numbers in the context of the wider market and being aware of the fundamentals driving them is what's most important. An economic calendar is a good way to see this information quickly and succinctly. (I'm paraphrasing part of my answer to another question, so you may or may not find some of that information helpful as well; I'm certainly not suggesting you look at the website of every central bank in the morning. That's what an economic calendar is for!)\""
},
{
"docid": "82128",
"title": "",
"text": "If a parent has access to the birth certificate, social security card, passport, and other legal documentation indicating family relationship along with the minimum balance, I expect either online or in-person creating a Joint Tenancy With Right of Survivorship account wouldn't be too difficult and allows for either party to add or remove funds. Conceivably the bank account could have been created as a Custodial account but risks when the son reaches the Age of Majority on the account she would lose control. If you have access to the above mentioned documents and depending on parental rights assigned after the divorce you can follow what is suggested in this link: https://blog.smartcredit.com/2011/07/28/what-age-can-i-have-a-credit-report/ to get the credit reports. The credit reports should list what lender accounts are tied to your son. They won't list any 'credit' assets like savings or investment accounts: http://www.myfico.com/crediteducation/in-your-credit-report.aspx As suggested a credit freeze would be appropriate. If he has reached 18 already, he can do it himself. Unless she under a Termination of Parental Rights order what I mentioned above should still hold."
},
{
"docid": "48718",
"title": "",
"text": "\"You can hold a wide variety of investments in your TFSA account, including stocks such as SLF. But if the stocks are being purchased via a company stock purchase plan, they are typically deposited in a regular margin account with a brokerage firm (a few companies may issue physical stock certificates but that is very rare these days). That account would not be a TFSA but you can perform what's called an \"\"in-kind\"\" transfer to move them into a TFSA that you open with either the same brokerage firm, or a different one. There will be a fee for the transfer - check with the brokerage that currently holds the stock to find out how costly that will be. Assuming the stock gained in value while you held it outside the TFSA, this transfer will result in capital gains tax that you'll have to pay when you file your taxes for the year in which the transfer occurs. The tax would be calculated by taking the value at time of transfer, minus the purchase price (or the market value at time of purchase, if your plan allowed you to buy it at a discounted price; the discounted amount will be automatically taxed by your employer). 50% of the capital gain is added to your annual income when calculating taxes owed. Normally when you sell a stock that has lost value, you can actually get a \"\"capital loss\"\" deduction that is used to offset gains that you made in other stocks, or redeemed against capital gains tax paid in previous years, or carried forward to apply against gains in future years. However, if the stock decreased in value and you transfer it, you are not eligible to claim a capital loss. I'm not sure why you said \"\"TFSA for a family member\"\", as you cannot directly contribute to someone else's TFSA account. You can give them a gift of money or stocks, which they can deposit in their TFSA account, but that involves that extra step of gifting, and the money/stocks become their property to do with as they please. Now that I've (hopefully) answered all your questions, let me offer you some advice, as someone who also participates in an employee stock purchase plan. Holding stock in the company that you work for is a bad idea. The reason is simple: if something terrible happens to the company, their stock will plummet and at the same time they may be forced to lay off many employees. So just at the time when you lose your job and might want to sell your stock, suddenly the value of your stocks has gone way down! So you really should sell your company shares at least once a year, and then use that money to invest in your TFSA account. You also don't want to put all your eggs in one basket - you should be spreading your investment among many companies, or better yet, buy index mutual funds or ETFs which hold all the companies in a certain index. There's lots of good info about index investing available at Canadian Couch Potato. The types of investments recommended there are all possible to purchase inside a TFSA account, to shelter the growth from being taxed. EDIT: Here is an article from MoneySense that talks about transferring stocks into a TFSA. It also mentions the importance of having a diversified portfolio!\""
},
{
"docid": "42315",
"title": "",
"text": "Sometimes what happens is that a creditor will hand over accounts to a collection agency for action, and after a period of time, it may be reassigned to yet another collection agency if the first one was not successful. Theoretically, this should not be cause to reset the date of collections on your bureau file, but that very well could have happened here. Another instance when this happens is when someone contacts a creditor about a collection item on their report, either to pay or dispute it. Either way, this restarts the 7-year clock on that collection item, so if a debt is old enough, sometimes the best course of action is to let it go. If a debt has been in collections for 4 years, let's say, and you decide to pay it off now, your score isn't going to improve because you paid the collection enough to offset the effect of having it refreshed on your bureau file. Besides, creditors know how old the debt is, so waiting 4 years to pay it isn't going to win you any favors in their eyes anyway. To your question though, it seems to me the most likely thing is that somehow the debt was refreshed through some action by the creditor or one of the agencies assigned to collect on it. I hope this helps. Good luck!"
},
{
"docid": "456408",
"title": "",
"text": "Having been in exactly this position (not in a debt hole, built a budget to get a better view of what spending is), I can say what the greatest gift it brings is: it's a decision tool. When you are spending out of only one account, you often make decisions based on the total money in the account. “Should we go out for dinner? Can I make this impulse purchase?” This is terrible, because many, if not all, of those dollars are already intended for certain future expenses like groceries, bills, etc. You can't see how many of those dollars are discretionary. A budget is like having many accounts. Instead of looking at your real account(s) to make spending decisions, you look at your budget lines. You to want impulse buy a gadget — do you have money remaining in a relevant budget line? If yes, the decision is yours, if no, the budget is telling you that you don't have dollars for that.* Similarly for more prosaic purchases — you want to splurge on some non-staple groceries to make a fancy dinner or try out a new recipe, and the budget line for Groceries will tell you if you can do that. Instead of looking at (e.g.) $6000 in a chequing account, you're looking at $600 (assigned) − $146.86 (spend) = $453.14 (available) in a monthly groceries budget line. Just like you can now see where your money has been going, by maintaining and using your budget lines, and having every single dollar you spend go through the budget (to show your totally assigned, total spent, and total remaining), you can continue to see where your money is going in near real-time. You're no longer looking at bills and statements to figure out what's going on and plan, you're looking at money flows and future intentions, as you should be. This approach to budgeting has completely changed our finances. So that's what a budget is for: real-time spending decision-making control over your money, which for us has translated into a lovely mix of painless austerity in spending categories where austerity is smart, and guilt-free spending in more indulgent categories because we have already determined exactly how much we can afford and wish to spend. * A budget line with insufficient funds doesn't actually take the decision entirely away from you though. If a budget line doesn't have funds to spare for a given purchase, you can still make the purchase — but now you're also making the decision to go and revise your budget, taking dollars away from other budget lines to adjust the line you've overspent, to keep the budget accurate."
},
{
"docid": "111871",
"title": "",
"text": "The reason I don't know of any banks who would offer this to you (even if you held the investment account with their bank) is that there is no upside to the bank. It is a good idea for you, but what would they have to gain from this arrangement? The reason banks require a down payment is underwriting quality. If you can afford a significant down payment, they know that there is a significantly lower chance that you will default. However, if you were to provide an investment account as collateral, you would receive all the upside, and any downside would reduce their collateral as a percent of the amount loaned. This sort of idea could potentially work along the lines of a margin call (ie you have to provide additional capital if your asset value drops), but this would have the effective of leveraging the bank's risk, when their objective is to lower their risk through requiring a down payment. I don't see a reason why the bank would take on the risk that you would need to provide additional capital down the road with no upside for them. Additionally, many banks have backed away from the kinds of zero-down-payment and negative-amortization-ARM loans that got them (or the people they sold them to) in trouble over the last few years in an effort to reduce how much risk they take on. I think that in theory, you'd have to offer a lot more benefit to the bank, and that in practice it's probably a non-starter right now."
},
{
"docid": "418336",
"title": "",
"text": "Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund? SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. SIPC is free for ordinary investors. To get the same from elsewhere one has to pay the premium. Edit: The event we are saying is a large brokrage firm, takes all of the Margin Money from Customer Accounts and loses it and also sell off all the stocks actually shown as being held in customer account ... that would be to big. While its not clear as to what exactly will happens, my guess is that the limits per customers will go down as initial payments. Subsequent payments will only be done after recover of funds from the bankrupt firm. What normally happens when a brokrage firm goes down is some of the money from customers account is diverted ... stocks are typically safe and not diverted. Hence the way SIPC works is that it will give the money back to customer faster to individuals. In absence of SIPC individual investors would have had to fight for themselves."
},
{
"docid": "572951",
"title": "",
"text": "From personal experience, I can tell you that bank account numbers are not unique. Someone from another branch of my bank was able to withdraw money from my account at my branch because they had the same account number. You are supposed to enter your branch number on the withdrawal slip in front of your account number. The person who got my money did not do this. Because it was at my branch, the teller debited my account for the transaction. I caught this on my monthly statement and immediately complained to my branch manager. He was able to retrieve the withdrawal slip and saw what had happened. He credited my account and said he was going to talk to the teller who should have asked for the branch number and/or should have noticed that the name and address on the withdrawal slip did not match those on my account. I would not have thought that the bank would allow this situation considering how many numbers are available to assign but they did."
},
{
"docid": "422477",
"title": "",
"text": "\"As you've observed, when you're dealing with that amount of money, you're going to have to give up FDIC guarantees. That means that keeping the money in a bank account carries some risk with it: if that particular bank goes bust, you could lose most of your money. There are a few options to stretch the FDIC limit such as CDARS, but likely can't handle your hypothetical $800 million. So, what's a lucky winner to do? There are a few options, including treasury securities, money market funds, and more general capital investments such as stocks and bonds. Which one(s) are best depend on what your goals are, and what kind of risks you find acceptable. Money in the bank has two defining characteristics: its value is very stable, and it is liquid (meaning you can spend it very easily, whenever you want, without incurring costs). Treasury securities and money market funds each focus on one of these characteristics. A treasury security is a piece of paper (or really, an electronic record) saying that the US Federal Government owes you money and when they will pay it back. They are very secure in that the government has never missed a payment, and will move heaven and earth to make sure they won't miss one in the future (even taking into account recent political history). You can buy and sell them on an open market, either through a broker or directly on the Treasury's website. The major downside of these compared to a bank account is that they're not as liquid as cash: you own specific amounts of specific kinds of securities, not just some number of dollars in an account. The government will pay you guaranteed cash on specified dates; if you need cash on different dates, you will need to sell the securities in the open market and the price will be subject to market fluctuations. The other \"\"cash-like\"\" option is money market funds. These are a type of mutual fund offered by financial companies. These funds take your money and spread it out over a wide variety of very low risk, very short term investments, with the goal of ensuring that the full value will never go down and is available at any time. They are very liquid: you can typically transfer cash quickly and easily to a normal bank account, write checks directly, and sometimes even use \"\"online bill pay\"\"-like features. They have a very good track record for stability, too, but no one is guaranteeing them against something going terribly wrong. They are lower risk than a (non-FDIC-insured) bank account, since the investments are spread out across many institutions. Beyond those two somewhat \"\"cash-like\"\" options, there are of course other, more general investments such as stocks, bonds, and real estate. These other options trade away some degree of stability, liquidity, or both, in exchange for better expected returns.\""
},
{
"docid": "402726",
"title": "",
"text": "\"Because it takes 3 business days for the actual transfer of stock to occur after you buy or sell to the next owner, your cash is tied up until that happens. This is called the settlement period. Therefore, brokers offer \"\"margin\"\", which is a form of credit, or loan, to allow you to keep trading while the settlement period occurs, and in other situations unrelated to the presented question. To do this you need a \"\"margin account\"\", you currently have a \"\"cash account\"\". The caveat of having a retail margin account (distinct from a professional margin account) is that there is a limited amount of same-day trades you can make if you have less than $25,000 in the account. This is called the Pattern Day Trader (PDT) rule. You don't need $25k to day trade, you will just wish you had it, as it is easy to get your account frozen or downgraded to a cash account. The way around THAT is to have multiple margin accounts at different brokerages. This will greatly increase the number of same day trades you can make. Many brokers that offer a \"\"solution\"\" to PDT to people that don't have 25k to invest, are offering professional trading accounts, which have additional fees for data, which is free for retail trading accounts. This problem has nothing to do with: So be careful of the advice you get on the internet. It is mostly white noise. Feel free to verify\""
},
{
"docid": "516635",
"title": "",
"text": "If the intention is after maturing to convert back the Rupees into Euro, its not a good idea. Generally the interest rate in Euro and the interest rate in Rupee are offset by the predicted exchange rate. i.e. the Rupee will fall compared to Euro by similar rate. The point at Step 5 is generally what is expected to happen. At times this can be less or more depending on the local / global factors. So on average you will not make money, some times you will loose and sometimes you will gain. Plus I have shown flat conversion rates, typically there is a Buy Rate and a Sell Rate for a pair of currencies. There is a difference / spread that is the margins of Bank. Typically in the range of 2 to 4% depending on the currency pairs."
},
{
"docid": "337776",
"title": "",
"text": "\"Not really. They didn't account for the fact that the income would first be spread out over 8 billion people. I don't know if anyone in Keynes time was thinking about dozens of industries closed in America and moved directly to China. Had you suggested that to them I think they would have thought it ridiculous but that is in fact what happened. Also, theories on trade suggest that it makes everyone better off. So if you ask any economist at any given point if more free trade is better they will probably say \"\"yes\"\". That was all fine until about the 1980s when computer networks made it possible to globalize supply chains. Suddenly vast CAD/CAM systems sprung up and suddenly you could pay a worker a $1 a day to do what someone in the US was getting $45 an hour to do. The economics of it for corporations were absolutely irresistible and they lobbied hard to make sure noting got in the way (note that free trade pacts passed under both parties). In order to mask the fact that this was happening a giant credit bubble was created in the developed world using the newfound savings of the developing world. Living standards were temporarily maintained in developed countries by borrowing money from the people they had sent their jobs to. The effects of this are all pretty clear. Most developed nations are now burdened under a mountain of debt. Central banks are having a difficult time maintaining enough liquidity to support the illusion of buying power in developed nations that is no longer present without enormous artificial support. Many Americans alive today cannot even remember a time when America's current account deficit was not deeply in the red. So far the only thing propping up developed nations is the use (and threat of use) of vastly superior military force. That hasn't really changed but every day the developing nations encroach a little bit more on the resources of the world for consumption rather than just production. As that happens the hollowed out shells of the developed world start to feel more and more pressured as they come to realize they really don't have much of value to trade. America's biggest exports are food and services. Food is surely important but one farmer can farm like 100,000 acres. And services just means we can export the time of a Wall Street douchebag at a high rate of pay. yippee.\""
},
{
"docid": "311285",
"title": "",
"text": "If your business is operating on an accrual basis, the income would be counted as occurring in 2016. If your business is operating on a cash basis, the income would be counted as occurring in 2017. If you don't know what that means, you are probably using a cash basis for your business, which means income and expenses take place when you actually receive or incur them. According to cash-based principles, if you receive the check in 2017, that is when you report the income. For more information, see Accounting Methods in Publication 538. In summary, you can choose both as an individual and as a business which accounting method you want to use, and it is not trivial to change it. Cash basis on a calendar year is more or less the default, and is recommended unless you have a specific reason for doing something else."
},
{
"docid": "135411",
"title": "",
"text": "\"I think your question might be coming from a misunderstanding of how corporate structures work - specifically, that a corporation is a legal entity (sort of like a person) that can have its own assets and debts. To make it clear, let's look at your example. We have two founders, Albert and Brian, and they start a corporation called CorpTech. When they start the company, it has no assets - just like you would if you owned nothing and had no bank account. In order to do anything, CorpTech is going to need some money. So Albert and Brian give it some. They can give it as much as they want - they can give it property if they want, too. Usually, people don't just put money into a corporation without some sort of agreement in place, though. In most cases, the agreement says something like \"\"Each member will own a fraction of the company that is in proportion to this initial investment.\"\" The way that is done varies depending on the type of corporation, but in general, if Albert ends up owning 75% and Brian ends up owning 25%, then they probably valued their contributions at 75% and 25% of the total value. These contributions don't have to be money or property, though. They could just be general \"\"know-how,\"\" or \"\"connections,\"\" or \"\"an expectation that they will do some work.\"\" The important thing is that they agree on the value of these contributions and assign ownership of the company according to that agreement. If they don't have an agreement, then the laws of the state that the company is registered in will say how the ownership is assigned. Now, what \"\"ownership\"\" means can be different depending on the context. When it comes to decision-making, you could \"\"own\"\" one percentage of the company in terms of votes, but when it comes to shares of future profits, you could own a different amount. This is why you can have voting and non-voting versions of a company's stock, for example. So this is a critical point - the ownership of a company is independent of the individual contributions to the company. The next part of your question is related to this: what happens when CorpTech sees an opportunity to make an investment? If it has enough cash on hand (because of the initial investment, or through financing, or reinvested profits), then the decision to make the investment is made according to Albert and Brian's ownership agreement, and they spend it. The money doesn't belong to them individually anymore, it belongs to CorpTech, and so CorpTech is spending it. They are just making the decision for CorpTech to spend it. This is why people say the owners are not financially liable beyond their initial investment. If the deal is bad, and they lose the money, the most they can lose is what they initially put in. On the other hand, if CorpTech doesn't have the money, then they have to figure out a way to get it. They might decide to each put in an amount in proportion to their ownership, so that their stake doesn't change. Or, Albert might agree to finance the deal 100% in exchange for a larger share of ownership. Or, he could agree to fund all of it without a larger stake, because Brian is the one who set the deal up. Or, they might take out a loan, and not need to invest any new money. Or, they might find an investor who agrees to put in the needed money in exchange for a a 51% share, in which case Albert and Brian will have to figure out how to split the remaining 49% if they agree to the deal. The details of how all of this would work depend on the structure (LLC, LLP, C-corp, S-corp, etc), but in general, the idea is that the company has assets and debts, and the owners can have voting rights, equity rights, and rights to future profits in any type of split that they want, regardless of what the companies assets and debts are, or what their initial investment was.\""
},
{
"docid": "231662",
"title": "",
"text": "\"Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that. (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet - We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred. EDIT - With respect to davmp's comment, I'll offer the other extreme - In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal. The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 \"\"zero bracket\"\" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate). Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between. In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc. Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income.\""
},
{
"docid": "271920",
"title": "",
"text": "\"In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded. FINRA has supplemented that regulation with an anti-\"\"free rider\"\" rule, Rule 4210(f)(9), which reads No member shall permit a customer (other than a broker-dealer or a “designated account”) to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker-dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze. It is only funds from uncleared sold equities that are prohibited from being used to purchase securities. This means that an equity in one's account that is settled can be sold and can be purchased only with settled funds. Once the amount required to purchase is in excess of the amount of settled funds, no more purchases can be made, so an equity sold by an account with settled funds can be repurchased immediately with the settled funds so long as the settled funds can fund the purchase. Margin A closed position is not considered a \"\"long\"\" or \"\"short\"\" since it is an account with one loan of security and one asset of security and one cash loan and one cash liability with the excess or deficit equity equal to any profit or loss, respectively, thus unexposed to the market, only to the creditworthiness of the clearing & settling chain. Only open positions are considered \"\"longs\"\" or \"\"shorts\"\", a \"\"long\"\" being a possession of a security, and a \"\"short\"\" being a liability, because they are exposed to the market. Since unsettled funds are not considered \"\"longs\"\" or \"\"shorts\"\", they are not encumbered by previous trades, thus only the Reg T rules apply to new and current positions. Cash vs Margin A cash account cannot purchase with unsettled funds. A margin account can. This means that a margin account could theoretically do an infinite amount of trades using unsettled funds. A cash account's daily purchases are restricted to the amount of settled funds, so once those are exhausted, no more purchases can be made. The opposite is true for cash accounts as well. Unsettled securities cannot be sold either. In summation, unsettled assets can not be traded in a cash account.\""
},
{
"docid": "498597",
"title": "",
"text": "An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want."
},
{
"docid": "72024",
"title": "",
"text": "\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \"\"American Style\"\" options and \"\"European Style\"\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \"\"risk reduction\"\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \"\"market\"\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \"\"margin department\"\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\""
}
] |
8351 | What happens when a calendar spread is assigned in a non-margin account? | [
{
"docid": "472516",
"title": "",
"text": "I can't speak for all brokerages but the one I use requires cash accounts to have cash available to purchase the stock in this situation. With the cash available you would be able to purchase the stock if the option was exercised. Hope this helps"
}
] | [
{
"docid": "284411",
"title": "",
"text": "\"Your premise is false. When you withdraw money from a Tax Free Savings Account (TFSA), there is no tax due. Yes, you can read that again: withdrawals from a TFSA are tax free. They are labeled \"\"tax free\"\" for a good reason! After-tax money is deposited, and then from that point forward, no tax, no tax, no tax. :-) On a \"\"normal\"\", non-registered investment or savings account with no special treatment, your investment earnings will be taxed whenever gains are realized or income received (e.g. dividends or interest). You will necessarily have less in a normal non-registered investment or savings account compared to a TFSA, as long as the rate of return was positive, i.e. growing. Perhaps you were thinking not of comparing a regular investment account to a TFSA, but rather to a Registered Retirement Savings Plan (RRSP)? In the case of an RRSP, there is an up-front tax deduction, then earnings grow tax-deferred, and then on withdrawal, income tax is paid at regular rates. Even then, with RRSPs, if your marginal tax rate remains the same over time (not necessarily a reasonable assumption, but let's go with it) then you should still realize more after-tax income from your RRSP than from a normal non-registered investment or savings account. (Though, there's likely an exception case when most income came as qualified dividends and the capital itself hasn't appreciated.)\""
},
{
"docid": "456408",
"title": "",
"text": "Having been in exactly this position (not in a debt hole, built a budget to get a better view of what spending is), I can say what the greatest gift it brings is: it's a decision tool. When you are spending out of only one account, you often make decisions based on the total money in the account. “Should we go out for dinner? Can I make this impulse purchase?” This is terrible, because many, if not all, of those dollars are already intended for certain future expenses like groceries, bills, etc. You can't see how many of those dollars are discretionary. A budget is like having many accounts. Instead of looking at your real account(s) to make spending decisions, you look at your budget lines. You to want impulse buy a gadget — do you have money remaining in a relevant budget line? If yes, the decision is yours, if no, the budget is telling you that you don't have dollars for that.* Similarly for more prosaic purchases — you want to splurge on some non-staple groceries to make a fancy dinner or try out a new recipe, and the budget line for Groceries will tell you if you can do that. Instead of looking at (e.g.) $6000 in a chequing account, you're looking at $600 (assigned) − $146.86 (spend) = $453.14 (available) in a monthly groceries budget line. Just like you can now see where your money has been going, by maintaining and using your budget lines, and having every single dollar you spend go through the budget (to show your totally assigned, total spent, and total remaining), you can continue to see where your money is going in near real-time. You're no longer looking at bills and statements to figure out what's going on and plan, you're looking at money flows and future intentions, as you should be. This approach to budgeting has completely changed our finances. So that's what a budget is for: real-time spending decision-making control over your money, which for us has translated into a lovely mix of painless austerity in spending categories where austerity is smart, and guilt-free spending in more indulgent categories because we have already determined exactly how much we can afford and wish to spend. * A budget line with insufficient funds doesn't actually take the decision entirely away from you though. If a budget line doesn't have funds to spare for a given purchase, you can still make the purchase — but now you're also making the decision to go and revise your budget, taking dollars away from other budget lines to adjust the line you've overspent, to keep the budget accurate."
},
{
"docid": "231662",
"title": "",
"text": "\"Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that. (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet - We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred. EDIT - With respect to davmp's comment, I'll offer the other extreme - In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal. The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 \"\"zero bracket\"\" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate). Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between. In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc. Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income.\""
},
{
"docid": "258077",
"title": "",
"text": "A bit of poking around brought me to this thread on the Motley Fool, asking the same basic question: I think the problem is the stock price. For a stock to be sold short, it has to be marginable which means it has to trade over $ 5.00. The broker, therefore, can't borrow the stock for you to sell short because it isn't held in their clients' margin accounts. My guess is that Etrade, along with other brokers, simply exclude these stocks for short selling. Ivestopedia has an explanation of non-marginable securities. Specific to stocks under $5: Other securities, such as stocks with share prices under $5 or with extremely high betas, may be excluded at the discretion of the broker itself."
},
{
"docid": "331248",
"title": "",
"text": "Forms for the Colorado LLCs are online. You can find the link to the dissolution form here, and instructions here. IRS instructions are here. That's what they want: To close your business account, send us a letter that includes the complete legal name of the entity, the EIN, the business address and the reason you wish to close your account. If you have a copy of the EIN Assignment Notice that was issued when your EIN was assigned, include that when you write to us at: Internal Revenue Service Cincinnati, Ohio 45999 Everything is pretty straight forward. Note that you might be required to file a initial/final tax return if you had any transactions."
},
{
"docid": "395506",
"title": "",
"text": "No, at least not noticeably so. The majority of what HFT does is to take advantage of the fact that there is a spread between buy and sell orders on the exchange, and to instantly fill both orders, gaining relatively risk-free profit from some inherent inefficiencies in how the market prices stocks. The end result is that intraday trading of the non-HFT nature, as well as speculative short-term trading will be less profitable, since HFT will cause the buy/sell spread to be closer than it would otherwise be. Buying and holding will be (largely) unaffected since the spread that HFT takes advantage of is miniscule compared to the gains a stock will experience over time. For example, when you go to buy shares intending to hold them for a long time, the HFT might cost you say, 1 to 2 cents per share. When you go to sell the share, HFT might cost you the same again. But, if you held it for a long time, the share might have doubled or tripled in value over the time you held it, so the overall effect of that 2-4 cents per share lost from HFT is negligible. However, since the HFT is doing this millions of times per day, that 1 cent (or more commonly a fraction of a cent) adds up to HFTs making millions. Individually it doesn't affect anyone that much, but collectively it represents a huge loss of value, and whether this is acceptable or not is still a subject of much debate!"
},
{
"docid": "69419",
"title": "",
"text": "I used Oanda.com for Forex trading a couple years ago. I am in the US but I think it's available in the UK as well. At the time, they had no commissions and their spreads were comparable or better than other brokers. The spreads would just quite considerably when a big event like a Fed meeting or the unemployment figures come out, but I suspect that that is the same everywhere (or they have constant spreads and reject trades). They did not push the high leverages like other brokers were at the time. I considered this to be very reputable, because though the profits to be gotten through 100:1 leverage are great advertising, the reality is that one unexpected spike and a newbie would lose a bunch of money in a margin call."
},
{
"docid": "457729",
"title": "",
"text": "It's worth pointing out that a bulk of the bond market is institutional investors (read: large corporations and countries). For individuals, it's very easy to just put your cash in a checking account. Checking accounts are insured and non-volatile. But what happens when you're GE or Apple or Panama? You can't just flop a couple billion dollars in to a Chase checking account and call it a day. Although, you still need a safe place to store money that won't be terribly volatile. GE can buy a billion dollars of treasury bonds. Many companies need tremendous amounts of collateral on hand, amounts far in excess of the capacity of a checking account; those funds are stored in treasuries of some sort. Separately, a treasury bond is not a substitute investment for an S&P index fund. For individuals they are two totally different investments with totally different characteristics. The only reason an individual investor should compare the return of the S&P against the readily available yield of treasuries is to ensure the expected return of an equity investment can sufficiently pay for the additional risk."
},
{
"docid": "445652",
"title": "",
"text": "The limits on an HSA are low enough that there's no real danger of overfunding it. The limits max out at (as of 2011, for an individual) at just over $3000 per year. Sometime in the next few years, you will have more than $3000 in health care expenses. It might be something like a car accident, acid reflux, a weird mole that the doctor wants to check out, a broken toe, a few nasty cavities that need to be filled, an expensive antibiotic, or something else entirely. Or, it might be something less dramatic, getting eaten away by copays and contact lenses. When that happens, you want the peace of mind that you can pay for your deductible plus any other expenses. Keep in mind that even a $5000 deductible can cost you more than $5000 out-of-pocket; either because of non-insured expenses, or simply an illness that straddles multiple calendar years. Besides, it's not like your HSA money is going anywhere; even if you never touch it, it's just a savings account that you can't touch until you turn 65. And if you do truly have an emergency, you can get at it if you have to. Even if your HSA is filled with several years' worth of deductibles, it's still a way to shield thousands of dollars a year from taxes, with luck moving them into lower-tax years 40 years from now. And it's a way that doesn't involve income limits or mandatory withdrawals."
},
{
"docid": "24856",
"title": "",
"text": "\"In general, there should be a \"\"liquidity premium\"\" which means that less-liquid stocks should be cheaper. That's because to buy such a stock, you should demand a higher rate of return to compensate for the liquidity risk (the possibility that you won't be able to sell easily). Lower initial price = higher eventual rate of return. That's what's meant when Investopedia says the security would be cheaper (on average). Is liquidity good? It depends. Here's what illiquidity is. Imagine you own a rare piece of art. Say there are 10 people in the world who collect this type of art, and would appreciate what you own. That's an illiquid asset, because when you want to sell, maybe those 10 people aren't buying - maybe they don't want your particular piece, or they all happen to be short on funds. Or maybe worse, only one of them is buying, so they have all the negotiating leverage. You'll have to lower your price if you're really in a hurry to sell. Maybe if you lower your price enough, you can get one of the 10 buyers interested, even if none were initially. An illiquid asset is bad for sellers. Illiquid means there aren't enough buyers for you to get a bidding war going at the time of your choosing. You'll potentially have to wait around for buyers to turn up, or for a stock, maybe you'd have to sell a little bit at a time as buyers want the shares. Illiquid can be bad for buyers, too, if the buyer is for some reason in a hurry; maybe nobody is selling at any given time. But, usually buyers don't have to be in a hurry. An exception may be if you short sell something illiquid (brokers often won't let you do this, btw). In that case you could be a forced buyer and this could be very bad on an illiquid security. If there are only one or two sellers out there, they now have the negotiating leverage and they can ask whatever price they want. Illiquidity is very bad when mixed with margin or short sales because of the potential for forced trades at inopportune times. There are plenty of obscure penny stocks where there might be only one or two trades per day, or fewer. The spread is going to be high on these because the bids at a given time will just be lowball offers from buyers who aren't really all that interested, unless you want to give your stock away, in which case they'll take it. And the asks are going to be from sellers who want to get a decent price, but maybe there aren't really any buyers willing to pay, so the ask is just sitting there with no takers. The bids and asks may be limit orders that have been sitting open for 3 weeks and forgotten about. Contrast with a liquid asset. For example, a popular-model used car in good condition would be a lot more liquid than a rare piece of art, though not nearly as liquid as most stocks. You can probably find several people that want to buy it living nearby, and you're not going to have to drop the price to get a buyer to show up. You might even get those buyers in a bidding war. From illiquid penny stocks, there's a continuum all the way up to the most heavily-traded stocks such as those in the S&P500. With these at a given moment there will be thousands of buyers and sellers, so the spread is going to close down to nearly zero. If you think about it, just statistically, if there are thousands of bids and thousands of asks, then the closest bid-ask pair is going to be close together. That's a narrow spread. While if there are 3 bids and 2 asks on some illiquid penny stock, they might be dollars away from each other, and the number of shares desired might not match up. You can see how liquidity is good in some situations and not in others. An illiquid asset gives you more opportunity to get a good deal because there aren't a lot of other buyers and sellers around and there's some opportunity to \"\"negotiate\"\" within the wide spread. For some assets maybe you can literally negotiate by talking to the other party, though obviously not when trading stocks on an exchange. But an illiquid asset also means you might get a bad deal, especially if you need to sell quickly and the only buyers around are making lowball offers. So the time to buy illiquid assets is when you can take your time on both buying and selling, and will have no reason for a forced trade on a particular timeline. This usually means no debt is involved, since creditors (including your margin broker) can force you to trade. It also means you don't need to spend the money anytime soon, since if you suddenly needed the money you'd have a forced trade on your hands. If you have the time, then you put a price out there that's very good for you, and you wait for someone to show up and give you that price - this is how you get a good deal. One more note, another use of the term liquid is to refer to assets with low or zero volatility, such as money market funds. An asset with a lot of volatility around its intrinsic or true value is effectively illiquid even if there's high trade volume, in that any given point in time might not be a good time to sell, because the price isn't at the right level. Anyway, the general definition of a liquid investment is one that you'd be comfortable cashing out of at a moment's notice. In this sense, most stocks are not all that liquid, despite high trading volume. In different contexts people may use \"\"liquid\"\" in this sense or to mean a low bid-ask spread.\""
},
{
"docid": "584175",
"title": "",
"text": "\"As your financial situation becomes more complex, it becomes increasingly more difficult to keep track of everything with a simple spreadsheet. It is much easier to work with software that is specifically designed for personal finances. A good program will allow you to keep track of as many accounts as you want. A great program will completely separate the different account balances (location of the money) from the budget category balances (purpose of the money). Let me explain: When you set up the software, you will enter in all of your different bank accounts with their balances. Perhaps you have three savings accounts and two checking accounts. It doesn't matter. When you are done entering those, the software will total them up, and the next job you have is assigning this money into different budget categories: your spending plan. For example, you might put some of it into a grocery category, some into an entertainment category, some will be assigned to pay your next car insurance bill, and some will be an emergency fund. (These categories are completely customizable, and your budget can be as broad or as detailed as you wish.) When you deposit your paycheck, you assign that new income into budget categories as well. It doesn't matter at this point which accounts your money are located in; the only thing that matters is that you own this money and you have access to it. Now, you might want to use a certain account for a certain budget category, but you are not required to do so. (For example, your grocery category money will probably be in your checking account, since you will be spending from it regularly. Your emergency fund will hopefully be in an account that earns a little higher interest.) Once you take this approach, you might find you don't need as many bank accounts as you thought you did, because the software does the job of separating your money into different \"\"accounts\"\" for different purposes. I've written before about the different categories of personal finance software. YNAB, Mvelopes, and EveryDollar are three examples of software that will take this approach of separating the concepts of the bank account and the budget category.\""
},
{
"docid": "271920",
"title": "",
"text": "\"In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded. FINRA has supplemented that regulation with an anti-\"\"free rider\"\" rule, Rule 4210(f)(9), which reads No member shall permit a customer (other than a broker-dealer or a “designated account”) to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker-dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze. It is only funds from uncleared sold equities that are prohibited from being used to purchase securities. This means that an equity in one's account that is settled can be sold and can be purchased only with settled funds. Once the amount required to purchase is in excess of the amount of settled funds, no more purchases can be made, so an equity sold by an account with settled funds can be repurchased immediately with the settled funds so long as the settled funds can fund the purchase. Margin A closed position is not considered a \"\"long\"\" or \"\"short\"\" since it is an account with one loan of security and one asset of security and one cash loan and one cash liability with the excess or deficit equity equal to any profit or loss, respectively, thus unexposed to the market, only to the creditworthiness of the clearing & settling chain. Only open positions are considered \"\"longs\"\" or \"\"shorts\"\", a \"\"long\"\" being a possession of a security, and a \"\"short\"\" being a liability, because they are exposed to the market. Since unsettled funds are not considered \"\"longs\"\" or \"\"shorts\"\", they are not encumbered by previous trades, thus only the Reg T rules apply to new and current positions. Cash vs Margin A cash account cannot purchase with unsettled funds. A margin account can. This means that a margin account could theoretically do an infinite amount of trades using unsettled funds. A cash account's daily purchases are restricted to the amount of settled funds, so once those are exhausted, no more purchases can be made. The opposite is true for cash accounts as well. Unsettled securities cannot be sold either. In summation, unsettled assets can not be traded in a cash account.\""
},
{
"docid": "524149",
"title": "",
"text": "\"I've been using YNAB4 for the last few years, and I like it so much that I haven't switched to the web version (new YNAB) yet. However, I have played around with the web version a little, and here is what I have discovered. Despite the different look of the credit card account and the lengthy dissertation on the credit card differences in the Transition Guide, credit cards are handled almost exactly the same in the new YNAB as they were in YNAB4. You enter credit card spending transactions in the same way as YNAB4. When you enter a transaction, money is pulled out of the budget category you select. The only difference is that in YNAB4, this money was considered \"\"gone.\"\" Now, that money moves from your budget category into the new credit card category. When it comes time to pay the credit card bill, you also enter this transaction in the same way as before. It is entered as a transfer of money from your checking account to your credit card account. The only difference here is that with new YNAB, the funds are deducted from your credit card category. This is handled automatically, so you don't have to think about it if you don't want to. If you always pay your credit card bill in full, you never have to budget money manually into the credit card category. The money will already be there from when you entered the credit card spending transactions. The only time you would manually budget money into the credit card spending category is if you have old credit card debt that you are trying to pay off. A quick example, in pictures: I start out with $10,000 in my checking account, and no credit card debt: I've got all $10,000 in my \"\"Fun Money\"\" category: Now, I spend $100 at the Store: You can see that, just like in YNAB4, the credit card account is now in the red $100, and the checking account balance has not changed. In the categories, my Fun Money category is down $100 to $9,900, just like it would be in YNAB4. The only difference is that there is now $100 in the new Credit Card Payments category. When it is time to pay the bill, I enter an account transfer, just like in YNAB4: Note that the Credit Card balance is back to $0, and the Checking Account balance is now down to $9,900. The Credit Card Payment budget category is now magically back to $0: The above example starts with a zero balance on the credit card. However, most people will have a non-zero balance on their credit card when they first start a budget. In YNAB4, when you added a credit card with a (negative) balance, the debt was shown in a budget category called \"\"Pre-YNAB Debt.\"\" You then added money to this budget category until it went to zero, and then you didn't need this budget category anymore. With new YNAB, credit card balances are not shown in budget categories. If you add a credit card account with a balance, the debt is not shown in the budget categories. To pay off this debt, you can fund the Credit Card Payments category. After this existing balance amount is paid off, you won't need to fund the Credit Card Payments category anymore as long as you properly assign each new credit card purchase to a funded budget category.\""
},
{
"docid": "46529",
"title": "",
"text": "It is a general truism but the reasons are that the rules change dramatically when you simply have more capital. Here are some examples, limited to particular kinds of markets: Under $2,000 in capital Nobody is going to offer you a margin account, and if you do get one it isn't with the best broker on commissions and other capabilities. So this means cash only trading, enjoy your 3 business day settlement periods. This means no shorting, confining a trader to only buy and hold strategies, making them more dependent on luck than a more capable trader. This means it is more expensive to buy stock, since you have to put down 100% of the cash to hold a share, whereas someone with more money puts down less capital to hold the exact same number of shares. This means no covered options strategies or spreads, again limiting the market directions where a trader could earn Under $25,000 in capital In the stock market, the pattern day trader rule applies to retail margin accounts with a balance under $25,000 and this severally limits the kinds of trades you are able to take because of the limit in the number of trades you can take in a given time period. Forget managing a multi-leg option position when the market isn't moving your direction. Under $125,000 in capital Worse margin rules. You excluded portfolio margin from your post, but it is a key part of the answer Over $1,000,000 in capital Participate in private placements, regulation D offerings reserved for accredited investors. These days, as buy and hold investments, these generally have more growth potential than publicly traded offerings. Over $5,000,000 in capital You can easily get the compliance and risk manager to turn the other way on margin rules. This is not conjecture, leverage up to infinity, try not to bankrupt yourself and the trading firm."
},
{
"docid": "88947",
"title": "",
"text": "At the end of each calendar year the mutual fund company will send you a 1099 form. It will tell you and the IRS what your account earned. You will see boxes for: You will end up paying taxes on these, unless the fund is part of a 401K or IRA. These taxes will be due even if you never sold any shares. They are due even if it was a bad year and the value of your account went down. Most if not all states will levy an income tax yon your dividends and capital gains each year. When you sell your shares you may also owe income taxes if you made a profit. The actual taxes due is a more complex calculation due to long term vs short term, and what other gains or losses you have. Partial sales also take into account which shares are sold."
},
{
"docid": "66805",
"title": "",
"text": "The eligibilty of the deduction is based on what the borrowed money is used to purchase and NOT what asset is used as collateral. So at the beginning of your mortgage, 10% of the interest is deductible because the entire loan was used to purchase the condo. But when you withdraw money from the account the additional interest is usually not deductible. It can get confusing with all the withdrawals and payments that will be coming in and out of the account if you happen to use it a lot like a chequing account. An easy example would be if you only paid the interest on the loan... Say you had a $100 000 loan at 5% APY (for simplicity's sake). After one year, you would have paid $5000 interest. $500 of the would be deductible given that your office is 10% of the condo. Then you buy a $1000 couch and continue to only pay interest for the next year. You would have paid $5100 interest... $5000 on money borrowed to buy the condo, and $100 on money borrowed to buy the couch. So you can still only deduct $500. What happens when you pay back $500 against the line of credit? Could you designate that 100% of the money should be applied to the non-deductible interest? Or does it have to applied proportionally? I don't know. I think it'd would be wise to separate the loans somehow. Manulife may even have some tools to facilitate that. However, I wouldn't recommend the Manulife One product. I looked into when I was buying my house two years ago, and at that time it was too expensive. The rate was the same that other banks were charging for a home equity line of credit (which was prime at the time). You can replicate the Manulife One in a cheaper way using a traditional mortgage and a home equity line of credit... The majority of the loan will be the traditional mortgage at (hopefully) a cheap rate. Then you can use your line of credit as the chequing account."
},
{
"docid": "345851",
"title": "",
"text": "\"Cart's answer describes well one aspects of puts: protective puts; which means using puts as insurance against a decline in the price of shares that you own. That's a popular use of puts. But I think the wording of your question is angling for another strategy: Writing puts. Consider: Cart's strategy refers to the buyer of a put. But, on the transaction's other side is a seller of the put – and ultimately somebody created or wrote that put contract in the first place! That first seller of the put – that is, the seller that isn't just selling one they themselves bought – is the put writer. When you write a put, you are taking on the obligation to buy the other side's stock at the put exercise price if the stock price falls below that exercise price by the expiry date. For taking on the obligation, you receive a premium, like how an insurance company charges a premium to insure against a loss. Example: Imagine ABC Co. stock is trading at $25.00. You write a put contract agreeing to buy 100 shares of ABC at $20.00 per share (the exercise price) by a given expiration date. Say you receive $2.00/share premium from the put buyer. You now have the obligation to purchase the shares from the put buyer in the event they are below $20.00 per share when the option expires – or, technically any time before then, if the buyer chooses to exercise the option early. Assuming no early assignment, one of two things will happen at the option expiration date: ABC trades at or above $20.00 per share. In this case, the put option will expire worthless in the hands of the put buyer. You will have pocketed the $200 and be absolved from your obligation. This case, where ABC trades above the exercise price, is the maximum profit potential. ABC trades below $20.00 per share. In this case, the put option will be assigned and you'll need to fork over $2000 to the put buyer in exchange for his 100 ABC shares. If those shares are worth less than $18.00 in the market, then you've suffered a loss to the extent they are below that price (times 100), because remember – you pocketed $200 premium in the first place. If the shares are between $18.00 to $20.00, you're still profitable, but not to the full extent of the premium received. You can see that by having written a put it's possible to acquire ABC stock at a price lower than the market price – because you received some premium in the process of writing your put. If you don't \"\"succeed\"\" in acquiring shares on your first write (because the shares didn't get below the exercise price), you can continue to write puts and collect premium until you do get assigned. I have read the book \"\"Money for Nothing (And Your Stocks for FREE!)\"\" by Canadian author Derek Foster. Despite the flashy title, the book essentially describes Derek's strategy for writing puts against dividend-paying value stocks he would love to own. Derek picks quality companies that pay a dividend, and uses put writing to get in at lower-than-market prices. Four Pillars reviewed the book and interviewed Derek Foster: Money for Nothing: Book Review and Interview with Derek Foster. Writing puts entails risk. If the stock price drops to zero then you'll end up paying the put exercise price to acquire worthless shares! So your down-side can easily be multiples of the premium collected. Don't do this until and unless you understand exactly how this works. It's advanced. Note also that your broker isn't likely to permit you to write puts without having sufficient cash or margin in your account to cover the case where you are forced to buy the stock. You're better off having cash to secure your put buys, otherwise you may be forced into leverage (borrowing) when assigned. Additional Resources: The Montreal Exchange options guide (PDF) that Cart already linked to is an excellent free resource for learning about options. Refer to page 39, \"\"Writing secured put options\"\", for the strategy above. Other major options exchanges and organizations also provide high-quality free learning material:\""
},
{
"docid": "72024",
"title": "",
"text": "\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \"\"American Style\"\" options and \"\"European Style\"\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \"\"risk reduction\"\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \"\"market\"\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \"\"margin department\"\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\""
},
{
"docid": "228810",
"title": "",
"text": "No, if your stock is called away, the stock is sold at the agreed upon price. You cannot get it back at your original price. If you don't want your stock to be called, make sure you have the short call position closed by expiration if it is ITM. Also you could be at risk for early assignment if the option has little to no extrinsic value, although probably not. But when dividends are coming, make sure you close your short ITM options. If the dividend is worth more than the extrinsic value, you are pretty much guaranteed to be assigned. Been assigned that way too many times. Especially in ETFs where the dividends aren't dates are not always easy to find. It happens typically during triple witching. If you are assigned on your short option, you will be short stock and you will have to pay the dividend to the shareholder of your short stock. So if you have a covered call on, and you are assigned, your stock will be called away, and you will have to pay the dividend."
}
] |
8378 | Should I wait a few days to sell ESPP Stock? | [
{
"docid": "178684",
"title": "",
"text": "Usually the amount of the ESPP stocks is very small compared to the overall volume of the trading, so it shouldn't matter. But check if for your company it not so (look at the stock history for the previous ESPP dates, and volumes)."
}
] | [
{
"docid": "576694",
"title": "",
"text": "Remember, carrying debt on a credit card and waiting to pay it is increased risk in the event something happens and you can't pay it off. I have 1 CC and I have it set to auto-pay on the day it's due (paid in full each month as I don't carry debt anymore - learned that lesson a hard way :) ). So the day it's due it auto-drafts out of my checking. No worries of late payments, missed payments, etc. If you feel that having any balance is bad then by all means pay it off the minute you get your statement. It should come at the same time each month (or close to the same time) and you should be able to setup an auto-payment to pay it off in full as soon as the new statement goes live. To be honest, those extra few days of supposed interest saved by keeping the money in your checking account is so minimal that's it's probably not worth it. Most checking is horrible in interest (all my 'high interest' checking accounts are now less than 1% APR. boo.) and if you're late 1 day then bam! All that earned interest is gone in 1 late fee..."
},
{
"docid": "467853",
"title": "",
"text": "I did this for the last tax year so hopefully I can help you. You should get a 1099-B (around the same time you're getting your W-2(s)) from the trustee (whichever company facilitates the ESPP) that has all the information you need to file. You'll fill out a Schedule D and (probably) a Form 8949 to describe the capital gains and/or losses from your sale(s). It's no different than if you had bought and sold stock with any brokerage."
},
{
"docid": "95415",
"title": "",
"text": "\"You may look into covered calls. In short, selling the option instead of buying it ... playing the house. One can do this on the \"\"buying side\"\" too, e.g. let's say you like company XYZ. If you sell the put, and it goes up, you make money. If XYZ goes down by expiration, you still made the money on the put, and now own the stock - the one you like, at a lower price. Now, you can immediately sell calls on XYZ. If it doesn't go up, you make money. If it does goes up, you get called out, and you make even more money (probably selling the call a little above current price, or where it was \"\"put\"\" to you at). The greatest risk is very large declines, and so one needs to do some research on the company to see if they are decent -- e.g. have good earnings, not over-valued P/E, etc. For larger declines, one has to sell the call further out. Note there are now stocks that have weekly options as well as monthly options. You just have to calculate the rate of return you will get, realizing that underneath the first put, you need enough money available should the stock be \"\"put\"\" to you. An additional, associated strategy, is starting by selling the put at a higher than current market limit price. Then, over a couple days, generally lowering the limit, if it isn't reached in the stock's fluctuation. I.e. if the stock drops in the next few days, you might sell the put on a dip. Same deal if the stock finally is \"\"put\"\" to you. Then you can start by selling the call at a higher limit price, gradually bringing it down if you aren't successful -- i.e. the stock doesn't reach it on an upswing. My friend is highly successful with this strategy. Good luck\""
},
{
"docid": "123911",
"title": "",
"text": "\"Are there any known protections against obvious typos in the stock systems themselves? Do you know of stock exchanges which flags or rejects obviously wrong buy or sell orders (e.g., selling something for 0.1% of its highest buy order, or buying something at 1000 times the current sell order)? Does the stock exchange \"\"community\"\" have some sort of \"\"rules of conduct\"\" for this? Yes and No. Most Stock Exchanges for certain set of stocks have circuit breakers that are more to restrict panic selling or artificial drop in prices. The kind of controls you are mentioning can't be put on individual trades; as stock exchanges are meant to guarantee / provide neutral ground for the price to be determined by demand / supply. There are quite a few companies that have quickly lost value and become worthless with a day or two. Hence it becomes difficult to determine if something is error by an individual or not. Once an order is submitted to the exchange, it can't afford the to and fro to verify ... as even few seconds make a different in volatile markets. The kind of errors reported are difficult for an individual to make as he would not own the kind of stocks and the stock broker will stop the trade from being placed.\""
},
{
"docid": "188839",
"title": "",
"text": "\"The stock should fall by approximately the amount of the dividend as that is what is paid out. If you have a stock trading at $10/share and it pays a $1/share dividend, the price should drop to $9 as what was trading before the dividend was paid would be both the dividend and the stock itself. If the person bought just for the dividend then it would likely be neutral as there isn't anything extra to be gained. Consider if this wasn't the case. Wouldn't one be able to buy a stock a few days before the dividend and sell just after for a nice profit? That doesn't make sense and is the reason for the drop in price. Similarly, if a stock has a split or spin-off there may be changes in the price to reflect that adjustment in value of the company. If I give you 2 nickels for a dime, the overall value is still 10 cents though this would be 2 coins instead of one. Some charts may show a \"\"Dividend adjusted\"\" price to factor out these transactions so be careful of what prices are quoted.\""
},
{
"docid": "556696",
"title": "",
"text": "Typically, the discount is taxable at sale time But what about taxes? When the company buys the shares for you, you do not owe any taxes. You are exercising your rights under the ESPP. You have bought some stock. So far so good. When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income. Source: Turbotax. Second source. Your pretax rate of return would be: 17% (100/85) In your scenario where the stock price is fixed at $100. Your tax rate would be your marginal rate. If the stock stayed at 100, you would still be taxed as income on $15/share (the discount) and would receive no benefit for holding the stock one year. Assuming you are in the 25% tax bracket, your after tax rate of return would be 13% ((15*.75)+85)/85)"
},
{
"docid": "567244",
"title": "",
"text": "When the deal closes, will it be as if I sold all of my ESPP shares with regards to taxes? Probably. If the deal is for cash and not stock exchange, then once the deal is approved and closed all the existing shareholders will sell their shares to the buyer for cash. Is there any way to mitigate this? Unlikely. You need to understand that ESPP is just a specific way to purchase shares, it doesn't give you any special rights or protections that other shareholders don't have."
},
{
"docid": "130827",
"title": "",
"text": "\"So is knowledge of unannounced products simply not considered material nonpublic information? Well \"\"material\"\" is relative but it certainly is nonpublic information. And trading based on that information would likely be considered illegal if it is actually material. Many companies require that employees with material non-public info get stock trades approved by their legal department. This protects not only the employee but the employer from SEC scrutiny. If the legal department determines that the employee has non-public info that is the genesis of the stock trade, they might deny the request. In many cases these employees receive stock through ESPP, ISO and/or RSUs and often sell while in possession of information about unannounced products. Just receiving stock as part of as part of a compensation program would not be illegal, provided it was part of a normal compensation package and not deliberately awarded in advance of these types of events. Selling or outright buying stock (including RSUs) with that kind of information would certainly be scrutinized. An employee is granted RSUs, they vest 7 months before announcement of a new product. The employee knows the exact specifications of the product. If they sell the vested stock before the announcement would this constitute insider trading or not? Why? The law is not meant to prevent people from investing in their own company just because they know future plans. So knowledge of an announcement 7 months out may not be considered material. If, however, you sold stock the day (or a week) before some announcement that caused the stock to fall, then that would probably be scrutinized. Or, if you traded shortly before an announcement of a new, revolutionary product that was set to be released in seven months, and the stock rose, then you might be scrutinized. So there is a lot of gray area, but remember that the spirit of the law is to prevent people from benefiting unfairly with non-public information. It would be hard to prove that gaining on a stock trade 7 months before a product announcement would be considered \"\"unfair gain\"\". A lot can happen in that time.\""
},
{
"docid": "133373",
"title": "",
"text": "It has got to do with the irrationality of humans. The so called long term investor is in it for the long term, they are not worried about market fluctuations nor timing the market. But yet they will aim to try to get a bargain when they buy in. It is contradictory in a way. Think about it; if I buy a stock and it drops by 30% I am not worried because I am in it for the long term, but I am worried about getting 1% off when I buy it. They usually tend to buy when the stock starts falling. However, what they don’t realise is when a stock starts falling there is no telling when it will stop. So even if they get a bargain for that day, it is usually quickly wiped out a few days later. Instead, of waiting for the price to find support and start recovering, they are eager to buy what they think is a bargain. I think this type of long term investing is very risky, and the main reason is because the investor has no plan. They just try to buy so called bargain stocks and hold them until they need the money (usually in retirement). But what happens if the stock price is lower when they want to retire than when they bought it? I hope no long term investor was trying to retire in 2008. If they simply had a plan to indicate when they would buy and under what conditions they would sell, and have a risk management plan in place, then maybe they could reduce their risk somewhat and conserve their capital. A good article to read on this is What's Wrong With Long-Term Investing."
},
{
"docid": "246221",
"title": "",
"text": "ESPP tax treatment is complicated. If you received a discount on the purchase of your stock, that discount is taxable as ordinary income when you sell the stock. Any profit about the market value when the stock was purchased is taxed based upon the holding period of the stock. If you have held the stock less than a year, the profit is taxed at your marginal tax rate (ie taxed as ordinary income). If the stock is held for more than a year, it is taxed at a special capital gains tax rate, which ranges from 0-20% depending on your marginal tax rate (most people pay 15%)."
},
{
"docid": "429196",
"title": "",
"text": "\"As @ApplePie pointed out in their answer, at any given time there is a finite amount of stock available in a company. One subtlety you may be missing is that there is always a price associated with an offer to buy shares. That is, you don't put in an order simply to buy 1 share of ABC, you put in an order to buy 1 share of ABC for $10. If no one is willing to sell a share of ABC for $10, then your order will go unfilled. This happens millions of times a day as traders try to figure the cheapest price they can get for a stock. Practically speaking, there is always a price at which people are willing to sell their shares. You can put in a market order for 1 share of ABC, which says essentially \"\"I want one share of ABC, and I will pay whatever the market deems to be the price\"\". Your broker will find you 1 share, but you may be very unhappy about the price you have to pay! While it's very rare for a market to have nobody willing to sell at any price, it occasionally happens that no one is willing to buy at any price. This causes a market crash, as in the 2007-2008 financial crisis, when suddenly everyone became very suspicious of how much debt the major banks actually held, and for a few days, very few traders were willing to buy bank stocks at any price.\""
},
{
"docid": "122485",
"title": "",
"text": "Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal."
},
{
"docid": "466711",
"title": "",
"text": "Because buying at discount provides a considerable safety of margin -- it increases the likelihood of profiting. The margin serves to cushion future adverse price movement. Why is so much effort made to get a small percentage off an investment, if one is then willing to let the investment drop another 20% or more with the reason of being in it for the long term? Nobody can predict the stock price. Now if a long term investor happens to buy some stocks and the market crashes the next day, he could afford to wait for the stock prices to bounce back. Why should he sells immediately to incur a definite loss, should he has confidence in the underlying companies to recover eventually? One can choose to buy wisely, but the market fluctuation is out of his/her control. Wouldn't you agree that he/she should spend much efforts on something that can be controlled?"
},
{
"docid": "168402",
"title": "",
"text": "\"I am in a different situation, because I earn more than I spend, but I have found that I need to make the money inaccessible if I want to really avoid spending it. I used to just throw my paychecks into a high-yield savings account, but eventually the balance was large enough that a \"\"large purchase\"\" didn't seem like \"\"that much\"\" (because I would have had so much left in the account after the purchase). It was way too easy for me to spend way too much. Now, I invest my savings automatically. The obvious benefit is my money has a much higher growth rate than a simple savings account (especially with fed interest rates so low). I invest most of my savings in 401(k)/IRA retirement accounts, where there are severe penalties for withdrawing prior to retirement age. Then, I invest a significant portion to a regular brokerage account, where the money is invested in stock and bond funds. This money is accessible within a few days of whenever I need it. The remainder of my savings goes into a savings account as cash I can get to at any time. All 3 accounts grow with every paycheck (market fluctuations aside). This 3-tiered system helps me to categorize my savings as \"\"Never, ever touch\"\" (retirement accounts), \"\"Touch, only if I can wait 3 days and am willing to pay taxes\"\" (brokerage account), or \"\"touch whenever you need it, with no penalties\"\" (Savings account). If my savings account grows too much, I'll move money from there to the brokerage account (where it has more growth potential). The longer my money is invested in the brokerage accounts, the less taxes I'll need to pay when I sell/withdraw the funds, so that's even more incentive for me to keep those funds where they are. I have credit cards, so in my opinion, having to wait 3 days for funds from my investment account to become accessible is considered \"\"accessible in an emergency,\"\" because my credit cards can be used to cover a large purchase for 3 days, and as long as I pay it off within the grace period, there's no interest charged. tl;dr investing is probably the smartest way to both grow your money and prevent the urge to spend it right away. My advice is to start with a 401(k) or IRA as soon as you can, since the younger you are, the more time until retirement that your money has to compound. Investing $100 more a month can mean hundreds of thousands of additional dollars in your account when you're ready to retire.\""
},
{
"docid": "186453",
"title": "",
"text": "A few reasons. First, it's hard to buy a stock that has never gone up, and isn't necessarily wise to do so. Even if you just wait for a stock go down, what if you wait and it goes up two dollars, then drops 10 cents? Has it gone up or down? When should you buy it? In general, your idea is correct, the higher the price the less you should want the stock. But in some sense, the past price is irrelevant, you can't buy it at the past price. You should buy it now if it's the best option now. And that is based on your assessment of whether it's future prospects are worth the current price (and in fact enough worth enough to make buying the stock the best economic decision you can currently make). Finally, the price may have gone up for a reason. The company may have done something, or some information about the company may have become known, that affects it's future prospects. That might make it a better deal, perhaps even better than it was before the price increase."
},
{
"docid": "166885",
"title": "",
"text": "You have no idea where interest rates will go. A year or two ago people thought 3% was absurdly low, why buy them? And then interest rates dropped even further, so the people who bought then got more interest AND the present value went up since then. If you'd done nothing you would have lost money. Now, rates are REALLY absurdly low. What do? Well, they could drop even more! It's possible. We could also have 20 years of flatline - see Japan. Sitting on your hands loses money. What else should you do? Put your money in risky equities? A lot of people these days are buying dividend paying stocks now. It's extremely foolhardy to treat stocks as fixed income because they are very far from it. Overextending yourself and taking on too equity risk, IMO, is FAR more risky than accepting low interest rates+interest rate risk. Finally: I don't exactly use bonds to make money, I use it as a safe haven while I wait for stocks to do something. Stocks go up, I sell some and buy bonds. Bonds go up I sell them and buy more stock. It's nice to get a little interest on the side but not critical. I could use cash (or 1month tbills) but I'm comfortable with the amount of risk-return that 5-10year bonds provide."
},
{
"docid": "278630",
"title": "",
"text": "Firstly what are you trading that you could lose more than you put in? If you are simply trading stocks you will not lose more than you put in, unless you are trading on margin. A limit order is basically that, a limit on the maximum price you want your buy order bought at or the minimum price you want your sell order sold at. If you can't be glued to the screen all day when you place a limit order, and the market moves the opposite way, you may miss out on your order being executed. Even if you can be in front of the screen all day, you then have to decide if you want to chase the market of miss out on your purchase or sale. For example, if a stock is trading at $10.10 and you put a limit buy order to buy 1000 shares at or below $10.00 and the price keeps moving up to $10.20, then $10.30 and then $10.50, until it closes the day at $11.00. You then have the choice during the day to miss out on buying the shares or to increase your limit order in order to buy at a higher price. Sometime if the stock is not very liquid, i.e. it does not trade very often and has low volume, the price may hit $10.00 and you may only have part of your order executed, say 500 out of your 1000 shares were bought. This may mean that you may have to increase the price of your remaining order or be happy with only buying 500 shares instead of 1000. The same can happen when you are selling (but in reverse obviously). With market order, however, you are placing a buy order to buy at the next bid price in the depth or a sell order to sell at the next offer price in the depth. See the market depth table below: Note that this price depth table is taken before market open so it seems that the stock is somewhat illiquid with a large gap between the first and second prices in the buyers (bid) prices. When the market opened this gap is closed, as WBC is a major Australian bank and is quite liquid. (the table is for demonstration purposes only). If we pretend that the market was currently open and saw the current market depth for WBC as above, you could decide to place a limit sell order to sell 1000 shares at say $29.91. You would sell 100 shares straight away but your remaining 900 sell order will remain at the top of the Sellers list. If other Buyers come in at $29.91 you may get your whole sale completed, however, if no other Buyers place orders above $29.80 and other Sellers come into the market with sell orders below $29.91, your remaining order may never be executed. If instead you placed a market sell order you would immediately sell 100 shares at $29.91 and the remaining 900 shares at $29.80. (so you would be $99 or just over 0.3% worse off than if you were able to sell the full 1000 shares at $29.91). The question is how low would you have had to lower your limit order price if the price for WBC kept on falling and you had to sell that day? There are risks with whichever type of order you use. You need to determine what the purpose of your order is. Is it to get in or out of the market as soon as possible with the possibility of giving a little bit back to the market? Or is it to get the price you want no matter how long it takes you? That is you are willing to miss out on buying the shares (can miss out on a good buy if the price keeps rising for weeks or months or even years) or you are willing to miss out on selling them right now and can wait for the price to come back up to the price you were willing to sell at (where you may miss out on selling the shares at a good price and they keep on falling and you give back all your profits and more). Just before the onset of the GFC I sold some shares (which I had bought a few years earlier at $3.40) through a market order for $5.96. It had traded just above $6 a few days earlier, but if instead of a market order I had placed a limit order to sell at $6.00 or more I would have missed out on the sale. The price never went back up to $6 or above, and the following week it started dropping very quickly. It is now trading at about $1.30 and has never gone back above $2.00 (5.5 years later). So to me placing a limit order in this case was very risky."
},
{
"docid": "184559",
"title": "",
"text": "I've done my taxes using turbotax for years and they were not simple, Schedule C (self-employed), rental properties, ESPP, stock options, you name it. It's a lot of work and occasionally i did find bugs in TurboTax. ESPP were the biggest pain surprisingly. The hardest part is to get all the paperwork together and you'd have to do it when you hire an accountant anyway. That said this year i am using an accountant as i incorporated and it's a whole new area for me that i don't have time to research. Also in case of an audit i'd rather be represented by a pro. I think the chance of getting audited is smaller when a CPA prepares your return."
},
{
"docid": "279775",
"title": "",
"text": "The reason it's not automatic is that Questrade doesn't want to force you to convert in margin accounts at the time of buying the stock. What if you bought a US stock today and the exchange rate happened to be very unfavorable (due to whatever), wouldn't you rather wait a few days to exchange the funds rather than lose on conversion right away? In my opinion, Questrade is doing you a favor by letting you convert at your own convenience."
}
] |
8378 | Should I wait a few days to sell ESPP Stock? | [
{
"docid": "102237",
"title": "",
"text": "An instant 15% profit sounds good to me, so you can't go wrong selling as soon as you are able. Here are a couple other considerations: Tax implications: When you sell the stock, you have to pay taxes on the profit (including that 15% discount). The tax rate you pay is based on how long you wait to sell it. If you wait a certain amount of time (usually 2 years, but it will depend on your specific tax codes) before you sell, you could be subject to lower tax rates on that profit. See here for a more detailed description. This might only apply if you're in the US. Since you work for the company, you may be privy to a bit more information about how the company is run and how likely it is to grow. As such, if you feel like the company is headed in the right direction, you may want to hold on the the stock for a while. I am generally wary of being significantly invested in the company you work for. If the company goes south, then the stock price will obviously drop, but you'll also be at risk to be laid off. As such you're exposed much more risk than investing in other companies. This is a good argument to sell the stock and take the 15% profit.* * - I realize your question wasn't really about whether to sell the stock, but more for when, but I felt this was relevant nonetheless."
}
] | [
{
"docid": "434812",
"title": "",
"text": "ESPP is common among US companies, often with a framework similar to your outline. In the US, some ESPPs allow sales of shares to be considered qualifying (subject to capital gains rather than ordinary income tax) if they are sold at least 2 years after the enrollment date and at least 1 year after the purchase date. These details can vary from one plan to another and will be stated in the company's ESPP enrollment documents. Do look at the high and low values of the stock over the last year. If it swings up and down more than 15% (or whatever the discount is), then that risk should be a factor in your decision. If the stock is trending upward over the long term and you are confident in the durability of the company, then you might favor holding."
},
{
"docid": "309538",
"title": "",
"text": "You can use Norbet's Gambit to convert between USD and CAD either direction. I have never personally done this, but I am planning to convert some CAD to USD soon, so I can invest in USD index funds without paying the typical 2% conversion fee. You must be okay with waiting a few days for the trades to settle, and okay with the fact that the exchange rate will almost certainly change before you sell the shares in the opposite currency. The spread on DLR.TO is about 0.01% - 0.02%, and you also have brokerage commissions and fees. If you use a discount broker the commissions and fees can be quite low. EG. To transfer $5000 USD to CAD using Questrade, you would deposit the USD into a Questrade account and then purchase ~500 units of DLR.U.TO , since it is an ETF there is no commission on the purchase. Then you request that they journal the shares over to DLR.TO and you sell them in CAD (will have about a $5 fee in CAD, and lose about $1 on the spread) and withdraw. The whole thing will have cost you $6 CAD, in lieu of ~$100 you would pay if you did a straightforward conversion with a 2% exchange fee. The difference in fees scales up as the amount you transfer increases. Someone has posted the chat log from when they requested their shares be journaled from DLR.TO to DLR.U.TO here. It looks like it was quite straightforward. Of course there is a time-cost, and the nuisance of signing up for an maintaining an account with a broker if you don't have one already. You can do it on non discount-brokers, but it will only be worth it to do it with a larger amount of money, since the commissions are larger. Note: If you have enough room to hold the CAD amount in your TFSA and will still have that much room at the end of the calendar year, I recommend doing the exchange in a TFSA account. The taxes are minimal unless the exchange rate changes drastically while your trades are settling (from capital gains or losses while waiting a few days for the trades to settle), but they are annoying to calculate, if you do it often. Warning if you do it in a TFSA be sure not to over contribute. Every time you deposit counts as a contribution and your withdrawals don't count against the limit until the next calendar year."
},
{
"docid": "264820",
"title": "",
"text": "\"An investment is sold when you sell that particular stock or fund. It doesn't wait until you withdraw cash from the brokerage account. Whether an investment is subject to long term or short term taxes depends on how long you held that particular stock. Sorry, you can't get around the higher short term tax by leaving the money in a brokerage account or re-investing in something else. If you are invested in a mutual fund, whether it's long or short term depends on when you buy and sell the fund. The fact that the fund managers are buying and selling behind your back doesn't affect this. (I don't know what taxes they have to pay, maybe you really are paying for it in the form of management fees or lower returns, but you don't explicitly pay the tax on these \"\"inner\"\" transactions.) Your broker should send you a tax statement every year giving the numbers that you need to fill in to the various boxes of your income tax form. You don't have to figure it out. Of course it helps to know the rules. If you've held a stock for 11 1/2 months and are planning to sell, you might want to consider waiting a couple of weeks so it becomes a long term capital gain rather than short term and thus subject to lower tax.\""
},
{
"docid": "90085",
"title": "",
"text": "Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan."
},
{
"docid": "396657",
"title": "",
"text": "The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts. Generally higher highs and higher lows is considered an uptrend. And lower lows and lower highs is considered a downtrend. A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below: I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term. There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing."
},
{
"docid": "238121",
"title": "",
"text": "\"@sdg - If you can be flippant, I can be pedantic. Insider Trading is not illegal. Any employee of a company can be an insider, yet most of their trades are perfectly legal. What is illegal is trading on Inside Information. Such information may be available to those within a company, or those who have some contact with an employee. In fact, if I am seated at a restaurant table and hear Bill and Warren talking about a purchase they plan to make, I am in possession of inside information and risk prosecution should I purchase shares and profit. Often, a company will have a \"\"quiet period\"\" before earnings reports or potential stock-price-moving-news. During this time, employees are forbidden from buying or selling shares, excluding those that would be automatically bought in their retirement accounts or ESPP.\""
},
{
"docid": "229573",
"title": "",
"text": "What does it mean when some one says that today there was a lot of net selling or buying in a stock. What does it mean because for every selling there is also a buying going on then how can you determine a selling or buying ? Generally if the price of stock has gone down compared to previous day, the trend is of selling. As the price can be volatile, there maybe few trades that are above close price of previous day, or below close price of previous day. How can you calculate average trade price for a stock It is simple {sum of all [price*quantity]}/quantity. Related question Equity market inflow meaning"
},
{
"docid": "433730",
"title": "",
"text": "I think it may be best to take everything you're asking line-by-line. Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. This is not true. Companies can go out of business, or take a major hit and never recover. Take Volkswagen for example, in 2015 due to a scandal they were involved in, their stocks went downhill. Now their stocks are starting to rise again. The investors goal is not to wait as long as necessary to make a profit on every stock purchase, but to make the largest profit possible in the shortest time possible. Sometimes this means selling a stock before it recovers (if it ever does). I think the problem with most buyers is that they desire the most gain they can possibly have. However, that is very risky. This can be true. Every investor needs to gauge the risk they're willing to take and high-gain investments are riskier. Therefore, it's better to be winning [small/medium] amounts of money (~)100% of the time than [any] amount of money <~25%. Safer investments do tend to yield more consistent returns, but this doesn't mean that every investor should aim for low-yield investments. Again, this is driven by the investor's risk tolerance. To conclude, profitable companies' stock tends to increase over time and less aggressive investments are safer, but it is possible to lose from any stock investment."
},
{
"docid": "237718",
"title": "",
"text": "There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants."
},
{
"docid": "12232",
"title": "",
"text": "Some other answers mention the ability to sell at grant. This is very important. If you have that ability, think about your guaranteed return. In my case, I get a 15% discount on the lowest 6 month window price from the last two years. If you do the math, the worst case return can be calculated: 1) Money that from the beginning of the window, I make 15% for 6 months (30% annual return guaranteed) 2) Money at the end of the window (say the last month) is 15% for one month (180% annual return guaranteed) In the end, your average holding window for your money is about 3 months (you can calculate it exactly). At that rate, you have a guaranteed 60% annual return. You can't beat that anywhere, with a significant upside if your company stock is increasing. So, if your company has an instant sell at grant option, you have to be brain dead not to do it. If it takes time to get your shares, then you need to look at the volatility of the stock to see how big the chance of losing money is. To generalize to a formula (if that's what you want): WM = purchase window (in months); D = Discount Percentage; GR = Guaranteed Return GR = 12/(WM/2) * D = 6*D/WM One last thing, If you are going to participate in ESPP, make you that you understand how to do your taxes yourself. I haven't found a tax person yet who does ESPP correctly (including an ex IRS agent), so I always have to do my taxes myself to make sure they get done correctly."
},
{
"docid": "114981",
"title": "",
"text": "\"Is there anyway to salvage my investment for short-term? No. If by \"\"salvage\"\" you mean \"\"get back as much as you paid\"\", the only way to salvage it is to wait as long as you consider \"\"short-term\"\" and see if goes up again. If by \"\"salvage\"\" you mean \"\"get some money back\"\", the only thing you can do to guarantee that is sell it now. By doing so, you guarantee that you will get neither more nor less than it is worth right now. Either way, there is nothing you can do other than sell the stock or hold it. The stock price went down. You can't make it go back up. Would it be better if I sell my stocks now and buy from other company? Or should I just wait for it's price to go up again? This depends on why you bought the stock, and what you think it will do in the future. You said a family member persuaded you. Does that family member still think the stock will go up again? If so, do you still trust them? You didn't even say what stock it is in your question, so there's no way anyone here can tell you whether it's a good idea to sell it or not. Even if you do say what stock it is, all anyone can do is guess. If you want, you could look the stock up on Motley Fool or other sites to see if analysts believe it will rise. There are lots of sources of information. But all you can do with that information is decide to sell the stock or not. It may sound obvious, but you should sell if you think the stock will go lower, and hold it if you think it could still go back up. No one can tell you which of those things is going to happen.\""
},
{
"docid": "554910",
"title": "",
"text": "\"But I don't see how it's any different than buying a stock at a low price and holding on to it for some months. Based on your question, I would say the difference is time. Day trading by its nature is a 6-hour endeavor. If you buy low and are planning to sell high, then you only have a few hours to make this happen. As a previous poster mentioned, there is a lot of \"\"white noise\"\" that occurs on a weekly/daily/hourly/min basis. Long-term investors have the time to wait it out. Although, as a side note, if you were a buy-and-hold investor from the 1960s-early 1980s, then buy and hold was not very good. Is it just the psychological/addictive aspect of it? This is the biggest reason. Day trading is stressful and stress can cause financially destructive decisions such as over-leveraging, over-trading, etc. Why is day trading stressful? Because you are managing hundreds to thousands of trades a year. When combined with the lack of time in a day to make moves, it becomes stressful. Also, many day traders do it full time. Which adds to the pressure to be correct and to be incredible at money managment. A lot of buy-and-hold investors have full time jobs and may only check their positions every month or so.\""
},
{
"docid": "188839",
"title": "",
"text": "\"The stock should fall by approximately the amount of the dividend as that is what is paid out. If you have a stock trading at $10/share and it pays a $1/share dividend, the price should drop to $9 as what was trading before the dividend was paid would be both the dividend and the stock itself. If the person bought just for the dividend then it would likely be neutral as there isn't anything extra to be gained. Consider if this wasn't the case. Wouldn't one be able to buy a stock a few days before the dividend and sell just after for a nice profit? That doesn't make sense and is the reason for the drop in price. Similarly, if a stock has a split or spin-off there may be changes in the price to reflect that adjustment in value of the company. If I give you 2 nickels for a dime, the overall value is still 10 cents though this would be 2 coins instead of one. Some charts may show a \"\"Dividend adjusted\"\" price to factor out these transactions so be careful of what prices are quoted.\""
},
{
"docid": "474296",
"title": "",
"text": "\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \"\"Do Stocks Outperform Treasury Bills?\"\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \"\"The RRSP Secret\"\" by Greg Habstritt. \"\"Unshakeable\"\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\""
},
{
"docid": "189879",
"title": "",
"text": "I see several interesting statement in your question. A. my only income is from my Employer B. I also receive employer stock (ESPP, RSU, NSO). However, employer withholds taxes for these stock transactions through my broker (I see them broken down on my W2). C. I have been subject to Alternative Minimum Tax. A implies a simple tax return. B and C tell the opposite story. In fact if B is not done correctly The amount withheld due to payroll may be perfect but the under withholding could be due to the ESPP's, RSUs and NSOs. The AMT can throw everything else out the window. If a person has a very simple tax situation: Income doesn't change a lot from paycheck to paycheck; they take the standard deduction; the number of exemptions equals the number of people in the family. Then the withholding is very close to perfect. The role of the exemptions on the W-4 is to compensate for situations that go above the standard deduction. The role of extra withholding is when the situation requires more withholding due to situations that will bring in extra income or if the AMT is involved."
},
{
"docid": "289989",
"title": "",
"text": "If the stock has dropped from $10 to $2 and now is range trading between $2 and $3, and you were not able to sell your shares earlier, then I would no be holding on to them now. As soon as the price hit $3 sell them. After you have sold them and you noticed the stock still range trading one strategy you could apply is to go long after the price bounces off the $2 support placing a stop just below $2, then as the price moves up you trail your stop up with the price. As it starts getting close to $3 tighten your stop. If it keeps range trading and bounces off the resistance at $3 and you get stopped out, you can either go short and reverse the process or wait for it to bounce off the support at $2 again. One word of warning though, the longer a stock range trades, the bigger the outbreak out of the rage (either up or down) will be, that is the reason why you should first wait for confirmation that the price has bounced off support/resistance before opening a position, and secondly why you should use a stop loss to get you out instead of just selling when it hits $3, because if it breaks through $3 you can continue profiting as it moves up."
},
{
"docid": "300139",
"title": "",
"text": "\"In summary: In long form: Spreads and shorts are not allowed in cash accounts, except for covered options. Brokers will allow clients to roll option positions in a single transaction, which look like spreads, but these are not actually \"\"sell to open\"\" transactions. \"\"Sell to open\"\" is forbidden in cash accounts. Short positions from closing the long half of a covered trade are verboten. Day-trading is allowed in both margin and cash accounts. However, \"\"pattern day-trading\"\" only applies to margin accounts, and requires a minimum account balance of $25,000. Cash accounts are free to buy and sell the same security on the same day over and over, provided that there is sufficient buying power to pay for opening a new position. Since proceeds are held for both stock and option sales in a cash account, that means buying power available at the start of the day will drop with each purchase and not rise again until settlement. Unsettled funds are available immediately within margin accounts, without restriction. In cash accounts, using unsettled funds to purchase securities will require you to hold the new position until funds settle -- otherwise your account will be blocked for \"\"free-riding\"\". Legally, you can buy securities in a cash account without available cash on deposit with the broker, but most brokers don't allow this, and some will aggressively liquidate any position that you are somehow able to enter for which you didn't have available cash already on deposit. In a margin account, margin can help gloss over the few days between purchase and deposit, allowing you to be somewhat more aggressive in investing funds. A margin account will allow you to make an investment if you feel the opportunity is right before requiring you to deposit the funds. See a great opportunity? With sufficient margin, you can open the trade immediately and then run to the bank to deposit funds, rather than being stuck waiting for funds to be credited to your account. Margin accounts might show up on your credit report. The possibility of losing more than you invested, having positions liquidated when you least expect it, your broker doing possibly stupid things in order to close out an over-margined account, and other consequences are all very serious risks of margin accounts. Although you mentioned awareness of this issue, any answer is not complete with mentioning those risks.\""
},
{
"docid": "393164",
"title": "",
"text": "Should I invest money in the pre-IPO stocks soon to be offered by the company that I work for? Is it wise to do this? What should I be thinking about? What are the risks? The last time I was offered pre-IPO friends and family stock, I purchased half of my allotment, and had my parents purchase the other half. Since I had a 6-month blackout period, I had to hold my portion. My parents sold their portion one day after the IPO. The price went up dramatically for about a day and a half, then dived continuously. My portion ended up being worthless. My parents made a few bucks. Good for them. Not a huge deal either way, since my cost was relatively low. If I had a chance to do it again, I'd give it all to friends or family instead of splitting it, and have them sell quickly if they realized a profit. You might be luckier than I was."
},
{
"docid": "166885",
"title": "",
"text": "You have no idea where interest rates will go. A year or two ago people thought 3% was absurdly low, why buy them? And then interest rates dropped even further, so the people who bought then got more interest AND the present value went up since then. If you'd done nothing you would have lost money. Now, rates are REALLY absurdly low. What do? Well, they could drop even more! It's possible. We could also have 20 years of flatline - see Japan. Sitting on your hands loses money. What else should you do? Put your money in risky equities? A lot of people these days are buying dividend paying stocks now. It's extremely foolhardy to treat stocks as fixed income because they are very far from it. Overextending yourself and taking on too equity risk, IMO, is FAR more risky than accepting low interest rates+interest rate risk. Finally: I don't exactly use bonds to make money, I use it as a safe haven while I wait for stocks to do something. Stocks go up, I sell some and buy bonds. Bonds go up I sell them and buy more stock. It's nice to get a little interest on the side but not critical. I could use cash (or 1month tbills) but I'm comfortable with the amount of risk-return that 5-10year bonds provide."
}
] |
8378 | Should I wait a few days to sell ESPP Stock? | [
{
"docid": "125298",
"title": "",
"text": "\"It depends on how the program is run. If the company runs the program out of treasury stock (shares that are authorized, but not issued), then there aren't any shares being purchased on the open market. Because of that, the share price wouldn't be affected. If you look in your employer's annual report, you will probably find how the program is run and how many shares are issued annually under that program. By comparing that to the daily trading volume of the company's stock you can gauge whether there's any likelihood of the share price being affected by the employee purchases. That is, of course, if shares are being purchased on the open market. For example, here is Books-A-Million's program, as described in their 2011 annual report: Employee Stock Purchase Plan The Company maintains an employee stock purchase plan under which shares of the Company’s common stock are reserved for purchase by employees at 85% of the fair market value of the common stock at the lower of the market value for the Company’s stock as of the beginning of the fiscal year or the end of the fiscal year. On May 20, 2010, the stockholders of the Company approved an additional 200,000 shares available for issuance under the plan, bringing the aggregate number of shares that may be awarded to 600,000. Of the total reserved shares, 391,987, 373,432 and 289,031 shares have been purchased as of January 29, 2011, January 30, 2010 and January 31, 2009, respectively. This describes an instance of the employee purchase program being run from unissued stock, not open market purchases. From it, we can tell 18,555 shares were issued during the past fiscal year. As their average daily volume is ~40,000 shares, if the program were run from a single open market purchase, it would have potential to \"\"move the market\"\". One would think, though, that a company running it from open market purchases would spread the purchases over a period of time to avoid running up the price on themselves.\""
}
] | [
{
"docid": "311782",
"title": "",
"text": "If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting."
},
{
"docid": "66201",
"title": "",
"text": "\"There are a few major risks to doing something like that. First, you should never invest money you can't afford to lose. An emergency fund is money you can't afford to lose - by definition, you may need to have quick access to that money. If you determine that you need, for example, $3000 in emergency savings, that means that you need to have at least $3000 at all times - if you lose $500, then you now only have $2500 in emergency savings. Imagine what could've happened if you had invested your emergency savings during the 2008 crash, for example; you could easily have been in a position where you lost both your job and a good portion of your emergency savings at the same time, which is a terrible position to be in. If the car breaks down, you can't really say \"\"now's a bad time, wait until the stock market bounces back.\"\" Second, with brokerage accounts, there may be a delay before you can actually access the money or transfer it to an account that you can actually withdraw cash from or write checks against (but some of this depends on the exact arrangement you have with your bank). This can be a problem if you're in a situation where you need immediate access to the money - if your furnace breaks in the middle of winter, you probably don't want to wait a few days for the sale and transfer to go through before you can have it fixed. Third, you can be forced to sell the investments at an unfavorable price because you're not sure when you're going to need it. You'd also likely incur trading fees and/or early withdrawal penalties when you tried to withdraw the money. Think about it this way: if you buy a bond that matures in 5 years, you're effectively betting that you won't have an emergency for the next 5 years. If you do, you'll have to either sell the bond or, if you're allowed to get the money back early, you'll likely forfeit a good amount of the interest you earned in the process (which kind of kills the point of buying the bond in the first place). Edit: As @Barmar pointed out in the comments, you may also have to pay taxes on the profits if you sell at a favorable price. In the U.S. at least, capital gains on stuff held for less than a year is taxed at your ordinary income tax rate and stuff held longer than a year is taxed at the long-term capital gains tax rate. So, if you hold the investment for less than a year, you're opening yourself up to the risks of short-term stock fluctuations as well as potential tax penalties, so if you put your emergency fund in stocks you're essentially betting that you won't have an emergency that year (which by definition you can't know). The purpose of an emergency fund is just that - to be an emergency fund. Its purpose isn't really to make money.\""
},
{
"docid": "289989",
"title": "",
"text": "If the stock has dropped from $10 to $2 and now is range trading between $2 and $3, and you were not able to sell your shares earlier, then I would no be holding on to them now. As soon as the price hit $3 sell them. After you have sold them and you noticed the stock still range trading one strategy you could apply is to go long after the price bounces off the $2 support placing a stop just below $2, then as the price moves up you trail your stop up with the price. As it starts getting close to $3 tighten your stop. If it keeps range trading and bounces off the resistance at $3 and you get stopped out, you can either go short and reverse the process or wait for it to bounce off the support at $2 again. One word of warning though, the longer a stock range trades, the bigger the outbreak out of the rage (either up or down) will be, that is the reason why you should first wait for confirmation that the price has bounced off support/resistance before opening a position, and secondly why you should use a stop loss to get you out instead of just selling when it hits $3, because if it breaks through $3 you can continue profiting as it moves up."
},
{
"docid": "493160",
"title": "",
"text": "\"That's a tricky question and you should consult a tax professional that specializes on taxation of non-resident aliens and foreign expats. You should also consider the provisions of the tax treaty, if your country has one with the US. I would suggest you not to seek a \"\"free advice\"\" on internet forums, as the costs of making a mistake may be hefty. Generally, sales of stocks is not considered trade or business effectively connected to the US if that's your only activity. However, being this ESPP stock may make it connected to providing personal services, which makes it effectively connected. I'm assuming that since you're filing 1040NR, taxes were withheld by the broker, which means the broker considered this effectively connected income.\""
},
{
"docid": "362874",
"title": "",
"text": "the short answer is: No. you do not HAVE to pay $125,000.00 at the end of your first year. that is only the amount IF you decide to exercise. *fine print: But if you leave or get let go (which happens quite frequently at top tier Silicon Valley firms), you lose anything that you don't exercise. you're basically chained by a pair of golden handcuffs. in other words, you're stuck with the company until a liquidation event such as IPO or secondary market selling (you can expect to spend a few years before getting anything out of your stocks) Now, it's hard to say whether or not to exercise at that time, especially given we don't know the details of the company. you only should exercise if you foresee your quitting, anticipate getting fired, AND you strongly feel that stock price will keep going up. if you're in SF bay, i believe you have 10 years until your options expire (at which point they are gone forever, but that's 10 years and usually companies IPO well within 7 years). i would recommend you get a very good tax advisor (someone that understands AMT and stock options tax loopholes/rules like the back of their hand). I'm going to take a long shot and assume that you got an amazing offer and that you got a massive amount of ISOs from them. so i'll give this as an advice - first, congrats on owning a lot on paper today if you're still there. you chose to be an early employee at a good tech company. However, you should be more worried about AMT (alternative min tax). you will get enslaved by the IRS if you exercise your shares and can't pay the AMT. suppose, in your fictional scenario, your stock options increase 2x, on paper. you now own $1 Mil in options. but you would be paying $280000 in taxes if you chose to exercise them right now. Now, unless you can sell that IMMEDIATELY on the secondary market, i would highly advise you not to exercise right now. only exercise your ISOs when you can turn around and sell them (either waiting for IPO, or if company offers secondary market approved trading)."
},
{
"docid": "229573",
"title": "",
"text": "What does it mean when some one says that today there was a lot of net selling or buying in a stock. What does it mean because for every selling there is also a buying going on then how can you determine a selling or buying ? Generally if the price of stock has gone down compared to previous day, the trend is of selling. As the price can be volatile, there maybe few trades that are above close price of previous day, or below close price of previous day. How can you calculate average trade price for a stock It is simple {sum of all [price*quantity]}/quantity. Related question Equity market inflow meaning"
},
{
"docid": "237718",
"title": "",
"text": "There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants."
},
{
"docid": "90085",
"title": "",
"text": "Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan."
},
{
"docid": "576694",
"title": "",
"text": "Remember, carrying debt on a credit card and waiting to pay it is increased risk in the event something happens and you can't pay it off. I have 1 CC and I have it set to auto-pay on the day it's due (paid in full each month as I don't carry debt anymore - learned that lesson a hard way :) ). So the day it's due it auto-drafts out of my checking. No worries of late payments, missed payments, etc. If you feel that having any balance is bad then by all means pay it off the minute you get your statement. It should come at the same time each month (or close to the same time) and you should be able to setup an auto-payment to pay it off in full as soon as the new statement goes live. To be honest, those extra few days of supposed interest saved by keeping the money in your checking account is so minimal that's it's probably not worth it. Most checking is horrible in interest (all my 'high interest' checking accounts are now less than 1% APR. boo.) and if you're late 1 day then bam! All that earned interest is gone in 1 late fee..."
},
{
"docid": "178684",
"title": "",
"text": "Usually the amount of the ESPP stocks is very small compared to the overall volume of the trading, so it shouldn't matter. But check if for your company it not so (look at the stock history for the previous ESPP dates, and volumes)."
},
{
"docid": "433730",
"title": "",
"text": "I think it may be best to take everything you're asking line-by-line. Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. This is not true. Companies can go out of business, or take a major hit and never recover. Take Volkswagen for example, in 2015 due to a scandal they were involved in, their stocks went downhill. Now their stocks are starting to rise again. The investors goal is not to wait as long as necessary to make a profit on every stock purchase, but to make the largest profit possible in the shortest time possible. Sometimes this means selling a stock before it recovers (if it ever does). I think the problem with most buyers is that they desire the most gain they can possibly have. However, that is very risky. This can be true. Every investor needs to gauge the risk they're willing to take and high-gain investments are riskier. Therefore, it's better to be winning [small/medium] amounts of money (~)100% of the time than [any] amount of money <~25%. Safer investments do tend to yield more consistent returns, but this doesn't mean that every investor should aim for low-yield investments. Again, this is driven by the investor's risk tolerance. To conclude, profitable companies' stock tends to increase over time and less aggressive investments are safer, but it is possible to lose from any stock investment."
},
{
"docid": "395650",
"title": "",
"text": "A moving average will act as support or resistance to a stock only when the stock is trending. The way it acts as support for instance is similar to a trend-line. Take the daily chart of CBA over the last 6 months: The first chart shows CBA with an uptrend support line. The second chart shows CBA during the same period with 50 day EMA as a support. Both can be used as support for the uptrend. Generally you can used these types of support (or resistance in a downtrend) to determine when to buy a stock and when to sell a stock. If I was looking to buy CBA whilst it was uptrending, one strategy I could use was to wait until it hit or got very close to the support trend-line and then buy as it re-bounces back up. If I already held the stock I could use a break down below the uptrend support line as a stop to exit out of the stock."
},
{
"docid": "300139",
"title": "",
"text": "\"In summary: In long form: Spreads and shorts are not allowed in cash accounts, except for covered options. Brokers will allow clients to roll option positions in a single transaction, which look like spreads, but these are not actually \"\"sell to open\"\" transactions. \"\"Sell to open\"\" is forbidden in cash accounts. Short positions from closing the long half of a covered trade are verboten. Day-trading is allowed in both margin and cash accounts. However, \"\"pattern day-trading\"\" only applies to margin accounts, and requires a minimum account balance of $25,000. Cash accounts are free to buy and sell the same security on the same day over and over, provided that there is sufficient buying power to pay for opening a new position. Since proceeds are held for both stock and option sales in a cash account, that means buying power available at the start of the day will drop with each purchase and not rise again until settlement. Unsettled funds are available immediately within margin accounts, without restriction. In cash accounts, using unsettled funds to purchase securities will require you to hold the new position until funds settle -- otherwise your account will be blocked for \"\"free-riding\"\". Legally, you can buy securities in a cash account without available cash on deposit with the broker, but most brokers don't allow this, and some will aggressively liquidate any position that you are somehow able to enter for which you didn't have available cash already on deposit. In a margin account, margin can help gloss over the few days between purchase and deposit, allowing you to be somewhat more aggressive in investing funds. A margin account will allow you to make an investment if you feel the opportunity is right before requiring you to deposit the funds. See a great opportunity? With sufficient margin, you can open the trade immediately and then run to the bank to deposit funds, rather than being stuck waiting for funds to be credited to your account. Margin accounts might show up on your credit report. The possibility of losing more than you invested, having positions liquidated when you least expect it, your broker doing possibly stupid things in order to close out an over-margined account, and other consequences are all very serious risks of margin accounts. Although you mentioned awareness of this issue, any answer is not complete with mentioning those risks.\""
},
{
"docid": "246221",
"title": "",
"text": "ESPP tax treatment is complicated. If you received a discount on the purchase of your stock, that discount is taxable as ordinary income when you sell the stock. Any profit about the market value when the stock was purchased is taxed based upon the holding period of the stock. If you have held the stock less than a year, the profit is taxed at your marginal tax rate (ie taxed as ordinary income). If the stock is held for more than a year, it is taxed at a special capital gains tax rate, which ranges from 0-20% depending on your marginal tax rate (most people pay 15%)."
},
{
"docid": "184559",
"title": "",
"text": "I've done my taxes using turbotax for years and they were not simple, Schedule C (self-employed), rental properties, ESPP, stock options, you name it. It's a lot of work and occasionally i did find bugs in TurboTax. ESPP were the biggest pain surprisingly. The hardest part is to get all the paperwork together and you'd have to do it when you hire an accountant anyway. That said this year i am using an accountant as i incorporated and it's a whole new area for me that i don't have time to research. Also in case of an audit i'd rather be represented by a pro. I think the chance of getting audited is smaller when a CPA prepares your return."
},
{
"docid": "238121",
"title": "",
"text": "\"@sdg - If you can be flippant, I can be pedantic. Insider Trading is not illegal. Any employee of a company can be an insider, yet most of their trades are perfectly legal. What is illegal is trading on Inside Information. Such information may be available to those within a company, or those who have some contact with an employee. In fact, if I am seated at a restaurant table and hear Bill and Warren talking about a purchase they plan to make, I am in possession of inside information and risk prosecution should I purchase shares and profit. Often, a company will have a \"\"quiet period\"\" before earnings reports or potential stock-price-moving-news. During this time, employees are forbidden from buying or selling shares, excluding those that would be automatically bought in their retirement accounts or ESPP.\""
},
{
"docid": "556696",
"title": "",
"text": "Typically, the discount is taxable at sale time But what about taxes? When the company buys the shares for you, you do not owe any taxes. You are exercising your rights under the ESPP. You have bought some stock. So far so good. When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income. Source: Turbotax. Second source. Your pretax rate of return would be: 17% (100/85) In your scenario where the stock price is fixed at $100. Your tax rate would be your marginal rate. If the stock stayed at 100, you would still be taxed as income on $15/share (the discount) and would receive no benefit for holding the stock one year. Assuming you are in the 25% tax bracket, your after tax rate of return would be 13% ((15*.75)+85)/85)"
},
{
"docid": "24856",
"title": "",
"text": "\"In general, there should be a \"\"liquidity premium\"\" which means that less-liquid stocks should be cheaper. That's because to buy such a stock, you should demand a higher rate of return to compensate for the liquidity risk (the possibility that you won't be able to sell easily). Lower initial price = higher eventual rate of return. That's what's meant when Investopedia says the security would be cheaper (on average). Is liquidity good? It depends. Here's what illiquidity is. Imagine you own a rare piece of art. Say there are 10 people in the world who collect this type of art, and would appreciate what you own. That's an illiquid asset, because when you want to sell, maybe those 10 people aren't buying - maybe they don't want your particular piece, or they all happen to be short on funds. Or maybe worse, only one of them is buying, so they have all the negotiating leverage. You'll have to lower your price if you're really in a hurry to sell. Maybe if you lower your price enough, you can get one of the 10 buyers interested, even if none were initially. An illiquid asset is bad for sellers. Illiquid means there aren't enough buyers for you to get a bidding war going at the time of your choosing. You'll potentially have to wait around for buyers to turn up, or for a stock, maybe you'd have to sell a little bit at a time as buyers want the shares. Illiquid can be bad for buyers, too, if the buyer is for some reason in a hurry; maybe nobody is selling at any given time. But, usually buyers don't have to be in a hurry. An exception may be if you short sell something illiquid (brokers often won't let you do this, btw). In that case you could be a forced buyer and this could be very bad on an illiquid security. If there are only one or two sellers out there, they now have the negotiating leverage and they can ask whatever price they want. Illiquidity is very bad when mixed with margin or short sales because of the potential for forced trades at inopportune times. There are plenty of obscure penny stocks where there might be only one or two trades per day, or fewer. The spread is going to be high on these because the bids at a given time will just be lowball offers from buyers who aren't really all that interested, unless you want to give your stock away, in which case they'll take it. And the asks are going to be from sellers who want to get a decent price, but maybe there aren't really any buyers willing to pay, so the ask is just sitting there with no takers. The bids and asks may be limit orders that have been sitting open for 3 weeks and forgotten about. Contrast with a liquid asset. For example, a popular-model used car in good condition would be a lot more liquid than a rare piece of art, though not nearly as liquid as most stocks. You can probably find several people that want to buy it living nearby, and you're not going to have to drop the price to get a buyer to show up. You might even get those buyers in a bidding war. From illiquid penny stocks, there's a continuum all the way up to the most heavily-traded stocks such as those in the S&P500. With these at a given moment there will be thousands of buyers and sellers, so the spread is going to close down to nearly zero. If you think about it, just statistically, if there are thousands of bids and thousands of asks, then the closest bid-ask pair is going to be close together. That's a narrow spread. While if there are 3 bids and 2 asks on some illiquid penny stock, they might be dollars away from each other, and the number of shares desired might not match up. You can see how liquidity is good in some situations and not in others. An illiquid asset gives you more opportunity to get a good deal because there aren't a lot of other buyers and sellers around and there's some opportunity to \"\"negotiate\"\" within the wide spread. For some assets maybe you can literally negotiate by talking to the other party, though obviously not when trading stocks on an exchange. But an illiquid asset also means you might get a bad deal, especially if you need to sell quickly and the only buyers around are making lowball offers. So the time to buy illiquid assets is when you can take your time on both buying and selling, and will have no reason for a forced trade on a particular timeline. This usually means no debt is involved, since creditors (including your margin broker) can force you to trade. It also means you don't need to spend the money anytime soon, since if you suddenly needed the money you'd have a forced trade on your hands. If you have the time, then you put a price out there that's very good for you, and you wait for someone to show up and give you that price - this is how you get a good deal. One more note, another use of the term liquid is to refer to assets with low or zero volatility, such as money market funds. An asset with a lot of volatility around its intrinsic or true value is effectively illiquid even if there's high trade volume, in that any given point in time might not be a good time to sell, because the price isn't at the right level. Anyway, the general definition of a liquid investment is one that you'd be comfortable cashing out of at a moment's notice. In this sense, most stocks are not all that liquid, despite high trading volume. In different contexts people may use \"\"liquid\"\" in this sense or to mean a low bid-ask spread.\""
},
{
"docid": "196939",
"title": "",
"text": "In an ideal world Say on 24th July the share price of Apple was $600. Everyone knows that they will get the $ 2.65 on 16th August. There is not other news that is affecting the price. You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600. Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July, why would I sell it at $600, when I know if I wait for few more days I will get $2.65/- so i will be more inclined to sell it at $602.65 /- ... so on 16th Aug after the dividend is paid out, the share price will be back to $600/- In a real world, dividend or no dividend the share price would be moving up or down ... Notice that the dividend amount is less than 1% of the stock price ... stock prices change more than this percentage ... so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made"
}
] |
8456 | What typically happens to unvested stock during an acquisition? | [
{
"docid": "257853",
"title": "",
"text": "\"This is a great question. I've participated in a deal like that as an employee, and I also know of friends and family who have been involved during a buyout. In short: The updated part of your question is correct: There is no single typical treatment. What happens to unvested restricted stock units (RSUs), unvested employee stock options, etc. varies from case to case. Furthermore, what exactly will happen in your case ought to have been described in the grant documentation which you (hopefully) received when you were issued restricted stock in the first place. Anyway, here are the two cases I've seen happen before: Immediate vesting of all units. Immediate vesting is often the case with RSUs or options that are granted to executives or key employees. The grant documentation usually details the cases that will have immediate vesting. One of the cases is usually a Change in/of Control (CIC or COC) provision, triggered in a buyout. Other immediate vesting cases may be when the key employee is terminated without cause, or dies. The terms vary, and are often negotiated by shrewd key employees. Conversion of the units to a new schedule. If anything is more \"\"typical\"\" of regular employee-level grants, I think this one would be. Generally, such RSU or option grants will be converted, at the deal price, to a new schedule with identical dates and vesting percentages, but a new number of units and dollar amount or strike price, usually so the end result would have been the same as before the deal. I'm also curious if anybody else has been through a buyout, or knows anybody who has been through a buyout, and how they were treated.\""
}
] | [
{
"docid": "276960",
"title": "",
"text": "I'll just add this: In the best hedge funds and proprietary trading funds, stock selection is approached very scientifically in order to minimize losses/maximize gains. Researchers think of a trading idea and carefully test it to see which methods of stock selection work and how well, and finally they combine them. Every day researchers update their models based on the past performance of each indicator. All this is just too much work to be done manually. Firms use machine learning methods to understand markets. They try to figure out what is normal, what did not happen correctly at a specific time, what will happen in future. For instance, they use deep learning networks to look at unlabeled data, and figure out what is normal and what is not. These networks can analyze an unstructured haystack of noise, and separate out the signal. This is very relevant to finance and markets because finding the patterns and anomalies in market data has been the bread and butter of traders for decades. Deep learning networks give us applications like feature learning. By 'features,' I'm referring to certain attributes in data that indicate an event. By anticipating them, we can help predict future price movements. New technology is allowing us to break new ground in managing risk, to be a-typical and manage risk in ever-improving ways. It's the responsibility of every trader, whether working for themselves or others, to take advantage of this technology to improve the collective investing experience. I care very deeply about this. I have many close friends, in the finance world and without, who have lost large amounts of money to poor trade tools and lack of transparency."
},
{
"docid": "541377",
"title": "",
"text": "During mergers they try to create efficiencies. Typically these efficiencies happen in the office, one HR person instead of two, less secretaries, less middle managers. The number of maintenance people is normally based off of the number of properties. You likely will be safe in your position, but no one knows for sure."
},
{
"docid": "384213",
"title": "",
"text": "If the company's ownership is structured similarly to a typical start-up then an 1% employee ownership in a company which sells for 1 million will yield far less than 10k due to various liquidation preferences of the investors, different share classes, etc. It's pretty hard to get a specific number because it depends a lot on the details of earlier fundraising and stock grants. That said, unless the company is circling the drain and the sale was just to avoid BK, the share price you get should be higher unless the share class structure and acquisition deal are completely unfair."
},
{
"docid": "186869",
"title": "",
"text": "A lot may depend on the nature of a buyout, sometimes it's is for stock and cash, sometimes just stock, or in the case of this google deal, all cash. Since that deal was used, we'll discuss what happens in a cash buyout. If the stock price goes high enough before the buyout date to put you in the money, pull the trigger before the settlement date (in some cases, it might be pulled for you, see below). Otherwise, once the buyout occurs you will either be done or may receive adjusted options in the stock of the company that did the buyout (not applicable in a cash buyout). Typically the price will approach but not exceed the buyout price as the time gets close to the buyout date. If the buyout price is above your option strike price, then you have some hope of being in the money at some point before the buyout; just be sure to exercise in time. You need to check the fine print on the option contract itself to see if it had some provision that determines what happens in the event of a buyout. That will tell you what happens with your particular options. For example Joe Taxpayer just amended his answer to include the standard language from CBOE on it's options, which if I read it right means if you have options via them you need to check with your broker to see what if any special exercise settlement procedures are being imposed by CBOE in this case."
},
{
"docid": "484778",
"title": "",
"text": "\"There are a few reason why the stock price decreases after a dividend is paid: What's the point of paying a dividend if the stock price automatically decreases? Don't the shareholders just break even? Companies have to do something with their profits. They beholden to their shareholders to make them money either by increasing the share value or paying dividends. So they have the choice between reinvesting their profits into the company to grow the business or just handing the profits directly to the owners of the business (the shareholders). Some companies are as big as they want to be and investing their profits into more capital offers them diminishing returns. These companies are more likely to pay dividends to their shareholders. I assume the price of the stock \"\"naturally\"\" increases over the year to reflect the amount of the dividend payment. This is kind of a vague question but then doesn't it make it difficult to evaluate the fluctuations in stock price (in the way that you would a company that doesn't pay a dividend)? It depends on the company. The price may recover the dividend drop... could take a few days to a week. And that dependings on the company's performance and the overall market performance. With respect to options, I assume nothing special happens? So say I bought $9 call options yesterday that were in the money, all of a sudden they're just not? Is this typically priced into the option price? Is there anything else I need to know about buying options in companies that pay dividends? What if I had an in-the-money option, and all of a sudden out of nowhere a company decides to pay a dividend for the first time. Am I just screwed? One key is that dividends are announced in advance (typically at least, if not always; not sure if it's required by law but I wouldn't be surprised). This is one reason people will sometimes exercise a call option early, because they want to get the actual stock in order to earn the dividend. For \"\"out of the ordinary\"\" large cash dividends (over 10% is the guideline), stock splits, or other situations an option can be adjusted: http://www.888options.com/help/faq/splits.jsp#3 If you have an options account, they probably sent you a \"\"Characteristics and Risks of Standardized Options\"\" booklet. It has a section discussing this topic and the details of what kinds of situations trigger an adjustment. A regular pre-announced <10% dividend does not, while a special large dividend would, is what I roughly get from it. That \"\"Characteristics and Risks of Standardized Options\"\" is worth reading by the way; it's long and complicated, but well, options are complicated. Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? I'm just shocked I've never heard of this before. The company doesn't directly control the stock price, but I do believe this is automatic. I think the market does this automatically because if they didn't, there would be enough people trying to do dividend capture arbitrage that it would ultimately drive down the price.\""
},
{
"docid": "370304",
"title": "",
"text": "I've never seen a dividend, split or other corporate action during the day, but I have seen trade suspended a few times when something big happened. The market opening price is not in general the same as the close of the previous day. It can gap up or down and does frequently. I don't know of an api to find out if the dividend was cash or stock, but stock dividends are a lot less common."
},
{
"docid": "542764",
"title": "",
"text": "\"A stock, at its most basic, is worth exactly what someone else will pay to buy it right now (or in the near future), just like anything else of value. However, what someone's willing to pay for it is typically based on what the person can get from it. There are a couple of ways to value a stock. The first way is on expected earnings per share, most of would normally (but not always) be paid in dividends. This is a metric that can be calculated based on the most recently reported earnings, and can be estimated based on news about the company or the industry its in (or those of suppliers, likely buyers, etc) to predict future earnings. Let's say the stock price is exactly $100 right now, and you buy one share. In one quarter, the company is expected to pay out $2 per share in dividends. That is a 2% ROI realized in 3 months. If you took that $2 and blew it on... coffee, maybe, or you stuffed it in your mattress, you'd realize a total gain of $8 in one year, or in ROI terms an annual rate of 8%. However, if you reinvested the money, you'd be making money on that money, and would have a little more. You can calculate the exact percentage using the \"\"future value\"\" formula. Conversely, if you wanted to know what you should pay, given this level of earnings per share, to realize a given rate of return, you can use the \"\"present value\"\" formula. If you wanted a 9% return on your money, you'd pay less for the stock than its current value, all other things being equal. Vice-versa if you were happy with a lesser rate of return. The current rate of return based on stock price and current earnings is what the market as a whole is willing to tolerate. This is how bonds are valued, based on a desired rate of return by the market, and it also works for stocks, with the caveat that the dividends, and what you'll get back at the \"\"end\"\", are no longer constant as they are with a bond. Now, in your case, the company doesn't pay dividends. Ever. It simply retains all the earnings it's ever made, reinvesting them into doing new things or more things. By the above method, the rate of return from dividends alone is zero, and so the future value of your investment is whatever you paid for it. People don't like it when the best case for their money is that it just sits there. However, there's another way to think of the stock's value, which is it's more core definition; a share of the company itself. If the company is profitable, and keeps all this profit, then a share of the company equals, in part, a share of that retained earnings. This is very simplistic, but if the company's assets are worth 1 billion dollars, and it has one hundred million shares of stock, each share of stock is worth $10, because that's the value of that fraction of the company as divided up among all outstanding shares. If the company then reports earnings of $100 million, the value of the company is now 1.1 billion, and its stock should go up to $11 per share, because that's the new value of one ten-millionth of the company's value. Your ROI on this stock is $1, in whatever time period the reporting happens (typically quarterly, giving this stock a roughly 4% APY). This is a totally valid way to value stocks and to shop for them; it's very similar to how commodities, for instance gold, are bought and sold. Gold never pays you dividends. Doesn't give you voting rights either. Its value at any given time is solely what someone else will pay to have it. That's just fine with a lot of people right now; gold's currently trading at around $1,700 an ounce, and it's been the biggest moneymaker in our economy since the bottom fell out of the housing market (if you'd bought gold in 2008, you would have more than doubled your money in 4 years; I challenge you to find anything else that's done nearly as well over the same time). In reality, a combination of both of these valuation methods are used to value stocks. If a stock pays dividends, then each person gets money now, but because there's less retained earnings and thus less change in the total asset value of the company, the actual share price doesn't move (much). If a stock doesn't pay dividends, then people only get money when they cash out the actual stock, but if the company is profitable (Apple, BH, etc) then one share should grow in value as the value of that small fraction of the company continues to grow. Both of these are sources of ROI, and both are seen in a company that will both retain some earnings and pay out dividends on the rest.\""
},
{
"docid": "176327",
"title": "",
"text": "\"From my recollection of Warren Buffett's book \"\"Warren Buffett and the Art of Arbitrage\"\", the following factors determine the difference between the market price of a stock and the future expected price of an acquisition or merger: Time: Assuming the deal will close, the market price should approach the offer price as the closing date approaches. The fact that there is a 14% spread partially reflects the time value of money. Probability: Things could happen between now and closing date which could derail the deal. The higher the spread the more likely the market thinks the deal will not occur. For example, LO shareholders could reject the offer saying it is too low, or anti-trust regulators could say the deal is anti-competitive. Part of this 14% spread indicates the probability of the deal completing.\""
},
{
"docid": "109533",
"title": "",
"text": "OK, looking at the balance sheet they have $42M in cash, but that is down from $325M in December. Meanwhile their debt has increased from $1.756B in December to $1.832B as of June so their net cash has dropped by $355M in only 6 months. It looks like they spent $329M (give or take) buying other companies in those 6 months. Otherwise their working capital (an important measure of the ability to run the business) looks OK at $230M. Looking at the income statement, they are making money: $70.6M in the last quarter on revenue of $226.7M, which is quite remarkable however they had an unusual item which increased earnings somewhat. Otherwise their earnings would have been about $39M, which is still pretty healthy. All in, the company itself looks healthy and on a bit of a buying binge, growing through acquisition. I don’t like the debt load but that is probably usual for the industry. When companies grow through acquisition they generally plan to reduce total employment because of redundancies because you sort of get economies of scale. This usually factors into the decision to buy the company: you increase revenues through the purchase and reduce costs by eliminating employees. This is typically how they “sell” an acquisition to investors. If I was to guess (and it would only be a guess) this company has a team which looks at the employees of the company it just bought and decides where to downsize. It may not downsize from the newly acquired company but from its own existing employees for a variety of reasons. So most likely that is what you were a victim of: it wasn’t because the company was struggling, or because you were necessarily not a good employee. It is a process, albeit sometimes unfair, and you were a victim of it. The layoff decisions are not always prudent and it can be hard to understand why a particular group was cut instead of another one. Management doesn’t always make the right call. The broadcast industry has been going through consolidation (companies buying companies) for some time now. Most likely management is hoping to “bulk up” to make it harder for another company to buy it and/or to get a better price when it is bought. So in summary, most likely they are doing this for reasons of greed, ie, they’ll make more money with fewer employees. Sorry about your situation."
},
{
"docid": "241175",
"title": "",
"text": "Can a company not bargain with a dying company for example and buy a falling stock at lower than market value? Of course. If the shareholders agree to it. But why would they, if the market value is higher, agree to sell to someone who offers less? If there's a compelling reason - it can happen. It might happen during a hostile takeover, for example. In the case of buying the company for more than market value, are the stocks bought for significantly more, or slightly more than the current market value? Again, depends on how valuable the shareholders think the company is. If the shareholders think that the company has a potential which has not yet affected the stock price, they'll want a higher premium (and they'd think that, otherwise why would they hold the stock?). How much higher? Depends on the bargaining abilities of the sides."
},
{
"docid": "566553",
"title": "",
"text": "The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc."
},
{
"docid": "104448",
"title": "",
"text": "Since I got downvoted for poking fun at > I've come to realize I don't really enjoy the engineering aspects of my job nor the industry, but I enjoy corporate culture. Here's some info for those actually interested: https://www.wallstreetoasis.com/forums/corporate-strategy-vs-corporate-development https://www.mergersandinquisitions.com/corporate-finance-jobs/ https://www.mergersandinquisitions.com/day-in-life-corporate-finance-analyst/ https://www.quora.com/Strategic-Management-What-is-the-typical-day-in-the-life-of-a-corporate-strategy-consultant https://www.mergersandinquisitions.com/corporate-development-on-the-job/ Corporate finance (Controllers, FP&A, Treasury) is a catch-all for jobs that quantify and manage a company's money. This includes figuring out how much money the business is making, budgeting, and gaining access to money for future plans. They spend most of their day on excel, browsing reddit, and complaining that other departments don't take them seriously. There is work-life balance, unless your company is at risk of bankruptcy, but pay will likely be the least of this group. Corporate strategy/development is about finding ways to achieve the vision/goals of the C-suite. Corporate development usually are ex-IB people and focused on finding companies to acquire, integrate, and achieve the goals of the acquisition (synergies, returns on investment, technology/product acquisition). Corporate strategy is usually broader and could be focused on improving the brand, figuring out new uses for a product, finding new partners, or generally looking for good ideas to improve the company. Business development usually is about growing the company through finding new customers, markets, or partnerships. Instead of selling specific products or services, you're selling your company's abilities and brand. I'd say, with your engineering background, if you can swing a corporate strategy gig, you'd have the greatest opps for any VP you decide. I'd say if you want to sell or are good at selling, then business development may be compelling. If I were you, corporate finance would be the least appealing unless you are truly interested in finance."
},
{
"docid": "232540",
"title": "",
"text": "Well it would appear that you had a wash sale that canceled out a loss position. Without seeing the entire report, I couldn't tell you exactly what was happening or how you triggered § 1091. But just from the excerpted images, it appears as though your purchase of stock was layered into multiple tranches - perhaps you acquired more of the stock in the 61-day period than you sold (possibly because of a prior holding). If in the 61-day period around the sale of stock (30 days before and 30 days after), you also acquire the same stock (including by contract or option), then it washes out your loss. If you held your stock for a while, then in a 61-day period bought more, and sold some, then any loss would be washed out by the acquisition. Of course it is also a wash sale if your purchase of the stock follows your sale, rather than precedes it. Your disallowed loss goes into the basis of your stock holding, so will be meaningful when you do have a true economic sale of that stock. From IRS Pub 550: A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. Looking at your excerpted account images, we can see a number of positions sold at a loss (sale proceeds less than basis) but each one is adjusted to a zero loss. I suspect the fuller picture of your account history and portfolio will show a more complicated and longer history with this particular stock. That is likely the source of the wash sale disallowed loss notations. You might be able to confirm that all the added numbers are appearing in your current basis in this stock (or were reflected upon your final exit from the stock)."
},
{
"docid": "127578",
"title": "",
"text": "Technically, of course. Almost any company can go bankrupt. One small note: a company goes bankrupt, not its stock. Its stock may become worthless in bankruptcy, but a stock disappearing or being delisted doesn't necessarily mean the company went bankrupt. Bankruptcy has implications for a company's debt as well, so it applies to more than just its stock. I don't know of any historical instances where this has happened, but presumably, the warning signs of bankruptcy would be evident enough that a few things could happen. Another company, e.g. another exchange, holding firm, etc. could buy out the exchange that's facing financial difficulty, and the companies traded on it would transfer to the new company that's formed. If another exchange bought out the struggling exchange, the shares of the latter could transfer to the former. This is an attractive option because exchanges possess a great deal of infrastructure already in place. Depending on the country, this could face regulatory scrutiny however. Other firms or governments could bail out the exchange if no one presented a buyout offer. The likelihood of this occurring depends on several factors, e.g. political will, the government(s) in question, etc. For a smaller exchange, the exchange could close all open positions at a set price. This is exactly what happened with the Hong Kong Mercantile Exchange (HKMex) that MSalters mentioned. When the exchange collapsed in May 2013, it closed all open positions for their price on the Thursday before the shutdown date. I don't know if a stock exchange would simply close all open positions at a set price, since equity technically exists in perpetuity regardless of the shutdown of an exchange, while many derivatives have an expiration date. Furthermore, this might not be a feasible option for a large exchange. For example, the Chicago Mercantile Exchange lists thousands of products and manages hundreds of millions of transactions, so closing all open positions could be a significant undertaking. If none of the above options were available, I presume companies listed on the exchange would actively move to other, more financially stable exchanges. These companies wouldn't simply go bankrupt. Contracts can always be listed on other exchanges as well. Considering the high level of mergers and acquisitions, both unsuccessful and successful, in the market for exchanges in recent years, I would assume that option 1 would be the most likely (see the NYSE Euronext/Deutsche Börse merger talks and the NYSE Euronext/ICE merger that's currently in progress), but for smaller exchanges, there is the recent historical precedent of the HKMex that speaks to #3. Also, the above answer really only applies to publicly traded stock exchanges, and not all stock exchanges are publicly-held entities. For example, the Shanghai Stock Exchange is a quasi-governmental organization, so I presume option 2 would apply because it already receives government backing. Its bankruptcy would mean something occurred for the government to withdraw its backing or that it became public, and a discussion of those events occurring in the future is pure speculation."
},
{
"docid": "418336",
"title": "",
"text": "Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund? SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. SIPC is free for ordinary investors. To get the same from elsewhere one has to pay the premium. Edit: The event we are saying is a large brokrage firm, takes all of the Margin Money from Customer Accounts and loses it and also sell off all the stocks actually shown as being held in customer account ... that would be to big. While its not clear as to what exactly will happens, my guess is that the limits per customers will go down as initial payments. Subsequent payments will only be done after recover of funds from the bankrupt firm. What normally happens when a brokrage firm goes down is some of the money from customers account is diverted ... stocks are typically safe and not diverted. Hence the way SIPC works is that it will give the money back to customer faster to individuals. In absence of SIPC individual investors would have had to fight for themselves."
},
{
"docid": "484307",
"title": "",
"text": "\"There's an old adage in the equities business - \"\"buy on rumor, sell on fact\"\". Sometimes the strategy is to buy as soon as the rumor is out about a potential merger and then sell off into the news when it is actually announced, since this is normally when the biggest bounce occurs as part of a merger. The other part of the analysis you should do is to understand which of the companies benefits most (or is hurt the worst) by the merger and then make your play accordingly. Sometimes the company being acquired will see a bounce while the acquiring firm takes a hit, which is an indication the experts think the acquisition will be a drag on the acquiring company (perhaps because it is taking on a great deal of debt to make the acquisition, or because the acquiring firm is paying too much of a premium for what it's getting in return). Other times the exact opposite is true, where the company being acquired takes a hit while the buyer bounces, and again, the reasons for this can vary widely. If you wait until the merger is actually announced then by the time you get in, most of the premium from the announcement will likely have already been realized, and you'll be buying near the top of the market for the stock. The key is to be ahead of the other sellers by seeing the opportunities before they do and then knowing when to get out before everyone else does. Not an easy thing to pull off when you're trying to anticipate the markets, but it can be done if you do the right research and have patience. Good luck!\""
},
{
"docid": "159703",
"title": "",
"text": "How you are taxed will depend on what kind of stock awards they are. The value will be determined by the company that issues it, and appropriate tax forms will be sent to you to include with your taxes. The way the value is determined is an accounting question that is off-topic here, but the value will be stated on your stock award paperwork. If you are awarded the stock directly then that value will be taxed as ordinary income. If you are awarded options, then you can purchase the stock to start the clock on long-term capital gains, but you will not incur any tax liability through the initial purchase. If the company is sold privately and you have held the stock for over 1 year, then yes, it will be taxed as a long-term capital gain. If you receive/exercise the stock less than 1 year before such an acquisition, then it will be considered a short-term capital gain and will be taxed as ordinary income."
},
{
"docid": "444369",
"title": "",
"text": "An issue with the initial plan was that the house was gifted to you. Therefore you owned it. Now two years later you wanted to get a mortgage. The IRS would look at it as a home equity debt not a home Acquisition debt, and the interest on the first $100,000 of home equity dept is deductible. This is from IRS pub 936 Mortgage treated as used to buy, build, or improve home. A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. This applies in the following situations. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit described below in (2) or (3). (See Example 1 later.) You build or improve your home and take out the mortgage before the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. You build or improve your home and take out the mortgage within 90 days after the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within the period beginning 24 months before the work is completed and ending on the date of the mortgage. (See Example 2 later.) Example 1. You bought your main home on June 3 for $175,000. You paid for the home with cash you got from the sale of your old home. On July 15, you took out a mortgage of $150,000 secured by your main home. You used the $150,000 to invest in stocks. You can treat the mortgage as taken out to buy your home because you bought the home within 90 days before you took out the mortgage. The entire mortgage qualifies as home acquisition debt because it was not more than the home's cost. At two years you would be way outside the 90 day limit. The pub also gives example on how calculate the amount of interest you can deduct."
},
{
"docid": "295786",
"title": "",
"text": "\"My prediction: They are purposefully suppressing the price. Chinese crypto-exchanges will be temporarily closed at the end of this month. The Communist party leaders and PBoC insiders will have access to cheap bitcoin. After they are sufficiently happy with their bitcoin acquisition, they release a new statement that says exchanges can re-open. The supply has been significantly reduced because of insiders attaining bitcoin behind the scenes during the \"\"shut down\"\". Because of the low supply, the price skyrockets to $10k. They all make significant sums of money. So do you want to be on the sidelines during this, or do you want to join in on the fun? I know what I'll be doing :)\""
}
] |
8456 | What typically happens to unvested stock during an acquisition? | [
{
"docid": "510875",
"title": "",
"text": "I've been through two instances where I worked for a public company that was merged (for stock) into another company. In both cases the options I had were replaced with equivalent options in the merged company with the number of shares and strike price adjusted at the same rate as the actual stock was converted, and the vesting terms remained essentially the same. In other words, the options before and after were in essence equivalent."
}
] | [
{
"docid": "152151",
"title": "",
"text": "A big issue for historical data in banking is that they don't/can't reside within a single system. Archives of typical bank will include dozen(s) of different archives made by different companies on different, incompatible systems. For example, see http://www.motherjones.com/files/images/big-bank-theory-chart-large.jpg as an illustration of bank mergers and acquisitions, and AFAIK that doesn't include many smaller deals. For any given account, it's 10-year history might be on some different system. Often, when integrating such systems, a compromise is made - if bank A acquires bank B that has earlier acquired bank C, then if the acquisition of C was a few years ago, then you can skip integrating the archives of C in your online systems, keep them separate, and use them only when/if needed (and minimize that need by hefty fees). Since the price list and services are supposed to be equal for everyone, then no matter how your accounts originated, if 10% of archives are an expensive enough problem to integrate, then it makes financial sense to restrict access to 100% of archives older than some arbitrary threshold."
},
{
"docid": "89947",
"title": "",
"text": "\"I would add to the other excellent answers that another factor besides just high unemployment numbers is the fear people have regarding the \"\"financial\"\" aspects of the country, that is the value of stocks and the value of the dollar. When the economy is sluggish it means people aren't buying enough, therefore companies aren't making enough, therefore their profits are too low and people start to divest from them, and stock prices drop. Or even the fear of this happening can induce people to sell off shares. The point is, people are worried \"\"in this economy\"\" because if--due to unemployment, low spending/consumer confidence--the stock market crashes again as it did in 2008/09, that represents a lot of savings lost, e.g. 40-50% of what one was counting on to retire with, particularly if you panic sell at the bottom. Now suddenly it's as if you had a huge robbery, and you will have to work longer into your retirement years than you'd planned. Similarly, if, due to monetary policy, the U.S. inflates the dollar, what one saved for retirement may not be sufficient. (These arguments are true for shorter periods than just one's retirement, but just taking that as an example). So it's not just unemployment that is worrisome \"\"in this economy\"\". This said, I agree with George Marian that one ought to be careful and plan well regardless of the winds of the economy. I guess for most people (and companies), though, \"\"in this economy\"\" means they can't get away with the kind of carelessness they might have during a boom.\""
},
{
"docid": "232540",
"title": "",
"text": "Well it would appear that you had a wash sale that canceled out a loss position. Without seeing the entire report, I couldn't tell you exactly what was happening or how you triggered § 1091. But just from the excerpted images, it appears as though your purchase of stock was layered into multiple tranches - perhaps you acquired more of the stock in the 61-day period than you sold (possibly because of a prior holding). If in the 61-day period around the sale of stock (30 days before and 30 days after), you also acquire the same stock (including by contract or option), then it washes out your loss. If you held your stock for a while, then in a 61-day period bought more, and sold some, then any loss would be washed out by the acquisition. Of course it is also a wash sale if your purchase of the stock follows your sale, rather than precedes it. Your disallowed loss goes into the basis of your stock holding, so will be meaningful when you do have a true economic sale of that stock. From IRS Pub 550: A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. Looking at your excerpted account images, we can see a number of positions sold at a loss (sale proceeds less than basis) but each one is adjusted to a zero loss. I suspect the fuller picture of your account history and portfolio will show a more complicated and longer history with this particular stock. That is likely the source of the wash sale disallowed loss notations. You might be able to confirm that all the added numbers are appearing in your current basis in this stock (or were reflected upon your final exit from the stock)."
},
{
"docid": "481298",
"title": "",
"text": "Stop orders and stop limit orders typically do not execute during extended hours after the general market session has closed. Stop orders are market orders and market orders especially are not executed during extended hours. Although there are exceptions because a broker can say one thing and do another thing with the way order types are presented to customers vs what their programming actually does. The regulatory burden is a slap on the wrist, so you need to ask the broker what their practices are. Orders created during normal market hours do not execute in extended sessions, different orders would have to be made during the extended session. Your stop order should execute if the normal market hour price stays below your stop price. So a stop limit would actually be worse here, because a stop limit will create a limit order which may never get hit (since it is above the best bid best ask)"
},
{
"docid": "238682",
"title": "",
"text": "\"These warrants do not have a fixed expiration date, rather their expiration date is dependant upon the company completing an acquisition. Thirty days after the acquisition is complete the warrants enter their exercise period. The warrants can then be exercised at any time over the next five years. After five years they expire. From the \"\"WARRANT AGREEMENT SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.\"\": A Warrant may be exercised only during the period (the “Exercise Period”) (A) commencing on the later of: (i) the date that is thirty (30) days after the first date on which the Company completes a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination, involving the Company and one or more businesses (a “Business Combination”), and (ii) the date that is twelve (12) months from the date of the closing of the Offering, and (B) terminating at the earliest to occur of (x) 5:00 p.m., New York City time on the date that is five (5) years after the date on which the Company completes its initial Business Combination, (y) the liquidation of the Company in accordance with the Company’s amended and restated memorandum and articles of association, as amended from time to time, if the Company fails to complete a Business Combination, and (z) 5:00 p.m., New York City time on, other than with respect to the Private Placement Warrants, the Redemption Date (as defined below) as provided in Section 6.2 hereof (the “Expiration Date”); provided, however, that the exercise of any Warrant shall be subject to the satisfaction of any applicable conditions, as set forth in subsection 3.3.2 below, with respect to an effective registration statement Source : lawinsder.com\""
},
{
"docid": "104188",
"title": "",
"text": "This should all be covered in your stock grant documentation, or the employee stock program of which your grant is a part. Find those docs and it should specify how or when you can sale your shares, and how the money is paid to you. Generally, vested shares are yours until you take action. If instead you have options, then be aware these need to be exercised before they become shares. There is generally a limited time period on how long you can wait to exercise. In the US, 10 years is common. Unvested shares will almost certainly expire upon your departure of the company. Whether your Merrill Lynch account will show this, or show them as never existing, I can't say. But either way, there is nothing you can or should do."
},
{
"docid": "440856",
"title": "",
"text": "No, they are not recession proof. Assume several companies, that issued bonds in the fund, go bankrupt. Those bonds could be worthless, they could miss principle payments, or they could be restructured. All would mean a decline in value. When the economy shrinks (which is what a recession is) how does the Fed respond? By lowering interest rates. This makes current bonds more valuable as presumably they were issued at a higher rate, thus the recession proof prejudice. However, there is nothing to stop a company (in good financial shape) from issuing more bonds to pay the par value on high-interest bonds, thus refinancing their debt. Sort of like how the bank feels when one refinances the mortgage for a lower rate. The thing that troubles me the most is that rates have been low for a long time. What happens if we have a recession now? How does the Fed fix it? I am not sure exactly what the fallout would be, but it could be significant. If you are troubled, you should look for sectors that would be hurt and helped by a Trump-induced recession. Move money away from those that will be hurt. Typically aggressive growth companies are hurt (during recessions), so you may want to move money away from them. Typically established blue chip companies fare okay in a recession so you may want to move money toward them. Move some money to cash, and perhaps some towards bonds. All that being said, I'd keep some money in things like aggressive growth in case you are wrong."
},
{
"docid": "276960",
"title": "",
"text": "I'll just add this: In the best hedge funds and proprietary trading funds, stock selection is approached very scientifically in order to minimize losses/maximize gains. Researchers think of a trading idea and carefully test it to see which methods of stock selection work and how well, and finally they combine them. Every day researchers update their models based on the past performance of each indicator. All this is just too much work to be done manually. Firms use machine learning methods to understand markets. They try to figure out what is normal, what did not happen correctly at a specific time, what will happen in future. For instance, they use deep learning networks to look at unlabeled data, and figure out what is normal and what is not. These networks can analyze an unstructured haystack of noise, and separate out the signal. This is very relevant to finance and markets because finding the patterns and anomalies in market data has been the bread and butter of traders for decades. Deep learning networks give us applications like feature learning. By 'features,' I'm referring to certain attributes in data that indicate an event. By anticipating them, we can help predict future price movements. New technology is allowing us to break new ground in managing risk, to be a-typical and manage risk in ever-improving ways. It's the responsibility of every trader, whether working for themselves or others, to take advantage of this technology to improve the collective investing experience. I care very deeply about this. I have many close friends, in the finance world and without, who have lost large amounts of money to poor trade tools and lack of transparency."
},
{
"docid": "53839",
"title": "",
"text": "Well first of all, they clawed back 75 mln of those bonuses paid out, so they really didn't get paid that money. Second, not every executive, not even probably more than one executive, was even aware this was happening. There is one who **might** have known it was happening, but the reality is that a lot of these decisions and plans are implemented several levels down from the executive team. The executives do not get involved in day to day shit typically. Third, those bonuses to executives are paid out in stock options. Stock options glean their value from the price of the stock. If the stock price goes down, then their bonuses lose value or become worthless, essentially meaning that they get reductions in pay or no bonus when the stock price goes down. So if the scandal had no affect on the stock price, why wouldn't they get paid their bonuses? The stock is the best indicator of the public's reaction to the entirety of the bank."
},
{
"docid": "380851",
"title": "",
"text": "\"From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. Price/earnings ratios, for example, will be significantly more volatile in companies that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between equivalent companies on a risk-adjusted basis. They can then superimpose their own choice of debt levels. In practice, equity investors may have difficulty accurately assessing EV if they do not have access to the market quotations of the company debt. It is not sufficient to substitute the book value of the debt because a) the market interest rates may have changed, and b) the market's perception of the risk of the loan may have changed since the debt was issued. Remember, the point of EV is to neutralize the different risks, and costs of different capital structures. Buyers of controlling interests in a business use EV to compare returns between businesses, as above. They also use the EV valuation (or a debt free cash free valuation) to determine how much to pay for the whole entity (not just the equity). They may want to change the capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the outstanding number of shares in issue are readily available and easy to find, it is virtually impossible to calculate an EV without making a number of adjustments to published data, including often subjective estimations of value: In practice, EV calculations rely on reasonable estimates of the market value of these components. For example, in many professional valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the numerator should correspond to the denominator. The EV should, therefore, correspond to the market value of the assets that were used to generate the profits in question, excluding assets acquired (and including assets disposed) during a different financial reporting period. This requires restating EV for any mergers and acquisitions (whether paid in cash or equity), significant capital investments or significant changes in working capital occurring after or during the reporting period being examined. Ideally, multiples should be calculated using the market value of the weighted average capital employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic multiples vs forward multiples), EV should be adjusted to reflect the weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is determined by buyers and sellers who have access to data on cash and debts and factor that into their decision to buy or sell. Note the first point under \"\"Technical Considerations\"\" there and you will see that the \"\"access to data on cash and debts\"\" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum.\""
},
{
"docid": "554015",
"title": "",
"text": "What account you put it in depends on why you have those different accounts. First, if you have them due to regulatory requirements, then you of course must follow said regulations. I doubt that's the case here. Otherwise, you might be splitting based on how they trade (ETFs trade as stocks) or you could be splitting based on how you build a portfolio out of them. When you build a non-speculative stock portfolio, you typically want to limit your holdings in a single stock to a fairly small portion of your portfolio (say, 3%) to limit your exposure to bad stuff happening to a single company. That doesn't apply nearly a much to mutual funds, especially index funds. ETFs are much more like mutual funds here. You can also, of course, create an ETF account and put them there. You also say you have a market index account, what is that used for?"
},
{
"docid": "324470",
"title": "",
"text": "Broadly, there's a bunch of stuff you need to be accounting for that's not reflected in the above, which will impact the A/D profile of an acquisition: * Consideration paid (all cash on substantially the same terms is going to be more accretive than an all-stock transaction...because in the latter, your denominator is much bigger) * Shares outstanding (including repurchases, in-kind dividends and option exercise) * Financing / interest expense * Upside / base / downside case for all of your assumptions - best to have a toggle based on a CHOOSE function that will allow the user to easily toggle between these I'm not sure what EBITDA is getting you. EPS accretion/dilution typically looks at earnings, but you could also look at Cash EPS A/D which measures OCF/shares outstanding. The point is, this really depends on how back of the envelope you want the A/D computation to be. At a minimum, you need an earnings schedule projected over the next 2-3 years, and you need a schedule reflecting outstanding shares over the same time period. Your earnings buildout can have varying degrees of granularity. You can project cost synergies over the forecast period, which most obviously is going to affect your earnings, but you can also drill down further. Financing, transaction fees, etc. Your writeups and writedowns from your B/S combination may result in certain deferred tax items that will affect your bottom line over the forecast period. Your share schedule can also have varying degrees of complexity. One way to do it is to just presume that the company will not issue any more shares, and will not repurchase any shares, and that there will be no options exercised, over the forecast period. This is a bad series of assumptions. It is likely that as options vest, if in the money, they will be exercised, resulting in dilution for existing shareholders. It is also likely that certain preferred shareholders and optionholders are going to experience adjustments to the conversion prices based on antidilution provisions in their securities. These may be but are not always disclosed in the 10K. Last point - models are tools. What are you trying to build an accretion/dilution model for? This will affect and determine the degree of granularity you'll want to go into."
},
{
"docid": "314972",
"title": "",
"text": "There are multiple reasons why this may have happened: 1.) I couldn't tell in your question whether or not you had already paid off the loan before requesting the rollover. But if the loan was defaulted - then the $9k left in your account is not distributable, but is there to pay back the remaining balance on your loan. The $9k will be treated as income, and will be taxed - you will receive a 1099-R detailing the taxes you'll owe. I don't know why this wasn't done when they did your rollover distribution. Typically it all happens at the same time - but it can vary depending on the administrator. 2.) Do you get some type of safe harbor discretionary match, or profit sharing contribution? If so - perhaps this contribution was made after your account was liquidated. So now there is residual money in your account and it is treated as a new distribution, which incurs a new $60 distribution fee. 3.) Stock - if some of your investments were in stock - these take a few extra days to liquidate. Typically a TPA/Recordkeeper would wait until ALL of the funds are liquidated before issuing the rollover. But some companies may be shady and do it separately - incurring an additional $60 distribution fee. If this was the case - I would go to your former employer's HR and tell them whats happening and to start looking for a new 401(k) administrator! I hope this helps :-) Good luck!"
},
{
"docid": "515788",
"title": "",
"text": "The general difference between high dividend paying stocks and growth stocks is as follows: 1) A high dividend paying stock/company is a company that has reached its maximum growth potential in a market and its real growth (that is after adjustment of inflation) is same (more or less) as the growth of the economy. These companies typically generate a lot of cash (Cash Cow) and has nowhere to really invest the entire thing, so they pay high dividends. Typically Fast Moving Consumer Goods (FMCG) ,Power/Utility companies, Textile (in some countries) come into this category. If you invest in these stocks, expect less growth but more dividend; these companies generally come under 'defensive sector' of the market i.e. whose prices do not fall drastically during down turn in a market. 2) Growth stocks on the other hand are the stocks that are operating in a market that is witnessing rapid growth, for example, technology, aerospace etc. These companies have high growth potential but not much accumulated income as the profit is re-invested to support the growth of the company, so no dividend (you will be typically never get any/much dividend from these companies). These companies usually (for some years) grow (or at least has potential to grow) more than the economy and provide real return. Usually these companies are very sensitive to results (good or bad) and their prices are quite volatile. As for your investment strategy, I cannot comment on that as investment is a very subjective matter. Hope this helps"
},
{
"docid": "148270",
"title": "",
"text": "The Art of Short Selling by Kathryn Stanley providers for many case studies about what kind of opportunities to look for from a fundamental analysis perspective. Typically things you can look for are financing terms that are not very favorable (expensive interest payments) as well as other constrictions on cash flow, arbitrary decisions by management (poor management), and dilution that doesn't make sense (usually another product of poor management). From a quantitative analysis perspective, you can gain insight by looking at the credit default swap rate history, if the company is listed in that market. The things that affect a CDS spread are different than what immediately affects share prices. Some market participants trade DOOMs over Credit Default Swaps, when they are betting on a company's insolvency. But looking at large trades in the options market isn't indicative of anything on its own, but you can use that information to help confirm your opinion. You can certainly jump on a trend using bad headlines, but typically by the time it is headline news, the majority of the downward move in the share price has already happened, or the stock opened lower because the news came outside of market hours. You have to factor in the short interest of the company, if the short interest is high then it will be very easy to squeeze the shorts resulting in a rally of share prices, the opposite of what you want. A short squeeze doesn't change the fundamental or quantitative reasons you wanted to short. The technical analysis should only be used to help you decide your entry and exit price ranges amongst an otherwise random walk. The technical rules you created sound like something a very basic program or stock screener might be able to follow, but it doesn't tell you anything, you will have to do research in the company's public filings yourself."
},
{
"docid": "37040",
"title": "",
"text": "\"First of all, not all brokers allow trading during pre-market and post-market. Some brokers only allow trading during the regular hours (9:30am - 4pm ET). Second of all, while you can place orders using limit orders and market orders during regular trading hours, you can only use limit orders during pre-market and post-market. This is because the liquidity is much lower during pre-market and post-market, and using market orders could result in some trades filling at horrible prices. So brokers don't allow using market orders outside of regular trading hours. Third, some brokers require you to specify that you want your order to be executed during pre-market or post-market. For example, my broker allows me to specify either \"\"Day\"\" or \"\"Ext\"\" for my orders. \"\"Day\"\" means I want my order to execute only during regular trading hours, and \"\"Ext\"\" means I want my order to execute at any time - pre-market, regular trading hours, or post-market. Finally, if your broker allows pre/post market trading, and you place a limit order while specifying \"\"Ext\"\", then your trade can happen in real-time during pre-market or post-market. Per your example, if a stock is trading at $5 at 8am, and you put in a limit order (while specifying \"\"Ext\"\") to buy it at $5 at 8am, then your order will execute at that time and you will buy that stock at 8am.\""
},
{
"docid": "529996",
"title": "",
"text": "This is a great question for understanding how futures work, first let's start with your assumptions The most interesting thing here is that neither of these things really matters for the price of the futures. This may seem odd as a futures contract sounds like you are betting on the future price of the index, but remember that the current price already includes the expectations of future earnings as well! There is actually a fairly simple formula for the price of a futures contract (note the link is for forward contracts which are very similar but slightly more simple to understand). Note, that if you are given the current price of the underlying the futures price depends essentially only on the interest rate and the dividends paid during the length of the futures contract. In this case the dividend rate for the S&P500 is higher than the prevailing interest rate so the futures price is lower than the current price. It is slightly more complicated than this as you can see from the formula, but that is essentially how it works. Note, this is why people use futures contracts to mimic other exposures. As the price of the future moves (pretty much) in lockstep with the underlying and sometimes using futures to hedge exposures can be cheaper than buying etfs or using swaps. Edit: Example of the effect of dividends on futures prices For simplicity, let's imagine we are looking at a futures position on a stock that has only one dividend (D) in the near term and that this dividend happens to be scheduled for the day before the futures' delivery date. To make it even more simple lets say the price of the stock is fairly constant around a price P and interest rates are near zero. After the dividend, we would expect the price of the stock to be P' ~ P - D as if you buy the stock after the dividend you wouldn't get that dividend but you still expect to get the rest of the value from additional future cash flows of the company. However, if we buy the futures contract we will eventually own the stock but only after the dividend happens. Since we don't get that dividend cash that the owners of the stock will get we certainly wouldn't want to pay as much as we would pay for the stock (P). We should instead pay about P' the (expected) value of owning the stock after that date. So, in the end, we expect the stock price in the future (P') to be the futures' price today (P') and that should make us feel a lot more comfortable about what we our buying. Neither owning the stock or future is really necessarily favorable in the end you are just buying slightly different future expected cash flows and should expect to pay slightly different prices."
},
{
"docid": "420046",
"title": "",
"text": "You should be worried. You have made the mistake of entering an investment on the recommendation of family/friend. The last think you should do is make another mistake of just leaving it and hoping it will go up again. Your stock has dropped 37.6% from its high of $74.50. That means it has to go up over 60% just to reach the high of $74.50. You are correct this may never happen or if it does it could take a long, long time to get up to its previous highs. What is the company doing to turn its fortunes around? Take a look at some other examples: QAN.AX - Qantas Airways This stock reached a high of around $6 in late 2007 after a nice uptrend over a year and a half, it then dropped drastically at the start of the GFC, and has since kept falling and is now priced at just $1.15. QAN reported its first ever loss earlier this year, but its problems were evident much earlier. AAPL - Apple Inc. AAPL reach a high of just over $700 in September 2013, then dropped to around $400 and has recovered a bit to about $525 (still 25% below its highs) and looks to be at the start of another downtrend. How long will it take AAPL to get back to $700, more than 33% from its current price? TEN.AX - Ten Network Holdings Limited TEN reached a high of $4.26 in late 2004 after a nice uptrend during 2004. It then started a steep journey downwards and is still going down. It is now priced at just $0.25, a whopping 94% below its high. It will have to increase by 1600% just to reach its high of $4.26 (which I think will never happen). Can a stock come back from a drastic downtrend? Yes it can. It doesn't always happen, but a company can turn around and can reach and even surpass it previous highs. The question is how and when will this happen? How long will you keep your capital tied up in a stock that is going nowhere and has every chance of going further down? The most important thing with any investment is to protect your current capital. If you lose all your capital you cannot make any new investments until you build up more capital. That is why it is so important to have a risk management strategy and decide what is your get out point if things go against you before you get into any new investment. Have a stop loss. I would get out of your investment before you lose more capital. If you had set a stop loss at 20% off the stock's last highs, you would have gotten out at about $59.60, 28% higher than the current share price of $46.50. If you do further analysis on this company and find that it is improving its prospects and the stock price breaks up through its current ranging band, then you can always buy back in. However, do you still want to be in the stock if it breaks the range band on the downside? In this case who knows how low it can continue to go. N.B. This is my opinion, as others would have theirs, and what I would do in your current situation with this stock."
},
{
"docid": "118712",
"title": "",
"text": "In general a stock can open at absolutely any price with no regard for the closing price or after hours price the previous day. The opening price will be determined by the best bid and offer made by people who decide to trade the next day. Some of the those people may have put orders in on a prior day that are still on the books and matter, but there's a lot of time overnight for people to cancel orders and enter new ones, which is especially likely to happen if there was substantive news overnight. As for what you can do in your case, you have the same options that you always had: Sell or hold. If you're selling, you can sell after hours, in the pre-open hours, or during the trading day. There's nothing we can say about this case that's really any different than we can say about any other stock on any other day."
}
] |
8456 | What typically happens to unvested stock during an acquisition? | [
{
"docid": "486333",
"title": "",
"text": "\"I worked for a small private tech company that was aquired by a larger publicly traded tech company. My shares were accelerated by 18 months, as written in the contract. I excercised those shares at a very low strike price (under $1) and was given an equal number of shares in the new company. Made about $300,000 pre tax. This was in 2000. (I love how the government considered us \"\"rich\"\" that year, but have never made that amount since!)\""
}
] | [
{
"docid": "566553",
"title": "",
"text": "The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc."
},
{
"docid": "481298",
"title": "",
"text": "Stop orders and stop limit orders typically do not execute during extended hours after the general market session has closed. Stop orders are market orders and market orders especially are not executed during extended hours. Although there are exceptions because a broker can say one thing and do another thing with the way order types are presented to customers vs what their programming actually does. The regulatory burden is a slap on the wrist, so you need to ask the broker what their practices are. Orders created during normal market hours do not execute in extended sessions, different orders would have to be made during the extended session. Your stop order should execute if the normal market hour price stays below your stop price. So a stop limit would actually be worse here, because a stop limit will create a limit order which may never get hit (since it is above the best bid best ask)"
},
{
"docid": "294774",
"title": "",
"text": "I don't know what his problem is. IBM has been spending like drunken sailors on acquisitions for years now. IBM is being managed by half-wits who think financial engineering (stock buy backs, restructuring, M&A) is as good as actual engineering. Meanwhile the company has missed every significant technological shift since the 1980s. So if they make a massive, huge, great big acquisition you can be sure they'll pay too much for it, be unable to integrate it, and end up writing it down. After all, they are consistent in their incompetence. IBM shareholders have to fire the board. Once a new board is in place they can fire all of senior management and replace them with people who have at least a degree of competence. Most likely the company will just continue on its course to oblivion."
},
{
"docid": "12027",
"title": "",
"text": "You don't have to go through an exchange. That wasn't the problem. It was that the people trading on them wouldn't be willing to take your offer. An exchange can't just list a company. They need that company's consent and the company need's the exchange's consent. I don't know if you're aware of this but that was also an entirely new disaster during Facebook's IPO. Computer glitches didn't help. What you're talking about is a called a secondary market, kind of. Stock exchanges offer those too, especially for options. That's the typical stock footage you see of guys on wall street yelling and screaming while throwing paper up in the air."
},
{
"docid": "451737",
"title": "",
"text": "\"Does your job give you access to \"\"confidential information\"\", such that you can only buy or sell shares in the company during certain windows? Employees with access to company financial data, resource planning databases, or customer databases are often only allowed to trade in company securities (or derivatives thereof) during certain \"\"windows\"\" a few days after the company releases its quarterly earnings reports. Even those windows can be cancelled if a major event is about to be announced. These windows are designed to prevent the appearance of insider trading, which is a serious crime in the United States. Is there a minimum time that you would need to hold the stock, before you are allowed to sell it? Do you have confidence that the stock would retain most of its value, long enough that your profits are long-term capital gains instead of short-term capital gains? What happens to your stock if you lose your job, retire, or go to another company? Does your company's stock price seem to be inflated by any of these factors: If any of these nine warning flags are the case, I would think carefully before investing. If I had a basic emergency fund set aside and none of the nine warning flags are present, or if I had a solid emergency fund and the company seemed likely to continue to justify its stock price for several years, I would seriously consider taking full advantage of the stock purchase plan. I would not invest more money than I could afford to lose. At first, I would cash out my profits quickly (either as quickly as allowed, or as quickly as lets me minimize my capital gains taxes). I would reinvest in more shares, until I could afford to buy as many shares as the company would allow me to buy at the discount. In the long-run, I would avoid having more than one-third of my net worth in any single investment. (E.g., company stock, home equity, bonds in general, et cetera.)\""
},
{
"docid": "118485",
"title": "",
"text": "\"There are a couple of misconceptions I think are present here: Firstly, when people say \"\"interest\"\", usually that implies a lower-risk investment, like a government bond or a money market fund. Some interest-earning investments can be higher risk (like junk bonds offered by near-bankrupt companies), but for the most part, stocks are higher risk. With higher risk comes higher reward, but obviously also the chance for a bad year. A \"\"bad year\"\" can mean your fund actually goes down in value, because the companies you are invested in do poorly. So calling all value increases \"\"interest\"\" is not the correct way to think about things. Secondly, remember that \"\"Roth IRA fund\"\" doesn't really tell you what's \"\"inside\"\" it. You could set up your fund to include only low-risk interest earning investments, or higher risk foreign stocks. From what you've said, your fund is a \"\"target retirement date\"\"-type fund. This typically means that it is a mix of stocks and bonds, weighted higher to bonds if you are older (on the theory of minimizing risk near retirement), and higher to stocks if you are younger (on the theory of accepting risk for higher average returns when you have time to overcome losses). What this means is that assuming you're young and the fund you have is typical, you probably have ~50%+ of your money invested in stocks. Stocks don't pay interest, they give you value in two ways: they pay you dividends, and the companies that they are a share of increase in value (remember that a stock is literally a small % ownership of the company). So the value increase you see as the increase due to the increase in the mutual fund's share price, is part of the total \"\"interest\"\" amount you were expecting. Finally, if you are reading about \"\"standard growth\"\" of an account using a given amount of contributions, someone somewhere is making an assumption about how much \"\"growth\"\" actually happens. Either you entered a number in the calculator (\"\"How much do you expect growth to be per year?\"\") or it made an assumption by default (probably something like 7% growth per year - I haven't checked the math on your number to see what the growth rate they used was). These types of assumptions can be helpful for general retirement planning, but they are not \"\"rules\"\" that your investments are required by law to follow. If you invest in something with risk, your return may be less than expected.\""
},
{
"docid": "241175",
"title": "",
"text": "Can a company not bargain with a dying company for example and buy a falling stock at lower than market value? Of course. If the shareholders agree to it. But why would they, if the market value is higher, agree to sell to someone who offers less? If there's a compelling reason - it can happen. It might happen during a hostile takeover, for example. In the case of buying the company for more than market value, are the stocks bought for significantly more, or slightly more than the current market value? Again, depends on how valuable the shareholders think the company is. If the shareholders think that the company has a potential which has not yet affected the stock price, they'll want a higher premium (and they'd think that, otherwise why would they hold the stock?). How much higher? Depends on the bargaining abilities of the sides."
},
{
"docid": "186869",
"title": "",
"text": "A lot may depend on the nature of a buyout, sometimes it's is for stock and cash, sometimes just stock, or in the case of this google deal, all cash. Since that deal was used, we'll discuss what happens in a cash buyout. If the stock price goes high enough before the buyout date to put you in the money, pull the trigger before the settlement date (in some cases, it might be pulled for you, see below). Otherwise, once the buyout occurs you will either be done or may receive adjusted options in the stock of the company that did the buyout (not applicable in a cash buyout). Typically the price will approach but not exceed the buyout price as the time gets close to the buyout date. If the buyout price is above your option strike price, then you have some hope of being in the money at some point before the buyout; just be sure to exercise in time. You need to check the fine print on the option contract itself to see if it had some provision that determines what happens in the event of a buyout. That will tell you what happens with your particular options. For example Joe Taxpayer just amended his answer to include the standard language from CBOE on it's options, which if I read it right means if you have options via them you need to check with your broker to see what if any special exercise settlement procedures are being imposed by CBOE in this case."
},
{
"docid": "276960",
"title": "",
"text": "I'll just add this: In the best hedge funds and proprietary trading funds, stock selection is approached very scientifically in order to minimize losses/maximize gains. Researchers think of a trading idea and carefully test it to see which methods of stock selection work and how well, and finally they combine them. Every day researchers update their models based on the past performance of each indicator. All this is just too much work to be done manually. Firms use machine learning methods to understand markets. They try to figure out what is normal, what did not happen correctly at a specific time, what will happen in future. For instance, they use deep learning networks to look at unlabeled data, and figure out what is normal and what is not. These networks can analyze an unstructured haystack of noise, and separate out the signal. This is very relevant to finance and markets because finding the patterns and anomalies in market data has been the bread and butter of traders for decades. Deep learning networks give us applications like feature learning. By 'features,' I'm referring to certain attributes in data that indicate an event. By anticipating them, we can help predict future price movements. New technology is allowing us to break new ground in managing risk, to be a-typical and manage risk in ever-improving ways. It's the responsibility of every trader, whether working for themselves or others, to take advantage of this technology to improve the collective investing experience. I care very deeply about this. I have many close friends, in the finance world and without, who have lost large amounts of money to poor trade tools and lack of transparency."
},
{
"docid": "109533",
"title": "",
"text": "OK, looking at the balance sheet they have $42M in cash, but that is down from $325M in December. Meanwhile their debt has increased from $1.756B in December to $1.832B as of June so their net cash has dropped by $355M in only 6 months. It looks like they spent $329M (give or take) buying other companies in those 6 months. Otherwise their working capital (an important measure of the ability to run the business) looks OK at $230M. Looking at the income statement, they are making money: $70.6M in the last quarter on revenue of $226.7M, which is quite remarkable however they had an unusual item which increased earnings somewhat. Otherwise their earnings would have been about $39M, which is still pretty healthy. All in, the company itself looks healthy and on a bit of a buying binge, growing through acquisition. I don’t like the debt load but that is probably usual for the industry. When companies grow through acquisition they generally plan to reduce total employment because of redundancies because you sort of get economies of scale. This usually factors into the decision to buy the company: you increase revenues through the purchase and reduce costs by eliminating employees. This is typically how they “sell” an acquisition to investors. If I was to guess (and it would only be a guess) this company has a team which looks at the employees of the company it just bought and decides where to downsize. It may not downsize from the newly acquired company but from its own existing employees for a variety of reasons. So most likely that is what you were a victim of: it wasn’t because the company was struggling, or because you were necessarily not a good employee. It is a process, albeit sometimes unfair, and you were a victim of it. The layoff decisions are not always prudent and it can be hard to understand why a particular group was cut instead of another one. Management doesn’t always make the right call. The broadcast industry has been going through consolidation (companies buying companies) for some time now. Most likely management is hoping to “bulk up” to make it harder for another company to buy it and/or to get a better price when it is bought. So in summary, most likely they are doing this for reasons of greed, ie, they’ll make more money with fewer employees. Sorry about your situation."
},
{
"docid": "370304",
"title": "",
"text": "I've never seen a dividend, split or other corporate action during the day, but I have seen trade suspended a few times when something big happened. The market opening price is not in general the same as the close of the previous day. It can gap up or down and does frequently. I don't know of an api to find out if the dividend was cash or stock, but stock dividends are a lot less common."
},
{
"docid": "148270",
"title": "",
"text": "The Art of Short Selling by Kathryn Stanley providers for many case studies about what kind of opportunities to look for from a fundamental analysis perspective. Typically things you can look for are financing terms that are not very favorable (expensive interest payments) as well as other constrictions on cash flow, arbitrary decisions by management (poor management), and dilution that doesn't make sense (usually another product of poor management). From a quantitative analysis perspective, you can gain insight by looking at the credit default swap rate history, if the company is listed in that market. The things that affect a CDS spread are different than what immediately affects share prices. Some market participants trade DOOMs over Credit Default Swaps, when they are betting on a company's insolvency. But looking at large trades in the options market isn't indicative of anything on its own, but you can use that information to help confirm your opinion. You can certainly jump on a trend using bad headlines, but typically by the time it is headline news, the majority of the downward move in the share price has already happened, or the stock opened lower because the news came outside of market hours. You have to factor in the short interest of the company, if the short interest is high then it will be very easy to squeeze the shorts resulting in a rally of share prices, the opposite of what you want. A short squeeze doesn't change the fundamental or quantitative reasons you wanted to short. The technical analysis should only be used to help you decide your entry and exit price ranges amongst an otherwise random walk. The technical rules you created sound like something a very basic program or stock screener might be able to follow, but it doesn't tell you anything, you will have to do research in the company's public filings yourself."
},
{
"docid": "37040",
"title": "",
"text": "\"First of all, not all brokers allow trading during pre-market and post-market. Some brokers only allow trading during the regular hours (9:30am - 4pm ET). Second of all, while you can place orders using limit orders and market orders during regular trading hours, you can only use limit orders during pre-market and post-market. This is because the liquidity is much lower during pre-market and post-market, and using market orders could result in some trades filling at horrible prices. So brokers don't allow using market orders outside of regular trading hours. Third, some brokers require you to specify that you want your order to be executed during pre-market or post-market. For example, my broker allows me to specify either \"\"Day\"\" or \"\"Ext\"\" for my orders. \"\"Day\"\" means I want my order to execute only during regular trading hours, and \"\"Ext\"\" means I want my order to execute at any time - pre-market, regular trading hours, or post-market. Finally, if your broker allows pre/post market trading, and you place a limit order while specifying \"\"Ext\"\", then your trade can happen in real-time during pre-market or post-market. Per your example, if a stock is trading at $5 at 8am, and you put in a limit order (while specifying \"\"Ext\"\") to buy it at $5 at 8am, then your order will execute at that time and you will buy that stock at 8am.\""
},
{
"docid": "232540",
"title": "",
"text": "Well it would appear that you had a wash sale that canceled out a loss position. Without seeing the entire report, I couldn't tell you exactly what was happening or how you triggered § 1091. But just from the excerpted images, it appears as though your purchase of stock was layered into multiple tranches - perhaps you acquired more of the stock in the 61-day period than you sold (possibly because of a prior holding). If in the 61-day period around the sale of stock (30 days before and 30 days after), you also acquire the same stock (including by contract or option), then it washes out your loss. If you held your stock for a while, then in a 61-day period bought more, and sold some, then any loss would be washed out by the acquisition. Of course it is also a wash sale if your purchase of the stock follows your sale, rather than precedes it. Your disallowed loss goes into the basis of your stock holding, so will be meaningful when you do have a true economic sale of that stock. From IRS Pub 550: A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale. Looking at your excerpted account images, we can see a number of positions sold at a loss (sale proceeds less than basis) but each one is adjusted to a zero loss. I suspect the fuller picture of your account history and portfolio will show a more complicated and longer history with this particular stock. That is likely the source of the wash sale disallowed loss notations. You might be able to confirm that all the added numbers are appearing in your current basis in this stock (or were reflected upon your final exit from the stock)."
},
{
"docid": "466883",
"title": "",
"text": "\"Note: the answer below is speculative and not based on any first-hand knowledge of pump-and-dump schemes. The explanation with spamming doesn't really makes sense for me. Often you see a stock jump 30% or more in a single day at a particular moment in time. Unlikely that random people read their emails at that time and decide to buy. What I think happens is the pumper does a somewhat risky thing: starts buying a lot of shares of a stock that has declined a lot and had low volumes during the previous days. As the price starts to increase other people start to notice the jump and join the buying spree (also don't forget that some probably use buy-stop orders which are triggered when the price reaches a particular level). Also there should be some automatic trading involved (maybe HFT firms do pump-and-dumps) as you have to trade a big volume in a relatively short time span. I think it is unlikely to be done by human operators. Another explanation would be that there is a group of pumpers (to spread the risk so to speak). Update: As I think more of it, it is not necessary to buy \"\"a lot of shares\"\". You could buy some shares, sell them to another pumper and buy from them again at a higher price in several iterations. I think this could also work if you do it fast enough. These scheme makes sense only you previously bought many shares at the low price, possibly during several weeks. Once the price is pumped high enough you can start selling the shares you previously bought (in the days preceding the pump).\""
},
{
"docid": "118712",
"title": "",
"text": "In general a stock can open at absolutely any price with no regard for the closing price or after hours price the previous day. The opening price will be determined by the best bid and offer made by people who decide to trade the next day. Some of the those people may have put orders in on a prior day that are still on the books and matter, but there's a lot of time overnight for people to cancel orders and enter new ones, which is especially likely to happen if there was substantive news overnight. As for what you can do in your case, you have the same options that you always had: Sell or hold. If you're selling, you can sell after hours, in the pre-open hours, or during the trading day. There's nothing we can say about this case that's really any different than we can say about any other stock on any other day."
},
{
"docid": "484190",
"title": "",
"text": "\"What most of these answers here seem to be missing is that a stock \"\"price\"\" is not exactly what we typically expect a price to be--for example, when we go in to the supermarket and see that the price of a gallon of milk is $2.00, we know that when we go to the cash register that is exactly how much we will pay. This is not, however, the case for stocks. For stocks, when most people talk about the price or quote, they are really referring to the last price at which that stock traded--which unlike for a gallon of milk at the supermarket, is no guarantee of what the next stock price will be. Relatively speaking, most stocks are extremely liquid, so they will react to any information which the \"\"market\"\" believes has a bearing on the value of their underlying asset almost (if not) immediately. As an extreme example, if allegations of accounting fraud for a particular company whose stock is trading at $40 come out mid-session, there will not be a gradual decline in the price ($40 -> $39.99 -> $39.97, etc.)-- instead, the price will jump from $40 to say, $20. In the time between the the $40 trade and the $20 trade, even though we may say the price of the stock was $40, that quote was actually a terrible estimate of the stock's current (post-fraud announcement) price. Considering that the \"\"price\"\" of a stock typically does not remain constant even in the span of a few seconds to a few minutes, it should not be hard to believe that this price will not remain constant over the 17.5 hour period from the previous day's close to the current day's open. Don't forget that as Americans go to bed, the Asian markets are just opening, and by the time US markets have opened, it is already past 2PM in London. In addition to the information (and therefore new knowledge) gained from these foreign markets' movements, macro factors can also play an important part in a security's price-- perhaps the ECB makes a morning statement that is interpreted as negative news for the markets or a foreign government before the US markets open. Stock prices on the NYSE, NASDAQ, etc. won't be able to react until 9:30, but the $40 price of the last trade of a broad market ETF at 4PM yesterday probably isn't looking so hot at 6:30 this morning... don't forget either that most individual stocks are correlated with the movement of the broader market, so even news that is not specific to a given security will in all likelihood still have an impact on that security's price. The above are only a few of many examples of things that can impact a stock's valuation between close and open: all sorts of geopolitical events, announcements from large, multi-national companies, macroeconomic stats such as unemployment rates, etc. announced in foreign countries can all play a role in affecting a security's price overnight. As an aside, one of the answers mentioned after hours trading as a reason--in actuality this typically has very little (if any) impact on the next day's prices and is often referred to as \"\"amateur hour\"\", due to the fact that trading during this time typically consists of small-time investors. Prices in AH are very poor predictors of a stock's price at open.\""
},
{
"docid": "152151",
"title": "",
"text": "A big issue for historical data in banking is that they don't/can't reside within a single system. Archives of typical bank will include dozen(s) of different archives made by different companies on different, incompatible systems. For example, see http://www.motherjones.com/files/images/big-bank-theory-chart-large.jpg as an illustration of bank mergers and acquisitions, and AFAIK that doesn't include many smaller deals. For any given account, it's 10-year history might be on some different system. Often, when integrating such systems, a compromise is made - if bank A acquires bank B that has earlier acquired bank C, then if the acquisition of C was a few years ago, then you can skip integrating the archives of C in your online systems, keep them separate, and use them only when/if needed (and minimize that need by hefty fees). Since the price list and services are supposed to be equal for everyone, then no matter how your accounts originated, if 10% of archives are an expensive enough problem to integrate, then it makes financial sense to restrict access to 100% of archives older than some arbitrary threshold."
},
{
"docid": "281675",
"title": "",
"text": "Using cash to purchase a home allows you access to certain deals that mortgage buyers cannot take advantage of. These are typically distressed properties and need to be moved off the books quickly. Think of things like foreclosures and auctions. This does not mean that it gives you an advantage with every house on the market. While you may be able to close quickly, with cash, some buyers may choose to wait for the (presumably) higher offers of mortgage buyers. There are complications to purchasing in cash then mortgaging to replace that cash. Namely, how was that cash invested? If one were in mutual funds or stocks, with the money, one will have to pay capital gains tax on any profit. If those investments increase in value, during the time the money is tied up, what do you do then? Do you buy at the higher value or hold it back and dollar cost average it in?"
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "494655",
"title": "",
"text": "\"Holding pure cash is a problem for 401K companies because they would then have follow banking rules because they would be holding your cash on their balance sheets. They don't want to be in that business. Instead, they should offer at least one option as a cash equivalent - a money market fund. This way the money is held by the fund, not by 401K administrator. Money Market funds invest in ultra-short term paper, such as overnight loans between banks and other debt instruments that mature in a matter of days. So it is all extremely liquid, as close to \"\"Money\"\" as you can get without actually being money. It is extremely rare for a money market fund to lose value, or \"\"break the buck.\"\" During the crisis of 2008, only one or two funds broke the buck, and it didn't last long. They had gotten greedy and their short term investments were a little more aggressive as they were trying to get extra returns. In short, your money is safe in a money market fund, and your 401K plan should offer one as the \"\"cash\"\" option, or at least it should offer a short-term bond fund. If you feel strongly that your money should be in actual cash, you can always stop contributing to the 401K and put the money in the bank. This is not a good idea though. Unless you're close to retirement, you'll be much better off investing in a well diversified portfolio, even through the ups and downs of the market.\""
}
] | [
{
"docid": "184077",
"title": "",
"text": "\"Your employer sends the money that you choose to contribute, plus employer match if any, to the administrator of the 401k plan who invests the money as you have directed, choosing between the alternatives offered by the administrator. Typically, the alternatives are several different mutual funds with different investment styles, e.g. a S&P 500 index fund, a bond fund, a money-market fund, etc. Now, a statement such as \"\"I see my 401k is up 10%\"\" is meaningless unless you tell us how you are making the comparison. For example, if you have just started employment and $200 goes into your 401k each month and is invested in a money-market fund (these are paying close to 0% interest these days), then your 11th contribution increases your 401k from $2000 to $2200 and your 401k is \"\"up 10%\"\". More generally, suppose for simplicity that all the 401k investment is in just one (stock) mutual fund and that you own 100 shares of the fund as of right now. Suppose also that your next contribution will not occur for three weeks when you get your next paycheck, at which time additional shares of the mutual fund will be purchased Now, the value of the mutual fund shares (often referred to as net asset value or NAV) fluctuates as stock prices rise and fall, and so the 401k balance = number of shares times NAV changes in accordance with these fluctuations. So, if the NAV increases by 10% in the next two weeks, your 401k balance will have increased by 10%. But you still own only 100 shares of the mutual fund. You cannot use the 10% increase in value to buy more shares in the mutual fund because there is no money to pay for the additional shares you wish to purchase. Notice that there is no point selling some of the shares (at the 10% higher NAV) to get cash because you will be purchasing shares at the higher NAV too. You could, of course, sell shares of the stock mutual fund at the higher NAV and buy shares of some other fund available to you in the 401k plan. One advantage of doing this inside the 401k plan is that you don't have to pay taxes (now) on the 10% gain that you have made on the sale. Outside tax-deferred plans such as 401k and IRA plans, such gains would be taxable in the year of the sale. But note that selling the shares of the stock fund and buying something else indicates that you believe that the NAV of your stock mutual fund is unlikely to increase any further in the near future. A third possibility for your 401k being up by 10% is that the mutual fund paid a dividend or made a capital gains distribution in the two week period that we are discussing. The NAV falls when such events occur, but if you have chosen to reinvest the dividends and capital gains, then the number of shares that you own goes up. With the same example as before, the NAV goes up 10% in two weeks at which time a capital gains distribution occurs, and so the NAV falls back to where it was before. So, before the capital gains distribution, you owned 100 shares at $10 NAV which went up to $11 NAV (10% increase in NAV) for a net increase in 401k balance from $1000 to $1100. The mutual fund distributes capital gains in the amount of $1 per share sending the NAV back to $10, but you take the $100 distribution and plow it back into the mutual fund, purchasing 10 shares at the new $10 NAV. So now you own 110 shares at $10 NAV (no net change in price in two weeks) but your 401k balance is $1100, same as it was before the capital gains distribution and you are up 10%. Or, you could have chosen to invest the distributions into, say, a bond fund available in your 401k plan and still be up 10%, with no change in your stock fund holding, but a new investment of $100 in a bond fund. So, being up 10% can mean different things and does not necessarily mean that the \"\"return\"\" can be used to buy more shares.\""
},
{
"docid": "477552",
"title": "",
"text": "\"I wish I was in your shoes with the knowledge I have in my head. financial goal setting is a great plan at your age. In my humble opinion you don't want to save for anything... you want to invest as much as you can, create a corporation and have the corporation invest as much as possible. When there is enough monthly cash flow coming from your investments... have the corporation buy you a house, a car, take out an insurance policy on you as key employee... etc. As for the $11,000 laying around in cash as an emergency fund, no way! With returns as high as 1-3% per month invested properly keep it invested. Getting to your emergency cash reserve you have in a trading account is only a couple key strokes away. As for the 401k... If it is not making at least 25% yearly for the last 10 years (excluding your Contributions) do it yourself in a self directed IRA. Oh... I forgot to mention When your corporation buys your stuff... if set up correctly you can take them as a loss in the corporate ledger and you know any loss from one entity can offset profits from another, thus reducing any taxes you may have. My friend you are at the point of great beginnings, hard choices and an open door to what ever you want your future to look like. Decide what you want out of your money and don't take \"\"NO YOU CAN'T DO THAT\"\" as an answer. Find someone that will tell you these secrets, they are out there. Good luck.\""
},
{
"docid": "550083",
"title": "",
"text": "\"I would create a \"\"Rollover IRA\"\". These IRAs are designed to take funds from a 401k and allow you to invest them without incurring a cash out penalty nor a tax due. You will have more choices than if you leave it at your old 401k. If you cash out the 401k, you'll have much less to invest ($1500 - penalty - taxes) vs. doing a rollover 401k where you'll still have $1500 to invest. Then, once the money is inside the new Rollover IRA you can invest in whatever you please. If you want to invest in Vanguard funds, I recommend opening the Rollover IRA at Vanguard. Here is Vanguard's information page about rollovers from 401ks: https://investor.vanguard.com/what-we-offer/401k-rollovers/401k-403b-to-ira-rollover-benefits When you next change jobs and have another 401k with funds in it, you can roll it into the same Rollover IRA.\""
},
{
"docid": "528698",
"title": "",
"text": ">I say better to distribute cash to the shareholders who can then choose for themselves whether to reinvest it in the company or elsewhere. Why shouldn't Apple (which I agree with you is butchering its shareholder's returns) reinvest the money in the company or in other ventures that produce returns for shareholders? My argument was simply that dividends diminish the earnings potential of firms' future cash flows. Now, if they are unable to find or invest in positive NPV projects, then I would agree a dividend payment is the best route to go. However, I find that highly suspect for firms like Apple, Microsoft and GE. They may not be able sustain double-digit growth rates, but given strong balance sheets and cost of capital, they surely should be able to find positive NPV projects that would contribute more gains for shareholders than stocks, which have been struggling for momentum. The only reason to invest in a company like GE these days is for the dividend cash flow, rather than the company's earnings and future growth prospects. That seems sad to me. But, hey, what do I know?"
},
{
"docid": "140738",
"title": "",
"text": "\"At 50 years old, and a dozen years or so from retirement, I am close to 100% in equities in my retirement accounts. Most financial planners would say this is way too risky, which sort of addresses your question. I seek high return rather than protection of principal. If I was you at 22, I would mainly look at high returns rather than protection of principal. The short answer is, that even if your investments drop by half, you have plenty of time to recover. But onto the long answer. You sort of have to imagine yourself close to retirement age, and what that would look like. If you are contributing at 22, I would say that it is likely that you end up with 3 million (in today's dollars). Will you have low or high monthly expenses? Will you have other sources of income such as rental properties? Let's say you rental income that comes close to covering your monthly expenses, but is short about 12K per year. You have a couple of options: So in the end let's say you are ready to retire with about 60K in cash above your emergency fund. You have the ability to live off that cash for 5 years. You can replenish that fund from equity investments at opportune times. Its also likely you equity investments will grow a lot more than your expenses and any emergencies. There really is no need to have a significant amount out of equities. In the case cited, real estate serves as your cash investment. Now one can fret and say \"\"how will I know I have all of that when I am ready to retire\"\"? The answer is simple: structure your life now so it looks that way in the future. You are off to a good start. Right now your job is to build your investments in your 401K (which you are doing) and get good at budgeting. The rest will follow. After that your next step is to buy your first home. Good work on looking to plan for your future.\""
},
{
"docid": "64459",
"title": "",
"text": "You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match."
},
{
"docid": "430931",
"title": "",
"text": "Specifically on the subject of maxing out your 401k, there are several downsides: The employer match usually only applies to the first 6%. Some employers offer no match at all. You listed the match as a pro, but I think it should be pointed out that you can usually get this benefit without maxing out your plan. The investment options are limited. Usually there is at least one fund available from all the common investment classes, but these may not be your preferred funds if you were able to choose for yourself. Fees can be very high. If you are working for a small to medium size company, the fees for each fund will often be higher than for the same funds in a plan offered by a large company. Fees are usually related to the dollar amount of assets under management. Each person has a different tax situation, so if you are single and making 6 figures, you might still be in the 25% bracket even after maxing out your 401k, but the same person filing jointly with a spouse that makes less could get down to the 15% bracket with a smaller contribution. I meet my retirement savings goals without maxing out the 401k. As long as the amount is above the employer match amount, my second priority is to funnel as much money as possible in to my IRA (because I get lower fees and better investment options from Vanguard)."
},
{
"docid": "11311",
"title": "",
"text": "\"Why only long term investments? What do they care if I buy and sell shares in a company in the same year? Simple, your actually investing when you hold it for a long term. If you hold a stock for a week or a month there is very little that can happen to change the price, in a perfect market the value of a company should stay the same from yesterday to today so long as there is no news(a perfect market cannot exist). When you hold a stock for a long term you really are investing in the company and saying \"\"this company will grow\"\". Short term investing is mostly speculation and speculation causes securities to be incorrectly valued. So when a retail investor puts money into something like Facebook for example they can easily be burned by speculation whether its to the upside or downside. If the goal is to get me to invest my money, then why not give apply capital gains tax to my savings account at my local bank? Or a CD account? I believe your gains on these accounts are taxed... Not sure at what rate. If the goal is to help the overall health of business, how does it do that? During an IPO, the business certainly raises money, but after that I'm just buying and selling shares with other private shareholders. Why does the government give me an incentive to do this (and then hold onto it for at least a year)? There are many reasons why a company cares about its market price: A companies market cap is calculated by price * shares outstanding. A market cap is basically what the market is saying your company is worth. A company can offer more shares or sell shares they currently hold in order to raise even more capital. A company can offer shares instead of cash when buying out another company. It can pay for many things with shares. Many executives and top level employees are payed with stock options, so they defiantly want to see there price higher. these are some basic reasons but there are more and they can be more complex.\""
},
{
"docid": "291578",
"title": "",
"text": "\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\""
},
{
"docid": "96110",
"title": "",
"text": "If you're sure you want to go the high risk route: You could consider hot stocks or even bonds for companies/countries with lower credit ratings and higher risk. I think an underrated cost of investing is the tax penalties that you pay when you win if you aren't using a tax advantaged account. For your speculating account, you might want to open a self-directed IRA so that you can get access to more of the high risk options that you crave without the tax liability if any of those have a big payout. You want your high-growth money to be in a Roth, because it would be a shame to strike it rich while you're young and then have to pay taxes on it when you're older. If you choose not to make these investments in a tax-advantaged account, try to hold your stocks for a year so you only get taxed at capital gains rates instead of as ordinary income. If you choose to work for a startup, buy your stock options as they vest so that if the company goes public or sells privately, you will have owned those stocks long enough to qualify for capital gains. If you want my actual advice about what I think you should do: I would increase your 401k percentage to at least 10% with or without a match, and keep that in low cost index funds while you're young, but moving some of those investments over to bonds as you get closer to retirement and your risk tolerance declines. Assuming you're not in the 25% tax bracket, all of your money should be in a Roth 401k or IRA because you can withdraw it without being taxed when you retire. The more money you put into those accounts now while you are young, the more time it all has to grow. The real risk of chasing the high-risk returns is that when you bet wrong it will set you back far enough that you will lose the advantage that comes from investing the money while you're young. You're going to have up and down years with your self-selected investments, why not just keep plugging money into the S&P which has its ups and downs, but has always trended up over time?"
},
{
"docid": "291548",
"title": "",
"text": "Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment."
},
{
"docid": "297288",
"title": "",
"text": "\"Thirty thousand in credit card debt is a \"\"big elephant to eat\"\" so to speak. But you do it by taking a bite at a time. One positive is that you do not want to borrow from your 401K. Doing so is a horrible idea. The first question you have to ask yourself and understand, is how you accumulated 30K in credit card debt in the first place? Most people get there by running up a relatively small amount, say 5K, and playing the zero transfer game a few times. Then add in a late payment, and a negative event or two (like the car breaking down or a trip to the emergency room) and poof a large amount of credit card debt. Obviously, I have no idea if this is how you got there, and providing some insight might help. Also, your age, approximate income, and other debts might also help provide more insight. I assume you are still working and under age 59.5 as you are talking about borrowing from your 401K. Where I come from is that my wife (then girlfriend) found ourselves under stifling debt a few years ago. When we married, we became very intentional and focused on ridding ourselves of debt and now sit completely debt free (including the house). During our debt payoff time, we lived off of less than 25% of our salary. We both took extra jobs when we were able. Intensity was our key. If I were you, I would not refi the house. There are costs associated with this and why would you put more debt on your home? I might cash out the annuity provided that there are no negative tax consequences and depending on how much you can get for it. Numbers are the key here. However, I feel like doing so will not retire this debt. The first thing you need to do is get on a written budget. A game plan for spending and stick to it. If you are married, your spouse has to be part of this process. The budget has to be fresh each month, and each month you and your wife should meet. To deviate from the budget, you will also need to have a meeting. My wife and I still do this despite being debt free and enjoying very healthy incomes. Secondly, it is about cutting expenses. Cable: off. No eating out or vacations. Cut back on cell phone plans, only basic clothing. Gift giving is of the $5 variety and only for those very close to you. Forget lattes, etc. Depending on your income I would cut 401K contributions to zero or only up to the company match (if your household income is above 150K/year). Third, it is about earning more. Ebay, deliver pizzas, cut grass, overtime, whatever. All extra dollars go to credit card balance reduction. At a minimum, you should find an extra $1000/month; however, I would shoot for 2K. If you can find 2K, you will be done with this in 13 months. I know the math doesn't work out for that, but once you get momentum, you find more. How good will it feel to be out from under this oppression next March? I know you can do this without cashing in the annuity or refinancing. Do you believe it?\""
},
{
"docid": "483268",
"title": "",
"text": "The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested portion is worth X $'s when the funds are sold, that is the amount that will be transferred to the IRA custodian or the custodian for the new employer. Use the transfer to make any rebalancing adjustments that you want to make. But with as much as a year before you leave the company if you need to rebalance now, then do that irrespective of your leaving. Cash is what is transferred, not the individual stock or mutual fund shares. Only move your funds into a money market account with your current 401K if that makes the most sense for your retirement plan. Also keep in mind unless the amount in the 401K is very small you don't have to do this on your last day of work. Even if you are putting the funds in a IRA wait until you have started with the new company and so can define all your buckets based on the options in the new company."
},
{
"docid": "273142",
"title": "",
"text": "\"I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your \"\"insurance\"\" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations\""
},
{
"docid": "327060",
"title": "",
"text": "\"Buy term and invest the difference is certainly the standard recommendation, and for good reason. When you start looking at some sample numbers the \"\"buy term and invest the difference\"\" strategy starts to look very good. Here are the rates I found (27 yr old in Texas with good health, non-smoker, etc): $200k term life: $21/month $200k whole life: $177/month If you were to invest the difference in a retirement account for 40 years, assuming a 7% rate of return (many retirement planning estimates use 10%) you would have $411,859 at the end of that period. (If you use 10% that figure jumps to over $994k.) Needless to say, $400k in a retirement account is better than a $200k death benefit. Especially since you can't get the death benefit AND the cash value. Certainly one big difficulty is making sure you invest that difference. The best way to handle that is to set up a direct deposit that goes straight from your paycheck to the retirement account before it even touches your bank account. The next best thing would be an automatic transfer from your bank account. You may wonder 'What if I can no longer afford to invest that money?' First off, take a second and third look at your finances before you start eating into that. But if financial crisis comes and you truly can't afford to fund your own life insurance / retirement account then perhaps it will be a good thing you're not locked into a life insurance policy that forces you to pay those premiums. That extra freedom is another benefit of the \"\"buy term and invest the difference\"\" strategy. It is great that you are asking this question now while you are young. Because it is much easier to put this strategy into play now while you are young. As far as using a cash value policy to help diversify your portfolio: I am no expert in how to allocate long term investments after maxing out my IRA and 401k. (My IRA maxes out at $5k/year, another $5k for my wife's, another $16.5k for my 401k.) Before I maxed that out I would have my house paid for and kid's education saved for. And by then it would make sense to pay a financial adviser to help you manage all those investments. They would be the one to ask about using a cash value policy similar to @lux lux's description. I believe you should NEVER PUT YOUR MONEY INTO SOMETHING YOU DON'T UNDERSTAND. Cash value policies are complex and I don't fully understand them. I should add that of course my calculations are subject to the standard disclaimer that those investment returns aren't guaranteed. As with any financial decision you must be willing to accept some level of risk and the question is not whether to accept risk, but how much is acceptable. That's why I used 7% in my calculation instead of just 10%. I wanted to demonstrate that you could still beat out whole life if you wanted to reduce your risk and/or if the stock market performs poorly.\""
},
{
"docid": "74041",
"title": "",
"text": "Ben Miller's answer is very thorough, and I up voted it. I believe that the ability to rebalance without tax implications is very import, but there are two aspects of the question that were not covered: The 401K in many cases comes with a company match. Putting enough money into the fund each year to maximize the match, give you free money that is not available in the non-retirement accounts. The presence of that match is to encourage employees to contribute: even if they are tying up their funds until retirement age; and they are into a plan with only a handful of investment options; and they may have higher expenses in the 401K. The question also had a concern about the annual limits for the 401K (18,000) and the IRA (5,500). The use of a retirement account doesn't in any way limit your ability to invest in non-retirement accounts. You can choose to invest from 0 to 23,500 in the retirement accounts and from 0 to unlimited into the non-retirement accounts. Double those amounts if you are married."
},
{
"docid": "481728",
"title": "",
"text": "\"My 401k allows cash holdings to 100% if desired. I'm not sure why some won't, they are making money on your money after all. If you are looking to the funds vehicles for investing suggestions however, they will never allow cash. I found you must go into \"\"Invest on my own\"\" vehicle to make that change. I have beaten and timed this market several times by sitting with cash on the sidelines. The only time I missed it was when I talked to a fund administrator in 2008 dot com crash and stayed in at this suggestion. I told him I didn't see where the market could go much higher as I had made 12-28% on some funds. He was dead wrong of course and I lost 50% that year. Now, trust me, in 2017, assets are grossly overvalued. If they won't let you deposit to cash, don't invest and just save your money until the next crash.\""
},
{
"docid": "362532",
"title": "",
"text": "The catch is in the Premium amount you pay. In a pure term insurance, there is no survival benefit. You get paid only for the event, i.e. when you die during the policy term, the sum assured is paid to your nominee. The money back on the other hand, charges a huge premium, typically 5X more than the pure term, part of it is for the risk cover. The balance is then invested in safe instruments and at the end if you survive you would get that money. Typical calculations would show that if you had yourself invested the difference in premium even in CD's you would get much more money back. The reason this product is available in the market is more of people cannot part with money when they don't get anything back. To these vast majority, it looks like insurance company is taking all their money and doesn't give them back if they survive. Hence to make it seem better to these vast majority, there is money back. Hence people all over the world buy these policy much more than a pure term policy."
},
{
"docid": "583916",
"title": "",
"text": "There are a few considerations: Purely Financial: If you think you can make more than 6% (adjusted downward for the tax benefits of home interest deductions) on that $150K then no. Otherwise yes. Update: A good point was made in another answer, if the 401K is not a ROTH, the tax consequences of withdrawing a lump sum like that will probably tip the balance in most situations towards not paying off the house. Risk: Paying off a mortgage reduces your liquidity. That is, it is much harder to pull your money out of a house note than to sell off some stocks/funds/cds. Put simply, if you run into trouble and need a lot of money quickly would you rather have a paid off house or $150K in the bank/near-cash investments?"
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "240562",
"title": "",
"text": "Your employer decides what options you have in the 401k. You can talk to your HR about that. There are requirements for diversity of various types of investments, money-market funds is being one of them. That is the investment account equivalent of cash. While it is not really cash but rather short term bonds - the term is generally very short and the risk is very limited. You can't earn much there, and you can't lose much there - so for all intents and purposes you can treat is as a cash-equivalent."
}
] | [
{
"docid": "15841",
"title": "",
"text": "I have worked for companies that have done this. One did have a match and the other did not. When they figured their profit at the end of the year a portion was given to the employees as a 401K deposit. retirement-topics-401k-and-profit-sharing-plan-contribution-limits Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited. The limit applies to the total of: elective deferrals employer matching contributions employer nonelective contributions allocations of forfeitures The annual additions paid to a participant’s account cannot exceed the lesser of: 100% of the participant's compensation, or $54,000 ($60,000 including catch-up contributions) for 2017; $53,000 ($59,000 including catch-up contributions) for 2016. So as long as everything stays below that $54,000 limit you are good. In one case the decision was made by the company for the employee, the other company gave us the option of bonus check or 401K. I heard that most of the employees wanted the money in the 401K."
},
{
"docid": "79375",
"title": "",
"text": "The presence of the 401K option means that your ability to contribute to an IRA will be limited, it doesn't matter if you contribute to the 401K or not. Unless your company allows you to roll over 401K money into an IRA while you are still an employee, your money in the 401K will remain there. Many 401K programs offer not just stock mutual funds, but bond mutual funds, and international funds. Many also have target date funds. You will have to look at the paperwork for the funds to determine if any of them meet your definition of low expense. Because any money you have in those 401K funds is going to remain in the 401K, you still need to look at your options and make the best choice. Very few companies allow employees to invest in individual stocks, but some do. You can ask your employer to research other options for the 401K. The are contracting with a investment company to make the plan. They may be able to switch to a different package from the same company or may need to switch companies. How much it will cost them is unknown. You will have to understand when their current contract is up for renewal. If you feel their current plan is poor, it may be making hiring new employees difficult, or ti may lead to some employees to leave in search of better options. It may also be a factor in the number of employees contributing and how much they contribute."
},
{
"docid": "485760",
"title": "",
"text": "\"Do you want to do it pre or post correction? If you're bearish on the market the obvious thing to do is short an index. I would say this is kind of dumb. The main problem is that it may take months or years for the market to crash, and by then it will have gone up so much that even the crash doesn't bring you profit, and you're paying borrowing fees meanwhile as well. You need to watch the portfolio also, when you short sell you'll get a bunch of cash, which you most likely will want to invest, but once you invest it, the market can spike and pummel your short position, resulting in negative remaining cash (since you already spent it). At that point you get a margin call from your broker. If you check your account regularly, not a big deal, but bad things can happen if you treat it as a fire and forget strategy. These days they have inverse funds so you don't have to borrow anything. The fund manager borrows for you. I'd say those are much better. The less cumbersome choice is to simply sell call options on the index or buy puts. These are even cash options, so when you exercise you get/lose money, not shares. You can even arrange them so that your potential loss is capped. (but honestly, same goes for shorts - it's called a stop loss) You could also wait for the correction and buy the dip. Less worrying about shorts and such, but of course the issue is timing the crash. Usually the crashes are very quick, and there are several \"\"pre-crashes\"\" that look like it bottomed out but then it crashes more. So actually very difficult thing to tell. You have to know either exactly when the correction will be, or exactly what the price floor is (and set a limit buy). Hope your crystal ball works! Yet another choice is finding asset classes uncorrelated or even anticorrelated with the broader market. For instance some emerging markets (developing countries), some sectors, individual stocks that are not inflated, bonds, gold and so on can have these characteristics where if S&P goes down they go up. Buying those may be a safer approach since at least you are still holding a fundamentally valuable thing even if your thesis flops, meanwhile shorts and puts and the like are purely speculative.\""
},
{
"docid": "64459",
"title": "",
"text": "You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match."
},
{
"docid": "291578",
"title": "",
"text": "\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\""
},
{
"docid": "61787",
"title": "",
"text": "I think Wikipedia offers a very good explanation: A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor's dividends are directly reinvested in the underlying equity. The investor must still pay tax annually on his or her dividend income, whether it is received or reinvested. This allows the investment return from dividends to be immediately invested for the purpose of price appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for a full share of stock. So essentially, a dividend reinvestment plan is offered by companies directly, allowing investors to bypass brokerages, and immediately re-invests dividends rather than paying them out in cash. Investopedia also gives a straighforward definition: A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date. A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares commission free and at a significant discount to the current share price. Most DRIPS don't allow reinvestments much lower than $10. I had a hard time finding a comprehensive listing of companies that offered DRPs (or DRIPs), but MyDollarPlan.com offers these suggestions: Finding a Dividend Reinvestment Plan: Computershare offers one-stop shopping for hundreds of dividend reinvestment plans. They offer a searchable list that can be filtered to easily find a dividend reinvestment plan that fits your needs. You can also use OneShare. Probably the best way to find out if a company offers a dividend reinvestment plan is to visit the company website. Most companies have an Investor Relations area that will highlight the various options available to shareowners. For example: Coca-Cola, Disney, and Wal-Mart. Hope this helps! @YMCbuzz"
},
{
"docid": "234286",
"title": "",
"text": "\"If you are investing in a mortgage strictly to avoid taxes, the answer is \"\"pay cash now.\"\" A mortgage buys you flexibility, but at the cost of long term security, and in most cases, an overall decrease in wealth too. At a very basic level, I have to ask anyone why they would pay a bank a dollar in order to avoid paying the government 28 - 36 cents depending on your tax rate. After all, one can only deduct interest- not principal. Interest is like rent, it accrues strictly to the lender, not equity. In theory the recipient should be irrelevant. If you have a need to stiff the government, go ahead. Just realize you making a banker three times as happy. Additionally the peace of mind that comes from having a house that no banker can take away from you is, at least for me, compelling. If I have a $300,000 house with no mortgage, no payments, etc. I feel quite safe. Even if my money is tied up in equity, if a serious situation came along (say a huge doctors bill) I always have the option of a reverse mortgage later on. So, to directly counter other claims, yes, I'd rather have $300k in equity then $50k in equity and $225k in liquid assets. (Did you notice that the total net worth is $25k less? And that's even before one considers the cash flow implication of a continuing mortgage. I have no mortgage, and I'm 41. I have a lot of net worth, but the thing that I really like is that I have a roof over my head that no on e can take away from me, and sufficient savings to weather most crises). That said, a mortgage is not about total cost. It is about cash flow. To the extent that a mortgage makes your cash flow situation better, it provides a benefit- just not one that is quantifiable in dollars and cents. Rather, it is a risk/reward situation. By taking a mortgage even when you have the cash, you pay a premium (the interest rate) in order to have your funds available when you need it. A very simple strategy to calculate and/or minimize this risk would be to invest the funds in another investment. If your rate of return exceeds the interest rate minus any tax preference (e.g. 4% minus say a 25% deduction = 3%), your money is better off there, obviously. And, indeed, when interest rates are only 4%, it may may be possible to find that. That said, in most instances, a CD or an inflation protected bond or so won't give you that rate of return. There, you'd need to look at stocks- slightly more risky. When interest rates are back to normal- say 5 or 6%, it gets even harder. If you could, however, find a better return than the effective interest rate, it makes the most sense to do that investment, hold it as a hedge to pay off the mortgage (see, you get your security back if you decide not to work!), and pocket the difference. If you can't do that, your only real reason to hold the cash should be the cash flow situation.\""
},
{
"docid": "481728",
"title": "",
"text": "\"My 401k allows cash holdings to 100% if desired. I'm not sure why some won't, they are making money on your money after all. If you are looking to the funds vehicles for investing suggestions however, they will never allow cash. I found you must go into \"\"Invest on my own\"\" vehicle to make that change. I have beaten and timed this market several times by sitting with cash on the sidelines. The only time I missed it was when I talked to a fund administrator in 2008 dot com crash and stayed in at this suggestion. I told him I didn't see where the market could go much higher as I had made 12-28% on some funds. He was dead wrong of course and I lost 50% that year. Now, trust me, in 2017, assets are grossly overvalued. If they won't let you deposit to cash, don't invest and just save your money until the next crash.\""
},
{
"docid": "140738",
"title": "",
"text": "\"At 50 years old, and a dozen years or so from retirement, I am close to 100% in equities in my retirement accounts. Most financial planners would say this is way too risky, which sort of addresses your question. I seek high return rather than protection of principal. If I was you at 22, I would mainly look at high returns rather than protection of principal. The short answer is, that even if your investments drop by half, you have plenty of time to recover. But onto the long answer. You sort of have to imagine yourself close to retirement age, and what that would look like. If you are contributing at 22, I would say that it is likely that you end up with 3 million (in today's dollars). Will you have low or high monthly expenses? Will you have other sources of income such as rental properties? Let's say you rental income that comes close to covering your monthly expenses, but is short about 12K per year. You have a couple of options: So in the end let's say you are ready to retire with about 60K in cash above your emergency fund. You have the ability to live off that cash for 5 years. You can replenish that fund from equity investments at opportune times. Its also likely you equity investments will grow a lot more than your expenses and any emergencies. There really is no need to have a significant amount out of equities. In the case cited, real estate serves as your cash investment. Now one can fret and say \"\"how will I know I have all of that when I am ready to retire\"\"? The answer is simple: structure your life now so it looks that way in the future. You are off to a good start. Right now your job is to build your investments in your 401K (which you are doing) and get good at budgeting. The rest will follow. After that your next step is to buy your first home. Good work on looking to plan for your future.\""
},
{
"docid": "398520",
"title": "",
"text": "Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one."
},
{
"docid": "291548",
"title": "",
"text": "Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment."
},
{
"docid": "550083",
"title": "",
"text": "\"I would create a \"\"Rollover IRA\"\". These IRAs are designed to take funds from a 401k and allow you to invest them without incurring a cash out penalty nor a tax due. You will have more choices than if you leave it at your old 401k. If you cash out the 401k, you'll have much less to invest ($1500 - penalty - taxes) vs. doing a rollover 401k where you'll still have $1500 to invest. Then, once the money is inside the new Rollover IRA you can invest in whatever you please. If you want to invest in Vanguard funds, I recommend opening the Rollover IRA at Vanguard. Here is Vanguard's information page about rollovers from 401ks: https://investor.vanguard.com/what-we-offer/401k-rollovers/401k-403b-to-ira-rollover-benefits When you next change jobs and have another 401k with funds in it, you can roll it into the same Rollover IRA.\""
},
{
"docid": "92370",
"title": "",
"text": "\"The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked \"\"But why is it that way?\"\" enough times to feel confident in telling you it's rarely an arbitrary decision. In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about.\""
},
{
"docid": "455261",
"title": "",
"text": "You will want to focus on how much is needed for retirement, and what types of investments within the current 401K offerings will get you there. Also will need to discuss non-401K investments such as an IRA, college savings, savings for a house, and an emergency fund. The 401K should be a part of your overall financial picture, how much you invest in the 401K depends on the options you have (Roth 401K available), how much matching (some a little or a lot), and your family plans. You have a few choices: Your company through the 401K provider may provide this service. They may have limited knowledge in what non-401K funds you should invest in, but should be able to discuss types of investment. Fee only planner. They will be able to discus types of investments, and give you some suggestions. Because they don't work on a commission they will not make the investment for you. You need to be able to make the actual selection of investments, so make sure you get criteria to focus on as part of the package. Commission based planner. Will make money off your investment choices. May steer you towards investments that their company offers or ones that offer them the best commissions in that investment type. If the 401K doesn't use funds that the planner can research you will need to provide a copy of the prospectus provided by the 401K. My suggestion is the fee only planner. They balance the limited focus of the 401K company without limiting themselves to the funds their company sells. Before sitting down with the planner get in writing how they fee structure works. A flat fee or hourly fee planner will be expecting you to do all the investment work. This is what you want. Let the fee only planner help you define your plan. But also reanalyze the plan every few years as your needs change."
},
{
"docid": "588029",
"title": "",
"text": "\"Let's pretend that the author of that article is not selling anything and is trying to help you succeed in life. I have nothing against sales, but that author is throwing out a lot of nonsense to sell his stuff and is creating a state of urgency so that people adopt this mindset. It's clever and it obviously works. From a pure time perspective, most people won't make enough money to run their own business and be as profitable as if they worked for a company. This is a reality that few want to acknowledge. If you invested in yourself and your career with the same discipline and urgency as an entrepreneur, most people would be better off at a company when you consider the benefits and the fact that employees have a full 7.5% of social security paid by their employer (entrepreneurs see the full 15% while employees don't). Why do I start here, because this author isn't telling you that the more people take his advice, the more their earnings will regress to the mean or below. In fact, most of my entrepreneur friends have to go back to work when their reality fails after they burn through their savings. 401ks are not a perfect system, but there are more 401k millionaires now than ever before this, and people who give the author's advice are always looking to avoid doing what they need to do - save for retirement. Most people I know sadly realize this in their 50s, when it's too late, and start trying to \"\"catch up.\"\" I don't blame the author for this, as he knows his article will appeal to younger people who don't have the wisdom to see that his advice hasn't been great for most. The reality is that for most people 401ks will provide tax advantaged savings that you can use when you're older; taxes will eat at your earnings, so these accounts really help. Finally, look at the article again especially the part you quote. He says inflation will carve out what you save, yet inflation is less than 2%. Where is he getting this from? In the past decade, we've seen numerous deflationary spirals and the market overall has come back from the fall in 2009. Again, this isn't \"\"good enough\"\" for this author, so buy his stuff to learn how to succeed! There have been numerous decades (50s,70s) that were much worse for investors than this past one.\""
},
{
"docid": "341146",
"title": "",
"text": "While tax deferral is a nice feature, the 401k is not the Holy Grail. I've seen plenty of 401k's where the investment options are horrible: sub-par performance, high fees, limited options. That's great that you've maxed out your Roth IRA. I commend you for that. As long as the investment options in your 401k are good, then I would stick with it."
},
{
"docid": "477175",
"title": "",
"text": "I use the self-directed option for the 457b plan at my job, which basically allows me to invest in any mutual fund or ETF. We get Schwab as a broker, so the commissions are reasonable. Personally, I think it's great, because some of the funds offered by the core plan are limited. Generally, the trustees of your plan are going to limit your investment options, as participants generally make poor investment choices (even within the limited options available in a 401k) and may sue the employer after losing their savings. If I was a decision-maker in this area, there is no way I would ever sign off to allowing employees to mess around with options."
},
{
"docid": "96110",
"title": "",
"text": "If you're sure you want to go the high risk route: You could consider hot stocks or even bonds for companies/countries with lower credit ratings and higher risk. I think an underrated cost of investing is the tax penalties that you pay when you win if you aren't using a tax advantaged account. For your speculating account, you might want to open a self-directed IRA so that you can get access to more of the high risk options that you crave without the tax liability if any of those have a big payout. You want your high-growth money to be in a Roth, because it would be a shame to strike it rich while you're young and then have to pay taxes on it when you're older. If you choose not to make these investments in a tax-advantaged account, try to hold your stocks for a year so you only get taxed at capital gains rates instead of as ordinary income. If you choose to work for a startup, buy your stock options as they vest so that if the company goes public or sells privately, you will have owned those stocks long enough to qualify for capital gains. If you want my actual advice about what I think you should do: I would increase your 401k percentage to at least 10% with or without a match, and keep that in low cost index funds while you're young, but moving some of those investments over to bonds as you get closer to retirement and your risk tolerance declines. Assuming you're not in the 25% tax bracket, all of your money should be in a Roth 401k or IRA because you can withdraw it without being taxed when you retire. The more money you put into those accounts now while you are young, the more time it all has to grow. The real risk of chasing the high-risk returns is that when you bet wrong it will set you back far enough that you will lose the advantage that comes from investing the money while you're young. You're going to have up and down years with your self-selected investments, why not just keep plugging money into the S&P which has its ups and downs, but has always trended up over time?"
},
{
"docid": "213976",
"title": "",
"text": "To me it depends on things like your net worth, debt, and how other assets are invested. Currently you have 25K invested in the company you work for. If you have 100K in student loans, are a renter, and 12K in your 401K, then I would recommend exercising almost all of your options. In that case you have a much to large part of your world wrapped up in your company. If you have 250K in your 401K, own a home and have an emergency fund with no debt then you are fine with letting it ride. You can afford to absorb a loss of 25K without wrecking your net worth. More than likely, you are somewhere in between (just statistics speaking there). So why not exercise some of them now with the purpose of improving your financial situation? Say do a 1/3 now and when they come available. When 401ks were first invented people put almost all of their money in their company stock. They lost just about everything when the company went down in value and were often a victim of layoffs exasperating the issue. This is akin to the same situation. Most financial advisers recommend against putting any 401K money to company stock, or at least limiting the amount."
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "293320",
"title": "",
"text": "The short term bond fund, which you are pretty certain to have as an option, functions in this capacity. Its return will be low, but positive, in all but the most dramatic of rising rate scenarios. I recall a year in the 90's when rates rose enough that the bond fund return was zero or very slightly negative. It's not likely that you'd have access to simple money market or cash option."
}
] | [
{
"docid": "291578",
"title": "",
"text": "\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\""
},
{
"docid": "552887",
"title": "",
"text": "My observations is that this seems like hardly enough to kill inflation. Is he right? Or are there better ways to invest? The tax deferral part of the equation isn't what dominates regarding whether your 401k beats 30 years of inflation; it is the return on investment. If your 401k account tanks due to a prolonged market crash just as you retire, then you might have been better off stashing the money in the bank. Remember, 401k money at now + 30 years is not a guaranteed return (though many speak as though it were). There is also the question as to whether fees will eat up some of your return and whether the funds your 401k invests in are good ones. I'm uneasy with the autopilot nature of the typical 401k non-strategy; it's too much the standard thing to do in the U.S., it's too unconscious, and strikes me as Ponzi-like. It has been a winning strategy for some already, sure, and maybe it will work for the next 30-100 years or more. I just don't know. There are also changes in policy or other unknowns that 30 years will bring, so it takes faith I don't have to lock away a large chunk of my savings in something I can't touch without hassle and penalty until then. For that reason, I have contributed very little to my 403b previously, contribute nothing now (though employer does, automatically. I have no match.) and have built up a sizable cash savings, some of which may be used to start a business or buy a house with a small or no mortgage (thereby guaranteeing at least not paying mortgage interest). I am open to changing my mind about all this, but am glad I've been able to at least save a chunk to give me some options that I can exercise in the next 5-10 years if I want, instead of having to wait 25 or more."
},
{
"docid": "273142",
"title": "",
"text": "\"I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your \"\"insurance\"\" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations\""
},
{
"docid": "308380",
"title": "",
"text": "It depends how you do it. If you roll it from your 401k directly to a Roth then you will have to pay the taxes. The contributions to the 401k are tax deferred. Meaning you do not owe taxes on the money until you collect it. Roth contributions are post tax but the gains are not taxed so long as they are disbursed under acceptable conditions according to the regulations. If you roll it directly from the 401k to a regular tax deferred IRA you should be able to do that with out penalties or taxes. You will still have to pay the taxes at disbursement. If you have the money disbursed to you directly then you will have to pay the penalties, fees, and taxes. Your contributions to an IRA will then be subject to limitations based on the IRA. It will literally be exactly like you are taking money from your pocket to invest in the IRA. Your company should give you the option of a rollover check. This check will be made out to you but it will not be able to be deposited in a regular account or cashed. It will only be redeemable for deposit into a retirement account that meets the regulatory requirements of the 401k rollover criteria. I believe the check I received a few years ago was only good for 60 days. I recall that after 60 days that check was void and I would receive a standard disbursement and would be subject to fees and penalties. I am not sure if that was the policy of T.Rowe Price or if that is part of the regulation."
},
{
"docid": "51615",
"title": "",
"text": "The Financial Services Compensation Scheme says: Investments FSCS provides protection if an authorised investment firm is unable to pay claims against it. For example: for loss arising from bad investment advice, poor investment management or misrepresentation; when an authorised investment firm goes out of business and cannot return investments or money. Investments covered include: stocks and shares; unit trusts; futures and options; personal pension plans and long-term investments such as mortgage endowments. An index-tracking fund provided by an authorised investment firm would seem to qualify in the cases where: The critical points here then are: I can't find anything easily to hand about FSCS on Blackrock's website, so I would imagine that you'd need to consult the documentation on your investment product to be sure."
},
{
"docid": "398520",
"title": "",
"text": "Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one."
},
{
"docid": "563728",
"title": "",
"text": "\"Hope springs eternal in the human breast. No actively managed fund has beaten the indices over a long period of time, but over shorter periods, actively managed funds have beaten the indices quite often, sometimes quite spectacularly, and sometimes even for many years in a row. Examples from the past include Fidelity Magellan and Legg Mason Value Trust. So people buy actively managed funds hoping to cash in on such good performance. The difficulty is, of course, that many people don't even think about investing in a fund until it is listed in some \"\"Top Forty Funds of last year\"\" compilation, and for many funds, they have already peaked, and new buyers are often disappointed. Some people who invested earlier plan on getting out of the fund before the fund falls flat on its face, and fewer even succeed in doing so. As to why 401k plans often have high-cost actively managed funds, there are several reasons. A most important one is that there are numerous companies that act as administrators of 401k programs and these companies put together package deals of 401k programs (funds, administrative costs etc), and small employers perforce have to choose from one of these packages. Second, there are various rules that have come into existence since the first days of 401k (and 403b) programs such as the investment choices must include funds of different types, and actively managed funds (large cap, small cap etc) are one of the choices that must be offered. Gone are the days when the only choice was a variable annuity offered by the insurance company administering the 401k program. Finally, program participants also have hopes (cf. opening sentence) and used to demand that the 401k program offer a few actively managed funds, not just index funds.\""
},
{
"docid": "391896",
"title": "",
"text": "Your question is very widely scoped, making it difficult to reply to, but I can provide my thoughts on at least the following part of the question: I have a 401k plan with T. Rowe Price, should I use them for other investments too? Using your employer's decision, on which 401k provider they've chosen, as a basis for making your own decision on a broker for investing $100k when you don't even know what kind of investments you want seems relatively unwise to me, even if one of your focuses is simplicity. That is, unless your $100k is tax-advantaged (e.g. an IRA or other 401k) and your drive for simplicity means you'd be happy to add $100k to any of your existing 401k investments. In which case you should look into whether you can roll the $100k over into your employer's 401k program. For the rest of my answer, I'll assume the $100k is NOT tax-advantaged. I assume you're suggesting this idea because of some perceived bundling of the relationship and ease of dealing with one company & website? Yes, they may be able to combine both accounts into a single login, and you may be able to interact with both accounts with the same basic interface, but that's about where the sharing will end. And even those benefits aren't guaranteed. For example, I still have a separate site to manage my money in my employer's 401k @ Fidelity than I do for my brokerage/banking accounts @ Fidelity. The investment options aren't the same for the two types of accounts, so the interface for making and monitoring investments isn't either. And you won't be able to co-mingle funds between the 401k and non-tax-advantaged money anyway, so you'll have two different accounts to deal with even if you have a single provider. Given that you'll have two different accounts, you might as well pick a broker/provider for the $100k that gives you the best investment options, lowest fees, and best UI experience for your chosen type/goal of investments. I would strongly recommend figuring out how you want to invest the $100k before trying to figure out which provider to use as a broker for doing the investment."
},
{
"docid": "444044",
"title": "",
"text": "It is not necessarily proportional. 401k are all unique per the plan and how they are set up. It is impossible to find any two exactly alike. You should have separate buckets of the money types. Pre tax, after tax, roth, employer contribution,etc... If the plan is good you may have a Source Specific Withdraw option which allows you to take only roth or pretax at your choosing. They should track the growth of each bucket separately. It does indeed appear complicated but just think of it as different buckets of cash store in the same vault. Most people end up rolling over the 401k into an ira when they retire for flexibility to get out from under the plan rules. When you do this you will create a roth ira and a traditional ira. Then you can pick and choose when you want to take what type of money."
},
{
"docid": "61787",
"title": "",
"text": "I think Wikipedia offers a very good explanation: A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor's dividends are directly reinvested in the underlying equity. The investor must still pay tax annually on his or her dividend income, whether it is received or reinvested. This allows the investment return from dividends to be immediately invested for the purpose of price appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for a full share of stock. So essentially, a dividend reinvestment plan is offered by companies directly, allowing investors to bypass brokerages, and immediately re-invests dividends rather than paying them out in cash. Investopedia also gives a straighforward definition: A plan offered by a corporation that allows investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date. A DRIP is an excellent way to increase the value of your investment. Most DRIPs allow you to buy shares commission free and at a significant discount to the current share price. Most DRIPS don't allow reinvestments much lower than $10. I had a hard time finding a comprehensive listing of companies that offered DRPs (or DRIPs), but MyDollarPlan.com offers these suggestions: Finding a Dividend Reinvestment Plan: Computershare offers one-stop shopping for hundreds of dividend reinvestment plans. They offer a searchable list that can be filtered to easily find a dividend reinvestment plan that fits your needs. You can also use OneShare. Probably the best way to find out if a company offers a dividend reinvestment plan is to visit the company website. Most companies have an Investor Relations area that will highlight the various options available to shareowners. For example: Coca-Cola, Disney, and Wal-Mart. Hope this helps! @YMCbuzz"
},
{
"docid": "117845",
"title": "",
"text": "\"Your employer could consider procuring benefits via a third party administrator, which provides benefits to and bargains collectively on behalf of multiple small companies. I used to work for a small start-up that did exactly that to improve their benefits across the board, including the 401k. The fees were still higher than buying a Vanguard index or ETF directly, but much better than the 1% you're talking about. In the meantime, here's my non-professional advice from personal experience and hindsight: If you're in a low/medium tax bracket and your 401k sucks, you might be better off to pay the tax up front and invest in a taxable account for the flexibility (assuming you're disciplined enough that you don't need the 401k to protect you from yourself). If you max out a crappy 401k today, you might miss a better opportunity to contribute to a 401k in the future. Big expenses could pop up at exactly the same time you get better investment options. Side note: if not enough employees participate in the 401k, the principals won't be able to take full advantage of it themselves. I think it's called a \"\"nondiscrimination test\"\" to ensure that the plan benefits all employees, not just the owners and management. So voting with your feet might be the best way to spark improvement with your employer. Good luck!\""
},
{
"docid": "204992",
"title": "",
"text": "You can invest another $5,500 in your Roth IRA each year, so you can invest up to $11,000 between the two tax years. Additionally you can make investments for the previous year up until 15 April the following year. In your case that will be close to graduation time, and you may decide to max out the contribution for 2014, but wait until you are settled into a new job before setting those savings aside long-term. When you start your first job, there will likely also be an option to invest in a 401k. You can still have the advantages of a Roth, but you will be limited to the investments available in the plan. Most employers I've seen today still offer a low-cost index fund, but you may have to speak up at a company meeting to pressure them to include one of those options in the plan. With a 401k your limit increases to $17,500/year. Make sure that the index fund you invest in has the lowest possible expense ratio. I use VOO. Depending on trading fees, etc., you might pick something else."
},
{
"docid": "557506",
"title": "",
"text": "\"From a purely financial standpoint (psychology aside) the choice between paying off debt and investing on risky investments boils down to a comparison of risk and reward. Yes, on average the stock market has risen an average of 10% (give or take) per year, but the yearly returns on the S&P 500 have ranged from a high of 37.6% in 1995 to a low of -37% in 2008. So there's a good chance that your investment in index funds will get a better return than the guaranteed return of paying off the loan, but it's not certain, and you might end up much worse. You could even calculate a rough probability of coming out better with some reasonable assumptions (e.g. if you assume that returns are normally distributed, which historically they're not), but your chances are probably around 30% that you'll end up worse off in one year (your odds are better the longer your investment horizon is). If you can tolerate (meaning you have both the desire and the ability to take) that risk, then you might come out ahead. The non-financial factors, however - the psychology of debt, the drain on discretionary cash flow, etc. cannot be dismissed as \"\"irrational\"\". Paying off debt feels good. Yes, finance purists disagree with Dave Ramsey and his approaches, but you cannot deny the problems that debt causes millions of households (both consumer debt and student loan debt as well). If that makes them mindless \"\"minions\"\" because they follow a plan that worked for them then so be it. (disclosure - I am a listener and a fan but don't agree 100% with him)\""
},
{
"docid": "598484",
"title": "",
"text": "\"I hate to be the guy that says this but if you are indeed competing in the CFAI Research Challenge it is probably important. Remember you cannot use CFA as a noun (CFA's) you can only use it as an adjective ie a CFA charterholder. As far as you question, what was provided below is pretty much all you need. Security Analysis, anything from the NYU professor and Greenwald stuff (although Greenwald, like someone already mentioned, is balance sheet focused) will get you where you need to go. I am not sure what you mean by \"\"exotic valuation\"\" methods. As far as I know, the three most accepted and used valuation models by practitioners are the DCF model, the multiple model and the residual income model. DCF uses short term cash flows and a terminal value discounted to today at some discount rate. The multiple model puts some multiple on earnings, book value, cash flow to arrive at a fair value. The residual model is the opposite of the DCF. One starts with the assets book value, then accrues all income generated in excess of WACC from all future periods. Find some CFAI Level 2 books on equity and bond valuation. They pretty much cover it all. And for a closing note, to perform well in investing and valuing companies it is not about what valuation model you use. Focus on WHY an asset should be worth what you think it is worth, not HOW you get to some valuation of that asset. Just my two cents.\""
},
{
"docid": "496170",
"title": "",
"text": "sell drugs? (joking) In all seriousness though, your options to legally invest this money are limited, which leaves you to extra-legal options..... which many young people engage, different kind of candy I guess. Ok so you cannot invest into stocks, to day trade. Because you're not an adult. You can put the money in a bank, but the interest rate on that amount of money is in the realm of ~0.1%. You can use the money to seed another legal business venture, say another kind of better candy. My advice is to get a parental unit to put the cash into a mutual fund, in your name... then hand that over to you when you turn 18."
},
{
"docid": "168890",
"title": "",
"text": "Companies usually have a minimum account balance required to keep a 401k for former employees. You will have to check whether $10k is sufficient to keep your funds in your former employer's 401k. If you are below their threshold, you will have to move your money. One option is to rollover into the new employer's 401k. You can rollover a 401k into a traditional IRA account that is independent of your employer. A traditional IRA has the same tax benefits as a 401k; it grows tax-free until you withdraw money from the account. Companies that offer IRAs include Vanguard, Fidelity, TIAA. Many companies have significant overhead costs in the their 401k management. It may be better for you to rollover your money into an IRA to save on these costs. I am not knowledgeable about loaning from retirement accounts, so I cannot help with that."
},
{
"docid": "64459",
"title": "",
"text": "You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match."
},
{
"docid": "137746",
"title": "",
"text": "Problem with deciding investments in a company is that you have multiple potential options, each with their projected returns, but each also has some hard-to-estimate risks. A further problem is that these opportunities arrive one-by-one, so you usually cannot compare project A vs. project B to decide which one is better. The internal rate of return is a rule-of-thumb like way to make these decisions. The company board may set an IRR target of e.g. 15%, and each executive will compare their projects against that target. They'll execute only the projects that are projected to give a good return, but some of these projects will end up failing. Thus the real average profit will not be equal to IRR. Important thing is that this target number gives ways to compare projects, and also for the board to control the investments. If the company has a good track record of being successful at projects, the board might set an IRR target of 10% and expect to get e.g. 8% return on their investment. However, if the company has a much larger risk of projects failing, they might demand a predicted IRR of 20% to account for the risk. Ultimately if the IRR target is set too high, the company will find no projects it considers profitable to invest in. In practice if this happens, the company owners are better off taking out the cash as dividends and investing it elsewhere."
},
{
"docid": "213976",
"title": "",
"text": "To me it depends on things like your net worth, debt, and how other assets are invested. Currently you have 25K invested in the company you work for. If you have 100K in student loans, are a renter, and 12K in your 401K, then I would recommend exercising almost all of your options. In that case you have a much to large part of your world wrapped up in your company. If you have 250K in your 401K, own a home and have an emergency fund with no debt then you are fine with letting it ride. You can afford to absorb a loss of 25K without wrecking your net worth. More than likely, you are somewhere in between (just statistics speaking there). So why not exercise some of them now with the purpose of improving your financial situation? Say do a 1/3 now and when they come available. When 401ks were first invented people put almost all of their money in their company stock. They lost just about everything when the company went down in value and were often a victim of layoffs exasperating the issue. This is akin to the same situation. Most financial advisers recommend against putting any 401K money to company stock, or at least limiting the amount."
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "104793",
"title": "",
"text": "This situation, wanting desperately to have access to an investment vehicle in a 401K, but it not being available reminds me of two suggestions some make regarding retirement investing: This allows you the maximum flexibility in your retirement investing. I have never, in almost 30 years of 401K investing, seen a pure cash investment, is was always something that was at its core very short term bonds. The exception is one company that once you had a few thousand in the 401K, you could transfer it to a brokerage account. I have no idea if there was a way to invest in a money market fund via the brokerage, but I guess it was possible. You may have to look and see if the company running the 401K has other investment options that your employer didn't select. Or you will have to see if other 401K custodians have these types of investments. Then push for changes next year. Regarding external IRA/Roth IRA: You can buy a CD with FDIC protection from funds in an IRA/Roth IRA. My credit union with NCUA protection currently has CDs and even bump up CDs, minimum balance is $500, and the periods are from 6 months to 3 years."
}
] | [
{
"docid": "598484",
"title": "",
"text": "\"I hate to be the guy that says this but if you are indeed competing in the CFAI Research Challenge it is probably important. Remember you cannot use CFA as a noun (CFA's) you can only use it as an adjective ie a CFA charterholder. As far as you question, what was provided below is pretty much all you need. Security Analysis, anything from the NYU professor and Greenwald stuff (although Greenwald, like someone already mentioned, is balance sheet focused) will get you where you need to go. I am not sure what you mean by \"\"exotic valuation\"\" methods. As far as I know, the three most accepted and used valuation models by practitioners are the DCF model, the multiple model and the residual income model. DCF uses short term cash flows and a terminal value discounted to today at some discount rate. The multiple model puts some multiple on earnings, book value, cash flow to arrive at a fair value. The residual model is the opposite of the DCF. One starts with the assets book value, then accrues all income generated in excess of WACC from all future periods. Find some CFAI Level 2 books on equity and bond valuation. They pretty much cover it all. And for a closing note, to perform well in investing and valuing companies it is not about what valuation model you use. Focus on WHY an asset should be worth what you think it is worth, not HOW you get to some valuation of that asset. Just my two cents.\""
},
{
"docid": "444107",
"title": "",
"text": "\"Technically there could be a true cash fund, but the issue is it would need to have some sort of cost associated with it, which would mean it would have negative yield or would charge a fee. In some cases, this might be preferable to having it invested in \"\"cash equivalents,\"\" which as you note are not cash. It is important to note that there is nothing, even cash or physical precious metals, that is considered zero risk. They all just have different risks associated with them, that may be an issue under certain circumstances. In severe deflation, cash is king, and all non-cash asset classes and debt could go down in value. Under severe inflation, cash can become worthless. One respondent mentioned an alternative of stopping contributing to a 401k and depositing money in a bank, but that is not the same as cash either. In recent decades, people have been led to believe that depositing your money in the bank means you hold that in cash at the bank. That is untrue. They hold your deposit on their books and proceed to invest/loan that money, but those investments can turn sour in an economic and financial downturn. The same financial professionals would then remind you that, while this is true, there is the Federal Deposit Insurance Corporation (FDIC) that will make you whole should the bank go under. Unfortunately, if enough banks went under due to lack of reserves, the FDIC may be unable to make depositors whole for lack of reserves. In fact, they were nearing this during the last financial crisis. The sad thing is that the financial industry is bias against offering what you said, because they make money by using your money. Fractional reserve banking. You are essentially holding IOUs from your bank when you have money on deposit with them. Getting back to the original question; you could do some searching and see if there is an institution that would act as a cash depository for physical cash in your IRA. There are IRA-approved ways of holding physical precious metals, which isn't all too different of a concept from holding physical cash. 401k plans are chosen by your company and often have very limited options available, meaning it'd be unlikely you could ever hold physical cash or physical precious metals in your 401k.\""
},
{
"docid": "184077",
"title": "",
"text": "\"Your employer sends the money that you choose to contribute, plus employer match if any, to the administrator of the 401k plan who invests the money as you have directed, choosing between the alternatives offered by the administrator. Typically, the alternatives are several different mutual funds with different investment styles, e.g. a S&P 500 index fund, a bond fund, a money-market fund, etc. Now, a statement such as \"\"I see my 401k is up 10%\"\" is meaningless unless you tell us how you are making the comparison. For example, if you have just started employment and $200 goes into your 401k each month and is invested in a money-market fund (these are paying close to 0% interest these days), then your 11th contribution increases your 401k from $2000 to $2200 and your 401k is \"\"up 10%\"\". More generally, suppose for simplicity that all the 401k investment is in just one (stock) mutual fund and that you own 100 shares of the fund as of right now. Suppose also that your next contribution will not occur for three weeks when you get your next paycheck, at which time additional shares of the mutual fund will be purchased Now, the value of the mutual fund shares (often referred to as net asset value or NAV) fluctuates as stock prices rise and fall, and so the 401k balance = number of shares times NAV changes in accordance with these fluctuations. So, if the NAV increases by 10% in the next two weeks, your 401k balance will have increased by 10%. But you still own only 100 shares of the mutual fund. You cannot use the 10% increase in value to buy more shares in the mutual fund because there is no money to pay for the additional shares you wish to purchase. Notice that there is no point selling some of the shares (at the 10% higher NAV) to get cash because you will be purchasing shares at the higher NAV too. You could, of course, sell shares of the stock mutual fund at the higher NAV and buy shares of some other fund available to you in the 401k plan. One advantage of doing this inside the 401k plan is that you don't have to pay taxes (now) on the 10% gain that you have made on the sale. Outside tax-deferred plans such as 401k and IRA plans, such gains would be taxable in the year of the sale. But note that selling the shares of the stock fund and buying something else indicates that you believe that the NAV of your stock mutual fund is unlikely to increase any further in the near future. A third possibility for your 401k being up by 10% is that the mutual fund paid a dividend or made a capital gains distribution in the two week period that we are discussing. The NAV falls when such events occur, but if you have chosen to reinvest the dividends and capital gains, then the number of shares that you own goes up. With the same example as before, the NAV goes up 10% in two weeks at which time a capital gains distribution occurs, and so the NAV falls back to where it was before. So, before the capital gains distribution, you owned 100 shares at $10 NAV which went up to $11 NAV (10% increase in NAV) for a net increase in 401k balance from $1000 to $1100. The mutual fund distributes capital gains in the amount of $1 per share sending the NAV back to $10, but you take the $100 distribution and plow it back into the mutual fund, purchasing 10 shares at the new $10 NAV. So now you own 110 shares at $10 NAV (no net change in price in two weeks) but your 401k balance is $1100, same as it was before the capital gains distribution and you are up 10%. Or, you could have chosen to invest the distributions into, say, a bond fund available in your 401k plan and still be up 10%, with no change in your stock fund holding, but a new investment of $100 in a bond fund. So, being up 10% can mean different things and does not necessarily mean that the \"\"return\"\" can be used to buy more shares.\""
},
{
"docid": "182305",
"title": "",
"text": "You asked specifically about the ROTH IRA option and stated you want to get the most bang for your buck in retirement. While others have pointed out the benefits of a tax deduction due to using a Traditional IRA instead, I haven't seen anyone point out some of the other differences between ROTH and Traditional, such as: I agree with your thoughts on using an IRA once you maximize the company match into a 401k plan. My reasoning is: I personally prefer ETFs over mutual funds for the ability to get in and out with limit, stop, or OCO orders, at open or anytime mid-day if needed. However, the price for that flexibility is that you risk discounts to NAV for ETFs that you wouldn't have with the equivalent mutual fund. Said another way, you may find yourself selling your ETF for less than the holdings are actually worth. Personally, I value the ability to exit positions at the time of my choosing more highly than the impact of tracking error on NAV. Also, as a final comment to your plan, if it were me I'd personally pay off the student loans with any money I had after contributing enough to my employer 401k to maximize matching. The net effect of paying down the loans is a guaranteed avg 5.3% annually (given what you've said) whereas any investments in 401k or IRA are at risk and have no such guarantee. In fact, with there being reasonable arguments that this has been an excessively long bull market, you might figure your chances of a 5.3% or better return are pretty low for new money put into an IRA or 401k today. That said, I'm long on stocks still, but then I don't have debt besides my mortgage at the moment. If I weren't so conservative, I'd be looking to maximize my leverage in the continued low rate environment."
},
{
"docid": "79142",
"title": "",
"text": "Like others mentioned you need to look at the big picture. Personally I'm not a fan of insurance based investments. They tend to have horrible track records and you're locked it and paying way to much money for them. I had one for a number of years and when I finally cancelled it I pulled out almost the exact amount I put in. So it basically grew at either zero or negative interest for 5+ years. I ended up buying Term Life and took the difference and invested it in a Roth 401K. Much better use of my money. The reason why insurance people push these policies so hard is that they make insane commission on it over 2-3 years (I asked my insurance guy about it and he admitted that, plus doing some research you'll find that out as well). Hope this helps somewhat."
},
{
"docid": "362532",
"title": "",
"text": "The catch is in the Premium amount you pay. In a pure term insurance, there is no survival benefit. You get paid only for the event, i.e. when you die during the policy term, the sum assured is paid to your nominee. The money back on the other hand, charges a huge premium, typically 5X more than the pure term, part of it is for the risk cover. The balance is then invested in safe instruments and at the end if you survive you would get that money. Typical calculations would show that if you had yourself invested the difference in premium even in CD's you would get much more money back. The reason this product is available in the market is more of people cannot part with money when they don't get anything back. To these vast majority, it looks like insurance company is taking all their money and doesn't give them back if they survive. Hence to make it seem better to these vast majority, there is money back. Hence people all over the world buy these policy much more than a pure term policy."
},
{
"docid": "550083",
"title": "",
"text": "\"I would create a \"\"Rollover IRA\"\". These IRAs are designed to take funds from a 401k and allow you to invest them without incurring a cash out penalty nor a tax due. You will have more choices than if you leave it at your old 401k. If you cash out the 401k, you'll have much less to invest ($1500 - penalty - taxes) vs. doing a rollover 401k where you'll still have $1500 to invest. Then, once the money is inside the new Rollover IRA you can invest in whatever you please. If you want to invest in Vanguard funds, I recommend opening the Rollover IRA at Vanguard. Here is Vanguard's information page about rollovers from 401ks: https://investor.vanguard.com/what-we-offer/401k-rollovers/401k-403b-to-ira-rollover-benefits When you next change jobs and have another 401k with funds in it, you can roll it into the same Rollover IRA.\""
},
{
"docid": "450132",
"title": "",
"text": "crank out expensive shares when markets are frothy Corporations go public (sell their shares for the first time) in market conditions that have a lot of liquidity (a lot of people buying shares) and when they have to make the fewest concessions to appease an investing public. When people are greedy and looking to make money without using too much due diligence. Think Netscape's IPO in 1995 or Snapchat's IPO in 2017. They also issue more shares after already being public in similar circumstances. Think Tesla's 1 billion dollar dilution in 2017. Dilution results in the 1 share owning less of the company. So in a less euphoric investing environment, share prices go down in response to dilution. See Viggle's stock for an example, if you can find a chart. issue debt Non-financial companies create bonds and sell bonds. Why is that surprising to you? Cash is cash. This is called corporate bonds or corporate debt. You can buy Apple bonds right now if you want from the same brokers that let you buy stocks. mutual fund investor Bernstein is making a cynical assessment of the markets which carries a lot of truth. Dumping shares on your mom's 401k is a running gag amongst some financial professionals. Basically mutual fund investors are typically the least well researched or most gullible market participants to sell to, influenced by brand name more than company fundamentals, who will balk at the concept of reading a prospectus. Financial professionals and CFOs have more information than their investors and can gain extended advantages because of this. Just take the emotions out of it and make objective assessments."
},
{
"docid": "464264",
"title": "",
"text": "Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go. No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way."
},
{
"docid": "122491",
"title": "",
"text": "\"Great question. There are several reasons; I'm going to list the few that I can think of off the top of my head right now. First, even if institutional bank holdings in such a term account are covered by deposit insurance (this, as well as the amount covered, varies geographically), the amount covered is generally trivial when seen in the context of bank holdings. An individual might have on the order of $1,000 - $10,000 in such an account; for a bank, that's basically chump change, and you are looking more at numbers in the millions of dollars range. Sometimes a lot more than that. For a large bank, even hundreds of millions of dollars might be a relatively small portion of their holdings. The 2011 Goldman Sachs annual report (I just pulled a big bank out of thin air, here; no affiliation with them that I know of) states that as of December 2011, their excess liquidity was 171,581 million US dollars (over 170 billion dollars), with a bottom line total assets of $923,225 million (a shade under a trillion dollars) book value. Good luck finding a bank that will pay you 4% interest on even a fraction of such an amount. GS' income before tax in 2011 was a shade under 6.2 billion dollars; 4% on 170 billion dollars is 6.8 billion dollars. That is, the interest payments at such a rate on their excess liquidity alone would have cost more than they themselves made in the entire year, which is completely unsustainable. Government bonds are as guaranteed as deposit-insurance-covered bank accounts (it'll be the government that steps in and pays the guaranteed amount, quite possibly issuing bonds to cover the cost), but (assuming the country does not default on its debt, which happens from time to time) you will get back the entire amount plus interest. For a deposit-insured bank account of any kind, you are only guaranteed (to the extent that one can guarantee anything) the maximum amount in the country's bank deposit insurance; I believe in most countries, this is at best on the order of $100,000. If the bank where the money is kept goes bankrupt, for holdings on the order of what banks deal with, you would be extremely lucky to recover even a few percent of the principal. Government bonds are also generally accepted as collateral for the bank's own loans, which can make a difference when you need to raise more money in short order because a large customer decided to withdraw a big pile of cash from their account, maybe to buy stocks or bonds themselves. Government bonds are generally liquid. That is, they aren't just issued by the government, held to maturity while paying interest, and then returned (electronically, these days) in return for their face value in cash. Government bonds are bought and sold on the \"\"secondary market\"\" as well, where they are traded in very much the same way as public company stocks. If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would dictate that if you get a huge inflow of capital, you can lower the interest rate paid on that capital. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest because they cannot secure capital funding at lower rates. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds. Individuals will often buy bonds for the perceived safety. Depending on how much money you are dealing with (sold a large house recently?) it is quite possible even for individuals to hit the ceiling on deposit insurance, and for any of a number of reasons they might not feel comfortable putting the money in the stock market. Buying government bonds then becomes a relatively attractive option -- you get a slightly lower return than you might be able to get in a high-interest savings account, but you are virtually guaranteed return of the entire principal if the bond is held to maturity. On the other hand, it might not be the case that you will get the entire principal back if the bank paying the high interest gets into financial trouble or even bankruptcy. Some people have personal or systemic objections toward banks, limiting their willingness to deposit large amounts of money with them. And of course in some cases, such as for example retirement savings, it might not even be possible to simply stash the money in a savings account, in which case bonds of some kind is your only option if you want a purely interest-bearing investment.\""
},
{
"docid": "469519",
"title": "",
"text": "Consistently beating the market by picking stocks is hard. Professional fund managers can't really do it -- and they get paid big bucks to try! You can spend a lot of time researching and picking stocks, and you may find that you do a decent job. I found that, given the amount of money I had invested, even if I beat the market by a couple of points, I could earn more money by picking up some moonlighting gigs instead of spending all that time researching stocks. And I knew the odds were against me beating the market very often. Different people will tell you that they have a sure-fire strategy that gets returns. The thing I wonder is: why are you selling the information to me rather than simply making money by executing on your strategy? If they're promising to beat the market by selling you their strategy, they've probably figured out that they're better off selling subscriptions than putting their own capital on the line. I've found that it is easier to follow an asset allocation strategy. I have a target allocation that gives me fairly broad diversification. Nearly all of it is in ETFs. I rebalance a couple times a year if something is too far off the target. I check my portfolio when I get my quarterly statements. Lastly, I have to echo JohnFx's statement about keeping some of your portfolio in cash. I was almost fully invested going into early 2001 and wished I had more cash to invest when everything tanked -- lesson learned. In early 2003 when the DJIA dropped to around 8000 and everybody I talked to was saying how they had sold off chunks of their 401k in a panic and were staying out of stocks, I was able to push some of my uninvested cash into the market and gained ~25% in about a year. I try to avoid market timing, but when there's obvious panic or euphoria I might under- or over-allocate my cash position, respectively."
},
{
"docid": "32009",
"title": "",
"text": "\"So many complicated answers for a straight forward question. First to this point \"\"I am failing to see why would a person get an IRA, instead of just putting the same amount of money into a mutual fund...\"\" An IRA can be invested in a mutual fund. The IRA benefit over standard mutual fund is pre-tax contribution lowering your current tax liability. The advantage of an IRA over a 401k is control. Your employer controls where the 401k is invested, you control where your IRA is invested. Often employers have a very small number of options, because this keeps their costs with the brokerage low. 401k is AMAZING if you have employer matched contributions. Use them to the maximum your employer will match. After that OWN your IRA. Control is key when it comes to your money. On IRA's. Buy ROTH first. Contribute the calendar maximum. Then get a traditional. The benefit of ROTH is that you already paid taxes on the contribution so your withdrawal is not taxed AND they do not tax the interest earned like they do on a standard mutual fund.\""
},
{
"docid": "511861",
"title": "",
"text": "http://dailyfinance.com Enter a stock ticker, then click on the Chain link to the left. Then, click on the option tickers to see their charts. EDIT: the site has changed, and there are no more option charts. So why are option charts so tough to find? Options are derivatives of the stock. Option prices are defined by a formula. The inputs are stock pricxe, strike, days to expiration, dividend, risk-free interest rate, and volatility. Volatility is the only thing that cannot be easily looked up. With a Black-Scholes calculator, and some reasonable volatility selections, it's possible to make your own fairly accurate option chart. I don't think it's very enlightening, though. The interesting things are: the stock price movement (as always), and the nature of option pricing behavior in general (understanding how the formula represents crowd behavior)."
},
{
"docid": "204992",
"title": "",
"text": "You can invest another $5,500 in your Roth IRA each year, so you can invest up to $11,000 between the two tax years. Additionally you can make investments for the previous year up until 15 April the following year. In your case that will be close to graduation time, and you may decide to max out the contribution for 2014, but wait until you are settled into a new job before setting those savings aside long-term. When you start your first job, there will likely also be an option to invest in a 401k. You can still have the advantages of a Roth, but you will be limited to the investments available in the plan. Most employers I've seen today still offer a low-cost index fund, but you may have to speak up at a company meeting to pressure them to include one of those options in the plan. With a 401k your limit increases to $17,500/year. Make sure that the index fund you invest in has the lowest possible expense ratio. I use VOO. Depending on trading fees, etc., you might pick something else."
},
{
"docid": "384644",
"title": "",
"text": "Here are three key factors that you do not explicitly state: So while I cannot say exactly why the tax law is the way it is, I can infer that it encourages long-term investments rather than short-term, which would seem to be a good thing for society overall. The fast that capital gains are taxed at all somewhat discourages cashing out investments (although I suspect it's more of a nuisance factor - the cash received is likely more on an incentive that the tax is a disincentive)."
},
{
"docid": "341146",
"title": "",
"text": "While tax deferral is a nice feature, the 401k is not the Holy Grail. I've seen plenty of 401k's where the investment options are horrible: sub-par performance, high fees, limited options. That's great that you've maxed out your Roth IRA. I commend you for that. As long as the investment options in your 401k are good, then I would stick with it."
},
{
"docid": "444044",
"title": "",
"text": "It is not necessarily proportional. 401k are all unique per the plan and how they are set up. It is impossible to find any two exactly alike. You should have separate buckets of the money types. Pre tax, after tax, roth, employer contribution,etc... If the plan is good you may have a Source Specific Withdraw option which allows you to take only roth or pretax at your choosing. They should track the growth of each bucket separately. It does indeed appear complicated but just think of it as different buckets of cash store in the same vault. Most people end up rolling over the 401k into an ira when they retire for flexibility to get out from under the plan rules. When you do this you will create a roth ira and a traditional ira. Then you can pick and choose when you want to take what type of money."
},
{
"docid": "349706",
"title": "",
"text": "\"The presenter suggested we keep records of our claims for 10+ years in paper form. This seemed to be overkill. It would be overkill if you're taking distributions regularly and you have enough valid (and otherwise unreimbursed) medical receipts each year to correspond to your distributions. However, if you are pumping money into the HSA without regular distributions, then you may need to keep receipts for a long time, possibly since the beginning of your HSA. For example: If the IRS was to audit my HSA deductions would the Aetna online claims be adequate? It's better than nothing, but it is not ideal. You need to provide proof of what you actually paid, not just what was billed. (How would the IRS know if you actually paid the bill?) So, the bill and receipt together would be preferred. Also, there are many eligible expenses for HSA that would not be covered by your health insurance and would not appear in your Aetna statements (dental work for example). Personally I have an excel spreadsheet with every eligible expense listed, every contribution and distribution I make, and a box of receipts since I opened the HSA account. Should I also archive screenshots of these claims digitally somewhere? If you have the time and diligence to do it, then it wouldn't hurt. I personally am only one house fire away from having to make a lot of phone calls if I wanted to re-build my receipts folder from scratch. I actually have \"\"scan my HSA receipts\"\" on my todo list (where's it been for years as a pretty low priority). Lastly it makes sense to spend the money in my HSA on anything eligible because you can never roll it over into a retirement account, its shaky if another person (spouse) could get reimbursed for eligible medical expenses if you die, and if you lose your receipts you may not be able to spend all of the HSA money tax free. Is this an accurate assessment or is there a reason why I should not touch the HSA money at all and wait to reimburse my eligible expenses. First off, if you are married the HSA can be transferred to your spouse. But in general, it really depends on what you would do with the money if you distributed it right away. If you need the money to pay debts, bills, etc, then it might make sense to take it, but if it would be extra money that you would invest somewhere, then you should leave it in the HSA because it grows tax free while it's in there and (probably) wouldn't if you take it out. The caveat though is that you need to find an HSA administrator that offers your preferred investment choices. As for your worry that you might lose your receipts, well, that's a valid point- but I wouldn't drive my decision based on that- I would archive them digitally to remove that concern completely. ...Should I reimburse myself from ... the HSA funds if I am not hitting the 401k limit yet? It depends. If it's a Roth 401k, all other things being equal, (you are able to choose the same investments with your HSA as you can choose in your 401K, and the costs are the same), then you are better off leaving the money in your HSA rather than pulling it out and putting it into the Roth 401k. The reason is that there is no tax difference, and once you put it into the 401K you (probably) can't touch it (for free) until you retire. With the HSA, if you could have taken a distribution but chose not to, then you can take that amount of money out anytime you want to without any consequences, just like your normal checking account. However, if you have a traditional 401k, and if taking HSA distributions would increase your cash flow such that you could afford to contribute more to the 401k, then this would lower your tax burden that year by reducing your taxable income.\""
},
{
"docid": "586572",
"title": "",
"text": "\"Are “auto income generators” scams or alternative investment channels? I wouldn't go so far as to say that these are scams so much as grossly exaggerated marketing claims. If it sounds too good to be true then it usually is. Auto auto income generator, for example, hosts a site that you can use to produce revenue from ads. In order to get enough traffic to generate the amount of income they promise you have to put in a lot of work, hardly making it \"\"automatic.\"\" I can't find anything on auto bit coin builder, however. They promise to pay out an outrageously high fixed-return with vague descriptions about \"\"investments.\"\" This is purely speculation since there is not very much information about this small site, but it may be a \"\"pyramid\"\" or \"\"Ponzi\"\" scheme. They promise a return higher than traditional investments, offer extra incentives for referrals, and offer a list of excuses for why funds may be pending even though the transfer happens \"\"INSTANTLY\"\" on their end. The fact that they only deal in crpytocurrency may also be an attempt to remain anonymous.\""
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "437427",
"title": "",
"text": "\"There is no zero risk option! There is no safe parking zone for turbulent times! There is no such thing as a zero-risk investment. You would do well to get this out of your head now. Cash, though it will retain its principle over time, will always be subject to inflation risk (assuming a positive-inflation environment which, historically in the US anyway, has always been the case since the Great Depression). But I couldn't find a \"\"Pure Cash - No investment option\"\" - what I mean by this is an option where my money is kept idle without investing in any kind of financial instrument (stocks, bonds, other MFs, currencies, forex etc etc whatever). Getting back to the real crux of your question, several other answers have already highlighted that you're looking for a money market fund. These will likely be as close to cash as you will get in a retirement account for the reasons listed in @KentA's answer. Investing in short-term notes would also be another relatively low-risk alternative to a money market fund. Again, this is low-risk, not no-risk. I wanted such kinda option because things may turn bad and I may want nothing invested in the stock markets/bond markets. I was thinking that if the market turns bear then I would move everything to cash Unless you have a the innate ability to perfectly time the market, you are better off keeping your investments where they are and riding out the bear market. Cash does not generate dividends - most funds in a retirement account do. Sure, you may have a paper loss of principle in a bear market, but this will go away once the market turns bull again. Assuming you have a fairly long time before you retire, this should not concern you in the slightest. Again, I want to stress that market timing does not work. Even the professionals, who get paid the big bucks to do this, on average, get it right as often as they get it wrong. If you had this ability, you would not be asking financial questions on Stack Exchange, I can tell you that. I would recommend you read The Four Pillars of Investing, by William Bernstein. He has a very no-nonsense approach to investing and retirement that would serve you (or anybody) well in turbulent financial markets. His discussion on risk is especially applicable to your situation.\""
}
] | [
{
"docid": "240562",
"title": "",
"text": "Your employer decides what options you have in the 401k. You can talk to your HR about that. There are requirements for diversity of various types of investments, money-market funds is being one of them. That is the investment account equivalent of cash. While it is not really cash but rather short term bonds - the term is generally very short and the risk is very limited. You can't earn much there, and you can't lose much there - so for all intents and purposes you can treat is as a cash-equivalent."
},
{
"docid": "194155",
"title": "",
"text": "Unless you have an actual hardship (bankruptcy or other emergency), you will be better off leaving that money alone. This excellent answer, gives more than enough reasons why a withdrawal or loan is not recommended. I would love some advice because I need to know if I should contribute more into my 401k or less. If your priority to purchase is high enough, it may be worth considering stopping 401k contributions for a short time to help pile up a down payment. I also encourage you to consider that if you cannot pool the money from non-retirement sources, then you cannot afford that much house at this time. This might mean looking for cheaper houses or delaying purchase for a number of years."
},
{
"docid": "464264",
"title": "",
"text": "Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go. No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way."
},
{
"docid": "182305",
"title": "",
"text": "You asked specifically about the ROTH IRA option and stated you want to get the most bang for your buck in retirement. While others have pointed out the benefits of a tax deduction due to using a Traditional IRA instead, I haven't seen anyone point out some of the other differences between ROTH and Traditional, such as: I agree with your thoughts on using an IRA once you maximize the company match into a 401k plan. My reasoning is: I personally prefer ETFs over mutual funds for the ability to get in and out with limit, stop, or OCO orders, at open or anytime mid-day if needed. However, the price for that flexibility is that you risk discounts to NAV for ETFs that you wouldn't have with the equivalent mutual fund. Said another way, you may find yourself selling your ETF for less than the holdings are actually worth. Personally, I value the ability to exit positions at the time of my choosing more highly than the impact of tracking error on NAV. Also, as a final comment to your plan, if it were me I'd personally pay off the student loans with any money I had after contributing enough to my employer 401k to maximize matching. The net effect of paying down the loans is a guaranteed avg 5.3% annually (given what you've said) whereas any investments in 401k or IRA are at risk and have no such guarantee. In fact, with there being reasonable arguments that this has been an excessively long bull market, you might figure your chances of a 5.3% or better return are pretty low for new money put into an IRA or 401k today. That said, I'm long on stocks still, but then I don't have debt besides my mortgage at the moment. If I weren't so conservative, I'd be looking to maximize my leverage in the continued low rate environment."
},
{
"docid": "168890",
"title": "",
"text": "Companies usually have a minimum account balance required to keep a 401k for former employees. You will have to check whether $10k is sufficient to keep your funds in your former employer's 401k. If you are below their threshold, you will have to move your money. One option is to rollover into the new employer's 401k. You can rollover a 401k into a traditional IRA account that is independent of your employer. A traditional IRA has the same tax benefits as a 401k; it grows tax-free until you withdraw money from the account. Companies that offer IRAs include Vanguard, Fidelity, TIAA. Many companies have significant overhead costs in the their 401k management. It may be better for you to rollover your money into an IRA to save on these costs. I am not knowledgeable about loaning from retirement accounts, so I cannot help with that."
},
{
"docid": "137267",
"title": "",
"text": "Paying off the high-interest debt is a good first start. Paying interest, or compound interest on debt is like paying somebody to make you poor. As for your 401k, you want to contribute enough to get the full match from your employer. You might also consider checking out the fees associated with your 401k with an online fee analyzer. If it turns out you're getting reamed with fees, you can reduce them by fiddling with your investments. Checking your investment options is always a good idea since jobs frequently change them. Opening an IRA is a good call. If you're eligible for both Roth and Traditional IRAs, consider the following: Most financial institutions (brokers or banks) can help you open an IRA in a matter of minutes. If you shop around, you will find very cheap or even no fee options. Many brokers might try to get your business by giving away something for ‘free.' Just make sure you read the fine print so you understand the conditions of their promotional offer. Whichever IRA you choose, you want to make sure that it's managed properly. Some people might say, ‘go for it, do it yourself’ but I strongly disagree with that approach. Stock picking is a waste of time and market timing rarely works. I'd look into flat fee financial advisors. You have lots of options. Just make sure they hear you out, and can design/execute an investment plan specific to your needs At a minimum, they should: Hope this is helpful."
},
{
"docid": "213976",
"title": "",
"text": "To me it depends on things like your net worth, debt, and how other assets are invested. Currently you have 25K invested in the company you work for. If you have 100K in student loans, are a renter, and 12K in your 401K, then I would recommend exercising almost all of your options. In that case you have a much to large part of your world wrapped up in your company. If you have 250K in your 401K, own a home and have an emergency fund with no debt then you are fine with letting it ride. You can afford to absorb a loss of 25K without wrecking your net worth. More than likely, you are somewhere in between (just statistics speaking there). So why not exercise some of them now with the purpose of improving your financial situation? Say do a 1/3 now and when they come available. When 401ks were first invented people put almost all of their money in their company stock. They lost just about everything when the company went down in value and were often a victim of layoffs exasperating the issue. This is akin to the same situation. Most financial advisers recommend against putting any 401K money to company stock, or at least limiting the amount."
},
{
"docid": "455261",
"title": "",
"text": "You will want to focus on how much is needed for retirement, and what types of investments within the current 401K offerings will get you there. Also will need to discuss non-401K investments such as an IRA, college savings, savings for a house, and an emergency fund. The 401K should be a part of your overall financial picture, how much you invest in the 401K depends on the options you have (Roth 401K available), how much matching (some a little or a lot), and your family plans. You have a few choices: Your company through the 401K provider may provide this service. They may have limited knowledge in what non-401K funds you should invest in, but should be able to discuss types of investment. Fee only planner. They will be able to discus types of investments, and give you some suggestions. Because they don't work on a commission they will not make the investment for you. You need to be able to make the actual selection of investments, so make sure you get criteria to focus on as part of the package. Commission based planner. Will make money off your investment choices. May steer you towards investments that their company offers or ones that offer them the best commissions in that investment type. If the 401K doesn't use funds that the planner can research you will need to provide a copy of the prospectus provided by the 401K. My suggestion is the fee only planner. They balance the limited focus of the 401K company without limiting themselves to the funds their company sells. Before sitting down with the planner get in writing how they fee structure works. A flat fee or hourly fee planner will be expecting you to do all the investment work. This is what you want. Let the fee only planner help you define your plan. But also reanalyze the plan every few years as your needs change."
},
{
"docid": "5180",
"title": "",
"text": "Your analysis is not comparing apples to apples which is why it looks like investing money in a non-qualified account is better than a 401k (traditional or Roth). For the non-qual you are using post tax dollars (money that has already been taxed). Now on top of that original tax you are also going to pay capital gains tax for any growth plus dividend rates for any dividends it throws off. For the 401k, let's assume for the moment that $10,000 is invested in a traditional and that the marginal tax rate is always 20%. And for growth let's assume 10x. With a traditional your money will grow to $100,000 and then the IRS gets $20,000 as you pull the money out. The result is a net 80,000 for you. For a Roth 401k, it is taxed first so only $8,000 gets invested. This then grows by the same multiplier to $80,000. (Until you consider changing tax rates the Roth and traditional give the same growth of money). Considering the non-qual option, like with the Roth we only have $8,000 to invest. However in this case you will not realize the full 10x growth as you will have to pay taxes on $72,000. These are taxes that the 401ks (and also IRAs) do not pay. There are other reasons to consider non-qual over maxing out your 401k. Liquidity, quality of investments, and fees being some of those. But the capital gains rate vs. ordinary income rate is not one, as the money in the non-qual still has to go through that ordinary income tax first before it is available to even invest."
},
{
"docid": "583203",
"title": "",
"text": "You did something that you shouldn't have done; you bought a dividend. Most mutual fund companies have educational materials on their sites that recommend against making new investments in mutual funds in the last two months of the year because most mutual funds distribute their earnings (dividends, capital gains etc) to their shareholders in December, and the share price of the funds goes down in the amount of the per share distribution. These distributions can be taken in cash or can be re-invested in the fund; you most likely chose the latter option (it is often the default choice if you ignored all this because you are a newbie). For those who choose to reinvest, the number of shares in the mutual fund increases, but since the price of the shares has decreased, the net amount remains the same. You own more shares at a lower price than the day before when the price was higher but the total value of your account is the same (ignoring normal market fluctuations in the price of the actual stocks held by the fund. Regardless of whether you take the distributions as cash or re-invest in the fund, that money is taxable income to you (unless the fund is owned inside a 401k or IRA or other tax-deferred investment program). You bought 56 shares at a price of $17.857 per share (net cost $1000). The fund distributed its earnings shortly thereafter and gave you 71.333-56= 15.333 additional shares. The new share price is $14.11. So, the total value of your investment is $1012, but the amount that you have invested in the account is the original $1000 plus the amount of the distribution which is (roughly) $14.11 x 15.333 = $216. Your total investment of $1216 is now worth $1012 only, and so you have actually lost money. Besides, you owe income tax on that $216 dividend that you received. Do you see why the mutual fund companies recommend against making new investments late in the year? If you had waited till after the mutual fund had made its distribution, you could have bought $1000/14.11 = 70.871 shares and wouldn't have owed tax on that distribution that you just bought by making the investment just before the distribution was made. See also my answer to this recent question about investing in mutual funds."
},
{
"docid": "481728",
"title": "",
"text": "\"My 401k allows cash holdings to 100% if desired. I'm not sure why some won't, they are making money on your money after all. If you are looking to the funds vehicles for investing suggestions however, they will never allow cash. I found you must go into \"\"Invest on my own\"\" vehicle to make that change. I have beaten and timed this market several times by sitting with cash on the sidelines. The only time I missed it was when I talked to a fund administrator in 2008 dot com crash and stayed in at this suggestion. I told him I didn't see where the market could go much higher as I had made 12-28% on some funds. He was dead wrong of course and I lost 50% that year. Now, trust me, in 2017, assets are grossly overvalued. If they won't let you deposit to cash, don't invest and just save your money until the next crash.\""
},
{
"docid": "77088",
"title": "",
"text": "Well, to get money, you need to leverage your assets. So your options basically are: - Asset: Cash. Well, I figure if you had, you wouldn't have asked how to get more of it, but its always worth mentioning. Don't forget about cash that can be in tricky places to tap, like 401ks, IRAs, investment accounts, etc. There is usually some way to get at the cash, but it may not be worth it and you could end up sacrificing long term financial stability if you do. - Asset: Job Skills and Initiative. Get a job and and earn the cash. $2k is not a ton, and if you live frugally you should be able to save it. There are tons of websites dedicated to living frugally and earning extra cash on the side. My personal favorite is r/beermoney. - Asset: Good Credit. Borrow the money from a traditional bank. Signature loans go up to $35k at most banks, just ask what it would take to qualify. You could also get a credit card for that amount, and use it to start up the business. - Asset. Bad Credit. If you've got bad credit, you can still take out a loan from a place like Prosper or Lending Club or Sofi (these places are handy if you have good credit, too). Your rates will be much higher, but they will still lend to you. - Asset: Property. If you own stuff, you can sell it and get cash. Clean out your attic (or ask relatives if you can have the stuff in theirs!) and sell it. If you own fancy stuff, you can borrow against it (home, car, boat, etc.). - Asset: Your Charm and Winning Smile. If you have a good, solid business plan (written down and professional looking), ask around and see if you can find an investor. It could be friends or family, but it could also be someone who is looking to invest. Be professional, and be sure to draw up the appropriate business docs if you do a partnership or take a private loan. - Asset: Your Government. If you live in the US, there are federal programs that offer Small Business Loans. Check out sba.gov for more info. You will need a business plan and will have to meet the criteria of the loan or grant. Not sure if your Ecommerce business will meet the criteria, as the intent of these types of programs are to spur the economy by allowing small business owners to hire workers. But its worth checking out."
},
{
"docid": "92370",
"title": "",
"text": "\"The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked \"\"But why is it that way?\"\" enough times to feel confident in telling you it's rarely an arbitrary decision. In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about.\""
},
{
"docid": "117845",
"title": "",
"text": "\"Your employer could consider procuring benefits via a third party administrator, which provides benefits to and bargains collectively on behalf of multiple small companies. I used to work for a small start-up that did exactly that to improve their benefits across the board, including the 401k. The fees were still higher than buying a Vanguard index or ETF directly, but much better than the 1% you're talking about. In the meantime, here's my non-professional advice from personal experience and hindsight: If you're in a low/medium tax bracket and your 401k sucks, you might be better off to pay the tax up front and invest in a taxable account for the flexibility (assuming you're disciplined enough that you don't need the 401k to protect you from yourself). If you max out a crappy 401k today, you might miss a better opportunity to contribute to a 401k in the future. Big expenses could pop up at exactly the same time you get better investment options. Side note: if not enough employees participate in the 401k, the principals won't be able to take full advantage of it themselves. I think it's called a \"\"nondiscrimination test\"\" to ensure that the plan benefits all employees, not just the owners and management. So voting with your feet might be the best way to spark improvement with your employer. Good luck!\""
},
{
"docid": "391835",
"title": "",
"text": "I could see doing this if the investments were via different environments. The choices in a 401K are limited by the plan, so you might want to put new money into the 401K index fund. At the same time you could have IRA money invested in a similar index. You could even have non-retirement money invested. While you should look at all your investments while evaluating your investment percentages, the 401K (limited options) and the non-retirement account (avoiding taxes) might be harder to move around. Otherwise the only advantage of splitting between funds is avoiding having all your money in a Ponzi scheme."
},
{
"docid": "291548",
"title": "",
"text": "Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment."
},
{
"docid": "79142",
"title": "",
"text": "Like others mentioned you need to look at the big picture. Personally I'm not a fan of insurance based investments. They tend to have horrible track records and you're locked it and paying way to much money for them. I had one for a number of years and when I finally cancelled it I pulled out almost the exact amount I put in. So it basically grew at either zero or negative interest for 5+ years. I ended up buying Term Life and took the difference and invested it in a Roth 401K. Much better use of my money. The reason why insurance people push these policies so hard is that they make insane commission on it over 2-3 years (I asked my insurance guy about it and he admitted that, plus doing some research you'll find that out as well). Hope this helps somewhat."
},
{
"docid": "384644",
"title": "",
"text": "Here are three key factors that you do not explicitly state: So while I cannot say exactly why the tax law is the way it is, I can infer that it encourages long-term investments rather than short-term, which would seem to be a good thing for society overall. The fast that capital gains are taxed at all somewhat discourages cashing out investments (although I suspect it's more of a nuisance factor - the cash received is likely more on an incentive that the tax is a disincentive)."
},
{
"docid": "310433",
"title": "",
"text": "I am a bit unsure of why the interest rate is relevant. Are you intending on borrowing the money to go to school? If you cannot pay cash, then it is very likely a bad idea. Many people are overcome by events when seeking higher education and such a loan on a such a salary could devastate you financially. So I find the cost of the program as a total of 76.6K counting a loss in salary during the program and the first year grant. That is a lot of money, do you intend to borrow that much? Especially when you consider that your salary, after you graduate, will be about equal to where you are now. For that reason I am leaning toward a no, even if you had the cash in hand to do so. There is nothing to say that you will enjoy teaching. Furthermore teaching in low income school is more challenging. All that said, is there a way you can raise your income without going back to school? Washington state can be a very expensive place to live and is one of the reason why I left. I am a WWU alumni (Go Vikings!). Could you cash flow a part time program instead? I would give this a sound no, YMMV."
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "444107",
"title": "",
"text": "\"Technically there could be a true cash fund, but the issue is it would need to have some sort of cost associated with it, which would mean it would have negative yield or would charge a fee. In some cases, this might be preferable to having it invested in \"\"cash equivalents,\"\" which as you note are not cash. It is important to note that there is nothing, even cash or physical precious metals, that is considered zero risk. They all just have different risks associated with them, that may be an issue under certain circumstances. In severe deflation, cash is king, and all non-cash asset classes and debt could go down in value. Under severe inflation, cash can become worthless. One respondent mentioned an alternative of stopping contributing to a 401k and depositing money in a bank, but that is not the same as cash either. In recent decades, people have been led to believe that depositing your money in the bank means you hold that in cash at the bank. That is untrue. They hold your deposit on their books and proceed to invest/loan that money, but those investments can turn sour in an economic and financial downturn. The same financial professionals would then remind you that, while this is true, there is the Federal Deposit Insurance Corporation (FDIC) that will make you whole should the bank go under. Unfortunately, if enough banks went under due to lack of reserves, the FDIC may be unable to make depositors whole for lack of reserves. In fact, they were nearing this during the last financial crisis. The sad thing is that the financial industry is bias against offering what you said, because they make money by using your money. Fractional reserve banking. You are essentially holding IOUs from your bank when you have money on deposit with them. Getting back to the original question; you could do some searching and see if there is an institution that would act as a cash depository for physical cash in your IRA. There are IRA-approved ways of holding physical precious metals, which isn't all too different of a concept from holding physical cash. 401k plans are chosen by your company and often have very limited options available, meaning it'd be unlikely you could ever hold physical cash or physical precious metals in your 401k.\""
}
] | [
{
"docid": "464264",
"title": "",
"text": "Dollar cost averaging is a great strategy to use for investment vehicles where you can't invest it in a lump sum. A 401K is perfect for this. You take a specific amount out of each paycheck and invest it either in a single fund, or multiple funds, or some programs let you invest it in a brokerage account so you can invest in virtually any mutual fund or stock. With annual or semi-annual re-balancing of your investments dollar cost averaging is the way to invest in these programs. If you have a lump sum to invest, then dollar cost averaging is not the best way to invest. Imagine you want to invest 10K and you want to be 50% bonds and 50% stocks. Under dollar cost averaging you would take months to move the money from 100% cash to 50/50 bonds/stocks. While you are slowly moving towards the allocation you want, you will spend months not in the allocation you want. You will spend way too long in the heavy cash position you were trying to change. The problem works the other way also. Somebody trying to switch from stocks to gold a few years ago, would not have wanted to stay in limbo for months. Obviously day traders don't use dollar cost averaging. If you will will be a frequent trader, DCA is not the way to go. No particular stock type is better for DCA. It is dependent on how long you plan on keeping the investment, and if you will be working with a lump sum or not. EDIT: There have be comments regarding DCA and 401Ks. When experts discuss why people should invest via a 401K, they mention DCA as a plus along with the company match. Many participants walk away with the belief that DCA is the BEST strategy. Many articles have been written about how to invest an inheritance or tax refund, many people want to use DCA because they believe that it is good. In fact in the last few years the experts have begun to discourage ever using DCA unless there is no other way."
},
{
"docid": "51615",
"title": "",
"text": "The Financial Services Compensation Scheme says: Investments FSCS provides protection if an authorised investment firm is unable to pay claims against it. For example: for loss arising from bad investment advice, poor investment management or misrepresentation; when an authorised investment firm goes out of business and cannot return investments or money. Investments covered include: stocks and shares; unit trusts; futures and options; personal pension plans and long-term investments such as mortgage endowments. An index-tracking fund provided by an authorised investment firm would seem to qualify in the cases where: The critical points here then are: I can't find anything easily to hand about FSCS on Blackrock's website, so I would imagine that you'd need to consult the documentation on your investment product to be sure."
},
{
"docid": "291578",
"title": "",
"text": "\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\""
},
{
"docid": "345030",
"title": "",
"text": "First off, you have done very well to be in your financial position at your age. Congratulations. I first started investing seriously about 10 years ago, and when I started, I had a similar attitude to you. Learning how to invest is a journey, and it will take you a while to learn both the intellectual and emotional sides of investing. First off, there is nothing wrong with having a chunk of cash that you aren't investing effectively. It is far better to be losing earning power WRT inflation that it is to make a bad investment, where you can lose all your money quite quickly. I have perhaps 15% of my capital just sitting around right now because I don't have any place where I'm excited to put it. For your IRA, I would look at the options you have, and choose one that is reasonably well diversified and has low costs. In most cases, an index fund is a reasonable choice. My 401K goes into an S&P 500 index fund, and I don't have to worry about it. Beyond that, I suggest spending some time learning about investing, and then making some small and conservative investments. I've learned a lot from the Motley Fool web site."
},
{
"docid": "391835",
"title": "",
"text": "I could see doing this if the investments were via different environments. The choices in a 401K are limited by the plan, so you might want to put new money into the 401K index fund. At the same time you could have IRA money invested in a similar index. You could even have non-retirement money invested. While you should look at all your investments while evaluating your investment percentages, the 401K (limited options) and the non-retirement account (avoiding taxes) might be harder to move around. Otherwise the only advantage of splitting between funds is avoiding having all your money in a Ponzi scheme."
},
{
"docid": "327060",
"title": "",
"text": "\"Buy term and invest the difference is certainly the standard recommendation, and for good reason. When you start looking at some sample numbers the \"\"buy term and invest the difference\"\" strategy starts to look very good. Here are the rates I found (27 yr old in Texas with good health, non-smoker, etc): $200k term life: $21/month $200k whole life: $177/month If you were to invest the difference in a retirement account for 40 years, assuming a 7% rate of return (many retirement planning estimates use 10%) you would have $411,859 at the end of that period. (If you use 10% that figure jumps to over $994k.) Needless to say, $400k in a retirement account is better than a $200k death benefit. Especially since you can't get the death benefit AND the cash value. Certainly one big difficulty is making sure you invest that difference. The best way to handle that is to set up a direct deposit that goes straight from your paycheck to the retirement account before it even touches your bank account. The next best thing would be an automatic transfer from your bank account. You may wonder 'What if I can no longer afford to invest that money?' First off, take a second and third look at your finances before you start eating into that. But if financial crisis comes and you truly can't afford to fund your own life insurance / retirement account then perhaps it will be a good thing you're not locked into a life insurance policy that forces you to pay those premiums. That extra freedom is another benefit of the \"\"buy term and invest the difference\"\" strategy. It is great that you are asking this question now while you are young. Because it is much easier to put this strategy into play now while you are young. As far as using a cash value policy to help diversify your portfolio: I am no expert in how to allocate long term investments after maxing out my IRA and 401k. (My IRA maxes out at $5k/year, another $5k for my wife's, another $16.5k for my 401k.) Before I maxed that out I would have my house paid for and kid's education saved for. And by then it would make sense to pay a financial adviser to help you manage all those investments. They would be the one to ask about using a cash value policy similar to @lux lux's description. I believe you should NEVER PUT YOUR MONEY INTO SOMETHING YOU DON'T UNDERSTAND. Cash value policies are complex and I don't fully understand them. I should add that of course my calculations are subject to the standard disclaimer that those investment returns aren't guaranteed. As with any financial decision you must be willing to accept some level of risk and the question is not whether to accept risk, but how much is acceptable. That's why I used 7% in my calculation instead of just 10%. I wanted to demonstrate that you could still beat out whole life if you wanted to reduce your risk and/or if the stock market performs poorly.\""
},
{
"docid": "485760",
"title": "",
"text": "\"Do you want to do it pre or post correction? If you're bearish on the market the obvious thing to do is short an index. I would say this is kind of dumb. The main problem is that it may take months or years for the market to crash, and by then it will have gone up so much that even the crash doesn't bring you profit, and you're paying borrowing fees meanwhile as well. You need to watch the portfolio also, when you short sell you'll get a bunch of cash, which you most likely will want to invest, but once you invest it, the market can spike and pummel your short position, resulting in negative remaining cash (since you already spent it). At that point you get a margin call from your broker. If you check your account regularly, not a big deal, but bad things can happen if you treat it as a fire and forget strategy. These days they have inverse funds so you don't have to borrow anything. The fund manager borrows for you. I'd say those are much better. The less cumbersome choice is to simply sell call options on the index or buy puts. These are even cash options, so when you exercise you get/lose money, not shares. You can even arrange them so that your potential loss is capped. (but honestly, same goes for shorts - it's called a stop loss) You could also wait for the correction and buy the dip. Less worrying about shorts and such, but of course the issue is timing the crash. Usually the crashes are very quick, and there are several \"\"pre-crashes\"\" that look like it bottomed out but then it crashes more. So actually very difficult thing to tell. You have to know either exactly when the correction will be, or exactly what the price floor is (and set a limit buy). Hope your crystal ball works! Yet another choice is finding asset classes uncorrelated or even anticorrelated with the broader market. For instance some emerging markets (developing countries), some sectors, individual stocks that are not inflated, bonds, gold and so on can have these characteristics where if S&P goes down they go up. Buying those may be a safer approach since at least you are still holding a fundamentally valuable thing even if your thesis flops, meanwhile shorts and puts and the like are purely speculative.\""
},
{
"docid": "234286",
"title": "",
"text": "\"If you are investing in a mortgage strictly to avoid taxes, the answer is \"\"pay cash now.\"\" A mortgage buys you flexibility, but at the cost of long term security, and in most cases, an overall decrease in wealth too. At a very basic level, I have to ask anyone why they would pay a bank a dollar in order to avoid paying the government 28 - 36 cents depending on your tax rate. After all, one can only deduct interest- not principal. Interest is like rent, it accrues strictly to the lender, not equity. In theory the recipient should be irrelevant. If you have a need to stiff the government, go ahead. Just realize you making a banker three times as happy. Additionally the peace of mind that comes from having a house that no banker can take away from you is, at least for me, compelling. If I have a $300,000 house with no mortgage, no payments, etc. I feel quite safe. Even if my money is tied up in equity, if a serious situation came along (say a huge doctors bill) I always have the option of a reverse mortgage later on. So, to directly counter other claims, yes, I'd rather have $300k in equity then $50k in equity and $225k in liquid assets. (Did you notice that the total net worth is $25k less? And that's even before one considers the cash flow implication of a continuing mortgage. I have no mortgage, and I'm 41. I have a lot of net worth, but the thing that I really like is that I have a roof over my head that no on e can take away from me, and sufficient savings to weather most crises). That said, a mortgage is not about total cost. It is about cash flow. To the extent that a mortgage makes your cash flow situation better, it provides a benefit- just not one that is quantifiable in dollars and cents. Rather, it is a risk/reward situation. By taking a mortgage even when you have the cash, you pay a premium (the interest rate) in order to have your funds available when you need it. A very simple strategy to calculate and/or minimize this risk would be to invest the funds in another investment. If your rate of return exceeds the interest rate minus any tax preference (e.g. 4% minus say a 25% deduction = 3%), your money is better off there, obviously. And, indeed, when interest rates are only 4%, it may may be possible to find that. That said, in most instances, a CD or an inflation protected bond or so won't give you that rate of return. There, you'd need to look at stocks- slightly more risky. When interest rates are back to normal- say 5 or 6%, it gets even harder. If you could, however, find a better return than the effective interest rate, it makes the most sense to do that investment, hold it as a hedge to pay off the mortgage (see, you get your security back if you decide not to work!), and pocket the difference. If you can't do that, your only real reason to hold the cash should be the cash flow situation.\""
},
{
"docid": "96110",
"title": "",
"text": "If you're sure you want to go the high risk route: You could consider hot stocks or even bonds for companies/countries with lower credit ratings and higher risk. I think an underrated cost of investing is the tax penalties that you pay when you win if you aren't using a tax advantaged account. For your speculating account, you might want to open a self-directed IRA so that you can get access to more of the high risk options that you crave without the tax liability if any of those have a big payout. You want your high-growth money to be in a Roth, because it would be a shame to strike it rich while you're young and then have to pay taxes on it when you're older. If you choose not to make these investments in a tax-advantaged account, try to hold your stocks for a year so you only get taxed at capital gains rates instead of as ordinary income. If you choose to work for a startup, buy your stock options as they vest so that if the company goes public or sells privately, you will have owned those stocks long enough to qualify for capital gains. If you want my actual advice about what I think you should do: I would increase your 401k percentage to at least 10% with or without a match, and keep that in low cost index funds while you're young, but moving some of those investments over to bonds as you get closer to retirement and your risk tolerance declines. Assuming you're not in the 25% tax bracket, all of your money should be in a Roth 401k or IRA because you can withdraw it without being taxed when you retire. The more money you put into those accounts now while you are young, the more time it all has to grow. The real risk of chasing the high-risk returns is that when you bet wrong it will set you back far enough that you will lose the advantage that comes from investing the money while you're young. You're going to have up and down years with your self-selected investments, why not just keep plugging money into the S&P which has its ups and downs, but has always trended up over time?"
},
{
"docid": "552887",
"title": "",
"text": "My observations is that this seems like hardly enough to kill inflation. Is he right? Or are there better ways to invest? The tax deferral part of the equation isn't what dominates regarding whether your 401k beats 30 years of inflation; it is the return on investment. If your 401k account tanks due to a prolonged market crash just as you retire, then you might have been better off stashing the money in the bank. Remember, 401k money at now + 30 years is not a guaranteed return (though many speak as though it were). There is also the question as to whether fees will eat up some of your return and whether the funds your 401k invests in are good ones. I'm uneasy with the autopilot nature of the typical 401k non-strategy; it's too much the standard thing to do in the U.S., it's too unconscious, and strikes me as Ponzi-like. It has been a winning strategy for some already, sure, and maybe it will work for the next 30-100 years or more. I just don't know. There are also changes in policy or other unknowns that 30 years will bring, so it takes faith I don't have to lock away a large chunk of my savings in something I can't touch without hassle and penalty until then. For that reason, I have contributed very little to my 403b previously, contribute nothing now (though employer does, automatically. I have no match.) and have built up a sizable cash savings, some of which may be used to start a business or buy a house with a small or no mortgage (thereby guaranteeing at least not paying mortgage interest). I am open to changing my mind about all this, but am glad I've been able to at least save a chunk to give me some options that I can exercise in the next 5-10 years if I want, instead of having to wait 25 or more."
},
{
"docid": "345403",
"title": "",
"text": "\"Congratulations. The first savings goal should be an emergency fund. Think of this not as an investment, but as insurance against life's woes. They happen and having this kind of money earmarked allows one to invest without needing to withdraw at an inopportune time. This should go into a \"\"high interest\"\" savings account or money market account. Figure three to six months of expenses. The next goal should be retirement savings. In the US this is typically done through 401K or if your company does not offer one, either a ROTH IRA or Traditional IRA. The goal should be about 15% of your income. You should favor a 401k match over just about anything else, and then a ROTH over that. The key to transforming from a broke college student into a person with a real job, and disposable income, is a budget. Otherwise you might just end up as a broke person with a real job (not fun). Part of your budget should include savings, spending, and giving. All three areas are the key to building wealth. Once you have all of those taking care of the real fun begins. That is you have an emergency fund, you are putting 15% to retirement, you are spending some on yourself, and giving to a charity of your choice. Then you can dream some with any money left over (after expenses of course). Do you want to retire early? Invest more for retirement. Looking to buy a home or own a bunch of rental property? Start educating yourself and invest for that. Are you passionate about a certain charity? Give more and save some money to take time off in order to volunteer for that charity. All that and more can be yours. Budgeting is a key concept, and the younger you start the easier it gets. While the financiers will disagree with me, you cannot really invest if you are borrowing money. Keep debt to zero or just on a primary residence. I can tell you from personal experience that I did not started building wealth until I made a firm commitment to being out of debt. Buy cars for cash and never pay credit card interest. Pay off student loans as soon as possible. For some reason the idea of giving to charity invokes rancor. A cursory study of millionaires will indicate some surprising facts: most of them are self made, most of them behave differently than pop culture, and among other things most of them are generous givers. Building wealth is about behavior. Giving to charity is part of that behavior. Its my own theory that giving does almost no good for the recipient, but a great amount of good for the giver. This may seem difficult to believe, but I ask that you try it.\""
},
{
"docid": "184077",
"title": "",
"text": "\"Your employer sends the money that you choose to contribute, plus employer match if any, to the administrator of the 401k plan who invests the money as you have directed, choosing between the alternatives offered by the administrator. Typically, the alternatives are several different mutual funds with different investment styles, e.g. a S&P 500 index fund, a bond fund, a money-market fund, etc. Now, a statement such as \"\"I see my 401k is up 10%\"\" is meaningless unless you tell us how you are making the comparison. For example, if you have just started employment and $200 goes into your 401k each month and is invested in a money-market fund (these are paying close to 0% interest these days), then your 11th contribution increases your 401k from $2000 to $2200 and your 401k is \"\"up 10%\"\". More generally, suppose for simplicity that all the 401k investment is in just one (stock) mutual fund and that you own 100 shares of the fund as of right now. Suppose also that your next contribution will not occur for three weeks when you get your next paycheck, at which time additional shares of the mutual fund will be purchased Now, the value of the mutual fund shares (often referred to as net asset value or NAV) fluctuates as stock prices rise and fall, and so the 401k balance = number of shares times NAV changes in accordance with these fluctuations. So, if the NAV increases by 10% in the next two weeks, your 401k balance will have increased by 10%. But you still own only 100 shares of the mutual fund. You cannot use the 10% increase in value to buy more shares in the mutual fund because there is no money to pay for the additional shares you wish to purchase. Notice that there is no point selling some of the shares (at the 10% higher NAV) to get cash because you will be purchasing shares at the higher NAV too. You could, of course, sell shares of the stock mutual fund at the higher NAV and buy shares of some other fund available to you in the 401k plan. One advantage of doing this inside the 401k plan is that you don't have to pay taxes (now) on the 10% gain that you have made on the sale. Outside tax-deferred plans such as 401k and IRA plans, such gains would be taxable in the year of the sale. But note that selling the shares of the stock fund and buying something else indicates that you believe that the NAV of your stock mutual fund is unlikely to increase any further in the near future. A third possibility for your 401k being up by 10% is that the mutual fund paid a dividend or made a capital gains distribution in the two week period that we are discussing. The NAV falls when such events occur, but if you have chosen to reinvest the dividends and capital gains, then the number of shares that you own goes up. With the same example as before, the NAV goes up 10% in two weeks at which time a capital gains distribution occurs, and so the NAV falls back to where it was before. So, before the capital gains distribution, you owned 100 shares at $10 NAV which went up to $11 NAV (10% increase in NAV) for a net increase in 401k balance from $1000 to $1100. The mutual fund distributes capital gains in the amount of $1 per share sending the NAV back to $10, but you take the $100 distribution and plow it back into the mutual fund, purchasing 10 shares at the new $10 NAV. So now you own 110 shares at $10 NAV (no net change in price in two weeks) but your 401k balance is $1100, same as it was before the capital gains distribution and you are up 10%. Or, you could have chosen to invest the distributions into, say, a bond fund available in your 401k plan and still be up 10%, with no change in your stock fund holding, but a new investment of $100 in a bond fund. So, being up 10% can mean different things and does not necessarily mean that the \"\"return\"\" can be used to buy more shares.\""
},
{
"docid": "511861",
"title": "",
"text": "http://dailyfinance.com Enter a stock ticker, then click on the Chain link to the left. Then, click on the option tickers to see their charts. EDIT: the site has changed, and there are no more option charts. So why are option charts so tough to find? Options are derivatives of the stock. Option prices are defined by a formula. The inputs are stock pricxe, strike, days to expiration, dividend, risk-free interest rate, and volatility. Volatility is the only thing that cannot be easily looked up. With a Black-Scholes calculator, and some reasonable volatility selections, it's possible to make your own fairly accurate option chart. I don't think it's very enlightening, though. The interesting things are: the stock price movement (as always), and the nature of option pricing behavior in general (understanding how the formula represents crowd behavior)."
},
{
"docid": "410166",
"title": "",
"text": "\"For one thing fund managers, even fund management companies, own less money than their clients put together. On the whole they simply cannot underwrite 50% of the potential losses of the funds they manage, and an offer to do so would be completely unsecured. Warren Buffet owns about 1/3 of Berkshire Hathaway, so I suppose maybe he could do it if he wanted to, and I won't guess why he prefers his own business model (investing in the fund he manages, or used to manage) over the one you propose for him (keeping his money in something so secure he could use it to cover arbitrary losses on B-H). Buffett and his investors have always felt that he has sufficient incentive to see B-H do well, and it's not clear that your scheme would provide him any useful further incentive. You say that the details are immaterial. Supposing instead of 50% it was 0.0001%, one part in a million. Then it would be completely plausible for a fund manager to offer this: \"\"invest 50 million, lose it all, and I'll buy dinner to apologise\"\". But would you be as attracted to it as you would be to 50%? Then the details are material. Actually a fund manager could do it by taking your money, putting 50% into the fund and 50% into a cash account. If you make money on the fund, you only make half as much as if you'd been fully invested, so half your profit has been \"\"taken\"\" when you get back the fund value + cash. If you lose money on the fund, pay you back 50% of your losses using the cash. Worst case scenario[*], the fund is completely wiped out but you still get back 50% of your initial investment. The combined fund+cash investment vehicle has covered exactly half your losses and it subtracts exactly half your profit. The manager has offered the terms you asked for (-50% leverage) but still doesn't have skin the game. Your proposed terms do not provide the incentive you expect. Why don't fund managers offer this? Because with a few exceptions 50% is an absurd amount for an investment fund to keep in cash, and nobody would buy it. If you want to use cash for that level of inverse leverage you call the bank, open an account, and keep the interest for yourself. You don't expect your managed fund to do it. Furthermore, supposing the manager did invest 100% of your subscription in the fund and cover the risk with their own capital, that means the only place they actually make any profit is the return on a risk that they take with their capital on the fund's wins/losses. You've given them no incentive to invest your money as well as their own: they might as well just put their capital in the fund and let you keep your money. They're better off without you since there's less paperwork, and they can invest whatever they like instead of carefully matching whatever money you send them. If you think they can make better picks than you, and you want them to do so on your behalf, then you need to pay them for the privilege. Riding their coattails for free is not a service they have any reason to offer you. It turns out that you cannot force someone to expose themselves to a particular risk other than by agreeing that they will expose themselves to that risk and then closely monitoring their investment portfolio. Otherwise they can find ways to insure/hedge the risk they're required to take on. If it's on their books but cancelled by something else then they aren't really exposed. So to provide incentive what we normally want is what Buffett does, which is for the fund manager to be invested in the fund to keep them keen, and to draw a salary in return for letting you in[**]. Their investment cannot precisely match yours because the fund manager's capital doesn't precisely match your capital. It doesn't cover your losses because it's in the same fund, so if your money vanishes the fund manager loses too and has nothing to cover you with. But it does provide the incentive. [*] All right, I admit it, worst case scenario there's a total banking collapse, end of civilization as we know it, and the cash account defaults. But then even in your proposed scheme it's possible that whatever assets the fund manager was using as security could fail to materialise. [**] So why, you might ask, do individual fund managers get bonuses in return for meeting fixed targets instead of only being part-paid in shares in their own fund whose value they can then maximise? I honestly don't know, but I suspect \"\"lots of reasons\"\". Probably the psychology of rewarding them for performance in a way that compares with other executive posts or professions they might take up instead of fund management. Probably the benefit to the fund itself, which wants to attract more clients, of beating certain benchmarks. Probably other things including, frankly, human error in setting their compensation packages.\""
},
{
"docid": "291548",
"title": "",
"text": "Let's assume that the bonds have a par value of $1,000. If conversion happens, then one bond would be converted into 500 shares. The price in the market is unimportant. Regardless of the share price in the market, the income per share would be increased by the absence of $70 in interest expense. It would be decreased by the lost tax deduction. It would be further diluted by the increase in 500 shares. Likewise, the debt would be extinguished and the equity section increased. Whether it increased or decreased on a per share basis would depend upon the average amount paid in per share in the currently existing structure, adjusted for changes in retained earnings since the initial offering and for any treasury shares. There would be a loss in value, generally, if it is trading far from $2.00 because it would be valued based on the market price. Had the bond not converted, it would trade in the market as a pure bond if the stock price is far below the strike price and as an ordinary pure bond plus a premium if near enough to the strike price in a manner that depends upon the time remaining under the conversion privilege. I cannot think of a general case where someone would want to convert below strike and indeed, barring a very strange tax, inheritance or legal situation (such as a weird divorce), I cannot think of a case where it would make sense. It often does not make sense to convert far from maturity either as the option premium only vanishes well above $2. The primary case for conversion would be where the after-tax dividend is greater than the after-tax interest payment."
},
{
"docid": "308380",
"title": "",
"text": "It depends how you do it. If you roll it from your 401k directly to a Roth then you will have to pay the taxes. The contributions to the 401k are tax deferred. Meaning you do not owe taxes on the money until you collect it. Roth contributions are post tax but the gains are not taxed so long as they are disbursed under acceptable conditions according to the regulations. If you roll it directly from the 401k to a regular tax deferred IRA you should be able to do that with out penalties or taxes. You will still have to pay the taxes at disbursement. If you have the money disbursed to you directly then you will have to pay the penalties, fees, and taxes. Your contributions to an IRA will then be subject to limitations based on the IRA. It will literally be exactly like you are taking money from your pocket to invest in the IRA. Your company should give you the option of a rollover check. This check will be made out to you but it will not be able to be deposited in a regular account or cashed. It will only be redeemable for deposit into a retirement account that meets the regulatory requirements of the 401k rollover criteria. I believe the check I received a few years ago was only good for 60 days. I recall that after 60 days that check was void and I would receive a standard disbursement and would be subject to fees and penalties. I am not sure if that was the policy of T.Rowe Price or if that is part of the regulation."
},
{
"docid": "297288",
"title": "",
"text": "\"Thirty thousand in credit card debt is a \"\"big elephant to eat\"\" so to speak. But you do it by taking a bite at a time. One positive is that you do not want to borrow from your 401K. Doing so is a horrible idea. The first question you have to ask yourself and understand, is how you accumulated 30K in credit card debt in the first place? Most people get there by running up a relatively small amount, say 5K, and playing the zero transfer game a few times. Then add in a late payment, and a negative event or two (like the car breaking down or a trip to the emergency room) and poof a large amount of credit card debt. Obviously, I have no idea if this is how you got there, and providing some insight might help. Also, your age, approximate income, and other debts might also help provide more insight. I assume you are still working and under age 59.5 as you are talking about borrowing from your 401K. Where I come from is that my wife (then girlfriend) found ourselves under stifling debt a few years ago. When we married, we became very intentional and focused on ridding ourselves of debt and now sit completely debt free (including the house). During our debt payoff time, we lived off of less than 25% of our salary. We both took extra jobs when we were able. Intensity was our key. If I were you, I would not refi the house. There are costs associated with this and why would you put more debt on your home? I might cash out the annuity provided that there are no negative tax consequences and depending on how much you can get for it. Numbers are the key here. However, I feel like doing so will not retire this debt. The first thing you need to do is get on a written budget. A game plan for spending and stick to it. If you are married, your spouse has to be part of this process. The budget has to be fresh each month, and each month you and your wife should meet. To deviate from the budget, you will also need to have a meeting. My wife and I still do this despite being debt free and enjoying very healthy incomes. Secondly, it is about cutting expenses. Cable: off. No eating out or vacations. Cut back on cell phone plans, only basic clothing. Gift giving is of the $5 variety and only for those very close to you. Forget lattes, etc. Depending on your income I would cut 401K contributions to zero or only up to the company match (if your household income is above 150K/year). Third, it is about earning more. Ebay, deliver pizzas, cut grass, overtime, whatever. All extra dollars go to credit card balance reduction. At a minimum, you should find an extra $1000/month; however, I would shoot for 2K. If you can find 2K, you will be done with this in 13 months. I know the math doesn't work out for that, but once you get momentum, you find more. How good will it feel to be out from under this oppression next March? I know you can do this without cashing in the annuity or refinancing. Do you believe it?\""
},
{
"docid": "222485",
"title": "",
"text": "You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investments you choose in your 401k, you'll just sell them and then buy them (or similar investments) back after the rollover to the IRA. If you're worrying about a flash crash right on the day when you want to cash out - that can definitely happen, but it is not really something you can prepare for. You can consider moving to money market several weeks before the potential date of your withdrawal, if you think it will make you feel safer, otherwise I don't think it really matters."
},
{
"docid": "349706",
"title": "",
"text": "\"The presenter suggested we keep records of our claims for 10+ years in paper form. This seemed to be overkill. It would be overkill if you're taking distributions regularly and you have enough valid (and otherwise unreimbursed) medical receipts each year to correspond to your distributions. However, if you are pumping money into the HSA without regular distributions, then you may need to keep receipts for a long time, possibly since the beginning of your HSA. For example: If the IRS was to audit my HSA deductions would the Aetna online claims be adequate? It's better than nothing, but it is not ideal. You need to provide proof of what you actually paid, not just what was billed. (How would the IRS know if you actually paid the bill?) So, the bill and receipt together would be preferred. Also, there are many eligible expenses for HSA that would not be covered by your health insurance and would not appear in your Aetna statements (dental work for example). Personally I have an excel spreadsheet with every eligible expense listed, every contribution and distribution I make, and a box of receipts since I opened the HSA account. Should I also archive screenshots of these claims digitally somewhere? If you have the time and diligence to do it, then it wouldn't hurt. I personally am only one house fire away from having to make a lot of phone calls if I wanted to re-build my receipts folder from scratch. I actually have \"\"scan my HSA receipts\"\" on my todo list (where's it been for years as a pretty low priority). Lastly it makes sense to spend the money in my HSA on anything eligible because you can never roll it over into a retirement account, its shaky if another person (spouse) could get reimbursed for eligible medical expenses if you die, and if you lose your receipts you may not be able to spend all of the HSA money tax free. Is this an accurate assessment or is there a reason why I should not touch the HSA money at all and wait to reimburse my eligible expenses. First off, if you are married the HSA can be transferred to your spouse. But in general, it really depends on what you would do with the money if you distributed it right away. If you need the money to pay debts, bills, etc, then it might make sense to take it, but if it would be extra money that you would invest somewhere, then you should leave it in the HSA because it grows tax free while it's in there and (probably) wouldn't if you take it out. The caveat though is that you need to find an HSA administrator that offers your preferred investment choices. As for your worry that you might lose your receipts, well, that's a valid point- but I wouldn't drive my decision based on that- I would archive them digitally to remove that concern completely. ...Should I reimburse myself from ... the HSA funds if I am not hitting the 401k limit yet? It depends. If it's a Roth 401k, all other things being equal, (you are able to choose the same investments with your HSA as you can choose in your 401K, and the costs are the same), then you are better off leaving the money in your HSA rather than pulling it out and putting it into the Roth 401k. The reason is that there is no tax difference, and once you put it into the 401K you (probably) can't touch it (for free) until you retire. With the HSA, if you could have taken a distribution but chose not to, then you can take that amount of money out anytime you want to without any consequences, just like your normal checking account. However, if you have a traditional 401k, and if taking HSA distributions would increase your cash flow such that you could afford to contribute more to the 401k, then this would lower your tax burden that year by reducing your taxable income.\""
}
] |
8475 | Why I cannot find a “Pure Cash” option in 401k investments? | [
{
"docid": "481728",
"title": "",
"text": "\"My 401k allows cash holdings to 100% if desired. I'm not sure why some won't, they are making money on your money after all. If you are looking to the funds vehicles for investing suggestions however, they will never allow cash. I found you must go into \"\"Invest on my own\"\" vehicle to make that change. I have beaten and timed this market several times by sitting with cash on the sidelines. The only time I missed it was when I talked to a fund administrator in 2008 dot com crash and stayed in at this suggestion. I told him I didn't see where the market could go much higher as I had made 12-28% on some funds. He was dead wrong of course and I lost 50% that year. Now, trust me, in 2017, assets are grossly overvalued. If they won't let you deposit to cash, don't invest and just save your money until the next crash.\""
}
] | [
{
"docid": "92370",
"title": "",
"text": "\"The only way to know the specific explanation in your situation is to ask your employer. Different companies do it differently, and they will have their reasons for that difference. I've asked \"\"But why is it that way?\"\" enough times to feel confident in telling you it's rarely an arbitrary decision. In the case of your employer's policy, I can think of a number of reasons why they would limit match earnings per paycheck: Vesting, in a sense - Much as stock options have vesting requirements where you have to work for a certain amount of time to receive the options, this policy works as a sort of vesting mechanism for your employer matching funds. Without it, you could rapidly accumulate your full annual match amount in a few pay periods at the beginning of the year, and then immediately leave for employment elsewhere. You gain 100% of the annual match for only 1-2 months of work, while the employees who remain there all year work 12 months to gain the same 100%. Dollar Cost Averaging - By purchasing the same investment vehicle at different prices over time, you can reduce the impact of volatility on your earnings. For the same reason that 401k plans usually restrict you to a limited selection of mutual funds - namely, the implicit assumption is that you probably have little to no clue about investing - they also do other strategic things to encourage employees to invest (at least somewhat) wisely. By spacing their matching fund out over time, they encourage you to space your contributions over time, and they thereby indirectly force you to practice a sensible strategy of dollar cost averaging. Dollar Cost Averaging, seen from another angle - Mutual funds are the 18-wheeler trucks of the investment super-highway. They carry a lot of cargo, but they are difficult to start, stop, or steer quickly. For the same reasons that DCA is smart for you, it's also smart for a fund. The money is easier to manage and invest according to the goals of the fund if the investments trickle in over time and there are no sudden radical changes. Imagine if every employer that does matching allowed the full maximum match to be earned on the first paycheck of the year - the mutual funds in 401ks would get big balloons of money in January followed by a drastically lower investment for the rest of the year. And that would create volatility. Plan Administration Fees - Your employer has to pay the company managing the 401k for their services. It is likely that their agreement with the management company requires them to pay on a monthly basis, so it potentially makes things convenient for the accounting people on both ends if there's a steady monthly flow of money in and out. (Whether this point is at all relevant is very much dependent on how your company's agreement is structured, and how well the folks handling payroll and accounting understand it.) The Bottom Line - Your employer (let us hope) makes profits. And they pay expenses. And companies, for a variety of financial reasons, prefer to spread their profits and expenses as evenly over the year as they can. There are a lot of ways they achieve this - for example, a seasonal business might offer an annual payment plan to spread their seasonal revenue over the year. Likewise, the matching funds they are paying to you the employees are coming out of their bottom line. And the company would rather not have the majority of those funds being disbursed in a single quarter. They want a nice, even distribution. So once again it behooves them to create a 401k system that supports that objective. To Sum Up Ultimately, those 401k matching funds are a carrot. And that carrot manipulates you the employee into behaving in a way that is good for your employer, good for your investment management company, and good for your own investment success. Unless you are one of the rare birds who can outperform a dollar-cost-averaged investment in a low-cost index fund, there's very little to chafe at about this arrangement. If you are that rare bird, then your investment earning power likely outstrips the value of your annual matching monies significantly, in which case it isn't even worth thinking about.\""
},
{
"docid": "552887",
"title": "",
"text": "My observations is that this seems like hardly enough to kill inflation. Is he right? Or are there better ways to invest? The tax deferral part of the equation isn't what dominates regarding whether your 401k beats 30 years of inflation; it is the return on investment. If your 401k account tanks due to a prolonged market crash just as you retire, then you might have been better off stashing the money in the bank. Remember, 401k money at now + 30 years is not a guaranteed return (though many speak as though it were). There is also the question as to whether fees will eat up some of your return and whether the funds your 401k invests in are good ones. I'm uneasy with the autopilot nature of the typical 401k non-strategy; it's too much the standard thing to do in the U.S., it's too unconscious, and strikes me as Ponzi-like. It has been a winning strategy for some already, sure, and maybe it will work for the next 30-100 years or more. I just don't know. There are also changes in policy or other unknowns that 30 years will bring, so it takes faith I don't have to lock away a large chunk of my savings in something I can't touch without hassle and penalty until then. For that reason, I have contributed very little to my 403b previously, contribute nothing now (though employer does, automatically. I have no match.) and have built up a sizable cash savings, some of which may be used to start a business or buy a house with a small or no mortgage (thereby guaranteeing at least not paying mortgage interest). I am open to changing my mind about all this, but am glad I've been able to at least save a chunk to give me some options that I can exercise in the next 5-10 years if I want, instead of having to wait 25 or more."
},
{
"docid": "528698",
"title": "",
"text": ">I say better to distribute cash to the shareholders who can then choose for themselves whether to reinvest it in the company or elsewhere. Why shouldn't Apple (which I agree with you is butchering its shareholder's returns) reinvest the money in the company or in other ventures that produce returns for shareholders? My argument was simply that dividends diminish the earnings potential of firms' future cash flows. Now, if they are unable to find or invest in positive NPV projects, then I would agree a dividend payment is the best route to go. However, I find that highly suspect for firms like Apple, Microsoft and GE. They may not be able sustain double-digit growth rates, but given strong balance sheets and cost of capital, they surely should be able to find positive NPV projects that would contribute more gains for shareholders than stocks, which have been struggling for momentum. The only reason to invest in a company like GE these days is for the dividend cash flow, rather than the company's earnings and future growth prospects. That seems sad to me. But, hey, what do I know?"
},
{
"docid": "557506",
"title": "",
"text": "\"From a purely financial standpoint (psychology aside) the choice between paying off debt and investing on risky investments boils down to a comparison of risk and reward. Yes, on average the stock market has risen an average of 10% (give or take) per year, but the yearly returns on the S&P 500 have ranged from a high of 37.6% in 1995 to a low of -37% in 2008. So there's a good chance that your investment in index funds will get a better return than the guaranteed return of paying off the loan, but it's not certain, and you might end up much worse. You could even calculate a rough probability of coming out better with some reasonable assumptions (e.g. if you assume that returns are normally distributed, which historically they're not), but your chances are probably around 30% that you'll end up worse off in one year (your odds are better the longer your investment horizon is). If you can tolerate (meaning you have both the desire and the ability to take) that risk, then you might come out ahead. The non-financial factors, however - the psychology of debt, the drain on discretionary cash flow, etc. cannot be dismissed as \"\"irrational\"\". Paying off debt feels good. Yes, finance purists disagree with Dave Ramsey and his approaches, but you cannot deny the problems that debt causes millions of households (both consumer debt and student loan debt as well). If that makes them mindless \"\"minions\"\" because they follow a plan that worked for them then so be it. (disclosure - I am a listener and a fan but don't agree 100% with him)\""
},
{
"docid": "345030",
"title": "",
"text": "First off, you have done very well to be in your financial position at your age. Congratulations. I first started investing seriously about 10 years ago, and when I started, I had a similar attitude to you. Learning how to invest is a journey, and it will take you a while to learn both the intellectual and emotional sides of investing. First off, there is nothing wrong with having a chunk of cash that you aren't investing effectively. It is far better to be losing earning power WRT inflation that it is to make a bad investment, where you can lose all your money quite quickly. I have perhaps 15% of my capital just sitting around right now because I don't have any place where I'm excited to put it. For your IRA, I would look at the options you have, and choose one that is reasonably well diversified and has low costs. In most cases, an index fund is a reasonable choice. My 401K goes into an S&P 500 index fund, and I don't have to worry about it. Beyond that, I suggest spending some time learning about investing, and then making some small and conservative investments. I've learned a lot from the Motley Fool web site."
},
{
"docid": "79142",
"title": "",
"text": "Like others mentioned you need to look at the big picture. Personally I'm not a fan of insurance based investments. They tend to have horrible track records and you're locked it and paying way to much money for them. I had one for a number of years and when I finally cancelled it I pulled out almost the exact amount I put in. So it basically grew at either zero or negative interest for 5+ years. I ended up buying Term Life and took the difference and invested it in a Roth 401K. Much better use of my money. The reason why insurance people push these policies so hard is that they make insane commission on it over 2-3 years (I asked my insurance guy about it and he admitted that, plus doing some research you'll find that out as well). Hope this helps somewhat."
},
{
"docid": "403701",
"title": "",
"text": "This is really an extended comment on the last paragraph of @BenMiller's answer. When (the manager of) a mutual fund sells securities that the fund holds for a profit, or receives dividends (stock dividends, bond interest, etc.), the fund has the option of paying taxes on that money (at corporate rates) and distributing the rest to shareholders in the fund, or passing on the entire amount (categorized as dividends, qualified dividends, net short-term capital gains, and net long-term capital gains) to the shareholders who then pay taxes on the money that they receive at their own respective tax rates. (If the net gains are negative, i.e. losses, they are not passed on to the shareholders. See the last paragraph below). A shareholder doesn't have to reinvest the distribution amount into the mutual fund: the option of receiving the money as cash always exists, as does the option of investing the distribution into a different mutual fund in the same family, e.g. invest the distributions from Vanguard's S&P 500 Index Fund into Vanguard's Total Bond Index Fund (and/or vice versa). This last can be done without needing a brokerage account, but doing it across fund families will require the money to transit through a brokerage account or a personal account. Such cross-transfers can be helpful in reducing the amounts of money being transferred in re-balancing asset allocations as is recommended be done once or twice a year. Those investing in load funds instead of no-load funds should keep in mind that several load funds waive the load for re-investment of distributions but some funds don't: the sales charge for the reinvestment is pure profit for the fund if the fund was purchased directly or passed on to the brokerage if the fund was purchased through a brokerage account. As Ben points out, a shareholder in a mutual fund must pay taxes (in the appropriate categories) on the distributions from the fund even though no actual cash has been received because the entire distribution has been reinvested. It is worth keeping in mind that when the mutual fund declares a distribution (say $1.22 a share), the Net Asset Value per share drops by the same amount (assuming no change in the prices of the securities that the fund holds) and the new shares issued are at this lower price. That is, there is no change in the value of the investment: if you had $10,000 in the fund the day before the distribution was declared, you still have $10,000 after the distribution is declared but you own more shares in the fund than you had previously. (In actuality, the new shares appear in your account a couple of days later, not immediately when the distribution is declared). In short, a distribution from a mutual fund that is re-invested leads to no change in your net assets, but does increase your tax liability. Ditto for a distribution that is taken as cash or re-invested elsewhere. As a final remark, net capital losses inside a mutual fund are not distributed to shareholders but are retained within the fund to be written off against future capital gains. See also this previous answer or this one."
},
{
"docid": "77088",
"title": "",
"text": "Well, to get money, you need to leverage your assets. So your options basically are: - Asset: Cash. Well, I figure if you had, you wouldn't have asked how to get more of it, but its always worth mentioning. Don't forget about cash that can be in tricky places to tap, like 401ks, IRAs, investment accounts, etc. There is usually some way to get at the cash, but it may not be worth it and you could end up sacrificing long term financial stability if you do. - Asset: Job Skills and Initiative. Get a job and and earn the cash. $2k is not a ton, and if you live frugally you should be able to save it. There are tons of websites dedicated to living frugally and earning extra cash on the side. My personal favorite is r/beermoney. - Asset: Good Credit. Borrow the money from a traditional bank. Signature loans go up to $35k at most banks, just ask what it would take to qualify. You could also get a credit card for that amount, and use it to start up the business. - Asset. Bad Credit. If you've got bad credit, you can still take out a loan from a place like Prosper or Lending Club or Sofi (these places are handy if you have good credit, too). Your rates will be much higher, but they will still lend to you. - Asset: Property. If you own stuff, you can sell it and get cash. Clean out your attic (or ask relatives if you can have the stuff in theirs!) and sell it. If you own fancy stuff, you can borrow against it (home, car, boat, etc.). - Asset: Your Charm and Winning Smile. If you have a good, solid business plan (written down and professional looking), ask around and see if you can find an investor. It could be friends or family, but it could also be someone who is looking to invest. Be professional, and be sure to draw up the appropriate business docs if you do a partnership or take a private loan. - Asset: Your Government. If you live in the US, there are federal programs that offer Small Business Loans. Check out sba.gov for more info. You will need a business plan and will have to meet the criteria of the loan or grant. Not sure if your Ecommerce business will meet the criteria, as the intent of these types of programs are to spur the economy by allowing small business owners to hire workers. But its worth checking out."
},
{
"docid": "221117",
"title": "",
"text": "I'd roll them all into one account, just for your own convenience. It's a pain to keep track of lots of different accounts, esp. since you need logins/passwords, etc for all of them, and we all have plenty of those. :) Pick a place like Vanguard or Fidelity (for example), where you can find investment options with lower fees, and do the standard rollover. Once all the accounts are rolled into one, you can think about how to invest the stuff. (Some good investments require larger minimums, so if you have several old 401ks, putting them together will give you more options.) Rolling them over is not hard, if you have paperwork from each of the 401ks. You might be able to DIY online, but I found it helpful to call and talk to a person when I did this. You just need account numbers, etc. If you are moving brokerage accounts, you may need to provide paper documents/applications, which might require getting them notarized (I found a notary at my bank, even though the accounts I was moving from and to weren't at my bank), which means you'll need to provide IDs, etc. and get a special crimped seal after the notary witnesses your signature."
},
{
"docid": "96110",
"title": "",
"text": "If you're sure you want to go the high risk route: You could consider hot stocks or even bonds for companies/countries with lower credit ratings and higher risk. I think an underrated cost of investing is the tax penalties that you pay when you win if you aren't using a tax advantaged account. For your speculating account, you might want to open a self-directed IRA so that you can get access to more of the high risk options that you crave without the tax liability if any of those have a big payout. You want your high-growth money to be in a Roth, because it would be a shame to strike it rich while you're young and then have to pay taxes on it when you're older. If you choose not to make these investments in a tax-advantaged account, try to hold your stocks for a year so you only get taxed at capital gains rates instead of as ordinary income. If you choose to work for a startup, buy your stock options as they vest so that if the company goes public or sells privately, you will have owned those stocks long enough to qualify for capital gains. If you want my actual advice about what I think you should do: I would increase your 401k percentage to at least 10% with or without a match, and keep that in low cost index funds while you're young, but moving some of those investments over to bonds as you get closer to retirement and your risk tolerance declines. Assuming you're not in the 25% tax bracket, all of your money should be in a Roth 401k or IRA because you can withdraw it without being taxed when you retire. The more money you put into those accounts now while you are young, the more time it all has to grow. The real risk of chasing the high-risk returns is that when you bet wrong it will set you back far enough that you will lose the advantage that comes from investing the money while you're young. You're going to have up and down years with your self-selected investments, why not just keep plugging money into the S&P which has its ups and downs, but has always trended up over time?"
},
{
"docid": "11311",
"title": "",
"text": "\"Why only long term investments? What do they care if I buy and sell shares in a company in the same year? Simple, your actually investing when you hold it for a long term. If you hold a stock for a week or a month there is very little that can happen to change the price, in a perfect market the value of a company should stay the same from yesterday to today so long as there is no news(a perfect market cannot exist). When you hold a stock for a long term you really are investing in the company and saying \"\"this company will grow\"\". Short term investing is mostly speculation and speculation causes securities to be incorrectly valued. So when a retail investor puts money into something like Facebook for example they can easily be burned by speculation whether its to the upside or downside. If the goal is to get me to invest my money, then why not give apply capital gains tax to my savings account at my local bank? Or a CD account? I believe your gains on these accounts are taxed... Not sure at what rate. If the goal is to help the overall health of business, how does it do that? During an IPO, the business certainly raises money, but after that I'm just buying and selling shares with other private shareholders. Why does the government give me an incentive to do this (and then hold onto it for at least a year)? There are many reasons why a company cares about its market price: A companies market cap is calculated by price * shares outstanding. A market cap is basically what the market is saying your company is worth. A company can offer more shares or sell shares they currently hold in order to raise even more capital. A company can offer shares instead of cash when buying out another company. It can pay for many things with shares. Many executives and top level employees are payed with stock options, so they defiantly want to see there price higher. these are some basic reasons but there are more and they can be more complex.\""
},
{
"docid": "222485",
"title": "",
"text": "You will be rolling over the proceeds, since you can only deposit cash into an IRA. However, this should probably not affect your considerations much since the pre-rollover sale is non-taxable within the 401k and the period of roll-over itself (when the cash is uninvested) is relatively short. So, whatever investments you choose in your 401k, you'll just sell them and then buy them (or similar investments) back after the rollover to the IRA. If you're worrying about a flash crash right on the day when you want to cash out - that can definitely happen, but it is not really something you can prepare for. You can consider moving to money market several weeks before the potential date of your withdrawal, if you think it will make you feel safer, otherwise I don't think it really matters."
},
{
"docid": "167438",
"title": "",
"text": "Congrats! That's a solid accomplishment for someone who is not even in college yet. I graduated college 3 years ago and I wish I was able to save more in college than I did. The rule of thumb with saving: the earlier the better. My personal portfolio for retirement is comprised of four areas: Roth IRA contributions, 401k contributions, HSA contributions, Stock Market One of the greatest things about the college I attended was its co-op program. I had 3 internships - each were full time positions for 6 months. I strongly recommend, if its available, finding an internship for whatever major you are looking into. It will not only convince you that the career path you chose is what you want to do, but there are added benefits specifically in regards to retirement and savings. In all three of my co-ops I was able to apply 8% of my paycheck to my company's 401k plan. They also had matching available. As a result, my 401k had a pretty substantial savings amount by the time I graduated college. To circle back to your question, I would recommend investing the money into a Roth IRA or the stock market. I personally have yet to invest a significant amount of money in the stock market. Instead, I have been maxing out my retirement for the last three years. That means I'm adding 18k to my 401k, 5.5k to my Roth, and adding ~3k to my HSA (there are limits to each of these and you can find them online). Compounded interest is amazing (I'm just going to leave this here... https://www.moneyunder30.com/power-of-compound-interest)."
},
{
"docid": "384644",
"title": "",
"text": "Here are three key factors that you do not explicitly state: So while I cannot say exactly why the tax law is the way it is, I can infer that it encourages long-term investments rather than short-term, which would seem to be a good thing for society overall. The fast that capital gains are taxed at all somewhat discourages cashing out investments (although I suspect it's more of a nuisance factor - the cash received is likely more on an incentive that the tax is a disincentive)."
},
{
"docid": "310433",
"title": "",
"text": "I am a bit unsure of why the interest rate is relevant. Are you intending on borrowing the money to go to school? If you cannot pay cash, then it is very likely a bad idea. Many people are overcome by events when seeking higher education and such a loan on a such a salary could devastate you financially. So I find the cost of the program as a total of 76.6K counting a loss in salary during the program and the first year grant. That is a lot of money, do you intend to borrow that much? Especially when you consider that your salary, after you graduate, will be about equal to where you are now. For that reason I am leaning toward a no, even if you had the cash in hand to do so. There is nothing to say that you will enjoy teaching. Furthermore teaching in low income school is more challenging. All that said, is there a way you can raise your income without going back to school? Washington state can be a very expensive place to live and is one of the reason why I left. I am a WWU alumni (Go Vikings!). Could you cash flow a part time program instead? I would give this a sound no, YMMV."
},
{
"docid": "391835",
"title": "",
"text": "I could see doing this if the investments were via different environments. The choices in a 401K are limited by the plan, so you might want to put new money into the 401K index fund. At the same time you could have IRA money invested in a similar index. You could even have non-retirement money invested. While you should look at all your investments while evaluating your investment percentages, the 401K (limited options) and the non-retirement account (avoiding taxes) might be harder to move around. Otherwise the only advantage of splitting between funds is avoiding having all your money in a Ponzi scheme."
},
{
"docid": "327060",
"title": "",
"text": "\"Buy term and invest the difference is certainly the standard recommendation, and for good reason. When you start looking at some sample numbers the \"\"buy term and invest the difference\"\" strategy starts to look very good. Here are the rates I found (27 yr old in Texas with good health, non-smoker, etc): $200k term life: $21/month $200k whole life: $177/month If you were to invest the difference in a retirement account for 40 years, assuming a 7% rate of return (many retirement planning estimates use 10%) you would have $411,859 at the end of that period. (If you use 10% that figure jumps to over $994k.) Needless to say, $400k in a retirement account is better than a $200k death benefit. Especially since you can't get the death benefit AND the cash value. Certainly one big difficulty is making sure you invest that difference. The best way to handle that is to set up a direct deposit that goes straight from your paycheck to the retirement account before it even touches your bank account. The next best thing would be an automatic transfer from your bank account. You may wonder 'What if I can no longer afford to invest that money?' First off, take a second and third look at your finances before you start eating into that. But if financial crisis comes and you truly can't afford to fund your own life insurance / retirement account then perhaps it will be a good thing you're not locked into a life insurance policy that forces you to pay those premiums. That extra freedom is another benefit of the \"\"buy term and invest the difference\"\" strategy. It is great that you are asking this question now while you are young. Because it is much easier to put this strategy into play now while you are young. As far as using a cash value policy to help diversify your portfolio: I am no expert in how to allocate long term investments after maxing out my IRA and 401k. (My IRA maxes out at $5k/year, another $5k for my wife's, another $16.5k for my 401k.) Before I maxed that out I would have my house paid for and kid's education saved for. And by then it would make sense to pay a financial adviser to help you manage all those investments. They would be the one to ask about using a cash value policy similar to @lux lux's description. I believe you should NEVER PUT YOUR MONEY INTO SOMETHING YOU DON'T UNDERSTAND. Cash value policies are complex and I don't fully understand them. I should add that of course my calculations are subject to the standard disclaimer that those investment returns aren't guaranteed. As with any financial decision you must be willing to accept some level of risk and the question is not whether to accept risk, but how much is acceptable. That's why I used 7% in my calculation instead of just 10%. I wanted to demonstrate that you could still beat out whole life if you wanted to reduce your risk and/or if the stock market performs poorly.\""
},
{
"docid": "391896",
"title": "",
"text": "Your question is very widely scoped, making it difficult to reply to, but I can provide my thoughts on at least the following part of the question: I have a 401k plan with T. Rowe Price, should I use them for other investments too? Using your employer's decision, on which 401k provider they've chosen, as a basis for making your own decision on a broker for investing $100k when you don't even know what kind of investments you want seems relatively unwise to me, even if one of your focuses is simplicity. That is, unless your $100k is tax-advantaged (e.g. an IRA or other 401k) and your drive for simplicity means you'd be happy to add $100k to any of your existing 401k investments. In which case you should look into whether you can roll the $100k over into your employer's 401k program. For the rest of my answer, I'll assume the $100k is NOT tax-advantaged. I assume you're suggesting this idea because of some perceived bundling of the relationship and ease of dealing with one company & website? Yes, they may be able to combine both accounts into a single login, and you may be able to interact with both accounts with the same basic interface, but that's about where the sharing will end. And even those benefits aren't guaranteed. For example, I still have a separate site to manage my money in my employer's 401k @ Fidelity than I do for my brokerage/banking accounts @ Fidelity. The investment options aren't the same for the two types of accounts, so the interface for making and monitoring investments isn't either. And you won't be able to co-mingle funds between the 401k and non-tax-advantaged money anyway, so you'll have two different accounts to deal with even if you have a single provider. Given that you'll have two different accounts, you might as well pick a broker/provider for the $100k that gives you the best investment options, lowest fees, and best UI experience for your chosen type/goal of investments. I would strongly recommend figuring out how you want to invest the $100k before trying to figure out which provider to use as a broker for doing the investment."
},
{
"docid": "477552",
"title": "",
"text": "\"I wish I was in your shoes with the knowledge I have in my head. financial goal setting is a great plan at your age. In my humble opinion you don't want to save for anything... you want to invest as much as you can, create a corporation and have the corporation invest as much as possible. When there is enough monthly cash flow coming from your investments... have the corporation buy you a house, a car, take out an insurance policy on you as key employee... etc. As for the $11,000 laying around in cash as an emergency fund, no way! With returns as high as 1-3% per month invested properly keep it invested. Getting to your emergency cash reserve you have in a trading account is only a couple key strokes away. As for the 401k... If it is not making at least 25% yearly for the last 10 years (excluding your Contributions) do it yourself in a self directed IRA. Oh... I forgot to mention When your corporation buys your stuff... if set up correctly you can take them as a loss in the corporate ledger and you know any loss from one entity can offset profits from another, thus reducing any taxes you may have. My friend you are at the point of great beginnings, hard choices and an open door to what ever you want your future to look like. Decide what you want out of your money and don't take \"\"NO YOU CAN'T DO THAT\"\" as an answer. Find someone that will tell you these secrets, they are out there. Good luck.\""
}
] |
8507 | When to sell a stock? | [
{
"docid": "509819",
"title": "",
"text": "I am a believer in stocks for the long term, I sat on the S&P right though the last crash, and am 15% below the high before the crash. For individual stocks, you need to look more closely, and often ask yourself about its valuation. The trick is to buy right and not be afraid to sell when the stock appears to be too high for the underlying fundamentals. Before the dotcom bubble I bought Motorola at $40. Sold some at $80, $100, and out at $120. Coworkers who bought in were laughing as it went to $160. But soon after, the high tech bubble burst, and my sales at $100 looked good in hindsight. The stock you are looking at - would you buy more at today's price? If not, it may be time to sell at least some of that position."
}
] | [
{
"docid": "506238",
"title": "",
"text": "1) You ignore dividends. You can hold your 10 million shares and never sell them and still get cash to live on if the security pays dividends. McDonalds stock pays 3% in dividends (a year). If you owned 10 million shares of McDonalds you would get 75,000 every three months. I am sure you could live on 25,000 a month. 2) Enron was an energy company. They sold energy and made a profit (or rather were supposed to). Enron didn't make their money by selling stock. McDonalds makes their money by selling hamburgers (and other food). The income of a company comes from their customers, not from selling stock. 3) IF you sold all of your 10 million shares within a short time frame it, likely, would drive the price of the stock down. But you do not need a billion dollars to live on. If you sold 1000 shares each month you would have plenty for buying cars and pizza. Selling 1000 shares may drive the price of the stock down for a minute or two. But the rest of the transactions, for that security made the same day, would quickly obscure the effect you had on the stock. 4) When you buy stock your money does not (usualy) go to the company. If I were to buy 100 shares of McDonalds, McDonalds would not get $11670.That money is (usually) paid to a 'Market Maker' who, in turn, will use the cash to buy MCD from other individual shareholders (presumably for less than 116.70 a share)."
},
{
"docid": "89460",
"title": "",
"text": "You put in a market order when you want to sell to whomever raises their hand first. It results in the fastest possible liquidation of your stock. It's appropriate when you need to sell now, regardless of price. An example of when to use it: It's 3:55 PM, the market's going to close in 5 minutes and you need to sell some stocks to make some kind of urgent payment elsewhere. If instead you have a limit order in place, you might not reach the limit price before the market closes, and you'll still own the stock, which might not be what you want."
},
{
"docid": "291886",
"title": "",
"text": "\"This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities. You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name. You'll also owe \"\"regular\"\" tax if you draw a salary, etc. The fact that it may be \"\"your\"\" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock. In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind.\""
},
{
"docid": "319793",
"title": "",
"text": "You talk about an individual not being advised to sell (or purchase) in response to trends in the market in such a buy and hold strategy. But think of this for a moment: You buy stock ABC for $10 when both the market as a whole and stock ABC are near the bottom of a bear market as say part of a value buying strategy. You've now held stock ABC for a number of years and it is performing well hitting $50. There is all good news about stock ABC, profit increases year after year in double digits. Would you consider selling this stock just because it has increased 400%. It could start falling in a general market crash or it could keep going up to $100 or more. Maybe a better strategy to sell ABC would be to place a trailing stop of say 20% on the highest price reached by the stock. So if ABC falls, say in a general market correction, by less than 20% off its high and then rebounds and goes higher - you keep it. If ABC however falls by more than 20% off its high you automatically sell it with your stop loss order. You may give 20% back to the market if the market or the stock crashes, but if the stock continues going up you benefit from more upside in the price. Take AAPL as an example, if you bought AAPL in March 2009, after the GFC, for about $100, would you have sold it in December 2011 when it hit $400. If you did you would have left money on the table. If instead you placed a trailing stop loss on AAPL of 20% you would have been still in it when it hit its high of $702 in September 2012. You would have finally been stopped out in November 2012 for around the $560 mark, and made an extra $160 per share. And if your thinking, how about if I decided to sell AAPL at $700, well I don't think many would have picked $700 as the high in hindsight. The main benefit of using stop losses is that it takes your emotions out of your trading, especially your exits."
},
{
"docid": "31037",
"title": "",
"text": "My friend Harry Sit wrote an excellent article No Tax Advantage In RSU. The punchline is this. The day the RSUs vested, it's pretty much you got $XXX in taxable income and then bought the stock at the price at that moment. The clock for long term gain starts the same as if I bought the stock that day. Historical side note - In the insane days of the Dotcom bubble, people found they got RSUs vested and worth, say, $1M. Crash. The shares are worth $100K. The $1M was ordinary income, the basis was $1M and the $900K loss could offset cap gains, not ordinary income above $3000/yr. Let me be clear - the tax bill was $250K+ but the poor taxpayer had $100K in stock to sell to pay that bill. Ooops. This is the origin of the 'sell the day it vests' advice. The shares you own will be long term for capital gain a year after vesting. After the year, be sure to sell those particular shares and you're all set. No different than anyone selling the LT shares of stock when owning multiple lots. But. Don't let the tax tail wag the investing dog. If you feel it's time to sell, you can easily lose the tax savings while watching the stock fall waiting for the clock to tick to one year."
},
{
"docid": "449280",
"title": "",
"text": "\"You seem to have it right. You will be selling what's known as a covered call. When you sell the call, you enter it as \"\"sell to open\"\" and the system should see that you own the stock. You need to be approved for options trading, not all accounts are. As far as this particular trade goes - No, the stock doesn't necessarily get called away the day it's in the money, but it can be. If the stock closes just in the money around the time of expiration are you ok will selling it for the strike price? Remember, the option buyer is taking a small risk, the cost of this option, hoping the stock will go far above that price.\""
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "317365",
"title": "",
"text": "\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \"\"market\"\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\""
},
{
"docid": "99132",
"title": "",
"text": "If the stock starts to go down DO NOT SELL!! My reasoning for this is because, when you talk about the stock market, you haven't actually lost any money until you sell the stock. So if you sell it lower than you bought it, you loose money. BUT if you wait for the stock to go back up again, you will have made money."
},
{
"docid": "273565",
"title": "",
"text": "Try to find out (online) what 'the experts' think about your stock. Normally, there are some that advise you to sell, some to hold and some to buy. Hold on to your stock when most advise you to buy, otherwise, just sell it and get it over with. A stock's estimated value depends on a lot of things, the worst of these are human emotions... People buy with the crowd and sell on panic. Not something you should want to do. The 'real' value of a stock depends on assets, cash-flow, backlog, benefits, dividends, etc. Also, their competitors, the market position they have, etc. So, once you have an estimate of how much the stock is 'worth', then you can buy or sell according to the market value. Beware of putting all your eggs in one basket. Look at what happened to Arthur Andersen, Lehman Brothers, Parmalat, Worldcom, Enron, etc."
},
{
"docid": "239998",
"title": "",
"text": "Owning a stock via a fund and selling it short simultaneously should have the same net financial effect as not owning the stock. This should work both for your personal finances as well as the impact of (not) owning the shares has on the stock's price. To use an extreme example, suppose there are 4 million outstanding shares of Evil Oil Company. Suppose a group of concerned index fund investors owns 25% of the stock and sells short the same amount. They've borrowed someone else's 25% of the company and sold it to a third party. It should have the same effect as selling their own shares of the company, which they can't otherwise do. Now when 25% of the company's stock becomes available for purchase at market price, what happens to the stock? It falls, of course. Regarding how it affects your own finances, suppose the stock price rises and the investors have to return the shares to the lender. They buy 1 million shares at market price, pushing the stock price up, give them back, and then sell another million shares short, subsequently pushing the stock price back down. If enough people do this to effect the share price of a stock or asset class, the managers at the companies might be forced into behaving in a way that satisfies the investors. In your case, perhaps the company could issue a press release and fire the employee that tried to extort money from your wife's estate in order to win your investment business back. Okay, well maybe that's a stretch."
},
{
"docid": "392481",
"title": "",
"text": "The Owners of stock keep changing with every Buy and Sell. Hence its theoritically possible that everyone makes or loses money. Say the price was $10 when everyone purchased the stock. If the stock is doing good and the markets are good, the stock will move up to $12. Everyone sells the stock to someone else. So all the Old owners have made $2. Now after some period of time, the stock / company is not doing so well, and the markets are bad, so the stock falls to $11, everyone sells. So all the current owners make a loss of $1. However in normal market conditions, there are Owners who have purchased stock at different price points and have held it irrespective of whether the price has gone above their purchase price or below their purchase price."
},
{
"docid": "404529",
"title": "",
"text": "\"I understand you make money by buying low and selling high. You can also make money by buying high and selling higher, short selling high and buying back low, short selling low and buying back even lower. An important technique followed by many technical traders and investors is to alway trade with the trend - so if the shares are trending up you go long (buy to open and sell to close); if the shares are trending down you go short (sell to open and buy to close). \"\"But even if the stock price goes up, why are we guaranteed that there is some demand for it?\"\" There is never any guarantees in investing or trading. The only guarantee in life is death, but that's a different subject. There is always some demand for a share or else the share price would be zero or it would never sell, i.e zero liquidity. There are many reasons why there could be demand for a rising share price - fundamental analysis could indicated that the shares are valued much higher than the current price; technical analysis could indicate that the trend will continue; greed could get the better of peoples' emotion where they think all my freinds are making money from this stock so I should buy it too (just to name a few). \"\"After all, it's more expensive now.\"\" What determines if a stock is expensive? As Joe mentioned, was Apple expensive at $100? People who bought it at $50 might think so, but people who bought at $600+ would think $100 is very cheap. On the other hand a penny stock may be expensive at $0.20. \"\"It would make sense if we can sell the stock back into the company for our share of the earnings, but why would other investors want it when the price has gone up?\"\" You don't sell your stocks back to the company for a share of the earnings (unless the company has a share-buy-back arrangement in place), you get a share of the earnings by getting the dividends the company distributes to shareholders. Other investor would want to buy the stock when the price has gone up because they think it will go up further and they can make some money out of it. Some of the reasons for this are explained above.\""
},
{
"docid": "428017",
"title": "",
"text": "\"I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been \"\"priced-in\"\" to the most recent share trade.\""
},
{
"docid": "12367",
"title": "",
"text": "I think the simple answer to your question is: Yes, when you sell, that drives down the price. But it's not like you sell, and THEN the price goes down. The price goes down when you sell. You get the lower price. Others have discussed the mechanics of this, but I think the relevant point for your question is that when you offer shares for sale, buyers now have more choices of where to buy from. If without you, there were 10 people willing to sell for $100 and 10 people willing to buy for $100, then there will be 10 sales at $100. But if you now offer to sell, there are 11 people selling for $100 and 10 people buying for $100. The buyers have a choice, and for a seller to get them to pick him, he has to drop his price a little. In real life, the market is stable when one of those sellers drops his price enough that an 11th buyer decides that he now wants to buy at the lower price, or until one of the other 10 buyers decides that the price has gone too low and he's no longer interested in selling. If the next day you bought the stock back, you are now returning the market to where it was before you sold. Assuming that everything else in the market was unchanged, you would have to pay the same price to buy the stock back that you got when you sold it. Your net profit would be zero. Actually you'd have a loss because you'd have to pay the broker's commission on both transactions. Of course in real life the chances that everything else in the market is unchanged are very small. So if you're a typical small-fry kind of person like me, someone who might be buying and selling a few hundred or a few thousand dollars worth of a company that is worth hundreds of millions, other factors in the market will totally swamp the effect of your little transaction. So when you went to buy back the next day, you might find that the price had gone down, you can buy your shares back for less than you sold them, and pocket the difference. Or the price might have gone up and you take a loss."
},
{
"docid": "468016",
"title": "",
"text": "In general, you don't need to keep bills around for more than a few months. The exceptions are: anything that was itemized on your federal or state income taxes. You want to keep these around for seven years in case of an audit by the IRS brokerage statements buying/selling stocks, bonds, mutual funds, etc. You need to know how much you bought a stock for when you sell it, to calculate capital gains. information relating to major renovations to your house. This can be used to reduce the gain when you sell. anything relating to a business, again for tax and valuation purposes. When selling a house, the last years worth of utility bills might be useful, to show potential buyers. However, I get almost all of my recurring bills electronically now. They get saved and backed up. In that case, its easier to just keep everything than to selectively delete stuff. It takes very little space, is easier to find things than in paper files, and is much less hassle when moving than boxes full of paper."
},
{
"docid": "307008",
"title": "",
"text": "\"I think you've got basics, but you may have the order / emphasis a bit wrong. I've changed the order of the things you've learned in to what I think is the most important to understand: Owning a stock is like owning a tiny chunk of the business Owning stock is owning a tiny chunk of the business, it's not just \"\"like\"\" it. The \"\"tiny chunks\"\" are called shares, because that is literally what they are, a share of the business. Sometimes shares are also called stocks. The words stock and share are mostly interchangeable, but a single stock normally means your holding of many shares in a business, so if you have 100 shares in 1 company, that's a stock in that company, if you then buy 100 shares in another company, you now own 2 stocks. An investor seeks to buy stocks at a low price, and sell when the price is high. Not necessarily. An investor will buy shares in a company that they believe will make them a profit. In general, a company will make a profit and distribute some or all of it to shareholders in the form of dividends. They will also keep back a portion of the profit to invest in growing the company. If the company does grow, it will grow in value and your shares will get more valuable. Price (of a stock) is affected by supply/demand, volume, and possibly company profits The price of a share that you see on a stock ticker is the price that people on the market have exchanged the share for recently, not the price you or I can buy a share for, although usually if people on the market are buying and selling at that price, someone will buy or sell from you at a similar sort of price. In theory, the price will be the companies total value, if you were to own the whole thing (it's market capitalisation) divided by the total number of shares that exist in that company. The problem is that it's very difficult to work out the total value of a company. You can start by counting the different things that it owns (including things like intellectual property and the knowledge and experience of people who work there), subtract all the money it owes in loans etc., and then make an allowance for how much profit you expect the company to make in the future. The problem is that these numbers are all going to be estimates, and different peoples estimates will disagree. Some people don't bother to estimate at all. The market makers will just follow supply and demand. They will hold a few shares in each of many companies that they are interested in. They will advertise a lower price that they are willing to buy at and a higher price that they will sell at all the time. When they hold a lot of a share, they will price it lower so that people buy it from them. When they start to run out, they will price it higher. You will never need to spend more than the market makers price to buy a share, or get less than the market makers price when you come to sell it (unless you want to buy or sell more shares than they are willing to). This is why stock price depends on supply and demand. The other category of people who don't care about the companies they are trading are the high speed traders. They just look at information like the past price, the volume (total amount of shares being exchanged on the market) and many other statistics both from the market and elsewhere and look for patterns. You cannot compete with these people - they do things like physically locate their servers nearer to the stock exchanges buildings to get a few milliseconds time advantage over their competitors to buy shares quicker than them.\""
},
{
"docid": "100128",
"title": "",
"text": "Here's an excerpt from the Charles Schwab website which I think will help evaluate your position: The simple answer to your question is no, the value of a gift of stock for gift tax liability is NOT the donor's cost basis, but rather the fair market value of the stock at the time the gift is given. So let's say you purchased 100 shares of XYZ stock at $50 a share. Your cost basis is $5,000. Now the stock is $80 a share and you give it as a gift. The value of your gift for gift tax purposes is $8,000. In 2015, you can give up to $14,000 to an unlimited number of individuals each year without paying a gift tax or even reporting the gifts. If you give over that amount to any individual, however, you must report the gift on your tax return, but you don't have to pay taxes until you give away more than the current lifetime limit of $5,430,000—for the amount above and beyond $14,000 per person per year. So in the example above, there would be no gift tax liability. However, if the stock happened to be $150 a share, the value of the gift would be $15,000. You'd then have to report it and $1,000 would be applied toward your $5,430,000 lifetime exclusion. You will need to pay a gift tax on the current value of the stock. I'm not familiar with the tax laws in India, but if your brother was in the US, he wouldn't pay taxes on that gift until he sells the stock. The recipient doesn’t have to worry about gift taxes. It's when the recipient decides to sell the stock that the issue of valuation comes up—for income taxes. And this is where things can get a bit more complicated. In general, when valuing a gift of stock for capital gains tax liability, it's the donor's cost basis and holding period that rules. As an example, let's say you receive a gift of stock from your grandfather. He bought it for $10 a share and it's worth $15 a share on the day you receive it. If you then sell the stock, whether for a gain or a loss, your cost basis will be the same as your grandfather’s: $10 per share. Sell it at $25 and you'll pay tax (at the short- or long-term rate, depending on how long he owned the stock) on a gain of $15 a share; sell it at $8 and your capital loss will be $2 a share. Ultimately, with a gift this large that also crosses international borders, you really should hire a professional who is experienced with these types of transactions. Their fees/commission will be completely offset by the savings in risk and paperwork. http://www.schwab.com/public/schwab/nn/articles/How-Do-You-Value-a-Gift-of-Stock-It-Depends-on-Whether-You-re-the-Giver-or-the-Receiver"
},
{
"docid": "499811",
"title": "",
"text": "Shorting Stocks: Borrowing the shares to sell now. Then buying them back when the price drops. Risk: If you are wrong the stock can go up. And if there are a lot of people shorting the stock you can get stuck in a short squeeze. That means that so many people need to buy the stock to return the ones they borrowed that the price goes up even further and faster. Also whoever you borrowed the stock from will often make the decision to sell for you. Put options. Risk: Put values don't always drop when the underlying price of the stock drops. This is because when the stock drops volatility goes up. And volatility can raise the value of an option. And you need to check each stock for whether or not these options are available. finviz lists whether a stock is optional & shortable or not. And for shorting you also need to find a broker that owns shares that they are willing to lend out."
}
] |
8507 | When to sell a stock? | [
{
"docid": "370995",
"title": "",
"text": "\"My theory is that for every stock you buy, you should have an exit strategy and follow it. It is too hard to let emotions rule if you let your default strategy be \"\"let's see what happens.\"\" and emotional investing will almost never serve you well. So before buying a stock, set a maximum loss and maximum gain that you will watch for on the stock, and when it hits that number sell. At the very least, when it hits one of your numbers, consciously make a decision that you are effectively buying it again at the current price if you decide to stay in. When you do this, set a new high and low price and repeat the above strategy.\""
}
] | [
{
"docid": "575662",
"title": "",
"text": "\"I can sell a PUT on it a bit out of the money, and I seemingly \"\"win\"\" either way: i.e. make money on selling the PUT, and either I get to pick up the stock cheaper if XYZ goes down, or the PUT expires worthless. In 2008, I see a bank stock (pick one) trading at $100. I buy that put from you, a $90 strike, and pay you $5 for the option. The bank blew up, and trades for a dollar. I then buy the $1 share and sell it to you for $90. You made $500 on the sale of the put, but lost $8900 when it went bad. You don't win either way, there is a chart you can construct (or a table) showing your profit or loss for every price of the underlying stock. When selling a put, you need to know what happens if the stock goes to zero since the odds of such an occurrence is non-trivial. A LEAP is already an option. With the new coding scheme for options, I'm not sure there's really any distinction between a LEAP and standard option, the LEAP just starts with a long-till-expiration time. There are no options on LEAPS that I am aware of, as they are options already.\""
},
{
"docid": "58875",
"title": "",
"text": "\"Yes, this is possible with some companies. When you buy shares of stock through a stock broker, the shares are kept in \"\"street name.\"\" That means that the shares are registered to the broker, not to you. That makes it easy to sell the stock later. The stock broker keeps track of who actually owns which shares. The system works well, and there are legal protections in place to protect the investors' assets. You can request that your broker change the stock to your name and request a certificate from the company. However, companies are no longer required to do this, and some won't. Your broker will charge you a fee for this service. Alternatively, if you really only want one share for decoration, there are companies that specialize in selling shares of stock with certificates. Two of them are giveashare.com and uniquestockgift.com, which offer one real share of stock with a stock certificate in certain popular companies. (Note: I have no experience with either one.) Some companies no longer issue new stock certificates; for those, these services sell you a replica stock certificate along with a real share of electronic stock. (This is now the case for Disney and Apple.) With your stock certificate, you are an actual official stockholder, entitled to dividends and a vote at the shareholder meeting. If this is strictly an investment for you, consider the advantages of street name shares: As to your question on buying stock directly from a company and bypassing a broker altogether, see Can I buy stocks directly from a public company?\""
},
{
"docid": "499811",
"title": "",
"text": "Shorting Stocks: Borrowing the shares to sell now. Then buying them back when the price drops. Risk: If you are wrong the stock can go up. And if there are a lot of people shorting the stock you can get stuck in a short squeeze. That means that so many people need to buy the stock to return the ones they borrowed that the price goes up even further and faster. Also whoever you borrowed the stock from will often make the decision to sell for you. Put options. Risk: Put values don't always drop when the underlying price of the stock drops. This is because when the stock drops volatility goes up. And volatility can raise the value of an option. And you need to check each stock for whether or not these options are available. finviz lists whether a stock is optional & shortable or not. And for shorting you also need to find a broker that owns shares that they are willing to lend out."
},
{
"docid": "239998",
"title": "",
"text": "Owning a stock via a fund and selling it short simultaneously should have the same net financial effect as not owning the stock. This should work both for your personal finances as well as the impact of (not) owning the shares has on the stock's price. To use an extreme example, suppose there are 4 million outstanding shares of Evil Oil Company. Suppose a group of concerned index fund investors owns 25% of the stock and sells short the same amount. They've borrowed someone else's 25% of the company and sold it to a third party. It should have the same effect as selling their own shares of the company, which they can't otherwise do. Now when 25% of the company's stock becomes available for purchase at market price, what happens to the stock? It falls, of course. Regarding how it affects your own finances, suppose the stock price rises and the investors have to return the shares to the lender. They buy 1 million shares at market price, pushing the stock price up, give them back, and then sell another million shares short, subsequently pushing the stock price back down. If enough people do this to effect the share price of a stock or asset class, the managers at the companies might be forced into behaving in a way that satisfies the investors. In your case, perhaps the company could issue a press release and fire the employee that tried to extort money from your wife's estate in order to win your investment business back. Okay, well maybe that's a stretch."
},
{
"docid": "251536",
"title": "",
"text": "You should constantly look at your investment portfolio and sell based on future outlook. Don't get emotional. Selling a portfolio of stocks at once without a real reason is foolish. If you have a stock that's up, and circumstances make you think it's going to go up further, hold it. If prospects are not so good, sell it. Also, you don't have to buy or sell everything at once. If you've made money on a stock and want to realize those gains, sell blocks as it goes up. Stay diversified, monitor your portfolio every week and keep a reserve of cash to use when opportunity strikes. If you have more stocks or funds than you can keep current on every week, you should consolidate your positions over time."
},
{
"docid": "468016",
"title": "",
"text": "In general, you don't need to keep bills around for more than a few months. The exceptions are: anything that was itemized on your federal or state income taxes. You want to keep these around for seven years in case of an audit by the IRS brokerage statements buying/selling stocks, bonds, mutual funds, etc. You need to know how much you bought a stock for when you sell it, to calculate capital gains. information relating to major renovations to your house. This can be used to reduce the gain when you sell. anything relating to a business, again for tax and valuation purposes. When selling a house, the last years worth of utility bills might be useful, to show potential buyers. However, I get almost all of my recurring bills electronically now. They get saved and backed up. In that case, its easier to just keep everything than to selectively delete stuff. It takes very little space, is easier to find things than in paper files, and is much less hassle when moving than boxes full of paper."
},
{
"docid": "311782",
"title": "",
"text": "If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them. Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it. When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime). However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules. This practice is known as tax loss harvesting."
},
{
"docid": "314478",
"title": "",
"text": "\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\""
},
{
"docid": "480967",
"title": "",
"text": "\"Aganju has mentioned put options, which are one good possibility. I would suggest considering an even easier strategy: short selling. Technically you are borrowing the stock from someone and selling it. At some point you repurchase the stock to return to the lender (\"\"covering your short\"\"). If the stock price has fallen, then when you repurchase it, it will be cheaper and you keep the profit. Short selling sounds complicated but it's actually very easy--your broker takes care of all the details. Just go to your brokerage and click \"\"sell\"\" or \"\"sell short.\"\" You can use a market or limit order just like you were selling something you own. When it sells, you are done. The money gets credited to your account. At some point (after the price falls) you should repurchase it so you don't have a negative position any more, but your brokerage isn't going to hassle you for this unless you bought a lot and the stock price starts rising. There will be limits on how much you can short, depending on how much money is in your account. Some stocks (distressed and small stocks) may sometimes be hard to short, meaning your broker will charge you a kind of interest and/or may not be able to complete your transaction. You will need a margin account (a type of brokerage account) to either use options or short sell. They are easy to come by, though. Note that for a given amount of starting money in your account, puts can give you a much more dramatic gain if the stock price falls. But they can (and often do) expire worthless, causing you to lose all money you have spent on them. If you want to maximize how much you make, use puts. Otherwise I'd short sell. About IPOs, it depends on what you mean. If the IPO has just completed and you want to bet that the share price will fall, either puts or short selling will work. Before an IPO you can't short sell and I doubt you would be able to buy an option either. Foreign stocks? Depends on whether there is an ADR for them that trades on the domestic market and on the details of your brokerage account. Let me put it this way, if you can buy it, you can short sell it.\""
},
{
"docid": "121886",
"title": "",
"text": "\"The price of a company's stock at any given moment is established by a ratio of buyers to sellers. When the sellers outnumber the buyers at a given price, the stock price drops until there are enough people willing to buy the stock to balance the equation again. When there are more people wanting to purchase a stock at a given price than people willing to sell it, the stock price rises until there are enough sellers to balance things again. So given this, it's easy to see that a very large fund (or collection of very large funds) buying or selling could drive the price of a stock in one direction or another (because the sheer number of shares they trade can tip the balance one way or another). What's important to keep in mind though is that the ratio of buyers to sellers at any given moment is determined by \"\"market sentiment\"\" and speculation. People selling a stock think the price is going down, and people buying it think it's going up; and these beliefs are strongly influenced by news coverage and available information relating to the company. So in the case of your company in the example that would be expected to triple in value in the next year; if everyone agreed that this was correct then the stock would triple almost instantly. The only reason the stock doesn't reach this value instantly is that the market is split between people thinking this is going to happen and people who think it won't. Over time, news coverage and new information will cause one side to appear more correct than the other and the balance will shift to drive the price up or down. All this is to say that YES, large funds and their movements CAN influence a stock's trading value; BUT their movements are based upon the same news, information, analysis and sentiment as the rest of the market. Meaning that the price of a stock is much more closely tied to news and available information than day to day trading volumes. In short, buying good companies at good prices is just as \"\"good\"\" as it's ever been. Also keep in mind that the fact that YOU can buy and sell stocks without having a huge impact on price is an ADVANTAGE that you have. By slipping in or out at the right times in major market movements you can do things that a massive investment fund simply cannot.\""
},
{
"docid": "317365",
"title": "",
"text": "\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \"\"market\"\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\""
},
{
"docid": "350110",
"title": "",
"text": "\"Because I feel the answers given do not wholely represent the answer you are expecting, I'd like to re-iterate but include more information. When you own stock in a company, you OWN some of that company. When that company makes profit, you usually receive a dividend of those profits. If you owned 1% of the company stock, you (should) recieve 1% of the profits. If your company is doing well, someone might ask to buy your stock. The price of that stock is (supposed) to be worth a value representative of the expected yield or how much of a dividend you'd be getting. The \"\"worth\"\" of that, is what you're betting on when you buy the stock, if you buy $100 worth of coca cola stock and they paid $10 as dividend, you'd be pretty happy with a 10% growth in your wealth. Especially if the banks are only playing 3%. So maybe some other guy sees your 10% increase and thinks, heck.. 10% is better than 3%, if I buy your stocks, even as much as 6% more than they are worth ($106) I'm still going to be better off by that extra 1% than I would be if I left it in the bank.. so he offers you $106.. and you think.. awesome.. I can sell my $100 of cola shares now, make a $6 profit and buy $100 worth of some other share I think will pay a good dividend. Then cola publicises their profits, and they only made 2% profit, that guy that bought your shares for $106, only got a dividend of $2 (since their 'worth' is still $100, and effectively he lost $4 as a result. He bet on a better than 10% profit, and lost out when it didn't hit that. Now, (IMHO) while the stock market was supposed to be about buying shares, and getting dividends, people (brokers) discovered that you could make far more money buying and selling shares for 'perceived value' rather than waiting for dividends to show actual value, especially if you were not the one doing the buying and selling (and risk), but instead making a 0.4% cut off the difference between each purchase (broker fees). So, TL;DR, Many people have lost money in the market to those who made money from them. But only the traders and gamblers.\""
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "48718",
"title": "",
"text": "\"You can hold a wide variety of investments in your TFSA account, including stocks such as SLF. But if the stocks are being purchased via a company stock purchase plan, they are typically deposited in a regular margin account with a brokerage firm (a few companies may issue physical stock certificates but that is very rare these days). That account would not be a TFSA but you can perform what's called an \"\"in-kind\"\" transfer to move them into a TFSA that you open with either the same brokerage firm, or a different one. There will be a fee for the transfer - check with the brokerage that currently holds the stock to find out how costly that will be. Assuming the stock gained in value while you held it outside the TFSA, this transfer will result in capital gains tax that you'll have to pay when you file your taxes for the year in which the transfer occurs. The tax would be calculated by taking the value at time of transfer, minus the purchase price (or the market value at time of purchase, if your plan allowed you to buy it at a discounted price; the discounted amount will be automatically taxed by your employer). 50% of the capital gain is added to your annual income when calculating taxes owed. Normally when you sell a stock that has lost value, you can actually get a \"\"capital loss\"\" deduction that is used to offset gains that you made in other stocks, or redeemed against capital gains tax paid in previous years, or carried forward to apply against gains in future years. However, if the stock decreased in value and you transfer it, you are not eligible to claim a capital loss. I'm not sure why you said \"\"TFSA for a family member\"\", as you cannot directly contribute to someone else's TFSA account. You can give them a gift of money or stocks, which they can deposit in their TFSA account, but that involves that extra step of gifting, and the money/stocks become their property to do with as they please. Now that I've (hopefully) answered all your questions, let me offer you some advice, as someone who also participates in an employee stock purchase plan. Holding stock in the company that you work for is a bad idea. The reason is simple: if something terrible happens to the company, their stock will plummet and at the same time they may be forced to lay off many employees. So just at the time when you lose your job and might want to sell your stock, suddenly the value of your stocks has gone way down! So you really should sell your company shares at least once a year, and then use that money to invest in your TFSA account. You also don't want to put all your eggs in one basket - you should be spreading your investment among many companies, or better yet, buy index mutual funds or ETFs which hold all the companies in a certain index. There's lots of good info about index investing available at Canadian Couch Potato. The types of investments recommended there are all possible to purchase inside a TFSA account, to shelter the growth from being taxed. EDIT: Here is an article from MoneySense that talks about transferring stocks into a TFSA. It also mentions the importance of having a diversified portfolio!\""
},
{
"docid": "340607",
"title": "",
"text": "\"The \"\"price\"\" is the price of the last transaction that actually took place. According to Motley Fool wiki: A stock price is determined by what was last paid for it. During market hours (usually weekdays from 9:30AM-4:00PM eastern), a heavily traded issue will see its price change several times per second. A stock's price is, for many purposes, considered unchanged outside of market hours. Roughly speaking, a transaction is executed when an offer to buy matches an offer to sell. These offers are listed in the Order Book for a stock (Example: GOOG at Yahoo Finance). This is actively updated during trading hours. This lists all the currently active buy (\"\"bid\"\") and sell (\"\"ask\"\") orders for a stock, and looks like this: You'll notice that the stock price (again, the last sale price) will (usually*) be between the highest bid and the lowest ask price. * Exception: When all the buy or sell prices have moved down or up, but no trades have executed yet.\""
},
{
"docid": "392481",
"title": "",
"text": "The Owners of stock keep changing with every Buy and Sell. Hence its theoritically possible that everyone makes or loses money. Say the price was $10 when everyone purchased the stock. If the stock is doing good and the markets are good, the stock will move up to $12. Everyone sells the stock to someone else. So all the Old owners have made $2. Now after some period of time, the stock / company is not doing so well, and the markets are bad, so the stock falls to $11, everyone sells. So all the current owners make a loss of $1. However in normal market conditions, there are Owners who have purchased stock at different price points and have held it irrespective of whether the price has gone above their purchase price or below their purchase price."
},
{
"docid": "234361",
"title": "",
"text": "If the price has gone up from what it was when the person bought, he may sell to collect his profit and spend the money. If someone intends to keep his money in the market, the trick is that you don't know when the price of a given stock will peak. If you could tell the future, sure, you'd buy when the stock was at its lowest point, just before it started up, and then sell at the highest point, just before it started down. But no one knows for sure what those points are. If a stockholder really KNOWS that demand is increasing and the price WILL go up, sure, it would be foolish to sell. But you can never KNOW that. (Or if you have some way that you do know that, please call me and share your knowledge.)"
},
{
"docid": "303724",
"title": "",
"text": "\"In my view, it's better to sell when there's a reason to sell, rather than to cap your gains at 8%. I'm assuming you have no such criteria on the other side - i.e. hold your losses down to 8%. That's because what matters is how much you make overall in your portfolio, not how much you make per trade. Example: if you own three stocks, equal amounts - and two go up 20% but one falls 20%. If you sell your gains at 8%, and hold the loser, you have net LOST money. So when do you actually sell? You might say a \"\"fall of 10%\"\" from the last high is good enough to sell. This is called a \"\"trailing\"\" stop, which means if a stock goes from 100 to 120, I'll still hold and sell if it retraces to 108. Needless to say if it had gone from 100 to 90, I would still be out. The idea is to ride the trend for as long as you can, because trends are strong. And keep your trailing stops wide enough for it to absorb natural jiggles, because you may get stopped out of a stock that falls 4% but eventually goes up 200%. Or sell under other conditions: if the earnings show a distinct drop, or the sector falls out of favor. Whenever you decide to sell, also consider what it would take for you to buy the stock back - increased earnings, strong prices, a product release, whatever. Because getting out might seem like a good thing, but it's just as important to not think of it as saying a stock is crappy - it might just be that you had enough of one ride. That doesn't mean you can't come back for another one.\""
},
{
"docid": "167322",
"title": "",
"text": "\"I probably don't understand something. I think you are correct about that. :) The main way money enters the stock market is through investors investing and taking money out. Money doesn't exactly \"\"enter\"\" the stock market. Shares of stock are bought and sold by investors to investors. The market is just a mechanism for a buyer and seller to find each other. For the purposes of this question, we will only consider non-dividend stocks. Okay. When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets. For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say \"\"I own $399 of you, here you go it back, give me an iPhone.\"\" The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.) It is true that when you own stock, you own a small portion of the company. No, you can't just destroy your portion of the company; that wouldn't be fair to the other investors. But you can very easily sell your portion to another investor. The stock market facilitates that sale, making it very easy to either sell your shares or buy more shares. It's not a Ponzi scheme. The only reason your hypothetical share is said to be \"\"worth\"\" $399 is that there is a buyer that wants to buy it at $399. But there is a real company behind the stock, and it is making real money. There are several existing questions that discuss what gives a stock value besides a dividend: The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market. In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do. The value of a stock is simply what a buyer is willing to pay for it. You are correct that there is not always a correlation between the price of a stock and how well the company is doing. But let's look at another hypothetical scenario. Let's say that I started and run a publicly-held company that sells widgets. The company is doing very well; I'm selling lots of widgets. In fact, the company is making incredible amounts of money. However, the stock price is not going up as fast as our revenues. This could be due to a number of reasons: investors might not be aware of our success, or investors might not think our success is sustainable. I, as the founder, own lots of shares myself, and if I want a return on my investment, I can do a couple of things with the large revenues of the company: I can either continue to reinvest revenue in the company, growing the company even more (in the hopes that investors will start to notice and the stock price will rise), or I can start paying a dividend. Either way, all the current stock holders benefit from the success of the company.\""
}
] |
8507 | When to sell a stock? | [
{
"docid": "351615",
"title": "",
"text": "Keep a diary, before buying write down why are you buying the stock, how long do you plan to keep it. Put down reasons when you would sell it. For example you buy a stock because it has lot of cash reserve, it is a focused company, good management. You would sell when management leaves or it starts to use its cash for acquisition that are not fitting in profile."
}
] | [
{
"docid": "392481",
"title": "",
"text": "The Owners of stock keep changing with every Buy and Sell. Hence its theoritically possible that everyone makes or loses money. Say the price was $10 when everyone purchased the stock. If the stock is doing good and the markets are good, the stock will move up to $12. Everyone sells the stock to someone else. So all the Old owners have made $2. Now after some period of time, the stock / company is not doing so well, and the markets are bad, so the stock falls to $11, everyone sells. So all the current owners make a loss of $1. However in normal market conditions, there are Owners who have purchased stock at different price points and have held it irrespective of whether the price has gone above their purchase price or below their purchase price."
},
{
"docid": "438190",
"title": "",
"text": "When a delisting happens, the primary process involves, the firm or the entity, trying to buy everyone out so that they can take the firm private by delisting from the stock exchanges. As the firm wants to buy everyone out, the current owners of the equity have the upper hand. They wouldn't want to sell if they believe the firm has a brighter future. So to compensate the existing holders, the buyer needs to compensate the current holders of any future loss, so they pay a premium to buy them out. Hence the prices offered will be more than the current existing price. And in anticipation of a premium the stocks price rises on this speculation. The other scenario is if the current holder(s) decide no to sell their holdings and are small in number, dependent on exchange regulations, and the buyer manages to de-list the stock, the holders might loose out i.e. they have to find another buyer who wants to buy which becomes difficult as the liquidity for the stock is very minimal. if any stock is DE-listed and then we can not trade on it, In India if the promoters capital is more than 90%, he can get the stock de-listed. There is a process, he has to make an open offer at specified price to minority shareholders. The minority shareholder can refuse to sell. Once the stock is de-listed, it means it cannot be traded on a given exchange. However you can still sell / buy by directly finding a buyer / seller and it's difficult compared to a listed stock."
},
{
"docid": "36251",
"title": "",
"text": "\"To Many question and they are all treated differently. I was wondering how the logistics of interest and dividend payments are handled on assets , such as mortgages, bonds, stocks, What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second? When the company decides to pay dividends, does it literally track down every single owner of that stock and deposit x cents per share in that person's bank account? (This sounds absolutely absurd and seems like it would be a logistical nightmare). In Stocks, the dividends are issued periodically. The dividend date is declared well in advance. As on end of the day on Dividend date, the list of individuals [or entities] who own the stock is available with the Stock-Exchange / Registrar of the companies. To this list the dividends are credited in next few days / weeks via banking channel. Most of this is automated. What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second? On bonds, things work slightly differently. An Bond is initially issued for say 95 [discount of 5%] and payment of 100 after say 5 years. So when the person sells it after an year, he would logically look to get a price of 96. Of course there are other factors that could fetch him a price of 94.50 or 95.50. So every change in ownership factors in the logical rate of interest. The person who submits in on maturity gets 100. For the homeowner, I'm assuming he / she still makes mortgage payments to the initial bank they got the mortgage from, even if the bank no longer \"\"owns\"\" the mortgage. In this case, does the trader on the secondary market who owns the mortgage also come back to that bank to collect his interest payment? This depends on how the original financial institution sells the mortgage to new institutions. Generally the homeowner would keep paying initial financial institution and they would then take a margin and pay the secondary investor. If this was collateral-ized as Mortgage backed security, it is a very different story.\""
},
{
"docid": "12367",
"title": "",
"text": "I think the simple answer to your question is: Yes, when you sell, that drives down the price. But it's not like you sell, and THEN the price goes down. The price goes down when you sell. You get the lower price. Others have discussed the mechanics of this, but I think the relevant point for your question is that when you offer shares for sale, buyers now have more choices of where to buy from. If without you, there were 10 people willing to sell for $100 and 10 people willing to buy for $100, then there will be 10 sales at $100. But if you now offer to sell, there are 11 people selling for $100 and 10 people buying for $100. The buyers have a choice, and for a seller to get them to pick him, he has to drop his price a little. In real life, the market is stable when one of those sellers drops his price enough that an 11th buyer decides that he now wants to buy at the lower price, or until one of the other 10 buyers decides that the price has gone too low and he's no longer interested in selling. If the next day you bought the stock back, you are now returning the market to where it was before you sold. Assuming that everything else in the market was unchanged, you would have to pay the same price to buy the stock back that you got when you sold it. Your net profit would be zero. Actually you'd have a loss because you'd have to pay the broker's commission on both transactions. Of course in real life the chances that everything else in the market is unchanged are very small. So if you're a typical small-fry kind of person like me, someone who might be buying and selling a few hundred or a few thousand dollars worth of a company that is worth hundreds of millions, other factors in the market will totally swamp the effect of your little transaction. So when you went to buy back the next day, you might find that the price had gone down, you can buy your shares back for less than you sold them, and pocket the difference. Or the price might have gone up and you take a loss."
},
{
"docid": "22304",
"title": "",
"text": "This is rather simple if you understand a trailing limit order but to be sure I am going to explain a limit, trailing limit, and trailing LIT order. I am going to use an example assuming that you already own a stock and want to sell it. Limit Order I place an order to sell 100 PG @ 65.00. This order will only be executed if the bid price of PG is at $65.0000 or greater. Trailing Limit Order I place an order to sell 100 CAT @ 85.25 with a trailing 5%. This order will be executed when CAT drops 5% below the highest point it reaches after you place this order. So if you place this order at 85.25 and the stock drops 5% to $80.9875, your order will be executed. However, if the stock jumps to $98, the order will not be executed until the stock falls to $93.10. The sell point will go up with the stock and will always remain at the specified % or $ amount behind the high point. Trailing Limit If Touched Order I place an order to sell 100 INTC @ 24.75 with a trailing 5% if the stock touches $25.00. Essentially, this is the same as the trailing limit except that it doesn't take effect until the stock first gets $25.00. I think the page they provide to explain this is confusing because I think they are explaining it from the shorting a stock perspective instead of the selling a stock you want to profit from. I could also be wrong in how I understand it. My advice would be to either call their customer support and ask for a better explanation or what I do in my finances, avoid things I don't understand."
},
{
"docid": "66834",
"title": "",
"text": "\"It's impossibly difficult to time the market. Generally speaking, you should buy low and sell high. Picking 25% as an arbitrary ceiling on your gains seems incorrect to me because sometimes you'll want to hold a stock for longer or sell it sooner, and those decisions should be based on your research (or if you need the money), not an arbitrary number. To answer your questions: If the reasons you still bought a stock in the first place are still valid, then you should hold and/or buy more. If something has changed and you can't find a reason to buy more, then consider selling. Keep in mind you'll pay capital gains taxes on anything you sell that is not in a tax-deferred (e.g. retirement) account. No, it does not make sense to do a wash sale where you sell and buy the same stock. Capital gains taxes are one reason. I'm not sure why you would ever want to do this -- what reasons were you considering? You can always sell just some of the shares. See above (and link) regarding wash sales. Buying more of a stock you already own is called \"\"dollar cost averaging\"\". It's an effective method when the reasons are right. DCA minimizes variance due to buying or selling a large amount of shares at an arbitrary single-day price and instead spreads the cost or sale basis out over time. All that said, there's nothing wrong with locking in a gain by selling all or some shares of a winner. Buy low, sell high!\""
},
{
"docid": "303724",
"title": "",
"text": "\"In my view, it's better to sell when there's a reason to sell, rather than to cap your gains at 8%. I'm assuming you have no such criteria on the other side - i.e. hold your losses down to 8%. That's because what matters is how much you make overall in your portfolio, not how much you make per trade. Example: if you own three stocks, equal amounts - and two go up 20% but one falls 20%. If you sell your gains at 8%, and hold the loser, you have net LOST money. So when do you actually sell? You might say a \"\"fall of 10%\"\" from the last high is good enough to sell. This is called a \"\"trailing\"\" stop, which means if a stock goes from 100 to 120, I'll still hold and sell if it retraces to 108. Needless to say if it had gone from 100 to 90, I would still be out. The idea is to ride the trend for as long as you can, because trends are strong. And keep your trailing stops wide enough for it to absorb natural jiggles, because you may get stopped out of a stock that falls 4% but eventually goes up 200%. Or sell under other conditions: if the earnings show a distinct drop, or the sector falls out of favor. Whenever you decide to sell, also consider what it would take for you to buy the stock back - increased earnings, strong prices, a product release, whatever. Because getting out might seem like a good thing, but it's just as important to not think of it as saying a stock is crappy - it might just be that you had enough of one ride. That doesn't mean you can't come back for another one.\""
},
{
"docid": "102237",
"title": "",
"text": "An instant 15% profit sounds good to me, so you can't go wrong selling as soon as you are able. Here are a couple other considerations: Tax implications: When you sell the stock, you have to pay taxes on the profit (including that 15% discount). The tax rate you pay is based on how long you wait to sell it. If you wait a certain amount of time (usually 2 years, but it will depend on your specific tax codes) before you sell, you could be subject to lower tax rates on that profit. See here for a more detailed description. This might only apply if you're in the US. Since you work for the company, you may be privy to a bit more information about how the company is run and how likely it is to grow. As such, if you feel like the company is headed in the right direction, you may want to hold on the the stock for a while. I am generally wary of being significantly invested in the company you work for. If the company goes south, then the stock price will obviously drop, but you'll also be at risk to be laid off. As such you're exposed much more risk than investing in other companies. This is a good argument to sell the stock and take the 15% profit.* * - I realize your question wasn't really about whether to sell the stock, but more for when, but I felt this was relevant nonetheless."
},
{
"docid": "340730",
"title": "",
"text": "When your options vest, you will have the option to buy your company's stock at a particular price (the strike price). A big part of the value of the option is the difference between the price that your company's stock is trading at, and the strike price of the option. If the price of the company stock in the market is lower than the strike price of the option, they are almost worthless. I say 'almost' because there is still the possibility that the stock price could go up before the options expire. If your company is big enough that their stock is not only listed on an exchange, but there is an active options market in your company's stock, you could get a feel for what they are worth by seeing what the market is willing to buy or sell similar exchange listed options. Once the options have vested, you now have the right to purchase your company's stock at the specified strike price until the options expire. When you use that right, you are exercising the option. You don't have to do that until you think it is worthwhile buying company stock at that price. If the company pays a dividend, it would probably be worth exercising the options sooner, (options don't receive a dividend). Ultimately you are buying your company's stock (albeit at a discount). You need to see if your company's stock is still a good investment. If you think your company has growth prospects, you might want to hold onto the stock. If you think you'd be better off putting your money elsewhere in the market, sell the stock you acquired at a discount and use the money to invest in something else. If there are any additional benefits to holding on to the stock for a period of time (e.g. selling part to fit within your capital gain allowance for that year) you should factor that into your investment decision, but it shouldn't force you to invest in, or remain invested in something you would otherwise view as too risky to invest in. A reminder of that fact is that some employees of Enron invested their entire retirement plans into Enron stock, so when Enron went bankrupt, these employees not only lost their job but their savings for retirement as well..."
},
{
"docid": "490584",
"title": "",
"text": "There are multiple factors at play that drive stock price movements, but one that can be visualized is that stocks can be priced relative to other (similar stocks). When one stock price goes up without fundamental changes (i.e. daily market noise/movements), it becomes slightly more expensive relative to it's peers. Opportunists will sell the now slightly more expensive stock, while others may buying the slightly cheaper (relatively) peer stock. Imagine millions of transactions like this happening throughout each hour, downward selling pressure on a stock that rises too fast in value relative to it's peers or the market, and upward buying pressure on stocks that are relatively cheaper than it's peers. It pushes two stocks towards an equilibrium that is directionally the same. Another way to think of it is lets say tomorrow there is $10B in net new dollars moved into buy orders for stocks that comes from net selling of bonds (this is also partly why bonds/stocks are generally inversely related). That money goes to buys stocks ABC, XYZ, EFG. As the price of those goes up with more buying pressure, stocks JKL, MNO, PQR are relatively a tad cheaper, so some money starts to flow into there. Repeat until you get a large majority of the stocks that buyers are willing to buy and you can see why stocks move in the same direction a lot of times."
},
{
"docid": "234361",
"title": "",
"text": "If the price has gone up from what it was when the person bought, he may sell to collect his profit and spend the money. If someone intends to keep his money in the market, the trick is that you don't know when the price of a given stock will peak. If you could tell the future, sure, you'd buy when the stock was at its lowest point, just before it started up, and then sell at the highest point, just before it started down. But no one knows for sure what those points are. If a stockholder really KNOWS that demand is increasing and the price WILL go up, sure, it would be foolish to sell. But you can never KNOW that. (Or if you have some way that you do know that, please call me and share your knowledge.)"
},
{
"docid": "69487",
"title": "",
"text": "For the same reason you wanted it when you bought it. No-one guarantees that you'll be able to sell the stock you hold, and in fact many people get stuck with stocks they'd like to sell, but no-one is buying. But if investors think there's a profit potential that is not exhausted yet - they'll want to buy the stock."
},
{
"docid": "591694",
"title": "",
"text": "\"The correct answer to this question is: the person who the short sells the stock to. Here's why this is the case. Say we have A, who owns the stock and lends it to B, who then sells it short to C. After this the price drops and B buys the stock back from D and returns it to A. The outcome for A is neutral. Typically stock that is sold short must be held in a margin account; the broker can borrow the shares from A, collect interest from B, and A has no idea this is going on, because the shares are held in a street name (the brokerage's name) and not A. If A decides during this period to sell, the transaction will occur immediately, and the brokerage must shuffle things around so the shares can be delivered. If this is going to be difficult then the cost for borrowing shares becomes very high. The outcome for B is obviously a profit: they sold high first and bought (back) low afterwards. This leaves either C or D as having lost this money. Why isn't it D? One way of looking at this is that the profit to B comes from the difference in the price from selling to C and buying from D. D is sitting on the low end, and thus is not paying out the profit. D bought low, compared to C and this did not lose any money, so C is the only remaining choice. Another way of looking at it is that C actually \"\"lost\"\" all the money when purchasing the stock. After all, all the money went directly from C to B. In return, C got some stock with the hope that in the future C could sell it for more than was paid for it. But C literally gave the money to B, so how could anybody else \"\"pay\"\" the loss? Another way of looking at it is that C buys a stock which then decreases in value. C is thus now sitting on a loss. The fact that it is currently only a paper loss makes this less obvious; if the stock were to recover to the price C bought at, one might conclude that C did not lose the money to B. However, in this same scenario, D also makes money that C could have made had C bought at D's price, proving that C really did lose the money to B. The final way of seeing that the answer is C is to consider what happens when somebody sells a stock which they already hold but the price goes up; who did they lose out on the gain to? The person again is; who bought their stock. The person would buys the stock is always the person who the gain goes to when the price appreciates, or the loss comes out of if the price falls.\""
},
{
"docid": "314478",
"title": "",
"text": "\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\""
},
{
"docid": "575662",
"title": "",
"text": "\"I can sell a PUT on it a bit out of the money, and I seemingly \"\"win\"\" either way: i.e. make money on selling the PUT, and either I get to pick up the stock cheaper if XYZ goes down, or the PUT expires worthless. In 2008, I see a bank stock (pick one) trading at $100. I buy that put from you, a $90 strike, and pay you $5 for the option. The bank blew up, and trades for a dollar. I then buy the $1 share and sell it to you for $90. You made $500 on the sale of the put, but lost $8900 when it went bad. You don't win either way, there is a chart you can construct (or a table) showing your profit or loss for every price of the underlying stock. When selling a put, you need to know what happens if the stock goes to zero since the odds of such an occurrence is non-trivial. A LEAP is already an option. With the new coding scheme for options, I'm not sure there's really any distinction between a LEAP and standard option, the LEAP just starts with a long-till-expiration time. There are no options on LEAPS that I am aware of, as they are options already.\""
},
{
"docid": "89460",
"title": "",
"text": "You put in a market order when you want to sell to whomever raises their hand first. It results in the fastest possible liquidation of your stock. It's appropriate when you need to sell now, regardless of price. An example of when to use it: It's 3:55 PM, the market's going to close in 5 minutes and you need to sell some stocks to make some kind of urgent payment elsewhere. If instead you have a limit order in place, you might not reach the limit price before the market closes, and you'll still own the stock, which might not be what you want."
},
{
"docid": "378173",
"title": "",
"text": "\"If you are already invested in a particular stock, I like JoeTaxpayer's answer. Think about it as if you are re-buying the stocks you own every day you decide to keep them and don't set emotional anchor points about what you paid for them or what they might be worth tomorrow. These lead to two major logical fallacies that investor's commonly fall prey to, Loss Aversion and Sunk Cost, both of which can be bad for your portfolio in the long run. To avert these natural tendencies, I suggest having a game plan before you purchase a stock based on on your investment goals for that stock. For example a combination of one or more of the following: I'm investing for the long term and I expect this stock to appreciate and will hold it until (specific event/time) at which point I will (sell it all/sell it gradually over a fixed time period) right around the time I need the money. I'm going to bail on this stock if it falls more than X % from my purchase price. I'm going to cash out (all/half/some) of this investment if it gains more than x % from my purchase price to lock in my returns. The important thing is to arrive at a strategy before you are invested and are likely to be more emotional than rational. Otherwise, it can be very hard to sell a \"\"hot\"\" stock that has suddenly jumped in price 25% because \"\"it has momentum\"\" (gambler's fallacy). Conversely it can be hard to sell a stock when it drops by 25% because \"\"I know it will bounce back eventually\"\" (Sunk Cost/Loss Aversion Fallacy). Also, remember that there is opportunity cost from sticking with a losing investment because your brain is saying \"\"I really haven't lost money until I give up and sell it.\"\" When logically you should be thinking, \"\"If I move my money to a more promising investment I could get a better return than I am likely to on what I'm holding.\"\"\""
},
{
"docid": "291886",
"title": "",
"text": "\"This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities. You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name. You'll also owe \"\"regular\"\" tax if you draw a salary, etc. The fact that it may be \"\"your\"\" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock. In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind.\""
},
{
"docid": "31037",
"title": "",
"text": "My friend Harry Sit wrote an excellent article No Tax Advantage In RSU. The punchline is this. The day the RSUs vested, it's pretty much you got $XXX in taxable income and then bought the stock at the price at that moment. The clock for long term gain starts the same as if I bought the stock that day. Historical side note - In the insane days of the Dotcom bubble, people found they got RSUs vested and worth, say, $1M. Crash. The shares are worth $100K. The $1M was ordinary income, the basis was $1M and the $900K loss could offset cap gains, not ordinary income above $3000/yr. Let me be clear - the tax bill was $250K+ but the poor taxpayer had $100K in stock to sell to pay that bill. Ooops. This is the origin of the 'sell the day it vests' advice. The shares you own will be long term for capital gain a year after vesting. After the year, be sure to sell those particular shares and you're all set. No different than anyone selling the LT shares of stock when owning multiple lots. But. Don't let the tax tail wag the investing dog. If you feel it's time to sell, you can easily lose the tax savings while watching the stock fall waiting for the clock to tick to one year."
}
] |
8512 | Is it possible to transfer stock I already own into my Roth IRA without having to sell the stock? | [
{
"docid": "32811",
"title": "",
"text": "\"No. A deposit to an IRA must be in cash. A conversion from traditional IRA to Roth can be \"\"in kind\"\" i.e. As a stock transfer. Last, any withdrawals can also be in stock or funds. IRS Publication 590, so important, it's now in 2 sections Part A and Part B, addresses IRA issues such as this as well as most others. By the way - now on page 7 - \"\"Contributions, except for rollover contributions, must be in cash.\"\"\""
}
] | [
{
"docid": "484764",
"title": "",
"text": "I have considered doing the same thing. One idea I have tossed around is investing in a REIT. A REIT is kind of like a Mutual Fund for real-estate. They normally own a large portfolio of real-estate (perhaps apartments, or commercial space, etc) and by owning a share you get some of the upward swing, without the hassle of ownership (i.e. you can sell instantaneously). The REIT sometimes handles the whole lifecycle of property management: finding renters, collecting rent, maintenance, etc. There are a lot of public REITs in the US that you can buy. Another option might be to buy shares in a Home Building company like KB Homes. Yet another option that ties onto your lack of retirement savings is the little known fact that after tax Roth IRA contributions can be withdrawn without penalty! Since 401ks can be rolled over into a Roth IRA (normally you have to leave your employer), in theory a 401k contributions can also be cashed out you just need to be careful about tracking your contributions."
},
{
"docid": "475748",
"title": "",
"text": "Adapted from an answer to a somewhat different question. Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over your 401k assets into an IRA. But I don't think that is the case here. If you had a Traditional 401k, the assets will roll over into a Traditional IRA; if it was a Roth 401k, into a Roth IRA. If you had started a little earlier, you could have considered considered converting part or all of your Traditional IRA into a Roth IRA (assuming that your 2012 taxable income will be smaller this year because you have quit your job). Of course, this may still hold true in 2013 as well. As to which custodian to choose for your Rollover IRA, I recommend investing in a low-cost index mutual fund such as VFINX which tracks the S&P 500 Index. Then, do not look at how that fund is doing for the next thirty years. This will save you from the common error made by many investors when they pull out at the first downturn and thus end up buying high and selling low. Also, do not chase after exchange-traded mutual funds or ETFs (as many will likely recommend) until you have acquired more savvy or interest in investing than you are currently exhibiting. Not knowing which company stock you have, it is hard to make a recommendation about selling or holding on. But since you are glad to have quit your job, you might want to consider making a clean break and selling the shares that you own in your ex-employer's company. Keep the $35K (less the $12K that you will use to pay off the student loan) as your emergency fund. Pay off your student loan right away since you have the cash to do it."
},
{
"docid": "76530",
"title": "",
"text": "\"All transactions within an IRA are irrelevant as far as the taxation of the distributions from the IRA are concerned. You can only take cash from an IRA, and a (cash) distribution from a Traditional IRA is taxable as ordinary income (same as interest from a bank, say) without the advantage of any of the special tax rates for long-term capital gains or qualified dividends even if that cash was generated within the IRA from sales of stock etc. In short, just as with what is alleged to occur with respect to Las Vegas, what happens within the IRA stays within the IRA. Note: some IRA custodians are willing to make a distribution of stock or mutual fund shares to you, so that ownership of the 100 shares of GE, say, that you hold within your IRA is transferred to you in your personal (non-IRA) brokerage account. But, as far as the IRS is concerned, your IRA custodian sold the stock as the closing price on the day of the distribution, gave you the cash, and you promptly bought the 100 shares (at the closing price) in your personal brokerage account with the cash that you received from the IRA. It is just that your custodian saved the transaction fees involved in selling 100 shares of GE stock inside the IRA and you saved the transaction fee for buying 100 shares of GE stock in your personal brokerage account. Your basis in the 100 shares of GE stock is the \"\"cash_ that you imputedly received as a distribution from the IRA, so that when you sell the shares at some future time, your capital gains (or losses) will be with respect to this basis. The capital gains that occurred within the IRA when the shares were imputedly sold by your IRA custodian remain within the IRA, and you don't get to pay taxes on that at capital gains rates. That being said, I would like to add to what NathanL told you in his answer. Your mother passed away in 2011 and you are now 60 years old (so 54 or 55 in 2011?). It is likely that your mother was over 70.5 years old when she passed away, and so she likely had started taking Required Minimum Distributions from her IRA before her death. So, You should have been taking RMDs from the Inherited IRA starting with Year 2012. (The RMD for 2011, if not taken already by your mother before she passed away, should have been taken by her estate, and distributed to her heirs in accordance with her will, or, if she died intestate, in accordance with state law and/or probate court directives). There would not have been any 10% penalty tax due on the RMDs taken by you on the grounds that you were not 59.5 years old as yet; that rule applies to owners (your mom in this case) and not to beneficiaries (you in this case). So, have you taken the RMDs for 2012-2016? Or were you waiting to turn 59.5 before taking distributions in the mistaken belief that you would have to pay a 10% penalty for early wthdrawal? The penalty for not taking a RMD is 50% of the amount not distributed; yes, 50%. If you didn't take RMDs from the Inherited IRA for years 2012-2016, I recommend that you consult a CPA with expertise in tax law. Ask the CPA if he/she is an Enrolled Agent with the IRS: Enrolled Agents have to pass an exam administered by the IRS to show that they really understand tax law and are not just blowing smoke, and can represent you in front of the IRS in cases of audit etc,\""
},
{
"docid": "59600",
"title": "",
"text": "It is really hard to tell where you should withdraw money from. So instead, I'll give you some pointers to make it easier for you to make the decision for yourself, while keeping the answer useful to others as well. I have 3 401ks, ... and some has post tax, non Roth money Why keeping 3 401ks? You can roll them over into an IRA or the one 401k which is still active (I assume here you're not currently employed with 3 different employers). This will also help you avoiding fees for too low balances on your IRAs. However, for the 401k with after tax (not Roth) balance - read the next part carefully. Post tax amounts are your basis. Generally, it is not a good idea to keep post-tax amounts in 401k/IRA, you usually do post-tax contributions to convert them to Roth ASAP. Withdrawing from 401k with basis may become a mess since you'll have to account for the basis portion of each withdrawal. Especially if you pool it with IRAs, so that one - don't rollover, keep it separately to make that accounting easier. I also have several smaller IRAs and Roth IRAs, Keep in mind the RMD requirements. Roth IRAs don't have those, and are non-taxable income, so you would probably want to keep them as long as possible. This is relevant for 401k as well. Again, consolidating will help you with the fees. I'm concerned about having easily accessible cash for emergencies. I suggest keeping Roth amounts for this purpose as they're easily accessible and bear no taxable consequence. Other than emergencies don't touch them for as long as you can. I do have some other money in taxable investments For those, consider re-balancing to a more conservative style, but beware of the capital gains taxes if you have a lot of gains accumulated. You may want consider loss-harvesting (selling the positions in the red) to liquidate investments without adverse tax consequences while getting some of your cash back into the checking account. In any case, depending on your tax bracket, capital gains taxes are generally lower (down to 0%) than ordinary income taxes (which is what you pay for IRA/401k withdrawals), so you would probably want to start with these, after careful planning and taking the RMD and the Social Security (if you're getting any) into account."
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "347651",
"title": "",
"text": "You are young, and therefore have a very long time horizon for investing. Absolutely nothing you do should involve paying any attention to your investments more than once a year (if that). First off, you can only deposit money in an IRA (of whatever kind) if you have taxable income. If you don't, you can still invest, just without the tax benefits of a Roth. My suggestion would be to open an account with a discount brokerage (Schwab, Fidelity, eTrade, etc). The advantage of a brokerage IRA is that you can invest in whatever you want within the account. Then, either buy an S&P 500 or total market index fund within the account, or buy an index-based ETF (like a mutual fund, but trades like a stock). The latter might be better, since many mutual funds have minimum limits, which ETFs do not. Set the account up to reinvest the dividends automatically--S&P 500 yields will far outstrip current savings account yields--and sit back and do nothing for the next 40 or 50 years. Well, except for continuing to make annual contributions to the account, which you should continue to invest in pretty much the same thing until you have enough money (and experience and knowledge) to diversify into bond funds/international funds/individual stocks, etc. Disclaimer: I am not a financial planner. I just manage my own money, and this strategy has mostly kept me from stressing too badly over the last few years of market turmoil."
},
{
"docid": "355373",
"title": "",
"text": "The simplest thing is to transfer to your current account. You'll have the ability to borrow (assuming employer allows) 50% of the balance if you need to, and one less account to worry about. Transferring to an IRA is the other common choice. This offers the ability to convert to a Roth IRA and to invest any way you choose. The 401(k) options may be limited. Without more details, it's tough to decide. For example, if you are in the 15% bracket, the Roth conversion can be a great idea. And the 401(k) might be not so great, just deposit to the match, and then use the IRA. For example."
},
{
"docid": "283692",
"title": "",
"text": "You have three options. If you follow the procedures outlined by the IRA trustee there should not be any problems. There will not be any taxes involved, unless as part of the process you change non-Roth funds to Roth funds, or you don't follow the procedures. In my experience the IRA companies know how to handle the transfer. In some cases the check must be sent to you, and then you send it to the IRA company, but they will tell you exactly how the check is to be made out to. I would start by talking to the IRA trustee they are likely to have seen it all, and can guide you through the process."
},
{
"docid": "325566",
"title": "",
"text": "\"Is investing a good idea with a low amount of money? Yes. I'll take the angle that you CAN invest in penny stocks. There's nothing wrong with that. The (oversimplified) suggestion I would make is to answer the question about your risk aversion. This is the four quadrant (e.g., http://njaes.rutgers.edu:8080/money/riskquiz/) you are introduced to when you first sit down to open your brokerage (stocks) or employer retirement account (401K). Along with a release of liability in the language of \"\"past performance is not an indicator...\"\" (which you will not truly understand until you experience a market crash). The reason I say this is because if you are 100% risk averse, then it is clear which vehicles you want to have in your tool belt; t-bills, CDs, money market, and plain vanilla savings. Absolutely nothing wrong with this. Don't let anyone make you feel otherwise with remarks like \"\"your money is not working for you sitting there\"\". It's extremely important to be absolutely honest with yourself in doing this assessment, too. For example, I thought I was a risk taker except when the market tumbled, I reacted exactly how a knee-jerk investor would. Also, I feel it's not easy to know just how honest you are with yourself as we are humans, and not impartial machines. So the recommendation I would give is to make a strong correlation to casino gambling. In other words, conventional advice is to only take \"\"play money\"\" to the casino. This because you assume you WILL lose it. Then you can enjoy yourself at the casino knowing this is capital that you are okay throwing in the trash. I would strongly caution you to only ever invest capital in the stock market that you characterize as play money. I'm convinced financial advisors, fund managers, friends will disagree. Still, I feel this is the only way you will be completely okay when the market fluctuates -- you won't lose sleep. IF you choose this approach, then you can start investing any time. That five drachma you were going to throw away on lottery tickets? transfer it into your Roth IRA. That twenty yen that you were going to ante in your weekly poker night? transfer it into your index fund. You already got past the investors remorse of (losing) that money. IF you truly accept that amount as play money, then you CAN put it into penny stocks. I'll get lots of criticism here. However, I maintain that once you are truly okay with throwing that cash away (like you would drop it into a slot machine), then it's the same whether you lose it one way or in another investment vehicle.\""
},
{
"docid": "287991",
"title": "",
"text": "I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy."
},
{
"docid": "527010",
"title": "",
"text": "\"the deadline for roth conversions is december 31st. more precisely, roth conversions are considered to have happened in the tax year the distribution was taken. this creates a kind of loop hole for people who do an ira rollover (not a trustee-to-trustee transfer). technically, you can take money out of your traditional ira on december 31st and hold it for 60 days before deciding to roll it over into either another traditional ira or a roth ira. if you decide to put it in another traditional account, it is not a taxable event. but if you decide to put it in a roth account, the \"\"conversion\"\" is considered to have happened in december. unfortunately non-trustee rollovers are tricky. for one, the source trustee will probably take withholding that you will have to make up with non-ira funds. and rollovers are limitted to a certain number per year. also, if you miss the 60-day deadline, you will have to pay an early-withdrawal penalty (with some exceptions). if you really want to push the envelope, you could try to do this with a 60-day-rule extension, but i wouldn't try it. source: https://www.irs.gov/publications/p590a/ch01.html oddly, recharacterizations (basically reverse roth conversions) have a deadline of october 15th of the year after the original roth conversion it is reversing. so, you could do the conversion in december, then you have up to 10 months to change your mind and \"\"undo\"\" the conversion with a \"\"recharacterization\"\". again, this is tricky business. at the very least, you should be aware that the tax calculations for recharacterization are different if you convert the funds into a new empty roth account vs an existing roth account with a previous balance. honestly, if you want to get into the recharacterization business, you can probably save more on taxes by converting in january before 20-month stock market climb rather than simply converting in the year your tax brackets are low. that is the typical recharacterization strategy. source: https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-IRAs-Recharacterization-of-Roth-Rollovers-and-Conversions\""
},
{
"docid": "300698",
"title": "",
"text": "One answer in four days tells you this is a niche, else there should be many replies by now. The bible is McMillan on Options Note - I link to the 1996 edition which starts at 39 cents, the latest revision will set you back $30 used. The word bible says it all, it offers a great course in options, everything you need to know. You don't get a special account for option trading. You just apply to your regular broker, so depending what you wish to do, the amount starts at You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience."
},
{
"docid": "292281",
"title": "",
"text": "\"To answer your question point by point - I'd focus on the last point. The back of my business card - Let's focus on Single. The standard deduction and exemption add to over $10K. I look at this as \"\"I can have $250K in my IRA, and my $10K (4%) annual withdrawal will be tax free. It takes another $36,900 to fill the 10 and 15% brackets. $922K saved pretax to have that withdrawn each year, or $1.17M total. That said, I think that depositing to Roth in any year that one is in the 15% bracket or lower can make sense. I also like the Roth Roulette concept, if only for the fact that I am Google's first search result for that phrase. Roth Roulette is systematically converting and recharacterizing each year the portion of the converted assets that have fallen or not risen as far in relative terms. A quick example. You own 3 volatile stocks, and convert them to 3 Roth accounts. A year later, they are (a) down 20%, (b) up 10%, (c) up 50%. You recharacterize the first two, but keep the 3rd in the Roth. You have a tax bill on say $10K, but have $15K in that Roth.\""
},
{
"docid": "157414",
"title": "",
"text": "Let's look at some of your options: In a savings account, your $40,000 might be earning maybe 0.5%, if you are lucky. In a year, you'll have earned $200. On the plus side, you'll have your $40,000 easily accessible to you to pay for moving, closing costs on your new house, etc. If you apply it to your mortgage, you are effectively saving the interest on the amount for the life of the loan. Let's say that the interest rate on your mortgage is 4%. If you were staying in the house long-term, this interest would be compounded, but since you are only going to be there for 1 year, this move will save you $1600 in interest this year, which means that when you sell the house and pay off this mortgage, you'll have $1600 extra in your pocket. You said that you don't like to dabble in stocks. I wouldn't recommend investing in individual stocks anyway. A stock mutual fund, however, is a great option for investing, but only as a long-term investment. You should be able to beat your 4% mortgage, but only over the long term. If you want to have the $40,000 available to you in a year, don't invest in a mutual fund now. I would lean toward option #2, applying the money to the mortgage. However, there are some other considerations: Do you have any other debts, maybe a car loan, student loan, or a credit card balance? If so, I would forget everything else and put everything toward one or more of these loans first. Do you have an emergency fund in place, or is this $40,000 all of the cash that you have available to you? One rule of thumb is that you have 3 to 6 months of expenses set aside in a safe, easily accessible account ready to go if something comes up. Are you saving for retirement? If you don't already have retirement savings in place and are adding to it regularly, some of this cash would be a great start to a Roth IRA or something like that, invested in a stock mutual fund. If you are already debt free except for this mortgage, you might want to do some of each: Keep $10,000 in a savings account for an emergency fund (if you don't already have an emergency fund), put $5,000 in a Roth IRA (if you aren't already contributing a satisfactory amount to a retirement account), and apply the rest toward your mortgage."
},
{
"docid": "480423",
"title": "",
"text": "\"The backdoor Roth IRA contribution has been possible for a few years now and is fairly widely known. The IRS hasn't said anything negative about it. An answer to my question here mentions that it could hypothetically be disallowed through the \"\"step transaction doctrine\"\", although that is the only time I have heard that possibility raised. For some background, the income limit on Roth conversions was removed as a \"\"revenue-offsetting provision\"\" of the Tax Increase Prevention and Reconciliation Act of 2005. They want people who have deducted contributions in Traditional IRAs to convert to Roth and pay taxes now rather than waiting many years until retirement. Conversely, people performing the backdoor Roth IRA contribution have already paid taxes on that money and it's just preventing them from having to pay taxes many years later. It's easy to see how Congress would find this a satisfactory exchange.\""
},
{
"docid": "68609",
"title": "",
"text": "\"I was told if I moved my 401k into a Roth IRA that school purposes is one reasons you can withdraw money without having to pay a tax. Incorrect. You will need to pay tax on the amount converted, since a 401(k) is pre-tax and a Roth IRA is after-tax. It will be added to your regular income, so you will pay tax at your marginal tax rate. is there any hidden tax or fee at all for withdrawing money from a Roth IRA for educational purposes? You still will need to pay the tax on the amount converted, but you'll avoid the 10% penalty for early withdrawal. I know that tuition, books and fees are covered for educational purposes. Can I take out of my Roth IRA for living expenses while I'm attending school? Rent, gas, food, etc... Room and board, yes, so long as you are half-time, but not gas/food Possibly only room and board for staying on-campus, but I'm not certain, although I doubt you could call your normal house payment \"\"education expense\"\" with my 401k being smaller, would it just be better to go ahead and cash the whole thing and just pay the tax and use it for whatever I need it for? What is the tax if I just decide to cash the whole thing in? You pay your marginal tax rate PLUS a 10% penalty for early withdrawal. So no, this is probably not a wise move financially unless you're on the verge of bankruptcy or foreclosure (where distress costs are much higher then the 10% penalty) I can't answer the other questions regarding grants; I would talk to the financial aid department at your school. Bottom line, transferring your 401(k) is very likely a bad idea unless you can afford to pay the tax in cash (meaning without borrowing). My advice would be to leave your 401(k) alone (it's meant for retirement not for school or living expenses) Ideally, you should pay for as much as you can out of cash flow, and don't take out more student loans. That may mean taking fewer classes, getting another part time job, finding a different (cheaper) school, applying for more grants and scholarships, etc. I would not in ANY circumstance cash out your 401(k) to pay for school. You'll be much worse off in the long run, and there are much cheaper ways to get money.\""
},
{
"docid": "353337",
"title": "",
"text": "\"Whoa. These things are on two dimensions. It's like burger and fries, you can also have chicken sandwich and fries, or burger and onion rings. You can invest in an taxable brokerage account and/or an IRA. And then, within each of those... You can buy index funds and/or anything else. All 4 combinations are possible. If someone says otherwise, take your money and run. They are a shady financial \"\"advisor\"\" who is ripping you off by steering you only into products where they get a commission. Those products are more expensive because the commission comes out of your end. Not to mention any names. E.J. If you want financial advice that is honest, find a financial advisor who you pay for his advice, and who doesn't sell products at all. Or, just ask here. But I would start by listening to Suze Orman, Dave Ramsey, whomever you prefer. And read John Bogle's book. They can tell you all about the difference between money market, bonds, stocks, managed mutual funds (ripoff!) and index funds. IRA accounts, Roth IRA accounts and taxable accounts are all brokerage accounts. Within them, you can buy any security you want, including index funds. The difference is taxation. Suppose you earn $1000 and choose to invest it however Later you withdraw it and it has grown to $3000. Investing in a taxable account, you pay normal income tax on the $1000. When you later withdraw the $3000, you pay a tax on $2000 of income. If you invested more than a year, it is taxed at a much lower \"\"capital gains\"\" tax rate. With a traditional IRA account, you pay zero taxes on the initial $1000. Later, when you take the money out, you pay normal income tax on the full $3000. If you withdrew it before age 59-1/2, you also pay a 10% penalty ($300). With a Roth IRA account, you pay normal income tax on the $1000. When you withdraw the $3000 later, you pay NOTHING in taxes. Provided you followed the rules. You can invest in almost anything inside these accounts: Money market funds. Terrible return. You won't keep up with the market. Bonds. Low return but usually quite safe. Individual stocks. Good luck. Managed mutual funds. You're paying some genius stock picker to select high performing stocks. He has a huge staff of researchers and good social connections. He also charges you 1.5% per year overhead as an \"\"expense ratio\"\", which is a total loss to you. The fact is, he can usually pick stocks better than a monkey throwing darts. But he's not 1.5% better! Index funds. These just shrug and buy every stock on the market. There's no huge staff or genius manager, just some intern making small adjustments every week. As such, the expense ratio is extremely small, like 0.1%. If any of these investments pay dividends, you must pay taxes on them when they're issued, if you're not in an IRA account. This problem gets fixed in ETF's. Index ETF's. These are index funds packaged to behave like stocks. Dividends increase your stock's value instead of being paid out to you, which simplifies your taxes. If you buy index funds outside of an IRA, use these. Too many other options to get into here.\""
},
{
"docid": "231227",
"title": "",
"text": "The most important thing is to keep in mind the deadline. If you want to have it count for 2016, you need to open the account and transfer the funds by tax day. Don't wait until the last day to do it, or you could run out of time. Setting up the initial account, and them verifying your information and transferring the money could take a few days. First decide how much of a lump sum you want to invest initially. This will determine some of your options because the mutual fund will have a minimum initial investment. Many of the funds will allow subsequent investments to be smaller. The beauty of a IRA or Roth IRA is that if the fund you want is out of reach for this initial investment in a few years you can transfer the money into another fund or even another fund family without having to worry about tax issues. Now decide on your risk level and you time horizon. Because you said you are student and you want a Roth IRA, it is assumed that you will not need this money for 4+ decades; so you can and should be willing to be a little more risky. As NathanL said an index fund is a great idea. Many also advise an aged based fund. My kids found that when they made their initial investments the age based funds were the only one with a low enough initial investment for their first few years. Then pick a fund family based on the general low fees, and a large mix of options. The best thing is that in a few years as you have more money and more options, you can adjust your choices."
},
{
"docid": "387338",
"title": "",
"text": "With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k."
}
] |
8513 | Buy on dip when earnings fail? | [
{
"docid": "270573",
"title": "",
"text": "What is cheap? A stock may fall from $20 per share to $10 per share, but it may have gone from making a $100M profit last year to a $100M loss this year. So now at $10 per share it may still be considered expensive. You need to be very careful when to consider that a stock is cheap or not, you'll have to look at more than just the share price."
}
] | [
{
"docid": "529796",
"title": "",
"text": "\"If you deposit the money in your account, it will count against the gift tax exclusion for you, not your daughter. As such, you should open a bank account for your daughter. Assuming she already has a social security number, this will not be complicated. Otherwise, apply for one, as mhoran notes before the end of the year. The kind of account you should open depends on the purpose of the money, but likely it should be opened as a Uniform Gift to Minors Act, or Uniform Transfer to Minors Act, account. This means it is your daughter's account (not yours), but you designate one or more custodians who are the ones who can actually make withdrawals. Any money in this account must be spent in your daughter's interest, but it's not required to be spent with her approval (even as an older child) nor on a specific thing (it's not just college money, like a 529 account is). Before you do so, you should consider how to set up custodianship. Some parents simply make themselves custodians; some ask another relative to be custodian or joint custodian, or even someone like a godparent or close trusted friend. Having a joint custodian is helpful if you feel like it may be challenging to not dip into the account if you had financial difficulties (as both custodians must sign off on withdrawals). Finally, you should consider whether you want this to be a simple bank account, or whether you might want to consider something like Vanguard or Fidelity investment account. If it's likely to contain over $10,000 or whatever the reduced/no fee limit is at the investment firm you choose, it may well be worth your while to do this as you can earn significant returns fairly safely, assuming the money is intended for longer term use (for college or other later-in-life uses). Note that for tax purposes, this gift will count for 2016 taxes regardless of when you actually set up the account, as you have \"\"constructively received\"\" the gift when the check was given to you. So there's no rush to work this out before the end of the year; you can still deposit it next year. However, your daughter needs a SSN to be able to be claimed as a dependent on your taxes, so that at least needs doing before the end of the year.\""
},
{
"docid": "553348",
"title": "",
"text": "Wrong message. I initially thought this was true, but it's not as cut and dry as people want to make it seem like it is. People usually try to say that he's just a bad CEO for Sears, and while this is completely true, the long game isn't as cut and dry. By buying a majority of Sears, he's using his power to authorize the sale of properties to himself, which he's then re-leasing back out when Sears fails to pay him (as Sears' landlord). Lampert isn't looking to fix the house -- he's looking to put the homeowner out of business, buy it, re-lease it to the homeowner, hike up the rates, then when the homeowner can't pay, re-lease it back out to someone else. It's very tangled and that's exactly why shareholders are going to lose big time when Sears declares Chapter 7 bankruptcy."
},
{
"docid": "391361",
"title": "",
"text": "\"I am a bit confused here as to how a 4K loan will negatively effect your credit score if payments are made on time. FICO scores are based upon how well you borrow. If you borrow, pay back on time, your score will not go down. Perhaps a bit in the short run when you first secure the loan, but that should come back quickly. In the long run it will help improve your score which seems like it would be more important to you. Having the provider finance your loan will probably not show up on your credit unless you fail to pay and they send to collections. If the score is so important to you, which I think is somewhat unwise, then use a credit card. With a 750 you should be able to get a pretty good rate, but assume it is 18%. In less then 9 months you will have it paid off, paying about $293 in interest. You could consider that a part of the cost of doing business for maintaining a high credit score. Again not what I would advise, but it might meet your needs. One alternative is go with lending club. With that kind of score, you are looking at 7% or so. At $500 a month, you are still looking at just over 8 months and paying about $100 in interest. Much less money for improving your credit score. Edit based upon the comment: \"\"My understanding is that using a significant portion of your available credit balance is bad for your credit, even if you pay your bills on time.\"\" Define bad. As I said it might go down slightly in the short term. In three months you will have almost 33% of the loan paid off, which is significantly lower then the original balance. If you go the credit card route, you may be approved for quite a bit more then the 4000, which may not move the needle at all. Are you planning on buying a home in the next 90 days? If not, why does a small short term dip matter? Will your life really be effected if your score goes down to 720 for three months? Keep in mind this is exactly the kind of behavior that the banks want you to engage in. If you worship your FICO score, which gives no indication of wealth then you should do exactly what I am suggesting.\""
},
{
"docid": "203873",
"title": "",
"text": "Sell half. If it's as volatile as you say, sell it all and buy on another dip. No one can really offer targeted advice based on the amount of information you have provided."
},
{
"docid": "73872",
"title": "",
"text": "Gonna take more than seasonality to break current momentum. Sentiment is not overly bullish from a retail or institutional aspect. If the year ended today this year would have the smallest drop on record (<3%). The short run outlook of 3-6 months looks very positive from this perspective assuming no unforeseen catalyst occurs to break this trend. Longer term, were in for a correction...but that's normal and nobody knows when it will happen. Anyone investing in stocks should know this and if they don't they need a new advisor or should not be investing alone. Buy the fucking dip and diversify your shit."
},
{
"docid": "461933",
"title": "",
"text": "\"So you are paying taxes on your contributions regardless, the timing is just different. I am failing to see why would a person get an IRA, instead of just putting the same amount of money into a mutual fund (like Vanguard) or something like that. What am I missing? You are failing to consider the time value of money. Getting $1 now is more valuable to you than a promise to get $1 in a year, even though the nominal amount is the same. With a certain amount of principal now, you can invest it and it will (likely) grow into a bigger amount of money (principal + earnings) at a later time, and we can consider the two to have approximately equivalent value (the principal now has the same value as the principal + earnings later). With pre-tax money in Traditional IRA, the principal + earnings are taxed once at the time of withdrawal. Assuming the same flat rate of tax at contribution and withdrawal, this is equivalent to Roth IRA, where the principal is taxed at the time of contribution, because the principal now has the same value as the principal + earnings later, so the same rate of tax on the two have the same value of tax, even though when you look at nominal amounts, it might seem you are paying a lot less tax with Roth IRA (since the earnings are never \"\"taxed\"\"). With actual numbers, if we take a $1000 pre-tax contribution to Traditional IRA, it grows at 5% for 10 years, and a 25% flat rate tax, we are left with $1000 * 1.05^10 * 0.75 = $1221.67. With the same $1000 pre-tax contribution (so after 25% tax it's a $750 after-tax contribution) to a Roth IRA, growing at the same 5% for 10 years, and no tax at withdrawal, we are left with $1000 * 0.75 * 1.05^10 = $1221.67. You can see they are equivalent even though the nominal amount of tax is different (the lower amount of tax paid now is equivalent to the bigger amount of tax later). With a taxable investment which you will not buy and sell until you take it out, you contribute with after-tax money, and when you take it out, the \"\"earnings\"\" portion is subject to capital-gains tax. But remember that the principal + earnings later is equivalent to the principal now, which is already all taxed once, and if we tax the \"\"earnings\"\" portion later, that is effectively taxing a portion of the money again. Another way to look at it is the contribution is just like the Roth IRA, but the withdrawal is worse because you have to pay capital-gains tax instead of no tax. You can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $1221.67 - $750 = $471.67 is \"\"earnings\"\" and is taxed again at, say, a 15% capital-gains rate, so you lose another $70.75 in tax and are left with $1150.92. You would need a capital-gains tax rate of 0% to match the advantage of the pre-tax Traditional IRA or Roth IRA. After-tax money in Traditional IRA has a similar problem -- the contribution is after tax, but after it grows into principal + earnings, the \"\"earnings\"\" part is taxed again, except it is worse than the capital-gains case because it is taxed as regular income. Like above, you can take the same numbers as for the Roth IRA, $1000 * 0.75 * 1.05^10 = $1221.67, but where the $471.67 \"\"earnings\"\" is taxed again at 25%, so you lose another $117.92 in tax and are left with $1103.75. So although the nominal amount of tax paid is the same as for pre-tax money in Traditional IRA, it ends up being a lot worse. (Everything I said above about pre-tax money in Traditional IRA, after-tax money in Traditional IRA, and Roth IRA, also applies to pre-tax money in Traditional 401(k), after-tax money in Traditional 401(k), and Roth 401(k), respectively.) Regarding the question you raise in the title of your question, why someone would get contribute to a Traditional IRA if they already have a 401(k), the answer is, mostly, they wouldn't. First, note that if you merely have a 401(k) account but neither you nor your employer contributes to it during the year, then that doesn't prevent you from deducting Traditional IRA contributions for that year, so basically you can contribute to one or the other; so if you only want to contribute below the IRA contribution limit, and don't need the bigger 401(k) contribution limit, and the IRA's investment options are more attractive to you than your 401(k)'s, then it might make sense for you to contribute to only Traditional IRA. If you or your employer is already contributing to your 401(k) during the year, then you cannot deduct your Traditional IRA contributions unless your income is very low, and if your income is really that low, you are in such a low tax bracket that Roth IRA may be more advantageous for you. If you make a Traditional IRA contribution but cannot deduct it, it is a non-deductible Traditional IRA contribution, i.e. it becomes after-tax money in a Traditional IRA, which as I showed in the section above has much worse tax situation in the long run because its earnings are pre-tax and thus taxed again. However, there is one good use for non-deductible Traditional IRA contributions, and that is as one step in a \"\"backdoor Roth IRA contribution\"\". Basically, there is an income limit for being able to make Roth IRA contributions, but there is no income limit for being able to make Traditional IRA contributions or for being able to convert money from Traditional IRA to Roth IRA. So what you can do is make a (non-deductible) Traditional IRA contribution, and then immediately convert it to Roth IRA, and if you did not previously have any pre-tax money in Traditional IRAs, this achieves the same as a regular Roth IRA contribution, with the same tax treatment, but you can do it at any income level.\""
},
{
"docid": "139368",
"title": "",
"text": "Diversifying is the first advice given to beginner in order to avoid big loss. For example in 2014 the company Theranos was really appealing before it fail in 2016. So a beginner could have invest ALL his money and lose it. But if he has deverified he wouldn't lost everything. As an investor goes from beginner to experience some still Diversify and other concentrate. Mostly it depends how much confident you are about an investement. If you have 20 years of experience, now everything about the company and you are sure there will be profit you can concentrate. If you are not 100% sure there will be a profit, it is better to Diversify. Diversifying can also be profitating when you loose money: because you will pay tax when you earn money, if you diversify you can choose to loose money in some stock (usually in december) and in this way cut your taxes."
},
{
"docid": "385702",
"title": "",
"text": "The reason that you are advised to take more risk while you are young is because the risk is often correlated to a short investment horizon. Young people have 40-50 years to let their savings grow if they get started early enough. If you need the money in 5-15 years (near the end of your earning years), there is much more risk of a dip that will not correct itself before you need the money than if you don't need the money for 25-40 years (someone whose career is on the rise). The main focus for the young should be growth. Hedging your investments with gold might be a good strategy for someone who is worried about the volatility of other investments, but I would imagine that gold will only reduce your returns compared to small-cap stocks, for example. If you are looking for more risk, you can leverage some of your money and buy call options to increase the gains with upward market moves."
},
{
"docid": "491607",
"title": "",
"text": "But the problem I have with that is when times change, business models should too. Companies can't cling to past plans when the market changes and expect to keep making money. Successful companies constantly adapt and change. Corporations shouldn't be suing their customers when their products are failing. They should be figuring out what has changed about the market and adapting their products to entice customers to buy again."
},
{
"docid": "249006",
"title": "",
"text": "\"This summer I used a loan from my 401(k) to help pay for the down payment of a new house. We planned on selling a Condo a few months later, so we only needed the loan for a short period but wanted to keep monthly payments low since we would be paying two mortgages for a few months. I also felt like the market might take a dip in the future, so I liked the idea of trying to cash out high and buy back low (spoiler alert: this didn't happen). So in July 2017 I withdrew $17,000 from my account (Technically $16,850.00 principal and $150 processing fee) at an effective 4.19% APR (4% rate and then the fee), with 240 scheduled payments of $86.00 (2 per month for 10 years). Over the lifetime of the loan the total finance charge was $3,790, but that money would be paid back into my account. I was happy with the terms, and it helped tide things over until the condo was sold a few months later. But then I decided to change jobs, and ended up having to pay back the loan ~20 weeks after it was issued (using the proceeds from the sale of the condo). During this time the market had done well, so when I paid back the funds the net difference in shares that I now owned (including shares purchased with the interest payments) was $538.25 less than today's value of the original count of shares that were sold to fund the loan. Combined with the $150 fee, the overall \"\"cost\"\" of the 20 week loan was about 4.05%. That isn't the interest rate (interest was paid back to my account balance), but the value lost due to the principal having been withdrawn. On paper, my account would be worth that much more if I hadn't withdrawn the money. Now if you extrapolate the current market return into 52 weeks, you can think of that loan having an APR \"\"cost\"\" of around 10.5% (Probably not valid for a multi year calculation, but seems accurate for a 12 month projection). Again, that is not interest paid back to the account, but instead the value lost due to the money not being in the account. Sure, the market could take a dip and I may be able to buy the shares back at a reduced cost, but that would require keeping sizable liquid assets around and trying to time the market. It also is not something you can really schedule very well, as the loan took 6 days to fund (not including another week of clarifying questions back/forth before that) and 10 day to repay (from the time I initiated the paperwork to when the check was cashed and shares repurchased). So in my experience, the true cost of the loan greatly depends on how the market does, and if you have the ability to pay back the loan it probably is worth doing so. Especially since you may be forced to do so at any time if you change jobs or your employment is terminated.\""
},
{
"docid": "41905",
"title": "",
"text": "Dollar cost averaging is beneficial if you don't have the money to make large investments but are able to add to your holding over time. If you can buy the same monetary amount at regular intervals over time, your average cost per share will be lower than the stock's average value over that time. This won't necessarily get you the best price, but it will get you, on the whole, a good price and will enable you to increase your holdings over time. If you're doing frequent trading on a highly volatile stock, you don't want to use this method. A better strategy is to buy the dips: Know the range, and place limit orders toward the bottom of the range. Then place limit orders to sell toward the high end of the range. If you do it right, you might be able to build up enough money to buy and sell increasing numbers of shares over time. But like any frequent trader, you'll have to deal with transaction fees; you'll need to be sure the fees don't eat all your profit."
},
{
"docid": "372551",
"title": "",
"text": "Try using technical analysis, look at the charts and look for stocks that are uptrending. The dfinition of an uptrend being higher highs and higher lows. Use a stochastic indicator and buy on the dips down when the stochastic is in the oversold position (below 20) and and crossing over about to turn back upwards. Or you can also use the stochastic to trade shares that have been ranging between two prices (say between $10 and $12) for a while. As the price approaches the $10 support and the stochastic is in oversold, you would buy as the price rebounds off the $10 support and the stochastic crosses and starts rebounding back up. As the price starts reaching the resistance at $12 (with stocastic in overbought at above 80) you would look to sell and take profits. If you were able to do short selling in the competition, you could short sell at this point in time and make profits on the way up as well as on the way down. There are many more techniques you could use to set up trade opportunities using technical analysis, so it may be a subject you could research further before the comptition begins. Good luck."
},
{
"docid": "546969",
"title": "",
"text": "\"When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as \"\"earnings\"\" (for one year), it would mean that you would get all future earnings for \"\"free.\"\" That's not likely to happen unless 1) the company is in liquidation,\"\" meaning \"\"no future\"\" and 2) it earned ALL of the money it ever earned in the past year, meaning \"\"no past.\"\" If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year.\""
},
{
"docid": "273416",
"title": "",
"text": "Depends on how the money is invested within the 401k... but in general, prices move both up and down with a long-tem bias toward up. Think of it this way: with fund shares priced lower now, you are getting shares cheaper than when you entered the plan. So this dip is actually working in your favor, as long as you are comfortable trusting that long-term view (and trusting the funds your 401k money is going into). Believe me, it's even scarier when you're nearer your target retirement date and a 10% dip may be six figures... but it's all theoretical until you actually start drawing the money back out, and you have to learn to accept some volatility as part of the trade-off for getting returns better than bonds."
},
{
"docid": "122485",
"title": "",
"text": "Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal."
},
{
"docid": "86716",
"title": "",
"text": "\"Others have commented on the various studies. If, as JoeTaxpayer says, this one particular study he mentions does not really exist, there are plenty of others. (And in that case: Did someone blatantly lie to prove a bogus point? Or did someone just get the name of the organization that did the study wrong, like it was really somebody called \"\"B&D\"\", they read it as \"\"D&B\"\" because they'd heard of Dun & Bradstreet but not of whoever B&D is. Of course if they got the organization wrong maybe they got important details of the study wrong. Whatever.) But let me add one logical point that I think is irrefutable: If you always buy with cash, there is no way that you can spend more than you have. When you run out of cash, you have no choice but to stop spending. But when you buy with a credit card, you can easily spend more than you have money in the bank to pay. Even if it is true that most credit card users are responsible, there will always be some who are not, and credit cards make it easy to get in trouble. I speak from experience. I once learned that my wife had run up $20,000 in credit card debt without my knowledge. When she divorced me, I got stuck with the credit card debt. To this day I have no idea what she spent the money on. And I've known several people over the years who have gone bankrupt with credit card debt. Even if you're responsible, it's easy to lose track with credit cards. If you use cash, when you take out your wallet to buy something you can quickly see whether there's a lot of money left or not so much. With credit, you can forget that you made the big purchase. More likely, you can fail to add up the modest purchases. It's easy to say, \"\"Oh, that's just $100, I can cover that.\"\" But then there's $100 here and $100 there and it can add up. (Or depending on your income level, maybe it's $10 here and $10 there and it's out of hand, or maybe it's $10,000.) It's easier today when you can go on-line and check the balance on your credit card. But even at that, well just this past month when I got one bill I was surprised at how big it was. I went through the items and they were all legitimate, they just ... added up. Don't cry for me, I could afford it. But I had failed to pay attention to what I was spending and I let things get a little out of hand. I'm a pretty responsible person and I don't do that often. I can easily imagine someone paying less attention and getting into serious trouble.\""
},
{
"docid": "507029",
"title": "",
"text": "In general people make a few key mistakes with property: 1) Not factoring in depreciation properly. Houses are perpetually falling down, and if you are renting them perpetually being trashed by the tenants as well - particularly in bad areas. Accurate depreciation costs can often run in the 5-20% range per year depending on the property/area. Add insurance to this as well. 2) Related to 1), they take the index price of house price rises as something they can achieve, when in reality a lot of the house price 'rise' is just everyone having to spend a lot of money keeping them standing up. No investor can actually track a house price graph due to 1) so be careful to make reasonable assumptions about actual achievable future growth. 3) Failure to price in the huge transaction costs (often 5%+ per sale) and capital gains/other taxes (depends on the exact tax structure where you are). These add up very fast if you are buying and selling at all frequently. 4) Costs in either time or fees to real estate rental agents. Having to fill, check, evict, fix and maintain rental properties is a lot more work than most people realise, and you either have to pay this in your own time or someone else’s. Again, has to be factored in. 5) Liquidity issues. Selling houses in down markets is very, very hard. They are not like stocks where they can be moved quickly. Houses can often sit on the market for years before sale if you are not prepared to take low prices. As the bank owns your house if you fail to pay the mortgage (rents collapse, loss of job etc) they can force you to fire sale it leaving you in a whole world of pain depending on the exact legal system (negative equity etc). These factors are generally correlated if you work in the same cities you are buying in so quite a lot of potential long tail risk if the regional economy collapses. 6) Finally, if you’re young they can tie you to areas where your earnings potential is limited. Renting can be immensely beneficial early on in a career as it gives you huge freedom to up sticks and leave fast when new opportunities arise. Locking yourself into 20yr+ contracts/activities when young can be hugely inhibiting to your earnings potential – particularly in fast moving jobs like software development. Without more details on the exact legal framework, area, house type etc it’s hard to give more specific advise, but in general you need a very large margin of safety with property due to all of the above, so if the numbers you’re running are coming out close, it’s probably not worth it, and you’re better of sticking with more hands off investments like stocks and bonds."
},
{
"docid": "580025",
"title": "",
"text": "\"I don't know Canada very well, but can offer some general points when considering where to park your emergency fund. Savings rates are currently low, but then so is inflation. Always bear in mind that inflation decreases the value of your money, so if you're getting 4% interest and inflation is 2%, you're making 2% gross in real terms. If you're getting 2% and inflation is close to zero, you're actually earning a similar amount, it's just the numbers are going up more slowly. Obviously when and how much tax you pay affects the actual return, it's just worth bearing in mind that low interest and low inflation are actually not that bad a savings environment as they first appear. For an emergency fund the key thing is ease of access, consider keeping some portion of your savings in an instant access account for those emergencies that happen when the banks are closed. In the UK there are various tax-free savings options, I'm guessing Canada has a few too, if so you should explore those options. While these may not have attractive headline rates, you don't pay tax on the interest, this can make them much more competitive (4% tax free is the same as 5% gross if you would have to pay tax at 20%). Normally tax free investments have caps so once you've invested a set amount you can't add anymore. This may be a consideration if you regularly dip into your emergency fund as you might not easily be able to build it up again. My approach is to have about 90% of my \"\"rainy day\"\" fund in easily accessible but tax free savings. This discourages me from spending it unless I really need to. I then keep a slush fund sufficient to cover every day disasters (boiler packing up, needing a hire car for a week etc) in instant access accounts .\""
},
{
"docid": "531370",
"title": "",
"text": "\"These types of diagrams appear all throughout Kiyosaki's Rich Dad, Poor Dad book. The arrows in the diagrams represent cash flow. For example, the first two diagrams of this type in the book are: The idea being presented here is that an asset generates income, and a liability generates expenses. According to the book, rich people spend their money buying assets, while middle class people buy liabilities. The diagram you posted above does not appear in the edition of the book I have (Warner Books Edition, printed in 2000). However, the following similar diagram appears in the chapter titled \"\"The History of Taxes and the Power of Corporations\"\": The idea behind this diagram is to demonstrate what the author considers the tax advantages of a personal corporation: using a corporation to pay for certain expenses with pre-tax dollars. Here is a quote from this chapter: Employees earn and get taxed and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It's one of the biggest legal tax loopholes that the rich use. They're easy to set up and are not expensive if you own investments that are producing good cash flow. For example; by owning your own corporation - vacations are board meetings in Hawaii. Car payments, insurance, repairs are company expenses. Health club membership is a company expense. Most restaurant meals are partial expenses. And on and on - but do it legally with pre-tax dollars. This piece of advice, like so much of the book, may contain a small amount of truth, but is oversimplified and potentially dangerous if taken a face value. There are many examples, as JoeTaxpayer mentioned, of people who tried to deduct too many expenses and failed to make a business case for them that would satisfy the IRS.\""
}
] |
8532 | What do these options trading terms mean? | [
{
"docid": "416307",
"title": "",
"text": "\"Can anyone explain what each of them mean and how they're different from each other? When you \"\"buy to open\"\", you are purchasing an option and opening a new position. When you \"\"sell to open\"\", you are creating a brand new options contract and selling it. \"\"Covered\"\" means that you have assets in your account to satisfy the terms of the options contract. A \"\"covered call\"\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \"\"sell to open\"\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \"\"buy to open\"\" trade, you can \"\"sell to close\"\" which will sell back your option and close your position. In summary:\""
}
] | [
{
"docid": "300709",
"title": "",
"text": "The uptick rule is gone, but it was weakly reintroduced in 2010, applied to all publicly traded equities: Under the terms of the rule, a circuit breaker would be triggered if a stock falls by 10% or more in a single day. At that point, short selling would only be allowed if the price is above the current national best bid, a restriction that would apply for the rest of the day and the whole of the following day. Derivatives are not yet restricted in such ways because of their spontaneous nature, requiring a short to increase supply; however, this latest rule widens options spreads during collapses because the exemption for hedging is now gone, and what's more a tool used by options market makers, shorting the underlying to offset positive delta, now has to go to the back of the selling line during a panic. Bonds are not restricted because for one there isn't much interest in shorting because bonds usually don't have enough variance to exceed the cost of borrowing, and many do not trade frequently enough because even the cost to trade bonds is expensive, so arranging a short in its entirety will be expensive. The preferred method to short a bond is with swaps, swaptions, etc."
},
{
"docid": "193717",
"title": "",
"text": "\"You mention \"\"early exercise\"\" in your title, but you seem to misunderstand what early exercise really means. Some companies offer stock options that vest over a number of years, but which can be exercised before they are vested. That is early exercise. You have vested stock options, so early exercise is not relevant. (It may or may not be the case that your stock options could have been early exercised before they vested, but regardless, you didn't exercise them, so the point is moot.) As littleadv said, 83(b) election is for restricted stocks, often from exercising unvested stock options. Your options are already vested, so they won't be restricted stock. So 83(b) election is not relevant for you. A taxable event happen when you exercise. The point of the 83(b) election is that exercising unvested stock options is not a taxable event, so 83(b) election allows you to force it to be a taxable event. But for you, with vested stock options, there is no need to do this. You mention that you want it not to be taxable upon exercise. But that's what Incentive Stock Options (ISOs) are for. ISOs were designed for the purpose of not being taxable for regular income tax purposes when you exercise (although it is still taxable upon exercise for AMT purposes), and it is only taxed when you sell. However, you have Non-qualified Stock Options. Were you given the option to get ISOs at the beginning? Why did your company give you NQSOs? I don't know the specifics of your situation, but since you mentioned \"\"early exercise\"\" and 83(b) elections, I have a hypothesis as to what might have happened. For people who early-exercise (for plans that allow early-exercise), there is a slight advantage to having NQSOs compared to ISOs. This is because if you early exercise immediately upon grant and do 83(b) election, you pay no taxes upon exercise (because the difference between strike price and FMV is 0), and there are no taxes upon vesting (for regular or AMT), and if you hold it for at least 1 year, upon sale it will be long-term capital gains. On the other hand, for ISOs, it's the same except that for long-term capital gains, you have to hold it 2 years after grant and 1 year after exercise, so the period for long-term capital gains is longer. So companies that allow early exercise will often offer employees either NQSOs or ISOs, where you would choose NQSO if you intend to early-exercise, or ISO otherwise. If (hypothetically) that's what happened, then you chose wrong because you got NQSOs and didn't early exercise.\""
},
{
"docid": "258227",
"title": "",
"text": "How long is a piece of string? This will depend on many variables. How many trades will you make in a day? What income would you be expecting to make? What expectancy do you need to achieve? Which markets you will choose to trade? Your first step should be to develop a Trading Plan, then develop your trading rules and your risk management. Then you should back test your strategy and then use a virtual account to practice losing on. Because one thing you will get is many losses. You have to learn to take a loss when the market moves against you. And you need to let your profits run and keep your losses small. A good book to start with is Trade Your Way to Financial Freedom by Van Tharp. It will teach you about Expectancy, Money Management, Risk Management and the Phycology of Trading. Two thing I can recommend are: 1) to look into position and trend trading and other types of short term trading instead of day trading. You would usually place your trades after market close together with your stops and avoid being in front of the screen all day trying to chase the market. You need to take your emotion out of your trading if you want to succeed; 2) don't trade penny stocks, trade commodities, FX or standard stocks, but keep away from penny stocks. Just because you can buy them for a penny does not mean they are cheap."
},
{
"docid": "104789",
"title": "",
"text": "\"So, the term \"\"ready market\"\" simply means that a market exists in which there are legitimate buy/sell offers, meaning there are investors willing to own or trade in the security. A \"\"spot market\"\" means that the security/commodity is being delivered immediately, rather at some predetermined date in the future (hence the term \"\"futures market\"\"). So if you buy oil on the spot market, you'd better be prepared to take immediate delivery, where as when you buy a futures contract, the transaction doesn't happen until some later date. The advantage for futures contract sellers is the ability to lock in the price of what they're selling as a hedge against the possibility of a price drop between now and when they can/will deliver the commodity. In other words, a farmer can pre-sell his grain at a set price for some future delivery date so he can know what he's going to get regardless of the price of grain at the time he delivers it. The downside to the farmer is that if grain prices rise higher than what he sold them for as futures contracts then he loses that additional money. That's the advantage to the buyer, who expects the price to rise so he can resell what he bought from the farmer at a profit. When you trade on margin, you're basically borrowing the money to make a trade, whether you're trading long (buying) or short (selling) on a security. It isn't uncommon for traders to pledge securities they already own as collateral for a margin account, and if they are unable to cover a margin call then those securities can be liquidated or confiscated to satisfy the debt. There still may even be a balance due after such a liquidation if the pledged securities don't cover the margin call. Most of the time you pay a fee (or interest rate) on whatever you borrow on margin, just like taking out a bank loan, so if you're going to trade on margin, you have to include those costs in your calculations as to what you need to earn from your investment to make a profit. When I short trade, I'm selling something I don't own in the expectation I can buy it back later at a lower price and keep the difference. For instance, if I think Apple shares are going to take a steep drop at some point soon, I can short them. So imagine I short-sell 1000 shares of AAPL at the current price of $112. That means my brokerage account is credited with the proceeds of the sale ($112,000), and I now owe my broker 1000 shares of AAPL stock. If the stock drops to $100 and I \"\"cover my short\"\" (buy the shares back to repay the 1000 I borrowed) then I pay $100,000 for them and give them to my broker. I keep the difference ($12,000) between what I sold them for and what I paid to buy them back, minus any brokerage fees and fees the broker may charge me for short-selling. In conclusion, a margin trade is using someone else's money to make a trade, whether it's to buy more or to sell short. A short trade is selling shares I don't even own because I think I can make money in the process. I hope this helps.\""
},
{
"docid": "517323",
"title": "",
"text": "The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares."
},
{
"docid": "120611",
"title": "",
"text": "(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)"
},
{
"docid": "167304",
"title": "",
"text": "\"When you buy a put option, you're buying the right to sell stock at the \"\"strike\"\" price. To understand why you have to pay separately for that, consider the other side of the transaction. If I agree to trade stock for money at above market rates, I need to make up the difference somewhere or face bankruptcy. That risk of loss is what the option price is about. You might assume that means the market expects the price of AMD to fall to 8.01 from it's current price of 8.06 by the option expiration date. But that would also mean call options below the market price is worthless. But that's not quite true; people who price options need to factor in volatility, since things change with time. The price MIGHT fall, and traders need to account for that risk. So 1.99 roughly represents the probability of AMD rising to 10. There's probably some technical analysis one can do to the chain, but I don't see any abnormality of AMD here.\""
},
{
"docid": "221238",
"title": "",
"text": "So far the answer is: observe the general direction of the market, using special tools if needed or you have them available (.e.g. Bollinger bands to help you understand the current trend) at the right time per above, do the roll with stop loss in place (meaning roll at a pre-determined max loss), and also a trailing stop loss if the roll works in your favor, to capture the profits on the roll. This trade was a learning experience. I sold the option at $20 thinking I'd get back in later in the day with the further out option at a good price, as the market goes back and forth. The underlying went up and never came back. I finally gritted my teeth and bought the new option at 23.10 (when it would have cost me about 20.20 before), i.e. a miss/loss of $3 on $20. The underlying continued to rise, from that point (hasn't been back), and now the option price is $29. Of course one needs to make sure the Implied Volatility of the option being left and the option going to is good/fair, and if not, either roll further out in time, nearer in time, our up / down the strike prices, to find the right target option. After doing that, one might do the strategy above, i.e. any good trade mgmt type strategy: seek to make a good decision, acknowledge when you were wrong (with stop loss), and act. Or, if you're right, cash in smartly (i.e. trailing stops)."
},
{
"docid": "576976",
"title": "",
"text": "\"Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will deliver that security you sold on settlement without actually owning the security or going through SLB mechanism? In Future and Options; there is no concept of short selling. You buy a future for a security / index. On the settlement day; the exchange determines the settlement price. The trade is closed in cash. i.e. Based on the settlement price, you [and the other party] will either get money [other party looses money] or you loose money [other party gets the money]. Similarly for Options; on expiry, the all \"\"In Money\"\" [or At Money] Options are settled in cash and you are credit with funds [the option writer is debited with funds]. If the option is \"\"out of money\"\" it expires and you loose the premium you paid to exercise the option.\""
},
{
"docid": "580757",
"title": "",
"text": "If you do not understand the volatility of the fx market, you need to stop trading it, immediately. There are many reasons that fx is riskier than other types of investing, and you bear those risks whether you understand them or not. Below are a number of reasons why fx trading has high levels of risk: 1) FX trades on the relative exchange rate between currencies. That means it is a zero-sum game. Over time, the global fx market cannot 'grow'. If the US economy doubles in size, and the European economy doubles in size, then the exchange rate between the USD and the EUR will be the same as it is today (in an extreme example, all else being equal, yes I know that value of currency /= value of total economy, but the general point stands). Compare that with the stock market - if the US economy doubles in size, then effectively the value of your stock investments will double in size. That means that stocks, bonds, etc. tied to real world economies generally increase when the global economy increases - it is a positive sum game, where many players can be winners. On the long term, on average, most people earn value, without needing to get into 'timing' of trades. This allows many people to consider long-term equity investing to be lower risk than 'day-trading'. With FX, because the value of a currency is in its relative position compared with another currency, 1 player is a winner, 1 player is a loser. By this token, most fx trading is necessarily short-term 'day-trading', which by itself carries inherent risk. 2) Fx markets are insanely efficient (I will lightly state that this is my opinion, but one that I am not alone in holding firmly). This means that public information about a currency [ie: economic news, political news, etc.] is nearly immediately acted upon by many, many people, so that the revised fx price of that currency will quickly adjust. The more efficient a market is, the harder it is to 'time a trade'. As an example, if you see on a news feed that the head of a central bank authority made an announcement about interest rates in that country [a common driver of fx prices], you have only moments to make a trade before the large institutional investors already factor it into their bid/ask prices. Keep in mind that the large fx players are dealing with millions and billions of dollars; markets can move very quickly because of this. Note that some currencies trade more frequently than others. The main currency 'pairs' are typically between USD and / or other G10 country-currencies [JPY, EUR, etc.]. As you get into currencies of smaller countries, trading of those currencies happens less frequently. This means that there may be some additional time before public information is 'priced in' to the market value of that currency, making that currency 'less efficient'. On the flip side, if something is infrequently traded, pricing can be more volatile, as a few relatively smaller trades can have a big impact on the market. 3) Uncertainty of political news. If you make an fx trade based on what you believe will happen after an expected political event, you are taking risk that the event actually happens. Politics and world events can be very hard to predict, and there is a high element of chance involved [see recent 'expected' election results across the world for evidence of this]. For something like the stock market, a particular industry may get hit every once in a while with unexpected news, but the fx market is inherently tied to politics in a way that may impact exchange rates multiple times a day. 4) Leveraging. It is very common for fx traders to borrow money to invest in fx. This creates additional risk because it amplifies the impact of your (positive or negative) returns. This applies to other investments as well, but I mention it because high degrees of debt leveraging is extremely common in FX. To answer your direct question: There are no single individual traders who spike fx prices - that is the impact you see of a very efficient market, with large value traders, reacting to frequent, surprising news. I reiterate: If you do not understand the risks associated with fx trade, I recommend that you stop this activity immediately, at least until you understand it better [and I would recommend personally that any amateur investor never get involved in fx at all, regardless of how informed you believe you are]."
},
{
"docid": "340125",
"title": "",
"text": "\"Sorry but you already provided the answer to your own question. The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock. Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis. Not like they will hate you given all the fees you are likely to rack up. And the government will love you also, since you'll be paying short term gains taxes. (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as \"\"day trader\"\" and I got a big margin call. What should I do? What trades can I place in the blocked period?\""
},
{
"docid": "229978",
"title": "",
"text": "I admit, in the long term there are a good number of kinks to work out, but in the end I want to see some system where people in general can seize the means to their own well being without stepping on one another. The management corruptions you talked about is another reason why I prefer Worker-Co-ops to be the optimum form of issuing business, because its not just a few people in charge, it's a whole social group acting in unison. When you discuss the mom-and-pop store having no suppliers, it would be good to promote some way of each money supply to have a share of each industry within it. There are always some people in every trade looking for their next job. They just have to find a supply where there trade is in demand. The process is self feeding. Next off, or course the mechanism of the system would work in a way that firm's can't just pay themselves with their own debt, they have to issue it to their creditors first, and even then it's practically impossible to accept your own debt as payment. You would have to take some from a competitor at best. What I've been trying to do is find some system where no one institution or no one alliance holds the keys to the definition of value. If you have five to eight dictators fighting at once as opposed to one financial dictator who can oversee all, like the fed scenario you just described, It's more possible for people who are freer relatively to survive freely between the borders of these spheres of influence, as they can play each dictator off the other. at least from your dialogue I can see you're one of those who gets what I'm trying to aim for. Here's another idea I've explored with it, that's similar but may make the environment slightly different, so let me know what you think what I call the Revolving Tax Window, where the government accepts different bondnotes, both in quantity and specific assortments of notes, in intervals of every business quarter, so that the demand for specific notes changes four times a year. From January until the end of March they could accept Taxes in notes from Firms A,F,H, and T, and for April into June it could be just B and S, and so on. The options for note issuing could be set on a list of firms registered with the SEC or whoever. The combination for the quarter could be picked at random by a randomizing algorithm, so no firm could make a plan to be a market dictator, and a sense of dynamism is maintained in the economy. Obviously, the more firms are properly registered on this list, the more combinations of monetary combinations you have, and the more power is distributed from too much control by anybody. What you can do is choose whether or not you want there to be less or more notes in the next quarter, because just like fiscal policy and conventional monetary policy, the extremes have trade offs, but different ones; to few currencies, the economy may be stimulated, but you get market dictators via monetary oligopoly, even if temporary. Too many, you avoid market dictators who will be more focused on getting a real return by investing in competing ventures based on what will actually return investment, but the economy may not be as stimulated. What do you think of this structural alternative? (One of the focal sources I've been building my economic policy on has been *Debt: The First 5,000 Years* by David Graeber, if anyone's familiar.)"
},
{
"docid": "94858",
"title": "",
"text": "I'm not sure that you're considering all the options. So you may not subtract $X from B, but you do compare NPV(B) to $Y. Also, remember that we're not trying to figure out the return on B. We're trying to figure out what to do next. In terms of planning, the sunk cost is irrelevant. But in terms of calculating return, A was a turkey. And to calculate the return, we would include $X in our costs for B. And for the second option, we'd subtract $X from $Y (may be negative). Sunk costs are irrelevant to planning, but they are very relevant to retrospective analysis. Please don't confuse the two. When looking back, part of the cost for B will be that $X. But in the middle, after paying $X and before starting B, the $X is gone. You only have the building and have to make your decision based on the options you have at that moment. You will sometimes hear $Y called the opportunity cost of B. You could sell out for $Y or you could do B. You should only do B if it is worth more than $Y. The sunk cost fallacy would be comparing B to $X. Assuming $Y is less than $X, this would make you not do B when it is your best path forward from that moment. I.e. $Y < NPV(B) < $X means that you should do the project. You will lose money (apparently that's a foregone conclusion), but you will lose less money than if you just sold out. You should also do B if $Y < $X < NPV(B) or $X < $Y < NPV(B). In general, you should do B any time $Y < NPV(B). The only time you should not do B is if NPV(B) < $Y. If they are exactly equal, then it doesn't matter financially whether you do B or not."
},
{
"docid": "560245",
"title": "",
"text": "The CBOE site, as well as some other sites and trading platforms, will show the bid/ask and statistics for that option at each individual options exchange, in addition to statistics and the best bid/offer across all exchanges. cboe.com: Delayed Quote Help lists what the single-letter codes mean. A is for the AMEX options exchange, B is for BOX, X is for PHLX, etc."
},
{
"docid": "46529",
"title": "",
"text": "It is a general truism but the reasons are that the rules change dramatically when you simply have more capital. Here are some examples, limited to particular kinds of markets: Under $2,000 in capital Nobody is going to offer you a margin account, and if you do get one it isn't with the best broker on commissions and other capabilities. So this means cash only trading, enjoy your 3 business day settlement periods. This means no shorting, confining a trader to only buy and hold strategies, making them more dependent on luck than a more capable trader. This means it is more expensive to buy stock, since you have to put down 100% of the cash to hold a share, whereas someone with more money puts down less capital to hold the exact same number of shares. This means no covered options strategies or spreads, again limiting the market directions where a trader could earn Under $25,000 in capital In the stock market, the pattern day trader rule applies to retail margin accounts with a balance under $25,000 and this severally limits the kinds of trades you are able to take because of the limit in the number of trades you can take in a given time period. Forget managing a multi-leg option position when the market isn't moving your direction. Under $125,000 in capital Worse margin rules. You excluded portfolio margin from your post, but it is a key part of the answer Over $1,000,000 in capital Participate in private placements, regulation D offerings reserved for accredited investors. These days, as buy and hold investments, these generally have more growth potential than publicly traded offerings. Over $5,000,000 in capital You can easily get the compliance and risk manager to turn the other way on margin rules. This is not conjecture, leverage up to infinity, try not to bankrupt yourself and the trading firm."
},
{
"docid": "2959",
"title": "",
"text": ">Actually, I would imagine the terms for credit are better post-bankruptcy filing, than immediately pre-filing. From what I see that's true. Pre filing had no options whatsoever or the terms were so bad that it wasn't worth it. Post filing, while the terms were not the best by no means, at least there were decent options there."
},
{
"docid": "504658",
"title": "",
"text": "\"> How do I go about trading options is it a viable route for some \"\"broke\"\" college kid? First off, I wouldn't trade what I don't understand. Second, you'd use a broker to trade options. Third, I wouldn't recommend any trading for someone with low income and low current net worth/available cash.\""
},
{
"docid": "235438",
"title": "",
"text": "\"Okay, yes! That would seem to make sense. So something like a Dupire local vol model. In the context of term structure modelling, you can also incorporate a volatility surface into the pricing of European and even exotic options (e.g. through a SABR or an LMM-SABR for exotics), which I suppose means by your criteria there are actually varying degree of \"\"arbitrage free-ness\"\" when it comes to picking a model. By that I mean there are varying degrees of what your model takes as \"\"given\"\". If it takes the market price of risk as given, it's an equilibrium model. If it takes the observed term structure as given, it's an arbitrage free model. If it takes the volatility structure as given, it's something else. Nawalkha, Beliaeva and Soto wrote a paper called \"\"A New Taxonomy of the Dynamic Term Structure Models\"\" in the Journal of Investment Management that basically coincides with what we're saying. So yes, it sounds right to me.\""
},
{
"docid": "574820",
"title": "",
"text": "All securities must be registered with the SEC. Securities are defined as (1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. thus currencies are not defined as securities. While OTC transactions of securities is not outright forbidden, there are numerous regulations issued by the SEC as a result of the 1943 Exchange Act and others that make this difficult and/or costly. Many other securities are exempted from registration thus trade in a way that could be called OTC. Different countries have variances upon US law but are very similar. Any security could be traded OTC, but law prohibits it expressly or in such a way to make it relatively expensive; further, stock options are so tightly regulated that expiration dates, expiration intervals, strike intervals, and minimum ticks are all set by the authorities."
}
] |
8532 | What do these options trading terms mean? | [
{
"docid": "27401",
"title": "",
"text": "\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \"\"I think linkedin is too high, I'm going to short it.\"\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\""
}
] | [
{
"docid": "72789",
"title": "",
"text": "Differences in liquidity explain why American-style options are generally worth more than their European-style counterparts. As far as I can tell, no one mentioned liquidity in their answer to this question, they just introduced needlessly complex math and logic while ignoring basic economic principles. That's not to say the previous answers are all wrong - they just deal with periphery factors instead of the central cause. Liquidity is a key determinant of pricing/valuation in financial markets. Liquidity simply describes the ease with which an asset can be bought and sold (converted to cash). Without going into the reasons why, treasury bills are one of the most liquid securities - they can be bought or sold almost instantly at any time for an exact price. The near-perfect liquidity of treasuries is one of the major reasons why the price (yield) of a t-bill will always be higher (lower yield) than that of an otherwise identical corporate or municipal bond. Stated in general terms, a relatively liquid asset is always worth more than an relatively illiquid asset, all else being equal. The value of liquidity is easy to understand - we experience it everyday in real life. If you're buying a house or car, the ability to resell it if needed is an important component of the decision. It's the same for investors - most people would prefer an asset that they can quickly and easily liquidate if the need for cash arises. It's no different with options. American-style options allow the holder to exercise (liquidate) at any time, whereas the buyer of a European option has his cash tied up until a specific date. Obviously, it rarely makes sense to exercise an option early in terms of net returns, but sometimes an investor has a desperate need for cash and this need outweighs the reduction in net profits from early exercise. It could be argued that this liquidity advantage is eliminated by the fact that you can trade (sell) either type of option without restriction before expiration, thus closing the long position. This is a valid point, but it ignores the fact that there's always a buyer on the other side of an option trade, meaning the long position, and the right/restriction of early exercise, is never eliminated, it simply changes hands. It follows that the American-style liquidity advantage increases an options market value regardless of one's position (call/put or short/long). Without putting an exact number on it, the general interest rate (time value of money) could be used to approximate the additional cost of an American-style option over a similar European-style contract."
},
{
"docid": "221238",
"title": "",
"text": "So far the answer is: observe the general direction of the market, using special tools if needed or you have them available (.e.g. Bollinger bands to help you understand the current trend) at the right time per above, do the roll with stop loss in place (meaning roll at a pre-determined max loss), and also a trailing stop loss if the roll works in your favor, to capture the profits on the roll. This trade was a learning experience. I sold the option at $20 thinking I'd get back in later in the day with the further out option at a good price, as the market goes back and forth. The underlying went up and never came back. I finally gritted my teeth and bought the new option at 23.10 (when it would have cost me about 20.20 before), i.e. a miss/loss of $3 on $20. The underlying continued to rise, from that point (hasn't been back), and now the option price is $29. Of course one needs to make sure the Implied Volatility of the option being left and the option going to is good/fair, and if not, either roll further out in time, nearer in time, our up / down the strike prices, to find the right target option. After doing that, one might do the strategy above, i.e. any good trade mgmt type strategy: seek to make a good decision, acknowledge when you were wrong (with stop loss), and act. Or, if you're right, cash in smartly (i.e. trailing stops)."
},
{
"docid": "69395",
"title": "",
"text": "\"Your plan already answers your own question in the best possible way: If you want to be able to make the most possible profit from a large downward move in a stock (in this case, a stock that tracks gold), with a limited, defined risk if there is an upward move, the optimal strategy is to buy a put option. There are a few Exchange Traded Funds (ETFs) that track the price of gold. think of them as stocks that behave like gold, essentially. Two good examples that have options are GLD and IAU. (When you talk about gold, you'll hear a lot about futures. Forget them, for now. They do the same essential thing for your purposes, but introduce more complexity than you need.) The way to profit from a downward move without protection against an upward move is by shorting the stock. Shorting stock is like the opposite of buying it. You make the amount of money the stock goes down by, or lose the amount it goes up by. But, since stocks can go up by an infinite amount, your possible loss is unlimited. If you want to profit on a large downward move without an unlimited loss if you're wrong and it goes up, you need something that makes money as the stock drops, but can only lose so much if it goes up. (If you want to be guaranteed to lose nothing, your best investment option is buying US Treasuries, and you're technically still exposed to the risk that US defaults on its debt, although if you're a US resident, you'll likely have bigger problems than your portfolio in that situation.) Buying a put option has the exact asymmetrical exposure you want. You pay a limited premium to buy it, and at expiration you essentially make the full amount that the stock has declined below the strike price, less what you paid for the option. That last part is important - because you pay a premium for the option, if it's down just a little, you might still lose some or all of what you paid for it, which is what you give up in exchange for it limiting your maximum loss. But wait, you might say. When I buy an option, I can lose all of my money, cant I? Yes, you can. Here's the key to understanding the way options limit risk as compared to the corresponding way to get \"\"normal\"\" exposure through getting long, or in your case, short, the stock: If you use the number of options that represent the number of shares you would have bought, you will have much, much less total money at risk. If you spend the same \"\"bag 'o cash\"\" on options as you would have spent on stock, you will have exposure to way more shares, and have the same amount of money at risk as if you bought the stock, but will be much more likely to lose it. The first way limits the total money at risk for a similar level of exposure; the second way gets you exposure to a much larger amount of the stock for the same money, increasing your risk. So the best answer to your described need is already in the question: Buy a put. I'd probably look at GLD to buy it on, simply because it's generally a little more liquid than IAU. And if you're new to options, consider the following: \"\"Paper trade\"\" first. Either just keep track of fake buys and sells on a spreadsheet, or use one of the many online services where you can track investments - they don't know or care if they're real or not. Check out www.888options.com. They are an excellent learning resource that isn't trying to sell you anything - their only reason to exist is to promote options education. If you do put on a trade, don't forget that the most frustrating pitfall with buying options is this: You can be basically right, and still lose some or all of what you invest. This happens two ways, so think about them both before you trade: If the stock goes in the direction you think, but not enough to make back your premium, you can still lose. So you need to make sure you know how far down the stock has to be to make back your premium. At expiration, it's simple: You need it to be below the strike price by more than what you paid for the option. With options, timing is everything. If the stock goes down a ton, or even to zero - free gold! - but only after your option expires, you were essentially right, but lose all your money. So, while you don't want to buy an option that's longer than you need, since the premium is higher, if you're not sure if an expiration is long enough out, it isn't - you need the next one. EDIT to address update: (I'm not sure \"\"not long enough\"\" was the problem here, but...) If the question is just how to ensure there is a limited, defined amount you can lose (even if you want the possible loss to be much less than you can potentially make, the put strategy described already does that - if the stock you use is at $100, and you buy a put with a 100 strike for $5, you can make up to $95. (This occurs if the stock goes to zero, meaning you could buy it for nothing, and sell it for $100, netting $95 after the $5 you paid). But you can only lose $5. So the put strategy covers you. If the goal is to have no real risk of loss, there's no way to have any real gain above what's sometimes called the \"\"risk-free-rate\"\". For simplicity's sake, think of that as what you'd get from US treasuries, as mentioned above. If the goal is to make money whether the stock (or gold) goes either up or down, that's possible, but note that you still have (a fairly high) risk of loss, which occurs if it fails to move either up or down by enough. That strategy, in its most common form, is called a straddle, which basically means you buy a call and a put with the same strike price. Using the same $100 example, you could buy the 100-strike calls for $5, and the 100-strike puts for $5. Now you've spent $10 total, and you make money if the stock is up or down by more than $10 at expiration (over 110, or under 90). But if it's between 90 and 100, you lose money, as one of your options will be worthless, and the other is worth less than the $10 total you paid for them both.\""
},
{
"docid": "300698",
"title": "",
"text": "One answer in four days tells you this is a niche, else there should be many replies by now. The bible is McMillan on Options Note - I link to the 1996 edition which starts at 39 cents, the latest revision will set you back $30 used. The word bible says it all, it offers a great course in options, everything you need to know. You don't get a special account for option trading. You just apply to your regular broker, so depending what you wish to do, the amount starts at You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience. You sell calls against stock you own in your IRA. You see, selling covered calls always runs the risk of having your stock called away, and you'd have a gain, I'd hope. By doing this within the IRA, you avoid that. Options can be, but are not always, speculative. Covered calls just change the shape of your return curve. i.e. you lower your cost by the option premium, but create a fixed maximum gain. I've created covered calls on the purchase of a stock or after holding a while depending on the stock. Here's the one I have now: MU 1000 shares bought at $8700, sold the $7.50 call (jan12) for $3000. Now, this means my cost is $5700, but I have to let it go for $7500, a 32% return if called. (This was bought in mid 2010, BTW.) On the flip side, a drop of up to 35% over the time will still keep me at break even. The call seemed overpriced when I sold it. Stock is still at $7.20, so I'm close to maximum gain. This whole deal was less risky than just owning one risky stock. I just wrote a post on this trade Micron Covered Call, using today's numbers for those actually looking to understand this as new position. (The article was updated after the expiration. The trade resulted in a 42% profit after 491 days of holding the position, with the stock called away.) On the other hand, buying calls, lots of them, during the tech bubble was the best and worst thing I did. One set of trades' value increased by a factor of 50, and in a few weeks blew up on me, ended at 'only' triple. I left the bubble much better off than I went in, but the peak was beautiful, I'd give my little toe to have stayed right there. From 99Q2 to 00Q2, net worth was up by 3X our gross salary. Half of that (i.e. 1.5X) was gone after the crash. For many, they left the bubble far far worse than before it started. I purposely set things up so no more than a certain amount was at risk at any given time, knowing a burst would come, just not when. If nothing else, it was a learning experience."
},
{
"docid": "596567",
"title": "",
"text": "Your wife could open a non-registered margin trading account with a Canadian full-service or discount broker. An account at one of the top Canadian brokers should provide access to trade U.S.-listed options. I've traded both Canadian and U.S.-listed options with my own broker. On the application, you'd need to indicate an interest in trading options, and more specifically, what kind of option trades; e.g. long puts and calls only, covered writing, combination trades, etc. And yes, part of the application approval process (at least when I went through it) is to answer a few questions to prove that the applicant is aware of the types of risks with trading options. Be sure to do some research on the fees and currency/fx aspects before you choose a broker. If you plan to exercise any options purchased or expect to be assigned for any you write, be aware that those fees are often different from the headline cost-per-trade advertised by brokers. For instance, I pay in excess of $40 when a call option I write gets assigned, vs. ~$10 that I'd pay if I just plain sold the stock. One other thing to investigate is what kind of online option trading research and order entry tools are available; not every broker has the same set of features with respect to options — especially if it isn't a big part of their business."
},
{
"docid": "575408",
"title": "",
"text": "An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules."
},
{
"docid": "528157",
"title": "",
"text": "Your answer looks correct. It's the buyer of the option that's long, not the seller (you). If you're doing a lot of trading, you might get hit with wash-sale rules and you could be taxed at the short-term capital gains rate, which is higher than for long-term gains. But those aren't direct fees."
},
{
"docid": "427145",
"title": "",
"text": "In Australia there are 2 type of warrants (I don't know if it is the same in the US, UK and other countries), the first are trading warrants and the second are instalment warrants. The trading warrants are exactly what it says, they are used for trading. They are similar to option and have calls and puts. As Cameron says, they differ from exchange traded options in that they are issued by the financial companies whereas options are generally written by other investors. Instalment warrants on the other hand are usually bought and sold by investors with a longer term view. There are no calls and puts and you can just go long with them. They are also issued by financial companies, and how they work is best explained through an example: if I was to buy a stock directly say I would be paying $50 per share, however an instalment warrant in the underlying stock may be offered for $27 per warrant. I could buy the warrant directly from the company when it is issued or on the secondary market just like shares. I would pay the $27 per warrant upfront, and then in 2 years time when the warrant expires I have the choice to purchase the underlying stock for the strike price of say $28, roll over to a new issue of warrants, sell it back on the secondary market, or let it expire, in which case I would receive any intrinsic value left in the warrant. You would have noticed that the warrant purchase price plus the strike price adds up to more than the share price ($55 compared to $50). This is the interest component inherent in the warrant which covers the borrowing costs until expiry, when you pay the second portion (the strike price) and receive the underlying shares. Another difference between Instalment warrants and trading warrants (and options) is that with instalment warrants you still get the full dividends just like the shares, but at a higher yield than the shares."
},
{
"docid": "340815",
"title": "",
"text": "When you buy a futures contract you are entering into an agreement to buy gold, in the future (usually a 3 month settlement date). this is not an OPTION, but a contract, so each party is taking risk, the seller that the price will rise, the buyer that the price will fall. Unlike an option which you can simply choose not to exercise if the price goes down, with futures you are obligated to follow through. (or sell the contract to someone else, or buy it back) The price you pay depends on the margin, which is related to how far away the settlement date is, but you can expect around 5% , so the minimum you could get into is 100 troy ounces, at todays price, times 5%. Since we're talking about 100 troy ounces, that means the margin required to buy the smallest sized future contract would be about the same as buying 5 ounces of gold. roughly $9K at current prices. If you are working through a broker they will generally require you to sell or buy back the contract before the settlement date as they don't want to deal with actually following through on the purchase and having to take delivery of the gold. How much do you make or lose? Lets deal with a smaller change in the price, to be a bit more realistic since we are talking typically about a settlement date that is 3 months out. And to make the math easy lets bump the price of gold to $2000/ounce. That means the price of a futures contract is going to be $10K Lets say the price goes up 10%, Well you have basically a 20:1 leverage since you only paid 5%, so you stand to gain $20,000. Sounds great right? WRONG.. because as good as the upside is, the downside is just as bad. If the price went down 10% you would be down $20000, which means you would not only have to cough up the 10K you committed but you would be expected to 'top up the margin' and throw in ANOTHER $10,000 as well. And if you can't pay that up your broker might close out your position for you. oh and if the price hasn't changed, you are mostly just out the fees and commissions you paid to buy and sell the contract. With futures contracts you can lose MORE than your original investment. NOT for the faint of heart or the casual investor. NOT for folks without large reserves who can afford to take big losses if things go against them. I'll close this answer with a quote from the site I'm linking below The large majority of people who trade futures lose their money. That's a fact. They lose even when they are right in the medium term, because futures are fatal to your wealth on an unpredicted and temporary price blip. Now consider that, especially the bit about 'price blip' and then look at the current volatility of most markets right now, and I think you can see how futures trading can be as they say 'Fatal to your Wealth' (man, I love that phrase, what a great way of putting it) This Site has a pretty decent primer on the whole thing. their view is perhaps a bit biased due to the nature of their business, but on the whole their description of how things work is pretty decent. Investopedia has a more detailed (and perhaps more objective) tutorial on the futures thing. Well worth your time if you think you want to do anything related to the futures market."
},
{
"docid": "594122",
"title": "",
"text": "If for every buyer, there's a seller, doesn't that also mean that there were $25B in outflows in the same time period? Yes for every buyer there is a seller. The inflows are not being talked in that respect. about there being $25B in inflows to US equity markets since the election...what does that mean? Lets say the index was at X. After a month the index is at X+100. So lets say there are only 10 companies listed. So if the Index has moved X to X+100, then share price S1 has moved to S1+d1. So if you sum all such shares/trades that have increased in value, you will get what in inflow. In the same period there could be some shares that have lost value. i.e. the price or another share was S2 and has moved to S2-d2. The sum of all such shares/trades that have decreased in value, you will get outflow. The terms are Gross outflow, Gross inflow. In Net terms for a period, it can only be Inflow or outflow; depending on the difference between inflow and outflow. The stats are done day to day and aggregated for the time period required. So generally if the index has increased, it means there is more inflow and less outflow. At times this analysis is also done on segments, FI's inflow is more compared to outflow or compared to inflow of NBFI or Institutional investors or Foreign participants etc."
},
{
"docid": "565432",
"title": "",
"text": "\"Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short. 3 - not really, it might depend on the stock. 4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with. 5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads \"\"The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.\"\" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.\""
},
{
"docid": "574820",
"title": "",
"text": "All securities must be registered with the SEC. Securities are defined as (1) The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. thus currencies are not defined as securities. While OTC transactions of securities is not outright forbidden, there are numerous regulations issued by the SEC as a result of the 1943 Exchange Act and others that make this difficult and/or costly. Many other securities are exempted from registration thus trade in a way that could be called OTC. Different countries have variances upon US law but are very similar. Any security could be traded OTC, but law prohibits it expressly or in such a way to make it relatively expensive; further, stock options are so tightly regulated that expiration dates, expiration intervals, strike intervals, and minimum ticks are all set by the authorities."
},
{
"docid": "167304",
"title": "",
"text": "\"When you buy a put option, you're buying the right to sell stock at the \"\"strike\"\" price. To understand why you have to pay separately for that, consider the other side of the transaction. If I agree to trade stock for money at above market rates, I need to make up the difference somewhere or face bankruptcy. That risk of loss is what the option price is about. You might assume that means the market expects the price of AMD to fall to 8.01 from it's current price of 8.06 by the option expiration date. But that would also mean call options below the market price is worthless. But that's not quite true; people who price options need to factor in volatility, since things change with time. The price MIGHT fall, and traders need to account for that risk. So 1.99 roughly represents the probability of AMD rising to 10. There's probably some technical analysis one can do to the chain, but I don't see any abnormality of AMD here.\""
},
{
"docid": "281533",
"title": "",
"text": "\"You are likely making an assumption that the \"\"Short call\"\" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or \"\"write\"\") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example.\""
},
{
"docid": "132078",
"title": "",
"text": "\"Technically, anyone who advises how you should spend or proportion your money is a financial adviser. A person that does it for money is a Financial Advisor (difference in spelling). Financial Advisors are people that basically build, manage, or advise on your portfolio. They have a little more institutional knowledge on how/where to invest, given your goals, since they do it on a daily basis. They may know a little more than you since, they deal with many different assets: stocks, ETFs, mutual funds, bonds, insurances (home/health/life), REITs, options, futures, LEAPS, etc. There is risk in everything you do, which is why what they propose is generally according to the risk-level you want to assume. Since you're younger, your risk level could be a little higher, as you approach retirement, your risk level will be lower. Risk level should be associated with how likely you're able to reacquire your assets if you lose it all as well as, your likelihood to enjoy the fruits from your investments. Financial Advisors are great, however, be careful about them. Some are payed on commissions, which are given money for investing in packages that they support. Basically, they could get paid $$ for putting you in a losing situation. Also be careful because some announce that they are fee-based - these advisers often receive fees as well as commissions. Basically, associate the term \"\"commission\"\" with \"\"conflict-of-interest\"\", so you want a fee-only Advisor, which isn't persuaded to steer you wrong. Another thing worth noting is that some trading companies (like e*trade) has financial services that may be free, depending how much money you have with them. Generally, $50K is on the lower end to get a Financial Advisors. There has been corruption in the past, where Financial Advisors are only given a limited number of accounts to manage, that means they took the lower-valued ones and basically ran them into the ground, so they could get newer ones from the lot that were hopefully worth more - the larger their portfolio, the more $$ they could make (higher fees or more commissions) and subjectively less work (less accounts to have to deal with), that's subjective, since the spread of the wealth was accross many markets.\""
},
{
"docid": "44101",
"title": "",
"text": "\"To other users save yourselves time, do not test any of the alternatives mentioned in this post. I have, to no avail. At the moment (nov/2013) Saxobank unfortunately seems to be the only broker who offers OTC (over-the counter) FX options trading to Retail Investors. In other words, it is the only alternative for those who are interested in trading non-exchange options (ie, only alternative to those interested in trading FX options with any date or strike, rather than only one date per month and strikes every 50 pips only). I say \"\"unfortunately\"\" because competition is good, Saxo options spreads are a rip off, and their platform extremely clunky. But it is what it is.\""
},
{
"docid": "61170",
"title": "",
"text": "Concerning the Broker: eToro is authorized and registered in Cyprus by the Cyprus Securities Exchange Commission (CySEC). Although they are regulated by Cyprus law, many malicious online brokers have opened shop there because they seem to get along with the law while they rip off customers. Maybe this has changed in the last two years, personally i did not follow the developments. eToro USA is regulated by the Commodity Futures Trading Commission (CFTC) and thus doing business in a good regulated environment. Of course the CFTC cannot see into the future, so some black sheep are getting fined and even their license revoked every now and then. It has no NFA Actions: http://www.nfa.futures.org/basicnet/Details.aspx?entityid=45NH%2b2Upfr0%3d Concerning the trade instrument: Please read the article that DumbCoder posted carefully and in full because it contains information you absolutely have to have if you are to do anything with Contract for difference (CFD). Basically, a CFD is an over the counter product (OTC) which means it is traded between two parties directly and not going through an exchange. Yes, there is additional risk compared to the stock itself, mainly: To trade a CFD, you sign a contract with your broker, which in almost all cases allows the broker A CFD is just a derivative financial instrument which allows speculating / investing in an asset without trading the actual asset itself. CFDs do not have to mirror the underlying asset's price and price movement and can basically have any price because the broker quotes you independently of the underlying. If you do not know how all this works and what the instrument / vehicle actually is and how it works; and do not know what to look for in a broker, please do not trade it. Do yourself a favor and get educated, inform yourself, because otherwise your money will be gone fast. Marketing campaigns such as this are targeted at people who do not have the knowledge required and thus lose a significant portion (most of the time all) of their deposits. Answer to the actual question: No, there is no better way. You can by the stock itself, or a derivative based on it. This means CFDs, options or futures. All of them require additional knowledge because they work differently than the stock. TL;DR: DumbCoder is absolutely right, do not do it if you do not know what it is about. EDIT: Revisiting this answer and reading the other answers, i realize this sounds like derivatives are bad in general. This is absolutely not the case, and i did not intend it to sound this way. I merely wanted to emphasize the point that without sufficient knowledge, trading such products is a great risk and in most cases, should be avoided."
},
{
"docid": "361163",
"title": "",
"text": "The sentiment is because between closing and opening a lot can happen, and between opening and the time your order actually goes through, even more can happen. An after-hours trade has an extra amount of short-term risk attached; the price of a stock at the opening bell is technically the same as its price as of the closing the previous trading day, but within a tenth of a second, which is forever in a computerized exchange, that price may move drastically one way or the other, based on news and on other markets. The sentiment, therefore, is simple; if you're trading after-hours, you're trading risky. You're not trading based on what the market's actually doing, you're trading based on what you think the market will do in the morning, and there's still more math going on every second in the privately-held supercomputers in rented cubes in the NYSE basement than you could do all night, digesting this news and projecting what it's going to do to the stocks. Now, if you've done your homework and the stock looks like a good long-term buy, with or without any after-hours news, then place the order at 3 in the morning; who cares what the stock's gonna do at the opening bell. You're gonna hold that stock for the next ten years, maybe; what it does in 5 seconds of opening turmoil is relatively minor compared to the monthly trends that you should be worrying about."
},
{
"docid": "550643",
"title": "",
"text": "If you can afford the cost and risk of 100 shares of stock, then just sell a put option. If you can only afford a few shares, you can still use the information the options market is trying to give you -- see below. A standing limit order to buy a stock is essentially a synthetic short put option position. [1] So deciding on a stock limit order price is the same as valuing an option on that stock. Options (and standing limit orders) are hard to value, and the generally accepted math for doing so -- the Black-Scholes-Merton framework -- is also generally accepted to be wrong, because of black swans. So rather than calculate a stock buy limit price yourself, it's simpler to just sell a put at the put's own midpoint price, accepting the market's best estimate. Options market makers' whole job (and the purpose of the open market) is price discovery, so it's easier to let them fight it out over what price options should really be trading at. The result of that fight is valuable information -- use it. Sell a 1-month ATM put option every month until you get exercised, after which time you'll own 100 shares of stock, purchased at: This will typically give you a much better cost basis (several dollars better) versus buying the stock at spot, and it offloads the valuation math onto the options market. Meanwhile you get to keep the cash from the options premiums as well. Disclaimer: Markets do make mistakes. You will lose money when the stock drops more than the option market's own estimate. If you can't afford 100 shares, or for some reason still want to be in the business of creating synthetic options from pure stock limit orders, then you could maybe play around with setting your stock purchase bid price to (approximately): See your statistics book for how to set ndev -- 1 standard deviation gives you a 30% chance of a fill, 2 gives you a 5% chance, etc. Disclaimer: The above math probably has mistakes; do your own work. It's somewhat invalid anyway, because stock prices don't follow a normal curve, so standard deviations don't really mean a whole lot. This is where market makers earn their keep (or not). If you still want to create synthetic options using stock limit orders, you might be able to get the options market to do more of the math for you. Try setting your stock limit order bid equal to something like this: Where put_strike is the strike price of a put option for the equity you're trading. Which option expiration and strike you use for put_strike depends on your desired time horizon and desired fill probability. To get probability, you can look at the delta for a given option. The relationship between option delta and equity limit order probability of fill is approximately: Disclaimer: There may be math errors here. Again, do your own work. Also, while this method assumes option markets provide good estimates, see above disclaimer about the markets making mistakes."
}
] |
8532 | What do these options trading terms mean? | [
{
"docid": "320101",
"title": "",
"text": "\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \"\"covered call\"\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\""
}
] | [
{
"docid": "120059",
"title": "",
"text": "\"Generally, ETFs work on the basis that there exists a pair of values that can be taken at any moment in time: A Net Asset Value of each share in the fund and a trading market price of each share in the fund. It may help to picture these in baskets of about 50,000 shares for the creation/redemption process. If the NAV is greater than the market price, then arbitrageurs will buy up shares at the market price and do an \"\"in-kind\"\" transaction that will be worth the NAV value that the arbitrageurs could turn around and sell for an immediate profit. If the market price is greater than the NAV, then the arbitrageurs will buy up the underlying securities that can be exchanged \"\"in-kind\"\" for shares in the fund that can then be sold on the market for an immediate profit. What is the ETF Creation/Redemption Mechanism? would be a source on this though I imagine there are others. Now, in the case of VXX, there is something to be said for how much trading is being done and what impact this can have. From a July 8, 2013 Yahoo Finance article: At big option trade in the iPath S&P 500 VIX Short-Term Futures Note is looking for another jump in volatility. More than 250,000 VXX options have already traded, twice its daily average over the last month. optionMONSTER systems show that a trader bought 13,298 August 26 calls for the ask price of $0.24 in volume that was 6 times the strike's previous open interest, clearly indicating new activity. Now the total returns of the ETF are a combination of changes in share price plus what happens with the distributions which could be held as cash or reinvested to purchase more shares.\""
},
{
"docid": "575408",
"title": "",
"text": "An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules."
},
{
"docid": "189858",
"title": "",
"text": "While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating."
},
{
"docid": "504658",
"title": "",
"text": "\"> How do I go about trading options is it a viable route for some \"\"broke\"\" college kid? First off, I wouldn't trade what I don't understand. Second, you'd use a broker to trade options. Third, I wouldn't recommend any trading for someone with low income and low current net worth/available cash.\""
},
{
"docid": "340815",
"title": "",
"text": "When you buy a futures contract you are entering into an agreement to buy gold, in the future (usually a 3 month settlement date). this is not an OPTION, but a contract, so each party is taking risk, the seller that the price will rise, the buyer that the price will fall. Unlike an option which you can simply choose not to exercise if the price goes down, with futures you are obligated to follow through. (or sell the contract to someone else, or buy it back) The price you pay depends on the margin, which is related to how far away the settlement date is, but you can expect around 5% , so the minimum you could get into is 100 troy ounces, at todays price, times 5%. Since we're talking about 100 troy ounces, that means the margin required to buy the smallest sized future contract would be about the same as buying 5 ounces of gold. roughly $9K at current prices. If you are working through a broker they will generally require you to sell or buy back the contract before the settlement date as they don't want to deal with actually following through on the purchase and having to take delivery of the gold. How much do you make or lose? Lets deal with a smaller change in the price, to be a bit more realistic since we are talking typically about a settlement date that is 3 months out. And to make the math easy lets bump the price of gold to $2000/ounce. That means the price of a futures contract is going to be $10K Lets say the price goes up 10%, Well you have basically a 20:1 leverage since you only paid 5%, so you stand to gain $20,000. Sounds great right? WRONG.. because as good as the upside is, the downside is just as bad. If the price went down 10% you would be down $20000, which means you would not only have to cough up the 10K you committed but you would be expected to 'top up the margin' and throw in ANOTHER $10,000 as well. And if you can't pay that up your broker might close out your position for you. oh and if the price hasn't changed, you are mostly just out the fees and commissions you paid to buy and sell the contract. With futures contracts you can lose MORE than your original investment. NOT for the faint of heart or the casual investor. NOT for folks without large reserves who can afford to take big losses if things go against them. I'll close this answer with a quote from the site I'm linking below The large majority of people who trade futures lose their money. That's a fact. They lose even when they are right in the medium term, because futures are fatal to your wealth on an unpredicted and temporary price blip. Now consider that, especially the bit about 'price blip' and then look at the current volatility of most markets right now, and I think you can see how futures trading can be as they say 'Fatal to your Wealth' (man, I love that phrase, what a great way of putting it) This Site has a pretty decent primer on the whole thing. their view is perhaps a bit biased due to the nature of their business, but on the whole their description of how things work is pretty decent. Investopedia has a more detailed (and perhaps more objective) tutorial on the futures thing. Well worth your time if you think you want to do anything related to the futures market."
},
{
"docid": "596567",
"title": "",
"text": "Your wife could open a non-registered margin trading account with a Canadian full-service or discount broker. An account at one of the top Canadian brokers should provide access to trade U.S.-listed options. I've traded both Canadian and U.S.-listed options with my own broker. On the application, you'd need to indicate an interest in trading options, and more specifically, what kind of option trades; e.g. long puts and calls only, covered writing, combination trades, etc. And yes, part of the application approval process (at least when I went through it) is to answer a few questions to prove that the applicant is aware of the types of risks with trading options. Be sure to do some research on the fees and currency/fx aspects before you choose a broker. If you plan to exercise any options purchased or expect to be assigned for any you write, be aware that those fees are often different from the headline cost-per-trade advertised by brokers. For instance, I pay in excess of $40 when a call option I write gets assigned, vs. ~$10 that I'd pay if I just plain sold the stock. One other thing to investigate is what kind of online option trading research and order entry tools are available; not every broker has the same set of features with respect to options — especially if it isn't a big part of their business."
},
{
"docid": "188364",
"title": "",
"text": "\"This probably won't be a popular answer due to the many number of disadvantaged market participants out there but: Yes, it is possible to distort the markets for securities this way. But it is more useful to understand how this works for any market (since it is illegal in securities markets where company shares are involves). Since you asked about the company Apple, you should be aware this is a form of market manipulation and is illegal... when dealing with securities. In any supply and demand market this is possible especially during periods when other market participants are not prevalent. Now the way to do this usually involves having multiple accounts you control, where you are acting as multiple market participants with different brokers etc. The most crafty ways to do with involve shell companies w/ brokerage accounts but this is usually to mask illegal behavior In the securities markets where there are consequences for manipulating the shares of securities. In other markets this is not necessary because there is no authority prohibiting this kind of trading behavior. Account B buys from Account A, account A buys from Account B, etc. The biggest issue is getting all of the accounts capitalized initially. The third issue is then actually being able to make a profit from doing this at all. Because eventually one of your accounts will have all of the shares or whatever, and there would still be no way to sell them because there are no other market participants to sell to, since you were the only one moving the price. Therefore this kind of market manipulation is coupled with \"\"promotions\"\" to attract liquidity to a financial product. (NOTE the mere fact of a promotion does not mean that illegal trading behavior is occurring, but it does usually mean that someone else is selling into the liquidity) Another way to make this kind of trading behavior profitable is via the derivatives market. Options contracts are priced solely by the trading price of the underlying asset, so even if your multiple account trading could only at best break even when you sell your final holdings (basically resetting the price to where it was because you started distorting it), this is fine because your real trade is in the options market. Lets say Apple was trading at $200 , the options contract at the $200 strike is a call trading at $1 with no intrinsic value. You can buy to open several thousand of the $200 strike without distorting the shares market at all, then in the shares market you bid up Apple to $210, now your options contract is trading at $11 with $10 of intrinsic value, so you just made 1000% gain and are able to sell to close those call options. Then you unwind the rest of your trade and sell your $210 apple shares, probably for $200 or $198 or less (because there are few market participants that actually valued the shares for that high, the real bidders are at $200 and lower). This is hardly a discreet thing to do, so like I mentioned before, this is illegal in markets where actual company shares are involved and should not be attempted in stock markets but other markets won't have the same prohibitions, this is a general inefficiency in capital markets in general and certain derivatives pricing formulas. It is important to understand these things if you plan to participate in markets that claim to be fair. There is nothing novel about this sort of thing, and it is just a problem of allocating enough capital to do so.\""
},
{
"docid": "498056",
"title": "",
"text": "Unlike the stock market which offers growth long term, the derivatives market is a zero sum game. This phrase is how one describes a poker game. 7 people walk in, and walk out with the same total amount of money (note, the 7th guy is the 'house', and with nothing at risk, he gets his cut). No money is created, the total value doesn't change. When I buy or sell an option, there is someone on the other side of that trade with a gain or loss equal and opposite to my position. At option expiration, or a repurchase that closes an open contract, the whole series of trades resulted in no net gain of wealth. The huge losses were spread among the banks, the investors, the insurance companies, and the government. By government, I mean the taxpayer. You paid your share, my friend, as did I. Welcome to Money.SE. Get to 150 rep, and vote in the election."
},
{
"docid": "528157",
"title": "",
"text": "Your answer looks correct. It's the buyer of the option that's long, not the seller (you). If you're doing a lot of trading, you might get hit with wash-sale rules and you could be taxed at the short-term capital gains rate, which is higher than for long-term gains. But those aren't direct fees."
},
{
"docid": "287325",
"title": "",
"text": "\"What could the tax issues with the IRS be? I thought (but not totally certain) that the tax treatment of an ISO option was based on difference between exercise price and FMV at the time of the sale. This is an accounting issue. There were times not so long ago that companies actually did these things on purpose, to boost the stock grant values for their employees (especially senior employees). They would give a grant but date it with an earlier date with a more favorable valuation. This is called \"\"backdating\"\", and it brought companies down and CEOs into criminal courts. In addition, only reasonable compensation is allowed as a deduction for the company, and incorrectly set strike price may be deemed unreasonable. Thus, the deduction the company would take for your compensation can be denied, leading to loss of tax benefit (this was also a weapon used by the IRS at the time against companies doing backdating). Last but not least, company that has intentions of going public cannot allow itself such a blatant disregard of the accounting rules. Even if the mistake was not made on purpose (as it sounds), it is a mistake that has to be corrected. What should I take into consideration to determine whether a 27% increase in shares is a fair exchange for an increase in 270% increase in strike price. Did you know the strike price when you signed the contract? Was it a consideration for you? For most people, the strike price is determined at the board approval, since the valuations are not public and are not disclosed before you actually join, which is already after you've agreed to the terms. So basically, you agreed to get 100 sheets of toilet paper, and instead getting 127 sheets. So you're getting 27 sheets more than you initially agreed to. Why are you complaining? In other words, options are essentially random numbers which are quite useless. By the time you get to exercise them, they'll be diluted through a bunch of additional financing rounds, and their value will be determined for real only after the IPO, or at least when your company's stocks are trading OTC with some reasonable volume. Until then - it's just a number with not much of a meaning. The FMV does matter for early exercise and 83(b) election, if that is an option, but even then - I doubt you can actually negotiate anything.\""
},
{
"docid": "258227",
"title": "",
"text": "How long is a piece of string? This will depend on many variables. How many trades will you make in a day? What income would you be expecting to make? What expectancy do you need to achieve? Which markets you will choose to trade? Your first step should be to develop a Trading Plan, then develop your trading rules and your risk management. Then you should back test your strategy and then use a virtual account to practice losing on. Because one thing you will get is many losses. You have to learn to take a loss when the market moves against you. And you need to let your profits run and keep your losses small. A good book to start with is Trade Your Way to Financial Freedom by Van Tharp. It will teach you about Expectancy, Money Management, Risk Management and the Phycology of Trading. Two thing I can recommend are: 1) to look into position and trend trading and other types of short term trading instead of day trading. You would usually place your trades after market close together with your stops and avoid being in front of the screen all day trying to chase the market. You need to take your emotion out of your trading if you want to succeed; 2) don't trade penny stocks, trade commodities, FX or standard stocks, but keep away from penny stocks. Just because you can buy them for a penny does not mean they are cheap."
},
{
"docid": "479461",
"title": "",
"text": "\"The S&P 500 is an index. This refers to a specific collection of securities which is held in perfect proportion. The dollar value of an index is scaled arbitrarily and is based off of an arbitrary starting price. (Side note: this is why an index never has a \"\"split\"\"). Lets look at what assumptions are included in the pricing of an index: All securities are held in perfect proportion. This means that if you invest $100 in the index you will receive 0.2746 shares of IBM, 0.000478 shares of General Motors, etc. Also, if a security is added/dropped from the list, you are immediately rebalancing the remaining money. Zero commissions are charged. When the index is calculated, they are using the current price (last trade) of the underlying securities, they are not actually purchasing them. Therefore it assumes that securities may be purchased without commission or other liquidity costs. Also closely related is the following. The current price has full liquidity. If the last quoted price is $20 for a security, the index assumes that you can purchase an arbitrary amount of the security at that price with a counterparty that is willing to trade. Dividends are distributed immediately. If you own 500 equities, and most distributed dividends quarterly, this means you will receive on average 4 dividends per day. Management is free. All equities can be purchased with zero research and administrative costs. There is no gains tax. Trading required by the assumptions above would change your holdings constantly and you are exempt from short-term or long-term capital gains taxes. Each one of these assumptions is, of course, invalid. And the fund which endeavors to track the index must make several decisions in how to closely track the index while avoiding the problems (costs) caused by the assumptions. These are shortcuts or \"\"approximations\"\". Each shortcut leads to performance which does not exactly match the index. Management fees. Fees are charged to the investor as load, annual fees and/or redemptions. Securities are purchased at real prices. If Facebook were removed from the S&P 500 overnight tonight, the fund would sell its shares at the price buyers are bidding the next market day at 09:30. This could be significantly different than the price today, which the index records. Securities are purchased in blocks. Rather than buying 0.000478 shares of General Motors each time someone invests a dollar, they wait for a few people and then buy a full share or a round lot. Securities are substituted. With lots of analysis, it may be determined that two stocks move in tandem. The fund may purchase two shares of General Motors rather than one of General Motors and Ford. This halves transaction costs. Debt is used. As part of substitution, equities may be replaced by options. Option pricing shows that ownership of options is equivalent to holding an amount of debt. Other forms of leverage may also be employed to achieve desired market exposure. See also: beta. Dividends are bundled. VFINX, the largest S&P 500 tracking fund, pays dividends quarterly rather than immediately as earned. The dividend money which is not paid to you is either deployed to buy other securities or put into a sinking fund for payment. There are many reasons why you can't get the actual performance quoted in an index. And for other more exotic indices, like VIX the volatility index, even more so. The best you can do is work with someone that has a good reputation and measure their performance.\""
},
{
"docid": "498378",
"title": "",
"text": "\"This depends strongly on what you mean by \"\"stock trading\"\". It isn't a single game, but a huge number of games grouped under a single name. You can invest in individual stocks. If you're willing to make the (large) effort needed to research the companies and their current position and potentialities, this can yield large returns at high risk, or moderate returns at moderate risk. You need to diversify across multiple stocks, and multiple kinds of stocks (and probably bonds and other investment vehicles as well) to manage that risk. Or you can invest in managed mutual funds, where someone picks and balances the stocks for you. They charge a fee for that service, which has to be subtracted from their stated returns. You need to decide how much you trust them. You will usually need to diversify across multiple funds to get the balance of risk you're looking for, with a few exceptions like Target Date funds. Or you can invest in index funds, which automate the stock-picking process to take a wide view of the market and count on the fact that, over time, the market as a whole moves upward. These may not produce the same returns on paper, but their fees are MUCH lower -- enough so that the actual returns to the investor can be as good as, or better than, managed funds. The same point about diversification remains true, with the same exceptions. Or you can invest in a mixture of these, plus bonds and other investment vehicles, to suit your own level of confidence in your abilities, confidence in the market as a whole, risk tolerance, and so on. Having said all that, there's also a huge difference between \"\"trading\"\" and \"\"investing\"\", at least as I use the terms. Stock trading on a short-term basis is much closer to pure gambling -- unless you do the work to deeply research the stocks in question so you know their value better than other people do, and you're playing against pros. You know the rule about poker: If you look around the table and don't see the sucker, he's sitting in your seat... well, that's true to some degree in short-term trading too. This isn't quite a zero-sum game, but it takes more work to play well than I consider worth the effort. Investing for the long term -- defining a balanced mixture of investments and maintaining that mixture for years, with purchases and sales chosen to keep things balanced -- is a positive sum game, since the market does drift upward over time at a long-term average of about 8%/year. If you're sufficiently diversified (which is one reason I like index funds), you're basically riding that rise. This puts you in the position of betting with the pros rather than against them, which is a lower-risk position. Of course the potential returns are reduced too, but I've found that \"\"market rate of return\"\" has been entirely adequate, though not exciting. Of course there's risk here too, if the market dips for some reason, such as the \"\"great recession\"\" we just went through -- but if you're planning for the long term you can usually ride out such dips, and perhaps even see them as opportunities to buy at a discount. Others can tell you more about the details of each of these, and may disagree with my characterizations ... but that's the approach I've taken, based on advice I trust. I could probably increase my returns if I was willing to invest more time and effort in doing so, but I don't especially like playing games for money, and I'm getting quite enough for my purposes and spending near-zero effort on it, which is exactly what I want.\""
},
{
"docid": "594122",
"title": "",
"text": "If for every buyer, there's a seller, doesn't that also mean that there were $25B in outflows in the same time period? Yes for every buyer there is a seller. The inflows are not being talked in that respect. about there being $25B in inflows to US equity markets since the election...what does that mean? Lets say the index was at X. After a month the index is at X+100. So lets say there are only 10 companies listed. So if the Index has moved X to X+100, then share price S1 has moved to S1+d1. So if you sum all such shares/trades that have increased in value, you will get what in inflow. In the same period there could be some shares that have lost value. i.e. the price or another share was S2 and has moved to S2-d2. The sum of all such shares/trades that have decreased in value, you will get outflow. The terms are Gross outflow, Gross inflow. In Net terms for a period, it can only be Inflow or outflow; depending on the difference between inflow and outflow. The stats are done day to day and aggregated for the time period required. So generally if the index has increased, it means there is more inflow and less outflow. At times this analysis is also done on segments, FI's inflow is more compared to outflow or compared to inflow of NBFI or Institutional investors or Foreign participants etc."
},
{
"docid": "380951",
"title": "",
"text": "You are asking 'what if', do you have some anticipated answers? Having volume smaller than open interest is the norm. As far as I can tell, having only one trading day and no previous open interest only affects someone trying to sell a contract they are holding. Meaning that if you only have one day to sell your contract then you need to offer it 'at market' or at the bid price (or even lower than the bid price). If you cannot sell your contract then you have to let it expire worthless or you have to exercise it. Those are your three options: let it expire, sell it (perhaps at a loss), and exercise it. Edit: be careful about holding an in-the-money option. Many brokers will automatically exercise an in-the-money contract if you hold it till expiration date."
},
{
"docid": "340125",
"title": "",
"text": "\"Sorry but you already provided the answer to your own question. The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock. Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis. Not like they will hate you given all the fees you are likely to rack up. And the government will love you also, since you'll be paying short term gains taxes. (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as \"\"day trader\"\" and I got a big margin call. What should I do? What trades can I place in the blocked period?\""
},
{
"docid": "44101",
"title": "",
"text": "\"To other users save yourselves time, do not test any of the alternatives mentioned in this post. I have, to no avail. At the moment (nov/2013) Saxobank unfortunately seems to be the only broker who offers OTC (over-the counter) FX options trading to Retail Investors. In other words, it is the only alternative for those who are interested in trading non-exchange options (ie, only alternative to those interested in trading FX options with any date or strike, rather than only one date per month and strikes every 50 pips only). I say \"\"unfortunately\"\" because competition is good, Saxo options spreads are a rip off, and their platform extremely clunky. But it is what it is.\""
},
{
"docid": "167304",
"title": "",
"text": "\"When you buy a put option, you're buying the right to sell stock at the \"\"strike\"\" price. To understand why you have to pay separately for that, consider the other side of the transaction. If I agree to trade stock for money at above market rates, I need to make up the difference somewhere or face bankruptcy. That risk of loss is what the option price is about. You might assume that means the market expects the price of AMD to fall to 8.01 from it's current price of 8.06 by the option expiration date. But that would also mean call options below the market price is worthless. But that's not quite true; people who price options need to factor in volatility, since things change with time. The price MIGHT fall, and traders need to account for that risk. So 1.99 roughly represents the probability of AMD rising to 10. There's probably some technical analysis one can do to the chain, but I don't see any abnormality of AMD here.\""
},
{
"docid": "465380",
"title": "",
"text": "\"In real life, you'd see spreads like AMZN 04/13/2017 910.00 C 4.90 +1.67 Bid: 4.75 Ask: 5.20 (with AMZN @ $897 right now) and the fill you'd get on the buy side would be closer to the ask. i.e. I'd offer $5.00 and hope that it filled. Filling a $4 bid when ask is $8 isn't likely unless the stock blipped down enough for your price to fill. Options are a lot like day trading, in most cases. Most members here will agree that day trading isn't investing, it's gambling. Long term, the S&P has been up 10%/yr. But any given day, the noise of the market is a 50/50 zero sum game. Most long term stock 'investors' do well. Those who get in and out, not so much. There are aspects to options that are appealing. As you've seen, the return can be high, even IRL, but your loss can be 100% as well. Let me share with you a blurred line - I wrote \"\"Betting on Apple at 9 to 2\"\" in which I described an option strategy that ran 2 years and would return $10,000 on a $2200 bet. A similar bet that ended a year ago yielded a 100% loss. I don't post there very often, as I keep that trading to a minimum. There are warnings for those who want to start trading options -\""
}
] |
8537 | What is an “Options Account”? | [
{
"docid": "6574",
"title": "",
"text": "Options are a derivative product, and in this case, derive their value from an underlying security, a traded stock. An option gives you the right, but not the obligation, to buy a stock at a given price (the strike price) by a given time (the expiration date.) What I just described is a call option. The opposite instrument is a put, giving you the right, but not the obligation, to sell the stock at a given price. Volumes have been written on the subject, but I'd suggest that for a custodial Roth, I'd not activate the ability to trade options. How to get started with options investing? offers a nice introduction to trading options. In my response, I offer an example of a trade that's actually less risky due to the option component."
}
] | [
{
"docid": "272325",
"title": "",
"text": "I am not aware of a single instrument that encapsulates what you are after; but the components do exist. At least in Canada, there are many Options traded on the Montreal Exchange that are based on Toronto ETFs. All the standard TSX ETFs are represented, as well as some of the more exotic. With a regular investment account approved for Options you should be able to do what you want. In a parallel vein, there are also double down and up ETFs. One such example are the Horizons BetaPro series of ETFs. They are designed to return double the market up or down on a daily basis and reset daily. They do need to be watched closely, however. Good Luck"
},
{
"docid": "484778",
"title": "",
"text": "\"There are a few reason why the stock price decreases after a dividend is paid: What's the point of paying a dividend if the stock price automatically decreases? Don't the shareholders just break even? Companies have to do something with their profits. They beholden to their shareholders to make them money either by increasing the share value or paying dividends. So they have the choice between reinvesting their profits into the company to grow the business or just handing the profits directly to the owners of the business (the shareholders). Some companies are as big as they want to be and investing their profits into more capital offers them diminishing returns. These companies are more likely to pay dividends to their shareholders. I assume the price of the stock \"\"naturally\"\" increases over the year to reflect the amount of the dividend payment. This is kind of a vague question but then doesn't it make it difficult to evaluate the fluctuations in stock price (in the way that you would a company that doesn't pay a dividend)? It depends on the company. The price may recover the dividend drop... could take a few days to a week. And that dependings on the company's performance and the overall market performance. With respect to options, I assume nothing special happens? So say I bought $9 call options yesterday that were in the money, all of a sudden they're just not? Is this typically priced into the option price? Is there anything else I need to know about buying options in companies that pay dividends? What if I had an in-the-money option, and all of a sudden out of nowhere a company decides to pay a dividend for the first time. Am I just screwed? One key is that dividends are announced in advance (typically at least, if not always; not sure if it's required by law but I wouldn't be surprised). This is one reason people will sometimes exercise a call option early, because they want to get the actual stock in order to earn the dividend. For \"\"out of the ordinary\"\" large cash dividends (over 10% is the guideline), stock splits, or other situations an option can be adjusted: http://www.888options.com/help/faq/splits.jsp#3 If you have an options account, they probably sent you a \"\"Characteristics and Risks of Standardized Options\"\" booklet. It has a section discussing this topic and the details of what kinds of situations trigger an adjustment. A regular pre-announced <10% dividend does not, while a special large dividend would, is what I roughly get from it. That \"\"Characteristics and Risks of Standardized Options\"\" is worth reading by the way; it's long and complicated, but well, options are complicated. Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? I'm just shocked I've never heard of this before. The company doesn't directly control the stock price, but I do believe this is automatic. I think the market does this automatically because if they didn't, there would be enough people trying to do dividend capture arbitrage that it would ultimately drive down the price.\""
},
{
"docid": "233781",
"title": "",
"text": "\"That's accurate. Here is another risk with the current checking system, which many people are not aware of: Anyone who knows your checking account number can learn what your balance in that account is. (This is bank-specific, but it is possible at the major banks I've checked.) How does that work? Many banks have a phone line where you can dial up and interact with an automated voice response system, for various customer service tasks. One of the options is something like \"\"merchant check verification\"\". That option is intended to help a merchant who receives a check to verify whether the person writing the check has enough money in their account for the check to clear. If you select that option in the phone tree, it will prompt you to enter in the account number on the check and the amount of the check, and then it will respond by telling you either \"\"there are currently sufficient funds in the account to cash this check\"\" or \"\"there are not sufficient funds; this check would bounce\"\". Here's how you can abuse this system to learn how much someone has in their bank account, if you know their account number. You call up and check whether they've enough money to cash a $10,000 check (note that you don't actually have to have a check for $10,000 in your hands; you just need to know the account number). If the system says \"\"nope, it'd bounce\"\", then you call again and try $5,000. If the system says \"\"yup, sufficient funds for a $5,000 check\"\", then you try $7,500. If it says \"\"nope, not enough for that\"\", you try $6,250. Etcetera. At each step, you narrow the range of possible account balances by a factor of two. Consequently, after about a dozen or so steps, you will likely know their balance to within a few dollars. (Computer scientists know this procedure by the name \"\"binary search\"\". The rest of us may recognize it as akin to a game of \"\"20 questions\"\".) If this bothers you, you may be able to protect your self by calling up your bank and asking them how to prevent it. When I talked to my bank (Bank of America), they told me they could put a fraud alert flag on your account, which would disable the merchant check verification service for my account. It does mean that I have to provide a 3-digit PIN any time I phone up my bank, but that's fine with me. I realize many folks may terribly not be concerned about revealing their bank account balance, so in the grand scheme of things, this risk may be relatively minor. However, I thought I'd document it here for others to be aware of.\""
},
{
"docid": "383930",
"title": "",
"text": "Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal."
},
{
"docid": "423658",
"title": "",
"text": "It depends on how much diversification you think you need and what your mutual fund options are. For instance, picking an index fund already provides a fair amount of diversification, especially if you select a Total Market type of index (readily available from Fidelity and Vanguard, and many other fund families). Are you looking to balance domestic vs. international investments? You may want to add an international index fund to the mix. Feel that a particular sector has tremendous potential? Add a sector fund. This investment mix is up to you (or your investment advisor). However, depending on your Roth IRA mutual fund choices, some of these funds may have minimum investment requirement - $3k to open a fund's account, for instance. In that case, you'd have no choice but to put your entire investment into one fund, and wait for subsequent years where you'd be able to invest in other funds after providing additional contributions and/or reallocation any growth from your initial investment. One thing to look at is whether you have an option of putting some of your contributions into a money market account within the Roth IRA - you can then reallocate funds from that account into another fund after you can meet the minimum investment requirement. However, in my opinion, if you start out by investing in a solid, low-cost index fund from a reputable mutual fund company, you've already picked up most of the diversification you need - a single fund is enough."
},
{
"docid": "401266",
"title": "",
"text": "\"Your company actually will most likely use some sort of options pricing model, either a binomial tree or black-scholes to determine the value for their accounting and, subsequently, for their issuance and realization. First, market value of equity will be determined. Given you're private (although \"\"pre-IPO could mean public tomorrow,\"\"), this will likely revolve around a DCF and/or market approaches. Equity value will then be compared to a cap table to create an equity waterfall, where the different classes of stock and the different options will be valued along tranches. Keep in mind there might be liquidation preferences that would make options essentially further out of the money. As such, your formulae above do not quite work. However, as an employee, it might be difficult to determine the necessary inputs to determine value. To estimate it, however, look for three key pieces of information: 1. Current equity value 2. Option strike price 3. Maturity for Options If the strike is close to the current equity value, and the maturity is long enough, and you expect the company to grow, then it would look like the options have more value than not. Equity value can be derived from enterprise value, or by directly determining it via a DCF or guideline multiples. Reliable forecasts should come from looking at the industry, listening to what management is saying, and then your own information as an insider.\""
},
{
"docid": "488996",
"title": "",
"text": "You definitely should NOT do what you are doing now (#2) since this is not a reflection of what actually is going on. (Unless you actually did transfer the equities themselves and not the cash.) Your first option is correct solution. As noted by mpenrow you need to make sure that the target account is also tax deferred. If that still doesn't work and there is a bug you should still do it this way anyway. If it messes up your tax planner just make sure to include a comment so that everyone knows what is really going on. When I have had issues like this in the past I always try to stick to whatever is the closest indication of what actually occurred."
},
{
"docid": "489278",
"title": "",
"text": "The deposit insurance isn't provided by the bank; it's provided by the Singapore Deposit Insurance Corporation (SDIC). In the event that the bank fails or is declared insolvent, the SDIC will pay deposit holders their total balance in all accounts with that bank, up to S$50,000. If you hold S$60,000 in all of your insured accounts, you'll only receive S$50,000 if the bank fails. The SDIC provides an example page with sample calculations, and this is exactly what they show. If you deposit an amount greater than $S50,000, it's only insured up to S$50,000. So does it mean one should open multiple accounts under different banks to spread the money around and maintain only S$50,000 in one deposit account? This is one option. The calculations page I linked to above gives this reminder: Deposits are not insured separately in each branch office of a DI Scheme member i.e. all your eligible accounts maintained with different branches of a DI Scheme member are aggregated and insured up to S$50,000. This seems like common sense, but it's important to remember that if you open an account with two branch offices of Bank A, your deposits are aggregated and insured up to S$50,000. The SDIC insurance is per institution (called a Deposit Insurance Member), not per branch. If you hold S$45,000 in each branch office, for a total of S$90,000, you're still only insured up to S$50,000 for that bank. If you want to spread out your accounts between multiple banks, make sure they're different banks, not just different branches. Another option, if it applies to you, is to open a joint account with your spouse. In the FAQ page, the SDIC gives this example under point 14: if you and your husband have a joint account with S$70,000, and you have a separate account of S$20,000, your total deposits of S$55,000 will be covered to the maximum of S$50,000. The deposit of $S70,000 is split evenly between the spouses, so in the eyes of the SDIC, each are holding S$35,000. Then, the husband's additional S$20,000 is added to S$35,000 for a total of S$50,000. This is then insured up to S$50,000 as usual. I'm sure there are other options specific to Singapore that I'm not aware of; if you're well above the limit, i.e. holding millions of dollars, I'm sure a professional accountant in Singapore could guide you further."
},
{
"docid": "177903",
"title": "",
"text": "\"Not having seen the movie, I don't know what you mean by \"\"fraudulent options buys.\"\" But there are two possibilities: 1) Someone placed buy orders on the account without authorization. In which case it comes down to a protracted lawsuit to determine whether the broker exercised due diligence, or whether Bruce foolishly gave someone his password. 2) The options themselves were fraudulent. In which case the OCC is responsible for making everyone whole.\""
},
{
"docid": "344384",
"title": "",
"text": "I had a joint account at Chase, and each of us had own on-line login, and could access the account (each of us also had non-joint accounts in Chase, and with the same login we already had we could access the joint accounts, but not the other's non-joint accounts). It seems like your bank is really backwards on this, change the bank. By the way, in joint accounts you have the option of requiring both partners to sign on every document, so that every check or order you write will only be valid with both of your signatures. I don't know if that's what you need, but some may want that (it is quite uncomfortable, IMHO)."
},
{
"docid": "589256",
"title": "",
"text": "\"For some people, it should be a top priority. For others, there are higher priorities. What it should be for you depends on a number of things, including your overall financial situation (both your current finances and how stable you expect them to be over time), your level of financial \"\"education\"\", the costs of your mortgage, the alternative investments available to you, your investing goals, and your tolerance for risk. Your #1 priority should be to ensure that your basic needs (including making the required monthly payment on your mortgage) are met, both now and in the near future, which includes paying off high-interest (i.e. credit card) debt and building up an emergency fund in a savings or money-market account or some other low-risk and liquid account. If you haven't done those things, do not pass Go, do not collect $200, and do not consider making advance payments on your mortgage. Mason Wheeler's statements that the bank can't take your house if you've paid it off are correct, but it's going to be a long time till you get there and they can take it if you're partway to paying it off early and then something bad happens to you and you start missing payments. (If you're not underwater, you should be able to get some of your money back by selling - possibly at a loss - before it gets to the point of foreclosure, but you'll still have to move, which can be costly and unappealing.) So make sure you've got what you need to handle your basic needs even if you hit a rough patch, and make sure you're not financing the paying off of your house by taking a loan from Visa at 27% annually. Once you've gotten through all of those more-important things, you finally get to decide what else to invest your extra money in. Different investments will provide different rewards, both financial and emotional (and Mason Wheeler has clearly demonstrated that he gets a strong emotional payoff from not having a mortgage, which may or may not be how you feel about it). On the financial side of any potential investment, you'll want to consider things like the expected rate of return, the risk it carries (both on its own and whether it balances out or unbalances the overall risk profile of all your investments in total), its expected costs (including its - and your - tax rate and any preferred tax treatment), and any other potential factors (such as an employer match on 401(k) contributions, which are basically free money to you). Then you weigh the pros and cons (financial and emotional) of each option against your imperfect forecast of what the future holds, take your best guess, and then keep adjusting as you go through life and things change. But I want to come back to one of the factors I mentioned in the first paragraph. Which options you should even be considering is in part influenced by the degree to which you understand your finances and the wide variety of options available to you as well as all the subtleties of how different things can make them more or less advantageous than one another. The fact that you're posting this question here indicates that you're still early in the process of learning those things, and although it's great that you're educating yourself on them (and keep doing it!), it means that you're probably not ready to worry about some of the things other posters have talked about, such as Cost of Capital and ROI. So keep reading blog posts and articles online (there's no shortage of them), and keep developing your understanding of the options available to you and their pros and cons, and wait to tackle the full suite of investment options till you fully understand them. However, there's still the question of what to do between now and then. Paying the mortgage down isn't an unreasonable thing for you to do for now, since it's a guaranteed rate of return that also provides some degree of emotional payoff. But I'd say the higher priority should be getting money into a tax-advantaged retirement account (a 401(k)/403(b)/IRA), because the tax-advantaged growth of those accounts makes their long-term return far greater than whatever you're paying on your mortgage, and they provide more benefit (tax-advantaged growth) the earlier you invest in them, so doing that now instead of paying off the house quicker is probably going to be better for you financially, even if it doesn't provide the emotional payoff. If your employer will match your contributions into that account, then it's a no-brainer, but it's probably still a better idea than the mortgage unless the emotional payoff is very very important to you or unless you're nearing retirement age (so the tax-free growth period is small). If you're not sure what to invest in, just choose something that's broad-market and low-cost (total-market index funds are a great choice), and you can diversify into other things as you gain more savvy as an investor; what matters more is that you start investing in something now, not exactly what it is. Disclaimer: I'm not a personal advisor, and this does not constitute investing advice. Understand your choices and make your own decisions.\""
},
{
"docid": "320529",
"title": "",
"text": "As a former banker, the title of the car will be assigned to the loan account holder(s) because legally, he/she/they are responsible for payments. I've never heard of any case where the car title differs from the loan account holder(s). Throughout my career in the bank, I've come across quite a number of parents who did the same for their children and the car title was always assigned to the loan account holder's name. You do have a choice of applying for a joint loan with one of your parents unless if you are concerned about what your credit score might be. Once the loan has been paid off, the title could be changed to your name from your parents of course. As for insurance, there are numerous options where the insurance would cover all drivers of the car however at a slightly higher price like you've mentioned."
},
{
"docid": "516381",
"title": "",
"text": "Option three is our preferred method, and we never argue about money. First we did a budget to work out ALL monthly joint out-goings (mortgage, bills, grocery etc). Then we each agreed who would pay what into the joint or household account - at the moment, I earn more than my wife, so I pay more, but we sit down every three or four months, to see if it needs adjusting. This way, we each keep our own individual accounts private, but pay what is necessary into the household account. We also set up a joint savings account; often at the end of the month, we'll have a little extra left in the household acount, and we siphon that off into joint savings to cover future unexpected costs - looks like our tumble dryer is on its last spin cycle at the moment, for example, and the joint savings account will be able to cover the cost of replacement. it all takes a bit of administration - but, as I say, we've never had a cross word about money, so the system seems to work."
},
{
"docid": "82159",
"title": "",
"text": "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."
},
{
"docid": "53602",
"title": "",
"text": "There are a few options that I know of, but pretty much every one of them will cost more than you want to pay in fees, probably. You should be able to write a check/cheque to yourself. You might check with your US bank branch to see how much of a limit they'd have. You can also use a Canadian ATM card at a US ATM. The final option would be to use a Canadian credit card for all of your purchases in the US, and then pay the bill from the Canadian bank account. I don't recommend the last option because if you're not careful to pay off the bill every month, you're running up debt. Also, it's hard to pay some kinds of expenses by credit card, so you'd want a way to have cash available. Another option would be to use a service like Paypal or Hyperwallet to send yourself the money. Again, you'd be paying fees, but these might be cheaper than what the bank would charge. There may be other options, but these are the ones I'm aware of. Whatever you choose, look carefully at what the fees would be, and how long you'd have to wait to get the money. If you can plan ahead a bit, and take larger chunks of money at a time, that should help keep the fees down a bit. I believe there's also a point where you start having to report these transfers to the US government. The number $10,000 stick in my head, but they may have changed that recently."
},
{
"docid": "501330",
"title": "",
"text": "\"PayPal has a very generous buyer protection program. That means that the buyer can dispute receiving the goods and get their money back fairly easily (compared to credit cards). For this reason Craigslist and other sites recommend not accepting PayPal payments. I know that many transactions go through them flawlessly. But unless I really trust someone, PayPal would not be an option for me unless it was the money transfer (different rules; not as easy to get the money back). However this may be breaking PayPal Terms of Service so I would read them carefully before I went this route. There have been reports of PayPal putting extended holds on funds and effectively seizing the money by refusing to release the funds. I have never had this happen (though I did have a sale on eBay reversed though the item was never returned) but there are many reports of it on the Internet. As far as the BoA option I would contact them and see what they recommend. I would find out what their policies are on reversing the transfers and on providing your account number. They may have a special deposit-only account number you could provide the buyers. But I would want to learn as much about the system as I could before I started using it. The Internet has turned the old adage of \"\"buyer beware\"\" into \"\"seller beware\"\". There are many schemes that con artists have come up with to defraud unsuspecting sellers. I received several offers from people wanting to pay me with a cashiers check for a few items I recently sold on Craigslist. It is scary how prevalent these fraudsters have become.\""
},
{
"docid": "275058",
"title": "",
"text": "What is the point of this? Can't I achieve the exact same effect and outcome by exchanging currency now and put that amount of USD in a bank account to gain some interest, then make the payment from one year from now? This is for companies, not individuals. Companies usually take loans, because they think they can make more money (e.g. 10%*) than the interest on the loan (e.g. 5%*). Putting money on a bank account to earn interest there would give them even less (e.g. 1%*). So with your option, instead of earning 10%* interest, they'd earn 1%* interest. If the cost of the currency forward is less than these 9%* difference, the forward saves them money. If they have excess cash and they don't know how to invest that money, your option may be preferable *Simple numbers chosen for simplicity, not accuracy."
},
{
"docid": "501384",
"title": "",
"text": "\"This is only a partial answer to your question #1. If you have a conservative approach to savings (and, actually, even if you don't), you should not invest all of your money in any single industry or product. If you want to invest some money in oil, okay, but don't overdo it. If your larger goal is to invest the money in a manner that is less risky but still more lucrative than a savings account, you should read up on personal finance and investing to get a sense of what options are available. A commonly-recommended option is to invest in low-cost index funds that mirror the performance of the stock market as a whole. The question of \"\"how should I invest\"\" is very broad, but you can find lots of starting points in other questions on this site, by googling, or by visiting your local library.\""
},
{
"docid": "584419",
"title": "",
"text": "\"Bank of America has been selling off their local branches to smaller banks in recent years. Here are a few news stories related to this: Along with the branch buildings, the local customers' savings and checking accounts are sold to the new bank. It is interesting that you were told that your savings account is being sold, but that your checking account will remain with BofA. I guess it depends on the terms of the particular sale. Here are your options, as I see it: Let the savings account move to the new bank, and see what the new terms are like. You might actually like the new bank. If you don't, you can shop around and close your account at the new bank after it has been created. Close your account now, before the move. If you have a different bank you'd like to move to, there is no need to wait. Since your checking account is apparently staying with BofA, you could move all your money from your savings account to your checking account, closing your savings account. Then after \"\"mid August\"\" when the local branch switches to the new bank and everyone else's savings account has moved, you can call up BofA and tell them you want to move some of the money from your checking account into a new savings account. If you really have your heart set on staying with BofA, option 3 looks like a good, easy choice. To address your other concerns: Bank of America is a big credit card company, so I doubt that your credit card is being sold off. Your credit card account should stay as-is. Even if your savings account and checking account are at a different bank, there is no need to switch credit cards. Your savings and checking accounts have nothing to do with your credit report or score, so there is no concern there. If you end up wanting to switch to a new credit card with a different bank, there are minor hits to your credit score involved with applying for a new card and closing your current card, but if I were you I would not worry about your credit score in this. Switch credit cards if you want a change, and keep your credit card if you don't.\""
}
] |
8539 | Can the risk of investing in an asset be different for different investors? | [
{
"docid": "218728",
"title": "",
"text": "The other example I'd offer is the case for diversification. If one buys 10 well chosen stocks, i.e. stocks spread across different industries so their correlation to one another is low, they will have lower risk than each of the 10 folk who own one of those stocks per person. Same stocks, but lower risk when combined."
}
] | [
{
"docid": "513474",
"title": "",
"text": "\"Most people advocate a passively managed, low fee mutual fund that simply aims to track a given benchmark (say S&P 500). Few funds can beat the S&P consistently, so investors are often better served finding a no load passive fund. First thing I would do is ask your benefits rep why you don't have an option to invest in a Fidelity passive index fund like Spartan 500. Ideally young people would be heavy in equities and slowly divest for less risky stuff as retirement comes closer, and rebalance the portfolio regularly when market swings put you off risk targets. Few people know how to do this and actually do so. So there are mutual funds that do it for you, for a fee. These in are called \"\"lifecycle\"\" funds (The Freedom funds here). I hesitate to recommend them because they're still fairly new. If you take a look at underlying assets, these things generally just reinvest in the broker's other funds, which themselves have expenses & fees. And there's all kinds personal situations that might lead to you place a portion with a different investment.\""
},
{
"docid": "246624",
"title": "",
"text": "\"First of all, the annual returns are an average, there are probably some years where their return was several thousand percent, this can make a decade of 2% a year become an average of 20% . Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3% of the US population is registered as accredited investors. Accredited Investors are allowed to participate in private offerings of securities that do not have to be registered with the SEC, although theoretically riskier, these can have greater returns. Indeed a lot of companies that go public these days only do so after the majority of the growth potential is done. For example, a company like Facebook in the 90s would have gone public when it was a million dollar company, instead Facebook went public when it was already a 100 billion dollar company. The people that were privileged enough to be ALLOWED to invest in Facebook while it was private, experienced 10000% returns, public stock market investors from Facebook's IPO have experienced a nearly 100% return, in comparison. Third, there are even more rules that are simply different between the \"\"underclass\"\" and the \"\"upperclass\"\". Especially when it comes to leverage, the rules on margin in the stock market and options markets are simply different between classes of investors. The more capital you have, the less you actually have to use to open a trade. Imagine a situation where a retail investor can invest in a stock by only putting down 25% of the value of the stock's shares. Someone with the net worth of an accredited investor could put down 5% of the value of the shares. So if the stock goes up, the person that already has money would earn a greater percentage than the peon thats actually investing to earn money at all. Fourth, Warren Buffett's fund and George Soros' funds aren't just in stocks. George Soros' claim to fame was taking big bets in the foreign exchange market. The leverage in that market is much greater than one can experience in the stock market. Fifth, Options. Anyone can open an options contract, but getting someone else to be on the other side of it is harder. Someone with clout can negotiate a 10 year options contract for pretty cheap and gain greatly if their stock or other asset appreciates in value much greater. There are cultural limitations that prompt some people to make a distinction between investing and gambling, but others are not bound by those limitations and can take any kind of bet they like.\""
},
{
"docid": "595211",
"title": "",
"text": "Its different because, at least with both stock options and futures, the product is going to eventually get that money. The difference is that you don't have to spend that money directly on that product right now, allowing you to invest far more then you can afford since you are going to cover that option or sell that contract long before you are ever going to be on hook for actually buying all those stocks or barrels of oil you were trading. It's actually a good way for a middle class investor to become really wealthy, because if he is good all he needs is to save only about 10,000 to invest and he can invest like he's investing 100,000. Obviously there's more risk too, but give and take i guess."
},
{
"docid": "497266",
"title": "",
"text": "I work as an investment risk manager for what would popularly be called a top tier investment manager. Most large asset managers use vendor models like RiskMetrics, Algorithmics, Barclays Point, Barra or something similar, and use those to calculate endless varieties of analytics and risk metrics. Some of these are granular risk models (single asset based and computing covariances between them) while others are factor models (e.g. mapping bonds to a yield curve and sector and country spread and computing the risk largely based on that mapping). Things like Value at Risk in any of its many flavors (simulated vs non simulated, mainly), ex-ante risk relative to a benchmark, stress tests, duration, beta, yield, spread, expected shortfall, what have you... Counterparty/credit risk is a whole different world I could get into. What else do you want to know in detail?"
},
{
"docid": "500863",
"title": "",
"text": "Modern portfolio theory has a strong theoretical background and its conclusions on the risk/return trade-off have a lot of good supporting evidence. However, the conclusions it draws need to be used very carefully when thinking about retirement investing. If you were really just trying to just pick the one investment that you would guess would make you the most money in the future then yes, given no other information, the riskiest asset would be the best one. However, for most people the goal retirement investing is to be as sure as possible to retire comfortably. If you were to just invest in a single, very risky asset you may have the highest expected return, but the risk involved would mean there might be a good chance you money may not be there when you need it. Instead, a broad diversified basket of riskier and safer assets leaning more toward the riskier investments when younger and the safer assets when you get closer to retirement tends to be a better fit with most people's retirement goals. This tends to give (on average) more return when you are young and can better deal with the risk, but dials back the risk later in life when your investment portfolio is a majority of your wealth and you can least afford any major swings. This combines the lessons of MPT (diversity, risk/return trade-off) in a clearer way with common goals of retirement. Caveat: Your retirement goals and risk-tolerance may be very different from other peoples'. It is often good to talk to (fee-only) financial planner."
},
{
"docid": "424247",
"title": "",
"text": "\"Congratulations on a solid start. Here are my thoughts, based on your situation: Asset Classes I would recommend against a long-term savings account as an investment vehicle. While very safe, the yields will almost always be well below inflation. Since you have a long time horizon (most likely at least 30 years to retirement), you have enough time to take on more risk, as long as it's not more than you can live with. If you are looking for safer alternatives to stocks for part of your investments, you can also consider investment-grade bonds/bond funds, or even a stable value fund. Later, when you are much closer to retirement, you may also want to consider an annuity. Depending on the interest rate on your loan, you may also be able to get a better return from paying down your loan than from putting more in a savings account. I would recommend that you only keep in a savings account what you expect to need in the next few years (cushion for regular expenses, emergency fund, etc.). On Stocks Stocks are riskier but have the best chance to outperform versus inflation over the long term. I tend to favor funds over individual stocks, mostly for a few practical reasons. First, one of the goals of investing is to diversify your risk, which produces a more efficient risk/reward ratio than a group of stocks that are highly correlated. Diversification is easier to achieve via an index fund, but it is possible for a well-educated investor to stay diversified via individual stocks. Also, since most investors don't actually want to take physical possession of their shares, funds will manage the shares for you, as well as offering additional services, such as the automatic reinvestments of dividends and tax management. Asset Allocation It's very important that you are comfortable with the amount of risk you take on. Investment salespeople will prefer to sell you stocks, as they make more commission on stocks than bonds or other investments, but unless you're able to stay in the market for the long term, it's unlikely you'll be able to get the market return over the long term. Make sure to take one or more risk tolerance assessments to understand how often you're willing to accept significant losses, as well as what the optimal asset allocation is for you given the level of risk you can live with. Generally speaking, for someone with a long investment horizon and a medium risk tolerance, even the most conservative allocations will have at least 60% in stocks (total of US and international) with the rest in bonds/other, and up to 80% or even 100% for a more aggressive investor. Owning more bonds will result in a lower expected return, but will also dramatically reduce your portfolio's risk and volatility. Pension With so many companies deciding that they don't feel like keeping the promises they made to yesterday's workers or simply can't afford to, the pension is nice but like Social Security, I wouldn't bank on all of this money being there for you in the future. This is where a fee-only financial planner can really be helpful - they can run a bunch of scenarios in planning software that will show you different retirement scenarios based on a variety of assumptions (ie what if you only get 60% of the promised pension, etc). This is probably not as much of an issue if you are an equity partner, or if the company fully funds the pension in a segregated account, or if the pension is defined-contribution, but most corporate pensions are just a general promise to pay you later in the future with no real money actually set aside for that purpose, so I'd discount this in my planning somewhat. Fund/Stock Selection Generally speaking, most investment literature agrees that you're most likely to get the best risk-adjusted returns over the long term by owning the entire market rather than betting on individual winners and losers, since no one can predict the future (including professional money managers). As such, I'd recommend owning a low-cost index fund over holding specific sectors or specific companies only. Remember that even if one sector is more profitable than another, the stock prices already tend to reflect this. Concentration in IT Consultancy I am concerned that one third of your investable assets are currently in one company (the IT consultancy). It's very possible that you are right that it will continue to do well, that is not my concern. My concern is the risk you're carrying that things will not go well. Again, you are taking on risks not just over the next few years, but over the next 30 or so years until you retire, and even if it seems unlikely that this company will experience a downturn in the next few years, it's very possible that could change over a longer period of time. Please just be aware that there is a risk. One way to mitigate that risk would be to work with an advisor or a fund to structure and investment plan where you invest in a variety of sector funds, except for technology. That way, your overall portfolio, including the single company, will be closer to the market as a whole rather than over-weighted in IT/Tech. However, if this IT Consultancy happens to be the company that you work for, I would strongly recommend divesting yourself of those shares as soon as reasonably possible. In my opinion, the risk of having your salary, pension, and much of your investments tied up in the fortunes of one company would simply be a much larger risk than I'd be comfortable with. Last, make sure to keep learning so that you are making decisions that you're comfortable with. With the amount of savings you have, most investment firms will consider you a \"\"high net worth\"\" client, so make sure you are making decisions that are in your best financial interests, not theirs. Again, this is where a fee-only financial advisor may be helpful (you can find a local advisor at napfa.org). Best of luck with your decisions!\""
},
{
"docid": "457729",
"title": "",
"text": "It's worth pointing out that a bulk of the bond market is institutional investors (read: large corporations and countries). For individuals, it's very easy to just put your cash in a checking account. Checking accounts are insured and non-volatile. But what happens when you're GE or Apple or Panama? You can't just flop a couple billion dollars in to a Chase checking account and call it a day. Although, you still need a safe place to store money that won't be terribly volatile. GE can buy a billion dollars of treasury bonds. Many companies need tremendous amounts of collateral on hand, amounts far in excess of the capacity of a checking account; those funds are stored in treasuries of some sort. Separately, a treasury bond is not a substitute investment for an S&P index fund. For individuals they are two totally different investments with totally different characteristics. The only reason an individual investor should compare the return of the S&P against the readily available yield of treasuries is to ensure the expected return of an equity investment can sufficiently pay for the additional risk."
},
{
"docid": "420978",
"title": "",
"text": "Without providing direct investment advice, I can tell you that bond most assuredly are not recession-proof. All investments have risk, and each recession will impact asset-classes slightly differently. Before getting started, BONDS are LOANS. You are loaning money. Don't ever think of them as anything but that. Bonds/Loans have two chief risks: default risk and inflation risk. Default risk is the most obvious risk. This is when the person to whom you are loaning, does not pay back. In a recession, this can easily happen if the debtor is a company, and the company goes bankrupt in the recessionary environment. Inflation risk is a more subtle risk, and occurs when the (fixed) interest rate on your loan yields less than the inflation rate. This causes the 'real' value of your investment to depreciate over time. The second risk is most pronounced when the bonds that you own are government bonds, and the recession causes the government to be unable to pay back its debts. In these circumstances, the government may print more money to pay back its creditors, generating inflation."
},
{
"docid": "245702",
"title": "",
"text": "\"It appears that there's a confusion between the different types of average. Saying \"\"the average investor\"\" generally means the most common type of small-scale unsophisticated investor - the mode (or possibly median) investor. However, while this class of investors is numerous, each of them has assets that are quite small compared to some other types of investors; and the market average performance is determined proportionally to the amount of assets held, not to the number of holders; so the performance of large investors \"\"counts\"\" that much more. For any measure, the mode of performance can be (and often is) different from the mean performance - in this case, Dalbar is saying that the most common results are lower than the (weighed) average results.\""
},
{
"docid": "582736",
"title": "",
"text": "In Australia the ATO can determine if you are considered a shareholder or a share trader. The ATO defines a shareholder as: A shareholder is a person who holds shares for the purpose of earning income from dividends and similar receipts. Whilst they define a share trader as: A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. To find out the differences between them you can refer to the following link describing The difference between a share trader and a shareholder. The ATO also describes: To be classed as a share trader, you may be asked to provide evidence that demonstrates you are carrying on a business of share trading, for example: the purchase of shares on a regular basis through a regular or routine method a trading plan use of share trading techniques in managing your share acquisitions, such as decisions based on thorough analysis of relevant market information a contingency plan in the event of a major shift in the market. Losses incurred in the business of share trading are treated the same as any other losses from business. If your activities change from investor to trader, your investment changes from a CGT (capital gains tax) asset to trading stock. This can trigger CGT event for any investments you currently hold as they change from CGT assets to trading stock. Once you have changed over to a trader you will not be entitled to the 50% CGT discount for stocks held over 12 months. You will, however, be able to count any paper losses at the end of Financial Year to reduce your other income."
},
{
"docid": "488100",
"title": "",
"text": "\"It's a good question, but it turns into a general 'how to invest' question. You see, the cliche of \"\"invest the difference\"\" simply point to the ripoff the other two answers discuss. And it doesn't specify how to invest, only that this money should be put to work as long term investments. The best answer is to find the asset allocation appropriate for your age and risk profile. It can be as simple as a low cost S&P ETF, or as complex at a dozen assets that include Stocks, both Domestic and Foreign, REITs, Commodities, etc. It's not as if the saved funds get segregated in a special account just for this purpose, although I suppose one can do this just as others have separate funds for retirement, emergency, vacation, college, etc.\""
},
{
"docid": "499060",
"title": "",
"text": "\"Some investors worry about interest rate risk because they Additional reason is margin trading which is borrowing money to invest in capital markets. Since margin trading includes minimum margin requirements and maintenance margin to protect lender \"\"such as a broker\"\" , a decrease in the value of bonds might trigger a threat of a margin call There are other reasons why investors care about interest rate risk such as spread trade investors who benefit from difference in short term/ long term interest rates. Such investors borrow short term loans -which enables them to pay low interest- and lend long term loans - which enables them to gain high interest-. Any disturbance between the interest rate spread between short term and long term bonds might affect investor's profit and might even lead to losses. In summary , it all depends on you investment objective and financial condition. You should consult with your financial adviser to help plan for your financial goals.\""
},
{
"docid": "151203",
"title": "",
"text": "A derivative in finance is simply any asset whose value is based on the value of another asset or based on the value of a group of assets. A derivative contract is a type of contract (usually a 'standardized contract') with specific payout instruction based on the price changes of a different asset. The basic idea is that it becomes easier to make a claim to an asset or property (and profit from this claim), without needing to physically transfer it (or even the title to said asset), and use much less capital to do so (reduce risk). They become problematic when multiple people may have claims to the real asset, or when the value of the derivatives changes very quickly or are hard to calculate. There are also liquidity problems the further you get from the real asset. This is not a problem for all kinds of derivatives contracts. And you must recognize that derivatives are used colloquially in a way that has nothing to do with reality to cause fear in people/investors that are not financially savvy. Many derivatives also have dubious or no economic purposes such that regulators don't allow them to be traded since they can't see how it is different from gambling. This is seen in financial markets that are less liberalized or cultures with puritanical backgrounds. Typically the trick is to convince regulators that the derivative or financial product helps with reducing risk and hedging and it will get approved. I've mentioned some terminology, but this depends specifically on what kind of derivatives contract you become interested in. Swaps, Credit Default Swaps, Futures, Options, Options on Futures, Leveraged Exchange Traded Funds, Inverse Leveraged Exchange Traded Funds, warrants, and more all have their own terminology. How to trade them in a simulation? It all depends on which financial product you really become interested in."
},
{
"docid": "245867",
"title": "",
"text": "I strongly suggest you go to www.investor.gov as it has excellent information regarding these types of questions. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. When you buy shares of a mutual fund you're buying it at NAV, or net asset value. The NAV is the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. Different funds may own thousands of different stocks. In order to calculate the NAV, the fund company must value every security it owns. Since each security's valuation is changing throughout the day it's difficult to determine the valuation of the mutual fund except for when the market is closed. Once the market has closed (4pm eastern) and securities are no longer trading, the company must get accurate valuations for every security and perform the valuation calculations and distribute the results to the pricing vendors. This has to be done by 6pm eastern. This is a difficult and, more importantly, a time consuming process to get it done right once per day. Having worked for several fund companies I can tell you there are many days where companies are getting this done at the very last minute. When you place a buy or sell order for a mutual fund it doesn't matter what time you placed it as long as you entered it before 4pm ET. Cutoff times may be earlier depending on who you're placing the order with. If companies had to price their funds more frequently, they would undoubtedly raise their fees."
},
{
"docid": "502495",
"title": "",
"text": "Diversification is a good method of risk management. Different types of investments do better in different situations and economic climates. Invest all your money at the wrong time in a single product and you could lose everything. You could also technically make a great deal of money, but actions such as these are the actions of speculators, not investors. Spreading your investments appropriately lets you maximize your growth opportunities while limiting your risk."
},
{
"docid": "385881",
"title": "",
"text": "It's clearly a risk, but is it any different than investing in your own business? Yes, it is different. If you own a business, you determine the path of the business. You determine how much risk the business takes. You can put in extra effort to try to make the business work. You can choose to liquidate to preserve your capital. If you invest without ownership, perhaps the founder retains a 50% plus one share stake, then whomever controls the business controls all those things. So you have all the risks of owning the business (in terms of things going wrong) without the control to make things go right. This makes investing in someone else's business inherently riskier. Another problem that can occur is that you could find out that the business is fraudulent. Or the business can become fraudulent. Neither of those are risks if you are the business owner. You won't defraud yourself. Angel investing, that is to say investing in someone else's startup, is inherently risky. This is why it is difficult to find investors, even though some startups go on to become fabulously wealthy (Google, YouTube, Facebook, Twitter, etc.). Most startups fail. They offer the possibility of great returns because it's really hard to determine which ones will fail and which will succeed. Otherwise the business would just take out the same loan that Jane's getting, and leave Jane out of it."
},
{
"docid": "438302",
"title": "",
"text": "\"Although this has been touched upon in comments, I think the following line from the currently accepted answer shows the biggest issue: There is a clear difference between investing and gambling. The reality is that the difference isn't that clear at all. Tens of comments have been written arguing in both directions and looking around the internet entire essays have been written arguing both positions. The underlying emotion that seems to shape this discussion primarily is whether investing (especially in the stock market) is a form of gambling. People who do invest in this way tend to get relatively emotional whenever someone argues that this is a form of gambling, as gambling is considered a negative thing. The simple reality of human communication is that words can be ambiguous, and the way investors will use the words 'investments' and 'gambles' will differ from the way it is used by gamblers, and once again different from the way it's commonly used. What I definitely think is made clear by all the different discussions however is that there is no single distinctive trait that allows us to differentiate investing and gambling. The result of this is that when you take dictionary definitions for both terms you will likely end up including lottery tickets as a valid form of investment. That still however leaves us with a situation where we have two terms - with a strong overlap - which have a distinctive meaning in communication and the original question whether buying lottery tickets is an investment. Over on investorguide.com there is an absolutely amazing strongly recommended essay which explores countless of different traits in search of a difference between investing and gambling, and they came up with the following two definitions: Investing: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): sufficient research has been conducted; the odds are favorable; the behavior is risk-averse; a systematic approach is being taken; emotions such as greed and fear play no role; the activity is ongoing and done as part of a long-term plan; the activity is not motivated solely by entertainment or compulsion; ownership of something tangible is involved; a net positive economic effect results.\"\" Gambling: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): little or no research has been conducted; the odds are unfavorable; the behavior is risk-seeking; an unsystematic approach is being taken; emotions such as greed and fear play a role; the activity is a discrete event or series of discrete events not done as part of a long-term plan; the activity is significantly motivated by entertainment or compulsion; ownership of something tangible is not involved; no net economic effect results.\"\" The very interesting thing about those definitions is that they capture very well the way those terms are used by most people, and they even acknowledge that a lot of 'investors' are gambling, and that a few gamblers are 'investing' (read the essay for more on that). And this fits well with the way those two concepts are understood by the public. So in those definitions normally buying a lottery ticket would indeed not be an investment, but if we take for example Vadim's operation example If you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one. this can suddenly change the perception and turn 'gambling' into 'high-risk investing'.\""
},
{
"docid": "304398",
"title": "",
"text": "Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can backfire in some cases. In others, there can be a lot of buy and hold if one finds an index fund to hold forever which depending on the strategy is possible. Returns can vary widely as an index can be everything from buying gold stocks in Russia to investing in short-term Treasuries as there are many different indices as any given market can have an index which could be stocks, bonds, a combination of the two or something else in some cases so please consider asset allocation, types of accounts, risk tolerance and time horizon in making decisions or consider using a financial planner to assist in drawing up a plan with allocations and how frequently you want to rebalance as my suggestion here."
},
{
"docid": "10171",
"title": "",
"text": "\"To add to @keshlam's answer slightly a stock's price is made up of several components: the only one of these that is known even remotely accurately at any time is the book value on the day that the accounts are prepared. Even completed cashflows after the books have been prepared contain some slight unknowns as they may be reversed if stock is returned, for example, or reduced by unforeseen costs. Future cashflows are based on (amongst other things) how many sales you expect to make in the future for all time. Exercise for the reader: how many iPhone 22s will apple sell in 2029? Even known future cashflows have some risk attached to them; customers may not pay for goods, a supplier may go into liquidation and so need to change its invoicing strategy etc.. Estimating the risk on future cashflows is highly subjective and depends greatly on what the analyst expects the exact economic state of the world will be in the future. Investors have the choice of investing in a risk free instrument (this is usually taken as being modelled by the 10 year US treasury bond) that is guaranteed to give them a return. To invest in anything riskier than the risk free instrument they must be paid a premium over the risk free return that they would get from that. The risk premium is related to how likely they think it is that they will not receive a return higher than that rate. Calculation of that premium is highly subjective; if I know the management of the company well I will be inclined to think that the investment is far less risky (or perhaps riskier...) than someone who does not, for example. Since none of the factors that go into a share price are accurately measurable and many are subjective there is no \"\"right\"\" share price at any time, let alone at time of IPO. Each investor will estimate these values differently and so value the shares differently and their trading, based on their ever changing estimates, will move the share price to an indeterminable level. In comments to @keshlam's answer you ask if there is enough information to work out the share price if a company buys out the company before IPO. Dividing the price that this other company paid by the relative ownership structure of the firm would give you an idea of what that company thought that the company was worth at that moment in time and can be used as a surrogate for market price but it will not and cannot accurately represent the market price as other investors will value the firm differently by estimating the criteria above differently and so will move the share price based on their valuation.\""
}
] |
8539 | Can the risk of investing in an asset be different for different investors? | [
{
"docid": "292609",
"title": "",
"text": "The risk of the particular share moving up or down is same for both. however in terms of mitigating the risk, Investor A is conservative on upside, ie will exit if he gets 10%, while is ready to take unlimited downside ... his belief is that things will not go worse .. While Investor B is wants to make at least 10% less than peak value and in general is less risk averse as he will sell his position the moment the price hits 10% less than max [peak value] So it more like how do you mitigate a risk, as to which one is wise depends on your belief and the loss appetite"
}
] | [
{
"docid": "438302",
"title": "",
"text": "\"Although this has been touched upon in comments, I think the following line from the currently accepted answer shows the biggest issue: There is a clear difference between investing and gambling. The reality is that the difference isn't that clear at all. Tens of comments have been written arguing in both directions and looking around the internet entire essays have been written arguing both positions. The underlying emotion that seems to shape this discussion primarily is whether investing (especially in the stock market) is a form of gambling. People who do invest in this way tend to get relatively emotional whenever someone argues that this is a form of gambling, as gambling is considered a negative thing. The simple reality of human communication is that words can be ambiguous, and the way investors will use the words 'investments' and 'gambles' will differ from the way it is used by gamblers, and once again different from the way it's commonly used. What I definitely think is made clear by all the different discussions however is that there is no single distinctive trait that allows us to differentiate investing and gambling. The result of this is that when you take dictionary definitions for both terms you will likely end up including lottery tickets as a valid form of investment. That still however leaves us with a situation where we have two terms - with a strong overlap - which have a distinctive meaning in communication and the original question whether buying lottery tickets is an investment. Over on investorguide.com there is an absolutely amazing strongly recommended essay which explores countless of different traits in search of a difference between investing and gambling, and they came up with the following two definitions: Investing: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): sufficient research has been conducted; the odds are favorable; the behavior is risk-averse; a systematic approach is being taken; emotions such as greed and fear play no role; the activity is ongoing and done as part of a long-term plan; the activity is not motivated solely by entertainment or compulsion; ownership of something tangible is involved; a net positive economic effect results.\"\" Gambling: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): little or no research has been conducted; the odds are unfavorable; the behavior is risk-seeking; an unsystematic approach is being taken; emotions such as greed and fear play a role; the activity is a discrete event or series of discrete events not done as part of a long-term plan; the activity is significantly motivated by entertainment or compulsion; ownership of something tangible is not involved; no net economic effect results.\"\" The very interesting thing about those definitions is that they capture very well the way those terms are used by most people, and they even acknowledge that a lot of 'investors' are gambling, and that a few gamblers are 'investing' (read the essay for more on that). And this fits well with the way those two concepts are understood by the public. So in those definitions normally buying a lottery ticket would indeed not be an investment, but if we take for example Vadim's operation example If you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one. this can suddenly change the perception and turn 'gambling' into 'high-risk investing'.\""
},
{
"docid": "169240",
"title": "",
"text": "You can keep the cash in your account as long as you want, but you have to pay a tax on what's called capital gains. To quote from Wikipedia: A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor.[1] Conversely, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. Thus, buying/selling stock counts as investment income which would be a capital gain/loss. When you are filing taxes, you have to report net capital gain/loss. So you don't pay taxes on an individual stock sale or purchase - you pay tax on the sum of all your transactions. Note: You do not pay any tax if you have a net capital loss. Taxes are only on capital gains. The amount you are taxed depends on your tax bracket and your holding period. A short term capital gain is gain on an investment held for less than one year. These gains are taxed at your ordinary income tax rate. A long term capital gain is gain on an investment held for more than one year. These gains are taxed at a special rate: If your income tax rate is 10 or 15%, then long term gains are taxed at 0% i.e. no tax, otherwise the tax rate is 15%. So you're not taxed on specific stock sales - you're taxed on your total gain. There is no tax for a capital loss, and investors sometimes take profits from good investments and take losses from bad investments to lower their total capital gain so they won't be taxed as much. The tax rate is expected to change in 2013, but the current ratios could be extended. Until then, however, the rate is as is. Of course, this all applies if you live in the United States. Other countries have different measures. Hope it helps! Wikipedia has a great chart to refer to: http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States."
},
{
"docid": "499060",
"title": "",
"text": "\"Some investors worry about interest rate risk because they Additional reason is margin trading which is borrowing money to invest in capital markets. Since margin trading includes minimum margin requirements and maintenance margin to protect lender \"\"such as a broker\"\" , a decrease in the value of bonds might trigger a threat of a margin call There are other reasons why investors care about interest rate risk such as spread trade investors who benefit from difference in short term/ long term interest rates. Such investors borrow short term loans -which enables them to pay low interest- and lend long term loans - which enables them to gain high interest-. Any disturbance between the interest rate spread between short term and long term bonds might affect investor's profit and might even lead to losses. In summary , it all depends on you investment objective and financial condition. You should consult with your financial adviser to help plan for your financial goals.\""
},
{
"docid": "199493",
"title": "",
"text": "Let's say that you want to invest in the stock market. Choosing and investing in only one stock is risky. You can lower your risk by diversifying, or investing in lots of different stocks. However, you have some problems with this: When you buy stocks directly, you have to buy whole shares, and you don't have enough money to buy even one whole share of all the stocks you want to invest in. You aren't even sure which stocks you should buy. A mutual fund solves both of these problems. You get together with other investors and pool your money together to buy a group of stocks. That way, your investment is diversified in lots of different stocks without having to have enough money to buy whole shares of each one. And the mutual fund has a manager that chooses which stocks the fund will invest in, so you don't have to pick. There are lots of mutual funds to choose from, with as many different objectives as you can imagine. Some invest in large companies, others small; some invest in a certain sector of companies (utilities or health care, for example), some invest in stocks that pay a dividend, others are focused on growth. Some funds don't invest in stocks at all; they might invest in bonds, real estate, or precious metals. Some funds are actively managed, where the manager actively buys and sells different stocks in the fund continuously (and takes a fee for his services), and others simply invest in a list of stocks and rarely buy or sell (these are called index funds). To answer your question, yes, the JPMorgan Emerging Markets Equity Fund is a mutual fund. It is an actively-managed stock mutual fund that attempts to invest in growing companies that do business in countries with rapidly developing economies."
},
{
"docid": "246624",
"title": "",
"text": "\"First of all, the annual returns are an average, there are probably some years where their return was several thousand percent, this can make a decade of 2% a year become an average of 20% . Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3% of the US population is registered as accredited investors. Accredited Investors are allowed to participate in private offerings of securities that do not have to be registered with the SEC, although theoretically riskier, these can have greater returns. Indeed a lot of companies that go public these days only do so after the majority of the growth potential is done. For example, a company like Facebook in the 90s would have gone public when it was a million dollar company, instead Facebook went public when it was already a 100 billion dollar company. The people that were privileged enough to be ALLOWED to invest in Facebook while it was private, experienced 10000% returns, public stock market investors from Facebook's IPO have experienced a nearly 100% return, in comparison. Third, there are even more rules that are simply different between the \"\"underclass\"\" and the \"\"upperclass\"\". Especially when it comes to leverage, the rules on margin in the stock market and options markets are simply different between classes of investors. The more capital you have, the less you actually have to use to open a trade. Imagine a situation where a retail investor can invest in a stock by only putting down 25% of the value of the stock's shares. Someone with the net worth of an accredited investor could put down 5% of the value of the shares. So if the stock goes up, the person that already has money would earn a greater percentage than the peon thats actually investing to earn money at all. Fourth, Warren Buffett's fund and George Soros' funds aren't just in stocks. George Soros' claim to fame was taking big bets in the foreign exchange market. The leverage in that market is much greater than one can experience in the stock market. Fifth, Options. Anyone can open an options contract, but getting someone else to be on the other side of it is harder. Someone with clout can negotiate a 10 year options contract for pretty cheap and gain greatly if their stock or other asset appreciates in value much greater. There are cultural limitations that prompt some people to make a distinction between investing and gambling, but others are not bound by those limitations and can take any kind of bet they like.\""
},
{
"docid": "273187",
"title": "",
"text": "why does it make sense financially to buy property and become a landlord? Because then your investment generates cash instead of just sitting idle. All taxes, fees and repairs aside it would take almost 21 years before I start making profits. No - your profit will be the rents that you collect (minus expenses). You still have an asset that is worth roughly what you paid for it (and might go up in value), so you don't need to recoup the entire cost of the property before making a profit. Compared to investing the same 150k in an ETF portfolio with conservative 4% in annual returns I would have made around 140k € after taxes in the same 21 years i.e. almost doubled the money. If you charge 600 € / month (and never miss a month of rental income), after 21 years you have made 151k € in rents plus you still have a property. That property is most likely going to be worth more than you paid for it, so you should have at least 300k € in assets. Having said all that, it does NOT always make sense to invest in rental property. Being a landlord can be a hard job, and there are many risks involved that are different that risks in financial investments."
},
{
"docid": "83183",
"title": "",
"text": "The Securities Investor Protection Corporation is roughly analogous to the FDIC for investments. There are some important differences like a lack of 100% guarantee you get all of your funds back. The SIPC understands you invested knowing there was some risk, and therefore you take that same risk in getting your money from a failed brokerage. However there is still a level of commitment and trust that lessen the risk of investing in the wrong place. Also, do not typo the acronym at your work computer. In the US (and perhaps elsewhere) it is a racist term, and you are likely to get some bad search results. http://www.sipc.org/how/brochure.cfm"
},
{
"docid": "187124",
"title": "",
"text": "\"There's already an excellent answer here from @BenMiller, but I wanted to expand a bit on Types of Investments with some additional actionable information. You can invest in stocks, bonds, mutual funds (which are simply collections of stocks and bonds), bank accounts, precious metals, and many other things. Discussing all of these investments in one answer is too broad, but my recommendation is this: If you are investing for retirement, you should be investing in the stock market. However, picking individual stocks is too risky; you need to be diversified in a lot of stocks. Stock mutual funds are a great way to invest in the stock market. So how does one go about actually investing in the stock market in a diversified way? What if you also want to diversify a bit into bonds? Fortunately, in the last several years, several products have come about that do just these things, and are targeted towards newer investors. These are often labeled \"\"robo-advisors\"\". Most even allow you to adjust your allocation according to your risk preferences. Here's a list of the ones I know about: While these products all purport to achieve similar goals of giving you an easy way to obtain a diversified portfolio according to your risk, they differ in the buckets of stocks and funds they put your money into; the careful investor would be wise to compare which specific ETFs they use (e.g. looking at their expense ratios, capitalization, and spreads).\""
},
{
"docid": "56894",
"title": "",
"text": "I don't think that you'll notice a difference in the NAV in a fund with fees that are low as the Vanguard Total Stock Market Fund. Their management fees are incorporated into the NAV, but keep in mind that the fund has a total of $144 billion in assets, with $66 billion in the investor class. The actual fees represent a tiny fraction of the NAV, and may only show up at all on the day they assess the fees. With Vanguard total stock market, you notice the fee difference in the distributions. In the example of Vanguard Total Stock Market, there are institutional-class shares (like VITPX with a minimum investment of $200M) with still lower costs -- as low as 0.0250% vs. 0.18% for the investor class. You will notice a different NAV and distributions for that fund, but there may be other reasons for the variation that I'm not familar with, as I'm not an institutional investor."
},
{
"docid": "589088",
"title": "",
"text": "\"Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property? If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is \"\"too good to not get into\"\" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio! However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks. In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets. So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon. In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund.\""
},
{
"docid": "142320",
"title": "",
"text": "\"Most articles on investing recommend that investors that are just starting out to invest in index stock or bonds funds. This is the easiest way to get rolling and limit risk by investing in bonds and stocks, and not either one of the asset classes alone. When you start to look deeper into investing there are so many options: Small Cap, Large Cap, technical analysis, fundamental analysis, option strategies, and on and on. This can end up being a full time job or chewing into a lot of personal time. It is a great challenge to learn various investment strategies frankly for the average person that works full time it is a huge effort. I would recommend also reading \"\"The Intelligent Asset Allocator\"\" to get a wider perspective on how asset allocation can help grow a portfolio and reduce risk. This book covers a simple process.\""
},
{
"docid": "183898",
"title": "",
"text": "It is true that this is possible, however, it's very remote in the case of the large and reputable fund companies such as Vanguard. FDIC insurance protects against precisely this for bank accounts, but mutual funds and ETFs do not have an equivalent to FDIC insurance. One thing that does help you in the case of a mutual fund or ETF is that you indirectly (through the fund) own actual assets. In a cash account at a bank, you have a promise from the bank to pay, and then the bank can go off and use your money to make loans. You don't in any sense own the bank's loans. With a fund, the fund company cannot (legally) take your money out of the fund, except to pay the expense ratio. They have to use your money to buy stocks, bonds, or whatever the fund invests in. Those assets are then owned by the fund. Legally, a mutual fund is a special kind of company defined in the Investment Company Act of 1940, and is a separate company from the investment advisor (such as Vanguard): http://www.sec.gov/answers/mfinvco.htm Funds have their own boards, and in principle a fund board can even fire the company advising the fund, though this is not likely since boards aren't usually independent. (a quick google found this article for more, maybe someone can find a better one: http://www.marketwatch.com/story/mutual-fund-independent-board-rule-all-but-dead) If Vanguard goes under, the funds could continue to exist and get a new adviser, or could be liquidated with investors receiving whatever the assets are worth. Of course, all this legal stuff doesn't help you with outright fraud. If a fund's adviser says it bought the S&P 500, but really some guy bought himself a yacht, Madoff-style, then you have a problem. But a huge well-known ETF has auditors, tons of different employees, lots of brokerage and exchange traffic, etc. so to me at least it's tough to imagine a risk here. With a small fund company with just a few people - and there are lots of these! - then there's more risk, and you'd want to carefully look at what independent agent holds their assets, who their auditors are, and so forth. With regular mutual funds (not ETFs) there are more issues with diversifying across fund companies: With ETFs, there probably isn't much downside to diversifying since you could buy them all from one brokerage account. Maybe it even happens naturally if you pick the best ETFs you can find. Personally, I would just pick the best ETFs and not worry about advisor diversity. Update: maybe also deserving a mention are exchange-traded notes (ETNs). An ETN's legal structure is more like the bank account, minus the FDIC insurance of course. It's an IOU from the company that runs the ETN, where they promise to pay back the value of some index. There's no investment company as with a fund, and therefore you don't own a share of any actual assets. If the ETN's sponsor went bankrupt, you would indeed have a problem, much more so than if an ETF's sponsor went bankrupt."
},
{
"docid": "566601",
"title": "",
"text": "The steps you outlined are fine by themselves. Step 5, seeking criticism can be less helpful than one may think. See stocktwits.com There are a lot of opposing opinions all of which can be correct over different time-frames. Try and quantify your confidence and develop different strategies for different confidence levels. I was never smart enough or patient with follow through to be a successful value investor. It was very frustrating to watch stocks trade sideways for years before the company's intrinsic value was better reflected in the market. Also, you could make an excellent pick, but a macro change and slump could set you back a year and raise doubts. In my experience portfolio management techniques like asset allocation and dollar-cost-averaging is what made my version of value investing work. Your interest in 10k/10q is something to applaud. Is there something specific about 10k/10q that you do not understand? Context is key, these types of reports are more relevant and understandable when compared to competitors in the same sector. It is good to assess over confidence! It is also good to diversify your knowledge and the effort put into Securities Analysis 6th edition will help with other books in the field. I see a bit of myself in your post, and if you are like me, than subsequent readings, and full mastery of the concepts in 'Securities & Analysis 6th ed.' will lead to over confidence, or a false understanding as there are many factors at play in the market. So many, that even the most scientific approaches to investing can just as equally be described as an 'art'. I'm not aware of the details of your situation, but in general, for you to fully realize the benefits from applying the principals of value investing shared by Graham and more recently Warren Buffett, you must invest on the level that requires use of the consolidation or equity method of accounting, e.g. > 20% ownership. Sure, the same principals used by Buffett can work on a smaller scale, but a small scale investor is best served by wealth accumulation, which can take many forms. Not the addition of instant equity via acquisitions to their consolidated financials. Lastly, to test what you have learned about value investing, and order execution, try the inverse. At least on paper. Short a stock with low value and a high P/E. TWTR may be a good example? Learn what it is like to have your resources at stake, and the anguish of market and security volatility. It would be a lot easier to wait it out as a long-term value investor from a beach house in Santa Barbara :)"
},
{
"docid": "549435",
"title": "",
"text": "An accountant should be able to advise on the tax consequences of different classes of investments/assets/debts (e.g. RRSP, TFSA, mortgage). But I would not ask an accountant which specific securities to hold in these vehicles, or what asset allocation (in terms of geography, capitalization, or class (equity vs fixed income vs derivatives vs structured notes etc). An investment advisor would be better suited to matching your investments to your risk tolerance."
},
{
"docid": "304398",
"title": "",
"text": "Determine an investment strategy and that will likely answer this for you. Different people have different approaches and you need to determine for yourself what buy and sell criteria you want to have. Again, depending on the strategy there can be a wide range here as some may trade index funds though this can backfire in some cases. In others, there can be a lot of buy and hold if one finds an index fund to hold forever which depending on the strategy is possible. Returns can vary widely as an index can be everything from buying gold stocks in Russia to investing in short-term Treasuries as there are many different indices as any given market can have an index which could be stocks, bonds, a combination of the two or something else in some cases so please consider asset allocation, types of accounts, risk tolerance and time horizon in making decisions or consider using a financial planner to assist in drawing up a plan with allocations and how frequently you want to rebalance as my suggestion here."
},
{
"docid": "467373",
"title": "",
"text": "After looking at both S&P GSCI Crude Oil Index Excess Return (INDEXSP:SPGSCLP) and CS VS 3x LC ETN NYSEARCA: UWTI they seem to track well (using Google Finance). I'm not seeing where your statement this ETN loses whether oil is gaining or not holds true. Both have posted a year-over-year loss. In the past year the Crude Oil index has fallen from a high of 494 on October 6, 2014 to a low of 213 as of today October 5th, 2015. So of course the UWTI will lose as well. Please also notice that that, as stated in the prospectus for UWTI: The ETNs are intended to be daily trading tools for sophisticated investors to manage daily trading risks. They are designed t o achieve their stated investment objectives on a daily basis, but their performance over different periods of time can differ significantly fr om their stated daily objectives. The ETNs are riskier than securities that have intermediate or long-term investment objectives, and may not be sui table for investors who plan to hold them for a period other than one day. You might want to look into investing in an ETF for long term investment goals and objectives. Oil ETF List"
},
{
"docid": "334919",
"title": "",
"text": "Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious."
},
{
"docid": "12623",
"title": "",
"text": "I would say your decision making is reasonable. You are in the middle of Brexit and nobody knows what that means. Civil society in the United States is very strained at the moment. The one seeming source of stability in Europe, Germany, may end up with a very weakened government. The only country that is probably stable is China and it has weak protections for foreign investors. Law precedes economics, even though economics often ends up dictating the law in the long run. The only thing that may come to mind is doing two things differently. The first is mentally dropping the long-term versus short-term dichotomy and instead think in terms of the types of risks an investment is exposed to, such as currency risk, political risk, liquidity risk and so forth. Maturity risk is just one type of risk. The second is to consider taking some types of risks that are hedged either by put contracts to limit the downside loss, or consider buying longer-dated call contracts using a small percentage of your money. If the underlying price falls, then the call contracts will be a total loss, but if the price increases then you will receive most of the increase (minus the premium). If you are uncomfortable purchasing individual assets directly, then I would say you are probably doing everything that you reasonably can do."
},
{
"docid": "582736",
"title": "",
"text": "In Australia the ATO can determine if you are considered a shareholder or a share trader. The ATO defines a shareholder as: A shareholder is a person who holds shares for the purpose of earning income from dividends and similar receipts. Whilst they define a share trader as: A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. To find out the differences between them you can refer to the following link describing The difference between a share trader and a shareholder. The ATO also describes: To be classed as a share trader, you may be asked to provide evidence that demonstrates you are carrying on a business of share trading, for example: the purchase of shares on a regular basis through a regular or routine method a trading plan use of share trading techniques in managing your share acquisitions, such as decisions based on thorough analysis of relevant market information a contingency plan in the event of a major shift in the market. Losses incurred in the business of share trading are treated the same as any other losses from business. If your activities change from investor to trader, your investment changes from a CGT (capital gains tax) asset to trading stock. This can trigger CGT event for any investments you currently hold as they change from CGT assets to trading stock. Once you have changed over to a trader you will not be entitled to the 50% CGT discount for stocks held over 12 months. You will, however, be able to count any paper losses at the end of Financial Year to reduce your other income."
}
] |
8539 | Can the risk of investing in an asset be different for different investors? | [
{
"docid": "196304",
"title": "",
"text": "In a perfect market, share prices are by definition a perfect reflection of the true value of a share. Hence, you always get $10 for a share that's worth that much. In reality, the market is imperfect. Prices are somewhat of an average of all different estimates, and there's a cost-of-trading margin between sales and buy prices. Hence, in a perfect market it doesn't matter whether you have a stop loss order at $9.00. That just trades your stock worth $9 for cash worth the same $9. In an imperfect market, that trade nets you less. Furthermore, is risk a linear function of money? Perhaps not, if you bought on margin, need to lend extra and your interest rate increases with the extra credit demand."
}
] | [
{
"docid": "587187",
"title": "",
"text": "In Australia we have a 50% capital gain discount if you hold the asset for more than 12 months, whether it is in shares, property or other assets. The main reason is to encourage people to invest long-term instead of speculating or trading. The government sees speculation or short term trading as more risky than long term investing for the everyday mum and dad investor, so rewards people it sees taking the lower risk long term view. In my opinion, long term investing, short term trading and speculation can all be risky for someone who is unedutated in the financial markets, and the first rule of investing should be to consider the asset itself and not the tax implications."
},
{
"docid": "134542",
"title": "",
"text": "\"When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called \"\"risk apettite\"\", more formally known as Risk Tolerance: Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. (emphasis added) This means that you are willing to accept some losses in order to get a potential bigger return. Fidelity has this graph: As you can see in the table above, the higher the risk tolerance, the bigger the difference between the best and worst values. That is the variability. The right-most pie can be one example of an agressive diversified portfolio. But this does not mean you should go and buy exactly that security compostion. High-risk means playing with fire. Unless you are a professional stuntman, playing with fire usually leaves people burnt. In a financial context this usually means the money is gone. Recommended Reading: Investopedia; Risk and Diversification: The Risk-Reward Tradeoff Investopedia; How to construct a High Risk portfolio Fidelity: Guide to Diversification KPMG: Understanding and articulating Risk Appetite (pdf)\""
},
{
"docid": "317552",
"title": "",
"text": "\"So I'm in Australia and we have our very own housing price/credit bubble right now (which is finally deflating) and I'll try explain it as I understand. I welcome anyone to chime in and correct me. The problem we faced (still face to a large degree) is the idea of rising asset prices and how this fuels a feedback loop into increasing personal debt, all based on the false assumption that house prices always go up. Now before I continue, house prices *do* always go up in the long run, but so does the cost of everything and we call that inflation, adjusting for this effect usually reveals that house prices are cyclical in the long term and never really 'grow'. So that aside we in Australia recently saw a long period of increasing house prices (as did the USA and Europe, and more recently China), the thing about house price is it is your 'equity', I'll try and explain: (all figures are made up to provide a simple example) if you borrow $200,000 to buy a house that costs $250,000 you owe the bank 80% of the equity (what your home is 'worth', and notionally this is value that you own) in your home and the bank will be happy, remembering that they make money on your interest payments, not your principal repayments. If your house then increases in value to $300,000 but you still owe $200,000 then you now owe only 66% of your equity. The bank sees you as a lower risk and encourages you to borrow more to get back up to that sweet spot they had before of 80% - this is a nice tradeoff between risk and reward for the bank. You, the consumer, have just been mailed a new credit card with a 50k limit (hypothetical) and theres a new iMac being released next week, and you really did want to trade in your 5yr old car (see where this is going yet?). Not only is this type of spending given a mighty boost but consumers feel like this house thing has done them very well and suddenly they have the ability to borrow lots more money, why not get a second house and do it all over again? The added demand for investment housing drives prices, throw in some generous government incentives (here and in the USA) and demand is pushed hard, prices grow more and the whole thing feeds back into itself. People feel richer, spend more from their credit cards, buy another house, etc. But what happens if your house 'value' then drops to $240k? The bank now sees you as a high risk, so do the bank's investors, you have negative equity, the bank demands the difference paid back to it or it might take your home. Somehow, nobody believed this would happen. Hopefully you start to see the picture? In Australia we are now facing a slow melt in housing prices which has not yet hurt en masse but it has dried up the credit cards, retails spending has collapsed and everyone is worried about the future. Now to realise where the USA got to you have to also understand that banks were not merely asking for a maximum of 80% owed on the asset, many of them let this figure go to 100%, since hey prices always go up, right? They then in some cases went further and neglected to look into your income and confirm you could even *repay* your loan. Sounds dodgey? This is just the setup. Remember I mentioned the bank's investors? Well banks/smart people basically figured out a clever way of 'dealing with' the risk of a few outliers with bad financial situations by collecting large numbers of home loans into a single entity and selling it on. Loans were graded according to risk and I believe they were even cut up into smaller pieces (10% of your high risk loan assigned to 10 different 'debt objects' with different risk profiles). These 'collateralised debt obligations' were traded from one bank/investment firm to another with everyone happily accepting the risk profiles until eventually nobody knew what risk was where. Think about it like \"\"I'll throw 10 high risk loans, 50 medium risk loans and 40 low risk loans into a pot, stir it up and sell the soup as 'pretty safe' \"\". This all seemed like a very good idea until it gradually became clear just how much of these loans were in the 'extremely stupid high risk' category. This is probably extremely confusing by now, but thats the point, investors could no longer judge how risky an investment in a bank or financial institute was, the market did not correct for any of this until it was all too late. The moral of the story is when people tell you an investment is guaranteed to make you money, you stay away from that investment. And to specifically answer your question you can't solely blame government incentives as you might be able to see, but they play a part in a giant orchestra, there are many factors that drive this sort of stupidity, stupidity being the primary one.\""
},
{
"docid": "12623",
"title": "",
"text": "I would say your decision making is reasonable. You are in the middle of Brexit and nobody knows what that means. Civil society in the United States is very strained at the moment. The one seeming source of stability in Europe, Germany, may end up with a very weakened government. The only country that is probably stable is China and it has weak protections for foreign investors. Law precedes economics, even though economics often ends up dictating the law in the long run. The only thing that may come to mind is doing two things differently. The first is mentally dropping the long-term versus short-term dichotomy and instead think in terms of the types of risks an investment is exposed to, such as currency risk, political risk, liquidity risk and so forth. Maturity risk is just one type of risk. The second is to consider taking some types of risks that are hedged either by put contracts to limit the downside loss, or consider buying longer-dated call contracts using a small percentage of your money. If the underlying price falls, then the call contracts will be a total loss, but if the price increases then you will receive most of the increase (minus the premium). If you are uncomfortable purchasing individual assets directly, then I would say you are probably doing everything that you reasonably can do."
},
{
"docid": "488100",
"title": "",
"text": "\"It's a good question, but it turns into a general 'how to invest' question. You see, the cliche of \"\"invest the difference\"\" simply point to the ripoff the other two answers discuss. And it doesn't specify how to invest, only that this money should be put to work as long term investments. The best answer is to find the asset allocation appropriate for your age and risk profile. It can be as simple as a low cost S&P ETF, or as complex at a dozen assets that include Stocks, both Domestic and Foreign, REITs, Commodities, etc. It's not as if the saved funds get segregated in a special account just for this purpose, although I suppose one can do this just as others have separate funds for retirement, emergency, vacation, college, etc.\""
},
{
"docid": "83183",
"title": "",
"text": "The Securities Investor Protection Corporation is roughly analogous to the FDIC for investments. There are some important differences like a lack of 100% guarantee you get all of your funds back. The SIPC understands you invested knowing there was some risk, and therefore you take that same risk in getting your money from a failed brokerage. However there is still a level of commitment and trust that lessen the risk of investing in the wrong place. Also, do not typo the acronym at your work computer. In the US (and perhaps elsewhere) it is a racist term, and you are likely to get some bad search results. http://www.sipc.org/how/brochure.cfm"
},
{
"docid": "333755",
"title": "",
"text": "\"There are many different methods for a corporation to get money, but they mostly fall into three categories: earnings, debt and equity. Earnings would be just the corporation's accumulation of cash due to the operation of its business. Perhaps if cash was needed for a particular reason immediately, a business may consider selling a division or group of assets to another party, and using the proceeds for a different part of the business. Debt is money that (to put it simply) the corporation legally must repay to the lender, likely with periodic interest payments. Apart from the interest payments (if any) and the principal (original amount leant), the lender has no additional rights to the value of the company. There are, basically, 2 types of corporate debt: bank debt, and bonds. Bank debt is just the corporation taking on a loan from a bank. Bonds are offered to the public - ie: you could potentially buy a \"\"Tesla Bond\"\", where you give Tesla $1k, and they give you a stated interest rate over time, and principal repayments according to a schedule. Which type of debt a corporation uses will depend mostly on the high cost of offering a public bond, the relationships with current banks, and the interest rates the corporation thinks it can get from either method. Equity [or, shares] is money that the corporation (to put it simply) likely does not have a legal obligation to repay, until the corporation is liquidated (sold at the end of its life) and all debt has already been repaid. But when the corporation is liquidated, the shareholders have a legal right to the entire value of the company, after those debts have been paid. So equity holders have higher risk than debt holders, but they also can share in higher reward. That is why stock prices are so volatile - the value of each share fluctuates based on the perceived value of the entire company. Some equity may be offered with specific rules about dividend payments - maybe they are required [a 'preferred' share likely has a stated dividend rate almost like a bond, but also likely has a limited value it can ever receive back from the corporation], maybe they are at the discretion of the board of directors, maybe they will never happen. There are 2 broad ways for a corporation to get money from equity: a private offering, or a public offering. A private offering could be a small mom and pop store asking their neighbors to invest 5k so they can repair their business's roof, or it could be an 'Angel Investor' [think Shark Tank] contributing significant value and maybe even taking control of the company. Perhaps shares would be offered to all current shareholders first. A public offering would be one where shares would be offered up to the public on the stock exchange, so that anyone could subscribe to them. Why a corporation would use any of these different methods depends on the price it feels it could get from them, and also perhaps whether there are benefits to having different shareholders involved in the business [ie: an Angel investor would likely be involved in the business to protect his/her investment, and that leadership may be what the corporation actually needs, as much or more than money]. Whether a corporation chooses to gain cash from earnings, debt, or equity depends on many factors, including but not limited to: (1) what assets / earnings potential it currently has; (2) the cost of acquiring the cash [ie: the high cost of undergoing a public offering vs the lower cost of increasing a bank loan]; and (3) the ongoing costs of that cash to both the corporation and ultimately the other shareholders - ie: a 3% interest rate on debt vs a 6% dividend rate on preferred shares vs a 5% dividend rate on common shares [which would also share in the net value of the company with the other current shareholders]. In summary: Earnings would be generally preferred, but if the company needs cash immediately, that may not be suitable. Debt is generally cheap to acquire and interest rates are generally lower than required dividend rates. Equity is often expensive to acquire and maintain [either through dividend payments or by reduction of net value attributable to other current shareholders], but may be required if a new venture is risky. ie: a bank/bondholder may not want to lend money for a new tech idea because it is too risky to just get interest from - they want access to the potential earnings as well, through equity.\""
},
{
"docid": "595211",
"title": "",
"text": "Its different because, at least with both stock options and futures, the product is going to eventually get that money. The difference is that you don't have to spend that money directly on that product right now, allowing you to invest far more then you can afford since you are going to cover that option or sell that contract long before you are ever going to be on hook for actually buying all those stocks or barrels of oil you were trading. It's actually a good way for a middle class investor to become really wealthy, because if he is good all he needs is to save only about 10,000 to invest and he can invest like he's investing 100,000. Obviously there's more risk too, but give and take i guess."
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "549435",
"title": "",
"text": "An accountant should be able to advise on the tax consequences of different classes of investments/assets/debts (e.g. RRSP, TFSA, mortgage). But I would not ask an accountant which specific securities to hold in these vehicles, or what asset allocation (in terms of geography, capitalization, or class (equity vs fixed income vs derivatives vs structured notes etc). An investment advisor would be better suited to matching your investments to your risk tolerance."
},
{
"docid": "183898",
"title": "",
"text": "It is true that this is possible, however, it's very remote in the case of the large and reputable fund companies such as Vanguard. FDIC insurance protects against precisely this for bank accounts, but mutual funds and ETFs do not have an equivalent to FDIC insurance. One thing that does help you in the case of a mutual fund or ETF is that you indirectly (through the fund) own actual assets. In a cash account at a bank, you have a promise from the bank to pay, and then the bank can go off and use your money to make loans. You don't in any sense own the bank's loans. With a fund, the fund company cannot (legally) take your money out of the fund, except to pay the expense ratio. They have to use your money to buy stocks, bonds, or whatever the fund invests in. Those assets are then owned by the fund. Legally, a mutual fund is a special kind of company defined in the Investment Company Act of 1940, and is a separate company from the investment advisor (such as Vanguard): http://www.sec.gov/answers/mfinvco.htm Funds have their own boards, and in principle a fund board can even fire the company advising the fund, though this is not likely since boards aren't usually independent. (a quick google found this article for more, maybe someone can find a better one: http://www.marketwatch.com/story/mutual-fund-independent-board-rule-all-but-dead) If Vanguard goes under, the funds could continue to exist and get a new adviser, or could be liquidated with investors receiving whatever the assets are worth. Of course, all this legal stuff doesn't help you with outright fraud. If a fund's adviser says it bought the S&P 500, but really some guy bought himself a yacht, Madoff-style, then you have a problem. But a huge well-known ETF has auditors, tons of different employees, lots of brokerage and exchange traffic, etc. so to me at least it's tough to imagine a risk here. With a small fund company with just a few people - and there are lots of these! - then there's more risk, and you'd want to carefully look at what independent agent holds their assets, who their auditors are, and so forth. With regular mutual funds (not ETFs) there are more issues with diversifying across fund companies: With ETFs, there probably isn't much downside to diversifying since you could buy them all from one brokerage account. Maybe it even happens naturally if you pick the best ETFs you can find. Personally, I would just pick the best ETFs and not worry about advisor diversity. Update: maybe also deserving a mention are exchange-traded notes (ETNs). An ETN's legal structure is more like the bank account, minus the FDIC insurance of course. It's an IOU from the company that runs the ETN, where they promise to pay back the value of some index. There's no investment company as with a fund, and therefore you don't own a share of any actual assets. If the ETN's sponsor went bankrupt, you would indeed have a problem, much more so than if an ETF's sponsor went bankrupt."
},
{
"docid": "500863",
"title": "",
"text": "Modern portfolio theory has a strong theoretical background and its conclusions on the risk/return trade-off have a lot of good supporting evidence. However, the conclusions it draws need to be used very carefully when thinking about retirement investing. If you were really just trying to just pick the one investment that you would guess would make you the most money in the future then yes, given no other information, the riskiest asset would be the best one. However, for most people the goal retirement investing is to be as sure as possible to retire comfortably. If you were to just invest in a single, very risky asset you may have the highest expected return, but the risk involved would mean there might be a good chance you money may not be there when you need it. Instead, a broad diversified basket of riskier and safer assets leaning more toward the riskier investments when younger and the safer assets when you get closer to retirement tends to be a better fit with most people's retirement goals. This tends to give (on average) more return when you are young and can better deal with the risk, but dials back the risk later in life when your investment portfolio is a majority of your wealth and you can least afford any major swings. This combines the lessons of MPT (diversity, risk/return trade-off) in a clearer way with common goals of retirement. Caveat: Your retirement goals and risk-tolerance may be very different from other peoples'. It is often good to talk to (fee-only) financial planner."
},
{
"docid": "467373",
"title": "",
"text": "After looking at both S&P GSCI Crude Oil Index Excess Return (INDEXSP:SPGSCLP) and CS VS 3x LC ETN NYSEARCA: UWTI they seem to track well (using Google Finance). I'm not seeing where your statement this ETN loses whether oil is gaining or not holds true. Both have posted a year-over-year loss. In the past year the Crude Oil index has fallen from a high of 494 on October 6, 2014 to a low of 213 as of today October 5th, 2015. So of course the UWTI will lose as well. Please also notice that that, as stated in the prospectus for UWTI: The ETNs are intended to be daily trading tools for sophisticated investors to manage daily trading risks. They are designed t o achieve their stated investment objectives on a daily basis, but their performance over different periods of time can differ significantly fr om their stated daily objectives. The ETNs are riskier than securities that have intermediate or long-term investment objectives, and may not be sui table for investors who plan to hold them for a period other than one day. You might want to look into investing in an ETF for long term investment goals and objectives. Oil ETF List"
},
{
"docid": "334919",
"title": "",
"text": "Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious."
},
{
"docid": "436904",
"title": "",
"text": "This is Ellie Lan, investment analyst at Betterment. To answer your question, American investors are drawn to use the S&P 500 (SPY) as a benchmark to measure the performance of Betterment portfolios, particularly because it’s familiar and it’s the index always reported in the news. However, going all in to invest in SPY is not a good investment strategy—and even using it to compare your own diversified investments is misleading. We outline some of the pitfalls of this approach in this article: Why the S&P 500 Is a Bad Benchmark. An “algo-advisor” service like Betterment is a preferable approach and provides a number of advantages over simply investing in ETFs (SPY or others like VOO or IVV) that track the S&P 500. So, why invest with Betterment rather than in the S&P 500? Let’s first look at the issue of diversification. SPY only exposes investors to stocks in the U.S. large cap market. This may feel acceptable because of home bias, which is the tendency to invest disproportionately in domestic equities relative to foreign equities, regardless of their home country. However, investing in one geography and one asset class is riskier than global diversification because inflation risk, exchange-rate risk, and interest-rate risk will likely affect all U.S. stocks to a similar degree in the event of a U.S. downturn. In contrast, a well-diversified portfolio invests in a balance between bonds and stocks, and the ratio of bonds to stocks is dependent upon the investment horizon as well as the individual's goals. By constructing a portfolio from stock and bond ETFs across the world, Betterment reduces your portfolio’s sensitivity to swings. And the diversification goes beyond mere asset class and geography. For example, Betterment’s basket of bond ETFs have varying durations (e.g., short-term Treasuries have an effective duration of less than six months vs. U.S. corporate bonds, which have an effective duration of just more than 8 years) and credit quality. The level of diversification further helps you manage risk. Dan Egan, Betterment’s Director of Behavioral Finance and Investing, examined the increase in returns by moving from a U.S.-only portfolio to a globally diversified portfolio. On a risk-adjusted basis, the Betterment portfolio has historically outperformed a simple DIY investor portfolio by as much as 1.8% per year, attributed solely to diversification. Now, let’s assume that the investor at hand (Investor A) is a sophisticated investor who understands the importance of diversification. Additionally, let’s assume that he understands the optimal allocation for his age, risk appetite, and investment horizon. Investor A will still benefit from investing with Betterment. Automating his portfolio management with Betterment helps to insulate Investor A from the ’behavior gap,’ or the tendency for investors to sacrifice returns due to bad timing. Studies show that individual investors lose, on average, anywhere between 1.2% to 4.3% due to the behavior gap, and this gap can be as high as 6.5% for the most active investors. Compared to the average investor, Betterment customers have a behavior gap that is 1.25% lower. How? Betterment has implemented smart design to discourage market timing and short-sighted decision making. For example, Betterment’s Tax Impact Preview feature allows users to view the tax hit of a withdrawal or allocation change before a decision is made. Currently, Betterment is the only automated investment service to offer this capability. This function allows you to see a detailed estimate of the expected gains or losses broken down by short- and long-term, making it possible for investors to make better decisions about whether short-term gains should be deferred to the long-term. Now, for the sake of comparison, let’s assume that we have an even more sophisticated investor (Investor B), who understands the pitfalls of the behavior gap and is somehow able to avoid it. Betterment is still a better tool for Investor B because it offers a suite of tax-efficient features, including tax loss harvesting, smarter cost-basis accounting, municipal bonds, smart dividend reinvesting, and more. Each of these strategies can be automatically deployed inside the portfolio—Investor B need not do a thing. Each of these strategies can boost returns by lowering tax exposure. To return to your initial question—why not simply invest in the S&P 500? Investing is a long-term proposition, particularly when saving for retirement or other goals with a time horizon of several decades. To be a successful long-term investor means employing the core principles of diversification, tax management, and behavior management. While the S&P might look like a ‘hot’ investment one year, there are always reversals of fortune. The goal with long-term passive investing—the kind of investing that Betterment offers—is to help you reach your investing goals as efficiently as possible. Lastly, Betterment offers best-in-industry advice about where to save and how much to save for no fee."
},
{
"docid": "43683",
"title": "",
"text": "If you have 100% of your money in one security that is inherently more risky than splitting your money 50/50 between two securities, regardless of the purported riskiness of the two securities. The calculations people use to justify their particular breed of diversification may carry some assumptions related risk/reward calculations. But these particular justifications don't change the fact that spreading your money across different assets protects your money from value variances of the individual assets. Splitting your $100 between Apple and Microsoft stock is probably less valuable (less well diversified) than splitting your money between Apple and Whole Foods stock but either way you're carrying less risk than putting all $100 in to Apple stock regardless of the assumed rates of return for any of these companies stock specifically. Edit: I'm sure the downvotes are because I didn't make a big deal about correlation and measuring correlation and standard deviations of returns and detailed portfolio theory. Measuring efficacy and justifying your particular allocations (that generally uses data from the past to project the future) is all well and good. Fact of the matter is, if you have 100% of your money in stock that's more stock risk than 25% in cash, 25% in bonds and 50% in stock would be because now you're in different asset classes. You can measure to your hearts delight the effects of splitting your money between different specific companies, or different industries, or different market capitalizations, or different countries or different fund managers or different whatever-metrics and doing any of those things will reduce your exposure to those specific allocations. It may be worth pointing out that currently the hot recommendation is a plain vanilla market tracking S&P 500 index fund (that just buys some of each of the 500 largest US companies without any consideration given to risk correlation) over standard deviation calculating actively managed funds. If you ask me that speaks volumes of the true efficacy of hyper analyzing the purported correlations of various securities."
},
{
"docid": "246624",
"title": "",
"text": "\"First of all, the annual returns are an average, there are probably some years where their return was several thousand percent, this can make a decade of 2% a year become an average of 20% . Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3% of the US population is registered as accredited investors. Accredited Investors are allowed to participate in private offerings of securities that do not have to be registered with the SEC, although theoretically riskier, these can have greater returns. Indeed a lot of companies that go public these days only do so after the majority of the growth potential is done. For example, a company like Facebook in the 90s would have gone public when it was a million dollar company, instead Facebook went public when it was already a 100 billion dollar company. The people that were privileged enough to be ALLOWED to invest in Facebook while it was private, experienced 10000% returns, public stock market investors from Facebook's IPO have experienced a nearly 100% return, in comparison. Third, there are even more rules that are simply different between the \"\"underclass\"\" and the \"\"upperclass\"\". Especially when it comes to leverage, the rules on margin in the stock market and options markets are simply different between classes of investors. The more capital you have, the less you actually have to use to open a trade. Imagine a situation where a retail investor can invest in a stock by only putting down 25% of the value of the stock's shares. Someone with the net worth of an accredited investor could put down 5% of the value of the shares. So if the stock goes up, the person that already has money would earn a greater percentage than the peon thats actually investing to earn money at all. Fourth, Warren Buffett's fund and George Soros' funds aren't just in stocks. George Soros' claim to fame was taking big bets in the foreign exchange market. The leverage in that market is much greater than one can experience in the stock market. Fifth, Options. Anyone can open an options contract, but getting someone else to be on the other side of it is harder. Someone with clout can negotiate a 10 year options contract for pretty cheap and gain greatly if their stock or other asset appreciates in value much greater. There are cultural limitations that prompt some people to make a distinction between investing and gambling, but others are not bound by those limitations and can take any kind of bet they like.\""
},
{
"docid": "595981",
"title": "",
"text": "Two different takes on an answer; the net-loss concept you mentioned and a core-business concept. If a store is actually a net-loss, and anybody is willing to buy it, it may well make sense to sell it. Depending on your capital value invested, and how much it would take you to make it profitable, it may be a sound business decision to sell the asset. The buyer of the asset is of course expecting for some reason to make it not a net loss for them (perhaps they have other stores in the vicinity and can then share staff or stock somehow). The core-business is a fuzzier concept. Investors seem to go in cycles, like can like well-diversified companies that are resilient to a market downturn in one sector, but then they also like so-called pure-play companies, where you are clear on what you are owning. To try an example (which is likely not the case here), lets say that Sunoco in 5% of its stores had migrated away from a gas-station model to a one-stop-gas-and-repairs model. Therefore they had to have service bays, parts, and trained staff at those locations. These things are expensive, and could be seen as not their area of expertise (selling gas). So as an investor, if I want to own gas stations, I don't want to own a full service garage, so perhaps I invest in somebody else. Once they sell off their non-core assets, they free up capital to do what they know best. It is at least one possible explanation."
},
{
"docid": "273187",
"title": "",
"text": "why does it make sense financially to buy property and become a landlord? Because then your investment generates cash instead of just sitting idle. All taxes, fees and repairs aside it would take almost 21 years before I start making profits. No - your profit will be the rents that you collect (minus expenses). You still have an asset that is worth roughly what you paid for it (and might go up in value), so you don't need to recoup the entire cost of the property before making a profit. Compared to investing the same 150k in an ETF portfolio with conservative 4% in annual returns I would have made around 140k € after taxes in the same 21 years i.e. almost doubled the money. If you charge 600 € / month (and never miss a month of rental income), after 21 years you have made 151k € in rents plus you still have a property. That property is most likely going to be worth more than you paid for it, so you should have at least 300k € in assets. Having said all that, it does NOT always make sense to invest in rental property. Being a landlord can be a hard job, and there are many risks involved that are different that risks in financial investments."
}
] |
8539 | Can the risk of investing in an asset be different for different investors? | [
{
"docid": "396038",
"title": "",
"text": "Capping the upside while playing with unlimited downside is a less disciplined investment strategy vis-a-vis a stop-loss driven strategy. Whether it is less risky or high risky also depends on the fluctuations of the stock and not just long-term movements. For example, your stop losses might get triggered because of a momentary sharp decline in stock price due to a large volume transaction (esp more so in small-cap stocks). Although, the stock price might recover from the sudden price drop pretty soon causing a seemingly preventable loss. That being said, playing with stop losses is always considered a safer strategy. It may not increase your profits but can certainly cap your losses."
}
] | [
{
"docid": "134542",
"title": "",
"text": "\"When you invest in a single index/security, you are completely exposed to the risk of that security. Diversification means spreading the investments so the losses on one side can be compensated by the gains on the other side. What you are talking about is one thing called \"\"risk apettite\"\", more formally known as Risk Tolerance: Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. (emphasis added) This means that you are willing to accept some losses in order to get a potential bigger return. Fidelity has this graph: As you can see in the table above, the higher the risk tolerance, the bigger the difference between the best and worst values. That is the variability. The right-most pie can be one example of an agressive diversified portfolio. But this does not mean you should go and buy exactly that security compostion. High-risk means playing with fire. Unless you are a professional stuntman, playing with fire usually leaves people burnt. In a financial context this usually means the money is gone. Recommended Reading: Investopedia; Risk and Diversification: The Risk-Reward Tradeoff Investopedia; How to construct a High Risk portfolio Fidelity: Guide to Diversification KPMG: Understanding and articulating Risk Appetite (pdf)\""
},
{
"docid": "310218",
"title": "",
"text": "\"If the stock market dropped 30%-40% next month, providing you with a rare opportunity to buy stocks at a deep discount, wouldn't you want to have some of your assets in investments other than stocks? If you don't otherwise have piles of new cash to throw into the market when it significantly tanks, then having some of your portfolio invested elsewhere will enable you to back up the proverbial truck and load up on more stocks while they are on sale. I'm not advocating active market timing. Rather, the way that long-term investors capitalize on such opportunities is by choosing a portfolio asset allocation that includes some percentage of safer assets (e.g. cash, short term bonds, etc.), permitting the investor to rebalance the portfolio periodically back to target allocations (e.g. 80% stocks, 20% bonds.) When rebalancing would have you buy stocks, it's usually because they are on sale. Similarly, when rebalancing would have you sell stocks, it's usually because they are overpriced. So, don't consider \"\"safer investments\"\" strictly as a way to reduce your risk. Rather, they can give you the means to take advantage of market drops, rather than just riding it out when you are already 100% invested in stocks. I could say a lot more about diversification and risk reduction, but there are plenty of other great questions on the site that you can look through instead.\""
},
{
"docid": "27425",
"title": "",
"text": "A Mortgage Backed Security or MBS is the security. It's not an entity, it's essentially a contract. As an investment they function more or less the same way a bond does. There is nothing wrong with the concept behind a Mortgage Backed Security. Functionally securities like these allows banks and other institutions to lend to high-risk borrowers. You package small slices of a wide range of risk from a large number of mortgages and the investor sill receive something similar to the average of the rates being charged. Essentially from a big pool of mortgages of varying risk you will create a different big pool of bonds that can be sold to investors based on some sort of expected return. For a frame of reference on a much smaller scale look at peer to peer lending sites like LendingClub and Prosper. The idea is lots of people of varying risk profiles make requests for loans of varying amounts. You bring your $2,500 and invest $25 in to 100 different loans. This way even if a few default you will still eek out a profit. It also allows you to include riskier borrowers without materially impacting your expected return."
},
{
"docid": "499060",
"title": "",
"text": "\"Some investors worry about interest rate risk because they Additional reason is margin trading which is borrowing money to invest in capital markets. Since margin trading includes minimum margin requirements and maintenance margin to protect lender \"\"such as a broker\"\" , a decrease in the value of bonds might trigger a threat of a margin call There are other reasons why investors care about interest rate risk such as spread trade investors who benefit from difference in short term/ long term interest rates. Such investors borrow short term loans -which enables them to pay low interest- and lend long term loans - which enables them to gain high interest-. Any disturbance between the interest rate spread between short term and long term bonds might affect investor's profit and might even lead to losses. In summary , it all depends on you investment objective and financial condition. You should consult with your financial adviser to help plan for your financial goals.\""
},
{
"docid": "438302",
"title": "",
"text": "\"Although this has been touched upon in comments, I think the following line from the currently accepted answer shows the biggest issue: There is a clear difference between investing and gambling. The reality is that the difference isn't that clear at all. Tens of comments have been written arguing in both directions and looking around the internet entire essays have been written arguing both positions. The underlying emotion that seems to shape this discussion primarily is whether investing (especially in the stock market) is a form of gambling. People who do invest in this way tend to get relatively emotional whenever someone argues that this is a form of gambling, as gambling is considered a negative thing. The simple reality of human communication is that words can be ambiguous, and the way investors will use the words 'investments' and 'gambles' will differ from the way it is used by gamblers, and once again different from the way it's commonly used. What I definitely think is made clear by all the different discussions however is that there is no single distinctive trait that allows us to differentiate investing and gambling. The result of this is that when you take dictionary definitions for both terms you will likely end up including lottery tickets as a valid form of investment. That still however leaves us with a situation where we have two terms - with a strong overlap - which have a distinctive meaning in communication and the original question whether buying lottery tickets is an investment. Over on investorguide.com there is an absolutely amazing strongly recommended essay which explores countless of different traits in search of a difference between investing and gambling, and they came up with the following two definitions: Investing: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): sufficient research has been conducted; the odds are favorable; the behavior is risk-averse; a systematic approach is being taken; emotions such as greed and fear play no role; the activity is ongoing and done as part of a long-term plan; the activity is not motivated solely by entertainment or compulsion; ownership of something tangible is involved; a net positive economic effect results.\"\" Gambling: \"\"Any activity in which money is put at risk for the purpose of making a profit, and which is characterized by some or most of the following (in approximately descending order of importance): little or no research has been conducted; the odds are unfavorable; the behavior is risk-seeking; an unsystematic approach is being taken; emotions such as greed and fear play a role; the activity is a discrete event or series of discrete events not done as part of a long-term plan; the activity is significantly motivated by entertainment or compulsion; ownership of something tangible is not involved; no net economic effect results.\"\" The very interesting thing about those definitions is that they capture very well the way those terms are used by most people, and they even acknowledge that a lot of 'investors' are gambling, and that a few gamblers are 'investing' (read the essay for more on that). And this fits well with the way those two concepts are understood by the public. So in those definitions normally buying a lottery ticket would indeed not be an investment, but if we take for example Vadim's operation example If you have $1000 and need $2000 by next week or else you can't have an operation and you will die (and you can't find anyone to give you a loan). Your optimal strategy is to gamble your $1000, at the best odds you can get, with a possible outcome of $2000. So even if you only have a 1/3 chance of winning and getting that operation, it's still the right bet if you can't find a better one. this can suddenly change the perception and turn 'gambling' into 'high-risk investing'.\""
},
{
"docid": "254783",
"title": "",
"text": "I wouldn't focus too much on dividends itself; at the end of the day what matters is total gain, because you can convert capital gain into income by selling your assets (they have different tax implications, but generally capital gains tend to be more tax efficient). I think the more important question is how much volatility you can tolerate. Since your investment horizon is short & your risk tolerance is low (as in if you suddenly get much lower income than you planned from your investment you'll be in trouble), you probably want assets that have low volatility. To achieve that, I'd consider the following if I were you: tl;dr If I were you I'd just hold a general investment portfolio with a lower risk profile rather than focusing on dividend generating assets."
},
{
"docid": "497266",
"title": "",
"text": "I work as an investment risk manager for what would popularly be called a top tier investment manager. Most large asset managers use vendor models like RiskMetrics, Algorithmics, Barclays Point, Barra or something similar, and use those to calculate endless varieties of analytics and risk metrics. Some of these are granular risk models (single asset based and computing covariances between them) while others are factor models (e.g. mapping bonds to a yield curve and sector and country spread and computing the risk largely based on that mapping). Things like Value at Risk in any of its many flavors (simulated vs non simulated, mainly), ex-ante risk relative to a benchmark, stress tests, duration, beta, yield, spread, expected shortfall, what have you... Counterparty/credit risk is a whole different world I could get into. What else do you want to know in detail?"
},
{
"docid": "274945",
"title": "",
"text": "Investors hungry for returns are piling back into securities once tarnished by the financial crisis. Complex structured investments developed a bad reputation during the credit crunch. Ten years later, investors seeking yield are overcoming their skepticism and buying into securities that rely on financial engineering to juice returns. Volumes of CLOs, or collateralized loan obligations, hit a record $247 billion in the first nine months of the year, according to data from J.P. Morgan Chase JPM 1.59%▲ & Co. Fueled by a wave of refinancings and nearly $100 billion in new deals, that far outpaces their recent full-year high of $151 billion in 2014 and the precrisis peak of $136 billion in 2006. The CLO boom is the latest sign of the ferocious hunt for yield permeating markets. Stellar performance over the past year has made CLOs increasingly hard to ignore for investors like insurance companies and pension funds. CLOs carve up a portfolio of bank loans to highly indebted companies into slices of securities with different levels of risk. The securities at the bottom of the CLO stack offer the highest potential source of returns, but they are also the first to absorb losses if there are defaults in the underlying loan portfolio. The more senior slices offer lower returns but are more insulated from losses. CLOs are often lumped together with other alphabet-soup acronyms of the financial crisis, such as more toxic CDOs, or collateralized debt obligations. But CLOs actually weathered the financial crisis well: Investors who bought at the top of the market in 2007 suffered paper losses, but there were no defaults at all for the highest-rated securities. That track record has helped boost CLOs’ appeal for investors with lingering concerns over scooping up more complex investments. . Taking off / Global CLO volumes “The demand for things like CLOs….is extraordinary,” said Rick Rieder, chief investment officer for global fixed income at BlackRock Inc. CLOs are one of the largest demand sources for the leveraged loan market, which has also been booming this year. Volumes of leveraged loans, often used by private-equity firms to fund buyouts, are on track to surpass their 2007 record, according to LCD, a unit of S&P Global Market Intelligence. At the same time, investors have voiced concerns about companies’ rising leverage level, and weaker creditor protections. Within a CLO are different risk profiles: Investors in the most senior, AAA-rated piece of debt get paid first and are the most insulated from losses if defaults rise in the underlying loan portfolio. They also receive the skinniest returns. Slices of debt further down receive higher returns, but will suffer losses if defaults spike. At the bottom sits the equity tranche, the first loss-absorber and last to get paid, but the highest potential source of returns. A 2014 report from Standard & Poor’s Ratings Services stated that AAA-rated and AA-rated CLO tranches incurred no losses at all between 1994 and 2013. Loss rates for lower-rated tranches, meanwhile, were low—just 1.1% for B-rated securities over that period. . Flying High / Market returns since J.P. Morgan recommended buying CLOs last July That doesn’t prevent some conservative investors from conflating the CLOs with the now-infamous CDOs, many of which were linked to subprime mortgages and spread and amplified losses in the U.S. housing market. One breed of CDOs are on a comeback path of their own, with more investors returning to them during an aging bull market. Many people were “burnt by these acronyms from the crisis,” said Zak Summerscale, head of credit fund management for Europe and Asia Pacific at Intermediate Capital Group . He is currently recommending that clients buy senior CLO tranches over investment-grade bonds. CLOs, like other types of securitizations, have been subject to greater regulation since the financial crisis. That includes forcing funds that manage a CLO to retain 5% of the securities, in an effort to align incentives with investors. That has “attracted additional capital into the market,” said Mike Rosenberg, a principal at alternative investment manager Tetragon. Assets under management in the “loan participation” sector—a proxy for funds that invest in CLOs—have grown 21% this year to $206 billion, according to Thomson Reuters Lipper. The pickup in CLOs has been a boon to banks weathering declines in trading revenues in the current low-volatility environment. Revenue from CLO-related activity at the top 12 global investment banks more than doubled over the first half of 2017 from a year earlier to almost $1 billion, according to financial consultancy Coalition. CLO investors have been handsomely rewarded in recent months. J.P. Morgan strategist Rishad Ahluwalia recommended clients buy CLOs last July as he thought they looked too cheap. Between then and the end of September, BB-rated CLO tranches returned 25.4%, compared with a 25.2% return for the technology-oriented Nasdaq stock index, according to his calculations. “CLOs have been an absolute home run,” said Mr. Ahluwalia, though he added such chunky returns aren’t repeatable. Analysts say CLOs got beaten down last year following a series of troubles in the underlying loan market, including distress in the energy sector. Some analysts think the strong rally in CLO tranches since then should give investors pause; others think the market has further to run. Renaud Champion, head of credit strategies at Paris-based hedge fund La Française Investment Solutions, likes AAA-rated CLO tranches but with a twist: leverage. Mr. Champion says he buys senior European CLO tranches and borrows money against them to increase the size of his position between five and 10 times. That can amplify gains—and losses—significantly. “The difference between now and a year ago is the availability of leverage,” he said. Bankers say only a small proportion of CLO buyers use leverage and emphasize that trades are subject to daily margin calls. That means investors have to post cash to cover mark-to-market losses on a position, which in turn limits how much they are willing to borrow. “The leverage in the system today is a fraction compared to precrisis,” said J.P. Morgan’s Mr. Ahluwalia. Write to Christopher Whittall at [email protected] Appeared in the October 23, 2017, print edition as 'Crisis-Era Securities Regain Investors’ Favor.'"
},
{
"docid": "134005",
"title": "",
"text": "\"Vanguard released an analysis paper in 2013 titled \"\"Dollar-cost averaging just means taking risk later.\"\" This paper explores the performance difference(s) between a dollar-cost averaging strategy and a lump sum strategy when you already possess the funds. This paper is an excellent read but the conclusion from the executive summary is: We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. The caveat to the conclusion is weighing your emotions. If you are primarily concerned with minimizing the possibility of a loss then you should use a dollar cost averaging strategy with the understanding that, on a purely mathematical basis, the dollar cost averaging strategy is likely to under-perform a lump sum investment of the funds. The paper explores a 10 year holding period with either: The analysis includes various portfolio blends and is backtested against the United States, United Kingdom and Australian markets. Based on this, as far as I'm concerned, the rule of thumb is invest the lump sum if you're going to invest at all.\""
},
{
"docid": "499166",
"title": "",
"text": "It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail."
},
{
"docid": "488100",
"title": "",
"text": "\"It's a good question, but it turns into a general 'how to invest' question. You see, the cliche of \"\"invest the difference\"\" simply point to the ripoff the other two answers discuss. And it doesn't specify how to invest, only that this money should be put to work as long term investments. The best answer is to find the asset allocation appropriate for your age and risk profile. It can be as simple as a low cost S&P ETF, or as complex at a dozen assets that include Stocks, both Domestic and Foreign, REITs, Commodities, etc. It's not as if the saved funds get segregated in a special account just for this purpose, although I suppose one can do this just as others have separate funds for retirement, emergency, vacation, college, etc.\""
},
{
"docid": "582736",
"title": "",
"text": "In Australia the ATO can determine if you are considered a shareholder or a share trader. The ATO defines a shareholder as: A shareholder is a person who holds shares for the purpose of earning income from dividends and similar receipts. Whilst they define a share trader as: A share trader is a person who carries out business activities for the purpose of earning income from buying and selling shares. To find out the differences between them you can refer to the following link describing The difference between a share trader and a shareholder. The ATO also describes: To be classed as a share trader, you may be asked to provide evidence that demonstrates you are carrying on a business of share trading, for example: the purchase of shares on a regular basis through a regular or routine method a trading plan use of share trading techniques in managing your share acquisitions, such as decisions based on thorough analysis of relevant market information a contingency plan in the event of a major shift in the market. Losses incurred in the business of share trading are treated the same as any other losses from business. If your activities change from investor to trader, your investment changes from a CGT (capital gains tax) asset to trading stock. This can trigger CGT event for any investments you currently hold as they change from CGT assets to trading stock. Once you have changed over to a trader you will not be entitled to the 50% CGT discount for stocks held over 12 months. You will, however, be able to count any paper losses at the end of Financial Year to reduce your other income."
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "39819",
"title": "",
"text": "\"Old question I know, but I have some thoughts to share. Your title and question say two different things. \"\"Better off\"\" should mean maximizing your ex-ante utility. Most of your question seems to describe maximizing your expected return, as do the simulation exercises here. Those are two different things because risk is implicitly ignored by what you call \"\"the pure mathematical answer.\"\" The expected return on your investments needs to exceed the cost of your debt because interest you pay is risk-free while your investments are risky. To solve this problem, consider the portfolio problem where paying down debt is the risk-free asset and consider the set of optimal solutions. You will get a capital allocation line between the solution where you put everything into paying down debt and the optimal/tangent portfolio from the set of risky assets. In order to determine where on that line someone is, you must know their utility function and risk parameters. You also must know the parameters of the investable universe, which we don't.\""
},
{
"docid": "246624",
"title": "",
"text": "\"First of all, the annual returns are an average, there are probably some years where their return was several thousand percent, this can make a decade of 2% a year become an average of 20% . Second of all, accredited investors are allowed to do many things that the majority of the population cannot do. Although this is mostly tied to net worth, less than 3% of the US population is registered as accredited investors. Accredited Investors are allowed to participate in private offerings of securities that do not have to be registered with the SEC, although theoretically riskier, these can have greater returns. Indeed a lot of companies that go public these days only do so after the majority of the growth potential is done. For example, a company like Facebook in the 90s would have gone public when it was a million dollar company, instead Facebook went public when it was already a 100 billion dollar company. The people that were privileged enough to be ALLOWED to invest in Facebook while it was private, experienced 10000% returns, public stock market investors from Facebook's IPO have experienced a nearly 100% return, in comparison. Third, there are even more rules that are simply different between the \"\"underclass\"\" and the \"\"upperclass\"\". Especially when it comes to leverage, the rules on margin in the stock market and options markets are simply different between classes of investors. The more capital you have, the less you actually have to use to open a trade. Imagine a situation where a retail investor can invest in a stock by only putting down 25% of the value of the stock's shares. Someone with the net worth of an accredited investor could put down 5% of the value of the shares. So if the stock goes up, the person that already has money would earn a greater percentage than the peon thats actually investing to earn money at all. Fourth, Warren Buffett's fund and George Soros' funds aren't just in stocks. George Soros' claim to fame was taking big bets in the foreign exchange market. The leverage in that market is much greater than one can experience in the stock market. Fifth, Options. Anyone can open an options contract, but getting someone else to be on the other side of it is harder. Someone with clout can negotiate a 10 year options contract for pretty cheap and gain greatly if their stock or other asset appreciates in value much greater. There are cultural limitations that prompt some people to make a distinction between investing and gambling, but others are not bound by those limitations and can take any kind of bet they like.\""
},
{
"docid": "331008",
"title": "",
"text": "\"I would like to first point out that there is nothing special about a self-managed investment portfolio as compared to one managed by someone else. With some exceptions, you can put together exactly the same investment portfolio yourself as a professional investor could put together for you. Not uncommonly, too, at a lower cost (and remember that cost is among the, if not the, best indicator(s) of how your investment portfolio will perform over time). Diversification is the concept of not \"\"putting all your eggs in one basket\"\". The idea here is that there are things that happen together because they have a common cause, and by spreading your investments in ways such that not all of your investments have the same underlying risks, you reduce your overall risk. The technical term for risk is generally volatility, meaning how much (in this case the price of) something fluctuates over a given period of time. A stock that falls 30% one month and then climbs 40% the next month is more volatile than one that falls 3% the first month and climbs 4% the second month. The former is riskier because if for some reason you need to sell when it is down, you lose a larger portion of your original investment with the former stock than with the latter. Diversification, thus, is reducing commonality between your investments, generally but not necessarily in an attempt to reduce the risk of all investments moving in the same direction by the same amount at the same time. You can diversify in various ways: Do you see where I am going with this? A well-diversed portfolio will tend to have a mix of equity in your own country and a variety of other countries, spread out over different types of equity (company stock, corporate bonds, government bonds, ...), in different sectors of the economy, in countries with differing growth patterns. It may contain uncommon classes of investments such as precious metals. A poorly diversified portfolio will likely be restricted to either some particular geographical area, type of equity or investment, focus on some particular sector of the economy (such as medicine or vehicle manufacturers), or so on. The poorly diversified portfolio can do better in the short term, if you time it just right and happen to pick exactly the right thing to buy or sell. This is incredibly hard to do, as you are basically working against everyone who gets paid to do that kind of work full time, plus computer-algorithm-based trading which is programmed to look for any exploitable patterns. It is virtually impossible to do for any real length of time. Thus, the well-diversified portfolio tends to do better over time.\""
},
{
"docid": "216757",
"title": "",
"text": "\"Great question! While investing in individual stocks can be very useful as a learning experience, my opinion is that concentrating an entire portfolio in a few companies' stock is a mistake for most investors, and especially for a novice for several reasons. After all, only a handful of professional investors have ever beaten the market over the long term by picking stocks, so is it really worth trying? If you could, I'd say go work on Wall Street and good luck to you. Diversification For many investors, diversification is an important reason to use an ETF or index fund. If they were to focus on a few sectors or companies, it is more likely that they would have a lop-sided risk profile and might be subject to a larger downside risk potential than the market as a whole, i.e. \"\"don't put all your eggs in one basket\"\". Diversification is important because of the nature of compound investing - if you take a significant hit, it will take you a long time to recover because all of your future gains are building off of a smaller base. This is one reason that younger investors often take a larger position in equities, as they have longer to recover from significant market declines. While it is very possible to build a balanced, diversified portfolio from individual stocks, this isn't something I'd recommend for a new investor and would require a substantial college-level understanding of investments, and in any case, this portfolio would have a more discrete efficient frontier than the market as a whole. Lower Volatility Picking individual stocks or sectors would could also significantly increase or decrease the overall volatility of the portfolio relative to the market, especially if the stocks are highly cyclical or correlated to the same market factors. So if they are buying tech stocks, they might see bigger upswings and downswings compared to the market as a whole, or see the opposite effect in the case of utilities. In other words, owning a basket of individual stocks may result in an unintended volatility/beta profile. Lower Trading Costs and Taxes Investors who buy individual stocks tend to trade more in an attempt to beat the market. After accounting for commission fees, transaction costs (bid/ask spread), and taxes, most individual investors get only a fraction of the market average return. One famous academic study finds that investors who trade more trail the stock market more. Trading also tends to incur higher taxes since short term gains (<1 year) are taxed at marginal income tax rates that are higher than long term capital gains. Investors tend to trade due to behavioral failures such as trying to time the market, being overconfident, speculating on stocks instead of long-term investing, following what everyone else is doing, and getting in and out of the market as a result of an emotional reaction to volatility (ie buying when stocks are high/rising and selling when they are low/falling). Investing in index funds can involve minimal fees and discourages behavior that causes investors to incur excessive trading costs. This can make a big difference over the long run as extra costs and taxes compound significantly over time. It's Hard to Beat the Market since Markets are Quite Efficient Another reason to use funds is that it is reasonable to assume that at any point in time, the market does a fairly good job of pricing securities based on all known information. In other words, if a given stock is trading at a low P/E relative to the market, the market as a whole has decided that there is good reason for this valuation. This idea is based on the assumption that there are already so many professional analysts and traders looking for arbitrage opportunities that few such opportunities exist, and where they do exist, persist for only a short time. If you accept this theory generally (obviously, the market is not perfect), there is very little in the way of insight on pricing that the average novice investor could provide given limited knowledge of the markets and only a few hours of research. It might be more likely that opportunities identified by the novice would reflect omissions of relevant information. Trying to make money in this way then becomes a bet that other informed, professional investors are wrong and you are right (options traders, for example). Prices are Unpredictable (Behave Like \"\"Random\"\" Walks) If you want to make money as a long-term investor/owner rather than a speculator/trader, than most of the future change in asset prices will be a result of future events and information that is not yet known. Since no one knows how the world will change or who will be tomorrow's winners or losers, much less in 30 years, this is sometimes referred to as a \"\"random walk.\"\" You can point to fundamental analysis and say \"\"X company has great free cash flow, so I will invest in them\"\", but ultimately, the problem with this type of analysis is that everyone else has already done it too. For example, Warren Buffett famously already knows the price at which he'd buy every company he's interested in buying. When everyone else can do the same analysis as you, the price already reflects the market's take on that public information (Efficent Market theory), and what is left is the unknown (I wouldn't use the term \"\"random\"\"). Overall, I think there is simply a very large potential for an individual investor to make a few mistakes with individual stocks over 20+ years that will really cost a lot, and I think most investors want a balance of risk and return versus the largest possible return, and don't have an interest in developing a professional knowledge of stocks. I think a better strategy for most investors is to share in the future profits of companies buy holding a well-diversified portfolio for the long term and to avoid making a large number of decisions about which stocks to own.\""
},
{
"docid": "449941",
"title": "",
"text": "\"These are meaningless statistics on multiple levels: 1. These value rises are as of 2016. This does not indicate any sort of significant trend in the rise in value of these bags over time. Did they lose 30% in 2015? Will value stagnate in 2018? 2. Even if a trend were established (it is not), it doesn't suggest any sort of future movements whatsoever, as past price movements don't ensure future movements. 3. The fundamental idea of \"\"investing\"\" in an accessory is questionable at best. While collectors will buy things like cars and art, and some will sit on them as stores of value, the economics of generating future returns on these items is not so logically sound as with stocks or bonds. These collectors items do not generate future value in a way that produces cash flows. An individual has to purely hope that somebody is willing to pay more for it in the future; the item does not fundamentally necessitate higher payment. This is the fundamental problem also with \"\"investing\"\" in commodities, and why a fundamentalist like Buffet would never do it. You bet on a commodity move (hopefully with information that you believe the market to be incorrectly synthesizing); you don't really \"\"invest\"\" in one. What makes a stock or bond (a company) different is that a company can be thought of as a black box that prints more money than it is fed. We feed money into a company as investors; the company uses that money to buy assets (e.g. Machines, inventory) at book value; the assets are made to work in tandem to produce goods/services that have more value than the sum of their parts; those goods/services are sold at the now higher value for a profit, and cash flows are returned to investors for an annual return on your investment (sometimes dividends aren't paid, but are reinvested with the expectation that reinvestment will lead to far larger dividends in the future). As such, the money investors feed into a company is turned into more money at the other end, and thus the company has produced more value than it's inputs alone. It has done so through the combination of resources (assets) in a way that makes their value greater than the sum of their parts. A company fundamentally is a logical investment (barring doubts about management's ability to create this value). It is like a black box that prints more money over time than you feed it. Purses do not; gold does not; oil does not. Don't invest in purses. Collect then if you love them, but don't bank on a payday.\""
},
{
"docid": "128048",
"title": "",
"text": "\"When you invest in an S&P500 index fund that is priced in USD, the only major risk you bear is the risk associated with the equity that comprises the index, since both the equities and the index fund are priced in USD. The fund in your question, however, is priced in EUR. For a fund like this to match the performance of the S&P500, which is priced in USD, as closely as possible, it needs to hedge against fluctuations in the EUR/USD exchange rate. If the fund simply converted EUR to USD then invested in an S&P500 index fund priced in USD, the EUR-priced fund may fail to match the USD-priced fund because of exchange rate fluctuations. Here is a simple example demonstrating why hedging is necessary. I assumed the current value of the USD-priced S&P500 index fund is 1,600 USD/share. The exchange rate is 1.3 USD/EUR. If you purchase one share of this index using EUR, you would pay 1230.77 EUR/share: If the S&P500 increases 10% to 1760 USD/share and the exchange rate remains unchanged, the value of the your investment in the EUR fund also increases by 10% (both sides of the equation are multiplied by 1.1): However, the currency risk comes into play when the EUR/USD exchange rate changes. Take the 10% increase in the price of the USD index occurring in tandem with an appreciation of the EUR to 1.4 USD/EUR: Although the USD-priced index gained 10%, the appreciation of the EUR means that the EUR value of your investment is almost unchanged from the first equation. For investments priced in EUR that invest in securities priced in USD, the presence of this additional currency risk mandates the use of a hedge if the indexes are going to track. The fund you linked to uses swap contracts, which I discuss in detail below, to hedge against fluctuations in the EUR/USD exchange rate. Since these derivatives aren't free, the cost of the hedge is included in the expenses of the fund and may result in differences between the S&P500 Index and the S&P 500 Euro Hedged Index. Also, it's important to realize that any time you invest in securities that are priced in a different currency than your own, you take on currency risk whether or not the investments aim to track indexes. This holds true even for securities that trade on an exchange in your local currency, like ADR's or GDR's. I wrote an answer that goes through a simple example in a similar fashion to the one above in that context, so you can read that for more information on currency risk in that context. There are several ways to investors, be they institutional or individual, can hedge against currency risk. iShares offers an ETF that tracks the S&P500 Euro Hedged Index and uses a over-the-counter currency swap contract called a month forward FX contract to hedge against the associated currency risk. In these contracts, two parties agree to swap some amount of one currency for another amount of another currency, at some time in the future. This allows both parties to effectively lock in an exchange rate for a given time period (a month in the case of the iShares ETF) and therefore protect themselves against exchange rate fluctuations in that period. There are other forms of currency swaps, equity swaps, etc. that could be used to hedge against currency risk. In general, two parties agree to swap one quantity, like a EUR cash flow, payments of a fixed interest rate, etc. for another quantity, like a USD cash flow, payments based on a floating interest rate, etc. In many cases these are over-the-counter transactions, there isn't necessarily a standardized definition. For example, if the European manager of a fund that tracks the S&P500 Euro Hedged Index is holding euros and wants to lock in an effective exchange rate of 1.4 USD/EUR (above the current exchange rate), he may find another party that is holding USD and wants to lock in the respective exchange rate of 0.71 EUR/USD. The other party could be an American fund manager that manages a USD-price fund that tracks the FTSE. By swapping USD and EUR, both parties can, at a price, lock in their desired exchange rates. I want to clear up something else in your question too. It's not correct that the \"\"S&P 500 is completely unrelated to the Euro.\"\" Far from it. There are many cases in which the EUR/USD exchange rate and the level of the S&P500 index could be related. For example: Troublesome economic news in Europe could cause the euro to depreciate against the dollar as European investors flee to safety, e.g. invest in Treasury bills. However, this economic news could also cause US investors to feel that the global economy won't recover as soon as hoped, which could affect the S&P500. If the euro appreciated against the dollar, for whatever reason, this could increase profits for US businesses that earn part of their profits in Europe. If a US company earns 1 million EUR and the exchange rate is 1.3 USD/EUR, the company earns 1.3 million USD. If the euro appreciates against the dollar to 1.4 USD/EUR in the next quarter and the company still earns 1 million EUR, they now earn 1.4 million USD. Even without additional sales, the US company earned a higher USD profit, which is reflected on their financial statements and could increase their share price (thus affecting the S&P500). Combining examples 1 and 2, if a US company earns some of its profits in Europe and a recession hits in the EU, two things could happen simultaneously. A) The company's sales decline as European consumers scale back their spending, and B) the euro depreciates against the dollar as European investors sell euros and invest in safer securities denominated in other currencies (USD or not). The company suffers a loss in profits both from decreased sales and the depreciation of the EUR. There are many more factors that could lead to correlation between the euro and the S&P500, or more generally, the European and American economies. The balance of trade, investor and consumer confidence, exposure of banks in one region to sovereign debt in another, the spread of asset/mortgage-backed securities from US financial firms to European banks, companies, municipalities, etc. all play a role. One example of this last point comes from this article, which includes an interesting line: Among the victims of America’s subprime crisis are eight municipalities in Norway, which lost a total of $125 million through subprime mortgage-related investments. Long story short, these municipalities had mortgage-backed securities in their investment portfolios that were derived from, far down the line, subprime mortgages on US homes. I don't know the specific cities, but it really demonstrates how interconnected the world's economies are when an American family's payment on their subprime mortgage in, say, Chicago, can end up backing a derivative investment in the investment portfolio of, say, Hammerfest, Norway.\""
}
] |
8544 | Strategies to recover from a bad short-term call options purchase where the underlying dropped instead? | [
{
"docid": "214003",
"title": "",
"text": "\"For personal investing, and speculative/ highly risky securities (\"\"wasting assets\"\", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some remaining value in those call options, and take a short-term loss. Or, you could try this. Let's say you own an exchange traded call option on a listed stock (very general case). I don't know how much time remains before the option's expiration date. Be that as it may, I could suggest this to effect a \"\"recovery\"\". You'll be long the call and short the stock. This is called a delta hedge, as you would be delta trading the stock. Delta refers to short-term price volatility. In other words, you'll short a single large block of the stock, then buy shares, in small increments, whenever the market drops slightly, on an intra-day basis. When the market price of the stock rises incrementally, you'll sell a few shares. Back and forth, in response to short-term market price moves, while maintaining a static \"\"hedge ratio\"\". As your original call option gets closer to maturity, roll it over into the next available contract, either one-month, or preferably three-month, time to expiration. If you don't want to, or can't, borrow the underlying stock to short, you could do a synthetic short. A synthetic short is a combination of a long put and a short call, whose pay-off replicates the short stock payoff. I personally would never purchase an unhedged option or warrant. But since that is what you own right now, you have two choices: Get out, or dig in deeper, with the realization that you are doing a lot of work just to trade your way back to a net zero P&L. *While you can make a profit using this sort of strategy, I'm not certain if that is within the scope of the money.stachexchange.com website.\""
}
] | [
{
"docid": "519781",
"title": "",
"text": "\"When the buyout happens, the $30 strike is worth $10, as it's in the money, you get $10 ($1000 per contract). Yes, the $40 strike is pretty worthless, it actually dropped in value today. Some deals are worded as an offer or intention, so a new offer can come in. This appears to be a done deal. From Chapter 8 of CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS - FEB 1994 with supplemental updates 1997 through 2012; \"\"In certain unusual circumstances, it might not be possible for uncovered call writers of physical delivery stock and stock index options to obtain the underlying equity securities in order to meet their settlement obligations following exercise. This could happen, for example, in the event of a successful tender offer for all or substantially all of the outstanding shares of an underlying security or if trading in an underlying security were enjoined or suspended. In situations of that type, OCC may impose special exercise settlement procedures. These special procedures, applicable only to calls and only when an assigned writer is unable to obtain the underlying security, may involve the suspension of the settlement obligations of the holder and writer and/or the fixing of cash settlement prices in lieu of delivery of the underlying security. In such circumstances, OCC might also prohibit the exercise of puts by holders who would be unable to deliver the underlying security on the exercise settlement date. When special exercise settlement procedures are imposed, OCC will announce to its Clearing Members how settlements are to be handled. Investors may obtain that information from their brokerage firms.\"\" I believe this confirms my observation. Happy to discuss if a reader feels otherwise.\""
},
{
"docid": "393496",
"title": "",
"text": "\"As I understand it, Implied Volatility represents the expected gyrations of an options contract over it's lifetime. No, it represents that expected movement of the underlying stock, not the option itself. Yes, the value of the option will move roughly in the same direction the value of the stock, but that's not what IV is measuring. I even tried staring at the math behind the Options pricing model to see if that could make more sense for me but that didn't help. That formula is correct for the Black-Scholes model - and it is not possible (or at least no one has done it yet) to solve for s to create a closed-form equation for implied volatility. What most systems do to calculate implied volatility is plug in different values of s (standard deviation) until a value for the option is found that matches the quoted market value ($12.00 in this example). That's why it's called \"\"implied\"\" volatility - the value is implied from market prices, not calculated directly. The thing that sticks out to me is that the \"\"last\"\" quoted price of $12 is outside of the bid-ask spread of $9.20 to $10.40, which tells me that the underlying stock has dropped significantly since the last actual trade. If the Implied Vol is calculated based on the last executed trade, then whatever algorithm they used to solve for a volatility that match that price couldn't find a solution, which then choose to show as a 0% volatility. In reality, the volatility is somewhere between the two neighbors of 56% and 97%, but with such a short time until expiry, there should be very little chance of the stock dropping below $27.50, and the value of the option should be somewhere around its intrinsic value (strike - stock price) of $9.18.\""
},
{
"docid": "142110",
"title": "",
"text": "\"He didn't sell in the \"\"normal\"\" way that most people think of when they hear the term \"\"sell.\"\" He engaged in a (perfectly legitimate) technique known as short selling, in which he borrows shares from his broker and sells them immediately. He's betting that the price of the stock will drop so he can buy them back at a lower price to return the borrowed shares back to his broker. He gets to pocket the difference. He had about $37,000 of cash in his account. Since he borrowed ~8400 shares and sold them immediately at $2/share, he got $16,800 in cash and owed his broker 8400 shares. So, his net purchasing power at the time of the short sale was $37,000 + $16,800 - 4800 shares * $2/share. As the price of the stock changes, his purchasing power will change according to this equation. He's allowed to continue to borrow these 8400 shares as long as his purchasing power remains above 0. That is, the broker requires him to have enough cash on hand to buy back all of his borrowed shares at any given moment. If his purchasing power ever goes negative, he'll be subject to a margin call: the broker will make him either deposit cash into his account or close his positions (sell long positions or buy back short positions) until it's positive again. The stock jumped up to $13.85 the next morning before the market opened (during \"\"before-hours\"\" trading). His purchasing power at that time was $37,000 + $16,800 - 8400 shares * $13.85/share = -$62,540. Since his purchasing power was negative, he was subject to a margin call. By the time he got out, he had to pay $17.50/share to buy back the 8400 shares that he borrowed, making his purchasing power -$101,600. This $101,600 was money that he borrowed from his broker to buy back the shares to fulfill his margin call. His huge loss was from borrowing shares from his broker. Note that his maximum potential loss is unlimited, since there is no limit to how much a stock can grow. Evidently, he failed to grasp the most important concept of short selling, which is that he's borrowing stock from his broker and he's obligated to give that stock back whenever his broker wants, no matter what it costs him to fulfill that obligation.\""
},
{
"docid": "344372",
"title": "",
"text": "I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge."
},
{
"docid": "244754",
"title": "",
"text": "You can use long-term options called LEAPS to increase dividend yield. Here's how it works: Let's say you buy a dividend-yielding stock for $38 that pays an annual dividend of $2 for a 5.3% yield. Next, you SELL a deep-in-the-money LEAPS options. In this hypothetical we'll sell the $25 call option for $13. That now reduces our cost basis from $38 to $25. Since the dividend remains @ $2, our yield is now $2/$25 = 8%. Now there are issues that may need to be dealt with like early assignment of the option where rolling the option may be necessary. More details of this strategy can be found on my website."
},
{
"docid": "207253",
"title": "",
"text": "According to this article: With an all-stock merger, the number of shares covered by a call option is changed to adjust for the value of the buyout. The options on the bought-out company will change to options on the buyer stock at the same strike price, but for a different number of shares. Normally, one option is for 100 shares of the underlying stock. For example, company A buys company B, exchanging 1/2 share of A for each share of B. Options purchased on company B stock would change to options on company A, with 50 shares of stock delivered if the option is exercised. This outcome strongly suggests that, in general, holders of options should cash out once the takeover is announced, before the transactions takes place. Since the acquiring company will typically offer a significant premium, this will offer an opportunity for instant profits for call option holders while at the same time being a big negative for put option holders. However, it is possible in some cases where the nominal price of the two companies favours the SML company (ie. the share prices of SML is lower than that of BIG), the holder of a call option may wish to hold onto their options. (And, possibly, conversely for put option holders.)"
},
{
"docid": "473552",
"title": "",
"text": "\"You could buy options. I do not know what your time horizon is but it makes all the difference due to theta burn. There are weekly, monthly, quarterly, yearly and even longer duration options called leaps. You have decided how long of a time frame. You also have to see what the implied volatility is for the underlying because if you think hypothetically that the price of the spy is 100 dollars currently. Today is hypothetically a Thursday and you buy a weekly option expiring on Friday ( the next day) of strike 100.5 and the call option is priced at .55 cents and you buy it. This means that the underlying has to move .5 dollars in one day to be considered in the money but at time 0, the option should only be worth its intrinsic value which is the underlying, (Say the SPY moved 55 cents up from 100 to 100.55), (100.55) minus the strike (100.5) = 5 cents, so if you payed 55 cents and one day later at expiration its worth 5 cents ,you lost almost 91% of your money, rather with buying and holding you lose a lot less. The leverage is on a 10x scale typically. That is why timing is so important. Anyone can say x stock is going to go up in the future, but if you know ****when**** you can make a killing if it is not already priced into the market. Another thing you can do is figure out how much MSFT contributes to the SPX movement in terms of points. What does a 1% move in MSFT doto SPX. If you can calculate that and you think you know where MSFT is going, you can just trade the spy options synthetically as if it were microsoft. You could also buy msft stock on margin as a retail investor, but be careful. Like Rhaskett said, look into an etf that has microsoft. The nasdaq has a nasdaq-100 which microsoft is in called the triple Q. The ticker is qqq. PowerShares QQQ™, formerly known as \"\"QQQ\"\" or the \"\"NASDAQ- 100 Index Tracking Stock®\"\", is an exchange-traded fund based on the Nasdaq-100 Index®. Best of luck and always understand what you are buying before you buy it, JL\""
},
{
"docid": "134752",
"title": "",
"text": "You appear to be thinking of option writers as if they were individuals with small, nondiversified, holdings and a particular view on what the underlying is going to do. This is not the best way to think about them. Option writers are typically large institutions with large portfolios and that provide services in all sorts of different areas. At the same time as they are writing calls on a particular stock, they are writing puts on it and options on other stocks. They are buying and selling the underlying and all kinds of different derivatives. They are not necessarily writing the option because they are expecting or hoping to benefit from a price move. It's just small part of their business. They write the option if the option price is good enough that they think they are selling it for very slightly more than it's worth. Asking why an option writer creates a call is like asking why a grocery store keeps buying groceries from their distributors. Don't they know the price of food may not always rise? Sure, but their business is selling the food for slightly more than they pay for it, not speculating on what will happen to its price. Most option writers are doing the same thing, except what they are buying and selling is sets of cash flows and risk. As a general rule, the business model of option writers is to profit from the few cents of spread or mispricing, not from aggregate changes in the price of the underlying. They should and often do maintain balanced portfolios so their option writing activities don't expose them to a lot of risk. Also note that there could be lots of reasons for writing options, even if you do have a particular view. For example, perhaps the option writer thinks volatility of the underlying will decrease. Writing a call could be part of an overall strategy that profits from this view."
},
{
"docid": "103147",
"title": "",
"text": "The original option writer (seller) can close his short position in the contracts he wrote by purchasing back matching contracts (i.e. contracts with the same terms: underlying, option type, strike price, expiration date) from any others who hold long positions, or else who write new matching contract instances. Rather than buyer and seller settling directly, options are settled through a central options clearing house, being the Options Clearing Corporation for exchange-listed options in the U.S. See also Wikipedia - Clearing house (finance). So, the original buyer of the put maintains his position (insurance) and the clearing process ensures he is matched up with somebody else holding a matching obligation, if he chooses to exercise his put. I also answered a similar question but in more detail, here."
},
{
"docid": "12432",
"title": "",
"text": "\"The blue line is illustrating the net profit or loss the investor will realise according to how the price of the underlying asset settles at expiry. The x-axis represents the underlying asset price. The y-axis represents the profit or loss. In the first case, the investor has a \"\"naked put write\"\" position, having sold a put option. The strike price of the put is marked as \"\"A\"\" on the x-axis. The maximum profit possible is equal to the total premium received when the option contract was sold. This is represented by that portion of the blue line that is horizontal and extending from the point above that point marked \"\"A\"\" on the x-axis. This corresponds to the case that the price of the underlying asset settles at or above the strike price on the day of expiry. If the underlying asset settles at a price less than the strike price on the day of expiry, then the option with be \"\"in the money\"\". Therefore the net settlement value will move from a profit to a loss, depending on how far in the money the option is upon expiry. This is represented by the diagonal line moving from above the \"\"A\"\" point on the x-axis and moving from a profit to a loss on the y-axis. The diagonal line crosses the x-axis at the point where the underlying asset price is equal to \"\"A\"\" minus the original premium rate at which the option was written - i.e., net profit = zero. In the second case, the investor has sold a put option with a strike price of \"\"B\"\" and purchase a put option with a strike price \"\"A\"\", where A is less than B. Here, the reasoning is similar to the first example, however since a put option has been purchase this will limit the potential losses should the underlying asset move down strongly in value. The horizontal line above the x-axis marks the maximum profit while the horizontal line below the x-axis marks the maximum loss. Note that the horizontal line above the x-axis is closer to the x-axis that is the horizontal line below the x-axis. This is because the maximum profit is equal to the premium received for selling the put option minus the premium payed for buying the put option at a lower strike price. Losses are limited since any loss in excess of the strike price \"\"A\"\" plus the premium payed for the put purchased at a strike price of \"\"A\"\" is covered by the profit made on the purchased put option at a strike price of \"\"A\"\".\""
},
{
"docid": "162771",
"title": "",
"text": "As other uses have pointed out, your example is unusual in that is does not include any time value or volatility value in the quoted premiums, the premiums you quote are only intrinsic values. For well in-the-money options, the intrinsic value will certainly be the vast majority of the premium, but not the sole component. Having said that, the answer would clearly be that the buyer should buy the $40 call at a premium of $10. The reason is that the buyer will pay less for the option and therefore risk less money, or buy more options for the same amount of money. Since the buyer is assuming that the price will rise, the return that will be realised will be the same in gross terms, but higher in relative terms for the buyer of the $40 call. For example, if the underlying price goes to $60, then the buyer of the $40 call would (potentially) double their money when the premium goes from $10 to $20, while the buyer of the $30 call would realise a (potential) 50% profit when the premium goes from $20 to $30. Considering the situation beyond your scenario, things are more difficult if the bet goes wrong. If the underlying prices expires at under $40, then the buyer of the $40 call will be better off in gross terms but may be worse off in relative terms (if it expires above $30). If the underlying price expires between $40 and $50, then the buy of the $30 will be better off in relative term, having lost a smaller percentage of their money."
},
{
"docid": "292045",
"title": "",
"text": "\"When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior to 4Pm EST on expiration Friday. First ask yourself why you want to keep the shares. Is it to write another option? Is it to hold for a longer term strategy? Assuming this is a covered call writing account, you should consider \"\"rolling\"\" the option. This involves buying back the near-term option and selling the later date option of a similar or higher strike. Make sure to check to see if there is an upcoming earnings report in the latter month because you may want to avoid writing a call in that situation. I never write a call when there's an upcoming ER prior to expiration. Good luck. Alan\""
},
{
"docid": "415705",
"title": "",
"text": "\"Firstly \"\"Most option traders don't want to actually buy or sell the underlying stock.\"\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \"\"short VEGA\"\" or \"\"short volatility\"\". So one way to think about \"\"buying\"\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \"\"money\"\" stackexchange rather than finance. You are most likely referring to \"\"warrants\"\" rather than \"\"options\"\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\""
},
{
"docid": "105231",
"title": "",
"text": "The important thing to realize is, what would you do, if you didn't have the call? If you didn't have call options, but you wanted to have a position in that particular stock, you would have to actually purchase it. But, having purchased the shares, you are at risk to lose up to the entire value of them-- if the company folded or something like that. A call option reduces the potential loss, since you are at worst only out the cost of the call, and you also lose a little on the upside, since you had to pay for the call, which will certainly have some premium over buying the underlying share directly. Risk can be defined as reducing the variability of outcomes, so since calls/shorts etc. reduce potential losses and also slightly reduce potential gains, they pretty much by definition reduce risk. It's also worth noting, that when you buy a call, the seller could also be seen as hedging the risk of price decreases while also guaranteeing that they have a buyer at a certain price. So, they may be more concerned about having cash flow at the right time, while at the same time reducing the cost of the share losing in value than they are losing the potential upside if you do exercise the option. Shorts work in the same way but opposite direction to calls, and forwards and futures contracts are more about cash flow management: making sure you have the right amount of money in the right currency at the right time regardless of changes in the costs of raw materials or currencies. While either party may lose on the transaction due to price fluctuations, both parties stand to gain by being able to know exactly what they will get, and exactly what they will have to pay for it, so that certainty is worth something, and certainly better for some firms than leaving positions exposed. Of course you can use them for speculative purposes, and a good number of firms/people do but that's not really why they were invented."
},
{
"docid": "114092",
"title": "",
"text": "I would also be getting out of the stock market if I noticed prices starting to fall and a crash possibly on the way. There are some good and quite simple techniques I would use to time the markets over the medium to long term. I have described some of them in the answer to this question of mine: What are some simple techniques used for Timing the Stock Market over the long term? You could use similar techniques in your investing. And in regards to back-testing DCA to Timing The Markets, I have done that too in my answer to the following question: Investing in low cost index fund — does the timing matter? Timing the Markets wins hand down. In regards to back-testing and the concerns Kent Anderson has brought up, when I back-test a trading strategy, if that strategy is successful, I then forward test it over a year or two to confirm the results. As with back-testing you can sometimes curve fit your criteria too much. By forward testing you are confirming that the strategy is robust over different market conditions. One strategy you can take when the market does start to fall is short selling, as mentioned by some already. I am now short selling using CFDs over the short to medium term as one of my more aggressive strategies. I have a longer term strategy where I do not short, but tighten my stop losses when the market starts to tank. Sometimes my positions will keep going up even though the market as a whole is heading down, and I can make an extra 5% to 10% on these positions before I get taken out. The rare position even continues going up during the whole downturn and when the market starts to recover. So I let the market decide when I get out and when I stay in, I leave my emotions out of it. The best thing you can do is have a written trading plan with all your criteria for getting into the market, your criteria for getting out of the market and your position sizing and risk management incorporated in the plan."
},
{
"docid": "206756",
"title": "",
"text": "How would this trade behave IRL? I don't know how the simulation handles limit orders and bid/ask spreads to know it's feasible, but buying at 4.04 when the current ask is 8.00 seems unlikely. That would mean that all other sell orders between 8.00 and 4.04 were fulfilled, which means that there were very few sellers or that sell pressure spiked, both of which seem unlikely. In reality, it seems more likely that your order would have sat there until the ask dropped to $4.04 (if it ever did), and then you'd have to wait until the bid rose to $7.89 in order to sell them at that price. However, that kind of swing in option prices in not unrealistic. Options near at-the-money tend to move in price at about 50% of the change in the underlying, so if amazon suddenly dropped by $5, the option price could drop by $2.60 (from 6.66 to $4.04), and then rise back to $7.89 if the price rose $8 (which would be 1% swing and not unheard of intra-day). But it sounds like you got very lucky (or the simulation doesn't handle option trading realistically) - I've traded options in the past and have had some breaks similar to yours. I've also had bad breaks where I lost my entire investment (the options expire out-of-the money). So it should be a very limited part of your portfolio, and probably only used for risk management (e.g. buying put options to lock in some gains but keeping some upside potential)."
},
{
"docid": "162420",
"title": "",
"text": "\"I think, the top three answers by Joe, Anthony and Bigh are giving you all the detail that you need on a technical sense. Although I would like to add a simple picture that underlines, that you can not really compare day trading to long-term trading and that the addictive and psychologic aspect that you mentioned can not be taken out of consideration. The long term investor is like someone buying a house for investment. You carefully look at all offers on the market. You choose by many factors, price, location, quality, environment, neighborhood and extras. After a long research, you pick your favorites and give them a closer look until you finally choose the object of desire, which will pay off in 10 years and will be a wise investment in your future. Now this sounds like a careful but smart person, who knows what he wants and has enough patience to have his earnings in the future. The short term investor is like someone running into the casino for a game of black-jack, roulette or poker. He is a person that thinks he has found the one and only formula, the philosopher's stone, the money-press and is seeking immense profits in just one night. And if it does not work, he is sure, that this was just bad coincidence and that his \"\"formula\"\" is correct and will work the next night. This person is a pure gambler and running the risk of becoming addicted. He is seeking quick and massive profits and does not give up, even though he knows, that the chances of becoming a millionaire in a casino are quite unrealistic and not better than playing in a lottery. So if you are a gamer, and the profit is less important than the \"\"fun\"\", then short term is the thing for you. If you are not necessarily seeking tons of millions, but just want to keep your risk of loss to a minimum, then long term is your way to go. So it is a question of personality, expectations and priorities. The answer why losses are bigger on high frequency signals is answered elsewhere. But I am convinced in reality it is a question of what you want and therefore very subjective. I have worked for both. I have worked for a portfolio company that has gone through periods of ups and downs, but on the long term has made a very tempting profit, which made me regret, that I did not ask for shares instead of money as payment. These people are very calm and intelligent people. They spend all their time investigating and searching for interesting objects for their portfolio and replace losers with winners. They are working for your money and investors just relax and wait. This has a very serious taste to it and I for my part would always prefer this form of investment. I have worked for an investment broker selling futures. I programmed the account management for their customers and in all those years I have only seen one customer that made the million. But tons of customers that had made huge losses. And this company was very emotional, harsh, unpersonal - employees changing day by day, top sellers coming in corvettes. All the people working there where gamblers, just like their customers. Well, it ended one day, when the police came and confiscated all computers from them, because customers have complained about their huge losses. I am glad, that I worked as a remote developer for them and got paid in money and not in options. So both worlds are so different from each other. The chances for bigger profits are higher on day trading, but so are the chances for bigger losses - so it is pure gambling. If you like gambling, split your investment: half in long term and other half in short term, that is fun and wise in one. But one thing is for sure: in over ten years, I have seen many customers loosing loads of money in options in the future markets or currencies. But I have never seen anyone making a loss in long term portfolio investment. There have been hard years, where the value dropped almost 30%, but that was caught up by the following years, so that the only risk was minimizing the profit.\""
},
{
"docid": "561205",
"title": "",
"text": "Let's clarify some things. Companies allow for the public to purchase their shares through Initial Public Offering (IPO) (first-time) and Seasoned Public Offering (SPO) (all other times). They choose however many shares they want to issue depending on the amount of capital they want to raise. What this means is that the current owners give up some ownership % in exchange for cash (usually). In the course of IPOs and SPOs, it can happen that the public will not buy all shares if there is very little interest, but I would assume that the more probable scenario if very little interest is present is that the shares' value would take a big drop on their issuance date from the proposed IPO/SPO price. After those shares are bought by the public, they are traded on Exchanges which are a secondary and (mostly) do not affect the underlying company. The shares are exchanged from John Doe to Jane Doe as John Doe believes the market value for those shares will take a direction that Jane Doe believes in the opposite. Generally speaking, markets will find an equilibrium price where you can reasonably easily buy-sell securities as the price is not too far from what most participants in the market believe it should be. In cases where all participants agree on the direction (most often in case of a crash) it can be hard to find a party to make a trade with. Say a company just announced negative news with long-lasting effects on the business there will be a surge in sell orders with very few buyers. If you are willing to buy, you will likely very easily find a trading partner but if you are trying to sell instead then you will have to compete for the lowest price against all other sellers. All that to say that in such cases, while shares are technically sellable / purchasable, the end result can be that no shares are purchasable."
},
{
"docid": "453582",
"title": "",
"text": "\"Investopedia explains how a stock split impacts the stock's options: Each option contract is typically in control of 100 shares of an underlying security at a predetermined strike price. To find the new coverage of the option, take the split ratio and multiply by the old coverage (normally 100 shares). To find the new strike price, take the old strike price and divide by the split ratio. Say, for example, you own a call for 100 shares of XYZ with a strike price of $75. Now, if XYZ had a stock split of 2 for 1, then the option would now be for 200 shares with a strike price of $37.50. If, on the other hand, the stock split was 3 for 2, then the option would be for 150 shares with a strike price of $50. So, yes, a 2 for 1 stock split would halve the option strike prices. Also, in case the Investopedia article isn't clear, after a split the options still control 100 shares per contract. Regarding how a dividend affects option prices, I found an article with a good explanation: As mentioned above, dividends payment could reduce the price of a stock due to reduction of the company's assets. It becomes intuitive to know that if a stock is expected to go down, its call options will drop in extrinsic value while its put options will gain in extrinsic value before it happens. Indeed, dividends deflate the extrinsic value of call options and inflate the extrinsic value of put options weeks or even months before an expected dividend payment. Extrinsic value of Call Options are deflated due to dividends not only because of an expected reduction in the price of the stock but also due to the fact that call options buyers do not get paid the dividends that the stock buyers do. This makes call options of dividend paying stocks less attractive to own than the stocks itself, thereby depressing its extrinsic value. How much the value of call options drop due to dividends is really a function of its moneyness. In the money call options with high delta would be expected to drop the most on ex-date while out of the money call options with lower delta would be least affected. If a stock is expected to drop by a certain amount, that drop would already have been priced into the extrinsic value of its put options way beforehand. This is what happens to put options of dividend paying stocks. This effect is again a function of options moneyness but this time, in the money put options raise in extrinsic value more than out of the money put options. This is because in the money put options with delta of close to -1 would gain almost dollar or dollar on the drop of a stock. As such, in the money put options would rise in extrinsic value almost as much as the dividend rate itself while out of the money put options may not experience any changes since the dividend effect may not be strong enough to bring the stock down to take those out of the money put options in the money. So, no, a dividend of $1 will not necessarily decrease an option's price by $1 on the ex-dividend date. It depends on whether it's a call or put option, and whether the option is \"\"in the money\"\" or \"\"out of the money\"\" and by how much.\""
}
] |
8544 | Strategies to recover from a bad short-term call options purchase where the underlying dropped instead? | [
{
"docid": "267113",
"title": "",
"text": "The nature of options requires you to understand that they are essentially a bet. In one sense, so is investing in stocks. We imagine a bell curve (first mistake) with a median return at 10%/yr and a standard deviation of about 14%. Then we say that odds are that over some period of time a monte-carlo simulation can give us the picture of the likely returns. Now, when you buy short term options, say one month or so, you are hoping the outcome is a rise in price that will yield some pretty high return, right? There was a time I noticed a particular stock would move a large percent based on earnings. And earnings were a day before options expiration. So I'd buy the call that was just out of the money and if the surprise was up, I'd make 3-4X my money. But I was always prepared to lose it all and often did. I never called this investing. I know of no recovery strategy. Sorry."
}
] | [
{
"docid": "114092",
"title": "",
"text": "I would also be getting out of the stock market if I noticed prices starting to fall and a crash possibly on the way. There are some good and quite simple techniques I would use to time the markets over the medium to long term. I have described some of them in the answer to this question of mine: What are some simple techniques used for Timing the Stock Market over the long term? You could use similar techniques in your investing. And in regards to back-testing DCA to Timing The Markets, I have done that too in my answer to the following question: Investing in low cost index fund — does the timing matter? Timing the Markets wins hand down. In regards to back-testing and the concerns Kent Anderson has brought up, when I back-test a trading strategy, if that strategy is successful, I then forward test it over a year or two to confirm the results. As with back-testing you can sometimes curve fit your criteria too much. By forward testing you are confirming that the strategy is robust over different market conditions. One strategy you can take when the market does start to fall is short selling, as mentioned by some already. I am now short selling using CFDs over the short to medium term as one of my more aggressive strategies. I have a longer term strategy where I do not short, but tighten my stop losses when the market starts to tank. Sometimes my positions will keep going up even though the market as a whole is heading down, and I can make an extra 5% to 10% on these positions before I get taken out. The rare position even continues going up during the whole downturn and when the market starts to recover. So I let the market decide when I get out and when I stay in, I leave my emotions out of it. The best thing you can do is have a written trading plan with all your criteria for getting into the market, your criteria for getting out of the market and your position sizing and risk management incorporated in the plan."
},
{
"docid": "142110",
"title": "",
"text": "\"He didn't sell in the \"\"normal\"\" way that most people think of when they hear the term \"\"sell.\"\" He engaged in a (perfectly legitimate) technique known as short selling, in which he borrows shares from his broker and sells them immediately. He's betting that the price of the stock will drop so he can buy them back at a lower price to return the borrowed shares back to his broker. He gets to pocket the difference. He had about $37,000 of cash in his account. Since he borrowed ~8400 shares and sold them immediately at $2/share, he got $16,800 in cash and owed his broker 8400 shares. So, his net purchasing power at the time of the short sale was $37,000 + $16,800 - 4800 shares * $2/share. As the price of the stock changes, his purchasing power will change according to this equation. He's allowed to continue to borrow these 8400 shares as long as his purchasing power remains above 0. That is, the broker requires him to have enough cash on hand to buy back all of his borrowed shares at any given moment. If his purchasing power ever goes negative, he'll be subject to a margin call: the broker will make him either deposit cash into his account or close his positions (sell long positions or buy back short positions) until it's positive again. The stock jumped up to $13.85 the next morning before the market opened (during \"\"before-hours\"\" trading). His purchasing power at that time was $37,000 + $16,800 - 8400 shares * $13.85/share = -$62,540. Since his purchasing power was negative, he was subject to a margin call. By the time he got out, he had to pay $17.50/share to buy back the 8400 shares that he borrowed, making his purchasing power -$101,600. This $101,600 was money that he borrowed from his broker to buy back the shares to fulfill his margin call. His huge loss was from borrowing shares from his broker. Note that his maximum potential loss is unlimited, since there is no limit to how much a stock can grow. Evidently, he failed to grasp the most important concept of short selling, which is that he's borrowing stock from his broker and he's obligated to give that stock back whenever his broker wants, no matter what it costs him to fulfill that obligation.\""
},
{
"docid": "274165",
"title": "",
"text": "As Waldfee says, CFDs are a derivative (of the underlying stock in this case). If you are from the USA then they are prohibited in the USA as has also been mentioned. They are not prohibited, however, in many other countries including Australia. We can buy or short sell (on a limited number of securities) CFDs on Australian securities, USA securities and securities from many other countries, on FX, and different commodities. The reason you are paying much less than the actial stock price is worth is because you are buying on margin. When you go long you pay interest on overnight positions, and when you go short you recieve interest on overnight positions (that is if you hold the position open overnight). Most CFDs are over the counter, however in Australia (don't know about other countries) we also have exchange traded CFDs called ASX CFDs. I have tried both ASX CFDs and over the counter CFDs and prefer the over the counter CFDs because the broker provides a market which closely but not exactly follows the underlying prices. Wlth the exchange traded CFDs there was low liquidity due to being quite new so there was the potential to be gapped quite considerably. This might improve as the market grows. All in all, once you understand how they work and what is involved in trading them, they are much easier than options or futers. However, if you are going to trade anything first get yourself educated, have a trading plan and risk management strategy, and paper trade before putting real money on the table. And remember, if you are in the USA, you are actually prohibited from trading CFDs. Regarding the price of AAPL at $50, the price should be the same as that of the underlying stock, it is just that your initial outlay will be less than buying the stock directly because you are buying on margin. Your initial outlay may be as little as 5% or lower, depending on the underlying stock."
},
{
"docid": "316866",
"title": "",
"text": "\"A straddle is an options strategy in which one \"\"buys\"\" or \"\"sells\"\" options of the same maturity (expiry date) that allow the \"\"buyer\"\" or \"\"seller\"\" to profit based on how much the price of the underlying security moves, regardless of the direction of price movement. IE: A long straddle would be: You buy a call and a put at the same strike price and the same expiration date. Your profit would be if the underlying asset(the stock) moves far enough down or up(higher then the premiums you paid for the put + call options) (In case, one waits till expiry) Profit = Expiry Level - Strike Price - (Premium Paid for Bought Options) Straddle\""
},
{
"docid": "305770",
"title": "",
"text": "Options can have a negligible time premium. For American1 calls the time premium is never negative. If it had a negative premium it would be profitable to exercise it immediately. A deep in the money call has a delta of exactly one. That is, it's price movements completely mirror the price movements of the underlying stock. That means an option seller can buy stock and completely hedge his short option position. The seller of the option may be in an position to buy with very little margin and take your money and invest it. For example, consider a stock trading at $7.50, with its January 2014 $4 call option trading at $3.50. For one option, representing 100 shares, a trader could take your 350 dollars and invest it, and only use a small portion of the money to buy the stock on margin. Market-makers can typically borrow money at very low interest rates. If you have high borrowing costs, or are unable to buy on margin, then buying deep in the money calls can be a good strategy. Long story short, option sellers are making money off selling these deep in the money calls even with almost zero time premium. So, in general, there's no way to make money by buying them. 1. An American call is a call that can be exercised at any time up to and including its expiration date."
},
{
"docid": "72024",
"title": "",
"text": "\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \"\"American Style\"\" options and \"\"European Style\"\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \"\"risk reduction\"\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \"\"market\"\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \"\"margin department\"\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\""
},
{
"docid": "396038",
"title": "",
"text": "Capping the upside while playing with unlimited downside is a less disciplined investment strategy vis-a-vis a stop-loss driven strategy. Whether it is less risky or high risky also depends on the fluctuations of the stock and not just long-term movements. For example, your stop losses might get triggered because of a momentary sharp decline in stock price due to a large volume transaction (esp more so in small-cap stocks). Although, the stock price might recover from the sudden price drop pretty soon causing a seemingly preventable loss. That being said, playing with stop losses is always considered a safer strategy. It may not increase your profits but can certainly cap your losses."
},
{
"docid": "118360",
"title": "",
"text": "First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads."
},
{
"docid": "549422",
"title": "",
"text": "\"First, there will always be people who think the market is about to crash. It doesn't really crash very often. When it does crash, they always say they predicted it. Well, even a blind squirrel finds a nut once in a while. You could go short (short selling stocks), which requires a margin account that you have to qualify for (typically you can only short up to half the value of your account, in the US). And if you've maxed out your margin limits and your account continues to drop in value, you risk a margin call, which would force you to cover your shorts, which you may not be able to afford. You could invest in a fund that does the shorting for you. You could also consider actually buying good investments while their prices are low. Since you cannot predict the start, or end, of a \"\"crash\"\" you should consider dollar-cost-averaging until your stocks hit a price you've pre-determined is your \"\"trigger\"\", then purchase larger quantities at the bargain prices. The equity markets have never failed to recover from crashes. Ever.\""
},
{
"docid": "415281",
"title": "",
"text": "I agree that high volatility just means the underlying stock price fluctuates more, and it does not imply if the stock is going up or down. But a high volatility in the price of an underlying also means that there is a higher chance that the underlying price could reach extreme prices (albeit in either direction). However, if you purchased a call option then if the underlying price reached an extremely high value, then you will be richly rewarded. But if the underlying price reached an extremely low value, you won't lose any more than the initial premium that you paid. There is no additional risk on your side, it's capped to the premium that you paid for the call option. It's this asymmetric outcome (Heads - I win, Tails - I don't lose) combined with high volatility that means that call options will increase in value when the underlying price becomes more volatile. If the optionality wasn't there then the price wouldn't be related to the volatility of the underlying. But that would be called a Future or a Forward :-)"
},
{
"docid": "87283",
"title": "",
"text": "You would not owe any taxes in the 2015 year, unless you got exercised and called away in 2015. The premium would be short term capital gains barring some other exception I'm not aware of, and if you retain a gain on the underlying shares then that would still be long term capital gains. If it gets called in say April 2016, is the premium+profit+dividends all long term capital gains for the year 2016? The profits are long term capital gains and the premium serves to lower your cost basis, dividends have their own conditions so you'll have to do separate research on that, fortunately they'll likely be negligible compared to the potential capital gains and options premium."
},
{
"docid": "440805",
"title": "",
"text": "\"Who are the losers going to be? If you can tell me for certain which firms will do worst in a bear market and can time it so that this information is not already priced into the market then you can make money. If not don't try. In a bull market stocks tend to act \"\"normally\"\" with established patterns such as correlations acting as expected and stocks more or less pricing to their fundamentals. In a bear market fear tends to overrule all of those things. You get large drops on relatively minor bad news and modest rallies on even the best news which results in stocks being undervalued against their fundamentals. In the crash itself it is quite easy to make money shorting. In an environment where stocks are undervalued, such as a bear market, you run the risk that your short, no matter how sure you are that the stock will fall, is seen as being undervalued and will rise. In fact your selling of a \"\"losing\"\" stock might cause it to hit levels where value investors already have limits set. This could bring a LOT of buyers into the market. Due to the fact that correlations break down creating portfolios with the correct risk level, which is what funds are required to do not only by their contracts but also by law to an extent, is extremely difficult. Risk management (keeping all kinds to within certain bounds) is one of the most difficult parts of a manager's job and is even difficult in abnormal market conditions. In the long run (definitions may vary) stock prices in general go up (for those companies who aren't bankrupted at least) so shorting in a bear market is not a long term strategy either and will not produce long term returns on capital. In addition to this risk you run the risk that your counterparty (such as Lehman brothers?) will file for bankruptcy and you won't be able to cover the position before the lender wants you to repay their stock to them landing you in even more problems.\""
},
{
"docid": "71924",
"title": "",
"text": "\"A big part of the answer depends on how \"\"beaten down\"\" the stock is, how long it will take to recover from the drop, and your taste for risk. If you honestly believe the drop is a temporary aberration then averaging down can be a good strategy to lower your dollar-cost average in the stock. But this is a huge risk if you're wrong, because now you're going to magnify your losses by piling on more stock that isn't going anywhere to the shares you already own at a higher cost. As @Mindwin pointed out correctly, the problem for most investors following an \"\"average down\"\" strategy is that it makes them much less likely to cut their losses when the stock doesn't recover. They basically become \"\"married\"\" to the stock because they've actualized their belief the stock will bounce back when maybe it never will or worse, drops even more.\""
},
{
"docid": "21768",
"title": "",
"text": "Being long the call is being long the option. The call is a type of option. A put is a type of option If you buy a call, you are long an option and long the underlying asset. If you buy a put, you are long an option and short the underlying asset."
},
{
"docid": "372417",
"title": "",
"text": "\"Here are some things to consider if you want to employ a covered call strategy for consistent returns. The discussion also applies to written puts, as they're functionally equivalent. Write covered calls only on fairly valued stock. If the stock is distinctly undervalued, just buy it. By writing the call, you cap the gains that it will achieve as the stock price gravitates to intrinsic value. If the stock is overvalued, sell it, or just stay away. As the owner of a covered call position, you have full exposure to the downside of the stock. The premium received is normally way too small to protect against much of a drop in price. The ideal candidate doesn't change in price much over the life of the position. Yes, this is low volatility, which brings low option premiums. As a seller you want high premiums. But this can't be judged in a vacuum. No matter how high the volatility in absolute terms, as a seller you're betting the market has overpriced volatility. If volatility is high, so premiums are fat, but the market is correct, then the very real risk of the stock dropping over the life of the position offsets the premium received. One thing to look at is current implied volatility for the at-the-money (ATM), near-month call. Compare it to the two-year historical volatility (Morningstar has this conveniently displayed). Moving away from pure volatility, consider writing calls about three months out, just slightly out of the money. The premium is all time value, and the time value decay accelerates in the final few months. (In theory, a series of one-month options would be higher time value, but there are frictional costs, and no guarantee that today's \"\"good deal\"\" will be repeatable twelve time per year.) When comparing various strikes and expirations, compare time value per day. To compare the same statistic across multiple companies, use time value per day as a percent of capital at risk. CaR is the price of the stock less the premium received. If you already own the stock, track it as if you just bought it for this strategy, so use the price on the day you wrote the call. Along with time value per day, compare the simple annualized percent return, again, on capital at risk, measuring the return if a) the stock is called away, and b) the stock remains unchanged. I usually concentrate more on the second scenario, as we get the capital gain on the stock regardless, without the option strategy. Ideally, you can also calculate the probability (based on implied volatility) of the stock achieving these price points by expiration. Measuring returns at many possible stock prices, you can develop an overall expected return. I won't go into further detail, as it seems outside the scope here. Finally, I usually target a minimum of 25% annualized if the stock remains unchanged. You can, of course, adjust this up or down depending on your risk tolerance. I consider this to be conservative.\""
},
{
"docid": "318696",
"title": "",
"text": "\"An Xbox currently sells for $200 but you don't have the money right now to buy it. You think the price of the xbox is going up to $250 next month. Your friend works at BestBuy and says he has a \"\"raincheck\"\" that allows you to buy the Xbox for $200 but the raincheck expires next month. He offers to sell you the \"\"raincheck\"\" for $5. When you buy his raincheck for $5 you are locking in the right to buy the Xbox for $200. It is like an option because it locks in the purchase price, it has an expiration date, it locks in a purchase price, and it is not mandatory that you redeem it. That's an explanation for a call option in kids terms. For more easy answers to the question what is a call option click now. A put can be answered in a similar way. Suppose you bought the Xbox for $250 and then the price drops back to $200. If you keep your receipt, you have the right to return (sell the Xbox back) for $250 even though the current price is only $200. Bestbuy has a 30 day return policy so your receipt is like a put option in that you can sell the Xbox back for a price higher than the current market price. That's a simple example of a put option in kids terms. For more easy answers to the question what is a put click now.\""
},
{
"docid": "243714",
"title": "",
"text": "\"The answer to the question, can I exercise the option right away? depends on the exercise style of the particular option contract you are talking about. If it's an American-style exercise, you can exercise at any moment until the expiration date. If it's an European-style exercise, you can only exercise at the expiration date. According to the CME Group website on the FOPs on Gold futures, it's an American-style exercise (always make sure to double check this - especially in the Options on Futures world, there are quite a few that are European style): http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html?optionProductId=192#optionProductId=192 So, if you wanted to, the answer is: yes, you can exercise those contracts before expiration. But a very important question you should ask is: should you? Option prices are composed of 2 parts: intrinsic value, and extrinsic value. Intrinsic value is defined as by how much the option is in the money. That is, for Calls, it's how much the strike is below the current underlying price; and for Puts, it's how much the strike is above the current underlying price. Extrinsic value is whatever amount you have to add to the intrinsic value, to get the actual price the option is trading at the market. Note that there's no negative intrinsic value. It's either a positive number, or 0. When the intrinsic value is 0, all the value of the option is extrinsic value. The reason why options have extrinsic value is because they give the buyer a right, and the seller, an obligation. Ie, the seller is assuming risk. Traders are only willing to assume obligations/risks, and give others a right, if they get paid for that. The amount they get paid for that is the extrinsic value. In the scenario you described, underlying price is 1347, call strike is 1350. Whatever amount you have paid for that option is extrinsic value (because the strike of the call is above the underlying price, so intrinsic = 0, intrinsic + extrinsic = value of the option, by definition). Now, in your scenario, gold prices went up to 1355. Now your call option is \"\"in the money\"\", that is, the strike of your call option is below the gold price. That necessarily means that your call option has intrinsic value. You can easily calculate how much: it has exactly $5 intrinsic value (1355 - 1350, undelrying price - strike). But that contract still has some \"\"risk\"\" associated to it for the seller: so it necessarily still have some extrinsic value as well. So, the option that you bought for, let's say, $2.30, could now be worth something like $6.90 ($5 + a hypothetical $1.90 in extrinsic value). In your question, you mentioned exercising the option and then making a profit there. Well, if you do that, you exercise your options, get some gold futures immediately paying $1350 for them (your strike), and then you can sell them in the market for $1355. So, you make $5 there (multiplied by the contract multiplier). BUT your profit is not $5. Here's why: remember that you had to buy that option? You paid some money for that. In this hypothetical example, you payed $2.30 to buy the option. So you actually made only $5 - $2.30 = $2.70 profit! On the other hand, you could just have sold the option: you'd then make money by selling something that you bought for $2.30 that's now worth $6.90. This will give you a higher profit! In this case, if those numbers were real, you'd make $6.90 - $2.30 = $4.60 profit, waaaay more than $2.70 profit! Here's the interesting part: did you notice exactly how much more profit you'd have by selling the option back to the market, instead of exercising it and selling the gold contracts? Exactly $1.90. Do you remember this number? That's the extrinsic value, and it's not a coincidence. By exercising an option, you immediately give up all the extrinsic value it has. You are going to convert all the extrinsic value into $0. So that's why it's not optimal to exercise the contract. Also, many brokers usually charge you much more commissions and fees to exercise an option than to buy/sell options, so there's that as well! Always remember: when you exercise an option contract, you immediately give up all the extrinsic value it has. So it's never optimal to do an early exercise of option contracts and individual, retail investors. (institutional investors doing HFT might be able to spot price discrepancies and make money doing arbitrage; but retail investors don't have the low commissions and the technology required to make money out of that!) Might also be interesting to think about the other side of this: have you noticed how, in the example above, the option started with $2.30 of extrinsic value, and then it had less, $1.90 only? That's really how options work: as the market changes, extrinsic value changes, and as time goes by, extrinsic value usually decreases. Other factors might increase it (like, more fear in the market usually bring the option prices up), but the passage of time alone will decrease it. So options that you buy will naturally decrease some value over time. The closer you are to expiration, the faster it's going to lose value, which kind of makes intuitive sense. For instance, compare an option with 90 days to expiration (DTE) to another with 10 DTE. One day later, the first option still has 89 DTE (almost the same as 90 DTE), but the other has 9 DTE - it relatively much closer to the expiration than the day before. So it will decay faster. Option buyers can protect their investment from time decay by buying longer dated options, which decay slower! edit: just thought about adding one final thought here. Probabilities. The strategy that you describe in your question is basically going long an OTM call. This is an extremely bullish position, with low probability of making money. Basically, for you to make money, you need two things: you need to be right on direction, and you need to be right on time. In this example, you need the underlying to go up - by a considerable amount! And you need this to happen quickly, before the passage of time will remove too much of the extrinsic value of your call (and, obviously, before the call expires). Benefit of the strategy is, in the highly unlikely event of an extreme, unanticipated move of the underlying to the upside, you can make a lot of money. So, it's a low probability, limited risk, unlimited profit, extremely bullish strategy.\""
},
{
"docid": "519781",
"title": "",
"text": "\"When the buyout happens, the $30 strike is worth $10, as it's in the money, you get $10 ($1000 per contract). Yes, the $40 strike is pretty worthless, it actually dropped in value today. Some deals are worded as an offer or intention, so a new offer can come in. This appears to be a done deal. From Chapter 8 of CHARACTERISTICS AND RISKS OF STANDARDIZED OPTIONS - FEB 1994 with supplemental updates 1997 through 2012; \"\"In certain unusual circumstances, it might not be possible for uncovered call writers of physical delivery stock and stock index options to obtain the underlying equity securities in order to meet their settlement obligations following exercise. This could happen, for example, in the event of a successful tender offer for all or substantially all of the outstanding shares of an underlying security or if trading in an underlying security were enjoined or suspended. In situations of that type, OCC may impose special exercise settlement procedures. These special procedures, applicable only to calls and only when an assigned writer is unable to obtain the underlying security, may involve the suspension of the settlement obligations of the holder and writer and/or the fixing of cash settlement prices in lieu of delivery of the underlying security. In such circumstances, OCC might also prohibit the exercise of puts by holders who would be unable to deliver the underlying security on the exercise settlement date. When special exercise settlement procedures are imposed, OCC will announce to its Clearing Members how settlements are to be handled. Investors may obtain that information from their brokerage firms.\"\" I believe this confirms my observation. Happy to discuss if a reader feels otherwise.\""
},
{
"docid": "128884",
"title": "",
"text": "In general, a warrant is a security issued by a company allowing the holder to purchase a certain number of a particular class of shares at a certain price for a particular period of time. They differ from exchange traded options (i.e. calls and puts) in that they are issued by the company that issued the underlying shares that they allow you to purchase whereas calls and puts are generally written by other investors. The other big difference between options and warrants is that options are standardized. Any call or put you buy on a particular exchange has basically the same set of rules governing use. By contrast, a warrant may have all kinds of stipulations that must occur before you can execute, such as price events (e.g. only if the stock hits a certain price) or business events (e.g. only if the company elects to defer payment on a bond issued at the same time as the warrant). Warrants are generally a bad choice for small and inexperienced investors since each warrant issue is different and you often need a lawyer or other qualified professional to fully understand all to possible outcomes."
}
] |
8592 | Tax implications of exercising ISOs and using proceeds to exercise more ISOs | [
{
"docid": "340264",
"title": "",
"text": "That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees"
}
] | [
{
"docid": "100628",
"title": "",
"text": "While a margin account is not required to trade options, a margin account is necessary to take delivery of an exercised put. The puts can be bought in a cash account so long as the cash necessary to fund the trade is available. If you do choose to exercise which almost never has a positive expected value relative to selling except after the final trading time before expiration, taxes notwithstanding, then your shares will be put to your counterparty. Since options almost always trade in round lots, 100 shares will have to fund the put exercise, or a margin account must satisfy the difference. For your situation, trading out of both positions would be probably be best."
},
{
"docid": "278373",
"title": "",
"text": "\"According to the book of Hull, american and european calls on non-dividend paying stocks should have the same value. American puts, however, should be equals to, or more valuable than, european puts. The reason for this is the time value of money. In a put, you get the option to sell a stock at a given strike price. If you exercise this option at t=0, you receive the strike price at t=0 and can invest it at the risk-free rate. Lets imagine the rf rate is 10% and the strike price is 10$. this means at t=1, you would get 11.0517$. If, on the other hand, you did'nt exercise the option early, at t=1 you would simply receive the strike price (10$). Basically, the strike price, which is your payoff for a put option, doesn't earn interest. Another way to look at this is that an option is composed of two elements: The \"\"insurance\"\" element and the time value of the option. The insurance element is what you pay in order to have the option to buy a stock at a certain price. For put options, it is equals to the payout= max(K-S, 0) where K=Strike Price and St= Stock price. The time value of the option can be thought of as a risk-premium. It's difference between the value of the option and the insurance element. If the benefits of exercising a put option early (i.e- earning the risk free rate on the proceeds) outweighs the time value of the put option, it should be exercised early. Yet another way to look at this is by looking at the upper bounds of put options. For a european put, today's value of the option can never be worth more than the present value of the strike price discounted at the risk-free rate. If this rule isn't respected, there would be an arbitrage opportunity by simply investing at the risk-free rate. For an american put, since it can be exercised at any time, the maximum value it can take today is simply equals to the strike price. Therefore, since the PV of the strike price is smaller than the strike price, the american put can have a bigger value. Bear in mind this is for a non-dividend paying stock. As previously mentioned, if a stock pays a dividend it might also be optimal to exercise just before these are paid.\""
},
{
"docid": "288289",
"title": "",
"text": "As other answers state, selling the options contracts to the market is a definite way out, and probably the best in most cases. If you're determined to exercise your options (or there's not enough liquidity to reasonably sell your contracts to the market), then you could plan ahead and exercise smaller number of contracts at a time and sell the resulting position in the underlying, which will give you funds to exercise some more contracts and sell the underlying. If you think you're going down this path, however, make sure that you take into account your broker's rules for settlement. You may need to start the exercise / sell cycle before the option's expiration date."
},
{
"docid": "514831",
"title": "",
"text": "\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\"\"in the money\"\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\""
},
{
"docid": "458063",
"title": "",
"text": "\"No, you cannot. ISO are given to you in your capacity as an employee (that's why it is \"\"qualified\"\"), while your IRA is not an employee. You cannot transfer property to the IRA, so you cannot transfer them to the IRA once you paid for them as well. This is different from non-qualified stock options (discussed in this question), which I believe technically can be granted to IRA. But as Joe suggests in his answer there - there may be self-dealing issues and you better talk to a licensed tax adviser (EA/CPA licensed in your State) if this is something you're considering to do.\""
},
{
"docid": "61919",
"title": "",
"text": "\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \"\"cash neutral before taxes\"\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \"\"cash neutral after taxes\"\" depends highly on your specific tax situation.\""
},
{
"docid": "135363",
"title": "",
"text": "Investopedia states: While early exercise is generally not advisable, because the time value inherent in the option premium is lost upon doing so, there are certain circumstances under which early exercise may be advantageous. For example, an investor may choose to exercise a call option that is deeply in-the-money (such an option will have negligible time value) just before the ex-dividend date of the underlying stock. This will enable the investor to capture the dividend paid by the underlying stock, which should more than offset the marginal time value lost due to early exercise. So the question is how well do you see the time value factor here?"
},
{
"docid": "323768",
"title": "",
"text": "\"(See also the question How many stocks I can exercise per stock warrant? and my comments there). Clearly, at the prices you quote, it does not seem sensible to exercise your warrants at the moment, since you can still by \"\"units\"\" (1 stock + 1/3 warrant) and bare stock at below the $11.50 it would cost you to exercise your warrant. So when would exercising a warrant become \"\"a sensible thing to do\"\"? Obviously, if the price of the bare stock (which you say is currently $10.12) were to sufficiently exceed $11.50, then it would clearly be worth exercising a warrant and immediately selling the stock you receive (\"\"sufficiently exceed\"\" to account for any dealing costs in selling the newly-acquired stock). However, looking more closely, $11.50 isn't the correct \"\"cut-off\"\" price. Consider three of the units you bought at $10.26 each. For $30.78 you received three shares of stock and one warrant. For an additional $11.50 ($42.28 in total) you can have a total of four shares of stock (at the equivalent of $10.57 each). So, if the price of the bare stock rises above $10.57, then it could become sensible to exercise one warrant and sell four shares of stock (again allowing a margin for the cost of selling the stock). The trading price of the original unit (1 stock + 1/3 warrant) shouldn't (I believe) directly affect your decision to exercise warrants, although it would be a factor in deciding whether to resell the units you've already got. As you say, if they are now trading at $10.72, then having bought them at $10.26 you would make a profit if sold. Curiously, unless I'm missing something, or the figures you quote are incorrect, the current price of the \"\"unit\"\" (1 stock + 1/3 warrant; $10.72) seems overpriced compared to the price of the bare stock ($10.12). Reversing the above calculation, if bare stock is trading at $10.12, then four shares would cost $40.48. Deducting the $11.50 cost-of-exercising, this would value three \"\"combined units\"\" at $28.98, or $9.66 each, which is considerably below the market price you quote. One reason the \"\"unit\"\" (1 stock + 1/3 warrant) is trading at $10.72 instead of $9.66 could be that the market believes the price of the bare share (currently $10.12) will eventually move towards or above $11.50. If that happens, the option of exercising warrants at $11.50 becomes more and more attractive. The premium presumably reflects this potential future benefit. Finally, \"\"Surely I am misunderstand the stock IPO's intent.\"\": presumably, the main intent of Social Capital was to raise as much money as possible through this IPO to fund their future activities. The \"\"positive view\"\" is that they expect this future activity to be profitable, and therefore the price of ordinary stock to go up (at least as far as, ideally way beyond) the $11.50 exercise price, and the offering of warrants will be seen as a \"\"thank you\"\" to those investors who took the risk of taking part in the IPO. A completely cynical view would be that they don't really care what happens to the stock price, but that \"\"offering free stuff\"\" (or what looks like \"\"free stuff\"\") will simply attract more \"\"punters\"\" to the IPO. In reality, the truth is probably somewhere between those two extremes.\""
},
{
"docid": "62308",
"title": "",
"text": "ISO-14001 Environmental Management Systems. ISO 14001 is a universal standard suitable for large and small businesses in any sector. In many sectors certification to ISO 14001 has become a requirement for trade, as organisations seek to mitigate environmental risk whilst managing sustainable growth. ISO 14001 is an Environment Management System (EMS), which is a tool for managing the impact of an organisations activities on the environment. It takes a pro-active approach, and allows business to consider environmental issues before they become a problem, rather than reacting to them afterwards. If your company invests in ISO 14001 accreditation, you are showing your staff, customers and the wider business community that you are not only committed to protecting the environment in the short term, but you are also willing to work within the guidelines of international environmental law in future. Our consultant will be happy to discuss this with you any time This System is suitable for all small to medium size enterprises CALL NOW For Free Consultation +971 50 3483821 !!!."
},
{
"docid": "580534",
"title": "",
"text": "It is a very complex question to answer and it really depends. However, here are some points to consider and verify with your accountant or tax expert. First, if you exercise now, the downside is that you may be subject to Alternative Minimum Tax (AMT) based on the theoretical gain on the stock (current price minus your strike price) when you file your tax return. The other obvious downside is that if the company goes nowhere, you are stuck with the stock and potentially lose money. The benefit is that the clock starts ticking for long-term capital gains so if you sell after 1 year from the exercise date (or your company gets sold) then the gain would be taxed as long-term capital gain which is taxed at a lower rate. If your company were to get sold, the gains are not necessarily taxed as ordinary income. If it is a cash transaction then most likely (unless you have exercised and held the stock for over a year). However, if it is a stock sale, then you may end up getting stock of the company that acquires your company. In that situation, the tax event would be when you sell the new shares vs. the time of company sale. Finally, whether to exercise or not also depends on how you feel about the prospects of the company. If you think they will be sold or of more value down the road then exercising makes sense. If you are not sure then you could hedge your bets by only exercising a portion of it. You should definitely consult with a financial advisor or a tax consultant regarding these matters."
},
{
"docid": "123320",
"title": "",
"text": "\"The question is, how do I exit? I can't really sell the puts because there isn't enough open interest in them now that they are so far out of the money. I have about $150K of funds outside of this position that I could use, but I'm confused by the rules of exercising a put. Do I have to start shorting the stock? You certainly don't want to give your broker any instructions to short the stock! Shorting the stock at this point would actually be increasing your bet that the stock is going to go down more. Worse, a short position in the stock also puts you in a situation of unlimited risk on the stock's upside – a risk you avoided in the first place by using puts. The puts limited your potential loss to only your cost for the options. There is a scenario where a short position could come into play indirectly, if you aren't careful. If your broker were to permit you to exercise your puts without you having first bought enough underlying shares, then yes, you would end up with a short position in the stock. I say \"\"permit you\"\" because most brokers don't allow clients to take on short positions unless they've applied and been approved for short positions in their account. In any case, since you are interested in closing out your position and taking your profit, exercising only and thus ending up with a resulting open short position in the underlying is not the right approach. It's not really a correct intermediate step, either. Rather, you have two typical ways out: Sell the puts. @quantycuenta has pointed out in his answer that you should be able to sell for no less than the intrinsic value, although you may be leaving a small amount of time value on the table if you aren't careful. My suggestion is to consider using limit orders and test various prices approaching the intrinsic value of the put. Don't use market orders where you'll take any price offered, or you might be sorry. If you have multiple put contracts, you don't need to sell them all at once. With the kind of profit you're talking about, don't sweat paying a few extra transactions worth of commission. Exercise the puts. Remember that at the other end of your long put position is one (or more) trader who wrote (created) the put contract in the first place. This trader is obligated to buy your stock from you at the contract price should you choose to exercise your option. But, in order for you to fulfill your end of the contract when you choose to exercise, you're obligated to deliver the underlying shares in exchange for receiving the option strike price. So, you would first need to buy underlying shares sufficient to exercise at least one of the contracts. Again, you don't need to do this all at once. @PeterGum's answer has described an approach. (Note that you'll lose any remaining time value in the option if you choose to exercise.) Finally, I'll suggest that you ought to discuss the timing and apportioning of closing out your position with a qualified tax professional. There are tax implications and, being near the end of the year, there may be an opportunity* to shift some/all of the income into the following tax year to minimize and defer tax due. * Be careful if your options are near expiry! Options typically expire on the 3rd Friday of the month.\""
},
{
"docid": "528052",
"title": "",
"text": "\"Your question indicates that you might have a little confusion about put options and/or leveraging. There's no sense I'm aware of in which purchasing a put levers a position. Purchasing a put will cost you money up front. Leveraging typically means entering a transaction that gives you extra money now that you can use to buy other things. If you meant to sell a put, that will make money up front but there is no possibility of making money later. Best case scenario the put is not exercised. The other use of the term \"\"leverage\"\" refers to purchasing an asset that, proportionally, goes up faster than the value of the underlying. For example, a call option. If you purchase a put, you are buying downside protection, which is kind of the opposite of leverage. Notice that for an American put you will most likely be better off selling the put when the price of the underlying falls than exercising it. That way you make the money you would have made by exercising plus whatever optional value the put still contains. That is true unless the time value of money is greater than the optional (insurance) value. Since the time value of money is currently exceptionally low, this is unlikely. Anyway, if you sell the option instead of exercising, you don't need to own any shares at all. Even if you do exercise, you can just buy them on the market and sell right away so I wouldn't worry about what you happen to be holding. The rules for what you can trade with a cash instead of a margin account vary by broker, I think. You can usually buy puts and calls in a cash account, but more advanced strategies, such as writing options, are prohibited. Ask your broker or check their help pages to see what you have available to you.\""
},
{
"docid": "238682",
"title": "",
"text": "\"These warrants do not have a fixed expiration date, rather their expiration date is dependant upon the company completing an acquisition. Thirty days after the acquisition is complete the warrants enter their exercise period. The warrants can then be exercised at any time over the next five years. After five years they expire. From the \"\"WARRANT AGREEMENT SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.\"\": A Warrant may be exercised only during the period (the “Exercise Period”) (A) commencing on the later of: (i) the date that is thirty (30) days after the first date on which the Company completes a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination, involving the Company and one or more businesses (a “Business Combination”), and (ii) the date that is twelve (12) months from the date of the closing of the Offering, and (B) terminating at the earliest to occur of (x) 5:00 p.m., New York City time on the date that is five (5) years after the date on which the Company completes its initial Business Combination, (y) the liquidation of the Company in accordance with the Company’s amended and restated memorandum and articles of association, as amended from time to time, if the Company fails to complete a Business Combination, and (z) 5:00 p.m., New York City time on, other than with respect to the Private Placement Warrants, the Redemption Date (as defined below) as provided in Section 6.2 hereof (the “Expiration Date”); provided, however, that the exercise of any Warrant shall be subject to the satisfaction of any applicable conditions, as set forth in subsection 3.3.2 below, with respect to an effective registration statement Source : lawinsder.com\""
},
{
"docid": "446628",
"title": "",
"text": "Does this technically mean that she has to pay AMT on $400,000? Yes. Well, not exactly 400,000. She paid $1 per share, so 390,000. And if so, is %28 the AMT for this sum? (0.28 * $400,000 = $112,000)? Or does she have to include her salary on top of that before calculating AMT? (Suppose in the fake example that her salary is $100,000 after 401k). All her income is included in calculating the AMT, minus the AMT exemption amount. The difference between the regular calculated tax and the calculated AMT is then added to the regular tax. Note that some deductions allowed for the regular calculation are not allowed for the AMT calculation. How does California state tax come into play for this? California has its own AMT rules, and in California any stock option exercise is subject to AMT, unless you sell the stock in the same year. Here's a nice and easy to understand write up on the issue from the FTB. When would she have to pay the taxes for this huge AMT? Tax is due when income is received (i.e.: when you exercise the options). However, most people don't actually pay the tax then, but rather discover the huge tax liability when they prepare to submit their tax return on April 15th. To avoid that, I'd suggest trying to estimate the tax and adjust your withholding using form W4 so that by the end of the year you have enough withheld. Suppose in the worst case, the company goes completely under. Does she get her massive amounts of tax back? Or if it's tax credit, where can I find more info on this? That would be capital loss, and only up to $3K a year of capital loss can be deducted from the general income. So it will continue offsetting other capital gains or being deducted $3K a year until it all clears out. Is there any way to avoid this tax? (Can she file an 83b election?) You asked and answered. Yes, filing 83(b) election is the way to go to avoid this situation. This should be done within 30 days of the grant, and submitted to the IRS, and a copy attached to the tax return of the grant year. However, if you're considering exercise - that ship has likely sailed a long time ago. Any advice for Little Susie on how she can even afford to pay that much tax on something she can't even sell anytime soon? Don't exercise the options? Should she take out a loan? (e.g. I've heard that in the extreme case, you can find angel investors who are willing to pay all your taxes/strike price, but want 50% of your equity? I've also heard that you can sell your illiquid shares on SecondMarket?) Is she likely to get audited by IRS for pulling something like this? You can take a loan secured by shares you own, there's nothing illegal in it. If you transfer your shares - the IRS only cares about the taxes being paid, however that may be illegal depending on the terms and the conditions of the grant. You'll need to talk to a lawyer about your situation. I suggest talking to a licensed tax adviser (EA/CPA licensed in your State) about the specifics concerning your situation."
},
{
"docid": "444502",
"title": "",
"text": "Chemtex Speciality Limited is India's one of the leading company for providing complete range of plant maintenance and treatment solution through high performance speciality chemicals. Based in the country’s biggest eastern sea port, Kolkata, Chemtex Speciality Limited have been supplying to all over the globe since 1970. CSL has a considerable market share in India’s speciality chemicals Industry. Our operations extends to a wide range of business sectors like retail, exports and manufacturing concerns for their warehouse and dispatch management. Chemtex Speciality Limited is an ISO 9001 : 2008 certified company. CSL’s office management and manufacturing setup has obtained CRISIL trust certification. In service to the industry and trade since more than last four decades, Chemtex is proud to be a trusted business partner of more than 18000 customers worldwide. It offers excellent technical support and best supply chain management solutions for domestic and overseas trade. Chemtex offers more than 600 high performance chemicals that are majorly divided into the following categories."
},
{
"docid": "178497",
"title": "",
"text": "Stock options represent an option to buy a share at a given price. What you have been offered is the option to buy the company share at a given price ($5) starting a given date (your golden handcuffs aka vesting schedule). If the company's value doubles in 1 year and the shares are liquid (i.e. you can sell them) then you've just made $125k of profit. If the company's value has gone to zero in 1 year then you've lost nothing other than your hopes of getting rich. As others have mentioned, the mechanics of exercising the option and selling the shares can typically be accomplished without any cash involved. The broker will do both in a single transaction and use the proceeds of the sale to pay the cost of buying the shares. You should always at least cover the taxable portion of the transaction and typically the broker will withhold that tax anyways. Otherwise you could find yourself in a position where you have actually lost money due to tax being owed while the shares decline in value below that tax. You don't have to worry about that right now. Again as people have mentioned options will typically expire 10 years from vesting or 90 days from leaving your employment with the company. I'm sure there are some variations on the theme. Make sure you ask and all this should be part of some written contract. I'm sure you can ask to see it if you wish. Also typical is that stock option grants have to be approved by the board which is normally a technicality. Some general advice:"
},
{
"docid": "220147",
"title": "",
"text": "Options granted by an employer to an employee are generally different that the standardized options that are traded on public stock option exchanges. They may or may not have somewhat comparable terms, but generally the terms are fairly different. As a holder of an expiring employee option, you can only choose to exercise it by paying the specified price and receiving the shares, or not. It is common that the exercise system will allow you to exercise all the shares and simultaneously sell enough of the acquired shares to cover the option cost of all the shares, thus leaving you owning some of the stock without having to spend any cash. You will owe taxes on the gain on exercise, regardless of what you do with the stock. If you want to buy publicly-traded options, you should consider that completely separately from your employer options other than thinking about how much exposure you have to your company situation. It is very common for employees to be imprudently overexposed to their company's stock (through direct ownership or options)."
},
{
"docid": "237718",
"title": "",
"text": "There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants."
},
{
"docid": "475588",
"title": "",
"text": "\"The Business Continuity Management standard BS 25999 is going to be replaced by the newly published ISO standard ISO 22301. ISO 22301’s full title is: ‘Societal security - Business continuity management systems – Requirements’ and the International Organization for Standardization (ISO) defines the standard as: \"\"...standardization in the area of societal security, aimed at increasing crisis management and business continuity capabilities, i.e. through improved technical, human, organizational, and functional interoperability as well as shared situational awareness, amongst all interested parties.\"\" The structure of the new ISO standard is very different to BS 25999 (technically BS 25999-2) however the basic elements of BS 25999-2 still exists in ISO 22301. The following briefly describes the similarities and differences between both standards\""
}
] |
8592 | Tax implications of exercising ISOs and using proceeds to exercise more ISOs | [
{
"docid": "441718",
"title": "",
"text": "This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000."
}
] | [
{
"docid": "110215",
"title": "",
"text": "All sorts of conditions, yes. Most commonly is a limitation on the exercise date. The two more common would be American which is exercisable any time, and European which are only exercisable on their expiry date. Sometimes they may be linked to the original asset, and might only be convertible to stock if that original asset is given/sold back to the company. (Effectively perhaps making the bond convertible to stock). Lots more details on the Pedia, but in short, basically you need to read the warrant contract individually, as each will differ."
},
{
"docid": "358520",
"title": "",
"text": "Really all you need to know is that American style can be exercised at any point, European options cannot be exercised early. Read on if you want more detail. The American style Call is worth more because it can be exercised at any point. And when the company pays a dividend, and your option is in the money, if the extrinsic value is worth less than the dividend you can be exercised early. This is not the case for a European call. You cannot be exercised until expiration. I trade a lot of options, you wont be exercised early unless the dividend scenario I mentioned happens. Or unless the extrinsic value is nothing, but even then, unless the investor really wants that position, he is more likely to just sell the call for an equivalent gain on 100 shares of stock."
},
{
"docid": "528167",
"title": "",
"text": "Emergency Data Recovery by a SSAE 16 / Class 10 ISO 4 Cleanroom Certified Company in Indianapolis. Secure Data Recovery Services was the first data recovery company to earn an SSAE 16 certification and one of the only firms with an SAS 70 Type II certification. We use third-party consultants to audit and test our facilities several times per year in order to meet the requirements of these certifications."
},
{
"docid": "61919",
"title": "",
"text": "\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \"\"cash neutral before taxes\"\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \"\"cash neutral after taxes\"\" depends highly on your specific tax situation.\""
},
{
"docid": "514831",
"title": "",
"text": "\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\"\"in the money\"\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\""
},
{
"docid": "324564",
"title": "",
"text": "I have held an in the money long position on an option into expiration, on etrade, and nothing happened. (Scalping expiring options - high risk) The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL) From etrade's website: Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. For example, a September $25 call will be automatically exercised if the underlying security's closing price is $25.01 or higher at expiration. If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option. Index options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. Options that are out of the money will expire worthless. You may request to exercise American style options anytime prior to expiration. A request not to exercise options may be made only on the last trading day prior to expiration. If you'd like to exercise options or submit do-not-exercise instructions, call an E*TRADE Securities broker at 1-800-ETRADE-1. You won't be charged our normal fee for broker-assisted trades, but the regular options commission will apply. Requests are processed on a best-efforts basis. When equity options are exercised or assigned, you'll receive a Smart Alert message letting you know. You can also check View Orders to see which stock you bought or sold, the number of shares, and the strike price. Notes: If you do not have sufficient purchasing power in your account to accept the assignment or exercise, your expiring options positions may be closed, without notification, on the last trading day for the specific options series. Additionally, if your expiring position is not closed and you do not have sufficient purchasing power, E*TRADE Securities may submit do-not-exercise instructions without notification. Find out more about options expiration dates."
},
{
"docid": "123320",
"title": "",
"text": "\"The question is, how do I exit? I can't really sell the puts because there isn't enough open interest in them now that they are so far out of the money. I have about $150K of funds outside of this position that I could use, but I'm confused by the rules of exercising a put. Do I have to start shorting the stock? You certainly don't want to give your broker any instructions to short the stock! Shorting the stock at this point would actually be increasing your bet that the stock is going to go down more. Worse, a short position in the stock also puts you in a situation of unlimited risk on the stock's upside – a risk you avoided in the first place by using puts. The puts limited your potential loss to only your cost for the options. There is a scenario where a short position could come into play indirectly, if you aren't careful. If your broker were to permit you to exercise your puts without you having first bought enough underlying shares, then yes, you would end up with a short position in the stock. I say \"\"permit you\"\" because most brokers don't allow clients to take on short positions unless they've applied and been approved for short positions in their account. In any case, since you are interested in closing out your position and taking your profit, exercising only and thus ending up with a resulting open short position in the underlying is not the right approach. It's not really a correct intermediate step, either. Rather, you have two typical ways out: Sell the puts. @quantycuenta has pointed out in his answer that you should be able to sell for no less than the intrinsic value, although you may be leaving a small amount of time value on the table if you aren't careful. My suggestion is to consider using limit orders and test various prices approaching the intrinsic value of the put. Don't use market orders where you'll take any price offered, or you might be sorry. If you have multiple put contracts, you don't need to sell them all at once. With the kind of profit you're talking about, don't sweat paying a few extra transactions worth of commission. Exercise the puts. Remember that at the other end of your long put position is one (or more) trader who wrote (created) the put contract in the first place. This trader is obligated to buy your stock from you at the contract price should you choose to exercise your option. But, in order for you to fulfill your end of the contract when you choose to exercise, you're obligated to deliver the underlying shares in exchange for receiving the option strike price. So, you would first need to buy underlying shares sufficient to exercise at least one of the contracts. Again, you don't need to do this all at once. @PeterGum's answer has described an approach. (Note that you'll lose any remaining time value in the option if you choose to exercise.) Finally, I'll suggest that you ought to discuss the timing and apportioning of closing out your position with a qualified tax professional. There are tax implications and, being near the end of the year, there may be an opportunity* to shift some/all of the income into the following tax year to minimize and defer tax due. * Be careful if your options are near expiry! Options typically expire on the 3rd Friday of the month.\""
},
{
"docid": "194605",
"title": "",
"text": "There are a few situations in which it may be advantageous to exercise early. Wikipedia actually has a good explanation: Option Style, Difference in value To account for the American's higher value there must be some situations in which it is optimal to exercise the American option before the expiration date. This can arise in several ways, such as: An in the money (ITM) call option on a stock is often exercised just before the stock pays a dividend that would lower its value by more than the option's remaining time value. A put option will usually be exercised early if the underlying asset files for bankruptcy.[3] A deep ITM currency option (FX option) where the strike currency has a lower interest rate than the currency to be received will often be exercised early because the time value sacrificed is less valuable than the expected depreciation of the received currency against the strike. An American bond option on the dirty price of a bond (such as some convertible bonds) may be exercised immediately if ITM and a coupon is due. A put option on gold will be exercised early when deep ITM, because gold tends to hold its value whereas the currency used as the strike is often expected to lose value through inflation if the holder waits until final maturity to exercise the option (they will almost certainly exercise a contract deep ITM, minimizing its time value).[citation needed]"
},
{
"docid": "590453",
"title": "",
"text": "If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of buying a call option on X. A European option with a strike price of S that expires on day N, if held until that day and then exercised if profitable, would yield a value Y = min(X[N]-S, 0). This has an expected value E[Y] that you could actually calculate. (should be related to the binomial distribution, but my probability & statistics hat isn't working too well today) The market value V[k] of that option on day #k, where 1 < k < N, should be V[k] = E[Y]|X[k], which you can also actually calculate. On day #N, V[N] = Y. (the value is known) An American option, if held until day #k and then exercised if profitable, would yield a value Y[k] = min(X[k]-S, 0). For the moment, forget about selling the option on the market. (so, the choices are either exercise it on some day #k, or letting it expire) Let's say it's day k=N-1. If X[N-1] >= S+1 (in the money), then you have two choices: exercise today, or exercise tomorrow if profitable. The expected value is the same. (Both are equal to X[N-1]-S). So you might as well exercise it and make use of your money elsewhere. If X[N-1] <= S-1 (out of the money), the expected value is 0, whether you exercise today, when you know it's worthless, or if you wait until tomorrow, when the best case is if X[N-1]=S-1 and X[N] goes up to S, so the option is still worthless. But if X[N-1] = S (at the money), here's where it gets interesting. If you exercise today, it's worth 0. If wait until tomorrow, there's a 1/2 chance it's worth 0 (X[N]=S-1), and a 1/2 chance it's worth 1 (X[N]=S+1). Aha! So the expected value is 1/2. Therefore you should wait until tomorrow. Now let's say it's day k=N-2. Similar situation, but more choices: If X[N-2] >= S+2, you can either sell it today, in which case you know the value = X[N-2]-S, or you can wait until tomorrow, when the expected value is also X[N-2]-S. Again, you might as well exercise it now. If X[N-2] <= S-2, you know the option is worthless. If X[N-2] = S-1, it's worth 0 today, whereas if you wait until tomorrow, it's either worth an expected value of 1/2 if it goes up (X[N-1]=S), or 0 if it goes down, for a net expected value of 1/4, so you should wait. If X[N-2] = S, it's worth 0 today, whereas tomorrow it's either worth an expected value of 1 if it goes up, or 0 if it goes down -> net expected value of 1/2, so you should wait. If X[N-2] = S+1, it's worth 1 today, whereas tomorrow it's either worth an expected value of 2 if it goes up, or 1/2 if it goes down (X[N-1]=S) -> net expected value of 1.25, so you should wait. If it's day k=N-3, and X[N-3] >= S+3 then E[Y] = X[N-3]-S and you should exercise it now; or if X[N-3] <= S-3 then E[Y]=0. But if X[N-3] = S+2 then there's an expected value E[Y] of (3+1.25)/2 = 2.125 if you wait until tomorrow, vs. exercising it now with a value of 2; if X[N-3] = S+1 then E[Y] = (2+0.5)/2 = 1.25, vs. exercise value of 1; if X[N-3] = S then E[Y] = (1+0.5)/2 = 0.75 vs. exercise value of 0; if X[N-3] = S-1 then E[Y] = (0.5 + 0)/2 = 0.25, vs. exercise value of 0; if X[N-3] = S-2 then E[Y] = (0.25 + 0)/2 = 0.125, vs. exercise value of 0. (In all 5 cases, wait until tomorrow.) You can keep this up; the recursion formula is E[Y]|X[k]=S+d = {(E[Y]|X[k+1]=S+d+1)/2 + (E[Y]|X[k+1]=S+d-1) for N-k > d > -(N-k), when you should wait and see} or {0 for d <= -(N-k), when it doesn't matter and the option is worthless} or {d for d >= N-k, when you should exercise the option now}. The market value of the option on day #k should be the same as the expected value to someone who can either exercise it or wait. It should be possible to show that the expected value of an American option on X is greater than the expected value of a European option on X. The intuitive reason is that if the option is in the money by a large enough amount that it is not possible to be out of the money, the option should be exercised early (or sold), something a European option doesn't allow, whereas if it is nearly at the money, the option should be held, whereas if it is out of the money by a large enough amount that it is not possible to be in the money, the option is definitely worthless. As far as real securities go, they're not random walks (or at least, the probabilities are time-varying and more complex), but there should be analogous situations. And if there's ever a high probability a stock will go down, it's time to exercise/sell an in-the-money American option, whereas you can't do that with a European option. edit: ...what do you know: the computation I gave above for the random walk isn't too different conceptually from the Binomial options pricing model."
},
{
"docid": "372787",
"title": "",
"text": "The ABA number you speak of is more accurately called the Routing Transit Number. http://en.wikipedia.org/wiki/Routing_transit_number A routing transit number (RTN) is a nine digit bank code, used in the United States, which appears on the bottom of negotiable instruments such as checks identifying the financial institution on which it was drawn. This code was designed to facilitate the sorting, bundling, and shipment of paper checks back to the drawer's (check writer's) account. The RTN is also used by Federal Reserve Banks to process Fedwire funds transfers, and by the Automated Clearing House to process direct deposits, bill payments, and other such automated transfers. The RTN number is derived from the bank's transit number originated by the American Bankers Association, which designed it in 1910.[1] I am going to assume that the euphemistic ABA Number has been shortened by whoever told you about it and called it the ABN. Perhaps American Bank Number. Either way, the technical term is RTN. Perhaps a comment or editor can straighten me out about the ABN. There is an international number known as the SWIFT number that serves the same purpose worldwide. http://en.wikipedia.org/wiki/ISO_9362 ISO 9362 (also known as SWIFT-BIC, BIC code, SWIFT ID or SWIFT code) defines a standard format of Business Identifier Codes approved by the International Organization for Standardization (ISO). It is a unique identification code for both financial and non-financial institutions.[1] The acronym SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication. When assigned to a non-financial institution, the code may also be known as a Business Entity Identifier or BEI. These codes are used when transferring money between banks, particularly for international wire transfers, and also for the exchange of other messages between banks. The codes can sometimes be found on account statements."
},
{
"docid": "255927",
"title": "",
"text": "I think it depends on your broker. Some brokers will not try to auto exercise in the money options. Others will try to do the exercise it if you have available funds. Your best bet, if find yourself in that situation, is to sell the option on the open market the day of or slightly before expiration. Put it on your calendar and don't forget, you could loose your profits. @#2 Its in the best interest of your broker to exercise because they get a commission. I think they are used to this situation where there is a lack of funds. Its not like bouncing a check. You will need to check with your broker on this. @#3 I think many or most options traders never intend on buying the underling stock. Therefore no, they do not always make sure there is enough funds to buy."
},
{
"docid": "238540",
"title": "",
"text": "In the event that you trust that you are an area for conceivable power interruptions, at that point you much better be prepared for things to happen. You can't stop the power interference to happen in your place any-way you can discover an administration so that even with a power interruption encounter, you can, in any case, proceed with what you are doing. All you require is a Commercial Backup Generator that will furnish you with the required power in light of the power that it has kept. The generator normally works by changing force into electrical vitality that is the reason you have the chance to proceed with home exercises as the power intrusion goes on."
},
{
"docid": "73260",
"title": "",
"text": "So in a sense, I can think of the employees / option-holders as another investor? That makes sense - but many of the examples I'm finding online are still confusing me. Based on the example above, it seems like option-holders would be paying the same exercise price as the VC. Per [Andreesen Horowitz](https://a16z.com/2016/08/24/options-ownership/) this seems uncommon: > The exercise price of employee options — the price per share needed to actually own the shares — is often less than the original issue price paid by the most recent investor, who holds preferred stock. In reality, would option-holders receive, say, 40% (using example above) for their $6m in exercise value due to receiving common stock, with the founder being diluted to even further?"
},
{
"docid": "271109",
"title": "",
"text": "The put vs call assignment risk, is actually the reverse: in-the-money calls are more likely to be exercised early than puts. Exercising a call locks in profit for the option holder because they can buy the shares at below market price, and immediately sell them at the higher market price. If there are dividends due, the risk is even higher. By contrast, exercising an in-the-money put locks in a loss for the holder, so it's less common."
},
{
"docid": "343294",
"title": "",
"text": "There is a relatively straightforward transformation explained on the Wikipedia page here and on the links from that page. Note that this only applies to SEDOLs for instruments listed on the London Stock Exchange (LSE). To convert SEDOL to ISIN you pad leading zeroes onto the SEDOL until you have 9 digits. Then you add the two letter country code (as defined in ISO 3166-1) to the front. Then you add a final checksum digit to the end, again as defined in the algorithm on the Wikipedia page. To convert ISIN to SEDOL you do the reverse: remove the final digit, remove the two leading letters, and strip off any leading zeroes. Example:"
},
{
"docid": "490263",
"title": "",
"text": "I am waiting for the day China and India doing military exercise together, right the next day after Trump say China is a threat to India. lol. 9not a real military exercise, but a diplomatic showcase.) This is the exact same thing when US did military exercise with India, thinking they have successfully realigning India, the next month, even bigger military exercise with Russia. Both India and China are not naive, they certainly know what US role was during the 60's and 70's vis a vis today's scheme. Both countries know they have bigger fish to fries than punching each other in the face because some american told them so. Not peace or detente, but certainly not state of war like in 70's anymore."
},
{
"docid": "323768",
"title": "",
"text": "\"(See also the question How many stocks I can exercise per stock warrant? and my comments there). Clearly, at the prices you quote, it does not seem sensible to exercise your warrants at the moment, since you can still by \"\"units\"\" (1 stock + 1/3 warrant) and bare stock at below the $11.50 it would cost you to exercise your warrant. So when would exercising a warrant become \"\"a sensible thing to do\"\"? Obviously, if the price of the bare stock (which you say is currently $10.12) were to sufficiently exceed $11.50, then it would clearly be worth exercising a warrant and immediately selling the stock you receive (\"\"sufficiently exceed\"\" to account for any dealing costs in selling the newly-acquired stock). However, looking more closely, $11.50 isn't the correct \"\"cut-off\"\" price. Consider three of the units you bought at $10.26 each. For $30.78 you received three shares of stock and one warrant. For an additional $11.50 ($42.28 in total) you can have a total of four shares of stock (at the equivalent of $10.57 each). So, if the price of the bare stock rises above $10.57, then it could become sensible to exercise one warrant and sell four shares of stock (again allowing a margin for the cost of selling the stock). The trading price of the original unit (1 stock + 1/3 warrant) shouldn't (I believe) directly affect your decision to exercise warrants, although it would be a factor in deciding whether to resell the units you've already got. As you say, if they are now trading at $10.72, then having bought them at $10.26 you would make a profit if sold. Curiously, unless I'm missing something, or the figures you quote are incorrect, the current price of the \"\"unit\"\" (1 stock + 1/3 warrant; $10.72) seems overpriced compared to the price of the bare stock ($10.12). Reversing the above calculation, if bare stock is trading at $10.12, then four shares would cost $40.48. Deducting the $11.50 cost-of-exercising, this would value three \"\"combined units\"\" at $28.98, or $9.66 each, which is considerably below the market price you quote. One reason the \"\"unit\"\" (1 stock + 1/3 warrant) is trading at $10.72 instead of $9.66 could be that the market believes the price of the bare share (currently $10.12) will eventually move towards or above $11.50. If that happens, the option of exercising warrants at $11.50 becomes more and more attractive. The premium presumably reflects this potential future benefit. Finally, \"\"Surely I am misunderstand the stock IPO's intent.\"\": presumably, the main intent of Social Capital was to raise as much money as possible through this IPO to fund their future activities. The \"\"positive view\"\" is that they expect this future activity to be profitable, and therefore the price of ordinary stock to go up (at least as far as, ideally way beyond) the $11.50 exercise price, and the offering of warrants will be seen as a \"\"thank you\"\" to those investors who took the risk of taking part in the IPO. A completely cynical view would be that they don't really care what happens to the stock price, but that \"\"offering free stuff\"\" (or what looks like \"\"free stuff\"\") will simply attract more \"\"punters\"\" to the IPO. In reality, the truth is probably somewhere between those two extremes.\""
},
{
"docid": "36453",
"title": "",
"text": "When you exercise a put, you get paid the strike price immediately. So you can invest that money and earn some interest, compared to only exercising at expiry. So the benefit to exercising early is that extra interest. The cost is the remaining time value of the option, along with any dividend payments you miss. As @JoeTaxpayer points out, there might be tax considerations that make it better to exercise at one time rather than another. But those would likely be personal to you, so if the option would intrinsically have more value unexercised, in many cases you could sell it on rather than exercise it. The exception might be if it wasn't very liquid and the transaction costs of doing that outweighed the theoretical value."
},
{
"docid": "420722",
"title": "",
"text": "\"Exercising an option early if you can't sell the underlying stock being purchased is generally not advisable. You're basically locking in the worst price you can possibly pay, plus you're losing the time value on your money (which is, admittedly fairly low right now, but still). Let's say you have a strike price of $50. I get that you believe the stock to be worth more than $50. Let's assume that that's probably, but not certainly right. Whether it's worth $51, $151, or $5,100 when your options are going to expire, you still get the profit of $1, $101, or $5,050 if you wait until expiration and exercise then. By exercising now, you're giving up two things: The interest on the money you pay to exercise from now until expiration. The guarantee that you can't lose anything. If you buy it now, you get all the upside above your strike, but have all the downside below it. If you buy it later (at expiration), you still have all the upside above your strike, but no downside - in the (assumed to be unlikely) event that it's worth less than the strike you can simply do nothing, instead of having something you bought at the strike that's worth less now and taking that loss. By exercising early, you take on that loss risk, and give up the interest (or \"\"carry\"\" on the money you spend to exercise) for no additional updside. It's possible that there are tax benefits, as other posters mention, but the odds that \"\"starting the clock\"\" for LTCG is worth as much as the \"\"optionality\"\", or loss protection, plus the \"\"carry\"\", or interest that you're giving up is fairly unlikely.\""
}
] |
8592 | Tax implications of exercising ISOs and using proceeds to exercise more ISOs | [
{
"docid": "261258",
"title": "",
"text": "I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year."
}
] | [
{
"docid": "490263",
"title": "",
"text": "I am waiting for the day China and India doing military exercise together, right the next day after Trump say China is a threat to India. lol. 9not a real military exercise, but a diplomatic showcase.) This is the exact same thing when US did military exercise with India, thinking they have successfully realigning India, the next month, even bigger military exercise with Russia. Both India and China are not naive, they certainly know what US role was during the 60's and 70's vis a vis today's scheme. Both countries know they have bigger fish to fries than punching each other in the face because some american told them so. Not peace or detente, but certainly not state of war like in 70's anymore."
},
{
"docid": "177720",
"title": "",
"text": "ISO-9001 GET STARTED RIGHT AWAY Having your quality management system independently certified to ISO 9001 will demonstrate your commitment to quality, best practice and continual improvement of your procedures. It will also provide assurance that your quality management system is operating efficiently and effectively, demonstrating cost savings and efficiencies year after year. The aim of ISO 9001 certification is to prove that an organization meets its own internal standards for quality and that these in turn meet international standards. Certification to ISO 9001 is not about establishing a new system; it documents your existing procedures to ensure that they meet the standard to deliver increased efficiencies.ISO 9001 is a widely recognized mark of quality that in many sectors is vital to winning new business. Many businesses who are certified themselves will seek out suppliers with ISO 9001 quality management systems certification. Our consultant will be happy to discuss this with you any time This System is suitable for all small to medium size enterprises CALL NOW For Free Consultation +971 50 3483821 !!!."
},
{
"docid": "102436",
"title": "",
"text": "Vesting As you may know a stock option is the right to acquire a given amount of stock at a given price. Actually acquiring the stock is referred to as exercising the option. Your company is offering you options over 200,000 shares but not all of those options can be exercised immediately. Initially you will only be able to acquire 25,000 shares; the other 175,000 have conditions attached, the condition in this case presumably being that you are still employed by the company at the specified time in the future. When the conditions attached to a stock option are satisfied that option is said to have vested - this simply means that the holder of the option can now exercise that option at any time they choose and thereby acquire the relevant shares. Dividends Arguably the primary purpose of most private companies is to make money for their owners (i.e. the shareholders) by selling goods and/or services at a profit. How does that money actually get to the shareholders? There are a few possible ways of which paying a dividend is one. Periodically (potentially annually but possibly more or less frequently or irregularly) the management of a company may look at how it is doing and decide that it can afford to pay so many cents per share as a dividend. Every shareholder would then receive that number of cents multiplied by the number of shares held. So for example in 4 years or so, after all your stock options have vested and assuming you have exercised them you will own 200,000 shares in your company. If the board declares a dividend of 10 cents per share you would receive $20,000. Depending on where you are and your exact circumstances you may or may not have to pay tax on this. Those are the basic concepts - as you might expect there are all kinds of variations and complications that can occur, but that's hopefully enough to get you started."
},
{
"docid": "415684",
"title": "",
"text": "\"Well, they don't \"\"make\"\" money in the sense of income, but they receive money in exchange for shares of stock (more of the company is owned by the public). The Warrant entitles the holder to purchase stock directly from the company at a fixed price. It is very much like an open-market call option, but instead of the option holder buying stock from a third party (which does not affect the company at all), the holder buys it directly from the company, increasing the number of shares outstanding, and the proceeds go directly to the company. If the holders do not exercise the warrants, the company does not receive any cash, but they also don't issue any new shares.\""
},
{
"docid": "6771",
"title": "",
"text": "Conceptually, yes, you need to worry about it. As a practical matter, it's less likely to be exercised until expiry or shortly prior. The way to think about paying a European option is: [Odds of paying out] = [odds that strike is in the money at expiry] Whereas the American option can be thought of as: [Odds of paying out] = [odds that strike price is in the money at expiry] + ( [odds that strike price is in the money prior to expiry] * [odds that other party will exercise early] ). This is just a heuristic, not a formal financial tool. But the point is that you need to consider the odds that it will go into the money early, for how long (maybe over multiple periods), and how likely the counterparty is to exercise early. Important considerations for whether they will exercise early are the strategy of the other side (long, straddle, quick turnaround), the length of time the option is in the money early, and the anticipated future movement. A quick buck strategy might exercise immediately before the stock turns around. But that could leave further gains on the table, so it's usually best to wait unless the expectation is that the stock will quickly reverse its movement. This sort of counter-market strategy is generally unlikely from someone who bought the option at a certain strike, and is equivalent to betting against their original purchase of the option. So most of these people will wait because they expect the possibility of a bigger payoff. A long strategy is usually in no hurry to exercise, and in fact they would prefer to wait until the end to hold the time value of the option (the choice to get out of the option, if it goes back to being unprofitable). So it usually makes little sense for these people to exercise early. The same goes for a straddle, if someone is buying an option for insurance or to economically exit a position. So you're really just concerned that people will exercise early and forgo the time value of the American option. That may include people who really want to close a position, take their money, and move on. In some cases, it may include people who have become overextended or need liquidity, so they close positions. But for the most part, it's less likely to happen until the expiration approaches because it leaves potential value on the table. The time value of an option dwindles at the end because the implicit option becomes less likely, especially if the option is fairly deep in the money (the implicit option is then fairly deep out of the money). So early exercise becomes more meaningful concern as the expiration approaches. Otherwise, it's usually less worrisome but more than a nonzero proposition."
},
{
"docid": "475588",
"title": "",
"text": "\"The Business Continuity Management standard BS 25999 is going to be replaced by the newly published ISO standard ISO 22301. ISO 22301’s full title is: ‘Societal security - Business continuity management systems – Requirements’ and the International Organization for Standardization (ISO) defines the standard as: \"\"...standardization in the area of societal security, aimed at increasing crisis management and business continuity capabilities, i.e. through improved technical, human, organizational, and functional interoperability as well as shared situational awareness, amongst all interested parties.\"\" The structure of the new ISO standard is very different to BS 25999 (technically BS 25999-2) however the basic elements of BS 25999-2 still exists in ISO 22301. The following briefly describes the similarities and differences between both standards\""
},
{
"docid": "305676",
"title": "",
"text": "\"In general there are two types of futures contract, a put and call. Both contract types have both common sides of a transaction, a buyer and a seller. You can sell a put contract, or sell a call contract also; you're just taking the other side of the agreement. If you're selling it would commonly be called a \"\"sell to open\"\" meaning you're opening your position by selling a contract which is different from simply selling an option that you currently own to close your position. A put contract gives the buyer the right to sell shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to put the shares on someone else. A call contract gives the buyer the right to buy shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to call on someone for shares. \"\"American\"\" options contracts allow the buyer can exercise their rights under the contract on or before the expiration date; while \"\"European\"\" type contracts can only be exercised on the expiration date. To address your example. Typically for stock an option contract involves 100 shares of a stock. The value of these contracts fluctuates the same way other assets do. Typically retail investors don't actually exercise their contracts, they just close a profitable position before the exercise deadline, and let unprofitable positions expire worthless. If you were to buy a single call contract with an exercise price of $100 with a maturity date of August 1 for $1 per share, the contract will have cost you $100. Let's say on August 1 the underlying shares are now available for $110 per share. You have two options: Option 1: On August 1, you can exercise your contract to buy 100 shares for $100 per share. You would exercise for $10,000 ($100 times 100 shares), then sell the shares for $10 profit per share; less the cost of the contract and transaction costs. Option 2: Your contract is now worth something closer to $10 per share, up from $1 per share when you bought it. You can just sell your contract without ever exercising it to someone with an account large enough to exercise and/or an actual desire to receive the asset or commodity.\""
},
{
"docid": "248393",
"title": "",
"text": "ISOs (incentive stock options) can be closed out in a cashless transaction. Say the first round vests, 25,000 shares. The stock is worth $7 but your option is to buy at $5 as you say. The broker executes and sells, you get $50,000, with no up front money. Edit based on comment below - you know they vest over 4 years, but how long before they expire? It stands to reason the longer you are able to hold them, the better a chance the company succeeds, and the price rises. The article Understanding employer-granted stock options (PDF) offers a nice discussion of different scenarios supporting my answer."
},
{
"docid": "255812",
"title": "",
"text": "Chemtex Speciality Limited hold a leading and renowned market position in making chiller /HVACnR Chemicals which are used to enhance the performance of the systems by improving the heat transferring ability of the systems. We produce and design a wide range of Speciality Chemical compounds and additives prepared according to the international standards and norms. Based in Kolkata, we started our business in 1970 and have been serving the country with our quality solutions since past 4 decades. We hold ISO 9001:2008 Company and possess more than 25 distributors in all major cities of the country."
},
{
"docid": "61919",
"title": "",
"text": "\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \"\"cash neutral before taxes\"\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \"\"cash neutral after taxes\"\" depends highly on your specific tax situation.\""
},
{
"docid": "470103",
"title": "",
"text": "Rudralife, established in 2001, is a pioneer organization engaged in promoting and creating awareness amongst the masses on Rudraksha. It provides genuine and high quality Rudraksha beads which have been tested in and certified by an ISO 9001: 2015 accredited laboratory."
},
{
"docid": "323768",
"title": "",
"text": "\"(See also the question How many stocks I can exercise per stock warrant? and my comments there). Clearly, at the prices you quote, it does not seem sensible to exercise your warrants at the moment, since you can still by \"\"units\"\" (1 stock + 1/3 warrant) and bare stock at below the $11.50 it would cost you to exercise your warrant. So when would exercising a warrant become \"\"a sensible thing to do\"\"? Obviously, if the price of the bare stock (which you say is currently $10.12) were to sufficiently exceed $11.50, then it would clearly be worth exercising a warrant and immediately selling the stock you receive (\"\"sufficiently exceed\"\" to account for any dealing costs in selling the newly-acquired stock). However, looking more closely, $11.50 isn't the correct \"\"cut-off\"\" price. Consider three of the units you bought at $10.26 each. For $30.78 you received three shares of stock and one warrant. For an additional $11.50 ($42.28 in total) you can have a total of four shares of stock (at the equivalent of $10.57 each). So, if the price of the bare stock rises above $10.57, then it could become sensible to exercise one warrant and sell four shares of stock (again allowing a margin for the cost of selling the stock). The trading price of the original unit (1 stock + 1/3 warrant) shouldn't (I believe) directly affect your decision to exercise warrants, although it would be a factor in deciding whether to resell the units you've already got. As you say, if they are now trading at $10.72, then having bought them at $10.26 you would make a profit if sold. Curiously, unless I'm missing something, or the figures you quote are incorrect, the current price of the \"\"unit\"\" (1 stock + 1/3 warrant; $10.72) seems overpriced compared to the price of the bare stock ($10.12). Reversing the above calculation, if bare stock is trading at $10.12, then four shares would cost $40.48. Deducting the $11.50 cost-of-exercising, this would value three \"\"combined units\"\" at $28.98, or $9.66 each, which is considerably below the market price you quote. One reason the \"\"unit\"\" (1 stock + 1/3 warrant) is trading at $10.72 instead of $9.66 could be that the market believes the price of the bare share (currently $10.12) will eventually move towards or above $11.50. If that happens, the option of exercising warrants at $11.50 becomes more and more attractive. The premium presumably reflects this potential future benefit. Finally, \"\"Surely I am misunderstand the stock IPO's intent.\"\": presumably, the main intent of Social Capital was to raise as much money as possible through this IPO to fund their future activities. The \"\"positive view\"\" is that they expect this future activity to be profitable, and therefore the price of ordinary stock to go up (at least as far as, ideally way beyond) the $11.50 exercise price, and the offering of warrants will be seen as a \"\"thank you\"\" to those investors who took the risk of taking part in the IPO. A completely cynical view would be that they don't really care what happens to the stock price, but that \"\"offering free stuff\"\" (or what looks like \"\"free stuff\"\") will simply attract more \"\"punters\"\" to the IPO. In reality, the truth is probably somewhere between those two extremes.\""
},
{
"docid": "590453",
"title": "",
"text": "If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of buying a call option on X. A European option with a strike price of S that expires on day N, if held until that day and then exercised if profitable, would yield a value Y = min(X[N]-S, 0). This has an expected value E[Y] that you could actually calculate. (should be related to the binomial distribution, but my probability & statistics hat isn't working too well today) The market value V[k] of that option on day #k, where 1 < k < N, should be V[k] = E[Y]|X[k], which you can also actually calculate. On day #N, V[N] = Y. (the value is known) An American option, if held until day #k and then exercised if profitable, would yield a value Y[k] = min(X[k]-S, 0). For the moment, forget about selling the option on the market. (so, the choices are either exercise it on some day #k, or letting it expire) Let's say it's day k=N-1. If X[N-1] >= S+1 (in the money), then you have two choices: exercise today, or exercise tomorrow if profitable. The expected value is the same. (Both are equal to X[N-1]-S). So you might as well exercise it and make use of your money elsewhere. If X[N-1] <= S-1 (out of the money), the expected value is 0, whether you exercise today, when you know it's worthless, or if you wait until tomorrow, when the best case is if X[N-1]=S-1 and X[N] goes up to S, so the option is still worthless. But if X[N-1] = S (at the money), here's where it gets interesting. If you exercise today, it's worth 0. If wait until tomorrow, there's a 1/2 chance it's worth 0 (X[N]=S-1), and a 1/2 chance it's worth 1 (X[N]=S+1). Aha! So the expected value is 1/2. Therefore you should wait until tomorrow. Now let's say it's day k=N-2. Similar situation, but more choices: If X[N-2] >= S+2, you can either sell it today, in which case you know the value = X[N-2]-S, or you can wait until tomorrow, when the expected value is also X[N-2]-S. Again, you might as well exercise it now. If X[N-2] <= S-2, you know the option is worthless. If X[N-2] = S-1, it's worth 0 today, whereas if you wait until tomorrow, it's either worth an expected value of 1/2 if it goes up (X[N-1]=S), or 0 if it goes down, for a net expected value of 1/4, so you should wait. If X[N-2] = S, it's worth 0 today, whereas tomorrow it's either worth an expected value of 1 if it goes up, or 0 if it goes down -> net expected value of 1/2, so you should wait. If X[N-2] = S+1, it's worth 1 today, whereas tomorrow it's either worth an expected value of 2 if it goes up, or 1/2 if it goes down (X[N-1]=S) -> net expected value of 1.25, so you should wait. If it's day k=N-3, and X[N-3] >= S+3 then E[Y] = X[N-3]-S and you should exercise it now; or if X[N-3] <= S-3 then E[Y]=0. But if X[N-3] = S+2 then there's an expected value E[Y] of (3+1.25)/2 = 2.125 if you wait until tomorrow, vs. exercising it now with a value of 2; if X[N-3] = S+1 then E[Y] = (2+0.5)/2 = 1.25, vs. exercise value of 1; if X[N-3] = S then E[Y] = (1+0.5)/2 = 0.75 vs. exercise value of 0; if X[N-3] = S-1 then E[Y] = (0.5 + 0)/2 = 0.25, vs. exercise value of 0; if X[N-3] = S-2 then E[Y] = (0.25 + 0)/2 = 0.125, vs. exercise value of 0. (In all 5 cases, wait until tomorrow.) You can keep this up; the recursion formula is E[Y]|X[k]=S+d = {(E[Y]|X[k+1]=S+d+1)/2 + (E[Y]|X[k+1]=S+d-1) for N-k > d > -(N-k), when you should wait and see} or {0 for d <= -(N-k), when it doesn't matter and the option is worthless} or {d for d >= N-k, when you should exercise the option now}. The market value of the option on day #k should be the same as the expected value to someone who can either exercise it or wait. It should be possible to show that the expected value of an American option on X is greater than the expected value of a European option on X. The intuitive reason is that if the option is in the money by a large enough amount that it is not possible to be out of the money, the option should be exercised early (or sold), something a European option doesn't allow, whereas if it is nearly at the money, the option should be held, whereas if it is out of the money by a large enough amount that it is not possible to be in the money, the option is definitely worthless. As far as real securities go, they're not random walks (or at least, the probabilities are time-varying and more complex), but there should be analogous situations. And if there's ever a high probability a stock will go down, it's time to exercise/sell an in-the-money American option, whereas you can't do that with a European option. edit: ...what do you know: the computation I gave above for the random walk isn't too different conceptually from the Binomial options pricing model."
},
{
"docid": "7733",
"title": "",
"text": "Options that are not worth exercising just expire. Options that are worth exercising are typically exercised automatically as they expire, resulting in a transfer of stock between the entity that issued the option and the entity that holds it. OCC options automatically exercise when they expire if the value of the option exceeds the transaction cost for the stock transfer (1/4 point to 3/4 point depending)."
},
{
"docid": "89484",
"title": "",
"text": "You could have both options exercised (and assigned to you) on the same day, but I don't think you could lose money on both on the same day. The reason is that while exercises are immediate, assignments are processed after the markets close at the end of each day. See http://www.888options.com/help/faq/assignment.jsp for details. So you would get both assignments at the same time, that night. The net effect should be that you don't own any stock (someone would put you the stock, then it'd be called away) and you don't have the options anymore. You should have incoming cash of $1500 selling the stock to the call exerciser and outgoing cash of $1300 buying from the put exerciser, right? So you would have no more options but $200 more cash in your account in the morning. You bought at 13 and sold at 15. This options position is an agreement to buy at 13 and sell at 15 at someone else's option. The way you lose money is if one of the options isn't exercised while the other is, i.e. if the stock is below 13 so nobody is going to opt to buy from you at 15, but they'll sell to you at 13; or above 15 so nobody is going to opt to sell to you at 13, but they'll buy from you at 15. You make money if neither is exercised (you keep the premium you sold for) or both are exercised (you keep the gap between the two, plus the premium). Having both exercised is surely rare, since early exercise is rare to begin with, and tends to happen when options are deep in the money; so you'd expect both to be exercised if both are deep in the money at some point. Having both be exercised on the same day ... can't be common, but it's maybe most likely just before expiration with minimal time value, if the stock moves around quickly so both options are in the money at some point during the day."
},
{
"docid": "528167",
"title": "",
"text": "Emergency Data Recovery by a SSAE 16 / Class 10 ISO 4 Cleanroom Certified Company in Indianapolis. Secure Data Recovery Services was the first data recovery company to earn an SSAE 16 certification and one of the only firms with an SAS 70 Type II certification. We use third-party consultants to audit and test our facilities several times per year in order to meet the requirements of these certifications."
},
{
"docid": "278373",
"title": "",
"text": "\"According to the book of Hull, american and european calls on non-dividend paying stocks should have the same value. American puts, however, should be equals to, or more valuable than, european puts. The reason for this is the time value of money. In a put, you get the option to sell a stock at a given strike price. If you exercise this option at t=0, you receive the strike price at t=0 and can invest it at the risk-free rate. Lets imagine the rf rate is 10% and the strike price is 10$. this means at t=1, you would get 11.0517$. If, on the other hand, you did'nt exercise the option early, at t=1 you would simply receive the strike price (10$). Basically, the strike price, which is your payoff for a put option, doesn't earn interest. Another way to look at this is that an option is composed of two elements: The \"\"insurance\"\" element and the time value of the option. The insurance element is what you pay in order to have the option to buy a stock at a certain price. For put options, it is equals to the payout= max(K-S, 0) where K=Strike Price and St= Stock price. The time value of the option can be thought of as a risk-premium. It's difference between the value of the option and the insurance element. If the benefits of exercising a put option early (i.e- earning the risk free rate on the proceeds) outweighs the time value of the put option, it should be exercised early. Yet another way to look at this is by looking at the upper bounds of put options. For a european put, today's value of the option can never be worth more than the present value of the strike price discounted at the risk-free rate. If this rule isn't respected, there would be an arbitrage opportunity by simply investing at the risk-free rate. For an american put, since it can be exercised at any time, the maximum value it can take today is simply equals to the strike price. Therefore, since the PV of the strike price is smaller than the strike price, the american put can have a bigger value. Bear in mind this is for a non-dividend paying stock. As previously mentioned, if a stock pays a dividend it might also be optimal to exercise just before these are paid.\""
},
{
"docid": "243714",
"title": "",
"text": "\"The answer to the question, can I exercise the option right away? depends on the exercise style of the particular option contract you are talking about. If it's an American-style exercise, you can exercise at any moment until the expiration date. If it's an European-style exercise, you can only exercise at the expiration date. According to the CME Group website on the FOPs on Gold futures, it's an American-style exercise (always make sure to double check this - especially in the Options on Futures world, there are quite a few that are European style): http://www.cmegroup.com/trading/metals/precious/gold_contractSpecs_options.html?optionProductId=192#optionProductId=192 So, if you wanted to, the answer is: yes, you can exercise those contracts before expiration. But a very important question you should ask is: should you? Option prices are composed of 2 parts: intrinsic value, and extrinsic value. Intrinsic value is defined as by how much the option is in the money. That is, for Calls, it's how much the strike is below the current underlying price; and for Puts, it's how much the strike is above the current underlying price. Extrinsic value is whatever amount you have to add to the intrinsic value, to get the actual price the option is trading at the market. Note that there's no negative intrinsic value. It's either a positive number, or 0. When the intrinsic value is 0, all the value of the option is extrinsic value. The reason why options have extrinsic value is because they give the buyer a right, and the seller, an obligation. Ie, the seller is assuming risk. Traders are only willing to assume obligations/risks, and give others a right, if they get paid for that. The amount they get paid for that is the extrinsic value. In the scenario you described, underlying price is 1347, call strike is 1350. Whatever amount you have paid for that option is extrinsic value (because the strike of the call is above the underlying price, so intrinsic = 0, intrinsic + extrinsic = value of the option, by definition). Now, in your scenario, gold prices went up to 1355. Now your call option is \"\"in the money\"\", that is, the strike of your call option is below the gold price. That necessarily means that your call option has intrinsic value. You can easily calculate how much: it has exactly $5 intrinsic value (1355 - 1350, undelrying price - strike). But that contract still has some \"\"risk\"\" associated to it for the seller: so it necessarily still have some extrinsic value as well. So, the option that you bought for, let's say, $2.30, could now be worth something like $6.90 ($5 + a hypothetical $1.90 in extrinsic value). In your question, you mentioned exercising the option and then making a profit there. Well, if you do that, you exercise your options, get some gold futures immediately paying $1350 for them (your strike), and then you can sell them in the market for $1355. So, you make $5 there (multiplied by the contract multiplier). BUT your profit is not $5. Here's why: remember that you had to buy that option? You paid some money for that. In this hypothetical example, you payed $2.30 to buy the option. So you actually made only $5 - $2.30 = $2.70 profit! On the other hand, you could just have sold the option: you'd then make money by selling something that you bought for $2.30 that's now worth $6.90. This will give you a higher profit! In this case, if those numbers were real, you'd make $6.90 - $2.30 = $4.60 profit, waaaay more than $2.70 profit! Here's the interesting part: did you notice exactly how much more profit you'd have by selling the option back to the market, instead of exercising it and selling the gold contracts? Exactly $1.90. Do you remember this number? That's the extrinsic value, and it's not a coincidence. By exercising an option, you immediately give up all the extrinsic value it has. You are going to convert all the extrinsic value into $0. So that's why it's not optimal to exercise the contract. Also, many brokers usually charge you much more commissions and fees to exercise an option than to buy/sell options, so there's that as well! Always remember: when you exercise an option contract, you immediately give up all the extrinsic value it has. So it's never optimal to do an early exercise of option contracts and individual, retail investors. (institutional investors doing HFT might be able to spot price discrepancies and make money doing arbitrage; but retail investors don't have the low commissions and the technology required to make money out of that!) Might also be interesting to think about the other side of this: have you noticed how, in the example above, the option started with $2.30 of extrinsic value, and then it had less, $1.90 only? That's really how options work: as the market changes, extrinsic value changes, and as time goes by, extrinsic value usually decreases. Other factors might increase it (like, more fear in the market usually bring the option prices up), but the passage of time alone will decrease it. So options that you buy will naturally decrease some value over time. The closer you are to expiration, the faster it's going to lose value, which kind of makes intuitive sense. For instance, compare an option with 90 days to expiration (DTE) to another with 10 DTE. One day later, the first option still has 89 DTE (almost the same as 90 DTE), but the other has 9 DTE - it relatively much closer to the expiration than the day before. So it will decay faster. Option buyers can protect their investment from time decay by buying longer dated options, which decay slower! edit: just thought about adding one final thought here. Probabilities. The strategy that you describe in your question is basically going long an OTM call. This is an extremely bullish position, with low probability of making money. Basically, for you to make money, you need two things: you need to be right on direction, and you need to be right on time. In this example, you need the underlying to go up - by a considerable amount! And you need this to happen quickly, before the passage of time will remove too much of the extrinsic value of your call (and, obviously, before the call expires). Benefit of the strategy is, in the highly unlikely event of an extreme, unanticipated move of the underlying to the upside, you can make a lot of money. So, it's a low probability, limited risk, unlimited profit, extremely bullish strategy.\""
},
{
"docid": "324564",
"title": "",
"text": "I have held an in the money long position on an option into expiration, on etrade, and nothing happened. (Scalping expiring options - high risk) The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL) From etrade's website: Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. For example, a September $25 call will be automatically exercised if the underlying security's closing price is $25.01 or higher at expiration. If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option. Index options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. Options that are out of the money will expire worthless. You may request to exercise American style options anytime prior to expiration. A request not to exercise options may be made only on the last trading day prior to expiration. If you'd like to exercise options or submit do-not-exercise instructions, call an E*TRADE Securities broker at 1-800-ETRADE-1. You won't be charged our normal fee for broker-assisted trades, but the regular options commission will apply. Requests are processed on a best-efforts basis. When equity options are exercised or assigned, you'll receive a Smart Alert message letting you know. You can also check View Orders to see which stock you bought or sold, the number of shares, and the strike price. Notes: If you do not have sufficient purchasing power in your account to accept the assignment or exercise, your expiring options positions may be closed, without notification, on the last trading day for the specific options series. Additionally, if your expiring position is not closed and you do not have sufficient purchasing power, E*TRADE Securities may submit do-not-exercise instructions without notification. Find out more about options expiration dates."
}
] |
8632 | Is it best to exercise options shares when they vest, or wait | [
{
"docid": "43497",
"title": "",
"text": "The general rule with stock options is that it's best to wait until expiration to exercise them. The rationale depends on a few factors and there are exceptions. Reasons to wait: There would be cases to exercise early: Tax implications should be checked with a professional advisor specific to your situation. In the employee stock option plans that I have personally seen, you get regular income tax assessed between exercise price and current price at the time you exercise. Your tax basis is then set to the current price. You also pay capital gains tax when you eventually sell, which will be long or short term based on the time that you held the stock. (The time that you held the options does not count.) I believe that other plans may be set up differently."
}
] | [
{
"docid": "323768",
"title": "",
"text": "\"(See also the question How many stocks I can exercise per stock warrant? and my comments there). Clearly, at the prices you quote, it does not seem sensible to exercise your warrants at the moment, since you can still by \"\"units\"\" (1 stock + 1/3 warrant) and bare stock at below the $11.50 it would cost you to exercise your warrant. So when would exercising a warrant become \"\"a sensible thing to do\"\"? Obviously, if the price of the bare stock (which you say is currently $10.12) were to sufficiently exceed $11.50, then it would clearly be worth exercising a warrant and immediately selling the stock you receive (\"\"sufficiently exceed\"\" to account for any dealing costs in selling the newly-acquired stock). However, looking more closely, $11.50 isn't the correct \"\"cut-off\"\" price. Consider three of the units you bought at $10.26 each. For $30.78 you received three shares of stock and one warrant. For an additional $11.50 ($42.28 in total) you can have a total of four shares of stock (at the equivalent of $10.57 each). So, if the price of the bare stock rises above $10.57, then it could become sensible to exercise one warrant and sell four shares of stock (again allowing a margin for the cost of selling the stock). The trading price of the original unit (1 stock + 1/3 warrant) shouldn't (I believe) directly affect your decision to exercise warrants, although it would be a factor in deciding whether to resell the units you've already got. As you say, if they are now trading at $10.72, then having bought them at $10.26 you would make a profit if sold. Curiously, unless I'm missing something, or the figures you quote are incorrect, the current price of the \"\"unit\"\" (1 stock + 1/3 warrant; $10.72) seems overpriced compared to the price of the bare stock ($10.12). Reversing the above calculation, if bare stock is trading at $10.12, then four shares would cost $40.48. Deducting the $11.50 cost-of-exercising, this would value three \"\"combined units\"\" at $28.98, or $9.66 each, which is considerably below the market price you quote. One reason the \"\"unit\"\" (1 stock + 1/3 warrant) is trading at $10.72 instead of $9.66 could be that the market believes the price of the bare share (currently $10.12) will eventually move towards or above $11.50. If that happens, the option of exercising warrants at $11.50 becomes more and more attractive. The premium presumably reflects this potential future benefit. Finally, \"\"Surely I am misunderstand the stock IPO's intent.\"\": presumably, the main intent of Social Capital was to raise as much money as possible through this IPO to fund their future activities. The \"\"positive view\"\" is that they expect this future activity to be profitable, and therefore the price of ordinary stock to go up (at least as far as, ideally way beyond) the $11.50 exercise price, and the offering of warrants will be seen as a \"\"thank you\"\" to those investors who took the risk of taking part in the IPO. A completely cynical view would be that they don't really care what happens to the stock price, but that \"\"offering free stuff\"\" (or what looks like \"\"free stuff\"\") will simply attract more \"\"punters\"\" to the IPO. In reality, the truth is probably somewhere between those two extremes.\""
},
{
"docid": "100628",
"title": "",
"text": "While a margin account is not required to trade options, a margin account is necessary to take delivery of an exercised put. The puts can be bought in a cash account so long as the cash necessary to fund the trade is available. If you do choose to exercise which almost never has a positive expected value relative to selling except after the final trading time before expiration, taxes notwithstanding, then your shares will be put to your counterparty. Since options almost always trade in round lots, 100 shares will have to fund the put exercise, or a margin account must satisfy the difference. For your situation, trading out of both positions would be probably be best."
},
{
"docid": "483268",
"title": "",
"text": "The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested portion is worth X $'s when the funds are sold, that is the amount that will be transferred to the IRA custodian or the custodian for the new employer. Use the transfer to make any rebalancing adjustments that you want to make. But with as much as a year before you leave the company if you need to rebalance now, then do that irrespective of your leaving. Cash is what is transferred, not the individual stock or mutual fund shares. Only move your funds into a money market account with your current 401K if that makes the most sense for your retirement plan. Also keep in mind unless the amount in the 401K is very small you don't have to do this on your last day of work. Even if you are putting the funds in a IRA wait until you have started with the new company and so can define all your buckets based on the options in the new company."
},
{
"docid": "444668",
"title": "",
"text": "\"You seem to have a little confusion over terminology that should be cleared up: You are calling this \"\"day-trading\"\" Day-trading is the term for performing multiple trading actions in a single day. While it appears that the COO has performed a buy and a sell on the same day, most people would consider this a 'single trade'. In reality, it seems that the COO had 'stock options' [a contract providing the option for the holder to buy stock at a specific price, at some point in the future], provided as part of his compensation package. He decided or was required to 'exercise' those options today. This means he bought the shares using his special 'option price'. It is extremely common for employees who exercise stock options, to sell all of the resulting stock immediately. This is very different from usual day-trading, which implies that he would have bought stock in the morning at a low price, and then sold it later at a high price. You are calling this 'insider trading'. That term specifically often implies some level of unethical behavior. In general, stock options offered to executive employees are strictly limited in how they can be exercised. For example, most stock option plans require employees to wait x number of years before they can exercise them. This gives the employee incentive to stay longer, and for a high-level executive with the ability to strongly impact company performance, it gives incentive to do well. Technically you are correct, this is likely considered an 'insider trade', but given that it seems to have been a stock option exercise, it does not necessarily imply that there was any special reasoning for why he did the trade today. It could simply be that today was the first day the stock option rules allowed him to exercise. As to your final question - no, these profits are the COO's, to do with as he likes.\""
},
{
"docid": "440794",
"title": "",
"text": "\"I think the issue you are having is that the option value is not a \"\"flow\"\" but rather a liability that changes value over time. It is best to illustrate with a balance sheet. The $33 dollars would be the premium net of expense that you would receive from your brokerage for having shorted the options. This would be your asset. The liability is the right for the option owner (the person you sold it to) to exercise and purchase stock at a fixed price. At the moment you sold it, the \"\"Marked To Market\"\" (MTM) value of that option is $40. Hence you are at a net account value of $33-$40= $-7 which is the commission. Over time, as the price of that option changes the value of your account is simply $33 - 2*(option price)*(100) since each option contract is for 100 shares. In your example above, this implies that the option price is 20 cents. So if I were to redo the chart it would look like this If the next day the option value goes to 21 cents, your liability would now be 2*(0.21)*(100) = $42 dollars. In a sense, 2 dollars have been \"\"debited\"\" from your account to cover your potential liability. Since you also own the stock there will be a credit from that line item (not shown). At the expiry of your option, since you are selling covered calls, if you were to be exercised on, the loss on the option and the gain on the shares you own will net off. The final cost basis of the shares you sold will be adjusted by the premium you've received. You will simply be selling your shares at strike + premium per share (0.20 cents in this example)\""
},
{
"docid": "417838",
"title": "",
"text": "\"The main thing is the percentage of the company represented by the shares. Number of shares is meaningless without total shares. If you compute percentage and total company value you can estimate the value of the grant. Or perhaps more useful for a startup is to multiple the percentage by some plausible \"\"exit\"\" value, such as how much the company might sell for or IPO for. Many grants expire when or soon after you leave the company if you don't \"\"cash out\"\" vested shares when you leave, this is standard, but do remember it when you leave. The other major thing is vesting. In the tech industry, vesting 1/4 after a year and then the rest quarterly over 3 more years is most common.\""
},
{
"docid": "362473",
"title": "",
"text": "\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \"\"close out an options position\"\", you just have to create the \"\"opposite\"\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \"\"mini options contracts\"\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \"\"I cannot use this strategy to buy stocks like GOOGL\"\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\""
},
{
"docid": "358520",
"title": "",
"text": "Really all you need to know is that American style can be exercised at any point, European options cannot be exercised early. Read on if you want more detail. The American style Call is worth more because it can be exercised at any point. And when the company pays a dividend, and your option is in the money, if the extrinsic value is worth less than the dividend you can be exercised early. This is not the case for a European call. You cannot be exercised until expiration. I trade a lot of options, you wont be exercised early unless the dividend scenario I mentioned happens. Or unless the extrinsic value is nothing, but even then, unless the investor really wants that position, he is more likely to just sell the call for an equivalent gain on 100 shares of stock."
},
{
"docid": "4794",
"title": "",
"text": "Yes When exercising a stock option you will be buying the stock at the strike price so you will be putting up your money, if you lose that money you can declare it as a loss like any other transaction. So if the stock is worth $1 and you have 10 options with a strike at $0.50 you will spend $500 when you exercise your options. If you hold those shares and the company is then worth $0 you lost $500. I have not verified my answer so this is solely from my understanding of accounting and finance. Please verify with your accountant to be sure."
},
{
"docid": "189858",
"title": "",
"text": "While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating."
},
{
"docid": "226546",
"title": "",
"text": "\"Your broker likely didn't close your position out because it is a covered position. Why interfere with a trade that has no risk to it, from their perspective? There's no risk for the broker since your account holds the shares available for delivery (definition of covered), for if and when the options you wrote (sold) are exercised. And buyers of those options will eventually exercise the options (by expiration) if they remain in-the-money. There's only a chance that an option buyer exercises prematurely, and usually they don't because there's often time value left in the option. That the option buyer has an (ahem) \"\"option\"\" to exercise is a very key point. You wrote: \"\"I fully expected my position to be automatically liquidated by whoever bought my call\"\". That's a false assumption about the way options actually work. I suggest some study of the option exercise FAQs here: Perhaps if your position were uncovered – i.e. you wrote the call without owning the stock (don't try this at home, kids!) – and you also had insufficient margin to cover such a short position, then the broker might have justifiably liquidated your position. Whereas, in a covered call situation, there's really no reason for them to want to interfere – and I would consider that interference, as opposed to helpful. The situation you've described is neither risky for them, nor out of the ordinary. It is (and should be) completely up to you to decide how to close out the position. Anyway, your choices generally are:\""
},
{
"docid": "195152",
"title": "",
"text": "Put options are contracts to sell. You pay me a fee for the right to put the stock (or other underlying security) in my hands if you want to. That happens on a specific date (the strike date) and a specified price (the strike price). You can decide not to exercise that right, but I must follow through and let you sell it to me if you want to. Put options can be used by the purchaser to cap losses. For example: You purchase a PUT option for GE Oct19 13.00 from me. On October 19th, you can make me let you sell your GE stock to me for $13.00 a share. If the price for GE has fallen to $12.00, that would be a good idea. If its now at $15.00 a share, you will probably keep the GE or sell it at the current market price. Call options are contracts to buy. The same idea only in the other direction: You pay me a fee for the right to call the stock away from me. Calls also have a strike date and strike price. Like a put, you can choose not to exercises it. You can choose to buy the stock from me (on the strike date for the strike price), but I have to let you buy it from me if you want to. For example: You purchase a CALL option for GE Oct19 16.00 option from me. On October 19th, you can buy my GE stock from me for $16.00 a share. If the current price is $17.50, you should make me let you buy if from me for $16.00. If its less than $16.00, you could by it at the current market price for less. Commonly, options are for a block of 100 shares of the underlying security. Note: this is a general description. Options can be very complicated. The fee you pay for the option and the transaction fees associated with the shares affects whether or not exercising is financially beneficial. Options can be VERY RISKY. You can loose all your money as there is no innate value in the option, only how it relates to the underlying security. Before your brokerage will let you trade, there are disclosures you must read and affirm that you understand the risk."
},
{
"docid": "344372",
"title": "",
"text": "I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge."
},
{
"docid": "420722",
"title": "",
"text": "\"Exercising an option early if you can't sell the underlying stock being purchased is generally not advisable. You're basically locking in the worst price you can possibly pay, plus you're losing the time value on your money (which is, admittedly fairly low right now, but still). Let's say you have a strike price of $50. I get that you believe the stock to be worth more than $50. Let's assume that that's probably, but not certainly right. Whether it's worth $51, $151, or $5,100 when your options are going to expire, you still get the profit of $1, $101, or $5,050 if you wait until expiration and exercise then. By exercising now, you're giving up two things: The interest on the money you pay to exercise from now until expiration. The guarantee that you can't lose anything. If you buy it now, you get all the upside above your strike, but have all the downside below it. If you buy it later (at expiration), you still have all the upside above your strike, but no downside - in the (assumed to be unlikely) event that it's worth less than the strike you can simply do nothing, instead of having something you bought at the strike that's worth less now and taking that loss. By exercising early, you take on that loss risk, and give up the interest (or \"\"carry\"\" on the money you spend to exercise) for no additional updside. It's possible that there are tax benefits, as other posters mention, but the odds that \"\"starting the clock\"\" for LTCG is worth as much as the \"\"optionality\"\", or loss protection, plus the \"\"carry\"\", or interest that you're giving up is fairly unlikely.\""
},
{
"docid": "237783",
"title": "",
"text": "Options or Shares vest by date they are granted. It would strike me as odd for anyone to say their shares were given with 4 year vesting, but the clock was pre-started years prior. In my opinion, you have nothing to complain about."
},
{
"docid": "573077",
"title": "",
"text": "\"Being \"\"Long\"\" something means you own it. Being \"\"Short\"\" something means you have created an obligation that you have sold to someone else. If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT. If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them. While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price. The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed. Call and Put options. People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts. Call and Put options have 3 important components. The stock symbol they are actionable against (MSFT in this case), the \"\"strike price\"\" - $52 in this case, and an expiration, June. If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month). They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a \"\"contract\"\". If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10. If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions. This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option. Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value. You can also sell a Call. Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June. So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10. If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)! If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price. If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price. Again, this exercise scenario is overly simplified, but you should understand the process. A Put is the opposite of a Call. If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain. You might buy a $48 June MSFT Put because you fear the stock falling before June. If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss. You will have paid a premium for this right (maybe $0.52/share for example). If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more? Owning a Put can be treated like owning insurance on the stock from a loss in stock price. Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put. HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48. Imagine a scenario that MSFT drops to $30 on some drastically terrible news. While everybody else may buy the stock at $30, you are obligated to buy shares for $48. Not good! When you sold the option, somebody paid you a premium for buying that right from you. Often times you will always keep this premium. Sometimes though, you will have to buy a stock at a steep price compared to market. Now options strategies are combinations of buying and selling calls and puts on the same stock. Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call. I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short. The money I receive from the short $55 Call helps offset the cost of buying the $52 Call. If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me. There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from. A derivative is any financial device that is derived from some other factor. Options are one of the most simple types of derivatives. The value of the option is derived from the real stock price. Bingo? That's a derivative. Lotto? That is also a derivative. Power companies buy weather derivatives to hedge their energy requirements. There are people selling derivatives based on the number of sunny days in Omaha. Remember those calls and puts on stock prices? There are people that sell calls and puts based on the number of sunny days in Omaha. Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets \"\"free\"\" electricity from the sun and they sell that to their customers. On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source. If they own the \"\"Sunny Days in Omaha\"\" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days. For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative. The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model. Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk. The person selling the derivative profits if the number of sunny days is higher than average. The people selling these types of derivatives study the weather in order to make their offers appropriately. This particular example is a fictitious one (I don't believe there is a derivative called \"\"Sunny days in Omaha\"\"), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine. For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it. Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain. These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend...\""
},
{
"docid": "119976",
"title": "",
"text": "\"One alternative strategy you may want to consider is writing covered calls on the stock you have \"\"just sitting there\"\". This will allow you to earn a return (the premium from the calls) without necessarily having to give up your holding. As a brief overview, \"\"options\"\" are derivatives that give the holder the right (or option) to buy or sell shares at a specified price. Holders of call options with a strike prike $x on a particular security have the right to purchase that security at the strike price $x. Conversely, holders of put options with a strike price of $x have the right to sell that security at the strike price $x. Always on the other side of a call or put option is a person that has sold the option, which is called \"\"writing\"\" the option. If this person writes a call option, then he will be obligated to sell a certain amount of stock (100 shares per contract) at the strike price if that option is exercised. A writer of a put option will be obligated to by 100 shares per contract at the strike price if that option is exercised. Covered calls involve writing call contracts on stock that you own. For example, say you own 100 shares of AAPL, and that AAPL is currently trading for $330. You decide to write a Jan 21, 2012 call on these shares at a strike price of $340, earning you a premium of say $300. Two things can now happen: if the price of AAPL is not at least $340 on January 21, then the options are \"\"out of the money\"\" and will expire unexercised (why exercise an option to buy at $340 when you can buy at the currently cheaper market price?). You keep your AAPL stock plus the $300 premium you earn. If, however, the price of AAPL is greater than $340, the option will be exercised and you will now be required to sell the shares you own at $340. You will earn a return of $10/share ($340-$330), plus the $300 premium from the call option. You still make out in the end, but have unfortunately incurred an opportunity cost, as had you not written the call option you would have been able to sell at the market price, which is higher than the $340 strike price. Covered calls are considered relatively safe and conservative, however the strategy is most effective for stocks that are expected to stay within a relatively narrow price range for the duration of the contract. They do provide one option of earning additional money on stocks you are currently holding, albeit at the risk of giving up some returns if the stock price rises above the strike price.\""
},
{
"docid": "525390",
"title": "",
"text": "\"A company has 100,000 shares and 100,000 unexercised call options (company issued). Share price and strike price both at $1. What country is this related to? I ask because, in the US, most people I know associate a \"\"call\"\" option with the instrument that is equivalent to 100 shares. So 100,000 calls would be 10,000,000 shares, which exceeds the number of shares you're saying the company has. I don't know if that means you pulled the numbers out of thin air, or whether it means you're thinking of a different type of option? Perhaps you meant incentive stock options meant to be given to employees? Each one of those is equivalent to a single share. They just aren't called \"\"call options\"\". In the rest of my answer, I'm going to assume you meant stock options. I assume the fact that these options exist will slow any price increases on the underlying shares due to potential dilution? I don't think the company can just create stock options without creating the underlying shares in the first place. Said another way, a more likely scenario is that company creates 200,000 shares and agrees to float 50% of them while reserving the other 50% as the pool for incentive employee stock. They then choose to give the employees options on the stock in the incentive pool, rather than outright grants of the stock, for various reasons. (One of which is being nice to the employees in regards to taxes since there is no US tax due at grant time if the strike price is the current price of the underlying stock.) An alternative scenario when the company shares are liquidly traded is that the company simply plans to buy back shares from the market in order to give employees their shares when options are exercised. In this case, the company needs the cash on hand, or cash flow to take money from, to buy those shares at current prices. Anyway, in either case, there is no dilution happening WHEN the options get exercised. Any dilution happened before or at the time the options were created. Meaning, the total number of shares in the company was already pre-set at an earlier time. As a result, the fact that the options exist in themselves will not slow price changes on the stock. However, price changes will be impacted by the total float of shares in the company, or the impact to cash flow if the company has to buy shares to redeem its option commitments. This is almost the same thing you're asking about, but it is technically different as to timing. If this is the case, can this be factored into any option pricing models like black-scholes? You're including the effect just by considering the total float of shares and net profits from cash flow when doing your modelling.\""
},
{
"docid": "12034",
"title": "",
"text": "I assume I can/will need to file an 83(b) election, in order to avoid tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that the board has received my execution notice? The secretary of the board is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe."
}
] |
8632 | Is it best to exercise options shares when they vest, or wait | [
{
"docid": "213976",
"title": "",
"text": "To me it depends on things like your net worth, debt, and how other assets are invested. Currently you have 25K invested in the company you work for. If you have 100K in student loans, are a renter, and 12K in your 401K, then I would recommend exercising almost all of your options. In that case you have a much to large part of your world wrapped up in your company. If you have 250K in your 401K, own a home and have an emergency fund with no debt then you are fine with letting it ride. You can afford to absorb a loss of 25K without wrecking your net worth. More than likely, you are somewhere in between (just statistics speaking there). So why not exercise some of them now with the purpose of improving your financial situation? Say do a 1/3 now and when they come available. When 401ks were first invented people put almost all of their money in their company stock. They lost just about everything when the company went down in value and were often a victim of layoffs exasperating the issue. This is akin to the same situation. Most financial advisers recommend against putting any 401K money to company stock, or at least limiting the amount."
}
] | [
{
"docid": "260384",
"title": "",
"text": "\"Yes, you can insure against the fall in price of stock by purchasing a put option. You pay for a put and if the price of the share falls below the \"\"strike price\"\" of the put, then you can exercise the put. On exercise, the person who sold you the put contract agrees to buy the stock for the strike price, even though that strike price is higher than the market price. You can adjust the level of insurance by buying put options at higher or lower prices, or buying fewer put options than shares you own (leaving some shares uninsured). Alternatively, you can minimize your risk exposure by investing in an index or other fund, which gives you partial ownership in a large number of shares. That means on any given day, lots of shares do worse and lots of shares do better. You can reduce the need for insurance by purchasing a lower-risk, lower-growth financial product.\""
},
{
"docid": "140371",
"title": "",
"text": "To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Here's the rub: you have unlimited loss potential. Maybe you borrow a share and sell it at $10. Maybe in a month you still haven't closed the position and now the share is trading at $1,000. The share lender comes calling for their share and you have to close the position at $1,000 for a loss of $990. Now what if it was $1,000,000 per share, etc. To avoid this unlimited loss risk, you can instead buy a put option contract. In this situation you buy a contract that will expire at some point in the future for the right to sell a share of stock for $x. You get to put that share on to someone else. If the underlying stock price were to instead rise above the put's exercise price, the put will expire worthless — but your loss is limited to the premium paid to acquire the put option contract. There are all sorts of advanced options trades sometimes including taking a short or long position in a security. It's generally not advisable to undertake these sorts of trades until you're very comfortable with the mechanics of the contracts. It's definitely not advisable to take an unhedged short position, either by borrowing someone else's share(s) to sell or selling an option (when you sell the option you take the risk), because of the unlimited loss potential described above."
},
{
"docid": "120395",
"title": "",
"text": "A company is basically divided into shit the company owns (assets) and shit the company owes to people (liabilities). So what about ownership? Ownership is called equity and on a simplistic level equity = asset - liabilities. But a better view of that should be asset = liabilities + equity. Which means a company's assets is separated into things owned by debtors (e.g. Banks) and things owned by owners(founders and you). So when you are offered one percent, you are basically owning one percent of the company. Not the best explanation, but should be a simplified one. Here's where the options come in. When you are offered options. That means you have the option of redeeming the shares at a lower price than market. However these options are not usually immediately redeemable, there's usually a minimum amount of time you have to work at a company to be able to use these options. This period is called the vesting period."
},
{
"docid": "382381",
"title": "",
"text": "\"You are thinking about it this way: \"\"The longer I wait to exericse, the more knowledge and information I'll have, thus the more confidence I can have that I'll be able to sell at a profit, minimizing risk. If I exercise early and still have to wait, there may never be a chance I can sell at a profit, and I'll have lost the money I paid to exercise and any tax I had to pay when I exercised.\"\" All of that is true. But if you exercise early: The fair market value of the stock will probably be lower, so you may pay less income tax when you exercise. (This depends on your tax situation. Currently, ISO exercises affect your AMT.) If the company goes through a phase where the value is unusually high, you'll be able to sell and still get the tax benefits because you exercised earlier. You avoid the nightmare scenario where you leave the company (voluntarily or not) and can't afford to exercise your options because of the tax implications. In many realistic cases, exercising earlier means less risk. Imagine if you're working at a company that is privately held and you expect to be there for another year or so. You are very optimistic about the company, but not sure when it will IPO or get acquired and that may be several years off. The fair market value of the stock is low now, but may be much higher in a year. In this case, it makes a lot of sense to exercise now. The cost is low because the fair market value is low so it won't result in a huge tax bill. And then when you leave in a year, you won't have to choose between forfeiting your options or borrowing money to pay the much higher taxes due to exercise them then.\""
},
{
"docid": "428399",
"title": "",
"text": "An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money."
},
{
"docid": "475560",
"title": "",
"text": "\"Recently, I asked about what the company valuation is and how many shares does my 4% represent.CFO told me that there is no point to talk about \"\"shares\"\" or \"\"stock\"\" since the company is not public. Is it right? No, it is wrong. Shares and stocks exist regardless of how they can be traded. Once a company is formed, there are stocks that belong to the owners in the proportion of the ownership. They may not exist physically, but they do exist on paper. As an owner of 5% of the company, you own 5% of the company stocks. I asked if my investor portion equity will be subjected under a vesting schedule, CFO said yes. That doesn't make sense to me, because I bought those 4%? Aren't those supposed to be fully vested? I agree to my employee equity to be vested. Doesn't make sense to me either, since your money is already in their pocket. But I'm not sure if its illegal. If that's what is written in the signed contract - then may be its possible to have that situation. But it doesn't make much sense, because these shares are granted to you in return to your money, not some potential future work (as the 1% employee's portion). You already gave the money, so why wouldn't they be vested? Best to read the contract upon which you gave them your money, I really hope you have at least that and not just gave them a check....\""
},
{
"docid": "573077",
"title": "",
"text": "\"Being \"\"Long\"\" something means you own it. Being \"\"Short\"\" something means you have created an obligation that you have sold to someone else. If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT. If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them. While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price. The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed. Call and Put options. People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts. Call and Put options have 3 important components. The stock symbol they are actionable against (MSFT in this case), the \"\"strike price\"\" - $52 in this case, and an expiration, June. If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month). They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a \"\"contract\"\". If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10. If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions. This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option. Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value. You can also sell a Call. Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June. So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10. If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)! If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price. If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price. Again, this exercise scenario is overly simplified, but you should understand the process. A Put is the opposite of a Call. If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain. You might buy a $48 June MSFT Put because you fear the stock falling before June. If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss. You will have paid a premium for this right (maybe $0.52/share for example). If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more? Owning a Put can be treated like owning insurance on the stock from a loss in stock price. Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put. HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48. Imagine a scenario that MSFT drops to $30 on some drastically terrible news. While everybody else may buy the stock at $30, you are obligated to buy shares for $48. Not good! When you sold the option, somebody paid you a premium for buying that right from you. Often times you will always keep this premium. Sometimes though, you will have to buy a stock at a steep price compared to market. Now options strategies are combinations of buying and selling calls and puts on the same stock. Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call. I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short. The money I receive from the short $55 Call helps offset the cost of buying the $52 Call. If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me. There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from. A derivative is any financial device that is derived from some other factor. Options are one of the most simple types of derivatives. The value of the option is derived from the real stock price. Bingo? That's a derivative. Lotto? That is also a derivative. Power companies buy weather derivatives to hedge their energy requirements. There are people selling derivatives based on the number of sunny days in Omaha. Remember those calls and puts on stock prices? There are people that sell calls and puts based on the number of sunny days in Omaha. Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets \"\"free\"\" electricity from the sun and they sell that to their customers. On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source. If they own the \"\"Sunny Days in Omaha\"\" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days. For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative. The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model. Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk. The person selling the derivative profits if the number of sunny days is higher than average. The people selling these types of derivatives study the weather in order to make their offers appropriately. This particular example is a fictitious one (I don't believe there is a derivative called \"\"Sunny days in Omaha\"\"), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine. For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it. Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain. These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend...\""
},
{
"docid": "248393",
"title": "",
"text": "ISOs (incentive stock options) can be closed out in a cashless transaction. Say the first round vests, 25,000 shares. The stock is worth $7 but your option is to buy at $5 as you say. The broker executes and sells, you get $50,000, with no up front money. Edit based on comment below - you know they vest over 4 years, but how long before they expire? It stands to reason the longer you are able to hold them, the better a chance the company succeeds, and the price rises. The article Understanding employer-granted stock options (PDF) offers a nice discussion of different scenarios supporting my answer."
},
{
"docid": "324470",
"title": "",
"text": "Broadly, there's a bunch of stuff you need to be accounting for that's not reflected in the above, which will impact the A/D profile of an acquisition: * Consideration paid (all cash on substantially the same terms is going to be more accretive than an all-stock transaction...because in the latter, your denominator is much bigger) * Shares outstanding (including repurchases, in-kind dividends and option exercise) * Financing / interest expense * Upside / base / downside case for all of your assumptions - best to have a toggle based on a CHOOSE function that will allow the user to easily toggle between these I'm not sure what EBITDA is getting you. EPS accretion/dilution typically looks at earnings, but you could also look at Cash EPS A/D which measures OCF/shares outstanding. The point is, this really depends on how back of the envelope you want the A/D computation to be. At a minimum, you need an earnings schedule projected over the next 2-3 years, and you need a schedule reflecting outstanding shares over the same time period. Your earnings buildout can have varying degrees of granularity. You can project cost synergies over the forecast period, which most obviously is going to affect your earnings, but you can also drill down further. Financing, transaction fees, etc. Your writeups and writedowns from your B/S combination may result in certain deferred tax items that will affect your bottom line over the forecast period. Your share schedule can also have varying degrees of complexity. One way to do it is to just presume that the company will not issue any more shares, and will not repurchase any shares, and that there will be no options exercised, over the forecast period. This is a bad series of assumptions. It is likely that as options vest, if in the money, they will be exercised, resulting in dilution for existing shareholders. It is also likely that certain preferred shareholders and optionholders are going to experience adjustments to the conversion prices based on antidilution provisions in their securities. These may be but are not always disclosed in the 10K. Last point - models are tools. What are you trying to build an accretion/dilution model for? This will affect and determine the degree of granularity you'll want to go into."
},
{
"docid": "15635",
"title": "",
"text": "\"The simplest thing to do here is to speak to your employer about what is allowed. This should be spelt out in your company's \"\"Stock Options Plan\"\" documentation. In particular, this document will include details of the vesting schedule. For example, the schedule may only allow you to exercise 25% in the first year, 25% in the second year, and the remainder in the third year. Technically I can see no reason to prevent you from the mix-and-match approach you are suggesting. However, this may not be the case according to the schedule specification.\""
},
{
"docid": "358520",
"title": "",
"text": "Really all you need to know is that American style can be exercised at any point, European options cannot be exercised early. Read on if you want more detail. The American style Call is worth more because it can be exercised at any point. And when the company pays a dividend, and your option is in the money, if the extrinsic value is worth less than the dividend you can be exercised early. This is not the case for a European call. You cannot be exercised until expiration. I trade a lot of options, you wont be exercised early unless the dividend scenario I mentioned happens. Or unless the extrinsic value is nothing, but even then, unless the investor really wants that position, he is more likely to just sell the call for an equivalent gain on 100 shares of stock."
},
{
"docid": "409818",
"title": "",
"text": "\"When you exercise your options, you come up with cash to buy the shares. This makes you an owner of the company for shares at the share price your options let you have. Ideally, your share price is at a significant discount to what the company is worth. Being a shareholder, you gain from any share price appreciation in a sale. The only thing the \"\"60-day window\"\" applies to is whether you come up with the cash to buy fast enough, or your shares get permanently deleted from the company finances, where everyone else potentially makes more, you make nothing. The sale of the company is based on whenever the sell finalizes, which is between your company and the acquiring company.\""
},
{
"docid": "420722",
"title": "",
"text": "\"Exercising an option early if you can't sell the underlying stock being purchased is generally not advisable. You're basically locking in the worst price you can possibly pay, plus you're losing the time value on your money (which is, admittedly fairly low right now, but still). Let's say you have a strike price of $50. I get that you believe the stock to be worth more than $50. Let's assume that that's probably, but not certainly right. Whether it's worth $51, $151, or $5,100 when your options are going to expire, you still get the profit of $1, $101, or $5,050 if you wait until expiration and exercise then. By exercising now, you're giving up two things: The interest on the money you pay to exercise from now until expiration. The guarantee that you can't lose anything. If you buy it now, you get all the upside above your strike, but have all the downside below it. If you buy it later (at expiration), you still have all the upside above your strike, but no downside - in the (assumed to be unlikely) event that it's worth less than the strike you can simply do nothing, instead of having something you bought at the strike that's worth less now and taking that loss. By exercising early, you take on that loss risk, and give up the interest (or \"\"carry\"\" on the money you spend to exercise) for no additional updside. It's possible that there are tax benefits, as other posters mention, but the odds that \"\"starting the clock\"\" for LTCG is worth as much as the \"\"optionality\"\", or loss protection, plus the \"\"carry\"\", or interest that you're giving up is fairly unlikely.\""
},
{
"docid": "139387",
"title": "",
"text": "\"A little terminology: Grant: you get a \"\"gift\"\" with strings attached. \"\"Grant\"\" refers to the plan (legal contract) under which you get the stock options. Vesting: these are the strings attached to the grant. As long as you're employed by the company, your options will vest every quarter, proportionally. You'll become an owner of 4687 or 4688 options every quarter. Each such vest event means you'd be getting an opportunity to buy the corresponding amount of stocks at the strike price (and not the current market price which may be higher). Buying is called exercising. Exercising a nonqualified option is a taxable event, and you'll be taxed on the value of the \"\"gift\"\" you got. The value is determined by the difference between the strike price (the price at which you have the option to buy the stock) and the actual fair market value of the stock at the time of vest (based on valuations). Options that are vested are yours (depending on the grant contract, read it carefully, leaving the company may lead to forfeiture). Options that are not vested will disappear once you leave the company. Exercised options become stocks, and are yours. Qualified vs Nonqualifed - refers to the tax treatment. Nonqualified options don't have any special treatment, qualified do. 3.02M stocks issued refers to the value of the options. Consider the total valuation of the company being $302M. With $302M value and 3.02M stocks issued, each stock is worth ~$100. Now, in a year, a new investor comes in, and another 3.02M stocks are issued (if, for example, the new investor wants a 50% stake). In this case, there will be 6.04M stocks issued, for 302M value - each stock is worth $50 now. That is called dilution. Your grant is in nominal options, so in case of dilution, the value of your options will go down. Additional points: If the company is not yet public, selling the stocks may be difficult, and you may own pieces of paper that no-one else wants to buy. You will still pay taxes based on the valuations and you may end up paying for these pieces of paper out of your own pocket. In California, it is illegal to not pay salary to regular employees. Unless you're a senior executive of the company (which I doubt), you should be paid at least $9/hour per the CA minimum wages law.\""
},
{
"docid": "388754",
"title": "",
"text": "\"The question you are asking concerns the exercise of a short option position. The other replies do not appear to address this situation. Suppose that Apple is trading at $96 and you sell a put option with a strike price of $95 for some future delivery date - say August 2016. The option contract is for 100 shares and you sell the contract for a premium of $3.20. When you sell the option your account will be credited with the premium and debited with the broker commission. The premium you receive will be $320 = 100 x $3.20. The commission you pay will depend on you broker. Now suppose that the price of Apple drops to $90 and your option is exercised, either on expiry or prior to expiry. Then you would be obliged to take delivery of 100 Apple shares at the contracted option strike price of $95 costing you $9,500 plus broker commission. If you immediately sell the Apple shares you have purchased under your contract obligations, then assuming you sell the shares at the current market price of $90 you would realise a loss of $500 ( = 100x($95-$90) )plus commission. Since you received a premium of $320 when you sold the put option, your net loss would be $500-$320 = $180 plus any commissions paid to your broker. Now let's look at the case of selling a call option. Again assume that the price of Apple is $96 and you sell a call option for 100 shares with a strike price of $97 for a premium of $3.60. The premium you receive would be $360 = 100 x $3.60. You would also be debited for commission by your broker. Now suppose that the price of Apple shares rises to $101 and your option is exercised. Then you would be obliged to deliver 100 Apple shares to the party exercising the option at the contracted strike price of $97. If you did not own the shares to effect delivery, then you would need to purchase those shares in the market at the current market price of $101, and then sell them to the party exercising the option at the strike price of $97. This would realise an immediate loss of $400 = 100 x ($101-$97) plus any commission payable. If you did own the shares, then you would simply deliver them and possibly pay some commission or a delivery fee to your broker. Since you received $360 when you sold the option, your net loss would be $40 = $400-$360 plus any commission and fees payable to the broker. It is important to understand that in addition to these accounting items, short option positions carry with them a \"\"margin\"\" requirement. You will need to maintain a margin deposit to show \"\"good faith\"\" so long as the short option position is open. If the option you have sold moves against you, then you will be called upon to put up extra margin to cover any potential losses.\""
},
{
"docid": "31037",
"title": "",
"text": "My friend Harry Sit wrote an excellent article No Tax Advantage In RSU. The punchline is this. The day the RSUs vested, it's pretty much you got $XXX in taxable income and then bought the stock at the price at that moment. The clock for long term gain starts the same as if I bought the stock that day. Historical side note - In the insane days of the Dotcom bubble, people found they got RSUs vested and worth, say, $1M. Crash. The shares are worth $100K. The $1M was ordinary income, the basis was $1M and the $900K loss could offset cap gains, not ordinary income above $3000/yr. Let me be clear - the tax bill was $250K+ but the poor taxpayer had $100K in stock to sell to pay that bill. Ooops. This is the origin of the 'sell the day it vests' advice. The shares you own will be long term for capital gain a year after vesting. After the year, be sure to sell those particular shares and you're all set. No different than anyone selling the LT shares of stock when owning multiple lots. But. Don't let the tax tail wag the investing dog. If you feel it's time to sell, you can easily lose the tax savings while watching the stock fall waiting for the clock to tick to one year."
},
{
"docid": "446628",
"title": "",
"text": "Does this technically mean that she has to pay AMT on $400,000? Yes. Well, not exactly 400,000. She paid $1 per share, so 390,000. And if so, is %28 the AMT for this sum? (0.28 * $400,000 = $112,000)? Or does she have to include her salary on top of that before calculating AMT? (Suppose in the fake example that her salary is $100,000 after 401k). All her income is included in calculating the AMT, minus the AMT exemption amount. The difference between the regular calculated tax and the calculated AMT is then added to the regular tax. Note that some deductions allowed for the regular calculation are not allowed for the AMT calculation. How does California state tax come into play for this? California has its own AMT rules, and in California any stock option exercise is subject to AMT, unless you sell the stock in the same year. Here's a nice and easy to understand write up on the issue from the FTB. When would she have to pay the taxes for this huge AMT? Tax is due when income is received (i.e.: when you exercise the options). However, most people don't actually pay the tax then, but rather discover the huge tax liability when they prepare to submit their tax return on April 15th. To avoid that, I'd suggest trying to estimate the tax and adjust your withholding using form W4 so that by the end of the year you have enough withheld. Suppose in the worst case, the company goes completely under. Does she get her massive amounts of tax back? Or if it's tax credit, where can I find more info on this? That would be capital loss, and only up to $3K a year of capital loss can be deducted from the general income. So it will continue offsetting other capital gains or being deducted $3K a year until it all clears out. Is there any way to avoid this tax? (Can she file an 83b election?) You asked and answered. Yes, filing 83(b) election is the way to go to avoid this situation. This should be done within 30 days of the grant, and submitted to the IRS, and a copy attached to the tax return of the grant year. However, if you're considering exercise - that ship has likely sailed a long time ago. Any advice for Little Susie on how she can even afford to pay that much tax on something she can't even sell anytime soon? Don't exercise the options? Should she take out a loan? (e.g. I've heard that in the extreme case, you can find angel investors who are willing to pay all your taxes/strike price, but want 50% of your equity? I've also heard that you can sell your illiquid shares on SecondMarket?) Is she likely to get audited by IRS for pulling something like this? You can take a loan secured by shares you own, there's nothing illegal in it. If you transfer your shares - the IRS only cares about the taxes being paid, however that may be illegal depending on the terms and the conditions of the grant. You'll need to talk to a lawyer about your situation. I suggest talking to a licensed tax adviser (EA/CPA licensed in your State) about the specifics concerning your situation."
},
{
"docid": "118360",
"title": "",
"text": "First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads."
},
{
"docid": "255927",
"title": "",
"text": "I think it depends on your broker. Some brokers will not try to auto exercise in the money options. Others will try to do the exercise it if you have available funds. Your best bet, if find yourself in that situation, is to sell the option on the open market the day of or slightly before expiration. Put it on your calendar and don't forget, you could loose your profits. @#2 Its in the best interest of your broker to exercise because they get a commission. I think they are used to this situation where there is a lack of funds. Its not like bouncing a check. You will need to check with your broker on this. @#3 I think many or most options traders never intend on buying the underling stock. Therefore no, they do not always make sure there is enough funds to buy."
}
] |
8635 | Is there any flaw in this investment scheme? | [
{
"docid": "67107",
"title": "",
"text": "\"You didn't win in case B. Borrowing shares and then selling them is known as \"\"selling short\"\". You received $2000 when you sold short 100 shares at $20. You spent $1000 to buy them back at $10, so you come out $1000 ahead on that deal. But at the same time, the 100 shares you already owned have declined in value from $20 to $10, so you are down $1000 on that deal. So you've simply broken even, and you are still out the interest and transaction fees. In effect, a short sale allows you to sell shares you don't own. But if you do already own them, then the effect is the same as if you just sold your own shares. This makes it easier to see that this is just a complicated and expensive way of accomplishing nothing at all.\""
}
] | [
{
"docid": "380773",
"title": "",
"text": "\"If this is your friend, and he that convinced he will \"\"get rich\"\" from this then there's really nothing you CAN do. You've obviously done your best to explain the situation to him, but he's been caught up in their sales pitch, and that's more convincing to him. I worked in sales for many years, and the answers he gives you (the one about not needing to know the details of how your smartphone works is a classic variation of typical objection-handling that salespeople are taught) proves that he has been sucked in by their scheme. At this stage, all you're going to do is ruin your friendship with him if you continue to press the matter, because he has made it clear he can't be convinced that this is anything other than legitimate. The reality is, he is probably in too deep at this stage to just walk away from it, so he has to convince himself that he made a wise choice. Schemes like this use a \"\"scarcity\"\" approach (there's only so much to go around, and if you don't get yours now then someone else will get it) coupled with ego-boosting (boy, Mr. Prospect, this is such a great opportunity, and you're one of only a few who are sophisticated enough to understand and take advantage of it) to get people to lower their guard and not ask a whole lot of probing questions. Nobody wants to feel stupid, and they don't want others to think they're stupid, so these schemes will present the information in such a way that ordinarily prudent questions come across as sounding dumb, making the questioner seem not so smart. Rather than walking away from it, peoples' pride will sometimes make them double down on it, and they'll just go along with it to come across as though they get it, even when they really don't. The small payouts at early stages are a classic sign of a Ponzi scheme. Your friend will never listen to you as long as those little checks continue to come in, because to him they're absolute proof he's right and you're wrong. It's those checks (or payouts, however they're doing it) that will make him step up his efforts to recruit other people into the scheme or, worse yet, invest more of his own money into this. Keep in mind that in the end, you really have no power to do anything in this situation other than be his friend and try to use gentle persuasion. He's already made it clear that he isn't going to listen to your explanations about why this is a scam, for a couple reasons. First (and probably greatest), it would be an admission that he's dumb, or at least not as smart as you, and who wants that? Second, he continues to get little checks that reinforce the fact this must be \"\"real\"\", or why else would he be getting this money? Third, he has already demonstrated his commitment to this by quitting his job, so from his point of view, this has become an all-or-nothing ticket to wealth. The bottom line is, these schemes work because the sales pitch is powerful enough to overcome ordinary logic for people who think there just has to be an easy way to Easy Street. All you can do is just be there as his friend and hope that he sees the light before the damage (to himself and anyone else) gets too great. You can't stop him from what he's doing any more than you can stop the sun from rising as long the message (and checks) he's getting from other people keep him convinced he's on the right path. EDIT After reading the comments posted in this thread, I do want to amend my statements, because many good points have been raised here. You obviously can't just sit by and do nothing while your friend talks others into taking the same (or worse) risks that he is. That's not morally right by any measure At the same time however, be VERY careful about how you go about this. Your friend, as you stated, sounds pretty much like he's all in with this scheme, so there's definitely going to be some serious emotional commitment to it on his part as well. Anyone and everything that threatens what he sees as his ticket to Easy Street could easily become a target when this all comes crashing down, as it inevitably will. You could very well be the cause of that in his eyes, especially if he knows you've been discouraging people from buying into this nightmare. People are NOT rational creatures when it comes to money losses. It's called \"\"sunken costs\"\", where they'll continue to chase their losses on the rationale they'll make up for it if they just don't give up. The more your friend committed to this, the worse his anxieties about losing, so he'll do whatever he has to in order to save his position. This is what gamblers do and why the house does so well for itself. Some have suggested making anonymous flyers or other means of communicating that don't expose you as the person spreading the message, and that's one suggestion. However, the problem with this is that since the receiver has no idea who sent the message, they're not likely to give it the kind of credibility or notice that they would to something passed to them by a person they know and trust, and your anonymous message will have little weight in the face of the persuasive pitch that got your friend to commit his own money (and future). Another problem, as you've noted, is that you don't travel in the same circles as the people he's likely to recruit, so how would you go about warning them? How would they view their first contact with you when it comes with a message not to trust what someone else they already know is about to tell them? Would they write it off as someone who's butty? Hard to tell. Another huge ploy of these schemes is that they tend to preemptively strike at what you propose doing -- that is, warning people to stay away. They do this by projecting the people giving the warnings as losers who didn't see the opportunity for themselves and now want to keep others away from their own financial success. They'll portray you as someone who isn't smart enough to see this \"\"huge opportunity\"\", and since you can't understand it, you don't think anyone else does either. They'll point out that if you were so good with finances, why aren't you already successful? These guys are very good, and they have an answer for every objection you can raise, whether its to them or to someone else. They've spent a long time honing their message, which makes it difficult for anyone to say something persuasive enough to sway others away from being duped. This is a hard path, no doubt. I hope you are able to warn others away. Just be aware that it may come at a cost to you as well, and be prepared for what that might be. I hope this helps. Good luck!\""
},
{
"docid": "57646",
"title": "",
"text": "You can't actually transfer shares directly unless they were obtained as part of an employee share scheme - see the answers to questions 19 and 20 on this page: http://www.hmrc.gov.uk/isa/faqs.htm#19 Q. Can I put shares from my employee share scheme into my ISA? A. You can transfer any shares you get from into a stocks and shares component of an ISA without having to pay Capital Gains Tax - provided your ISA manager agrees to take them. The value of the shares at the date of transfer counts towards the annual limit. This means you can transfer up to £11,520 worth of shares in the tax year 2013-14 (assuming that you make no other subscriptions to ISAs, in those years). You must transfer the shares within 90 days from the day they cease to be subject to the Plan, or (for approved SAYE share option schemes) 90 days of the exercise of option date. Your employer should be able to tell you more. Q. Can I put windfall or inherited shares in my ISA? A. No. You can only transfer shares you own into an ISA if they have come from an employee share scheme. Otherwise, the ISA manager must purchase shares on the open market. The situation is the same if you have shares that you have inherited. You are not able to transfer them into an ISA."
},
{
"docid": "141960",
"title": "",
"text": "\"> No, it's realistic to try... I disagree. I think most minimum wage people would better off investing in lottery tickets. (And I think lotteries should be illegal). > I'm not 100% on clear on why some new businesses succeed and some fail. Let me give you some reasons why a minimum wage person will almost certainly fail when trying to start a business: * No skills -- If they had skills to offer they wouldn't be making minimum wage. * No product -- Few minimum wage workers are in positions where they are working with a product they have the ability to improve, a-la Eli Whitney. This means any company they start would need to be selling a skill, not a product, but then see \"\"No skills\"\". * No business savvy -- A business takes a minimum of three diverse skill sets (administration, marketing, product). Again, \"\"No skills\"\". If this person did have some skills (s)he would still need friends to fill in the gaps. * No time -- Many people working minimum wage have other responsibilities (kids or second jobs). They simply do not have the cycles to invest in a new business. * No starting capital -- Since they work minimum wage they have no money. With no money they can't afford tools needed to make or provide their product. The also can't afford to go without a paycheck as the business ramps up. * Barriers to entry -- Existing companies will defend their customers and protect their market share. The local store will chase you away if you try to sell lemonade in front. You would need to buy a storefront or booth but \"\"No starting capital\"\". In addition, any good storefront or booth is already taken by the bigger guys so you're going to get poor traffic in whatever you get. * Bad information -- There are many companies whose business is to take advantage of low-wage entrepreneurs and push terrible ideas. These people become disillusioned pushing bad products or getting into multilevel marketing schemes.\""
},
{
"docid": "183074",
"title": "",
"text": "The PPF and NSC can broadly be compared as below; PPF is public provident scheme with initial period of 15 years and can be extended by 5 yrs blocks. There is a minimum investment of Rs 500 every year and a maximum of Rs 1,50,000 per year for 2014-15 financial year. The gains from PPF are also exempt from any and all capital gains tax. NSC is like fixed deposits for a period of 6 years. They can be purchased from Post office in multiples of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 & Rs. 10,000. There is no maximum limit of purchase, however tax rebate is only to the extent of Rs 1,50,000 on 2014-15 financial year. Interest Rate: Both currently offer 8.75% interest rate. Incase of PPF the interest rate is declared every year and is applicable to the entire invested corpus. In case of NSC, the interest is fixed for the tenure of the investment, changes in interest are applicable for next investments. The interest is compounded Account Operation: Withdrawals: In PPF the first withdrawal is possible in the 7 years, for 50% balance of the 4th year and like wise for subsequent years. In NSC there is no premature withdrawal, however one can get loan from Banks by Hypothecation of the certificates. Tax Benefits: Both PPF and NSC enjoy tax benefits under 80C. However the PPF follows what is called an EEE regime, under which the Investment is exempt from tax, the interest accrued is exempt from tax and the withdrawal is also exempt from tax. The NSC however only the investment is exempt from tax, the interest earned has to be shown as income and would be treated as invested. On withdrawal, the interest would be taxed accordingly. The best benefit of PPF account cannot be attached by court of law in case one comes under financial liability. IE the money in the PPF account can only be used by you. Hence it would make more sense to invest in PPF"
},
{
"docid": "287930",
"title": "",
"text": "I wouldn't go into a stock market related investment if you plan on buying a house in 4-5 years, you really need to tie money up in stocks for 10 years plus to be confident of a good return. Of course, you might do well in stocks over 4-5 years but historically it's unlikely. I'd look for a safe place to save some money for the deposit, the more deposit you can get the better as this will lower your loan to valuation (LTV) and therefore you may find you get a better interest rate for your mortgage. Regards the pension, are you paying the maximum you can into the company scheme? If not then top that up as much as you can, company schemes tend to be good as they have low charges, but check the documentation about that and make sure that is the case. Failing that stakeholder pension schemes can also have very low charges, have a look at what's available."
},
{
"docid": "151238",
"title": "",
"text": "\"As others have commented, this is almost certainly a Ponzi scheme. What will happen is that they will report to you that you are earning fantastic returns. This will encourage you to pour more money into the scheme in the belief that you are making huge profits. The problems will start to occur when you ask for your money. You won't receive any money and by the time you realise you have been scammed, the site operators will have vanish with all of the \"\"suckers\"\" money.\""
},
{
"docid": "109540",
"title": "",
"text": "Guaranteed 8.2% annual return sounds too good to be true. Am I right? Are there likely high fees, etc.? You're right. Guaranteed annual return is impossible, especially when you're talking about investments for such a long period of time. Ponzi (and Madoff) schemed their investors using promises of guaranteed return (see this note in Wikipedia: In some cases returns were allegedly determined before the account was even opened.[72]). Her financial advisor doesn't charge by the hour--he takes a commission. So there's obviously some incentive to sell her things, even if she may not need them. Definitely not a good sign, if the advisor gets a commission from the sale then he's obviously not an advisor but a sales person. The problem with this kind of investment is that it is very complex, and it is very hard to track. The commission to the broker makes it hard to evaluate returns (you pay 10% upfront, and it takes awhile to just get that money back, before even getting any profits), and since you're only able to withdraw in 20 years or so - there's no real way to know if something wrong, until you get there and discover that oops- no money! Also, many annuity funds (if not all) limit withdrawals to a long period, i.e.: you cannot touch money for like 10 years from investment (regardless of the tax issues, the tax deferred investment can be rolled over to another tax deferred account, but in this case - you can't). I suggest you getting your own financial advisor (that will work for you) to look over the details, and talk to your mother if it is really a scam."
},
{
"docid": "153973",
"title": "",
"text": "It seems that any news article headline that includes a dollar amount or a percentage is click bait. In the best cases they're sensationalizing a mundane study. In the worst cases the study is as flawed as the headline. In either case the liberal arts major has their revenge on the world."
},
{
"docid": "588954",
"title": "",
"text": "\"Just came across [this Economist](http://www.economist.com/news/leaders/21608751-restricting-companies-moving-abroad-no-substitute-corporate-tax-reform-how-stop) article, they make it sound quite straight forward and I don't think they can be called totalitarian leftists by any stretch. Here is the money quote. > America’s corporate tax has two horrible flaws. The first is the tax rate, which at 35% is the highest among the 34 mostly rich-country members of the OECD. Yet it raises less revenue than the OECD average thanks to myriad loopholes and tax breaks aimed at everything from machinery investment to NASCAR race tracks. Last year these breaks cost $150 billion in forgone revenue, more than half of what America collected in total corporate taxes. > > The second flaw is that America levies tax on a company’s income no matter where in the world it is earned. In contrast, every other large rich country taxes only income earned within its borders. Here, too, America’s system is absurdly ineffective at collecting money. Firms do not have to pay tax on foreign profits until they bring them back home. Not surprisingly, many do not: American multinationals have some $2 trillion sitting on their foreign units’ balance-sheets, and growing. It seems clear that the 35% rate is not the driving reason for these huge companies doing inversions. That 35% rate should almost certainly be cut down, but the loopholes and tax breaks need to stop as a condition of a rate cut. Clearly this is not a dead simple issue, but I just don't want to hear the silly argument of \"\"oh our poor mega corporations are having to pay the highest taxes in the world!\"\" when the tax environment in the US is clearly rigged in their favor. Small and mid sized companies that can't afford their own Congressman sure are getting fucked though, and that makes me sad.\""
},
{
"docid": "391835",
"title": "",
"text": "I could see doing this if the investments were via different environments. The choices in a 401K are limited by the plan, so you might want to put new money into the 401K index fund. At the same time you could have IRA money invested in a similar index. You could even have non-retirement money invested. While you should look at all your investments while evaluating your investment percentages, the 401K (limited options) and the non-retirement account (avoiding taxes) might be harder to move around. Otherwise the only advantage of splitting between funds is avoiding having all your money in a Ponzi scheme."
},
{
"docid": "136247",
"title": "",
"text": "There is no sure thing in investing. Everything has a risk component. Sure, people talk about these cryptocurrencies like they have nowhere to go but up, but there are massive risks with these. For example, they could be declared illegal, the exchanges could go bankrupt (and some have), the backing companies off the ICOs could fail, the algorithms behind them could have a fatal flaw with unknown consequences, they can be stolen in unusual ways, everyone could suddenly realize that they have no real value..."
},
{
"docid": "265869",
"title": "",
"text": "Also I think everyone forgets that a lot of the time U.S. Bonds are the ONLY place to park money. Where else can someone invest 1.5 trillion? I think between the bond yields and inflation rate, China isn't really making a profit on this investment. Better to lose a little than a lot I guess. The problem with the U.S. is that they don't use this profitable scheme to pay down debt."
},
{
"docid": "35153",
"title": "",
"text": "\"So, if I understand the investment program here: You have $100 of tax withheld from your salary at the end of Jan, Feb, Mar... until December. This withholding is in excess of the expected tax for the year. You use the appropriate H&R Block product to file your taxes, and H&R Block gets your refund of $1200 on March 1st. H&R Block adds 10& and give you e-cards for $1320 On the face of it, this represents a return of 15.19% per year, compounded monthly. However, there are a few wrinkles that might make the scheme less inviting: You'll get a receipt for miscellaneous income from H&R Block, and pay tax on the \"\"earnings\"\". The quoted return is only realized if you can use the e-cards immediately. If they sit around for a while, then they aren't earning any interest. If you sell them for cash at a discount (if you even can!) then this reduces the return. If you don't cash them at all, they're a total loss. This offer was announced on Jan 15, 2015. So you can't go back and put it in place for 2014. And if you set it up for withholding in 2015, is there any guarantee that it the same offer will be in place when filing in 2016?\""
},
{
"docid": "4223",
"title": "",
"text": "If the biggest flaw in the review is that one of the characters is probably made up and the book should therefore be considered fiction instead of nonfiction, then this is an incomplete review. The author points out many good items about the book and the only negative he states is the nonexistence of a character, and then he states that the book has flaws (implying multiple, not single)."
},
{
"docid": "105973",
"title": "",
"text": "\"I would personally beware of the Motley Fool. Their success is based largely on their original investment strategy book. It had a lot of good advice in it, but it pushed a strategy called \"\"The Foolish Four\"\" which was an investing strategy. Since it was based on a buy-and-hold method with 18-month evaluation intervals, it was not a get-rich-quick scheme. However, its methods were validated through data mining and subsequently turned out to be not so good. At least they admit this: http://www.fool.com/ddow/2000/ddow001214.htm\""
},
{
"docid": "81148",
"title": "",
"text": "Your assumptions are flawed or miss crucial details. An employer sponsored 401k typically limits the choices of investments, whereas an IRA typically gives you self directed investment choices at a brokerage house or through a bank account. You are correct in noticing that you are limited in making your own pre-tax contributions to a traditional IRA in many circumstances when you also have an employer sponsored 401k, but you miss the massive benefit you have: You can rollover unlimited amounts from a traditional 401k to a traditional IRA. This is a benefit that far exceeds the capabilities of someone without a traditional 401k who is subject to the IRA contribution limits. Your rollover capabilities completely gets around any statutory contribution limit. You can contribution, at time of writing, $18,000 annually to a 401k from salary deferrals and an additional $35,000 from employer contributions for a maximum of $53,000 annually and roll that same $53,000 into an IRA if you so desired. That is a factor. This should be counterweighed with the borrowing capabilities of a 401k, which vastly exceeds an IRA again. The main rebuttal to your assumptions is that you are not necessarily paying taxes to fund an IRA."
},
{
"docid": "53544",
"title": "",
"text": "A matching pension scheme is like free money. No wait, it actually IS free money. You are literally earning 100% interest rate on that money the instant you pay it in to the account. That money would have to sit in your credit card account for at least five years to earn that kind of return; five years in which the pension money would have earned an additional return over and above the 100%. Mathematically there is no contest that contributing to a matching pension scheme is one of the best investment there is. You should always do it. Well, almost always. When should you not do it?"
},
{
"docid": "3481",
"title": "",
"text": "\"Yes it's entirely possible; see below. If you can't find anything on transfers out (partial or otherwise) on anyone's site it's because they don't want to give anyone ideas. I have successfully done exactly what you're proposing earlier this year, transferring most of the value from my employer's group personal pension scheme - also Aviva! - to a much lower-cost SIPP. The lack of any sign of movement by Aviva to post-RDR \"\"clean priced\"\" charge-levels on funds was the final straw for me. My only regret is that I didn't do it sooner! Transfer paperwork was initiated from the SIPP end but I was careful to make clear to HR people and Aviva's rep (or whatever group-scheme/employee benefits middleman organization he was from) that I was not exiting the company scheme and expected my employee and matching employer contributions to continue unchanged (and that I'd not be happy if some admin mess up led to me missing a month's contributions). There's a bit more on the affair in a thread here. Aviva's rep did seem to need a bit of a prod to finally get it to happen. With hindsight my original hope of an in-specie transfer does seem naive, but the out-of-the-market time was shorter and less scary than anticipated. Just in case you're unaware of it, Monevator's online broker list is an excellent resource to help decide who you might use for a SIPP; cheapest choice depends on level of funds and what you're likely to hold in it and how often you'll trade.\""
},
{
"docid": "330694",
"title": "",
"text": "Depends on how you look at it. If it's a flaw in the specific methodology needed to count Twitter users, and if that flaw caused duplicate counts of some segments (or failure to remove duplicate instances if you prefer that), it could cause consistent overstatement. With that said, I'm sure they did it on purpose"
}
] |
8635 | Is there any flaw in this investment scheme? | [
{
"docid": "240215",
"title": "",
"text": "\"The process of borrowing shares and selling them is called shorting a stock, or \"\"going short.\"\" When you use money to buy shares, it is called \"\"going long.\"\" In general, your strategy of going long and short in the same stock in the same amounts does not gain you anything. Let's look at your two scenarios to see why. When you start, LOOT is trading at $20 per share. You purchased 100 shares for $2000, and you borrowed and sold 100 shares for $2000. You are both long and short in the stock for $2000. At this point, you have invested $2000, and you got your $2000 back from the short proceeds. You own and owe 100 shares. Under scenario A, the price goes up to $30 per share. Your long shares have gone up in value by $1000. However, you have lost $1000 on your short shares. Your short is called, and you return your 100 shares, and have to pay interest. Under this scenario, after it is all done, you have lost whatever the interest charges are. Under scenario B, the prices goes down to $10 per share. Your long shares have lost $1000 in value. However, your short has gained $1000 in value, because you can buy the 100 shares for only $1000 and return them, and you are left with the $1000 out of the $2000 you got when you first sold the shorted shares. However, because your long shares have lost $1000, you still haven't gained anything. Here again, you have lost whatever the interest charges are. As explained in the Traders Exclusive article that @RonJohn posted in the comments, there are investors that go long and short on the same stock at the same time. However, this might be done if the investor believes that the stock will go down in a short-term time frame, but up in the long-term time frame. The investor might buy and hold for the long term, but go short for a brief time while holding the long position. However, that is not what you are suggesting. Your proposal makes no prediction on what the stock might do in different periods of time. You are only attempting to hedge your bets. And it doesn't work. A long position and a short position are opposites to each other, and no matter which way the stock moves, you'll lose the same amount with one position that you have gained in the other position. And you'll be out the interest charges from the borrowed shares every time. With your comment, you have stated that your scenario is that you believe that the stock will go up long term, but you also believe that the stock is at a short-term peak and will drop in the near future. This, however, doesn't really change things much. Let's look again at your possible scenarios. You believe that the stock is a long-term buy, but for some reason you are guessing that the stock will drop in the short-term. Under scenario A, you were incorrect about your short-term guess. And, although you might have been correct about the long-term prospects, you have missed this gain. You are out the interest charges, and if you still think the stock is headed up over the long term, you'll need to buy back in at a higher price. Under scenario B, it turns out that you were correct about the short-term drop. You pocket some cash, but there is no guarantee that the stock will rise anytime soon. Your investment has lost value, and the gain that you made with your short is still tied up in stocks that are currently down. Your strategy does prevent the possibility of the unlimited loss inherent in the short. However, it also prevents the possibility of the unlimited gain inherent in the long position. And this is a shame, since you fundamentally believe that the stock is undervalued and is headed up. You are sabotaging your long-term gains for a chance at a small short-term gain.\""
}
] | [
{
"docid": "395771",
"title": "",
"text": "Right. It couldn't have anything to do with the fact that the tax code is thousands of pages long and so complex that even most tax attorneys probably don't understand it in its entirety, let alone the average tax payer. There couldn't be *any* flaw in the system *except* that Bill Gates and Warren Buffett don't just fund the government all by themselves."
},
{
"docid": "35153",
"title": "",
"text": "\"So, if I understand the investment program here: You have $100 of tax withheld from your salary at the end of Jan, Feb, Mar... until December. This withholding is in excess of the expected tax for the year. You use the appropriate H&R Block product to file your taxes, and H&R Block gets your refund of $1200 on March 1st. H&R Block adds 10& and give you e-cards for $1320 On the face of it, this represents a return of 15.19% per year, compounded monthly. However, there are a few wrinkles that might make the scheme less inviting: You'll get a receipt for miscellaneous income from H&R Block, and pay tax on the \"\"earnings\"\". The quoted return is only realized if you can use the e-cards immediately. If they sit around for a while, then they aren't earning any interest. If you sell them for cash at a discount (if you even can!) then this reduces the return. If you don't cash them at all, they're a total loss. This offer was announced on Jan 15, 2015. So you can't go back and put it in place for 2014. And if you set it up for withholding in 2015, is there any guarantee that it the same offer will be in place when filing in 2016?\""
},
{
"docid": "527786",
"title": "",
"text": "There are a few flaws in your reasoning: I know my portfolio will always keep going up, No, it won't. You'll have periods of losses. You are starting your investing in a bull market. Do NOT be fooled into believing that your successes now will continue indefinitely. The more risky your portfolio, the bigger the losses. The upside of a risky portfolio is that the gains generally outweigh the losses, but there will be periods of losses. I honestly don't believe that it's possible for me to end up losing in the long term, regardless of risk. I think you vastly underestimate the risk of your strategy and/or the consequences of that risk. There's nothing wrong with investing in risky assets, since over time you'll get higher-than-average returns, but unless you diversify you are exposing yourself to catastrophic losses as well."
},
{
"docid": "106240",
"title": "",
"text": "What intrinsic value does the hypertext transfer protocol (HTTP) have? The coins may not have intrinsic value, except that they are kept scarce, but I believe the technologie does. The list of things you can do with a blockchain is endless. In theory applications could be build on top of Bitcoin, though that hasn't happened yet, at least not in a major way. I am personally not invested in Bitcoin anymore, because there are other coins now that have more potential for value, to put it that way, but I think the people who argue Bitcoin has no value whatsoever, or that it's a Ponzi scheme, are usually the ones who don't have any understanding of how it works."
},
{
"docid": "141960",
"title": "",
"text": "\"> No, it's realistic to try... I disagree. I think most minimum wage people would better off investing in lottery tickets. (And I think lotteries should be illegal). > I'm not 100% on clear on why some new businesses succeed and some fail. Let me give you some reasons why a minimum wage person will almost certainly fail when trying to start a business: * No skills -- If they had skills to offer they wouldn't be making minimum wage. * No product -- Few minimum wage workers are in positions where they are working with a product they have the ability to improve, a-la Eli Whitney. This means any company they start would need to be selling a skill, not a product, but then see \"\"No skills\"\". * No business savvy -- A business takes a minimum of three diverse skill sets (administration, marketing, product). Again, \"\"No skills\"\". If this person did have some skills (s)he would still need friends to fill in the gaps. * No time -- Many people working minimum wage have other responsibilities (kids or second jobs). They simply do not have the cycles to invest in a new business. * No starting capital -- Since they work minimum wage they have no money. With no money they can't afford tools needed to make or provide their product. The also can't afford to go without a paycheck as the business ramps up. * Barriers to entry -- Existing companies will defend their customers and protect their market share. The local store will chase you away if you try to sell lemonade in front. You would need to buy a storefront or booth but \"\"No starting capital\"\". In addition, any good storefront or booth is already taken by the bigger guys so you're going to get poor traffic in whatever you get. * Bad information -- There are many companies whose business is to take advantage of low-wage entrepreneurs and push terrible ideas. These people become disillusioned pushing bad products or getting into multilevel marketing schemes.\""
},
{
"docid": "410166",
"title": "",
"text": "\"For one thing fund managers, even fund management companies, own less money than their clients put together. On the whole they simply cannot underwrite 50% of the potential losses of the funds they manage, and an offer to do so would be completely unsecured. Warren Buffet owns about 1/3 of Berkshire Hathaway, so I suppose maybe he could do it if he wanted to, and I won't guess why he prefers his own business model (investing in the fund he manages, or used to manage) over the one you propose for him (keeping his money in something so secure he could use it to cover arbitrary losses on B-H). Buffett and his investors have always felt that he has sufficient incentive to see B-H do well, and it's not clear that your scheme would provide him any useful further incentive. You say that the details are immaterial. Supposing instead of 50% it was 0.0001%, one part in a million. Then it would be completely plausible for a fund manager to offer this: \"\"invest 50 million, lose it all, and I'll buy dinner to apologise\"\". But would you be as attracted to it as you would be to 50%? Then the details are material. Actually a fund manager could do it by taking your money, putting 50% into the fund and 50% into a cash account. If you make money on the fund, you only make half as much as if you'd been fully invested, so half your profit has been \"\"taken\"\" when you get back the fund value + cash. If you lose money on the fund, pay you back 50% of your losses using the cash. Worst case scenario[*], the fund is completely wiped out but you still get back 50% of your initial investment. The combined fund+cash investment vehicle has covered exactly half your losses and it subtracts exactly half your profit. The manager has offered the terms you asked for (-50% leverage) but still doesn't have skin the game. Your proposed terms do not provide the incentive you expect. Why don't fund managers offer this? Because with a few exceptions 50% is an absurd amount for an investment fund to keep in cash, and nobody would buy it. If you want to use cash for that level of inverse leverage you call the bank, open an account, and keep the interest for yourself. You don't expect your managed fund to do it. Furthermore, supposing the manager did invest 100% of your subscription in the fund and cover the risk with their own capital, that means the only place they actually make any profit is the return on a risk that they take with their capital on the fund's wins/losses. You've given them no incentive to invest your money as well as their own: they might as well just put their capital in the fund and let you keep your money. They're better off without you since there's less paperwork, and they can invest whatever they like instead of carefully matching whatever money you send them. If you think they can make better picks than you, and you want them to do so on your behalf, then you need to pay them for the privilege. Riding their coattails for free is not a service they have any reason to offer you. It turns out that you cannot force someone to expose themselves to a particular risk other than by agreeing that they will expose themselves to that risk and then closely monitoring their investment portfolio. Otherwise they can find ways to insure/hedge the risk they're required to take on. If it's on their books but cancelled by something else then they aren't really exposed. So to provide incentive what we normally want is what Buffett does, which is for the fund manager to be invested in the fund to keep them keen, and to draw a salary in return for letting you in[**]. Their investment cannot precisely match yours because the fund manager's capital doesn't precisely match your capital. It doesn't cover your losses because it's in the same fund, so if your money vanishes the fund manager loses too and has nothing to cover you with. But it does provide the incentive. [*] All right, I admit it, worst case scenario there's a total banking collapse, end of civilization as we know it, and the cash account defaults. But then even in your proposed scheme it's possible that whatever assets the fund manager was using as security could fail to materialise. [**] So why, you might ask, do individual fund managers get bonuses in return for meeting fixed targets instead of only being part-paid in shares in their own fund whose value they can then maximise? I honestly don't know, but I suspect \"\"lots of reasons\"\". Probably the psychology of rewarding them for performance in a way that compares with other executive posts or professions they might take up instead of fund management. Probably the benefit to the fund itself, which wants to attract more clients, of beating certain benchmarks. Probably other things including, frankly, human error in setting their compensation packages.\""
},
{
"docid": "40721",
"title": "",
"text": "\"The overall standard of living in the USSR actually *increased* when compared to the previous Czarist regime. Going from a pseudo feudal society to a full blown communist experiment, however, seems to be a rather unsustainable approach to social evolution. In any case, all \"\"isms\"\" tried at large scale -feudalism, capitalism, socialism, communism- have been proven to be systemically flawed: they all revolve around arbitrary pyramidal power structures, ignore physical reality, and utilize an abstract metric as their basis, i.e. capital/money.\""
},
{
"docid": "150650",
"title": "",
"text": "\"Excess Cash = Cash & Equivalents + Long-Term Investments - Current Liabilities The problem this calculation of excess cash is that \"\"long-term investments\"\" can be illiquid things like real estate. Another flaw is that it gives no credit for Current Assets, like receivables, which can be used to offset Current Liabilities. The first thing I'd do is \"\"net out\"\" Current Assets and Current Liabilities, then add Cash back in. Excess Cash = Current Assets - Current Liabilities + Cash & Equivalents. It would be nice if GAAP would require Long-Term Investments to be broken out as a) liquid long-term investments (stocks, bonds) b) illiquid long-term investments (real estate, private equity, etc)\""
},
{
"docid": "56742",
"title": "",
"text": "The stock market's principal justification is matching investors with investment opportunities. That's only reasonably feasible with long-term investments. High frequency traders are not interested in investments, they are interested in buying cheap and selling expensive. Holding reasonably robust shares for longer binds their capital which is one reason the faster-paced business of dealing with options is popular instead. So their main manner of operation is leeching off actually occuring investments by letting the investors pay more than the recipients of the investments receive. By now, the majority of stock market business is indirect and tries guessing where the money goes rather than where the business goes. For one thing, this leads to the stock market's evaluations being largely inflated over the actual underlying committed deals happening. And as the commitment to an investment becomes rare, the market becomes more volatile and instable: it's money running in circles. Fast trading is about running in front of where the money goes, anticipating the market. But if there is no actual market to anticipate, only people running before the imagination of other people running before money, the net payout converges to zero as the ratio of serious actual investments in tangible targets declines. By and large, high frequency trading converges to a Ponzi scheme, and you try being among the winners of such a scheme. But there are a whole lot of people competing here, and essentially the net payoff is close to zero due to the large volumes in circulation as opposed to what ends up in actual tangible investments. It's a completely different game with different rules riding on the original idea of a stock market. So you have to figure out what your money should be doing according to your plans."
},
{
"docid": "183074",
"title": "",
"text": "The PPF and NSC can broadly be compared as below; PPF is public provident scheme with initial period of 15 years and can be extended by 5 yrs blocks. There is a minimum investment of Rs 500 every year and a maximum of Rs 1,50,000 per year for 2014-15 financial year. The gains from PPF are also exempt from any and all capital gains tax. NSC is like fixed deposits for a period of 6 years. They can be purchased from Post office in multiples of Rs. 100, Rs. 500, Rs. 1,000, Rs. 5,000 & Rs. 10,000. There is no maximum limit of purchase, however tax rebate is only to the extent of Rs 1,50,000 on 2014-15 financial year. Interest Rate: Both currently offer 8.75% interest rate. Incase of PPF the interest rate is declared every year and is applicable to the entire invested corpus. In case of NSC, the interest is fixed for the tenure of the investment, changes in interest are applicable for next investments. The interest is compounded Account Operation: Withdrawals: In PPF the first withdrawal is possible in the 7 years, for 50% balance of the 4th year and like wise for subsequent years. In NSC there is no premature withdrawal, however one can get loan from Banks by Hypothecation of the certificates. Tax Benefits: Both PPF and NSC enjoy tax benefits under 80C. However the PPF follows what is called an EEE regime, under which the Investment is exempt from tax, the interest accrued is exempt from tax and the withdrawal is also exempt from tax. The NSC however only the investment is exempt from tax, the interest earned has to be shown as income and would be treated as invested. On withdrawal, the interest would be taxed accordingly. The best benefit of PPF account cannot be attached by court of law in case one comes under financial liability. IE the money in the PPF account can only be used by you. Hence it would make more sense to invest in PPF"
},
{
"docid": "87361",
"title": "",
"text": "\"Really? Why do you think that if they were any good they would be available through regular channels? I like Tupperware. And so do a lot of people-that's why there were so many companies who created their own versions. Also, what do you mean by a legalized pyramid scheme? I've heard that before and always wondered. My understanding is that a pyramid scheme is based solely on the recruitment of people, and that the \"\"buy in\"\" is what pays the people up at the top of the pyramid, and there are no products or services of value rendered.\""
},
{
"docid": "109540",
"title": "",
"text": "Guaranteed 8.2% annual return sounds too good to be true. Am I right? Are there likely high fees, etc.? You're right. Guaranteed annual return is impossible, especially when you're talking about investments for such a long period of time. Ponzi (and Madoff) schemed their investors using promises of guaranteed return (see this note in Wikipedia: In some cases returns were allegedly determined before the account was even opened.[72]). Her financial advisor doesn't charge by the hour--he takes a commission. So there's obviously some incentive to sell her things, even if she may not need them. Definitely not a good sign, if the advisor gets a commission from the sale then he's obviously not an advisor but a sales person. The problem with this kind of investment is that it is very complex, and it is very hard to track. The commission to the broker makes it hard to evaluate returns (you pay 10% upfront, and it takes awhile to just get that money back, before even getting any profits), and since you're only able to withdraw in 20 years or so - there's no real way to know if something wrong, until you get there and discover that oops- no money! Also, many annuity funds (if not all) limit withdrawals to a long period, i.e.: you cannot touch money for like 10 years from investment (regardless of the tax issues, the tax deferred investment can be rolled over to another tax deferred account, but in this case - you can't). I suggest you getting your own financial advisor (that will work for you) to look over the details, and talk to your mother if it is really a scam."
},
{
"docid": "100694",
"title": "",
"text": "A Ponzi scheme takes investor money and lies about where it is invested. New investor money is then used to pay dividends to current investors to attract more investors. However there is a fundamental lie as to where the investment is and how much money is under control. The Fed satisfies none of these requirements. You're pretty confused on the terms. See my post above on how the Fed works."
},
{
"docid": "420118",
"title": "",
"text": "\"Once you buy stocks on X day of the month, the chances of stocks never actually going above and beyond your point of value on the chart are close to none. How about Enron? GM? WorldCom? Lehman Brothers? Those are just a few of the many stocks that went to 0. Even stock in solvent companies have an \"\"all-time high\"\" that it will never reach again. Please explain to my why my thought is [in]correct. It is based on flawed assumptions, specifically that stock always regain any losses from any point in time. This is not true. Stocks go up and down - sometimes that have losses that are never made up, even if they don't go bankrupt. If your argument is that you should cash out any gains regardless of size, and you will \"\"never lose\"\", I would argue that you might have very small gains in most cases, but there are still times where you are going to lose value and never regain it, and those losses can easily wipe out any gains you've made. Never bought stocks and if I try something stupid I'll lose my money, so why not ask the professionals first..? If you really believe that you \"\"can't lose\"\" in the stock market then do NOT buy individual stocks. You may as well buy a lottery ticket (not really, those are actually worthless). Stick to index funds or other stable investments that don't rely on the performance of a single company and its management. Yes, diversification reduces (not eliminates) risk of losses. Yes, chasing unreasonable gains can cause you to lose. But what is a \"\"reasonable gain\"\"? Why is your \"\"guaranteed\"\" X% gain better than the \"\"unreasonable\"\" Y% gain? How do you know what a \"\"reasonable\"\" gain for an individual stock is?\""
},
{
"docid": "290857",
"title": "",
"text": "\"Just addressing the sending side: you should be able to make the transfer out of the UK tax-free, if you transfer to a \"\"Recognised Overseas Pension Scheme\"\" (ROPS). These were formerly called QROPS (\"\"Qualifying...\"\") and a lot of online resources will talk about those. The basic idea is that as long as the overseas pension scheme guarantees to follow broadly similar rules to the UK system - e.g. not allowing you to withdraw your money before retirement age - then you can transfer to it. There's a list of these schemes on the HMRC website, but in theory you still have to check for yourself that they actually follow the relevant rules. I'm not sure how to do that in practice. There are only two USA providers listed, which suggests that transferring there isn't actually very common. The Wikipedia page suggests that in practice most people transfer to a scheme in a low-tax place like Gibraltar, rather than where they actually move to. I suspect that any move will be quite expensive in fees, and from your own answer it seems the USA won't recognise it as a transfer in anyway.\""
},
{
"docid": "109455",
"title": "",
"text": "\"You have heard the old adage \"\"Buy low, sell high\"\", right? That sounds so obvious that you'd have to wonder why they would ever bother coining such an expression. It should rank up there with \"\"Don't walk in front of a moving car\"\" on the Duh scale of advice. Well, your question demonstrates exactly why it isn't quite so obvious in the real world and that people need to be reminded of it. So, in your example, the stock prices are currently low (relative to what they have been). So per that adage, do you sell or buy when prices are low? Hint: It isn't sell. Yes. Your gut is going to tell you the exact opposite thanks to the fact that our brains are unfortunately wired to make us susceptible to the loss aversion fallacy. When the market has undergone a big drop is the WORST time to stop contributing (buying stocks). This example might help get your brain and gut to agree a little more easily: If you were talking about any other non-investment commodity, cars for instance. Your question equates to.. I really need a car, but the prices have been dropping like crazy lately. Maybe I should wait until the car dealers start raising their prices again before I buy one. Dollar Cost Averaging As littleadv suggested, if you have an automatic payroll deduction for your retirement account, you are getting the benefit of Dollar Cost Averaging. Because you are investing the same amount on a scheduled interval, you are buying more shares when they are cheap and fewer when they are expensive. It is like an automatic buy low strategy is built into the account. The alternative, which you are implying, is a market timing strategy. Under this strategy, instead of investing regularly you try to get in and out of investments right before they go up/drop. There are two MAJOR flaws with this approach: 1) Your brain will work against you (see above) and encourage you to do the exact opposite of what you should be doing. 2) Unless you are clairvoyant, this strategy isn't much better than gambling. If you are lucky it can work, but because of #1, the odds are stacked against you.\""
},
{
"docid": "593096",
"title": "",
"text": "This is one of the unfortunate flaws of democracy, a Demagogue can convince people to choose what is in the longer run bad for them. I would consider my self a democratic socialist and when I see what people vote for in some countries, like rising corporate tax to an insane amount that no companies will invest in said country (the opposite is ofc true)."
},
{
"docid": "85137",
"title": "",
"text": "\"It wasn't a small hole in your suggestion. You were proposing a major law which already exists. The only anti-intellecutalism that went on here was on your part. You could have simple said \"\"yeah, you are right. my bad. So what do you think of ideas X,Y, and Z\"\" and then we could have had a discussion about it. Instead you have some sort of character flaw where getting you to acknowledge the underpinning of your argument is flawed is like pulling teeth.\""
},
{
"docid": "557201",
"title": "",
"text": "So if someone would invest 14000 credits on 1st April 2016, he'd get monthly dividend = ((14000 ÷ 14) × 0.0451) × (1 - 1.42 ÷ 100) = 44.459 credits, right? One would get ((14000 ÷ 14) × 0.0451) = 45.1 is what you would get. The expenses are not to be factored. Generally if a scheme has less expense ratio, the yield is more. i.e. this has already got factored in 0.0451. If the expense ratio was less, this would have been 0.05 if expense ration would have been more it would have been 0.040. Can I then consider the bank deposit earning a higher income per month than the mutual fund scheme? As the MIP as classified as Hybrid funds as they invest around 30% in equities, there is no tax on the income. More so if there is a lock-in of 3 years. In Bank FD, there would be tax applicable as per tax brackets."
}
] |
8702 | Why is early exercise generally not recommended for an in-the-money option? | [
{
"docid": "135363",
"title": "",
"text": "Investopedia states: While early exercise is generally not advisable, because the time value inherent in the option premium is lost upon doing so, there are certain circumstances under which early exercise may be advantageous. For example, an investor may choose to exercise a call option that is deeply in-the-money (such an option will have negligible time value) just before the ex-dividend date of the underlying stock. This will enable the investor to capture the dividend paid by the underlying stock, which should more than offset the marginal time value lost due to early exercise. So the question is how well do you see the time value factor here?"
}
] | [
{
"docid": "36453",
"title": "",
"text": "When you exercise a put, you get paid the strike price immediately. So you can invest that money and earn some interest, compared to only exercising at expiry. So the benefit to exercising early is that extra interest. The cost is the remaining time value of the option, along with any dividend payments you miss. As @JoeTaxpayer points out, there might be tax considerations that make it better to exercise at one time rather than another. But those would likely be personal to you, so if the option would intrinsically have more value unexercised, in many cases you could sell it on rather than exercise it. The exception might be if it wasn't very liquid and the transaction costs of doing that outweighed the theoretical value."
},
{
"docid": "313372",
"title": "",
"text": "\"There are a few other items that you should be aware of when getting options: The strike price is usually determined by an independent valuation of the common shares (called a 409a valuation). This should give you a sense on what the options are worth. Obviously you are hoping that the value becomes many multiple of that. There are two kinds in the US: Non-quals (NQO) and Incentive Stock Options (ISOs). The big difference is that when you exercise Non-quals, you have to pay the tax on the difference between the \"\"fair\"\" market value on the shares and what you paid for them (the strike price). This is important because if the company is private, you likely can not sell any shares until it is public. With ISOs, you don't pay any tax (except AMT tax) on the gain until you actually sell the shares. You should know what kind your getting. Some plans allow for early exercise, essentially allowing you to buy the shares early (and given back if you leave before they vest) which helps you establish capital gains treatment earlier as well as avoid AMT if you have ISOs. This is really complicated direction and you would want to talk to a tax professional. And always a good idea to know how many total shares outstanding in the Company. Very few people ask this question but it is helpful for you to understand the overall value of the options.\""
},
{
"docid": "61919",
"title": "",
"text": "\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \"\"cash neutral before taxes\"\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \"\"cash neutral after taxes\"\" depends highly on your specific tax situation.\""
},
{
"docid": "89533",
"title": "",
"text": "underwriters aren't subject to lock-up. They actually don't hold anything. They oversell at IPO, with their short position covered by the green shoe (an option from the company). If the deal does well, the underwriters exercise the green shoe to cover their short. If the deal runs into some pressure, they step in to support the price by buying back shares... thereby covering their short. So they are doing price support in the early days of a deal, but it is almost always paid for by the company granting them an option. But the underwriters aren't taking stock. Correct that typically all insiders and existing investors are expected to sign-up a lock-up."
},
{
"docid": "166597",
"title": "",
"text": "Options are contractual instruments. Most options you'll run into are contracts which allow you to buy or sell stock at a given price at some time in the future, if you feel like it (it gives you the option). These are Call and Put options, respectively (for buying the stock and selling the stock). If you have a lot of money in an index fund ETF, you may be able to protect your portfolio against a market decline by (e.g.) buying Put options against the ETF for a substantially lower price than the index fund currently trades at. If the market crashes and your fund falls in value significantly, you can exercise the options, selling the fund at the price that your option has specified (to the counter-party of your contract). This is the risk that the option mitigates against. Even if you don't have one particular fund with your investments, you could still buy a put option on a similar fund, and resell it to another person in lieu of exercise (they would be capable of buying the stock and performing the exercise themselves for profit if necessary). In general, if you are buying an option for safety, it should be an option either on something you own, or something whose price behavior will mimic something you own. You will note that options are linked to the price of stocks. Futures are contracts whose values are linked to the price of other things, typically commodities such as oil, gold, or orange juice. Their behaviors may diverge. With an option you can have a contractual guarantee on the exact investment you're trying to protect. (Additionally, many commodities' value may fall at the same time that stock investments fall: during economic contractions which reduce industrial activity, resulting in lower profits for firms and less demand for commodities.) You may also note that there are other structures that options may have - PUT options on index funds or similar instruments are probably most specifically relevant to your interests. The downside of protecting yourself with options is that it costs money to buy this option, and the option eventually expires, so you may lose money. Essentially, you are buying safety and risk-tolerance from the option contract's counterparty, and safety is not free. I cannot inform you what level of safety is appropriate for your portfolio's needs, but more safety is more expensive."
},
{
"docid": "380951",
"title": "",
"text": "You are asking 'what if', do you have some anticipated answers? Having volume smaller than open interest is the norm. As far as I can tell, having only one trading day and no previous open interest only affects someone trying to sell a contract they are holding. Meaning that if you only have one day to sell your contract then you need to offer it 'at market' or at the bid price (or even lower than the bid price). If you cannot sell your contract then you have to let it expire worthless or you have to exercise it. Those are your three options: let it expire, sell it (perhaps at a loss), and exercise it. Edit: be careful about holding an in-the-money option. Many brokers will automatically exercise an in-the-money contract if you hold it till expiration date."
},
{
"docid": "388362",
"title": "",
"text": "\"The other two answers seem basically correct, but I wanted to add on thing: While you can exercise an \"\"American style\"\" option at any time, it's almost never smart to do so before expiration. In your example, when the underlying stock reaches $110, you can theoretically make $2/share by exercising your option (buying 100 shares @ $108/share) and immediately selling those 100 shares back to the market at $110/share. This is all before commission. In more detail, you'll have these practical issues: You are going to have to pay commissions, which means you'll need a bigger spread to make this worthwhile. You and those who have already answered have you finger on this part, but I include it for completeness. (Even at expiration, if the difference between the last close price and the strike price is pretty close, some \"\"in-the-money\"\" options will be allowed to expire unexercised when the holders can't cover the closing commission costs.) The market value of the option contract itself should also go up as the price of the underlying stock goes up. Unless it's very close to expiration, the option contract should have some \"\"time value\"\" in its market price, so, if you want to close your position at this point, earlier then expiration, it will probably be better for you to sell the contract back to the market (for more money and only one commission) than to exercise and then close the stock position (for less money and two commissions). If you want to exercise and then flip the stock back as your exit strategy, you need to be aware of the settlement times. You probably are not going to instantly have those 100 shares of stock credited to your account, so you may not be able to sell them right away, which could leave you subject to some risk of the price changing. Alternatively, you could sell the stock short to lock in the price, but you'll have to be sure that your brokerage account is set up to allow that and understand how to do this.\""
},
{
"docid": "332924",
"title": "",
"text": "\"I recommend avoiding trading directly in commodities futures and options. If you're not prepared to learn a lot about how futures markets and trading works, it will be an experience fraught with pitfalls and lost money – and I am speaking from experience. Looking at stock-exchange listed products is a reasonable approach for an individual investor desiring added diversification for their portfolio. Still, exercise caution and know what you're buying. It's easy to access many commodity-based exchange-traded funds (ETFs) on North American stock exchanges. If you already have low-cost access to U.S. markets, consider this option – but be mindful of currency conversion costs, etc. Yet, there is also a European-based company, ETF Securities, headquartered in Jersey, Channel Islands, which offers many exchange-traded funds on European exchanges such as London and Frankfurt. ETF Securities started in 2003 by first offering a gold commodity exchange-traded fund. I also found the following: London Stock Exchange: Frequently Asked Questions about ETCs. The LSE ETC FAQ specifically mentions \"\"ETF Securities\"\" by name, and addresses questions such as how/where they are regulated, what happens to investments if \"\"ETF Securities\"\" were to go bankrupt, etc. I hope this helps, but please, do your own due diligence.\""
},
{
"docid": "587768",
"title": "",
"text": "4.7 is a pretty low rate, especially if you are deducting that from your taxes. If you reduce the number by your marginal tax rate to get the real cost of the money you end up with a number that isn't far off from inflation, and also represents a pretty low 'yield' in terms of paying off the loan early. (e.g. if your marginal tax rate is 28%, then the net you are paying in interest after the tax deduction is 4.7 * .72 = 3.384) While I'm all for paying off loans with higher rates (since it's in effect the same as making that much risk free on the money) it doesn't make a lot of sense when you are down at 3.4 unless there is a strong 'security factor' (which really makes a difference to some folks) to be had that really helps you sleep at night. (to be realistic, for some folks close to retirement, there can be a lot to be said for the security of not having to worry about house payments, although you don't seem to be in that situation yet) As others have said, first make sure you have enough liquid 'emergency money' in something like a money market account, or a ladder of short term CD's If you are sure that the sprouts will be going to college, then there's a lot to be said for kicking a decent amount into a 529, Coverdell ESA (Educational Savings Account), uniform gift to minors account, or some combination of those. I'm not sure if any of those plans can be used for a kid that has not been born yet however. I'd recommend http://www.savingforcollege.com as a good starting point to get more information on your various options. As with retirement savings, money put in earlier has a lot more 'power' over the final balance due to compounding interest, so there's a lot to be said for starting early, although depending on what it takes to qualify for the plans there could be such a thing as too early ;-) ). There's nothing wrong with Managed mutual funds as long as the fund objective and investing style is in alignment with your objectives and risk tolerance; The fund is giving you a good return relative to the market as a whole; You are not paying high fees or load charges; You are not losing a lot to taxes. I would always look at the return after expenses when comparing to other options, and if the money is not in a tax deferred account, also look at what sort of tax burden you will be faced with. A fund that trades a lot will generate more short term gains which means more taxes than compared to a more passive fund. Anything lost to taxes is money lost to you so needs to come out of the total return when you calculate that. Sometimes such funds are better off as a choice inside an IRA or 401K, and you can instead use more tax efficient vehicles for money where you have to pay the taxes every year on the gains. The reason a lot of folks like index funds better is that: Given your described age, it's not appropriate now, but in the long run as you get closer to retirement, you may want to start looking at building up some investments that are geared more towards generating income, such as bonds, or depending on taxes where you live, Municipal bonds. In any case, the more money you can set aside for retirement now, both inside and outside of tax deferred accounts, the sooner you will get to the point of the 'critical mass' you need to retire, at that point you can work because you want to, not because you have to."
},
{
"docid": "118360",
"title": "",
"text": "First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads."
},
{
"docid": "345410",
"title": "",
"text": "The crucial insight is that the alternative to early exercise of an American call is not necessarily to hold it to expiry, but to sell it. And selling it, at its value, is always better than exercising it. Note that this holds only for options on assets that don't pay dividends. Here's the proof, using Put-Call-Parity. We know that at expiry T, we have (using a Call and a Put both struck at K): C(T) - P(T) = S(T) - K (if this is not clear to you, consider the case where S is less than, equal to, or greater than K at maturity, and go through each of them.) If the stock S doesn't pay any dividends (and there is no cost of carry etc.), we can replicate both sides now at time 0; we just buy one call, sell one put (that gives us the left hand side), buy the stock, and borrow money so that at time T we have to repay K (that gives us the right hand side). That means that now, we only need to borrow df * K, where df is the discount factor, and is less than one (assuming the good old pre-2009 world where interest rates are positive). Thus: C(0) - P(0) = S(0) - df * K. Rearranging gives: C(0) = S(0) - df * K + P(0). That's the value of the call, if we sell it (or hold it). However, if we exercise, we only get: C_ex = S(0) - K Now, we see that C(0) > C_ex, because we subtract less (df*K < K), and add P(0)."
},
{
"docid": "595605",
"title": "",
"text": "\"Yes, you would pay no taxes at the time of purchase. In fact, this is not uncommon. Many early employees of startup companies are offered stock options that can be \"\"early-exercised\"\" (exercised before they vest). In such a case, an employee who exercises immediately upon grant (and assuming the exercise price of the option is the FMV at the time of grant) purchases the stock at FMV, and there no no tax paid when filing 83(b) election.\""
},
{
"docid": "350748",
"title": "",
"text": "\"This is because volatility is cumulative and with less time there is less cumulative volatility. The time value and option value are tied to the value of the underlying. The value of the underlying (stock) is quite influenced by volatility, the possible price movement in a given span of time. Thirty days of volatility has a much broader spread of values than two days, since each day benefits from the possible price change of the prior days. So if a stock could move up to +/- 1% in a day, then compounded after 5 days it could be +5%, +0%, or -5%. In other words, this is compounded volatility. Less time means far less volatility, which is geometric and not linear. Less volatility lowers the value of the underlying. See Black-Scholes for more technical discussion of this concept. A shorter timeframe until option expiration means there are fewer days of compounded volatility. So the expected change in the underlying will decrease geometrically. The odds are good that the price at T-5 days will be close to the price at T-0, much more so than the prices at T-30 or T-90. Additionally, the time value of an American option is the implicit put value (or implicit call). While an \"\"American\"\" option lets you exercise prior to expiry (unlike a \"\"European\"\" option, exercised only at expiry), there's an implicit put option in a call (or an implicit call in a put option). If you have an American call option of 60 days and it goes into the money at 30 days, you could exercise early. By contract, that stock is yours if you pay for it (or, in a put, you can sell whenever you decide). In some cases, this may make sense (if you want an immediate payoff or you expect this is the best price situation), but you may prefer to watch the price. If the price moves further, your gain when you use the call may be even better. If the price goes back out of the money, then you benefited from an implicit put. It's as though you exercised the option when it went in the money, then sold the stock and got back your cash when the stock went out of the money, even though no actual transaction took place and this is all just implicit. So the time value of an American option includes the implicit option to not use it early. The value of the implicit option also decreases in a nonlinear fashion, since the value of the implicit option is subject to the same valuation principles. But the larger principle for both is the compounded volatility, which drops geometrically.\""
},
{
"docid": "362473",
"title": "",
"text": "\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \"\"close out an options position\"\", you just have to create the \"\"opposite\"\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \"\"mini options contracts\"\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \"\"I cannot use this strategy to buy stocks like GOOGL\"\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\""
},
{
"docid": "557356",
"title": "",
"text": "\"There are two reasons why most options aren't exercised. The first is obvious, and the second, less so. The obvious: An option that's practically worthless doesn't get exercised. Options that reach expiry and remain unexercised are almost always worthless bets that simply didn't pay off. This includes calls with strikes above the current underlying price, and puts with strikes below it. A heck of a lot of options. If an option with value was somehow left to expire, it was probably a mistake, or else the transaction costs outweighed the value remaining; not quite worthless, but not \"\"worth it\"\" either. The less obvious: An option with value can be cancelled any time before expiration. A trader that buys an option may at some point show a gain sooner than anticipated, or a loss in excess of his tolerance. If a gain, he may want to sell before expiry to realize the gain sooner. Similarly, if a loss, he may want to take the loss sooner. In both cases, his capital is freed up and he can take another position. And — this is the key part — the other end matched up with that option sale is often a buyer that had created (written) exactly such an option contract in the first place – the option writer – and who is looking to get out of his position. Option writers are the traders responsible, in the first place, for creating options and increasing the \"\"open interest.\"\" Anybody with the right kind and level of options trading account can do this. A trader that writes an option does so by instructing his broker to \"\"sell to open\"\" a new instance of the option. The trader then has a short position (negative quantity) in that option, and all the while may be subject to the obligations that match the option's exercise rights. The only way for the option writer to get out of that short position and its obligations are these: Not by choice: To get assigned. That is to say: a buyer exercised the option. The writer has to fulfill his obligation by delivering the underlying (if a call) to the option holder, or buying the underlying (if a put) from the option holder. Not by choice: The option expires worthless. This is the ideal scenario for a writer because 100% of the premium received (less transaction costs) is profit. By choice: The writer is free to buy back exactly the same kind of option before expiry using a \"\"buy to close\"\" order with their broker. Once the option has been purchased with a \"\"buy to close\"\", it eliminates the short position and obligation. The option is cancelled. The open interest declines. Options thus cancelled just don't live long enough to either expire or be exercised.\""
},
{
"docid": "469382",
"title": "",
"text": "If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario."
},
{
"docid": "581672",
"title": "",
"text": "Here is the answer from my brokerage: Regular equity monthly options expire on the 3rd Friday of every month. The last time to trade them is by market close at 4 PM Eastern time. The weekly options will expire on the Friday of that week, also with a last trading time of 4 PM Eastern time. Options that expire in the money by .01 or more are automatically exercised. If you are long an option that is out of the money at expiration, it will expire worthless. If you are short an option, even if it expires out of the money, you are still at risk for possible assignment since the long option holder always has the right to exercise an option prior to expiration.*"
},
{
"docid": "87331",
"title": "",
"text": "As far as I know, the AMT implications are the same for a privately held company as for one that is publicly traded. When I was given my ISO package, it came with a big package of articles on AMT to encourage me to exercise as close to the strike price as possible. Remember that the further the actual price at the time of purchase is from the strike price, the more the likely liability for AMT. That is an argument for buying early. Your company should have a common metric for determining the price of the stock that is vetted by outside sources and stable from year to year that is used in a similar way to the publicly traded value when determining AMT liability. During acquisitions stock options often, from what I know of my industry, at least, become options in the new company's stock. This won't always happen, but its possible that your options will simply translate. This can be valuable, because the price of stock during acquisition may triple or quadruple (unless the acquisition is helping out a very troubled company). As long as you are confident that the company will one day be acquired rather than fold and you are able to hold the stock until that one day comes, or you'll be able to sell it back at a likely gain, other than tying up the money I don't see much of a downside to investing now."
},
{
"docid": "279346",
"title": "",
"text": "COBRA provides you the option to continue your coverage as you had during your employment, after you leave your job. It is optional, you need to actively elect it. Once you elect, coverage starts from the day your employment coverage ends. So to answer your questions: Yes, it is legal. You elected this yourself, no-one forced you. You cannot get your money back. You did have coverage in June-July-August, since your COBRA election provided coverage from the date you left your job. As to cancellation, from the DOL FAQ: Q12: Can continuation coverage be terminated early for any reason? A group health plan may terminate coverage earlier than the end of the maximum period for any of the following reasons: If continuation coverage is terminated early, the plan must provide the qualified beneficiary with an early termination notice. The notice must be given as soon as practicable after the decision is made, and it must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage. If you decide to terminate your COBRA coverage early, you generally won't be able to get a Marketplace plan outside of the open enrollment period. For more information on alternatives to COBRA coverage, see question 4 above."
}
] |
8702 | Why is early exercise generally not recommended for an in-the-money option? | [
{
"docid": "345410",
"title": "",
"text": "The crucial insight is that the alternative to early exercise of an American call is not necessarily to hold it to expiry, but to sell it. And selling it, at its value, is always better than exercising it. Note that this holds only for options on assets that don't pay dividends. Here's the proof, using Put-Call-Parity. We know that at expiry T, we have (using a Call and a Put both struck at K): C(T) - P(T) = S(T) - K (if this is not clear to you, consider the case where S is less than, equal to, or greater than K at maturity, and go through each of them.) If the stock S doesn't pay any dividends (and there is no cost of carry etc.), we can replicate both sides now at time 0; we just buy one call, sell one put (that gives us the left hand side), buy the stock, and borrow money so that at time T we have to repay K (that gives us the right hand side). That means that now, we only need to borrow df * K, where df is the discount factor, and is less than one (assuming the good old pre-2009 world where interest rates are positive). Thus: C(0) - P(0) = S(0) - df * K. Rearranging gives: C(0) = S(0) - df * K + P(0). That's the value of the call, if we sell it (or hold it). However, if we exercise, we only get: C_ex = S(0) - K Now, we see that C(0) > C_ex, because we subtract less (df*K < K), and add P(0)."
}
] | [
{
"docid": "305676",
"title": "",
"text": "\"In general there are two types of futures contract, a put and call. Both contract types have both common sides of a transaction, a buyer and a seller. You can sell a put contract, or sell a call contract also; you're just taking the other side of the agreement. If you're selling it would commonly be called a \"\"sell to open\"\" meaning you're opening your position by selling a contract which is different from simply selling an option that you currently own to close your position. A put contract gives the buyer the right to sell shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to put the shares on someone else. A call contract gives the buyer the right to buy shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to call on someone for shares. \"\"American\"\" options contracts allow the buyer can exercise their rights under the contract on or before the expiration date; while \"\"European\"\" type contracts can only be exercised on the expiration date. To address your example. Typically for stock an option contract involves 100 shares of a stock. The value of these contracts fluctuates the same way other assets do. Typically retail investors don't actually exercise their contracts, they just close a profitable position before the exercise deadline, and let unprofitable positions expire worthless. If you were to buy a single call contract with an exercise price of $100 with a maturity date of August 1 for $1 per share, the contract will have cost you $100. Let's say on August 1 the underlying shares are now available for $110 per share. You have two options: Option 1: On August 1, you can exercise your contract to buy 100 shares for $100 per share. You would exercise for $10,000 ($100 times 100 shares), then sell the shares for $10 profit per share; less the cost of the contract and transaction costs. Option 2: Your contract is now worth something closer to $10 per share, up from $1 per share when you bought it. You can just sell your contract without ever exercising it to someone with an account large enough to exercise and/or an actual desire to receive the asset or commodity.\""
},
{
"docid": "332938",
"title": "",
"text": "\"I take it you have nearly zero expenses, since you don't mention any savings and with your income you wouldn't have much left over for investing. At your level of income, any actual investing is either going to unwisely reduce your cash available should you need it (such as investment in mutual funds, which often have minimum investment periods of 2-6 months or more to avoid fees), or cost you a high percentage of your income in commissions (stock trading). So, I wouldn't recommend investing at all — yet. I find Dave Ramsey's baby steps to be very good general money management advice. Here is how I would adapt the first three steps to your income and stage in life. Beyond this, Dave recommends saving for retirement, college (for kids) and paying off your house early. These things are a little beyond your stage in life, but it would be good to start thinking about them. For you, I recommend following DJClayworth's advice to \"\"invest in yourself\"\". Specifically, plan to get through college debt-free. Put away money so that you have a head start once you do have living expenses — save for a car, save money for rent, etc. so that you don't have to live month to month as most people do starting out. So, what this boils down to: Put away every cent you have, in a savings account.\""
},
{
"docid": "87331",
"title": "",
"text": "As far as I know, the AMT implications are the same for a privately held company as for one that is publicly traded. When I was given my ISO package, it came with a big package of articles on AMT to encourage me to exercise as close to the strike price as possible. Remember that the further the actual price at the time of purchase is from the strike price, the more the likely liability for AMT. That is an argument for buying early. Your company should have a common metric for determining the price of the stock that is vetted by outside sources and stable from year to year that is used in a similar way to the publicly traded value when determining AMT liability. During acquisitions stock options often, from what I know of my industry, at least, become options in the new company's stock. This won't always happen, but its possible that your options will simply translate. This can be valuable, because the price of stock during acquisition may triple or quadruple (unless the acquisition is helping out a very troubled company). As long as you are confident that the company will one day be acquired rather than fold and you are able to hold the stock until that one day comes, or you'll be able to sell it back at a likely gain, other than tying up the money I don't see much of a downside to investing now."
},
{
"docid": "350748",
"title": "",
"text": "\"This is because volatility is cumulative and with less time there is less cumulative volatility. The time value and option value are tied to the value of the underlying. The value of the underlying (stock) is quite influenced by volatility, the possible price movement in a given span of time. Thirty days of volatility has a much broader spread of values than two days, since each day benefits from the possible price change of the prior days. So if a stock could move up to +/- 1% in a day, then compounded after 5 days it could be +5%, +0%, or -5%. In other words, this is compounded volatility. Less time means far less volatility, which is geometric and not linear. Less volatility lowers the value of the underlying. See Black-Scholes for more technical discussion of this concept. A shorter timeframe until option expiration means there are fewer days of compounded volatility. So the expected change in the underlying will decrease geometrically. The odds are good that the price at T-5 days will be close to the price at T-0, much more so than the prices at T-30 or T-90. Additionally, the time value of an American option is the implicit put value (or implicit call). While an \"\"American\"\" option lets you exercise prior to expiry (unlike a \"\"European\"\" option, exercised only at expiry), there's an implicit put option in a call (or an implicit call in a put option). If you have an American call option of 60 days and it goes into the money at 30 days, you could exercise early. By contract, that stock is yours if you pay for it (or, in a put, you can sell whenever you decide). In some cases, this may make sense (if you want an immediate payoff or you expect this is the best price situation), but you may prefer to watch the price. If the price moves further, your gain when you use the call may be even better. If the price goes back out of the money, then you benefited from an implicit put. It's as though you exercised the option when it went in the money, then sold the stock and got back your cash when the stock went out of the money, even though no actual transaction took place and this is all just implicit. So the time value of an American option includes the implicit option to not use it early. The value of the implicit option also decreases in a nonlinear fashion, since the value of the implicit option is subject to the same valuation principles. But the larger principle for both is the compounded volatility, which drops geometrically.\""
},
{
"docid": "424313",
"title": "",
"text": "To me, this question is really about setting and meeting goals. The process is the same, whether it's about exercising regularly, or saving, or whatever. You need to have clear, personally-relevant reasons for doing something. Write down: Exactly why you want to save. It may seem trivial, but if you can't visualize the prize it's hard to stay motivated. How much can you afford to save? Use something like Mint.com to find out your real monthly expenses, as opposed to what you think you're spending. Also, don't get overzealous... leave yourself some money for small luxuries and unexpected expenses so you don't feel like a miser. Saving should be a joy, not torture. Automate the saving process. Set up an automatic transfer to move the amount you figured out in step 2 to your savings account on the same date you get paid. This is very important. By saving early you ensure there will be enough money to save. If you wait until the end of the month, there will usually not be anything left. Don't you dare touch your savings! (Except in a real emergency) If you must dip into your savings, immediately create a plan to put it back as soon as possible. Also, get into the habit of reading personal finance books, blogs, sites, etc. I recommend authors like Robert Kiyosaki, and Suze Orman. Good luck!"
},
{
"docid": "538054",
"title": "",
"text": "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."
},
{
"docid": "220147",
"title": "",
"text": "Options granted by an employer to an employee are generally different that the standardized options that are traded on public stock option exchanges. They may or may not have somewhat comparable terms, but generally the terms are fairly different. As a holder of an expiring employee option, you can only choose to exercise it by paying the specified price and receiving the shares, or not. It is common that the exercise system will allow you to exercise all the shares and simultaneously sell enough of the acquired shares to cover the option cost of all the shares, thus leaving you owning some of the stock without having to spend any cash. You will owe taxes on the gain on exercise, regardless of what you do with the stock. If you want to buy publicly-traded options, you should consider that completely separately from your employer options other than thinking about how much exposure you have to your company situation. It is very common for employees to be imprudently overexposed to their company's stock (through direct ownership or options)."
},
{
"docid": "52458",
"title": "",
"text": "> But, it seems like the pool is adding value out of nowhere! Options don't simply exercise in the void. There are proceeds from the exercise (option-holders must pay into the company). This amount is an additional investment in the company that hasn't precisely materialized yet, but is generally expected to (and is difficult to alter, as it's likely part of an employment contract)."
},
{
"docid": "118360",
"title": "",
"text": "First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads."
},
{
"docid": "590453",
"title": "",
"text": "If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of buying a call option on X. A European option with a strike price of S that expires on day N, if held until that day and then exercised if profitable, would yield a value Y = min(X[N]-S, 0). This has an expected value E[Y] that you could actually calculate. (should be related to the binomial distribution, but my probability & statistics hat isn't working too well today) The market value V[k] of that option on day #k, where 1 < k < N, should be V[k] = E[Y]|X[k], which you can also actually calculate. On day #N, V[N] = Y. (the value is known) An American option, if held until day #k and then exercised if profitable, would yield a value Y[k] = min(X[k]-S, 0). For the moment, forget about selling the option on the market. (so, the choices are either exercise it on some day #k, or letting it expire) Let's say it's day k=N-1. If X[N-1] >= S+1 (in the money), then you have two choices: exercise today, or exercise tomorrow if profitable. The expected value is the same. (Both are equal to X[N-1]-S). So you might as well exercise it and make use of your money elsewhere. If X[N-1] <= S-1 (out of the money), the expected value is 0, whether you exercise today, when you know it's worthless, or if you wait until tomorrow, when the best case is if X[N-1]=S-1 and X[N] goes up to S, so the option is still worthless. But if X[N-1] = S (at the money), here's where it gets interesting. If you exercise today, it's worth 0. If wait until tomorrow, there's a 1/2 chance it's worth 0 (X[N]=S-1), and a 1/2 chance it's worth 1 (X[N]=S+1). Aha! So the expected value is 1/2. Therefore you should wait until tomorrow. Now let's say it's day k=N-2. Similar situation, but more choices: If X[N-2] >= S+2, you can either sell it today, in which case you know the value = X[N-2]-S, or you can wait until tomorrow, when the expected value is also X[N-2]-S. Again, you might as well exercise it now. If X[N-2] <= S-2, you know the option is worthless. If X[N-2] = S-1, it's worth 0 today, whereas if you wait until tomorrow, it's either worth an expected value of 1/2 if it goes up (X[N-1]=S), or 0 if it goes down, for a net expected value of 1/4, so you should wait. If X[N-2] = S, it's worth 0 today, whereas tomorrow it's either worth an expected value of 1 if it goes up, or 0 if it goes down -> net expected value of 1/2, so you should wait. If X[N-2] = S+1, it's worth 1 today, whereas tomorrow it's either worth an expected value of 2 if it goes up, or 1/2 if it goes down (X[N-1]=S) -> net expected value of 1.25, so you should wait. If it's day k=N-3, and X[N-3] >= S+3 then E[Y] = X[N-3]-S and you should exercise it now; or if X[N-3] <= S-3 then E[Y]=0. But if X[N-3] = S+2 then there's an expected value E[Y] of (3+1.25)/2 = 2.125 if you wait until tomorrow, vs. exercising it now with a value of 2; if X[N-3] = S+1 then E[Y] = (2+0.5)/2 = 1.25, vs. exercise value of 1; if X[N-3] = S then E[Y] = (1+0.5)/2 = 0.75 vs. exercise value of 0; if X[N-3] = S-1 then E[Y] = (0.5 + 0)/2 = 0.25, vs. exercise value of 0; if X[N-3] = S-2 then E[Y] = (0.25 + 0)/2 = 0.125, vs. exercise value of 0. (In all 5 cases, wait until tomorrow.) You can keep this up; the recursion formula is E[Y]|X[k]=S+d = {(E[Y]|X[k+1]=S+d+1)/2 + (E[Y]|X[k+1]=S+d-1) for N-k > d > -(N-k), when you should wait and see} or {0 for d <= -(N-k), when it doesn't matter and the option is worthless} or {d for d >= N-k, when you should exercise the option now}. The market value of the option on day #k should be the same as the expected value to someone who can either exercise it or wait. It should be possible to show that the expected value of an American option on X is greater than the expected value of a European option on X. The intuitive reason is that if the option is in the money by a large enough amount that it is not possible to be out of the money, the option should be exercised early (or sold), something a European option doesn't allow, whereas if it is nearly at the money, the option should be held, whereas if it is out of the money by a large enough amount that it is not possible to be in the money, the option is definitely worthless. As far as real securities go, they're not random walks (or at least, the probabilities are time-varying and more complex), but there should be analogous situations. And if there's ever a high probability a stock will go down, it's time to exercise/sell an in-the-money American option, whereas you can't do that with a European option. edit: ...what do you know: the computation I gave above for the random walk isn't too different conceptually from the Binomial options pricing model."
},
{
"docid": "557356",
"title": "",
"text": "\"There are two reasons why most options aren't exercised. The first is obvious, and the second, less so. The obvious: An option that's practically worthless doesn't get exercised. Options that reach expiry and remain unexercised are almost always worthless bets that simply didn't pay off. This includes calls with strikes above the current underlying price, and puts with strikes below it. A heck of a lot of options. If an option with value was somehow left to expire, it was probably a mistake, or else the transaction costs outweighed the value remaining; not quite worthless, but not \"\"worth it\"\" either. The less obvious: An option with value can be cancelled any time before expiration. A trader that buys an option may at some point show a gain sooner than anticipated, or a loss in excess of his tolerance. If a gain, he may want to sell before expiry to realize the gain sooner. Similarly, if a loss, he may want to take the loss sooner. In both cases, his capital is freed up and he can take another position. And — this is the key part — the other end matched up with that option sale is often a buyer that had created (written) exactly such an option contract in the first place – the option writer – and who is looking to get out of his position. Option writers are the traders responsible, in the first place, for creating options and increasing the \"\"open interest.\"\" Anybody with the right kind and level of options trading account can do this. A trader that writes an option does so by instructing his broker to \"\"sell to open\"\" a new instance of the option. The trader then has a short position (negative quantity) in that option, and all the while may be subject to the obligations that match the option's exercise rights. The only way for the option writer to get out of that short position and its obligations are these: Not by choice: To get assigned. That is to say: a buyer exercised the option. The writer has to fulfill his obligation by delivering the underlying (if a call) to the option holder, or buying the underlying (if a put) from the option holder. Not by choice: The option expires worthless. This is the ideal scenario for a writer because 100% of the premium received (less transaction costs) is profit. By choice: The writer is free to buy back exactly the same kind of option before expiry using a \"\"buy to close\"\" order with their broker. Once the option has been purchased with a \"\"buy to close\"\", it eliminates the short position and obligation. The option is cancelled. The open interest declines. Options thus cancelled just don't live long enough to either expire or be exercised.\""
},
{
"docid": "528052",
"title": "",
"text": "\"Your question indicates that you might have a little confusion about put options and/or leveraging. There's no sense I'm aware of in which purchasing a put levers a position. Purchasing a put will cost you money up front. Leveraging typically means entering a transaction that gives you extra money now that you can use to buy other things. If you meant to sell a put, that will make money up front but there is no possibility of making money later. Best case scenario the put is not exercised. The other use of the term \"\"leverage\"\" refers to purchasing an asset that, proportionally, goes up faster than the value of the underlying. For example, a call option. If you purchase a put, you are buying downside protection, which is kind of the opposite of leverage. Notice that for an American put you will most likely be better off selling the put when the price of the underlying falls than exercising it. That way you make the money you would have made by exercising plus whatever optional value the put still contains. That is true unless the time value of money is greater than the optional (insurance) value. Since the time value of money is currently exceptionally low, this is unlikely. Anyway, if you sell the option instead of exercising, you don't need to own any shares at all. Even if you do exercise, you can just buy them on the market and sell right away so I wouldn't worry about what you happen to be holding. The rules for what you can trade with a cash instead of a margin account vary by broker, I think. You can usually buy puts and calls in a cash account, but more advanced strategies, such as writing options, are prohibited. Ask your broker or check their help pages to see what you have available to you.\""
},
{
"docid": "76556",
"title": "",
"text": "Stuff I wish I had known, based on having done the following: Obtained employment at a startup that grants Incentive Stock Options (ISOs); Early-exercised a portion of my options when fair market value was very close to my strike price to minimize AMT; made a section 83b) election and paid my AMT up front for that tax year. All this (the exercise and the AMT) was done out of pocket. I've never see EquityZen or Equidate mention anything about loans for your exercise. My understanding is they help you sell your shares once you actually own them. Stayed at said startup long enough to have my exercised portion of these ISOs vest and count as long term capital gains; Tried to sell them on both EquityZen and Equidate with no success, due to not meeting their transaction minimums. Initial contact with EquityZen was very friendly and helpful, and I even got a notice about a potential sale, but then they hired an intern to answer emails and I remember his responses being particularly dismissive, as if I was wasting their time by trying to sell such a small amount of stock. So that didn't go anywhere. Equidate was a little more friendly and was open to the option of pooling shares with other employees to make a sale in order to meet their minimum, but that never happened either. My advice, if you're thinking about exercising and you're worried about liquidity on the secondary markets, would be to find out what the minimums would be for your specific company on these platforms before you plunk any cash down. Eventually brought my request for liquidity back to the company who helped connect me with an interested external buyer, and we completed the transaction that way. As for employer approval - there's really no reason or basis that your company wouldn't allow it (if you paid to exercise then the shares are yours to sell, though the company may have a right of first refusal). It's not really in the company's best interest to have their shares be illiquid on the secondary markets, since that sends a bad signal to potential investors and future employees."
},
{
"docid": "469382",
"title": "",
"text": "If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario."
},
{
"docid": "345851",
"title": "",
"text": "\"Cart's answer describes well one aspects of puts: protective puts; which means using puts as insurance against a decline in the price of shares that you own. That's a popular use of puts. But I think the wording of your question is angling for another strategy: Writing puts. Consider: Cart's strategy refers to the buyer of a put. But, on the transaction's other side is a seller of the put – and ultimately somebody created or wrote that put contract in the first place! That first seller of the put – that is, the seller that isn't just selling one they themselves bought – is the put writer. When you write a put, you are taking on the obligation to buy the other side's stock at the put exercise price if the stock price falls below that exercise price by the expiry date. For taking on the obligation, you receive a premium, like how an insurance company charges a premium to insure against a loss. Example: Imagine ABC Co. stock is trading at $25.00. You write a put contract agreeing to buy 100 shares of ABC at $20.00 per share (the exercise price) by a given expiration date. Say you receive $2.00/share premium from the put buyer. You now have the obligation to purchase the shares from the put buyer in the event they are below $20.00 per share when the option expires – or, technically any time before then, if the buyer chooses to exercise the option early. Assuming no early assignment, one of two things will happen at the option expiration date: ABC trades at or above $20.00 per share. In this case, the put option will expire worthless in the hands of the put buyer. You will have pocketed the $200 and be absolved from your obligation. This case, where ABC trades above the exercise price, is the maximum profit potential. ABC trades below $20.00 per share. In this case, the put option will be assigned and you'll need to fork over $2000 to the put buyer in exchange for his 100 ABC shares. If those shares are worth less than $18.00 in the market, then you've suffered a loss to the extent they are below that price (times 100), because remember – you pocketed $200 premium in the first place. If the shares are between $18.00 to $20.00, you're still profitable, but not to the full extent of the premium received. You can see that by having written a put it's possible to acquire ABC stock at a price lower than the market price – because you received some premium in the process of writing your put. If you don't \"\"succeed\"\" in acquiring shares on your first write (because the shares didn't get below the exercise price), you can continue to write puts and collect premium until you do get assigned. I have read the book \"\"Money for Nothing (And Your Stocks for FREE!)\"\" by Canadian author Derek Foster. Despite the flashy title, the book essentially describes Derek's strategy for writing puts against dividend-paying value stocks he would love to own. Derek picks quality companies that pay a dividend, and uses put writing to get in at lower-than-market prices. Four Pillars reviewed the book and interviewed Derek Foster: Money for Nothing: Book Review and Interview with Derek Foster. Writing puts entails risk. If the stock price drops to zero then you'll end up paying the put exercise price to acquire worthless shares! So your down-side can easily be multiples of the premium collected. Don't do this until and unless you understand exactly how this works. It's advanced. Note also that your broker isn't likely to permit you to write puts without having sufficient cash or margin in your account to cover the case where you are forced to buy the stock. You're better off having cash to secure your put buys, otherwise you may be forced into leverage (borrowing) when assigned. Additional Resources: The Montreal Exchange options guide (PDF) that Cart already linked to is an excellent free resource for learning about options. Refer to page 39, \"\"Writing secured put options\"\", for the strategy above. Other major options exchanges and organizations also provide high-quality free learning material:\""
},
{
"docid": "388362",
"title": "",
"text": "\"The other two answers seem basically correct, but I wanted to add on thing: While you can exercise an \"\"American style\"\" option at any time, it's almost never smart to do so before expiration. In your example, when the underlying stock reaches $110, you can theoretically make $2/share by exercising your option (buying 100 shares @ $108/share) and immediately selling those 100 shares back to the market at $110/share. This is all before commission. In more detail, you'll have these practical issues: You are going to have to pay commissions, which means you'll need a bigger spread to make this worthwhile. You and those who have already answered have you finger on this part, but I include it for completeness. (Even at expiration, if the difference between the last close price and the strike price is pretty close, some \"\"in-the-money\"\" options will be allowed to expire unexercised when the holders can't cover the closing commission costs.) The market value of the option contract itself should also go up as the price of the underlying stock goes up. Unless it's very close to expiration, the option contract should have some \"\"time value\"\" in its market price, so, if you want to close your position at this point, earlier then expiration, it will probably be better for you to sell the contract back to the market (for more money and only one commission) than to exercise and then close the stock position (for less money and two commissions). If you want to exercise and then flip the stock back as your exit strategy, you need to be aware of the settlement times. You probably are not going to instantly have those 100 shares of stock credited to your account, so you may not be able to sell them right away, which could leave you subject to some risk of the price changing. Alternatively, you could sell the stock short to lock in the price, but you'll have to be sure that your brokerage account is set up to allow that and understand how to do this.\""
},
{
"docid": "33394",
"title": "",
"text": "If you're talking about ADBE options, that is an American style option, which can be exercised at any time before expiration. You can exercise your options by calling your broker and instructing them to exercise. Your broker will charge you a nominal fee to do so. As an aside, you probably don't want to exercise the option right now. It still has a lot of time value left, which you'll lose if you exercise. Just sell the option if you don't think ADBE will keep going up."
},
{
"docid": "102436",
"title": "",
"text": "Vesting As you may know a stock option is the right to acquire a given amount of stock at a given price. Actually acquiring the stock is referred to as exercising the option. Your company is offering you options over 200,000 shares but not all of those options can be exercised immediately. Initially you will only be able to acquire 25,000 shares; the other 175,000 have conditions attached, the condition in this case presumably being that you are still employed by the company at the specified time in the future. When the conditions attached to a stock option are satisfied that option is said to have vested - this simply means that the holder of the option can now exercise that option at any time they choose and thereby acquire the relevant shares. Dividends Arguably the primary purpose of most private companies is to make money for their owners (i.e. the shareholders) by selling goods and/or services at a profit. How does that money actually get to the shareholders? There are a few possible ways of which paying a dividend is one. Periodically (potentially annually but possibly more or less frequently or irregularly) the management of a company may look at how it is doing and decide that it can afford to pay so many cents per share as a dividend. Every shareholder would then receive that number of cents multiplied by the number of shares held. So for example in 4 years or so, after all your stock options have vested and assuming you have exercised them you will own 200,000 shares in your company. If the board declares a dividend of 10 cents per share you would receive $20,000. Depending on where you are and your exact circumstances you may or may not have to pay tax on this. Those are the basic concepts - as you might expect there are all kinds of variations and complications that can occur, but that's hopefully enough to get you started."
},
{
"docid": "595605",
"title": "",
"text": "\"Yes, you would pay no taxes at the time of purchase. In fact, this is not uncommon. Many early employees of startup companies are offered stock options that can be \"\"early-exercised\"\" (exercised before they vest). In such a case, an employee who exercises immediately upon grant (and assuming the exercise price of the option is the FMV at the time of grant) purchases the stock at FMV, and there no no tax paid when filing 83(b) election.\""
}
] |
8702 | Why is early exercise generally not recommended for an in-the-money option? | [
{
"docid": "157759",
"title": "",
"text": "For a deep in the money, it almost makes no difference because the intrinsic value, the price of the option, is seldom far above the liquidation value, the price of the underlying less the strike price. For an at the money, ceteris paribus, an early exercise would immediately cut the value of the option to 0; however, life is not so simple as JB King has shown. Purely theoretically, for an at or near the money option, an early exercise will be an instantaneous cost because the value after exercise is less than the previously trading or implied option price."
}
] | [
{
"docid": "380951",
"title": "",
"text": "You are asking 'what if', do you have some anticipated answers? Having volume smaller than open interest is the norm. As far as I can tell, having only one trading day and no previous open interest only affects someone trying to sell a contract they are holding. Meaning that if you only have one day to sell your contract then you need to offer it 'at market' or at the bid price (or even lower than the bid price). If you cannot sell your contract then you have to let it expire worthless or you have to exercise it. Those are your three options: let it expire, sell it (perhaps at a loss), and exercise it. Edit: be careful about holding an in-the-money option. Many brokers will automatically exercise an in-the-money contract if you hold it till expiration date."
},
{
"docid": "166307",
"title": "",
"text": "Depending on the day and even time, you'd get your $2 profit less the $5 commission. Jack's warning is correct, but more so for thinly traded options, either due to the options having little open interest or the stock not quite so popular. In your case you have a just-in-the-money strike for a highly traded stock near expiration. That makes for about the best liquidity one can ask for. One warning is in order - Sometime friday afternoon, there will be a negative time premium. i.e. the bid might seem lower than in the money value. At exactly $110, why would I buy the option? Only if I can buy it, exercise, and sell the stock, all for a profit, even if just pennies."
},
{
"docid": "575408",
"title": "",
"text": "An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules."
},
{
"docid": "477588",
"title": "",
"text": "\"Yes, if it's an American style option. American style options may be exercised at any time prior to expiration (even if they're not in-the-money). Generally, you are required to deliver or accept delivery of the underlying by the beginning of the next trading day. If you are short, you may be chosen by the clearinghouse to fulfill the exercise (a process called \"\"assignment\"\"). Because the clearinghouse is the counter-party to every options trade, you can be assigned even if the specific person who purchased the option you wrote didn't exercise, but someone else who holds a long position did. Similarly, you might not be assigned if that person did exercise. The clearinghouse randomly chooses a brokerage to fulfill an assignment, and the brokerage will randomly choose an individual account. If you're going to be writing options, especially using spreads, you need to have a plan ahead of time on what to do if one of your legs gets assigned. This is more likely to happen just before a dividend payment, if the payment is more than the remaining time value.\""
},
{
"docid": "11456",
"title": "",
"text": "The short answer to your initial question is: yes. The option doesn't expire until the close of the market on the day of expiration. Because the option is expiring so soon, the time value of the option is quite small. That is why the option, once it is 'in-the-money', will track so closely to the underlying stock price. If someone buys an in-the-money option on the day of expiration, they are likely still expecting the price to go up before they sell it or exercise it. Many brokers will exercise your in-the-money options sometime after 3pm on the day of expiration. If this is not what you desire, you should communicate that with them prior to that day."
},
{
"docid": "465950",
"title": "",
"text": "This is typically an issue for local law and regulation. Once one person moves out, I would recommend one of the following options: Generally speaking, if there are clear records of all of the payments made by both parties, all of the costs associated with the maintenance and who made what use of the place, the final ownership can be resolved fairly even in the absence of a clear agreement. The pain and hassle to do it, though, is generally not worth the effort - even if it's an amicable relationship between the two owners. Your best bet is to agree as early as possible on what you plan to do, and to write it down - if you didn't have a contract before moving in together, write one up now."
},
{
"docid": "428399",
"title": "",
"text": "An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money."
},
{
"docid": "469382",
"title": "",
"text": "If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario."
},
{
"docid": "33394",
"title": "",
"text": "If you're talking about ADBE options, that is an American style option, which can be exercised at any time before expiration. You can exercise your options by calling your broker and instructing them to exercise. Your broker will charge you a nominal fee to do so. As an aside, you probably don't want to exercise the option right now. It still has a lot of time value left, which you'll lose if you exercise. Just sell the option if you don't think ADBE will keep going up."
},
{
"docid": "74839",
"title": "",
"text": "The option is exercised. The option is converted into shares. That is an optional condition in closing that contract, hence why they are called options."
},
{
"docid": "401447",
"title": "",
"text": "SPX options are cash settled European style. You cannot exercise European style options before the expiration date. Assuming it is the day of expiration and you own 2,000 strike puts and the index settlement value is 1,950 - you would exercise and receive cash for the in the money amount times the contract multiplier. If instead you owned put options on the S&P 500 SPDR ETF (symbol SPY) those are American style, physically settled options. You can exercise a long American style option anytime between when your purchase it and when it expires. If you exercised SPY puts without owning shares of SPY you would end up short stock at the strike price."
},
{
"docid": "72024",
"title": "",
"text": "\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \"\"American Style\"\" options and \"\"European Style\"\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \"\"risk reduction\"\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \"\"market\"\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \"\"margin department\"\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\""
},
{
"docid": "334473",
"title": "",
"text": "You can buy a put and exercise it. The ideal option in this case will have little time premium left and very near the money. Who lent you the shares? The person that sold you the option! In reality, when you exercise, assignment can be random, but everything is [supposedly] accounted for as the option seller had to put up margin collateral to sell the option."
},
{
"docid": "345410",
"title": "",
"text": "The crucial insight is that the alternative to early exercise of an American call is not necessarily to hold it to expiry, but to sell it. And selling it, at its value, is always better than exercising it. Note that this holds only for options on assets that don't pay dividends. Here's the proof, using Put-Call-Parity. We know that at expiry T, we have (using a Call and a Put both struck at K): C(T) - P(T) = S(T) - K (if this is not clear to you, consider the case where S is less than, equal to, or greater than K at maturity, and go through each of them.) If the stock S doesn't pay any dividends (and there is no cost of carry etc.), we can replicate both sides now at time 0; we just buy one call, sell one put (that gives us the left hand side), buy the stock, and borrow money so that at time T we have to repay K (that gives us the right hand side). That means that now, we only need to borrow df * K, where df is the discount factor, and is less than one (assuming the good old pre-2009 world where interest rates are positive). Thus: C(0) - P(0) = S(0) - df * K. Rearranging gives: C(0) = S(0) - df * K + P(0). That's the value of the call, if we sell it (or hold it). However, if we exercise, we only get: C_ex = S(0) - K Now, we see that C(0) > C_ex, because we subtract less (df*K < K), and add P(0)."
},
{
"docid": "514831",
"title": "",
"text": "\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\"\"in the money\"\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\""
},
{
"docid": "332938",
"title": "",
"text": "\"I take it you have nearly zero expenses, since you don't mention any savings and with your income you wouldn't have much left over for investing. At your level of income, any actual investing is either going to unwisely reduce your cash available should you need it (such as investment in mutual funds, which often have minimum investment periods of 2-6 months or more to avoid fees), or cost you a high percentage of your income in commissions (stock trading). So, I wouldn't recommend investing at all — yet. I find Dave Ramsey's baby steps to be very good general money management advice. Here is how I would adapt the first three steps to your income and stage in life. Beyond this, Dave recommends saving for retirement, college (for kids) and paying off your house early. These things are a little beyond your stage in life, but it would be good to start thinking about them. For you, I recommend following DJClayworth's advice to \"\"invest in yourself\"\". Specifically, plan to get through college debt-free. Put away money so that you have a head start once you do have living expenses — save for a car, save money for rent, etc. so that you don't have to live month to month as most people do starting out. So, what this boils down to: Put away every cent you have, in a savings account.\""
},
{
"docid": "41967",
"title": "",
"text": "For listed options in NYSE,CBOE, is it possible for an option holder to exercise an option even if it is not in the money? Abandonment of in-the-money options or the exercise of out-of-the-money options are referred as contrarian instructions. They are sometimes forbidden, e.g. see CME - Weekly & End-of-Month (EOM) Options on Standard & E-mini S&P 500 Futures (mirror): In addition to offering European-style alternatives (which by definition can only be exercised on expiration day), both the weekly and EOM options prohibit contrarian instructions (the abandonment of in-the-money options, or the exercise of out-of-the-money options). Thus, at expiration, all in-the-money options are automatically exercised, whereas all options not in-the-money are automatically abandoned."
},
{
"docid": "305676",
"title": "",
"text": "\"In general there are two types of futures contract, a put and call. Both contract types have both common sides of a transaction, a buyer and a seller. You can sell a put contract, or sell a call contract also; you're just taking the other side of the agreement. If you're selling it would commonly be called a \"\"sell to open\"\" meaning you're opening your position by selling a contract which is different from simply selling an option that you currently own to close your position. A put contract gives the buyer the right to sell shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to put the shares on someone else. A call contract gives the buyer the right to buy shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to call on someone for shares. \"\"American\"\" options contracts allow the buyer can exercise their rights under the contract on or before the expiration date; while \"\"European\"\" type contracts can only be exercised on the expiration date. To address your example. Typically for stock an option contract involves 100 shares of a stock. The value of these contracts fluctuates the same way other assets do. Typically retail investors don't actually exercise their contracts, they just close a profitable position before the exercise deadline, and let unprofitable positions expire worthless. If you were to buy a single call contract with an exercise price of $100 with a maturity date of August 1 for $1 per share, the contract will have cost you $100. Let's say on August 1 the underlying shares are now available for $110 per share. You have two options: Option 1: On August 1, you can exercise your contract to buy 100 shares for $100 per share. You would exercise for $10,000 ($100 times 100 shares), then sell the shares for $10 profit per share; less the cost of the contract and transaction costs. Option 2: Your contract is now worth something closer to $10 per share, up from $1 per share when you bought it. You can just sell your contract without ever exercising it to someone with an account large enough to exercise and/or an actual desire to receive the asset or commodity.\""
},
{
"docid": "313372",
"title": "",
"text": "\"There are a few other items that you should be aware of when getting options: The strike price is usually determined by an independent valuation of the common shares (called a 409a valuation). This should give you a sense on what the options are worth. Obviously you are hoping that the value becomes many multiple of that. There are two kinds in the US: Non-quals (NQO) and Incentive Stock Options (ISOs). The big difference is that when you exercise Non-quals, you have to pay the tax on the difference between the \"\"fair\"\" market value on the shares and what you paid for them (the strike price). This is important because if the company is private, you likely can not sell any shares until it is public. With ISOs, you don't pay any tax (except AMT tax) on the gain until you actually sell the shares. You should know what kind your getting. Some plans allow for early exercise, essentially allowing you to buy the shares early (and given back if you leave before they vest) which helps you establish capital gains treatment earlier as well as avoid AMT if you have ISOs. This is really complicated direction and you would want to talk to a tax professional. And always a good idea to know how many total shares outstanding in the Company. Very few people ask this question but it is helpful for you to understand the overall value of the options.\""
}
] |
8779 | How does a defined contribution plan work | [
{
"docid": "180571",
"title": "",
"text": "\"The end result is basically the same, it's just a choice of whether you want to base the final amount you receive on your salary, or on the stock market. You pay in a set proportion of your salary, and receive a set proportion of your salary in return. The pension (both contributions and benefit) are based on your career earnings. You get x% of your salary every year from retirement until death. These are just a private investment, basically: you pay a set amount in, and whatever is there is what you get at the end. Normally you would buy an annuity with the final sum, which pays you a set amount per year from retirement until death, as with the above. The amount you receive depends on how much you pay in, and the performance of the investment. If the stock market does well, you'll get more. If it does badly, you could actually end up with less. In general (in as much as anything relating to the stock market and investment can be generalised), a Defined Benefit plan is usually considered better for \"\"security\"\" - or at least, public sector ones, and a majority of people in my experience would prefer one, but it entirely depends on your personal attitude to risk. I'm on a defined benefit plan and like the fact that I basically get a benefit based on a proportion of my salary and that the amount is guaranteed, no matter what happens to the stock market in the meantime. I pay in 9% of my salary get 2% of my salary as pension, for each year I pay into the pension: no questions, no if's or buts, no performance indicators. Others prefer a defined contribution scheme because they know that it is based on the amount they pay in, not the amount they earn (although to an extent it is still based on earnings, as that's what defines how much you pay in), and because it has the potential to grow significantly based on the stock market. Unfortunately, nobody can give you a \"\"which is best\"\" answer - if I knew how pension funds were going to perform over the next 10-50 years, I wouldn't be on StackExchange, I'd be out there making a (rather large) fortune on the stock market.\""
}
] | [
{
"docid": "266629",
"title": "",
"text": "\"To some extent, I suppose, most people are okay with paying Some taxes. But, as they teach in Intro to Economics, \"\"Decisions are made on the margin\"\". Few are honestly expecting to get away with paying no taxes at all. They are instead concerned about how much they spend on taxes, and how effectively. The classic defense of taxes says \"\"Roads and national defense and education and fire safety are all important.\"\" This is not really the problem that people have with taxes. People have problems with gigantic ongoing infrastructure boondoggles that cost many times what they were projected to cost (a la Boston's Big Dig) while the city streets aren't properly paved. People don't have big problems with a city-run garbage service; they have problems with the garbagemen who get six-figure salaries plus a guaranteed union-protected job for life and a defined-benefit pension plan which they don't contribute a penny to (and likewise for their health plans). People don't have a big problem with paying for schools; they have a big problem with paying more than twice the national average for schools and still ending up with miserable schools (New Jersey). People have a problem when the government issues bonds, invests the money in the stock market for the public employee pension plan, projects a 10% annual return, contractually guarantees it to the employees, and then puts the taxpayers on the hook when the Dow ends up at 11,000 instead of ~25,000 (California). And people have a problem with the attitude that when they don't pay taxes they're basically stealing that money, or that tax cuts are morally equivalent to a handout, and the insinuation that they're terrible people for trying to keep some of their money from the government.\""
},
{
"docid": "239780",
"title": "",
"text": "\">SS is not an investment. It is a Tax. Learn the difference. Thus you pay for it with the Federal Insurance Contributions Act tax (FICA). It is not an investment, you do not have an account with your money, it has always been a pay as you go plan, just like medicare, funds for schools, and all the other programs. SS is collected like a tax, but if it is infact a tax, why can I opt out of it? Come on, you really aren't trying to win an arguement about SS by saying its a \"\"tax\"\" and not a \"\"investment\"\". That's seriously the weakest bullshit, who the fuck cares the symantics of how its \"\"collected\"\".. The arguement is still the same, with no USA no SS. It is, therefore, a ponzi by definition. >The US government wrote the laws that specify exactly who can opt out. Most people cannot just opt out because they don't meet the criteria. Again you're wrong. Joining and quitting Obtaining a Social Security number for a child is voluntary.[26] Further, there is no general legal requirement that individuals join the Social Security program (although, under normal circumstances, FICA taxes must be collected anyway). Although the Social Security Act itself does not require a person to have a Social Security Number (SSN) to live and work in the United States,[27] the Internal Revenue Code does generally require the use of the social security number by individuals for federal tax purposes: The social security account number issued to an individual for purposes of section 205(c)(2)(A) of the Social Security Act shall, except as shall otherwise be specified under regulations of the Secretary [of the Treasury or his delegate], be used as the identifying number for such individual for purposes of this title.[28] Importantly, most parents apply for Social Security numbers for their dependent children in order to[29] include them on their income tax returns as a dependent. Everyone filing a tax return, as taxpayer or spouse, must have a Social Security Number or Taxpayer Identification Number (TIN) since the IRS is unable to process returns or post payments for anyone without an SSN or TIN. The FICA taxes are imposed on all workers and self-employed persons. Employers are required[30] to report wages for covered employment to Social Security for processing Forms W-2 and W-3. There are some specific wages which are not a part of the Social Security program (discussed below). Internal Revenue Code provisions section 3101[31] imposes payroll taxes on individuals and employer matching taxes. Section 3102[32] mandates that employers deduct these payroll taxes from workers' wages before they are paid. Generally, the payroll tax is imposed on everyone in employment earning \"\"wages\"\" as defined in 3121[33] of the Internal Revenue Code.[34] and also taxes[35] net earnings from self-employment.[36] **Seriously, you need to learn how to use google asshole. Stop looking like an idiot and posting blatent lies.**\""
},
{
"docid": "161330",
"title": "",
"text": "No, it doesn't work like this. Your charitable contribution is limited to the FMV. In your scenario your charitable contribution is limited by the FMV, i.e.: you can only deduct the worth of the stocks. It would be to your advantage to sell the stocks and donate cash. Had your stock appreciated, you may be required to either deduct the appreciation amount from the donation deduction or pay capital gains tax (increasing your basis to the FMV), depending on the nature of your donation. In many cases - you may be able to deduct the whole value of the appreciated stock without paying capital gains. Read the link below for more details and exceptions. In this scenario, it is probably more beneficial to donate the stock (even if required to pay the capital gains tax), instead of selling and donating cash (which will always trigger the capital gains tax). Exceptions. However, in certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Generally, this means reducing the fair market value to the property's cost or other basis. You must do this if: The property (other than qualified appreciated stock) is contributed to certain private nonoperating foundations, You choose the 50% limit instead of the special 30% limit for capital gain property, discussed later, The contributed property is intellectual property (as defined earlier under Patents and Other Intellectual Property ), The contributed property is certain taxidermy property as explained earlier, or The contributed property is tangible personal property (defined earlier) that: Is put to an unrelated use (defined later) by the charity, or Has a claimed value of more than $5,000 and is sold, traded, or otherwise disposed of by the qualified organization during the year in which you made the contribution, and the qualified organization has not made the required certification of exempt use (such as on Form 8282, Donee Information Return, Part IV). See also Recapture if no exempt use , later. See more here."
},
{
"docid": "590310",
"title": "",
"text": "Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline."
},
{
"docid": "273390",
"title": "",
"text": "\"I haven't seen this addressed anywhere else, so I'll make a small answer to add on to the great ones already here. Money isn't the only way a person can contribute to a relationship. Time and effort are valuable contributions. Who runs the household? Who cooks, cleans, does laundry? How will you share these duties? My husband and I have a couple of rules. One of which is that we don't keep count. \"\"I did dishes, so you do laundry\"\". \"\"I made coffee last time, so now it's your turn\"\". \"\"I paid this, so you pay that\"\". That's not allowed. I happen to make ~4x as much as my husband, but I work 4x the hours (he's part time at the moment). So, he does the dishes, he cooks, he does laundry, he runs the household. Do I value him less? No! I value him more, because he is part of the team, and he feeds me coffee while I work (we have our own business). Even though I make so much more than him, we still split everything down the middle. Because his contribution to this relationship, to this household, is so much more than just money. And I value him. I value his contribution. At the end of the day, you are a team - and if you split hairs over finances, you'll find yourself splitting hairs over everything.\""
},
{
"docid": "103842",
"title": "",
"text": "Does the 5 year rule apply on the After-tax 401k -> Roth 401k -> Roth IRA conversion of the 20000 (including 10000 earnings that was originally pre-tax)? No. The after-tax amounts are not subject to the 5 years rule. The earnings are. How does this affect Roth IRA withdrawal ordering rules with respect to the taxable portion of a single conversion being withdrawn before the non-taxable portion? Taxable portion first until exhausted. To better understand how it works, you need to understand the rationale behind the 5-year rule. Consider you have $100K in your IRA (traditional) and you want to take it out. Just withdrawing it would trigger a 10K statutory penalty, on top of the taxes due. But, you can use the backdoor Roth IRA, right? So convert the 100K, and then it becomes after-tax contribution to Roth IRA, and can be withdrawn with no penalty. One form filled ad 10K saved. To block this loophole, here comes the 5 years rule: you cannot withdraw after-tax amounts for at least 5 years without penalty, if the source was taxable conversion. Thus, in order to avoid the 10K penalty in the above situation, you have a 5-year cooling period, which makes the loophole useless for most cases. However amounts that are after tax can be withdrawn without penalty already, even from the traditional IRA, so there's no need in the 5 years cooling period. The withdrawal attribution is in this order: Roth IRA rollovers are sourced to the origin. E.g.: if you converted $100 to the Roth IRA at firm X and then a year later rolled it over to firm Y - it doesn't affect anything and the clock is ticking from the original date of the conversion at firm X. 5-year period applies to each conversion/rollover from a qualified retirement plan (see here). Distributions are applied to the conversions in FIFO order, so in one distribution, depending on the amounts, you may hit several different incoming conversions. The 5 years should be check on each of them, and the penalty applied on the amounts attributable to those that don't have enough time. 5-year period for contributions applies starting from the beginning of the first year of the first contribution that established your Roth IRA plan. The penalty applies to the amounts that were included in your gross income when conversion occurred, i.e.: doesn't apply on the amounts converted from after-tax sources. Note the difference from the traditional IRA - distributions from pre-tax sources are prorated between the non-deductible (basis) amounts and the deductible/earnings amounts (taxable). That is why the taxable amounts are first in the ordering of the distributions."
},
{
"docid": "60737",
"title": "",
"text": "\"According to the IRS, it appears there is no issue in a spouse under EE or EE+Child(ren) coverage contributing to an FSA while you contribute to an HSA under an EE Only HDHP account: https://www.irs.gov/pub/irs-drop/rr-05-25.pdf \"\"In Situation 1, H has HDHP self-only coverage and no other health coverage, is not enrolled in Medicare and may not be claimed as a dependent on another taxpayer’s return. Although W has non-HDHP family coverage, H is not covered under that health plan. H is therefore an eligible individual as defined in section 223(c)(1). The special rules for married individuals under section 223(b)(5) do not apply because W’s nonHDHP family coverage does not cover H. Thus, H remains an eligible individual and H may contribute up to $2,000 to an HSA (lesser of the HDHP deductible for self-only coverage or $2,650) for 2005. H may not make the catch-up contribution under section 223(b)(3) because H is not age 55 in 2005. W has non-HDHP coverage and is therefore not an eligible individual.\"\" Some more information directly from IRS form 969 published for 2015 tax returns: https://www.irs.gov/pub/irs-pdf/p969.pdf Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. You have no other health coverage except what is permitted under Other health coverage, later. You are not enrolled in Medicare. You cannot be claimed as a dependent on someone else's 2015 tax return. Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you.\""
},
{
"docid": "34538",
"title": "",
"text": "\"Some details in case you are interested: Being a defined benefit kind of pension plan, the formula for your Social Security benefits isn't tied directly to FICA contributions, and I'm not aware of any calculator that performs an ROI based on FICA contributions. Rather, how much you'll get in retirement is based on your average indexed monthly earnings. Here's some information on the Social Security calculation from the Social Security Administration - Primary Insurance Amount (PIA): For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of: (a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus (c) 15 percent of his/her average indexed monthly earnings over $4,768. Here's an example. Of course, to calculate a benefit in the future, you'll need to calculate projected average indexed monthly earnings; more details here. You'll also need to make assumptions about what those bend points might be in the future. The average wage indexing values for calculating the AIME are available from the Social Security Administration's site, but future indexing values will also need to be projected based on an assumption about their inflation. You'll also need to project the Contribution and Benefit Base which limits the earnings used to calculate contributions and benefits. Also, the PIA calculation assumes benefits are taken at the normal retirement age. Calculating an early or late retirement factor is required to adjust benefits for another age. Then, whatever benefits you get will increase each year, because the benefit is increased based on annual changes in the cost of living. Performing the series of calculations by hand isn't my idea of fun, but implementing it as a spreadsheet (or a web page) and adding in some \"\"ROI based on FICA contributions\"\" calculations might be an interesting exercise if you are so inclined? For completeness sake, I'll mention that the SSA also provides source code for a Social Security Benefit Calculator.\""
},
{
"docid": "38532",
"title": "",
"text": "\"Your contribution limit to a 401(k) is $18,000. Your employer is allowed to contribute to your 401(k), usually a \"\"matching contribution\"\". That matching contribution comes from your employer, so is not subject to your personal contribution limit. A contribution to a regular 401(k) is typically made with pre-tax money (i.e. you don't pay payroll taxes on the money you contribute) so you pay less taxes for the current tax year. However when you retire and you take money out, you pay taxes on the money you take out. On one hand, your tax rate may be lower when you have retired, but on the other hand, if your investments have appreciated over time, the total amount of tax you pay would be higher. If your company offers a Roth 401(k) plan, you can contribute $18,000 of after tax money. This way you pay the tax on the $18,000 today, as you would if you did not put the money in the 401(k), but when you take the money out at retirement, you would not have to pay tax. In my opinion, that serves as a way to pay effectively more money into your 401(k). Some firms put vesting provisions on the amount that they match in your 401(k), e.g. 4 years at 25% per year. So you have to work 1 full year to be entitled to 25% of their matching contribution, 2 years for 50%, and 4 years to receive all of it. Check your company's Summary Plan Description of the 401(k) to be sure. You are not allowed to invest pre-tax money into a Traditional IRA if you are already contributing to a 401(k) plan and have reached the income limits ($62,000 AGI for single head of household). You are allowed to contribute post-tax money to a Traditional IRA plan if you have already contributed to a 401(k), which you can then Roll-over into a Roth IRA (look up 'backdoor IRA'). The IRA contribution limit applies to all IRA accounts over that calendar year. You could put some money in a traditional IRA, a Roth IRA, another traditional IRA, etc. so long as the total amount is not more than the contribution limit. This gives you an upper limit of 5.5k + 18k = 23.5 investments in retirement accounts. Note however, once you reach age 50, these limits increase to 6.5k (IRA) + 24k (401(k)). They also are adjusted periodically with the rate of inflation. The following approach may be more efficient for building wealth: This ordering is the subject of debate and people have different opinions. There is a separate discussion of these priorities here: Best way to start investing, for a young person just starting their career? Note however, a 401(k) loan becomes payable if you leave your company, and if not repaid, is an unauthorised distribution from your 401k (and therefore subject to an additional 10% tax penalty). You should also be careful putting money into an IRA, as you will be subject to an additional 10% tax penalty if you take out the money (distribution) before retirement, unless one of the exceptions defined by the IRA applies (e.g. $10,000 for first time home purchase), which could wipe out more than any gains you made by putting it in there in the first place. Your specific circumstances may vary, so this approach may not be best for you. A registered financial advisor may be able to help - ensure they are legitimate: https://adviserinfo.sec.gov\""
},
{
"docid": "1134",
"title": "",
"text": "The HSA money is yours to keep. You can't add new money into the account and get a tax deduction for the new money, but you can spend the old money on medical expenses. First log into the website for the HSA and see if you have money left. This can be important because if there is still money left they might be charging you a monthly fee. You should have gotten a letter from the old company or the administrator when you left the High deductible insurance plan. This would have told you your options regarding the spending or transferring of old funds. HSA related numbers would have appeared on your W2, and you should have a 1099-SA from the administrator. It is likely that there is a copy of the 1099 on the administrators website. The numbers you enter on the tax forms depends on how much you contributed from your paycheck, how much your company contributed, and how much you sent (if any) from other sources besides payroll deduction. You will also have to know how much money was withdrawn from the HSA and how much was used for medical purposes. The last month rule is for those people who start in the middle of the year. If you start partway through the year you are allowed to make the maximum contribution if you still have it at the end of the year, and you expect to keep it. The Last Month Rule The Last Month Rule states that if you are covered by an HSA eligible health plan on the first day of the last month of a given year, you are considered an eligible individual for the entire year. In turn, you can then contribute to the HSA for that full year. If you are covered by an HDHP on Dec 1st of a given year, you may contribute the maximum for that year. For example, you could begin coverage and open up my HSA in November of a given year. Come December 1st, you are covered and per the Last Month Rule, considered an eligible employee for that full year. That allows you to contribute up to that year’s contribution limit, even waiting a few months to make a prior year contribution if you like. Back up the truck and load up the HSA! However, there is a catch. The Testing Period The Testing Period states if you use the Last Month Rule, you must remain an eligible individual (covered by HDHP) for the following 12 months. If you fail to remain an eligible individual (change insurance plans, lose insurance plan, receive other health coverage) any “extra” contributions you made as a result of the Last Month Rule will be taxed and penalized. If you contribute per the Last Month Rule and end your HDHP insurance within 1 year, you will have to pay tax on any excess contributions you were allowed to make and pay a 10% penalty. In this case, “excess” contributions are determined by the contribution limit / 12 months, compared to your time eligible."
},
{
"docid": "104934",
"title": "",
"text": "Please note that if you are self employed, then the profit sharing limit for both the SEP and Solo 401(k) is 20% of compensation, not 25%. There is no need for a SEP-IRA in this case. In addition to the 401(k) at work, you have a solo-401(k) for your consulting business. You can contribute $18,000 on the employee side across the two 401(k) plans however you wish. You can also contribute profit sharing up to 20% of compensation in your solo 401(k) plan. However, the profit sharing limit aggregates across all plans for your consulting business. If you max that out in your solo 401(k), then you cannot contribute to the SEP IRA. In other words, the solo 401(k) dominates the SEP IRA in terms of contributions and shares a limit on the profit-sharing contribution. If you have a solo 401(k), there is never a reason to have a SEP for the same company. Example reference: Can I Contribute to a solo 401(k) and SEP for the same company?"
},
{
"docid": "392371",
"title": "",
"text": "Does you job offer a retirement plan? (401k, SIMPLE, etc) Does your employer offer a match on contributions? Typically an employer will match what you put in, up to a certain percentage (e.g. 3%). So, say you contribute 3% of your paycheck into your retirement plan. If your employer mathes that, you've effectively contributed 6%. You've just doubled your money! The best thing a young professional can do is to contribute to your employer-matched retirement plan, up to the maximum amount they will match. You should do it immediately. If not, you are leaving money on the table."
},
{
"docid": "596429",
"title": "",
"text": "I agree that to take the money from the defined benefit plan you are saying that you can get a better return than the plan. You are taking all the risk if you take the lump sum. But there are two more risks that you are taking by keeping the money in the plan even though you are decades from retirement. Funding risk: companies and state/city/county governments have underfunded their pension programs due to budget pressure. In some cases they have skipped payments when the market was good, because they felt they were ahead of their obligations. They also delayed or skipped contributions when they had a budget shortfall, and wanted to not end the government/company fiscal year in the red. The risk is that they can get so far behind that they change their promises to current and former employees. This was one of the issues with the city of Detroit this year. Bankruptcy: even though their are guarantees regarding pension benefits, the Pension Benefit Guaranty Corporation does set a maximum benefit. If the company goes bankrupt or the plan is terminated you might not get all the money you were expecting. While the chances of taking a haircut generally impacts people who have a long career, because they are entitled to a large benefit, it can impact people who don't expect it."
},
{
"docid": "590232",
"title": "",
"text": "To determine how much you can contribute to a regular and roth IRA you have to calculate your compensation: What Is Compensation? Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1. Compensation includes all of the items discussed next (even if you have more than one type).Wages, salaries, etc. Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for provid-ing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compen-sation for IRA purposes only if shown in box 1 of Form W-2. It a also includes commissions, self-employment income, and alimony an non-taxable combat pay. For most people it is what i in box 1 of the W-2. For the example in the question. If the sum of Box 1's equals $3,200 that is the maximum you can contribute to all your IRAs (regular and Roth). The funds can come from anywhere. It is not related to your net check. The money can be from savings, gifts, parents, grandparents... The IRS doesn't care about the source of the funds, only that you don't over contribute. Of course the calculation is more complex if the person is married, and if they have access to a retirement account."
},
{
"docid": "559654",
"title": "",
"text": "If your new employer has a Final Salary or defined benefit type pension scheme, join it. DB plans are attractive because they are often less a risk for the employee. If your employer has a defined contribution scheme and contributes to it, join it and contribute at least up to the maximum amount that they will match – otherwise you are leaving free money on the table. You also probably need to sit down with an independent adviser for what to do with your existing pension (is it a DC or DB) and if you want to have a pension outside of your employer."
},
{
"docid": "504975",
"title": "",
"text": "\"It's not possible for them to be comingled. From the IRS FAQ: Does my employer need to establish a new account under its 401(k), 403(b) or governmental 457(b) plan to receive my designated Roth contributions? Yes, your employer must establish a new separate account for each participant making designated Roth contributions and must keep the designated Roth contributions completely separate from your previous and current traditional, pre-tax elective contributions. It doesn't have to be a separate \"\"account\"\" necessarily, but the amounts must be tracked separately as if they were in separate accounts: Does separate account refer to the actual funding vehicle or does it refer to separate accounting within the plan's trust? Under IRC Section 402A, the separate account requirement can be satisfied by any means by which an employer can separately and accurately track a participant’s designated Roth contributions, along with corresponding gains and losses.\""
},
{
"docid": "237215",
"title": "",
"text": "It depends on how you define trading. If you're looking at day-trading, where you're probably going to be in a highly-leveraged position for minutes or hours, the automated traders are probably going to kill you. But, if you have a handful (less than a dozen) equities, and spend about an hour or so every week conducting research, you have a good chance of doing pretty well. You need to understand the market, listen to the earnings calls, and understand the factors that contribute to the bottom line of your investments. You should not be trading for the sake of trading, you're trading to try to achieve the best returns. Beware of dogmatists and people selling products that align with their dogma. Warren Buffet invests in companies for an extremely long investment window. Mr. Buffet also expends significant resources to gain a deep understanding of the fundamentals of the businesses that he invests in and the factors affecting those fundamentals. Buffet does not buy an S&P 500 index fund and whistle dixie."
},
{
"docid": "408334",
"title": "",
"text": "A sure-fire way to make money? Hell no. There are tonnes of scams and money grabs out there, not to mention the fact that most ICOs are based on projects that are going nowhere. Having said that, there are many ICOs each month that will do very well in the future. The best thing to do is to shortlist a number of projects you like the sound of and then sit down and research each of them. Some of the key things to look out for, aside from whether you think the idea is a good one are: The team. Do they have a proven track record? Are they reputable? Is what they claim provable? Google team member names and check to see if they have a legit Linkedin profile. The Whitepaper. Is it clearly worded without spelling and grammar mistakes? Does it have a well defined roadmap with provable achievements to-date? The ICO format. How much are they looking to raise and is it a realistic figure? Are unsold tokens burnt? Is there a maximum contribution limit per investor? What does the competition look like? If they are first to market then this will make the startup way more attractive. The above are probably the most important things to consider though there are many other things to investigate. I have written a fairly comprehensive guide to all the things I look out for when analyzing the investability of an ICO. You might want to check it out before firing out your Bitcoin and ETH into dubious projects."
},
{
"docid": "297427",
"title": "",
"text": "First, determine the workload he will expect. Will you have to quit your other work, either for time or for competition? How much of your current business will be subsumed into his business, if any? Make sure to understand what he wants from you. If you make an agreement, set it in writing and set some clear expectations about what will happen to your business (e.g. it continues and is not part of your association with the client). Because he was a client for your current business, it can blur the lines. Second, if you join him, make sure there is a business entity. By working together for profit, you will have already formed a partnership for tax purposes. Best to get an entity, both for the legal protection and also for the clarity of law and accounting. LLCs are simplest for small ventures; C corps are useful if you have lots of early losses and owners that can't use them personally, or if you want to be properly formed for easy consumption by a strategic. Most VCs and super-angels prefer everybody be a straight C. Again, remember to define, as necessary, what you are contributing to be an owner and what you are retaining (your original business, which for simplicity may already be in an entity). As part of this process, make sure he defines the cap table and any outstanding loans. Auntie June and Cousin Steve might think their gifts to him were loans or equity purchases; best to clear this issue up early before there's any more money in it. Third, with regard to price, that is an intensely variable question. It matters what the cap table looks like, how early you are, how much work he's already done, how much work remains to be done, and how much it will pay off. Also, if you do it, expect to be diluted by other employees, angels, VCs, other investors, strategics, and so on. Luckily, more investors usually indicates a growing pie, so the dilution may not be at all painful. But it should still be on your horizon. You also need to consider your faith in your prospective partner's ability to run the business and to be a trustworthy partner (so you don't get Zuckerberg'd), and to market the business and the product to customers and investors. If you don't like the prospects, then opt for cash. If you like the business but want to hedge, ask for compensation plus equity. There are other tricks you could use to get out early, like forced redemption, but they probably wouldn't help either because it'd sour your relationship or the first VC or knowledgeable angel to come along will want you to relinquish that sort of right. It probably comes down to a basic question of your need for cash, his willingness to let you pursue outside work (hopefully high) and your appraisal of the business' prospects."
}
] |
8779 | How does a defined contribution plan work | [
{
"docid": "209730",
"title": "",
"text": "It is comparing apples to oranges. From govt or institution point of view defined contribution is better than defined benefits as they don't have to carry obligations. Although defined benefit sounds good, one can't guarantee it will be enough when you retire compared to inflation. It often becomes political issue. Defined contribution puts you in charge."
}
] | [
{
"docid": "55327",
"title": "",
"text": "Your spouse is eligible for an HSA even if you have one as long as she is covered by a qualified high-deductible plan. In the case that you both had HSAs you would be limited in how much you contribute each year, but both can have accounts. In 2015, you could each contribute $3350 to your separate HSA plans. If you have a combined plan, and even if you switched mid year, you could contribute $6650 during that year total to the two HSAs. That can be divided any way you want as long as the total does not exceed that maximum for the year. You can contribute an extra $1000 if you are over 55 years old. (I should probably also mention that you can still make contributions for the 2015 year until April 15, 2016, because it's relevant to most who would read this. Also you can only contribute a percentage of that limit matching the percentage of months that you are covered, but if you are covered for the last month of the year, you can contribute the full amount as long as you are covered for the ENTIRE following year.)"
},
{
"docid": "449828",
"title": "",
"text": "\"Your retirement PLAN is a lifelong plan and shouldn't be tied to your employer status. Max out your 401(k) contribution to the maximum that your employer matches (that's a 100% ROI!) and as much as you can afford. When you leave the work force rollover your 401(k) to an IRA account (e.g.: you can create an IRA account with any of the online brokerage firms Schwab, E-Trade, Sharebuilder, or go with a brick-and-mortar firm like JP Morgan, Stifel Nicolaus, etc.). You should have a plan: How much money do you need/month for your expenses? Accounting for inflation, how much is that going to be at retirement (whatever age you plan to retire)? How much money do you need to have so that 4.5% of that money will provide for your annual living expenses? That's your target retirement amount of savings. Now figure out how to get to that target. Rule #1 Invest early and invest often! The more money you can sock away early in your career the more time that money has to grow. If you aren't comfortable allocating your investments yourself then you could go with a Targeted Retirement Fund. These funds have a general \"\"date\"\" for retirement and the assets are allocated as appropriate for the amount of risk appropriate for the time to retirement.\""
},
{
"docid": "253373",
"title": "",
"text": "What is my best course of action, trying to minimize future debt? Minimizing expenses is the best thing you can do. The first step to financial independence is making do with less. Assuming I receive this $3500, am I better off using the bulk to pay off my credit cards, or should I keep as much cash available as I can? This would depend on the interest rate that is associated with the credit cards and the $3500. If the $3500 has a higher interest rate than your credit cards, then do not use any of it to pay your credit cards. Paying back the money you borrow hurts but it's the interest rate that does you in. If the interest rate for the $3500 is lower than the credit card interest, then placing some of it on the credit cards may be a wise course of action. But this depends on how long you are out of work. If you could be out of work for an extended period of time, I would recommend holding on to all of the funds. Note on saving I know this goes against the grain, but I would actually not recommend saving several months worth of funds (maybe one month though). Most employers offer some type of retirement savings account (401(k), Thrift Savings Plan, etc.). I contribute 5% to this fund instead of putting the money in savings. This is an especially effective strategy if your employer offers matching contributions such as mine. Because the divedends for a savings account are so low, it is not a wise place to store your money in the long run. If I had placed my Thrift Savings Plan contributions in a standard savings account, I would now be $12,000 poorer. In addition to this, most long term investment accounts allow you to withdraw the money early in case of emergency, such as being without work. (I also find it too temping to have huge amounts of funds on hand)."
},
{
"docid": "58103",
"title": "",
"text": "\"The \"\"Deferral\"\" for the 401k means that you're not collecting your pay immediately, but instead diverting it to a retirement account (Roth 401k in this case). This article defines deferral well: What is the difference between a regular 401(k) deferral (pre-tax) and a Roth 401(k) deferral? Under either a regular 401(k) deferral or a Roth 401(k) deferral, you make a deferral contribution by electing to set aside part of your pay (by either a certain percentage or a certain dollar amount). For a regular 401(k) deferral, the taxable wages on your W-2 are reduced by the deferral contribution; therefore, you pay less current income tax. However, you will eventually pay tax on these contributions and earnings when the plan distributes the regular 401(k) deferrals and earnings to you. The result is that the tax on the regular 401(k) deferrals and earnings is only postponed. A Roth 401(k) deferral is an after-tax contribution, which means you must pay current income tax on the deferral. Since you have already paid tax on the deferral, you won’t pay tax on it again when you receive a distribution of your Roth 401(k) deferral. In addition, if you satisfy cer tain distribution conditions, then you won’t have to pay tax on the earnings either. This means that the distribution of the Roth 401(k) earnings can be tax free not just tax postponed. Traditionally, this deferred compensation typically was directed to a 401k, but now that Roth 401k is another available option, deferred compensation can be directed there as well.\""
},
{
"docid": "546678",
"title": "",
"text": "While you have found a way to possibly gain $1275 in tax free income, you are also risking $1275 if you end up not using the money you contributed. You will have to find a way to have that much in medical expenses by your retirement date or you will leave some money in the Flexible Spending Account. There are risks you take with these accounts (use it or lose it) and risks the company takes (leave with a deficit in the account). Many times we get questions about how to spend all that the employee contributed before the last day of work, or the end of the plan year. You can play it more fair by selecting the maximum amount per check to be taken from your pay check, then waiting until the retirement date to decide how much you will withdraw from the FSA. Your last day of work is your last day to incur a medical expense but you are given a window to submit your claims that extends beyond your last day of work. I have not personally heard of an employer requiring a former employee to pay back the money when there is a deficit in their FSA. Remember people are fired, or laid off with little or no warning trapping their money in a FSA. The fact that you have the ability to plan for this event and considered your options, is a great position to be in."
},
{
"docid": "590310",
"title": "",
"text": "Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline."
},
{
"docid": "161330",
"title": "",
"text": "No, it doesn't work like this. Your charitable contribution is limited to the FMV. In your scenario your charitable contribution is limited by the FMV, i.e.: you can only deduct the worth of the stocks. It would be to your advantage to sell the stocks and donate cash. Had your stock appreciated, you may be required to either deduct the appreciation amount from the donation deduction or pay capital gains tax (increasing your basis to the FMV), depending on the nature of your donation. In many cases - you may be able to deduct the whole value of the appreciated stock without paying capital gains. Read the link below for more details and exceptions. In this scenario, it is probably more beneficial to donate the stock (even if required to pay the capital gains tax), instead of selling and donating cash (which will always trigger the capital gains tax). Exceptions. However, in certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Generally, this means reducing the fair market value to the property's cost or other basis. You must do this if: The property (other than qualified appreciated stock) is contributed to certain private nonoperating foundations, You choose the 50% limit instead of the special 30% limit for capital gain property, discussed later, The contributed property is intellectual property (as defined earlier under Patents and Other Intellectual Property ), The contributed property is certain taxidermy property as explained earlier, or The contributed property is tangible personal property (defined earlier) that: Is put to an unrelated use (defined later) by the charity, or Has a claimed value of more than $5,000 and is sold, traded, or otherwise disposed of by the qualified organization during the year in which you made the contribution, and the qualified organization has not made the required certification of exempt use (such as on Form 8282, Donee Information Return, Part IV). See also Recapture if no exempt use , later. See more here."
},
{
"docid": "227906",
"title": "",
"text": "When you withdraw from your RRSP, you lose that contribution room and you will never get it back. Let's say you have room to contribute a total of $50,000 to RRSPs. If you withdraw $5000 from one institution and deposit it in another, you will now have a total contribution room of $45,000. This will only matter to you if you hope to max out your RRSP contributions sometime in your life, of course, but almost everyone should be aiming for this. Otherwise, you are correct. Your extra income will be mitigated by your immediate recontribution to your RRSP. Note that there are two circumstances where withdrawing from your RRSP does not reduce your contribution limit. The home-buyers plan lets you withdraw up to $25,000 to buy a home. You have to repay this over no more than 15 years. The second is the Lifelong Learning Plan, which lets you withdraw up to $20,000 (up to $10,000 annually), to be repaid over a 10-year period. Any other withdrawals (or failure to repay under the HBP or LLP) will lower your RRSP contribution room. In summary, it's almost certainly worth paying the $125 fee unless you are certain you will not be maxing out your RRSP contributions in your lifetime."
},
{
"docid": "52438",
"title": "",
"text": "\"Highly Compensated Employee Rules Aim to Make 401k's Fair would be the piece that I suspect you are missing here. I remember hearing of this rule when I worked in the US and can understand why it exists. A key quote from the article: You wouldn't think the prospect of getting money from an employer would be nerve-wracking. But those jittery co-workers are highly compensated employees (HCEs) concerned that they will receive a refund of excess 401k contributions because their plan failed its discrimination test. A refund means they will owe more income tax for the current tax year. Geersk (a pseudonym), who is also an HCE, is in information services and manages the computers that process his firm's 401k plan. 401(k) - Wikipedia reference on this: To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's \"\"highly compensated\"\" employees, based on the average deferral by the company's non-highly compensated employees. If the less compensated employees are allowed to save more for retirement, then the executives are allowed to save more for retirement. This provision is enforced via \"\"non-discrimination testing\"\". Non-discrimination testing takes the deferral rates of \"\"highly compensated employees\"\" (HCEs) and compares them to non-highly compensated employees (NHCEs). An HCE in 2008 is defined as an employee with compensation of greater than $100,000 in 2007 or an employee that owned more than 5% of the business at any time during the year or the preceding year.[13] In addition to the $100,000 limit for determining HCEs, employers can elect to limit the top-paid group of employees to the top 20% of employees ranked by compensation.[13] That is for plans whose first day of the plan year is in calendar year 2007, we look to each employee's prior year gross compensation (also known as 'Medicare wages') and those who earned more than $100,000 are HCEs. Most testing done now in 2009 will be for the 2008 plan year and compare employees' 2007 plan year gross compensation to the $100,000 threshold for 2007 to determine who is HCE and who is a NHCE. The threshold was $110,000 in 2010 and it did not change for 2011. The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2 percentage points greater (or 125% of, whichever is more) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a \"\"qualified non-elective contribution\"\" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level. The return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15 of the year following the failed test. A QNEC must be an immediately vested contribution. The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to \"\"shift\"\" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC). There are a number of \"\"safe harbor\"\" provisions that can allow a company to be exempted from the ADP test. This includes making a \"\"safe harbor\"\" employer contribution to employees' accounts. Safe harbor contributions can take the form of a match (generally totaling 4% of pay) or a non-elective profit sharing (totaling 3% of pay). Safe harbor 401(k) contributions must be 100% vested at all times with immediate eligibility for employees. There are other administrative requirements within the safe harbor, such as requiring the employer to notify all eligible employees of the opportunity to participate in the plan, and restricting the employer from suspending participants for any reason other than due to a hardship withdrawal.\""
},
{
"docid": "336917",
"title": "",
"text": "\"It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? \"\"Deductible\"\"? Nothing is deductible. First you need to calculate your \"\"compensation\"\". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not \"\"deducted\"\" - deferred).\""
},
{
"docid": "394549",
"title": "",
"text": "\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\""
},
{
"docid": "192857",
"title": "",
"text": "Didn't see it mentioned so far, but depending on modified AGI you may be prevented from a tax deduction for your contribution to a Traditional IRA if you or your spouse are offered a retirement plan at work, even if you don't participate in it. See the IRS page here for the details of deduction limitability: https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work In my opinion, because I heavily favor all the benefits of the Roth, I'd contribute first to a Roth IRA and then to the Roth 401(k). The former first because it puts the money in a place where you have more control over fees and how it is invested. The latter because the contribution limits are much higher than the IRA, and the money grows tax-free and incurs no taxes on withdrawal."
},
{
"docid": "250844",
"title": "",
"text": "There are some nuances with HCE definition. To answer your questions. It's compensation as defined by the plan. Usually it's gross comp, but it can exclude things like fringe benefits, overtime pay, commissions, bonuses, etc. The compensation test is also a look-back test, meaning that an EE is determined to be an HCE in the current year if their compensation in the previous year was over the limit. I'm not sure how stock options affect this, but I expect they would be counted. Probably have an ESOP plan at that point too which is a whole other can-o-woms. The 5% owner test applies to the current year and also has a one-year look-back period. If at ANY point, even for a day, an employee was more than 5% owner, they are HCE for that year and next. Yes there is a limit. A company may limit the amount of HCE's to the top 20% of employees by pay like Aganju said. They can also disregard employees that may otherwise have been excluded under the plan using statutory exclusions. Example, they can disregard employees under 21 years and with less than 1 year of service. Hahaha, the IRS does not like to concisely define things. You can look here, that's probably as concise as you'll get. Hope this helps!"
},
{
"docid": "470173",
"title": "",
"text": "\"This is a great question! The IRS is not 100% clear on this. IRS publications do however very strongly suggest that assuming your wife has a plan providing family coverage, you can contribute up to your family maximum. If she does NOT have a family coverage plan then the answer is definitively no, you may only contribute the individual limit. Note if you have children covered by her plan then she is considered to have \"\"family coverage\"\" even if you are not covered by her plan (see here, question 12). From the 2012 IRS publication, bottom of Page 4. For 2012, if you have self-only HDHP coverage, you can contribute up to $3,100. If you have family HDHP coverage, you can contribute up to $6,250. This is presumably the referencing the definition which is introduced and discussed for married couples on Page 6: Rules for married people. If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2012 is $6,250. You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouse's Archer MSAs. After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. Example. For 2012, Mr. Auburn and his wife are both eligible individuals. They each have family coverage under separate HDHPs. Mr. Auburn is 58 years old and Mrs. Auburn is 53. Mr. and Mrs. Auburn can split the family contribution limit ($6,250) equally or they can agree on a different division. If they split it equally, Mr. Auburn can contribute $4,125 to an HSA (one-half the maximum contribution for family coverage ($3,125) + $1,000 additional contribution) and Mrs. Auburn can contribute $3,125 to an HSA. The last example is nearly the exact situation you are in assuming your wife's plan is family coverage. The only assumption beyond what is explicitly written you need to make is that you are considered to have family coverage in the example as per the \"\"Rules for married people\"\" section, even though your plan only is a single-coverage plan. This conclusion seems to logically follow from information in the FAQs here (see Q32), as well as this document. Neither the above example nor any IRS documents referenced in this answer cover your situation completely.\""
},
{
"docid": "482768",
"title": "",
"text": "There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions. Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040. Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw? Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income."
},
{
"docid": "26431",
"title": "",
"text": "\"The FSA, in contrast to the HSA, is not an \"\"account\"\" that you put money in. FSA stands for \"\"Flexible Spending Arrangement,\"\" not \"\"Account.\"\" Technically, it is a defined-benefit plan. Here is the difference: With an account such as an HSA, you put money into the account, and you get that same money out. You can't take money out unless you first put money in. The FSA doesn't work that way. Instead, you pick an annual amount that your FSA will cover, and work out a monthly fee to pay for it. For example, you might decide on a $1800 FSA, which will cost you $150 per month. However, the $150 you pay each month does not go into an account for you; instead, it goes to your employer, who is managing the plan. Let's say that in January, at the beginning of the plan year, you have a large medical expense of $1000. You've only had $150 taken out of your paycheck so far this year, but you are covered for $1800, so you get reimbursed the full $1000. This is referred to as \"\"uniform coverage\"\", meaning that you get the full $1800 of coverage on day 1 of the year. Now let's say that you leave your job in March. You've only paid $450, and you've received $1000 in benefit. You do not owe your employer the rest of the money; your employer eats this cost. This is the trade-off that the FSA offers over other types of accounts: depending on an employee's circumstances, an employer might make money (use-it-or-lose-it) or might lose money (uniform coverage) on an individual employee. The idea behind the use-it-or-lose-it provision of the FSA is to help the employer pay for the uniform coverage provision. The details behind the FSA (and other types of health plans) are outlined in IRS Publication 969. I'm sure that a secondary reason behind the use-it-or-lose-it provision is that it encourages an employee to keep his FSA plan small, so he can use it all up and not have to lose too much of it at the end of the year. And a smaller FSA contribution means more tax money for the government. To address your point that it shouldn't be this way: I'm personally not a fan of the FSA because of the use-it-or-lose-it provision. But participation is voluntary, for both employers and employees. You proposed an alternative set of rules for the FSA, but you are basically describing an HSA, in which you cannot spend more than you have, and you get to keep whatever is left over. The recent rules changes that allow plans to feature a grace period or a small carryover balance were an attempt to make the FSA a little more attractive/useful, but if you want the ability to keep your money and not have to spend it at all, use an HSA instead.\""
},
{
"docid": "458183",
"title": "",
"text": "Here would be the general steps to my mind for creating such a plan: Write out the final desired outcome. Is it $x in y years to fund your retirement? Is it $a in b years to put as a house down payment? This is the first step in defining how much money you want at what point in time. Consider what is your risk tolerance and how much time do you plan on spending in this plan. Is it rebalancing once a quarter and that's it or do you plan on doing monthly research and making tweaks all the time? This is slightly different from the first where one has to be mindful of how much volatility would one handle and what time commitment does one have for an investing strategy. Also, how much money would you be adding to the investments on what kind of time table would also be worth noting here. Construct the asset allocation based on the previous two steps along with historical returns averaged out to be a first draft of what you are buying in general. Is it US stocks? Is it a short-term bond fund? There are more than a few choices here that may make sense and it is worth considering based on the first couple of responses that determine what this will look like. Retirement in 40 years may be quite different than a house down payment in 2 years for example. Determine what brokerages or fund companies would offer such funds along with what types of accounts you'd want to have as in some countries there may be tax-advantaged accounts that may be useful to use here. This is where you're almost ready to start by doing the homework of figuring out how will things work. This may vary depending on one's jurisdiction. Get the applications from whatever institutions you'll be using and run with the desired asset allocation across various funds and accounts. Note that in the first few steps there were points of being aware of how much would you have, how aggressive are you investing and so forth. This is where you actually send in the money and get things rolling. Run with the plan and make tweaks as needed to achieve result, hopefully desired or better."
},
{
"docid": "104934",
"title": "",
"text": "Please note that if you are self employed, then the profit sharing limit for both the SEP and Solo 401(k) is 20% of compensation, not 25%. There is no need for a SEP-IRA in this case. In addition to the 401(k) at work, you have a solo-401(k) for your consulting business. You can contribute $18,000 on the employee side across the two 401(k) plans however you wish. You can also contribute profit sharing up to 20% of compensation in your solo 401(k) plan. However, the profit sharing limit aggregates across all plans for your consulting business. If you max that out in your solo 401(k), then you cannot contribute to the SEP IRA. In other words, the solo 401(k) dominates the SEP IRA in terms of contributions and shares a limit on the profit-sharing contribution. If you have a solo 401(k), there is never a reason to have a SEP for the same company. Example reference: Can I Contribute to a solo 401(k) and SEP for the same company?"
},
{
"docid": "328101",
"title": "",
"text": "\"my taxable income was roughly $230,000 in 2012. Indeed it is relevant. The highest AGI limit for deductible IRA contributions is 112K. So no, IRA contribution will not help you reducing your tax bill this year. The deduction phases out starting from AGI limits of $10K in certain cases (for married filing separately), and phases out entirely for anyone at AGI of 112K (for 2012). The table linked describes the various deduction phase-out parameters depending on your filing status, and will probably be updated yearly by the IRS. However this is only relevant if your company provides a retirement plan, as Joe mentioned. If your company doesn't provide a retirement plan but your spouse's does - then the AGI phase-out limit is $178K. If neither you nor your spouse (if you have one) is covered - then there's no AGI limit, and you can indeed make an IRA contribution before April 15th that would be attributed to the previous year and reduce your tax bill. Note that \"\"provides\"\" means the plan is available, even if you don't participate in it, any time during the year.\""
}
] |
8789 | What does “profits to the shareholders jumped to 15 cents a share” mean? | [
{
"docid": "87349",
"title": "",
"text": "\"It means that the company earned 15 cents per share in the most recently reported quarter. Share price may or not be affected, depending on how buyers and sellers value the company. Just because profits \"\"jumped,\"\" does not mean the shares will follow suit. An increase in profits may have already been priced into the stock, or the market expected the increase in profit to be even higher. As the shareholder, you don't actually get any of these profits into your hands, unless the company pays out a portion of these profits as a dividend.\""
}
] | [
{
"docid": "480808",
"title": "",
"text": "Let me answer by parts: When a company gives dividends, the share price drops by the dividend amount. Not always by that exact amount for many different reasons (e.g. there are transaction costs if you reinvest, dividend taxes, etc). I have tested that empirically. Now, if all the shareholders choose to reinvest their dividends, will the share price go back up to what it was prior to the dividend? That is an interesting question. The final theoretical price of the company does not need to be that. When a company distributes dividends its liquidity diminish, there is an impact on the balance sheet of the company. If all investors go to the secondary market and reinvest the dividends in the shares, that does not restore the cash in the balance sheet of the company, hence the theoretical real value of the company is different before the dividends. Of course, in practice there is not such a thing as one theoretical value. In reality, if everybody reinvest the dividend, that will put upward pressure over the price of the company and, depending on the depth of the offers, meaning how many orders will counterbalance the upward pressure at the moment, the final price will be determined, which can be higher or lower than before, not necessarily equal. I ask because some efts like SPY automatically reinvest dividends. So what is the effect of this reinvestment on the stock price? Let us see the mechanics of these purchases. When a non distributing ETF receives cash from the dividends of the companies, it takes that cash and reinvest it in the whole basket of stocks that compose the index, not just in the companies that provided the dividends. The net effect of that is a small leverage effect. Let us say you bought one unit of SPY, and during the whole year the shares pay 2% of dividends that are reinvested. At the end of that year, it will be equivalent to having 1.02 units of SPY."
},
{
"docid": "357319",
"title": "",
"text": "It appears that you have bought into the Communist lie. Milton Friedman lats it all out so well. No transaction ever occurs unless both sides in the transaction benefit. Let's say you are out for a walk. While walking you feel hungry. You find two quarters ($0.50) in your pocket. You enter the nearest convenience store and look for a snack cake to buy. You find a Twinky selling for 40 cents. You pay for the Twinky and leave the store while eating it. You also leave with a dime in your pocket. To you the Twinky is worth 50 cents as you would have paid what you had to obtain one. So made 10 cents profit on the deal. The shopkeeper sold his merchandise for 40 cents but it only cost him 25 cents to obtain the Twinky. He made 15 cents profit on the deal. You wanted the snack more than you wanted the money. The shopkeeper wanted the money more than the snack. You both got what you valued more. You both profited by the transaction. That is why Capitalism works. Value (worth) is in the eye of the beholder. Remember: no transaction occurs unless both sides profit. Edit: once again I ask: if you give me a negative vote please explain with a comment."
},
{
"docid": "63296",
"title": "",
"text": "\"If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable. Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. \"\"But wait,\"\" you say, \"\"that's not the same - my net worth has decreased!\"\" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, \"\"no we're not done, we're still building our business!\"\". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market.\""
},
{
"docid": "193485",
"title": "",
"text": "\"A nondividend distribution is typically a return of capital; in other words, you're getting money back that you've contributed previously (and thus would have been taxed upon in previous years when those funds were first remunerated to you). Nondividend distributions are nontaxable, so they do not represent income from capital gains, but do effect your cost basis when determining the capital gain/loss once that capital gain/loss is realized. As an example, publicly-traded real estate investment trusts (REITs) generally distribute a return of capital back to shareholders throughout the year as a nondividend distribution. This is a return of a portion of the shareholder's original capital investment, not a share of the REITs profits, so it is simply getting a portion of your original investment back, and thus, is not income being received (I like to refer to it as \"\"new income\"\" to differentiate). However, the return of capital does change the cost basis of the original investment, so if one were to then sell the shares of the REIT (in this example), the basis of the original investment has to be adjusted by the nondividend distributions received over the course of ownership (in other words, the cost basis will be reduced when the shares are sold). I'm wondering if the OP could give us some additional information about his/her S-Corp. What type of business is it? In the course of its business and trade activity, does it buy and sell securities (stocks, etc.)? Does it sell assets or business property? Does it own interests in other corporations or partnerships (sales of those interests are one form of capital gain). Long-term capital gains are taxed at rates lower than ordinary income, but the IRS has very specific rules as to what constitutes a capital gain (loss). I hate to answer a question with a question, but we need a little more information before we can weigh-in on whether you have actual capital gains or losses in the course of your S-Corporation trade.\""
},
{
"docid": "411617",
"title": "",
"text": "The same applies if you were looking for a business to buy: would you pay more for a business that is doing well making increasing profits year after year, or for a business that is not doing so well and is losing money. A share in a company is basically a small part of a company which a shareholder can own. So would you rather own a part of a company that is increasing profits year after year or one that is continuously losing money? Someone would buy shares in a company in order to make a better return than they could make elsewhere. They can make a profit through two ways: first, a share of the company's profits through dividends, and second capital gains from the price of the shares going up. Why does the price of the shares go up over the long term when a company does well and increases profits? Because when a company increases profits they are making more and more money which increases the net worth of the company. More investors would prefer to buy shares in a company that makes increasing profits because this will increase the net worth of the company, and in turn will drive the share price higher over the long term. A company's increase in profits creates higher demand for the company's shares. Think about it, if interest rates are so low like they are now, where it is hard to get a return higher than inflation, why wouldn't investors then search for higher returns in good performing companies in the stock market? More investors' and traders' wanting some of the pie, creates higher demand for good performing stocks driving the share price higher. The demand for these companies is there primarily because the companies are increasing their profits and net worth, so over the long term the share price will increase in-line with the net worth. Over the short to medium term other factors can also affect the share price, sometime opposite to how the company is actually performing; however this is a whole different answer to a whole different question."
},
{
"docid": "597346",
"title": "",
"text": "It may have some value! Investopedia has a well-written quick article on how stock holders may still get some portion of the liquidated assets. While there is generally little left for common shareholders if the price of those shares is tiny and some money does come back to shareholders there can still be significant profit to be made. As to why the trading volume is so high... there are many firms and hedge funds that specialize in calculating the value of and buying distressed debt and stock. They often compete with each other to by the stock/debt that common shareholders are trying to get rid of. In this particular case, there is a lot of popular interest, intellectual property at stake and pending lawsuits that probably boosts volume."
},
{
"docid": "517323",
"title": "",
"text": "The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares."
},
{
"docid": "421371",
"title": "",
"text": "\"It's been said before, but to repeat succinctly, a company's current share price is no more or less than what \"\"the market\"\" thinks that share is worth, as measured by the price at which the shares are being bought and sold. As such, a lot of things can affect that price, some of them material, others ethereal. A common reason to own stock is to share the profits of the company; by owning 1 share out of 1 million shares outstanding, you are entitled to 1/1000000 of that company's quarterly profits (if any). These are paid out as dividends. Two key measurements are based on these dividend payments; the first is \"\"earnings per share\"\", which is the company's stated quarterly profits, divided by outstanding shares, with the second being the \"\"price-earnings ratio\"\" which is the current price of the stock divided by its EPS. Your expected \"\"yield\"\" on this stock is more or less the inverse of this number; if a company has a P/E ratio of 20, then all things being equal, if you invest $100 in this stock you can expect a return of $5, or 5% (1/20). As such, changes in the expected earnings per share can cause the share price to rise or fall to maintain a P/E ratio that the pool of buyers are willing to tolerate. News that a company might miss its profit expectations, due to a decrease in consumer demand, an increase in raw materials costs, labor, financing, or any of a multitude of things that industry analysts watch, can cause the stock price to drop sharply as people look for better investments with higher yields. However, a large P/E ratio is not necessarily a bad thing, especially for a large stable company. That stability means the company is better able to weather economic problems, and thus it is a lower risk. Now, not all companies issue dividends. Apple is probably the most well-known example. The company simply retains all its earnings to reinvest in itself. This is typically the strategy of a smaller start-up; whether they're making good money or not, they typically want to keep what they make so they can keep growing, and the shareholders are usually fine with that. Why? Well, because there's more than one way to value a company, and more than one way to look at a stock. Owning one share of a stock can be seen quite literally as owning a share of that company. The share can then be valued as a fraction of the company's total assets. Sounds simple, but it isn't, because not every asset the company owns has a line in the financial statements. A company's brand name, for instance, has no tangible value, and yet it is probably the most valuable single thing Apple owns. Similarly, intellectual property doesn't have a \"\"book value\"\" on a company's balance sheet, but again, these are huge contributors to the success and profitability of a company like Apple; the company is viewed as a center of innovation, and if it were not doing any innovating, it would very quickly be seen as a middleman for some other company's ideas and products. A company can't sustain that position for long even if it's raking in the money in the meantime. Overall, the value of a company is generally a combination of these two things; by owning a portion of stock, you own a piece of the company's assets, and also claim a piece of their profits. A large company with a lot of material assets and very little debt can be highly valued based solely on the sum of its parts, even if profits are lagging. Conversely, a company more or less operating out of a storage unit can have a patent on the cure for cancer, and be shoveling money into their coffers with bulldozers.\""
},
{
"docid": "35267",
"title": "",
"text": "I hear this a lot but how does it work exactly? Is it the more money you have in your share (savings) account the more weight your vote carries? Or does each member get one vote? I've been a credit union member for 15 years and have never had any say in anything. I also work for a small bank and both institutions are basically the same. My bank has better rates than my credit union on lended money but my CU pays higher rates on my money. My bank is also a publicly traded company and has regular meetings in which any shareholders can come voice their opinion, I've never heard anything about such activity with my credit union."
},
{
"docid": "571203",
"title": "",
"text": "Companies are expected to make a profit, otherwise there is no point to their existence and no motivation for investment. That profit comes back to shareholders as growth and/or dividend. If a company is doing well and has a healthy profit to turn back into investment to facilitate increased future earnings, it increases shareholder equity and share price. If a company is doing well and has a healthy profit to pay out in dividend, it makes the shares more attractive to investors which pushes the price up. Either way, shares go up. Share prices drop when companies lose money, or there are market disturbances affecting all companies (recessions), or when individual companies fail. Averaged over all companies over the long term (decades), stocks can be reasonably expected to go up."
},
{
"docid": "54257",
"title": "",
"text": "\"If you own 1% of a company, you are technically entitled to 1% of the current value and future profits of that company. However, you cannot, as you seem to imply, just decide at some point to take your ball and go home. You cannot call up the company and ask for 1% of their assets to be liquidated and given to you in cash. What the 1% stake in the company actually entitles you to is: 1% of total shareholder voting rights. Your \"\"aye\"\" or \"\"nay\"\" carries the weight of 1% of the total shareholder voting block. Doesn't sound like much, but when the average little guy has on the order of ten-millionths of a percentage point ownership of any big corporation, your one vote carries more weight than those of millions of single-share investors. 1% of future dividend payments made to shareholders. For every dollar the corporation makes in profits, and doesn't retain for future growth, you get a penny. Again, doesn't sound like much, but consider that the Simon property group, ranked #497 on the Fortune 500 list of the world's biggest companies by revenue, made $1.4 billion in profits last year. 1% of that, if the company divvied it all up, is $14 million. If you bought your 1% stake in March of 2009, you would have paid a paltry $83 million, and be earning roughly 16% on your initial investment annually just in dividends (to say nothing of the roughly 450% increase in stock price since that time, making the value of your holdings roughly $460 million; that does reduce your actual dividend yield to about 3% of holdings value). If this doesn't sound appealing, and you want out, you would sell your 1% stake. The price you would get for this total stake may or may not be 1% of the company's book value. This is for many reasons: Now, to answer your hypothetical: If Apple's stock, tomorrow, went from $420b market cap to zero, that would mean that the market unanimously thought, when they woke up tomorrow morning, that the company was all of a sudden absolutely worthless. In order to have this unanimous consent, the market must be thoroughly convinced, by looking at SEC filings of assets, liabilities and profits, listening to executive statements, etc that an investor wouldn't see even one penny returned of any cash investment made in this company's stock. That's impossible; the price of a share is based on what someone will pay to have it (or accept to be rid of it). Nobody ever just gives stock away for free on the trading floor, so even if they're selling 10 shares for a penny, they're selling it, and so the stock has a value ($0.001/share). We can say, however, that a fall to \"\"effectively zero\"\" is possible, because they've happened. Enron, for instance, lost half its share value in just one week in mid-October as the scope of the accounting scandal started becoming evident. That was just the steepest part of an 18-month fall from $90/share in August '00, to just $0.12/share as of its bankruptcy filing in Dec '01; a 99.87% loss of value. Now, this is an extreme example, but it illustrates what would be necessary to get a stock to go all the way to zero (if indeed it ever really could). Enron's stock wasn't delisted until a month and a half after Enron's bankruptcy filing, it was done based on NYSE listing rules (the stock had been trading at less than a dollar for 30 days), and was still traded \"\"over the counter\"\" on the Pink Sheets after that point. Enron didn't divest all its assets until 2006, and the company still exists (though its mission is now to sue other companies that had a hand in the fraud, get the money and turn it around to Enron creditors). I don't know when it stopped becoming a publicly-traded company (if indeed it ever did), but as I said, there is always someone willing to buy a bunch of really cheap shares to try and game the market (buying shares reduces the number available for sale, reducing supply, increasing price, making the investor a lot of money assuming he can offload them quickly enough).\""
},
{
"docid": "217006",
"title": "",
"text": "Am I correct in understanding that a Scrip Dividend involves the issue of new shares instead of the purchase of existing shares? Yes. Instead of paying a cash dividend to shareholders, the company grants existing shareholders new shares at a previously determined price. This allows shareholders who join the program to obtain new shares without incurring transaction costs that would normally occur if they purchased these shares in the market. Does this mean that if I don't join this program, my existing shares will be diluted every time a Scrip Dividend is paid? Yes, because the number of shares has increased, so the relative percentage of shares in the company you hold will decrease if you opt-out of the program. The price of the existing shares will adjust so that the value of the company is essentially unchanged (similar to a stock split), but the number of outstanding shares has increased, so the relative weight of your shares declines if you opt out of the program. What is the benefit to the company of issuing Scrip Dividends? Companies may do this to conserve their cash reserves. Also, by issuing a scrip dividend, corporations could avoid the Advanced Corporation Tax (ACT) that they would normally pre-pay on their distributions. Since the abolition of the ACT in 1999, preserving cash reserves is the primary reason for a company to issue scrip dividends, as far as I know. Whether or not scrip dividends are actually a beneficial strategy for a company is debatable (this looks like a neat study, even though I've only skimmed it). The issue may be beneficial to you, however, because you might receive a tax benefit. You can sell the scrip dividend in the market; the capital gain from this sale may fall below the annual tax-free allowance for capital gains, in which case you don't pay any capital gains tax on that amount. For a cash dividend, however, there isn't a minimum taxable amount, so you would owe dividend tax on the entire dividend (and may therefore pay more taxes on a cash dividend)."
},
{
"docid": "306149",
"title": "",
"text": "Fully Paid up Partly Paid up: A company may issue stock to you which is only partly paid up, for example, a company may issue a stock of face value 10 to you and ask you to pay 5 now and other 5 will be adjusted later by some other mechanism. This stock shall be partly paid up. Usually, these stocks are issued in different circumstances, for example as part payment for debentures, preference shares or other capital structuring. On the other hand for a fully paid up share no more money needs to be paid by you or no other adjustments need to be made. So, above, the company is issuing you with stocks for which you will need to pay no further money, they are fully paid for. Authorized Capital: Authorized capital of a company is the amount of money a company can raise by selling stock (not debt, equity). This number is registered when the company is incorporated, subsequently, this number can be revised upward by applying to the registrar of companies. Now, this means that at max. the company is authorized to raise this much capital and no more. However, a company may raise less than this, which is called Issued Capital. In your case, the company is raising its authorized capital by applying to the registrar of companies, though in this case they are looking at their full authorized capital to be issued capital, it was not necessary to do so. Increase of Authorized capital: The main benefit is that the company can get more money in form of equity and utilize the same, perhaps, for expansion of business etc., that is the primary benefit. Bonus Share: Usually, companies keep some surplus as reserve, this money comes out of the profit the company makes and is essentially money of the shareholders. This reserve surplus is maintained for situations, when the money may be required for exigencies. However, this surplus grows over a few years and the company usually the company plans for an expansion of business. However, this money cannot be just taken, as it belongs to the shareholder, so shareholders are issued extra equity in proportion to their current holding and this surplus is capitalized i.e. used as part of the company's equity capital. Bonus declaration does not add t o the value of the company and the share prices fall in proportion (but not quite) to the bonus."
},
{
"docid": "567552",
"title": "",
"text": "Typically, no. Unless you have a detailed agreement spelling out the apportioning of costs, all operating expenses are deducted from gross income first, with the division of the proceeds coming out of net profit, in accordance with the type and % of shares you own, and per the terms of the shareholders agreement. This is a simplified answer, and does not address other methods of extraction, such as wages paid, loans to shareholders, interest paid on loans from shareholders, etc.."
},
{
"docid": "456470",
"title": "",
"text": "What is a dividend? Essentially, for every share of a dividend stock that you own, you are paid a portion of the company’s earnings. You get paid simply for owning the stock! For example, let’s say Company X pays an annualized dividend of 20 cents per share. Most companies pay dividends quarterly (four times a year), meaning at the end of every business quarter, the company will send a check for 1/4 of 20 cents (or 5 cents) for each share you own. This may not seem like a lot, but when you have built your portfolio up to thousands of shares, and use those dividends to buy more stock in the company, you can make a lot of money over the years. The key is to reinvest those dividends! Source: http://www.dividend.com/dividend-investing-101/what-are-dividend-stocks/ What is an ex dividend date Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend. Source: https://www.sec.gov/answers/dividen.htm That said, as long as you purchased the stock before 6/4/17 you are entitled to the next dividend. If not, you'll get the following one after that."
},
{
"docid": "275392",
"title": "",
"text": "Theoretically, when a company issues more shares, it does not affect the value of your shares. The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake. Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each. The company receives $100,000 from new investors, and now the company is worth $200,000. Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling. When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is. When a company wants to sell more shares, this is called an increase of authorized share capital. In order to do this, the company generally needs the approval of a majority of the existing shareholders."
},
{
"docid": "151132",
"title": "",
"text": "\"First, keep in mind that there are generally 2 ways to buy a corporation's shares: You can buy a share directly from the corporation. This does not happen often; it usually happens at the Initial Public Offering [the first time the company becomes \"\"public\"\" where anyone with access to the stock exchange can become a part-owner], plus maybe a few more times during the corporations existence. In this case, the corporation is offering new ownership in exchange for a price set the corporation (or a broker hired by the corporation). The price used for a public offering is the highest amount that the company believes it can get - this is a very complicated field, and involves many different methods of evaluating what the company should be worth. If the company sets the price too low, then they have missed out on possible value which would be earned by the previous, private shareholders (they would have gotten the same share % of a corporation which would now have more cash to spend, because of increased money paid by new shareholders). If the company sets the price too high, then the share subscription might only be partially filled, so there might not be enough cash to do what the company wanted. You can buy a share from another shareholder. This is more common - when you see the company's share price on the stock exchange, it is this type of transaction - buying out other current shareholders. The price here is simply set based on what current owners are willing to sell at. The \"\"Bid Price\"\" listed by an exchange is the current highest bid that a purchaser is offering for a single share. The \"\"Ask Price\"\" is the current lowest offer that a seller is offering to sell a single share they currently own. When the bid price = the ask price, a share transaction happens, and the most recent stock price changes.\""
},
{
"docid": "405791",
"title": "",
"text": "\"I seem not to be able to comment on the first answer due to reputation, so I'll aim to enhanced the first answer which is generally good but with these caveats: 1) Dividends are not \"\"guaranteed\"\" to preferred shareholders. Rather, preferred shareholders are normally in line ahead (i.e. in preference to or \"\"preferred\"\") of common shareholders in terms of dividend payment. This is an extremely important distinction, because unlike investments that we generally consider \"\"guaranteed\"\" such as CDs (known as GICs in Canada), a company's board can suspend the dividend at anytime for long periods of time without significant repercussions -- whereas a missed payment to a bank or secured bondholder can often push a company into bankruptcy very quickly. 2) Due to point 1), it is extremely important to know the \"\"convenants\"\" or rules sorrounding both the preferred shares you are buying and the other more senior creditors of that issuing company (i.e. taxes (almost always come first), banks loans, leases, bonds etc.). It is also important to know if a particular preferred share has \"\"cumulative\"\" dividends. You generally only want to buy preferred's that have \"\"cumulative\"\" dividends, since that means that anytime the company misses a payment, they must pay those dividends first before any other dividends at the same or lower priority in the future. 3) Unlike a common stock, your upside on a preferred stock is relatively fixed: you get a fixed share of the company's profit and that's it, whereas a common shareholder gets everything that's left over after interest and preferred dividends are paid. So if the company does really well you will theoretically do much better with common stock over time. For the above reasons, it is generally advisable to think of preferred shares as being more similar to really risky bonds in the same company, rather than similar to common stock. Of course, if you are an advanced investor there are a lot more variables in play such as tax considerations and whether the preferred have special options attached to them such conversion into common shares.\""
},
{
"docid": "507128",
"title": "",
"text": "Having a debt on a balance sheet does impact the capability and willingness of the company to pay dividend. But more than this it depends on the profitability of the company. If the company is profitable, there is no reasons why it's share holders should not be rewarded. If the company does not have debt, lot of money and no profit, normally no or a symbolic dividend is paid. It is a good move by Fort. Dividend is the effective way of paying something back to the shareholders."
}
] |
8789 | What does “profits to the shareholders jumped to 15 cents a share” mean? | [
{
"docid": "70853",
"title": "",
"text": "It's a way to help normalize the meaning of the earnings report. Some companies like Google have a small number of publicly traded shares (322 Million). Others like Microsoft have much larger numbers of shares (8.3 Billion). The meaning depends on the stock. If it's a utility company that doesn't really grow, you don't want to see lots of changes -- the earnings per share should be stable. If it's a growth company, earnings should be growing quickly, and flat growth means that the stock is probably going down, especially if slow growth wasn't expected."
}
] | [
{
"docid": "386846",
"title": "",
"text": "I'm not a Millennial, either. I was born right in the middle of Gen X. I don't hate Applebee's, but I don't eat there, either. There are a number of small mom and pop restuarants in town. The cost of eating at those is roughly *half* of a meal at Applebee's, and the food is usually better. Further, I recently bought a house and have upgraded the kitchen, so I will be cooking for myself much more often. Homemade meals are about 10%-25% the cost of Applebee's. Quality is much higher, too. There are two problems with Applebee's. One, too many grasping hands. IIRC, Applebee's is a franchise. That means the franchisee, corporate and shareholders are all squabbling over their share of the profits. That leads to cuts in product quality and underpaying employees. That's a recipe for disaster. Yes, I believe in profit, but the profit should be going to only *one* entity. Otherwise, you start crapping on product and employees, which suppress profits. The other problem is complexity. How many items are on the Applebee's menu? Probaby 80-100. I haven't counted. That's too many. They need to get it down to 15-20 items and go all out to make those the best possible. If they had a more limited menu with higher quality items, the employees were better paid, and the prices were lower because only one party collected profits, they'd be doing well."
},
{
"docid": "458345",
"title": "",
"text": "Great answers. Here's my two cents: First, don't forget to look at the overall picture, not just the dividend. Study the company's income statement, balance sheet and cash flow statement for the last few years. Make sure they have good earnings potential, and are not carrying too much debt. I know it's dull, but it's better to miss an opportunity than to buy a turkey and watch the dividends and the share price tank. I went through this with BAC (Bank of America) a couple of years ago. They had a 38-year history of rising dividends when I bought them, and the yield was about 8%. Then the banking crisis happened and the dividend went from $2.56/share to $0.04, and the price fell from $40 to $5. (I stuck with it, continuing to buy at lower and lower prices, and eventually sold them all at $12 and managed to break even, but it was not a pleasant experience) Do your homework. :) Still, one of the most reliable ways to judge a company's dividend-paying ability is to look at its dividend history. Once a company has started paying a dividend there is a strong expectation from shareholders that these payments will continue, and the company's management will try very hard to maintain them. (Though sometimes this doesn't work out, e.g. BAC) You should see an uninterrupted stream of non-decreasing payments over a period of at least 5 years (this timeframe is just a rule of thumb). Well-established, profitable companies also tend to increase their dividends over time, which has the added benefit of pushing up their share price. So you're getting increasing dividends and capital gains. Next, look at the company's payout ratio over time, and the actual cost of the dividend. Can the projected earnings cover the dividend cost without going above the payout ratio? If not, then the dividend is likely to get reduced. In the case of CIM, the dividend history is short and erratic. The earnings are also all over the place, so it's hard to predict what will happen next year. The company is up to its eyeballs debt (current ratio is .2), and its earnings have dropped by 20% in the last quarter. They have lost money in two of the last three years, even though earning have jumped dramatically. This is a very young company, and in my opinion it is too early for them to be paying dividends. A very speculative stock, and you are more likely to make money from capital gains than dividends. AAE is a different story. They are profitable, and have a long dividend history, although the dividend was cut in half recently. This may be a good to buy them hoping the dividend comes back once the economy recovers. However, they are trading at over 40 times earnings, which seems expensive, considering their low profit margins. Before investing your money, invest in your education. :) Get some books on interpretation of financial staments, and learn how to read the numbers. It's sort of like looking at the codes in The Matrix, and seeing the blonde in the red dress (or whatever it was). Good luck!"
},
{
"docid": "110856",
"title": "",
"text": "No, they do not. Stock funds and bonds funds collect income dividends in different ways. Stock funds collect dividends (as well as any capital gains that are realized) from the underlying stocks and incorporates these into the funds’ net asset value, or daily share price. That’s why a stock fund’s share price drops when the fund makes a distribution – the distribution comes out of the fund’s total net assets. With bond funds, the internal accounting is different: Dividends accrue daily, and are then paid out to shareholders every month or quarter. Bond funds collect the income from the underlying bonds and keep it in a separate internal “bucket.” A bond fund calculates a daily accrual rate for the shares outstanding, and shareholders only earn income for the days they actually hold the fund. For example, if you buy a bond fund two days before the fund’s month-end distribution, you would only receive two days’ worth of income that month. On the other hand, if you sell a fund part-way through the month, you will still receive a partial distribution at the end of the month, pro-rated for the days you actually held the fund. Source Also via bogleheads: Most Vanguard bond funds accrue interest to the share holders daily. Here is a typical statement from a prospectus: Each Fund distributes to shareholders virtually all of its net income (interest less expenses) as well as any net capital gains realized from the sale of its holdings. The Fund’s income dividends accrue daily and are distributed monthly. The term accrue used in this sense means that the income dividends are credited to your account each day, just like interest in a savings account that accrues daily. Since the money set aside for your dividends is both an asset of the fund and a liability, it does not affect the calculated net asset value. When the fund distributes the income dividends at the end of the month, the net asset value does not change as both the assets and liabilities decrease by exactly the same amount. [Note that if you sell all of your bond fund shares in the middle of the month, you will receive as proceeds the value of your shares (calculated as number of shares times net asset value) plus a separate distribution of the accrued income dividends.]"
},
{
"docid": "275392",
"title": "",
"text": "Theoretically, when a company issues more shares, it does not affect the value of your shares. The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake. Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each. The company receives $100,000 from new investors, and now the company is worth $200,000. Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling. When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is. When a company wants to sell more shares, this is called an increase of authorized share capital. In order to do this, the company generally needs the approval of a majority of the existing shareholders."
},
{
"docid": "456470",
"title": "",
"text": "What is a dividend? Essentially, for every share of a dividend stock that you own, you are paid a portion of the company’s earnings. You get paid simply for owning the stock! For example, let’s say Company X pays an annualized dividend of 20 cents per share. Most companies pay dividends quarterly (four times a year), meaning at the end of every business quarter, the company will send a check for 1/4 of 20 cents (or 5 cents) for each share you own. This may not seem like a lot, but when you have built your portfolio up to thousands of shares, and use those dividends to buy more stock in the company, you can make a lot of money over the years. The key is to reinvest those dividends! Source: http://www.dividend.com/dividend-investing-101/what-are-dividend-stocks/ What is an ex dividend date Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend. Source: https://www.sec.gov/answers/dividen.htm That said, as long as you purchased the stock before 6/4/17 you are entitled to the next dividend. If not, you'll get the following one after that."
},
{
"docid": "332901",
"title": "",
"text": "It is the first time I encounter redemption programme and I would like to know what are my options here You can hold on to the shares and automatically receive 2.25 SEK per share some time after 31-May; depending on how fast the company and its bank process the payouts. Alternatively you can trade in the said window for whatever the market is offering. how is this different from paying the dividend? I don't know much about Sweden laws. Structuring this way may be tax beneficial. The other benefit in in company's books the shareholders capital is reduced. can I trade these redemption shares during these 2 weeks in May? What is the point of trading them if they have fixed price? Yes you can. If you need money sooner ... generally the price will be discounted by few cents to cover the interest for the balance days."
},
{
"docid": "405791",
"title": "",
"text": "\"I seem not to be able to comment on the first answer due to reputation, so I'll aim to enhanced the first answer which is generally good but with these caveats: 1) Dividends are not \"\"guaranteed\"\" to preferred shareholders. Rather, preferred shareholders are normally in line ahead (i.e. in preference to or \"\"preferred\"\") of common shareholders in terms of dividend payment. This is an extremely important distinction, because unlike investments that we generally consider \"\"guaranteed\"\" such as CDs (known as GICs in Canada), a company's board can suspend the dividend at anytime for long periods of time without significant repercussions -- whereas a missed payment to a bank or secured bondholder can often push a company into bankruptcy very quickly. 2) Due to point 1), it is extremely important to know the \"\"convenants\"\" or rules sorrounding both the preferred shares you are buying and the other more senior creditors of that issuing company (i.e. taxes (almost always come first), banks loans, leases, bonds etc.). It is also important to know if a particular preferred share has \"\"cumulative\"\" dividends. You generally only want to buy preferred's that have \"\"cumulative\"\" dividends, since that means that anytime the company misses a payment, they must pay those dividends first before any other dividends at the same or lower priority in the future. 3) Unlike a common stock, your upside on a preferred stock is relatively fixed: you get a fixed share of the company's profit and that's it, whereas a common shareholder gets everything that's left over after interest and preferred dividends are paid. So if the company does really well you will theoretically do much better with common stock over time. For the above reasons, it is generally advisable to think of preferred shares as being more similar to really risky bonds in the same company, rather than similar to common stock. Of course, if you are an advanced investor there are a lot more variables in play such as tax considerations and whether the preferred have special options attached to them such conversion into common shares.\""
},
{
"docid": "496681",
"title": "",
"text": "There is certainly an obligation in some cases of a company to distribute profit, either as dividend or a stock buy back. Activist investors frequently push for one or the other when a company is doing well - sometimes to the detriment of future growth, in some eyes - and can even file shareholder lawsuits (saying the company is not doing its duty to its shareholders by simply holding onto cash). Apple famously held out from doing either for years under Steve Jobs, and only in the last few years started doing both - a large dividend and a share buy-back which increases the value of remaining shares (as EPS then goes up with fewer shares out there). Carl Icahn for example is one of those investors in Apple's case [and in many cases!] who put significant pressure, particularly when they were sitting on hundreds of billions of dollars. Ultimately, a (for-profit) corporation's board is tasked with maximizing its shareholder's wealth; as such, it can buy back shares, pay dividends, sell the company, liquidate the company, or expand the company, at its discretion, so long as it can justify to its shareholders that it is still attempting to maximize the value of their holdings. Companies in their growth phase often don't return any money and simply reinvest - but the long-term hope is to either return money in the form of dividends on profits, or the sale of the company."
},
{
"docid": "208507",
"title": "",
"text": "$15 being how much it costs to drive a car about 10 miles, and does not account for a driver's time. Hilarious shit, from the biggest payday loan scam the planet has ever seen. Because Uber is nothing but a scam where you work your ass off, to steal money from your future self, and give 25% of it to Uber! But if you think 6 cents a mile is a decent wage for a cab driver (which is what you can make, if you are lucky), then by all means, please sign up!"
},
{
"docid": "306688",
"title": "",
"text": "Note that you're asking about withholding, not about taxing. Withholding doesn't mean this is exactly the tax you'll pay: it means they're withholding a certain amount to make sure you pay taxes on it, but the tax bill at the end of the year is the same regardless of how you choose to do the withholding. Your tax bill may be higher or lower than the withholding amount. As far as tax rate, that will be the same regardless - you're just moving the money from one place to the other. The only difference would be that your tax is based on total shares under the plan - meaning that if you buy 1k shares, for example, at $10, so $1,500 discounted income, if you go the payroll route you get (say) $375 withheld. If you go the share route, you either get $375 worth of stock (so 38 shares) withheld (and then you would lose out on selling that stock, meaning you don't get quite as much out of it at the end) or you would ask them to actually buy rather more shares to make up for it, meaning you'd have a slightly higher total gain. That would involve a slightly higher tax at the end of it, of course. Option 1: Buy and then sell $10000 worth, share-based withholding. Assuming 15% profit, and $10/share at both points, then buy/sell 1000 shares, $1500 in profit to take into account, 38 shares' worth (=$380) withheld. You put in $8500, you get back $9620, net $1120. Option 2: Buy and then sell $13500 worth, share based withholding. Same assumptions. You make about $2000 in pre-tax profit, meaning you owe about $500 in tax withholding. Put in $11475, get back $13000, net $1525. Owe 35% more tax at the end of the year, but you have the full $1500 to spend on whatever you are doing with it. Option 3: Buy and then sell $1000 worth, paycheck withholding. You get the full $10000-$8500 = $1500 up front, but your next paycheck is $375 lighter. Same taxes as Option 1 at the end of the year."
},
{
"docid": "71614",
"title": "",
"text": "\">As a legal matter, shareholders who purchase shares of stock in a corporation own nothing more than that—shares of stock. Similarly, bondholders own only bonds, and executives with employment contracts own their contracts. None of these types of ownership give shareholders, bondholders or executives the right to control the firm. The right to control the firm’s assets and actions rests in the hands of its board of directors, and only when they act as a body and follow proper board procedures. All this says is \"\"decisions are made by the board.\"\" This is not news, and it doesn't mean that shareholders do not own the company. Shareholders elect the board, by the way. >An important consequence of this governance structure is that shareholders not only have no legal right to control the firm, they also have no legal right to help themselves to the corporation’s assets. Well, that's wrong. >In fact, the only time shareholders receive any funds directly from the corporation’s coffers is when they receive a dividend or the corporation repurchases their shares. Or, you know, in the case of bankruptcy. >This only happens when the directors vote to declare a dividend or a corporate repurchase. The same directors who were appointed by shareholders. >At law, a principal has a right to control her agent. But shareholders can’t exercise direct control over corporate directors. I suppose this is true in the sense that shareholders cannot practice slavery. But shareholders can, again, vote on issues relating to the governance of the company. >It is thus wildly misleading to describe shareholders as the sole residual claimants in companies that aren’t actually in bankruptcy. This is only true if you're retarded and don't know what \"\"residual\"\" means. >This idea is supported by modern options theory. In effect, bondholders own the right to access cash flow but have sold a call to shareholders, while shareholders own the right to access the cash flow but have sold a put to bondholders. Neither shareholders nor bondholders can claim an exclusive right to “own” the company’s cash flow, much less the company. This is a made up explanation that doesn't mean anything. The real options model of corporate assets is that corporate debt is a risk-free bond with a short put option and equity is a call option. There is no \"\"deal,\"\" in actuality or in spirit, between debt and equity owners. You can dismiss the article as \"\"shit.\"\"\""
},
{
"docid": "11032",
"title": "",
"text": "\"Let me provide a general answer, that might be helpful to others, without addressing those specific stocks. Dividends are simply corporate payouts made to the shareholders of the company. A company often decides to pay dividends because they have excess cash on hand and choose to return it to shareholders by quarterly payouts instead of stock buy backs or using the money to invest in new projects. I'm not exactly sure what you mean by \"\"dividend yield traps.\"\" If a company has declared an dividend for the upcoming quarter they will almost always pay. There are exceptions, like what happened with BP, but these exceptions are rare. Just because a company promises to pay a dividend in the approaching quarter does not mean that it will continue to pay a dividend in the future. If the company continues to pay a dividend in the future, it may be at a (significantly) different amount. Some companies are structured where nearly all of there corporate profits flow through to shareholders via dividends. These companies may have \"\"unusually\"\" high dividends, but this is simply a result of the corporate structure. Let me provide a quick example: Certain ETFs that track bonds pay a dividend as a way to pass through interest payments from the underlying bonds back to the shareholder of the ETF. There is no company that will continue to pay their dividend at the present rate with 100% certainty. Even large companies like General Electric slashed its dividend during the most recent financial crisis. So, to evaluate whether a company will keep paying a dividend you should look at the following: Update: In regards to one the first stock you mentioned, this sentence from the companies of Yahoo! finance explains the \"\"unusually\"\" dividend: The company has elected to be treated as a REIT for federal income tax purposes and would not be subject to income tax, if it distributes at least 90% of its REIT taxable income to its share holders.\""
},
{
"docid": "35267",
"title": "",
"text": "I hear this a lot but how does it work exactly? Is it the more money you have in your share (savings) account the more weight your vote carries? Or does each member get one vote? I've been a credit union member for 15 years and have never had any say in anything. I also work for a small bank and both institutions are basically the same. My bank has better rates than my credit union on lended money but my CU pays higher rates on my money. My bank is also a publicly traded company and has regular meetings in which any shareholders can come voice their opinion, I've never heard anything about such activity with my credit union."
},
{
"docid": "269782",
"title": "",
"text": "\"Another way to look at this is that pure insider trading is an activity with the aim to use secret information to make personal profit or let others make personal profit at the expense of the company shareholders or investors. In buybacks, it is not company managers to get personal gain in this would-be \"\"insider trading\"\". The end-winners in this case are the shareholders. So there is nothing inherently bad in buying back stock. Moreover, it is a general practice to buy shares back (as opposed to paying dividends) when the company sees its shares being undervalued (of course, provided that it has the cash/borrowing ability to implement this), since it creates shareholders value, thereby maximising shareholder wealth, which is one of the primary tasks of the company managers.\""
},
{
"docid": "498676",
"title": "",
"text": "\"As a TL;DR version of JAGAnalyst's excellent answer: the buying company doesn't need every last share; all they need is to get 51% of the voting bloc to agree to the merger, and to vote that way at a shareholder meeting. Or, if they can get a supermajority (90% in the US), they don't even need a vote. Usually, a buying company's first option is a \"\"friendly merger\"\"; they approach the board of directors (or the direct owners of a private company) and make a \"\"tender offer\"\" to buy the company by purchasing their controlling interest. The board, if they find the offer attractive enough, will agree, and usually their support (or the outright sale of shares) will get the company the 51% they need. Failing the first option, the buying company's next strategy is to make the same tender offer on the open market. This must be a public declaration and there must be time for the market to absorb the news before the company can begin purchasing shares on the open market. The goal is to acquire 51% of the total shares in existence. Not 51% of market cap; that's the number (or value) of shares offered for public trading. You could buy 100% of Facebook's market cap and not be anywhere close to a majority holding (Zuckerberg himself owns 51% of the company, and other VCs still have closely-held shares not available for public trading). That means that a company that doesn't have 51% of its shares on the open market is pretty much un-buyable without getting at least some of those private shareholders to cash out. But, that's actually pretty rare; some of your larger multinationals may have as little as 10% of their equity in the hands of the upper management who would be trying to resist such a takeover. At this point, the company being bought is probably treating this as a \"\"hostile takeover\"\". They have options, such as: However, for companies that are at risk of a takeover, unless management still controls enough of the company that an overruling public stockholder decision would have to be unanimous, the shareholder voting body will often reject efforts to activate these measures, because the takeover is often viewed as a good thing for them; if the company's vulnerable, that's usually because it has under-performing profits (or losses), which depresses its stock prices, and the buying company will typically make a tender offer well above the current stock value. Should the buying company succeed in approving the merger, any \"\"holdouts\"\" who did not want the merger to occur and did not sell their stock are \"\"squeezed out\"\"; their shares are forcibly purchased at the tender price, or exchanged for equivalent stock in the buying company (nobody deals in paper certificates anymore, and as of the dissolution of the purchased company's AOI such certs would be worthless), and they either move forward as shareholders in the new company or take their cash and go home.\""
},
{
"docid": "224224",
"title": "",
"text": "\"Time for Redditors to not understand that the reason someone is losing cash matters far more than the fact that they're losing cash in the first place. If you have positive unit economics on every transaction and spend your margins on customer acquisition, you're losing money but gaining market share. Once you stop growing, all of the customer acquisition spend is now pure profit. This is a great reason to be losing money and raising capital from equity/debt. If you have *negative* unit economics on every transaction and have *no* margins, you are resorting to financing to just keep your operations running. When you stop growing, you're still losing money. The only way you start having a margin is by reducing cost or increasing prices. Uber has experimented with raising prices and it is reducing their losses. But it's also reducing their market share. Revenue growth but market share loss means they're growing slower than the rest of the market. Not great. In fact, catastrophic, because it means people are jumping ship because of increased prices. People keep comparing Kalanick to Bezos and Jobs, and could not be any more wrong. Jobs made incredibly high margin, noncommodity premium products that you couldn't get anywhere else. If you're putting companies on a \"\"commodity-noncommodity\"\" axis, Apple is going to be on the opposite end of Uber. Amazon does deliver a lot of commodity goods, but they lost money for so long not just to deliver goods at negative unit economics but to *also* build and scale infrastructure that let them achieve positive economies of scale. They built an infrastructure that rivals the logistics ops of anyone in the world. They also use negative unit economics as a loss leader; so for instance, selling the Fire and Kindle at a loss because people will buy zero marginal cost items like movies, music, ebooks, etc through them, in addition to serving as a portal for Amazon's entire online store. I have bought hundreds of dollars of digital goods through Amazon hardware. That's pure margin for them. How is UberX a loss leader? Uber shares none of these traits with Amazon or Apple.\""
},
{
"docid": "186354",
"title": "",
"text": "It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before). Logically, the $15 billion is allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc). However it doesn't really make sense to think of it that way unless Whatsapp is actually worthless. What's important are the proportions. Suppose that the newly issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital. Whether the actual value of those stocks has changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one. Apart from the financial consequences, dilution is sometimes considered important because it can mean a change in influence: a significant shareholder would often be able to encourage the company to act in a certain way. With a lower percentage ownership, that influence is diminished."
},
{
"docid": "380107",
"title": "",
"text": "It's not just the executives. Many of these companies are franchises and are also public, so they have shareholders. When corporate, franchisees and shareholders all compete to make the most money, things turn to shit. Look at McDonald's. The food is total garbage, some of the worst in the fast food business. They aren't particularly good to their employees, either. That's because you have corporate, franchisees and shareholders squabbling over every last cent. Now look at In-N-Out. It is a privately held company and the food costs almost the same as McDonald's. Except In-N-Out has good food and they are pretty good to their employees. That's because In-N-Out doesn't have as many greedy, grasping hands as McDonald's. These shitty fast food and fast casual places are doomed. You can't have that many people demanding a piece of the profits. That turns the food to complete shit and employees are underpaid and stop caring."
},
{
"docid": "14870",
"title": "",
"text": "If a company is public, and they record a 2016 profit of 100mil. Say there is shareholder A and shareholder B who are both wealthy and own 25% each of the company. Say the remaining 50% of shares are owned by a number of funds/small time investors. So 2016 profits are 100mil, lets say there is a dividend. Can the company still award a larger share of profits to the two big shareholders? I.e. say 50 mil of the profits go into dividend payments and another 20 mil as retained earnings to be reinvested into future projects, can the remaining 30 mil of profits be split and given to shareholders A and B?"
}
] |
8789 | What does “profits to the shareholders jumped to 15 cents a share” mean? | [
{
"docid": "41912",
"title": "",
"text": "\"What does it mean in terms of share price? Should the share price increase by 15 cents? No, but you're on the right track. In theory, the price of a share reflects it's \"\"share\"\" of time discounted future earnings. To put it concretely, imagine a company consistently earning 15 cents a share every year and paying it all out as dividends. If you only paid 25 cents for it, you could earn five cents a share by just holding it for two years. If you imagine that stocks are priced assuming a holding period of 20 years or so, so we'd expect the stock to cost less than 3 dollars. More accurately, the share price reflects expected future earnings. If everyone is assuming this company is growing earnings every quarter, an announcement will only confirm information people have already been trading based on. So if this 15 cents announcement is a surprise, then we'd expect the stock price to rise as a function of both the \"\"surprise\"\" in earnings, and how long we expect them to stay at this new profitability level before competition claws their earnings away. Concretely, if 5 cents a share of that announcement were \"\"earnings surprise,\"\" you'd expect it to rise somewhere around a dollar.\""
}
] | [
{
"docid": "304500",
"title": "",
"text": "Behind paywall, so copy/paste of article below: > Brexit will push up costs for banks by as much as 4 per cent and their capital requirements will rise up to 30 per cent, according to the most detailed assessment yet of what Britain’s departure from the EU means for the sector. > The findings by consultants Oliver Wyman will make grim reading for its bank clients, many of which are struggling with low profitability. They come a day after HSBC became the first lender to put a price tag on Brexit, saying the immediate disruption would cost it $200m-$300m. > Stuart Gulliver, chief executive of HSBC, said $1bn of revenue in its global banking and markets unit would be put “at risk” by Brexit. But he said it planned protect this revenue by moving up to 1,000 of its 6,000 UK investment banking jobs to France. > The pace of announcements about banks’ Brexit plans has picked up in recent weeks, partly because of pressure from the Bank of England for them to submit their plans for coping with the “worst-case scenario” of a hard Brexit, severing access to EU clients. The UK is set to leave the EU in March 2019. > Such plans are expected to cause duplication of resources and capital for large banks in Europe, Oliver Wyman warned. It said this may cause some banks to abandon some European activities altogether and shift resources to the US and Asia. > “At the moment what everyone is doing is planning to be able to continue doing what they already do after a hard Brexit,” said Matthew Austen, head of European corporate and institutional banking at Oliver Wyman. > “Once you have done that, if you have a strong performance in the US or Asia, then that is when you start to look at the post-Brexit foundations and it will prompt you to look at what the right business mix is,” he said. > The consultancy, which has access to detailed figures on almost every bank from the benchmarking work it does for the sector, estimated that 2 percentage points would be knocked off wholesale banks’ return on equity in Europe because of the disruption. > Wholesale banks — which serve corporate and institutional clients — would need to find $30bn-$50bn extra capital to support their new European operations, an increase of 15 to 30 per cent, it estimated. The industry’s annual costs would rise by $1bn, or 2 to 4 per cent. > “Any time you split a portfolio up — whether it be a credit portfolio or a trading book portfolio — you lose the benefits of diversification that allow you to reduce the capital you hold against it,” said Mr Austen. > Many banks have decided they cannot afford to wait for the political uncertainty over the outcome of Brexit negotiations to clear before implementing their plans and have started finding office space and applying for licences with regulators. > “Once everyone is back from this summer holidays, the annual planning process will really start in earnest and at that point people will start planning for next year’s costs and returns,” said Mr Austen. > “As you move into the back end of this year and the start of next year you have to start making those decisions. You would want to have moved people by next summer if they are going to get their kids into school in September.” > The consultancy stuck to the forecast it made last year that Brexit would drive 31,000-35,000 financial services jobs out of the UK, of which 12,000-17,000 would be in banking. In a worst-case scenario, in which euro clearing is shifted to the eurozone, banks could shift as many as 40,000 jobs out of the UK."
},
{
"docid": "96008",
"title": "",
"text": "You can apply for a position with any company you like, whether or not you are a shareholder. However, owning shares in a company, even lots of shares in a company, does not entitle you to having them even look at your resume for any job, let alone the CEO position. You generally cannot buy your way into a job. The hiring team, if they are doing their job correctly, will only hire you if you are qualified for the job, not based on what your investments are. Stockholders get a vote at the shareholders' meeting and a portion of the profits (dividend), and that's about it. They usually don't even get a discount on products, let alone a job. Of course, if you own a significant percentage of the stock, you can influence the selections to the board of directors. With enough friends on the board, you could theoretically get yourself in the CEO position that way."
},
{
"docid": "484778",
"title": "",
"text": "\"There are a few reason why the stock price decreases after a dividend is paid: What's the point of paying a dividend if the stock price automatically decreases? Don't the shareholders just break even? Companies have to do something with their profits. They beholden to their shareholders to make them money either by increasing the share value or paying dividends. So they have the choice between reinvesting their profits into the company to grow the business or just handing the profits directly to the owners of the business (the shareholders). Some companies are as big as they want to be and investing their profits into more capital offers them diminishing returns. These companies are more likely to pay dividends to their shareholders. I assume the price of the stock \"\"naturally\"\" increases over the year to reflect the amount of the dividend payment. This is kind of a vague question but then doesn't it make it difficult to evaluate the fluctuations in stock price (in the way that you would a company that doesn't pay a dividend)? It depends on the company. The price may recover the dividend drop... could take a few days to a week. And that dependings on the company's performance and the overall market performance. With respect to options, I assume nothing special happens? So say I bought $9 call options yesterday that were in the money, all of a sudden they're just not? Is this typically priced into the option price? Is there anything else I need to know about buying options in companies that pay dividends? What if I had an in-the-money option, and all of a sudden out of nowhere a company decides to pay a dividend for the first time. Am I just screwed? One key is that dividends are announced in advance (typically at least, if not always; not sure if it's required by law but I wouldn't be surprised). This is one reason people will sometimes exercise a call option early, because they want to get the actual stock in order to earn the dividend. For \"\"out of the ordinary\"\" large cash dividends (over 10% is the guideline), stock splits, or other situations an option can be adjusted: http://www.888options.com/help/faq/splits.jsp#3 If you have an options account, they probably sent you a \"\"Characteristics and Risks of Standardized Options\"\" booklet. It has a section discussing this topic and the details of what kinds of situations trigger an adjustment. A regular pre-announced <10% dividend does not, while a special large dividend would, is what I roughly get from it. That \"\"Characteristics and Risks of Standardized Options\"\" is worth reading by the way; it's long and complicated, but well, options are complicated. Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? I'm just shocked I've never heard of this before. The company doesn't directly control the stock price, but I do believe this is automatic. I think the market does this automatically because if they didn't, there would be enough people trying to do dividend capture arbitrage that it would ultimately drive down the price.\""
},
{
"docid": "174315",
"title": "",
"text": "It's not really fair for him to say share buybacks are 4% of GDP, because share buybacks don't directly contribute to GDP. Presumably, if a company has excess cash than what can profitably be reinvested into the business, then it should return that cash to the shareholders (buybacks). Then, it is up to the shareholders to decide how to reallocate that capital. Theoretically, shareholders will allocate that capital into profitable ventures. The assumption being, distributing capital to profitable ventures is more efficient than distributing capital to non-profitable ventures. And the efficient distribution of capital should increase GDP in the long run. If you believe that sort of thing. Personally, Id rather that every employee was paid a respectable wage for their labor, not the bare minimum that they'll accept to avoid starvation. But that's another issue all together, so nevermind."
},
{
"docid": "186354",
"title": "",
"text": "It's a dilution of the ownership; the public used to own x% of Facebook and now they own less than x% of the bigger Facebook that incorporates Whatsapp (assuming that Whatsapp was completely private before). Logically, the $15 billion is allocated proportionately between the existing stockholders (x% of it for the general public, y% for Mark Zuckerberg, etc). However it doesn't really make sense to think of it that way unless Whatsapp is actually worthless. What's important are the proportions. Suppose that the newly issued shares correspond to 25% of the previous share capital. Then previously the general public owned x% out of 100%, and now they own x% out of 125%, i.e. (0.8x)% of the new share capital. Whether the actual value of those stocks has changed depends entirely on the actual value that Whatsapp adds to the old Facebook. As Dheer says, only time will tell on that one. Apart from the financial consequences, dilution is sometimes considered important because it can mean a change in influence: a significant shareholder would often be able to encourage the company to act in a certain way. With a lower percentage ownership, that influence is diminished."
},
{
"docid": "564007",
"title": "",
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Dismiss cookie message Accessibility helpSkip to navigationSkip to contentSkip to footer Financial Times MYFT HOME WORLD UK COMPANIES MARKETS OPINION WORK & CAREERS LIFE & ARTS Portfolio My Account HOME WORLD UK COMPANIES MARKETS OPINION WORK & CAREERS LIFE & ARTS MYFT Bank stress tests Add to myFT US banks pass first round of annual stress tests Clean bill of health from Federal Reserve opens door to increased shareholder payouts Read next Week in Review Week in Review, July 1 © AFP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Email4 Save JUNE 22, 2017 by: Alistair Gray and Ben McLannahan in New York and Barney Jopson in Washington US banks have big enough capital buffers to keep trading through an economic meltdown, regulators said on Thursday, in a finding that improves their chances of boosting payouts to shareholders. In the first round of this year’s stress tests, the Federal Reserve probed how 34 banks would fare in a financial and economic slump in which the unemployment rate doubles and the stock market loses half its value. The central bank calculated that the banking sector would endure $493bn in losses in the simulated downturn. Yet officials concluded that the banks would emerge from the crash “well capitalised”, with cushions of shareholder funding still above the Fed’s minimum required levels. The largely upbeat results augur well for US banks as the Fed prepares to unveil the results of the tests’ second round next week, when investors will learn how much capital they can return through dividends and share buybacks. However, the figures released on Thursday do not foretell what the Fed will say about payouts, not least because regulators can approve or block US banks’ capital plans on qualitative as well as quantitative grounds. Lex Bank stress tests: chilled The once-vital check on the industry’s health is outliving its usefulness UBS analysts estimate that the four biggest by assets — JPMorgan, Bank of America, Citigroup and Wells Fargo — will be able to return a net $59.8bn this year, rising to $72.3bn in 2018. Citi and Morgan Stanley could be among about a dozen banks that will make requests to return more than 100 per cent of their annual earnings to shareholders, according to Goldman Sachs analysts. Despite the positive stress test results, not all investors would be comfortable with such a bonanza. Bill Hines, a fixed-income investment manager at Aberdeen Asset Management in Philadelphia, said the prospect of payouts in excess of profits “does scare us a little bit”. “If the safety blanket is pulled away . . . that may come to the detriment of capital and safety.” Across-the-board passes for the stress-test are “a good thing,” he said, as it shows that banks have rebuilt capital levels substantially since the crisis. “But from a creditor’s standpoint you don’t want to see all the profits go out the door.” While banks have already told the Fed what they propose to do on dividends and buybacks, they are now able to make more conservative payout plans if, based on the first-round results, they think it will reject them in the second round. Related article Regulators back Trump on looser financial rules Officials endorse Volcker rule revamp and bank relief from burden of ‘stress tests’ The regulator’s simulated downturn lasts for nine quarters. Banks’ overall loan losses and declines in capital under the worst crisis scenario were smaller than in last year’s stress tests, Fed officials said. Still, the test found that some banks would come close to breaching regulatory minimums during the meltdown on some metrics. For instance, Morgan Stanley’s “supplementary leverage ratio” — a new measure of financial strength that takes effect in 2018 — would drop as low as 3.8 per cent compared with a required level of 3 per cent. The results also drew attention to banks’ exposure to credit card lending. The Fed found banks would suffer the biggest losses in their card portfolios in the hypothetical crisis. Fed officials said that partly reflected a rapid expansion in the size of banks’ credit card assets and rising delinquency rates in the real world. Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web. 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},
{
"docid": "514231",
"title": "",
"text": "As part of this acquisition 96% of the shareholders accepted an offer for their shares This means that most of the shareholder agreed for the sale. If this was less than specified percentage, the deal would not have gone through. To make it easier, there were 2 options present to shareholder, full exchange of shares of Infinera or part shares and part cash. I failed to do so as I was unwell at the time So you cannot now choose the option. There will be a default option of getting the equivalent shares in Infinera. What options are available to me now? Contact Infinera investor relations and ask them."
},
{
"docid": "555608",
"title": "",
"text": "Overpriced shares: Cheaper to raise new capital through secondary share offerings or debt using shares as a security. Fends off hostile take overs, since the company is too dear. When a company is taken over it needs only one set of management. Top management of the company that is taken over loses their jobs - no one wants to lose their job. Shareholders love to see share price grow - sale brings them profit, secures jobs for company management. Shares are used as a currency during acquisitions, if company shares are overpriced that means they can buy another company on the cheap - paying with the overpriced shares. Undervalued shares: More expensive to raise additional capital through secondary share offerings - for the same amount of capital the management has to offer a bigger chunk of the company; have to offer bigger chunk of a company as a security as well. Makes company vulnerable to hostile take overs, company is undervalues - makes it an attractive bargain. Once the company is taken over top management will almost certainly lose jobs. Falling price makes shareholders unhappy - they will vote management out. Makes difficult to acquire other companies."
},
{
"docid": "597346",
"title": "",
"text": "It may have some value! Investopedia has a well-written quick article on how stock holders may still get some portion of the liquidated assets. While there is generally little left for common shareholders if the price of those shares is tiny and some money does come back to shareholders there can still be significant profit to be made. As to why the trading volume is so high... there are many firms and hedge funds that specialize in calculating the value of and buying distressed debt and stock. They often compete with each other to by the stock/debt that common shareholders are trying to get rid of. In this particular case, there is a lot of popular interest, intellectual property at stake and pending lawsuits that probably boosts volume."
},
{
"docid": "177093",
"title": "",
"text": "\"Share price is based on demand. Assuming the same amount of shares are made available for trade then stocks with a higher demand will have a higher price. So say a company has 1000 shares in total and that company needs to raise $100. They decide to sell 100 shares for $1 to raise their $100. If there is demand for 100 shares for at least $1 then they achieve their goal. But if the market decides the shares in this company are only worth 50 cents then the company only raises $50. So where do they get the other $50 they needed? Well one option is to sell another 100 shares. The dilution comes about because in the first scenario the company retains ownership of 900 or 90% of the equity. In the second scenario it retains ownership of only 800 shares or 80% of the equity. The benefit to the company and shareholders of a higher price is basically just math. Any multiple of shares times a higher price means there is more value to owning those shares. Therefore they can sell fewer shares to raise the same amount. A lot of starts up offer employees shares as part of their remuneration package because cash flow is typically tight when starting a new business. So if you're trying to attract the best and brightest it's easier to offer them shares if they are worth more than those of company with a similar opportunity down the road. Share price can also act as something of a credit score. In that a higher share price \"\"may\"\" reflect a more credit worthy company and therefore \"\"may\"\" make it easier for that company to obtain credit. All else being equal, it also makes it more expensive for a competitor to take over a company the higher the share price. So it can offer some defensive and offensive advantages. All ceteris paribus of course.\""
},
{
"docid": "458345",
"title": "",
"text": "Great answers. Here's my two cents: First, don't forget to look at the overall picture, not just the dividend. Study the company's income statement, balance sheet and cash flow statement for the last few years. Make sure they have good earnings potential, and are not carrying too much debt. I know it's dull, but it's better to miss an opportunity than to buy a turkey and watch the dividends and the share price tank. I went through this with BAC (Bank of America) a couple of years ago. They had a 38-year history of rising dividends when I bought them, and the yield was about 8%. Then the banking crisis happened and the dividend went from $2.56/share to $0.04, and the price fell from $40 to $5. (I stuck with it, continuing to buy at lower and lower prices, and eventually sold them all at $12 and managed to break even, but it was not a pleasant experience) Do your homework. :) Still, one of the most reliable ways to judge a company's dividend-paying ability is to look at its dividend history. Once a company has started paying a dividend there is a strong expectation from shareholders that these payments will continue, and the company's management will try very hard to maintain them. (Though sometimes this doesn't work out, e.g. BAC) You should see an uninterrupted stream of non-decreasing payments over a period of at least 5 years (this timeframe is just a rule of thumb). Well-established, profitable companies also tend to increase their dividends over time, which has the added benefit of pushing up their share price. So you're getting increasing dividends and capital gains. Next, look at the company's payout ratio over time, and the actual cost of the dividend. Can the projected earnings cover the dividend cost without going above the payout ratio? If not, then the dividend is likely to get reduced. In the case of CIM, the dividend history is short and erratic. The earnings are also all over the place, so it's hard to predict what will happen next year. The company is up to its eyeballs debt (current ratio is .2), and its earnings have dropped by 20% in the last quarter. They have lost money in two of the last three years, even though earning have jumped dramatically. This is a very young company, and in my opinion it is too early for them to be paying dividends. A very speculative stock, and you are more likely to make money from capital gains than dividends. AAE is a different story. They are profitable, and have a long dividend history, although the dividend was cut in half recently. This may be a good to buy them hoping the dividend comes back once the economy recovers. However, they are trading at over 40 times earnings, which seems expensive, considering their low profit margins. Before investing your money, invest in your education. :) Get some books on interpretation of financial staments, and learn how to read the numbers. It's sort of like looking at the codes in The Matrix, and seeing the blonde in the red dress (or whatever it was). Good luck!"
},
{
"docid": "63296",
"title": "",
"text": "\"If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable. Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. \"\"But wait,\"\" you say, \"\"that's not the same - my net worth has decreased!\"\" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, \"\"no we're not done, we're still building our business!\"\". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market.\""
},
{
"docid": "54257",
"title": "",
"text": "\"If you own 1% of a company, you are technically entitled to 1% of the current value and future profits of that company. However, you cannot, as you seem to imply, just decide at some point to take your ball and go home. You cannot call up the company and ask for 1% of their assets to be liquidated and given to you in cash. What the 1% stake in the company actually entitles you to is: 1% of total shareholder voting rights. Your \"\"aye\"\" or \"\"nay\"\" carries the weight of 1% of the total shareholder voting block. Doesn't sound like much, but when the average little guy has on the order of ten-millionths of a percentage point ownership of any big corporation, your one vote carries more weight than those of millions of single-share investors. 1% of future dividend payments made to shareholders. For every dollar the corporation makes in profits, and doesn't retain for future growth, you get a penny. Again, doesn't sound like much, but consider that the Simon property group, ranked #497 on the Fortune 500 list of the world's biggest companies by revenue, made $1.4 billion in profits last year. 1% of that, if the company divvied it all up, is $14 million. If you bought your 1% stake in March of 2009, you would have paid a paltry $83 million, and be earning roughly 16% on your initial investment annually just in dividends (to say nothing of the roughly 450% increase in stock price since that time, making the value of your holdings roughly $460 million; that does reduce your actual dividend yield to about 3% of holdings value). If this doesn't sound appealing, and you want out, you would sell your 1% stake. The price you would get for this total stake may or may not be 1% of the company's book value. This is for many reasons: Now, to answer your hypothetical: If Apple's stock, tomorrow, went from $420b market cap to zero, that would mean that the market unanimously thought, when they woke up tomorrow morning, that the company was all of a sudden absolutely worthless. In order to have this unanimous consent, the market must be thoroughly convinced, by looking at SEC filings of assets, liabilities and profits, listening to executive statements, etc that an investor wouldn't see even one penny returned of any cash investment made in this company's stock. That's impossible; the price of a share is based on what someone will pay to have it (or accept to be rid of it). Nobody ever just gives stock away for free on the trading floor, so even if they're selling 10 shares for a penny, they're selling it, and so the stock has a value ($0.001/share). We can say, however, that a fall to \"\"effectively zero\"\" is possible, because they've happened. Enron, for instance, lost half its share value in just one week in mid-October as the scope of the accounting scandal started becoming evident. That was just the steepest part of an 18-month fall from $90/share in August '00, to just $0.12/share as of its bankruptcy filing in Dec '01; a 99.87% loss of value. Now, this is an extreme example, but it illustrates what would be necessary to get a stock to go all the way to zero (if indeed it ever really could). Enron's stock wasn't delisted until a month and a half after Enron's bankruptcy filing, it was done based on NYSE listing rules (the stock had been trading at less than a dollar for 30 days), and was still traded \"\"over the counter\"\" on the Pink Sheets after that point. Enron didn't divest all its assets until 2006, and the company still exists (though its mission is now to sue other companies that had a hand in the fraud, get the money and turn it around to Enron creditors). I don't know when it stopped becoming a publicly-traded company (if indeed it ever did), but as I said, there is always someone willing to buy a bunch of really cheap shares to try and game the market (buying shares reduces the number available for sale, reducing supply, increasing price, making the investor a lot of money assuming he can offload them quickly enough).\""
},
{
"docid": "348445",
"title": "",
"text": "In short (pun intended), the shareholder lending the shares does not believe that the shares will fall, even though the potential investor does. The shareholder believes that the shares will rise. Because the two individuals believe that a different outcome will occur, they are able to make a trade. By using the available data in the market, they have arrived at a particular conclusion of the fair price for the trade, but each individual wants to be on the other side of it. Consider a simpler form of your question: Why would a shareholder agree to sell his/her shares? Why don't they just wait to sell, when the price is higher? After all, that is why the buyer wants to purchase the shares. On review, I realize I've only stated here why the original shareholder wouldn't simply sell and rebuy the share themselves (because they have a different view of the market). As to why they would actually allow the trade to occur - Zak (and other answers) point out that the shares being lent are compensated for by an initial fee on the transaction + the chance for interest during the period that the shares are owed for."
},
{
"docid": "332901",
"title": "",
"text": "It is the first time I encounter redemption programme and I would like to know what are my options here You can hold on to the shares and automatically receive 2.25 SEK per share some time after 31-May; depending on how fast the company and its bank process the payouts. Alternatively you can trade in the said window for whatever the market is offering. how is this different from paying the dividend? I don't know much about Sweden laws. Structuring this way may be tax beneficial. The other benefit in in company's books the shareholders capital is reduced. can I trade these redemption shares during these 2 weeks in May? What is the point of trading them if they have fixed price? Yes you can. If you need money sooner ... generally the price will be discounted by few cents to cover the interest for the balance days."
},
{
"docid": "42625",
"title": "",
"text": "\"This question drives at what value a shareholder actually provides to a corporation, and by extent, to the economy. If you subscribe for new shares (like in an Initial Public Offering), it is very straightforward to say \"\"I have provided capital to the corporation, which it is using to advance its business.\"\" If you buy shares that already exist (like in a typical share purchase on a public exchange), your money doesn't go to the company. Instead, it goes to someone who paid someone who paid someone who paid someone (etc.) who originally contributed money to the corporation. In theory, the value of a share price does not directly impact the operation of the company itself, apart from what @DanielCarson aptly noted (employee stock options are affected by share price, impacting morale, etc.). This is because in theory, the true value of a company (and thus, the value of a share) is the present value of all future cashflows (dividends + final liquidation). This means that in a technical sense, a company's share price should result from the company's value. The company's true value does not result from the share price. But what you are doing as a shareholder is impacting the liquidity available to other potential investors (also as mentioned by @DanielCarson, in reference to the desirability for future financing). The more people who invest their money in the stock market, the more liquid those stocks become. This is the true value you add to the economy by investing in stocks - you add liquidity to the market, decreasing the risk of capital investment generally. The fewer people there are who are willing to invest in a particular company, the harder it is for an investor to buy or sell shares at will. If it is difficult to sell shares in a company, the risk of holding shares in that company is higher, because you can't \"\"cash out\"\" as easily. This increased risk then does change the value of the shares - because even though the corporation's internal value is the same, the projected cashflows of the shares themselves now has a question mark around the ability to sell when desired. Whether this actually has an impact on anything depends on how many people join you in your declaration of ethical investing. Like many other forms of social activism, success relies on joint effort. This goes beyond the direct and indirect impacts mentioned above; if 'ethical investing' becomes more pronounced, it may begin to stigmatize the target companies (fewer people wanting to work for 'blacklist' corporations, fewer people buying their products, etc.).\""
},
{
"docid": "122485",
"title": "",
"text": "Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal."
},
{
"docid": "496681",
"title": "",
"text": "There is certainly an obligation in some cases of a company to distribute profit, either as dividend or a stock buy back. Activist investors frequently push for one or the other when a company is doing well - sometimes to the detriment of future growth, in some eyes - and can even file shareholder lawsuits (saying the company is not doing its duty to its shareholders by simply holding onto cash). Apple famously held out from doing either for years under Steve Jobs, and only in the last few years started doing both - a large dividend and a share buy-back which increases the value of remaining shares (as EPS then goes up with fewer shares out there). Carl Icahn for example is one of those investors in Apple's case [and in many cases!] who put significant pressure, particularly when they were sitting on hundreds of billions of dollars. Ultimately, a (for-profit) corporation's board is tasked with maximizing its shareholder's wealth; as such, it can buy back shares, pay dividends, sell the company, liquidate the company, or expand the company, at its discretion, so long as it can justify to its shareholders that it is still attempting to maximize the value of their holdings. Companies in their growth phase often don't return any money and simply reinvest - but the long-term hope is to either return money in the form of dividends on profits, or the sale of the company."
},
{
"docid": "456470",
"title": "",
"text": "What is a dividend? Essentially, for every share of a dividend stock that you own, you are paid a portion of the company’s earnings. You get paid simply for owning the stock! For example, let’s say Company X pays an annualized dividend of 20 cents per share. Most companies pay dividends quarterly (four times a year), meaning at the end of every business quarter, the company will send a check for 1/4 of 20 cents (or 5 cents) for each share you own. This may not seem like a lot, but when you have built your portfolio up to thousands of shares, and use those dividends to buy more stock in the company, you can make a lot of money over the years. The key is to reinvest those dividends! Source: http://www.dividend.com/dividend-investing-101/what-are-dividend-stocks/ What is an ex dividend date Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date is usually set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend. Source: https://www.sec.gov/answers/dividen.htm That said, as long as you purchased the stock before 6/4/17 you are entitled to the next dividend. If not, you'll get the following one after that."
}
] |
8795 | Stock exchanges using open outcry | [
{
"docid": "57297",
"title": "",
"text": "As Chris pointed out in his comment, smaller stock exchanges may use open outcry. There are several exchanges that use open outcry/floor trading in the US, however, although they aren't necessarily stock exchanges. Having visited the three Chicago exchanges I mentioned, I can personally vouch for their continued use of a trading floor, although its use is declining in all three."
}
] | [
{
"docid": "285997",
"title": "",
"text": "\"Yes, there is a lot they are leaving out, and I would be extremely skeptical of them because of the \"\"reasons\"\" they give for being able to charge $0 commissions. Their reasons are that they don't have physical locations and high overhead costs, the reality is that they are burning venture capital on exchange fees until they actually start charging everyone they suckered into opening accounts. They also get paid by exchanges when users provide liquidity. These are called trade rebates in the maker-taker model. They will start offering margin accounts and charging interest. They are [likely] selling trade data to high frequency trading firms that then fill your stock trades at worse prices (Robinhood users are notorious for complaining about the fills). They may well be able to keep commissions low, as that has been a race to the bottom for a long time. But if they were doing their users any actual favors, then they would be also paying users the rebates that exchanges pay them for liquidity. Robinhood isn't doing anything unique as all brokers do what I mentioned along with charging commissions, and it is actually amazing their sales pitch \"\"$0 commissions because we are just a mobile app lol\"\" was enough for their customers. They are just being disingenuous.\""
},
{
"docid": "476485",
"title": "",
"text": "To be flippant: it is illegal because it is against the law; there is no considered involved, it just is. To elaborate, part of the illusion of the stock exchange and other market-like entities is that of (apparent) fairness. If I think a stock will go up because it is involved in a growing industry, that is generally public information. Conversely if I have a dim view of a particular company because of its track record of product launches, that is similarly out in the open. A secret formula is something that I invented or discovered, not (presumably) something that I stole from someone else. To stretch that further: If I notice that Company X stock always moves with Company Y stock, that is indeed something that I have found, that I can try to profit from. It is secret to me, but not particularly dependent upon information not available to others, just that my interpretation is better. So trading on information in the public domain is fine, as it preserves the principal of fairness I mentioned, whereas inside knowledge breaks that principal."
},
{
"docid": "539418",
"title": "",
"text": "I have done this last year. Just open an account with an online brocker and buy a couple of Apple shares (6 I think, for 190$ each or something like that :) ). If this is just to test how stock exchange works, I think this is a good idea. I am also in Europe (France), and you'r right the charge to buy on NasDaq are quite expensive but still reasonnable. Hope this helps."
},
{
"docid": "109796",
"title": "",
"text": "You might have better luck using Quandl as a source. They have free databases, you just need to register to access them. They also have good api's, easier to use than the yahoo api's Their WIKI database of stock prices is curated and things like this are fixed (www.quandl.com/WIKI ), but I'm not sure that covers the London stock exchange. They do, however, have other databases that cover the London stock exchange."
},
{
"docid": "53041",
"title": "",
"text": "\"A \"\"market maker\"\" is someone that is contractually bound, by the exchange, to provide both bid and ask prices for a given volume (e.g. 5000 shares). A single market maker usually covers many stocks, and a single stock is usually covered by many market makers. The NYSE has \"\"specialists\"\" that are market makers that also performed a few other roles in the management of trading for a stock, and usually a single issue on the NYSE is covered by only one market maker. Market makers are often middlemen between brokers (ignoring stuff like dark pools, and the fact that brokers will often trade stocks internally among their own clients before going to the exchange). Historically, the market makers gave up buy/sell discretion in exchange for being the \"\"go-to guys\"\" for anyone wanting to trade in that stock. When you told your broker to buy a stock for you, he didn't hook you up with another retail investor; he went to the market maker. Market makers would also sometimes find investors willing to step in when more liquidity was needed for a security. They were like other floor traders; they hung out on the exchange floors and interacted with traders to buy and sell stocks. Traders came to them when they wanted to buy one of the specialist's issues. There was no public order book; just ticker tape and a quote. It was up to the market maker to maintain that order book. Since they are effectively forbidden from being one-sided traders in a security, their profit comes from the bid-ask spread. Being the counter-party to almost every trade, they'd make profit from always selling above where they were buying. (Except when the price moved quickly -- the downside to this arrangement.) \"\"The spread goes to the market maker\"\" is just stating that the profit implicit in the spread gets consumed by the market maker. With the switch to ECNs, the role of the market maker has changed. For example, ForEx trading firms tend to act as market makers to their customers. On ECNs, the invisible, anonymous guy at the other end of most trades is often a market maker, still performing his traditional role. Yet brokers can interact directly with each other now, rather than relying on the market maker's book. With modern online investing and public order books, retail investors might even be trading directly with each other. Market makers are still out there; in part, they perform a service sold by an Exchange to the companies that choose to be listed on that exchange. That service has changed to helping tamp volatility during normal high-volatility periods (such as at open and close).\""
},
{
"docid": "205280",
"title": "",
"text": "\"According to what little information is available currently, this fund is most akin to an actively managed exchange traded fund rather than an investment trust. An investment trust is an actively managed, closed-end fund that is tradeable on the stock market. \"\"Closed-end\"\" means that there are a fixed number of shares available for trading, so if you wish to buy or sell shares in a closed-end fund you need to find someone willing to sell or buy shares. \"\"Actively managed\"\" means that the assets are selected by the fund managers in the belief that they will perform well. This is in contrast to a \"\"passively managed\"\" fund which simply tracks an underlying index. The closed-end nature of investment trusts means that the share price is not well correlated to the value of the underlying assets. Indeed, almost all UK investment trusts trade at a significant discount to their net asset value. This reflects their historic poor performance and relatively weak liquidity. Of course there are some exceptions to this. Examples of open-end funds are unit trust (US = mutual funds) and ETFs (exchange traded funds). They are \"\"open-end\"\" funds in the sense that the number of shares/units available will change according to demand. Most importantly, the price of a share/unit will be strongly correlated to the net asset value of the underlying portfolio. In general, for an open-end fund, if the net asset value of the fund is X and there are Y shares/units outstanding, then the price of a share/unit will be X/Y. Historic data shows that passively managed funds (index trackers) \"\"always\"\" outperform actively managed funds in the long term. One of the big issues with actively managed funds is they have relatively high management fees. The Peoples Trust will be charging about 1% with a promise that this should come down over time. Compare this to a fee of 0.05% on a large, major market index tracking ETF. Further, the 1% headline fee being touted by Peoples Trust is a somewhat misleading, since they are paying their employees bonuses with shares in the fund. This will cause dilution of the net asset value per share and can be read as addition management fees by proxy. Since competent fund managers will demand high incomes, bonus shares could easily double the management fees, depending on the size of the fund. In summary, history has shown that the promises of active fund managers rarely (if ever) come to fruition. Personally, I would not consider this to be an attractive investment and would look more towards a passively managed major market index ETF with low management fees.\""
},
{
"docid": "498676",
"title": "",
"text": "\"As a TL;DR version of JAGAnalyst's excellent answer: the buying company doesn't need every last share; all they need is to get 51% of the voting bloc to agree to the merger, and to vote that way at a shareholder meeting. Or, if they can get a supermajority (90% in the US), they don't even need a vote. Usually, a buying company's first option is a \"\"friendly merger\"\"; they approach the board of directors (or the direct owners of a private company) and make a \"\"tender offer\"\" to buy the company by purchasing their controlling interest. The board, if they find the offer attractive enough, will agree, and usually their support (or the outright sale of shares) will get the company the 51% they need. Failing the first option, the buying company's next strategy is to make the same tender offer on the open market. This must be a public declaration and there must be time for the market to absorb the news before the company can begin purchasing shares on the open market. The goal is to acquire 51% of the total shares in existence. Not 51% of market cap; that's the number (or value) of shares offered for public trading. You could buy 100% of Facebook's market cap and not be anywhere close to a majority holding (Zuckerberg himself owns 51% of the company, and other VCs still have closely-held shares not available for public trading). That means that a company that doesn't have 51% of its shares on the open market is pretty much un-buyable without getting at least some of those private shareholders to cash out. But, that's actually pretty rare; some of your larger multinationals may have as little as 10% of their equity in the hands of the upper management who would be trying to resist such a takeover. At this point, the company being bought is probably treating this as a \"\"hostile takeover\"\". They have options, such as: However, for companies that are at risk of a takeover, unless management still controls enough of the company that an overruling public stockholder decision would have to be unanimous, the shareholder voting body will often reject efforts to activate these measures, because the takeover is often viewed as a good thing for them; if the company's vulnerable, that's usually because it has under-performing profits (or losses), which depresses its stock prices, and the buying company will typically make a tender offer well above the current stock value. Should the buying company succeed in approving the merger, any \"\"holdouts\"\" who did not want the merger to occur and did not sell their stock are \"\"squeezed out\"\"; their shares are forcibly purchased at the tender price, or exchanged for equivalent stock in the buying company (nobody deals in paper certificates anymore, and as of the dissolution of the purchased company's AOI such certs would be worthless), and they either move forward as shareholders in the new company or take their cash and go home.\""
},
{
"docid": "219398",
"title": "",
"text": "Bitcoin can facilitate this, despite the risks associated with using bitcoin exchanges and the price volatility at any given time. The speed of bitcoin can limit your exposure to the bitcoin network to one hour. Cyprus has a more advanced infrastructure than most countries to support bitcoin transactions, with Neo & Bee opening as a regulated bank/financial entity in Cyprus just two months ago, and ATM/Vending Machines existing for that asset. Anyway, you acquire bitcoin from an individual locally (in exchange for cash) or an exchange that does not require the same level of reporting as a bank account in Cyprus or Russia. No matter how you acquire the bitcoin, you transfer it to the exchange, sell bitcoin on the exchange for your desired currency (USD, EURO, etc), you instruct the exchange to wire the EURO to your cyprus bank account using your cyprus account's SWIFT code. The end. Depending on the combination of countries involved, the exchange may still encounter similar withdrawal limitations until certain regulatory requirements are resolved. Also, I'm unsure of the attitude toward bitcoin related answers on this site, so I tried to add a disclaimer about bitcoin's risks at the top, but that doesn't make this answer incorrect."
},
{
"docid": "333041",
"title": "",
"text": "An addition to the other answers more than a real answer I suspect. Note that fees are not the only way that you pay for foreign exchange; where no foreign exchange fee is charged the issuer makes it back by giving an appalling spread on the rate. Be very careful not to go for a card that has no fees but an exorbitant spread. I personally would open a CAD denominated account in Canada and convert a larger amount into that account when CAD is historically weak. The spreads will be better that way but don't attempt to use it to mitigate exchange rate risk or to trade the two currencies for profit as that way madness and penury lie."
},
{
"docid": "502747",
"title": "",
"text": "\"Using your example link, I found the corresponding chart for a stock that trades on London Stock Exchange: https://ca.finance.yahoo.com/echarts?s=RIO.L#symbol=RIO.L;range=1d As you can see there, the chart runs from ~8:00am to ~4:30pm, and as I write this post it is only 2:14pm Eastern Time. So clearly this foreign chart is using a foreign time zone. And as you can see from this Wikipedia page, those hours are exactly the London Stock Exchange's hours. Additionally, the closing price listed above the graph has a timestamp of \"\"11:35AM EST\"\", meaning that the rightmost timestamp in the graph (~4:30pm) is equal to 11:35AM EST. 16:30 - 11:30 = 5 hours = difference between London and New York at this time of year. So those are two data points showing that Yahoo uses the exchange's native time zone when displaying these charts.\""
},
{
"docid": "27891",
"title": "",
"text": "Generally the number of shares of a U.S. exchange-listed stock which have been shorted are tracked by the exchange and reported monthly. This number is usually known as the open short interest. You may also see a short interest ratio, which is the short interest divided by the average daily volume for the stock. The short interest is available on some general stock data sites, such as Yahoo Finance (under Key Statistics) and dailyfinance.com (also on a Key Statistics subpage for the stock)."
},
{
"docid": "343042",
"title": "",
"text": "I work on a buy-side firm, so I know how these small data issues can drive us crazy. Hope my answer below can help you: Reason for price difference: 1. Vendor and data source Basically, data providers such as Google and Yahoo redistribute EOD data by aggregating data from their vendors. Although the raw data is taken from the same exchanges, different vendors tend to collect them through different trading platforms. For example, Yahoo, is getting stock data from Hemscott (which was acquired by Morningstar), which is not the most accurate source of EOD stocks. Google gets data from Deutsche Börse. To make the process more complicated, each vendor can choose to get EOD data from another EOD data provider or the exchange itself, or they can produce their own open, high, low, close and volume from the actual trade tick-data, and these data may come from any exchanges. 2. Price Adjustment For equities data, the re-distributor usually adjusts the raw data by applying certain customized procedures. This includes adjustment for corporate actions, such as dividends and splits. For futures data, rolling is required, and back-ward and for-warding rolling can be chosen. Different adjustment methods can lead to different price display. 3. Extended trading hours Along with the growth of electronic trading, many market tends to trade during extended hours, such as pre-open and post-close trading periods. Futures and FX markets even trade around the clock. This leads to another freedom in price reporting: whether to include the price movement during the extended trading hours. Conclusion To cross-verify the true price, we should always check the price from the Exchange where the asset is actually traded. Given the convenience of getting EOD data nowadays, this task should be easy to achieve. In fact, for professional traders and investors alike, they will never reply price on free providers such as Yahoo and Google, they will most likely choose Bloomberg, Reuters, etc. However, for personal use, Yahoo and Google should both be good choices, and the difference is small enough to ignore."
},
{
"docid": "72375",
"title": "",
"text": "\"I think your best bet here would be HSBC. They will provide the required currencies, credit/debit cards, and very easy to use online banking transfers. This includes an online \"\"Global Account View\"\" which features all of your accounts on a single screen and allows you to \"\"drag and drop\"\" money between accounts. Regarding fees, I suspect you will need to be a \"\"Premier Account\"\" holder in order to avoid any fees imposed on transactions such as money transfers and exchanging money between currencies. In my experience HSBC offers extremely good exchange rates when exchanging \"\"large\"\" amounts of money ( greater than $10,000 / GBP 5,000 ). Exchanging small amounts will carry a larger spread but still much better than most banks offer. In my experience, exchanging GBP 5000 will have a spread of about 0.50-to-0.75 percent, while exchanging more than GBP10,000 will have a spread of as little as 0.10-to-0.20 percent. In order to qualify for a \"\"Premier Account\"\", if my memory of HSBC UK serves me correctly, you will need to have at least GBP 50,000 net across all of your HSBC managed accounts, including stockbroking and other investment accounts. In order to open a banking Swiss account, you will need to travel to Switzerland and apply in person. You cannot open a foreign bank account remotely. With a foreign investment account, I believe you can open accounts remotely. For example, I opened an account with Fidelity Switzerland using my Fidelity UK account directly from the UK, however obviously Fidelity does not provide banking services so this is not of interest to you. The simplest thing to do is to visit your local HSBC branch and discuss it with them in person. Other UK banks, such as Barclays, will also provide such services, but in my experience they are not as competitive on fees.\""
},
{
"docid": "383930",
"title": "",
"text": "Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal."
},
{
"docid": "92462",
"title": "",
"text": "Are there banks where you can open a bank account without being a citizen of that country without having to visit the bank in person? I've done it the other way around, opened a bank account in the UK so I have a way to store GBP. Given that Britain is still in the EU you can basically open an account anywhere. German online banks for instance allow you to administrate anything online, should there be cards issued you would need an address in the country. And for opening an account a passport is sufficient, you can identify yourself in a video chat. Now what's the downside? French banks' online services are in French, German banks' services are in German. If that doesn't put you off, I would name such banks in the comments if asked. Are there any online services for investing money that aren't tied to any particular country? Can you clarify that? You should at least be able to buy into any European or American stock through your broker. That should give you an ease of mind being FCA-regulated. However, those are usually GDRs (global depository receipts) and denominated in GBp (pence) so you'd be visually exposed to currency rates, by which I mean that if the stock goes up 1% but the GBP goes up 1% in the same period then your GDR would show a 0% profit on that day; also, and more annoyingly, dividends are distributed in the foreign currency, then exchanged by the issuer of the GDR on that day and booked into your account, so if you want to be in full control of the cashflows you should get a trading account denominated in the currency (and maybe situated in the country) you're planning to invest in. If you're really serious about it, some brokers/banks offer multi-currency trading accounts (again I will name them if asked) where you can trade a wide range of instruments natively (i.e. on the primary exchanges) and you get to manage everything in one interface. Those accounts typically include access to the foreign exchange markets so you can move cash between your accounts freely (well for a surcharge). Also, typically each subaccount is issued its own IBAN."
},
{
"docid": "98510",
"title": "",
"text": "There's a possibility to lose money in exchange rate shifts, but just as much chance to gain money (Efficient Market Hypothesis and all that). If you're worried about it, you should buy a stock in Canada and short sell the US version at the same time. Then journal the Canadian stock over to the US stock exchange and use it to settle your short sell. Or you can use derivatives to accomplish the same thing."
},
{
"docid": "434694",
"title": "",
"text": "Probably. It sounds like you're looking for a 1031-exchange for stocks and bonds. From the wikipedia page for 1031-exchanges: To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business or for investment. Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, though securitized properties are not excluded. 1031-exchanges usually are applicable in real estate."
},
{
"docid": "574327",
"title": "",
"text": "\"First, what structure does your index fund have? If it is an open-end mutual fund, there are no bid/ask spread as the structure of this security is that it is priced once a day and transactions are done with that price. If it is an exchange-traded fund, then the question becomes how well are authorized participants taking advantage of the spread to make the fund track the index well? This is where you have to get into the Creation and Redemption unit construct of the exchange-traded fund where there are \"\"in-kind\"\" transactions done to either create new shares of the fund or redeem out shares of the fund. In either case, you are making some serious assumptions about the structure of the fund that don't make sense given how these are built. Index funds have lower expense ratios and are thus cheaper than other mutual funds that may take on more costs. If you want suggested reading on this, look at the investing books of John C. Bogle who studied some of this rather extensively, in addition to being one of the first to create an index fund that became known as \"\"Bogle's Folly,\"\" where a couple of key ones would be \"\"Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor\"\" and \"\"Bogle on Mutual Funds: New Perspectives for the Intelligent Investor.\"\" In the case of an open-end fund, there has to be a portion of the fund in cash to handle transaction costs of running the fund as there are management fees to come from running the fund in addition to dividends from the stocks that have to be carefully re-invested and other matters that make this quite easy to note. Vanguard 500 Index Investor portfolio(VFINX) has .38% in cash as an example here where you could look at any open-end mutual fund's portfolio and notice that there may well be some in cash as part of how the fund is managed. It’s the Execution, Stupid would be one of a few articles that looks at the idea of \"\"tracking error\"\" or how well does an index fund actually track the index where it can be noted that in some cases, there can be a little bit of active management in the fund. Just as a minor side note, when I lived in the US I did invest in index funds and found them to be a good investment. I'd still recommend them though I'd argue that while some want to see these as really simple investments, there can be details that make them quite interesting to my mind. How is its price set then? The price is computed by taking the sum value of all the assets of the fund minus the liabilities and divided by the number of outstanding shares. The price of the assets would include the closing price on the stock rather than a bid or ask, similar pricing for bonds held by the fund, derivatives and cash equivalents. Similarly, the liabilities would be costs a fund has to pay that may not have been paid yet such as management fees, brokerage costs, etc. Is it a weighted average of all the underlying stock spreads, or does it stand on its own and stems from the usual supply & demand laws ? There isn't any spread used in determining the \"\"Net Asset Value\"\" for the fund. The fund prices are determined after the market is closed and so a closing price can be used for stocks. The liabilities could include the costs to run the fund as part of the accounting in the fund, that most items have to come down to either being an asset, something with a positive value, or a liability, something with a negative value. Something to consider also is the size of the fund. With over $7,000,000,000 in assets, a .01% amount is still $700,000 which is quite a large amount in some ways.\""
},
{
"docid": "226568",
"title": "",
"text": "\"It is unusual to need a consultant to open a bank account for you, and I would also be concerned that perhaps the consultant could take the money and do nothing, or continue to demand various sums of money for \"\"expenses\"\" like permits, licenses, identity check, etc. until you give up. Some of the more accepted ways to open a bank account are: A: Call up an established bank and follow their instructions to open a personal account . Make sure you are calling on a real bank, one that has been around a while. Hints: has permanent locations, in the local phone book, and has shares traded on a national stock exchange. Call the bank directly, don't use a number given to you by a 3rd party consultant, as it may be a trick... Discuss on the phone and find out if you can open an account by mail or if you need to visit in person. B: Create a company or branch office in the foreign country, assuming this is for business or investing. and open an account by appointing someone (like a lawyer or accountant or similar professional) in the foreign country to represent the company to open an account in person. If you are a US citizen, you will want to ask your CPA/accountant/tax lawyer about the TD F 90-22.1 Foreign Account Bank Report form, and the FATCA Foreign Account Tax Compliance Act. There can be very large fines for not making the required reports. The requirements to open a bank account have become more strict in many countries, so don't be surprised if they will not open an account for a foreigner with no local address, if that is your situation.\""
}
] |
8832 | Is it possible to buy commodity ETFs (e.g. silver) through Questrade? | [
{
"docid": "94689",
"title": "",
"text": "Questrade is a Canada based broker offering US stock exchange transactions as well. It says this right on their homepage. ETFs are traded like stocks, so the answer is yes. Why did you think they only offered funds?"
}
] | [
{
"docid": "475539",
"title": "",
"text": "\"Nobody can give you a definitive answer. To those who suggest it's expensive at these prices, [I'd point to this chart](http://treo.typepad.com/.a/6a0120a6002285970c014e8c39f2c3970d-850wi) showing the price of gold versus the global money supply over the past decade or so. It's not conclusive, but it's evidence that gold tracks the money supply relatively well. There might be a bit of risk premium baked in that it would shed in a stable economy, but that premium is unknowable. It's also (imo) probably worth the protection it provides. In an inflationary scenario (Euro devaluation) gold will hold its buying power very well. It also fares well in a deflationary environment, just not quite as well as holding physical currency. Note that in such an environment, bank defaults are a big danger: that 50k might only be safe under your mattress (rather than in a fractionally reserved bank account). If you're buying gold, certificates aren't exactly a bad option, although there still exists the counterparty risk of the agent storing your gold, as well as political risk of the nation where it's being held. Buying physical bullion ameliorates these risks, but then you face the problem of protecting it. Safe deposit boxes, a home safe, or burying it in your backyard are all possible options. The merits of each, I'll leave as an exerice to the reader. Foreign currency might be a little bit better than the Euro, but as we've seen in the past year or so, the Swiss Franc has been devalued to match the Euro in the proverbial \"\"race to the bottom\"\". It's probably not much better than another fiat currency. I don't know anything about Norway. Edit: Depending on your time horizon, my personal opinion would be to put no less than 5-10% of your savings in a hard store of value (e.g. gold, silver, platinum). Depending on your risk appetite, you could probably stand to put a lot more into it, especially given the Eurozone turmoil. Of course, as with anything else, your mileage may vary, past performance does not guarantee future results, this is not investment advice, seek professional medical help if you experience an erection lasting longer than four hours.\""
},
{
"docid": "174002",
"title": "",
"text": "Gold is a commodity. It has a tracked price and can be bought and sold as such. In its physical form it represents something real of signifigant value that can be traded for currency or barted. A single pound of gold is worth about 27000 dollars. It is very valuable and it is easily transported as opposed to a car which loses value while you transport it. There are other metals that also hold value (Platinum, Silver, Copper, etc) as well as other commodities. Platinum has a higher Value to weight ratio than gold but there is less of a global quantity and the demand is not as high. A gold mine is an investement where you hope to take out more in gold than it cost to get it out. Just like any other business. High gold prices simply lower your break even point. TIPS protects you from inflation but does not protect you from devaluation. It also only pays the inflation rate recoginized by the Treasury. There are experts who believe that the fed has understated inflation. If these are correct then TIPS is not protecting its investors from inflation as promised. You can also think of treasury bonds as an investment in your government. Your return will be effectively determined by how they run their business of governing. If you believe that the government is doing the right things to help promote the economy then investing in their bonds will help them to be able to continue to do so. And if consumers buy the bonds then the treasury does not have to buy any more of its own."
},
{
"docid": "387141",
"title": "",
"text": "Well, Taking a short position directly in real estate is impossible because it's not a fungible asset, so the only way to do it is to trade in its derivatives - Investment Fund Stock, indexes and commodities correlated to the real estate market (for example, materials related to construction). It's hard to find those because real estate funds usually don't issue securities and rely on investment made directly with them. Another factor should be that those who actually do have issued securities aren't usually popular enough for dealers and Market Makers to invest in it, who make it possible to take a short position in exchange for some spread. So what you can do is, you can go through all the existing real estate funds and find out if any of them has a broker that let's you short it, in other words which one of them has securities in the financial market you can buy or sell. One other option is looking for real estate/property derivatives, like this particular example. Personally, I would try to computationally find other securities that may in some way correlate with the real estate market, even if they look a bit far fetched to be related like commodities and stock from companies in construction and real estate management, etc. and trade those because these have in most of the cases more liquidity. Hope this answers your question!"
},
{
"docid": "280530",
"title": "",
"text": "Most people carry a diversity of stock, bond, and commodities in their portfolio. The ratio and types of these investments should be based on your goals and risk tolerance. I personally choose to manage mine through mutual funds which combine the three, but ETFs are also becoming popular. As for where you keep your portfolio, it depends on what you're investing for. If you're investing for retirement you are definitely best to keep as much of your investment as possible in 401k or IRAs (preferably Roth IRAs). Many advisers suggest contributing as much to your 401k as your company matches, then the rest to IRA, and if you over contribute for the IRA back to the 401k. You may choose to skip the 401k if you are not comfortable with the choices your company offers in it (such as only investing in company stock). If you are investing for a point closer than retirement and you still want the risk (and reward potential) of stock I would suggest investing in low tax mutual funds, or eating the tax and investing in regular mutual funds. If you are going to take money out before retirement the penalties of a 401k or IRA make it not worth doing. Technically a savings account isn't investing, but rather a place to store money."
},
{
"docid": "94477",
"title": "",
"text": "Usually, you can buy ETFs through brokerages. I looked at London to see if there's any familiar brokerage names, and it appears that the address below is to Fidelity Investments Worldwide and their site indicates that you can buy securities. Any brokerage, in theory, should allow you to invest in securities. You could always call and ask if they allow you to invest in ETFs. Some brokerages may also allow you to purchase securities in other countries; for instance, some of the firms in the U.S. allow investors to invest in the ETF HK:2801, which is not a U.S. ETF. Many countries have ETF securities available to local and foreign investors. This site appears to help point people to brokers in London. Also, see this answer on this site (a UK investor who's invested in the U.S. through Barclays)."
},
{
"docid": "392317",
"title": "",
"text": "If I hold a bond then I have a debt asset. If I hold physical silver then I have a commodity asset. If I hold the stock of an individual company then I have an equity asset. Equities, commodities and debts are the three kinds of assets that a person can hold. Edit: I forgot one other kind of asset; monetary asset. If I stuff my mattress with cash (USD) I am holding a monetary asset. Short-term Treasury Bills really behave more like a monetary asset than a bond. So besides actual, physical, currency I would categorize T-bill as a monetary asset. https://www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm"
},
{
"docid": "260085",
"title": "",
"text": "\"Some technical indicators (e.g. Williams %R) indicate whether the market is overbought or oversold. ... Every time a stock or commodity is bought, it is also sold. And vice versa. So how can anything ever be over-bought or over-sold? But I'm sure I'm missing something. What is it? You're thinking of this as a normal purchase, but that's not really how equity markets operate. First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers, who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers. During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for Market Makers to accumulate a large number of shares, without end-investors being involved on both sides of the transaction. This is one example of how instruments can be over-bought or over-sold. Since Williams %R creates over-bought and over-sold signals based on historical averages of open / close prices, perhaps it's better to think of these terms as \"\"over-valued\"\" and \"\"under-valued\"\". Of course, there could be good reason for instruments to open or close outside their expected ranges, so Williams %R is just a tool to give you clues... not a real evaluation of the instrument's true value.\""
},
{
"docid": "356259",
"title": "",
"text": "Precious metals also tend to do well during times of panic. You could invest in gold miners, a gold or silver ETF or in physical bullion itself."
},
{
"docid": "374225",
"title": "",
"text": "\"First of all, it's great you're now taking full advantage of your employer match – i.e. free money. Next, on the question of the use of a life cycle / target date fund as a \"\"hedge\"\": Life cycle funds were introduced for hands-off, one-stop-shopping investors who don't like a hassle or don't understand. Such funds are gaining in popularity: employers can use them as a default choice for automatic enrollment, which results in more participation in retirement savings plans than if employees had to opt-in. I think life cycle funds are a good innovation for that reason. But, the added service and convenience typically comes with higher fees. If you are going to be hands-off, make sure you're cost-conscious: Fees can devastate a portfolio's performance. In your case, it sounds like you are willing to do some work for your portfolio. If you are confident that you've chosen a good equity glide path – that is, the initial and final stock/bond allocations and the rebalancing plan to get from one to the other – then you're not going to benefit much by having a life cycle fund in your portfolio duplicating your own effort with inferior components. (I assume you are selecting great low-cost, liquid index funds for your own strategy!) Life cycle are neat, but replicating them isn't rocket science. However, I see a few cases in which life cycle funds may still be useful even if one has made a decision to be more involved in portfolio construction: Similar to your case: You have a company savings plan that you're taking advantage of because of a matching contribution. Chances are your company plan doesn't offer a wide variety of funds. Since a life cycle fund is available, it can be a good choice for that account. But make sure fees aren't out of hand. If much lower-cost equity and bond funds are available, consider them instead. Let's say you had another smaller account that you were unable to consolidate into your main account. (e.g. a Traditional IRA vs. your Roth, and you didn't necessarily want to convert it.) Even if that account had access to a wide variety of funds, it still might not be worth the added hassle or trading costs of owning and rebalancing multiple funds inside the smaller account. There, perhaps, the life cycle fund can help you out, while you use your own strategy in your main account. Finally, let's assume you had a single main account and you buy partially into the idea of a life cycle fund and you find a great one with low fees. Except: you want a bit of something else in your portfolio not provided by the life cycle fund, e.g. some more emerging markets, international, or commodity stock exposure. (Is this one reason you're doing it yourself?) In that case, where the life cycle fund doesn't quite have everything you want, you could still use it for the bulk of the portfolio (e.g. 85-95%) and then select one or two specific additional ETFs to complement it. Just make sure you factor in those additional components into the overall equity weighting and adjust your life cycle fund choice accordingly (e.g. perhaps go more conservative in the life cycle, to compensate.) I hope that helps! Additional References:\""
},
{
"docid": "369563",
"title": "",
"text": "If you want to speculate on gold price you should always buy an ETF/ETC (Exchange Traded Commodity). The reasons are simple: Easy to buy and sell (one mouse click) Cheap to buy and sell (small bank commission), compared to buy real gold (always 6 to 12% comission to the local shop when you buy and when you sell), see this one it's one cheap gold buy/sell shop I found on the internet But if you sometimes feel unsecure that you might one day loose everything due to a major economy collapse event (like an armageddon), or not to have enough money in bad periods or during retirment, and it makes you feel better to know you buried 999 Gold Sovereign in your house backyard (along with a rifle as suggested in comments), then just buy them and live an happy life (as long as you hide your gold in good ways and write a good treasury map)."
},
{
"docid": "455698",
"title": "",
"text": "\"Your are mixing multiple questions with assertions which may or may not be true. So I'll take a stab at this, comment if it doesn't make sense to you. To answer the question in the title, you invest in an IRA because you want to save money to allow you to retire. The government provides you with tax incentives that make an IRA an excellent vehicle to do this. The rules regarding IRA tax treatment provide disincentives, through tax penalties, for withdrawing money before retirement. This topic is covered dozens of times, so search around for more detail. Regarding your desire to invest in items with high \"\"intrinsic\"\" value, I would argue that gold and silver are not good vehicles for doing this. Intrinsic value doesn't mean what you want it to mean in this context -- gold and silver are commodities, whose prices fluctuate dramatically. If you want to grow money for retirement over a long period, of time, you should be invested in diversified collection of investments, and precious metals should be a relatively small part of your portfolio.\""
},
{
"docid": "419985",
"title": "",
"text": "There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund)."
},
{
"docid": "370244",
"title": "",
"text": "Behind the scenes, mutual funds and ETFs are very similar. Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate. Mutual funds and ETFs can both be either managed or index-based, high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them. There is often a minimum initial investment required to open your mutual fund account. Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock. To invest, you need a brokerage account that can buy and sell stocks. When you invest, you pay a transaction fee, just as you would if you purchase a stock. There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF. There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same. However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured. (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.) That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience. If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient. If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive."
},
{
"docid": "153660",
"title": "",
"text": "\"For a non-ETF mutual fund, you can only buy shares of the mutual fund from the mutual fund itself (at a price that the mutual fund will reveal only at the end of the day) and can only shares back to the mutual fund (again at a price that the mutual fund will reveal only at the end of the day). There is no open market in the sense that you cannot put in a bid to buy, say, 100 shares of VFINX at $217 per share through a brokerage, and if there is a seller willing to sell 100 shares of VFINX to you at $217, then the sale is consummated and you are now the proud owner of 100 shares of VFINX. The only buyer or seller of VFINX is the mutual find itself, and you tell it that you \"\"want to buy 100 shares of VFINX and please take the money out of my checking account\"\". If this order is entered before the markets close at 4 pm, the mutual fund determines its share price as of the end of the day, opens a new account for you and puts 100 shares of VFINX in it (or adds 100 shares of VFINX to your already existing pile of shares) and takes the purchase price out of your checking account via an ACH transfer. Similarly for redeeming/selling shares of VFINX that you own (and these are held in an account at the mutual fund itself, not by your brokerage): you tell the mutual fund to that you \"\"wish to redeem 100 shares and please send the proceeds to my bank account\"\" and the mutual fund does this at the end of the day, and the money appears in your bank account via ACH transfer two or three days later. Generally, these transactions do not need to be for round lots of multiples of 100 shares for efficiency; most mutual fund will gladly sell you fractional shares down to a thousandth of a share. In contrast, shares of an exchange-traded fund (ETF) are just like stock shares in that they can be bought and sold on the open market and your broker will charge you fees for buying and selling them. Selling fractional shares on the open market is generally not possible, and trading in round lots is less expensive. Also, trades occur at all times of the stock exchange day, not just at the end of the day as with non-ETF funds, and the price can fluctuate during the day too. Many non-ETF mutual funds have an ETF equivalent: VOO is the symbol for Vanguard's S&P 500 Index ETF while VFINX is the non-ETF version of the same index fund. Read more about the differences between ETFs and mutual funds, for example, here.\""
},
{
"docid": "78626",
"title": "",
"text": "The expense ratio reduces the return of the ETF; your scenario of paying 100.0015 is that of a load. Most (all?) ETFs can be bought without paying a load (sales charge as a percent of amount invested), and some ETFs can be bought without paying a brokerage fee (fixed or variable charge for a buy transaction just like buying any other stock through the brokerage) because the brokerage has waived it. Your broker might charge fees for both buying and selling shares in an ETF, but in any case, this is quite separate from the expense ratio."
},
{
"docid": "266323",
"title": "",
"text": "The main advantage of commodities to a largely stock and bond portfolio is diversification and the main disadvantages are investment complexity and low long-term returns. Let's start with the advantage. Major commodities indices and the single commodities tend to be uncorrelated to stocks and bonds and will in general be diversifying especially over short periods. This relationship can be complex though as Supply can be even more complicated (think weather) so diversification may or may not work in your favor over long periods. However, trading in commodities can be very complex and expensive. Futures need to be rolled forward to keep an investment going. You really, really don't want to accidentally take delivery of 40000 pounds of cattle. Also, you need to properly take into account roll premiums (carry) when choosing the closing date for a future. This can be made easier by using commodities index ETFs but they can also have issues with rolling and generally have higher fees than stock index ETFs. Most importantly, it is worth understanding that the long-term return from commodities should be by definition (roughly) the inflation rate. With stocks and bonds you expect to make more than inflation over the long term. This is why many large institutions talk about commodities in their portfolio they often actually mean either short term tactical/algorithmic trading or long term investments in stocks closely tied to commodities production or processing. The two disadvantages above are why commodities are not recommended for most individual investors."
},
{
"docid": "502203",
"title": "",
"text": "If you want a concrete investment tip, precious metals (e.g. gold, silver) are on a pretty good run these days, personally I still think they have ways to go as there are just too many problems with modern monetary policy of an almost existential nature, and gold and silver are better stores of value than fiat money. Silver is particularly hot right now, but keep in mind that the increased volatility means increased risk. If the Fed keeps its foot on the pedals of the dollar printing press and we get QE3 this summer, that will most likely mean more people piling into the PMs to hedge against inflation. If the Fed starts to tighten it's policy then that's probably bad news for both equities and bonds and so PMs could be seen as a safe haven investment. These are the main reasons why PMs take up a good portion of my portfolio and will continue to do so untill I see how the global economy plays out over the next couple of years."
},
{
"docid": "426771",
"title": "",
"text": "The problem I have with gold is that it's only worth what someone will pay you for it. To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, you can't eat it, and the main people making money off of it are the folks charging a not insubstantial commission to sell it to you, or buy it back. Sure it's used in small quantities for things like plating electrical contacts, dental work, shielding etc. But Industrial uses account for only 10% of consumption. Mostly it's just hoarded, either in the form of Jewelry (50%) or 'investment' (bullion/coins) 40%. Its value derives largely from rarity and other than the last few years, there's no track record of steady growth over time like the stock market or real-estate. Just look at what gold prices did between 10 to 30 years ago, I'm not sure it came anywhere near close to keeping pace with inflation during that time. If you look at the chart, you see a steady price until the US went off the gold standard in 1971, and rules regarding ownership and trading of gold were relaxed. There was a brief run up for a few years after that as the market 'found its level' as it were, and you really need to look from about 74 forward (which it experienced its first 'test' and demonstration of a 'supporting' price around 400/oz inflation adjusted. Then the price fluctuated largely between 800 to 400 per ounce (adjusted for inflation) for the next 30 years. (Other than a brief sympathetic 'Silver Tuesday' spike due to the Hunt Brothers manipulation of silver prices in 1980.) Not sure if there is any causality, but it is interesting to note that the recent 'runup' in price starts in 2000 at almost the same time the last country (the Swiss) went off the 'gold standard' and gold was no longer tied to any currency (or vise versa) If you bought in '75 as a hedge against inflation, you were DOWN, as much as 50% during much of the next 33 years. If you managed to buy at a 'low' the couple of times that gold was going down and found support around 400/oz (adjusted) then you were on average up slightly as much as a little over 50% (throwing out silver Tuesday) but then from about '98 through '05 had barely broken even. I personally view 'investments' in gold at this time as a speculation. Look at the history below, and ask yourself if buying today would more likely end up as buying in 1972 or 1975? (or gods forbid, 1980) Would you be taking advantage of a buying opportunity, or piling onto a bubble and end up buying at the high? Note from Joe - The article Demand and Supply adds to the discussion, and supports Chuck's answer."
},
{
"docid": "270223",
"title": "",
"text": "I know I can not trade futures realistically (I never claimed I could). All I wanted was some exposure to commodities. If I could just trade many of these things in an ETF like GLD or XLV, I would have done that. On the topic of margin, I appreciate your explaining that to me. I admit readily that I could never invest in futures straight, but I would like to get into commodities and other types of investments. I have tried to look for value in the market, but I have not found many things I would put my money in. I have gone as far as to look through OTC ADRs to find some foreign value, and I found nothing. I just want to be able to trade in any market, and I would consider shorting, but I don't like to be too risky. I want to go long on positions, and it seemed like commodities may be a good speculation to LOOK INTO. Taking rough rice as an example, there are millions (if not billions) of people who eat rice to survive. People will always need oil to fuel their cars. People will always need electricity. So I guess what I am trying to do is look into things that allow me to profit, regardless of where equities are going. The only thing I want to do is trade the options of the futures, not the actual futures themselves. I hope I did not confuse you. If I can earn even $20 from buying an option at a lower price and selling higher, it would allow me to have a greater breadth of tools to use when the market may be overvalued."
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "133644",
"title": "",
"text": "Is this an employee stock purchase plan (ESPP)? If so, and there is no required holding period, selling right away is essentially a guaranteed bonus with minimal risk. One caveat is that sometimes it takes a while to actually receive the shares at your brokerage, and in the meantime your company may have an earnings report that could cause the share price to drop. If your discount is only 5%, for example, a bad earnings report could easily wipe that out. The only other cons I can think of is ESPP contributions being withheld from you for months (albeit for a virtually guaranteed return), and it complicates your taxes a bit. On the flip side, another pro is that after you sell the shares, you are more likely to invest that money rather than spend it."
}
] | [
{
"docid": "488037",
"title": "",
"text": "Money Manager Ex PROS: CONS"
},
{
"docid": "199012",
"title": "",
"text": "> They can buy a jar and put coins in it. because that's all there is to shooting a cover shot for a top-rated magazine, right? Time buy a lot of stock. Companies buy stock out of convenience. If you wanted a pro photographer to photograph a jar of coins at sufficient quality for a high-end magazine cover, expect to pay in the region of $2-3000. $30 is way too low, but if that's the price he asked, that's the price they're gonna pay. Nobody asks a vendor if you can pay him more than the stated price."
},
{
"docid": "246547",
"title": "",
"text": "As far as the spam mail goes, I own a rental (in Connecticut) and live in Massachusetts, I get very little mail related to this property. I view this as a non-compelling reason. Your other reasons pick up quick in value. The protection from the rest of your assets is helpful, and the one con for most is the inability to get a loan with such a structure, but in your case, a cash purchase is mentioned. I don't know what the fees are to start an LLC, but overall, I believe the pros outweigh the cons. Yes, your Pro 4 looks good, an ongoing business with a track record will help the next purchase."
},
{
"docid": "494616",
"title": "",
"text": "There are some who argue that you should lease an electric car. These factors are in addition to all the normal pros and cons of leasing vs. buying. The technology is still new and is advancing rapidly. In 2-3 years, the newer model may have significantly improved features, range, and efficiency, as well as lower prices. If you are the type of person to upgrade regularly to the latest and greatest, leasing can make it a smoother transition. It is hard to predict the depreciation of the vehicles. This is both because of the above factors, but also because these kinds of cars are newer and so the statistical models used to predict their future values are less refined. The models for predicting gas car prices have been honed for decades. EV Manufacturers have in the past made some mistakes in their residual value estimations. When you lease a car, you get essentially an option to buy the car at the future predicted residual value. If, at the end of the lease, the market value of the car is higher than the residual value, you can purchase the car at the predetermined price, making yourself some extra money. If the value is lower than the residual, you can return the car or renegotiate. I know a relatively large number of electric vehicle owners. Most or all of the ones who got the vehicle new leased it. The rest bought used vehicles coming off lease, which can also be a good deal."
},
{
"docid": "509608",
"title": "",
"text": "Since your child is 2, he has a long time horizon for investment. Assuming the savings will be used at age 19, that's 17 years. So, I think your best bet is to invest primarily in equities (i.e. stock-based funds) and inside an RESP. Why equities? Historically, equities have outperformed debt and cash over longer time periods. But, equities can be volatile in the short term. So, do purchase some fixed-income investments (e.g. 30% government bonds and money market funds), and do also spread your equity money around as well -- e.g. buy some international funds in addition to Canadian funds. Rebalance every year, and as your child gets closer to university age, start shifting some assets out of equities and into fixed-income, to reduce risk. You don't want the portfolio torpedoed by an economic crisis the year before the money is required! Next, why inside an RESP? Finally... what if your kid doesn't attend post-secondary education? First, you should probably get a Family RESP, not a Group RESP. Group RESPs have strict rules and may forfeit contributions if your kid doesn't attend. Have a look at Choosing the Right RESP and Canadian Capitalist's post The Pros and Cons of Group RESP Plans. In a Family plan, if none of your kids end up attending post-secondary education, then you forfeit the government match money -- the feds get it back through a 20% surtax on withdrawals. But, you'll have the option of rolling over remaining funds into your RRSP, if you have room."
},
{
"docid": "564648",
"title": "",
"text": "Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket."
},
{
"docid": "91870",
"title": "",
"text": "I haven't seen any of the other answers address this point – shares are (a form of) ownership of a company and thus they are an entitlement to the proceeds of the company, including proceeds from liquidation. Imagine an (extreme, contrived) example whereby you own shares in a company that is explicitly intended to only exist for a finite and definite period, say to serve as the producers of a one-time event. Consider a possible sequence of major events in this company's life: So why would the shares of this hypothetical company be worth anything? Because the company itself is worth something, or rather the stuff that the company owns is worth something, even (or in my example, especially) in the event of its dissolution or liquidation. Besides just the stuff that a company owns, why else would owning a portion of a company be a good idea, i.e. why would I pay for such a privilege? Buying shares of a company is a good idea if you believe (and are correct) that a company will make larger profits or capture more value (e.g. buy and control more valuable stuff) than other people believe. If your beliefs don't significantly differ from others then (ideally) the price of the companies stock should reflect all of the future value that everyone expects it to have, tho that value is discounted based on time preference, i.e. how much more valuable a given amount of money or a given thing of value is today versus some time in the future. Some notes on time preference: But apart from whether you should buy shares in a specific company, owning shares can still be valuable. Not only are shares a claim on a company's current assets (in the event of liquidation) but they are also claims on all future assets of the company. So if a company is growing then the value of shares now should reflect the (discounted) future value of the company, not just the value of its assets today. If shares in a company pays dividends then the company gives you money for owning shares. You already understand why that's worth something. It's basically equivalent to an annuity, tho dividends are much more likely to stop or change whereas the whole point of an annuity is that it's a (sometimes) fixed amount paid at fixed intervals, i.e. reliable and dependable. As CQM points out in their answer, part of the value of stock shares, to those that own them, and especially to those considering buying them, is the expectation or belief that they can sell those shares for a greater price than what they paid for them – irrespective of the 'true value' of the stock shares. But even in a world where everyone (magically) had the same knowledge always, a significant component of a stock's value is independent of its value as a source of trading profit. As Jesse Barnum points out in their answer, part of the value of stocks that don't pay dividends relative to stocks that do is due to the (potential) differences in tax liabilities incurred between dividends and long-term capital gains. This however, is not the primary source of value of a stock share."
},
{
"docid": "141120",
"title": "",
"text": "You can't control the number of special interest groups. You can't control their stubbornness, animosity, or lack of foresight. What you can do is limit how and when special interest groups can press their views. Create a new team whose whole job is to field lobbying before it gets to congress. They see all the new bills, etc. and boil them down to simple terms, pros, and cons, before presenting them to congress. The final version must also be signed off on by the lobbying party before it is presented. You need a second party in this group: The Devil's Advocates - a group that is REQUIRED to argue against EVERY proposal. The whole reason for this group is to ensure that no proposal passes without contest. You need a group whose whole goal is to identify the impact of each proposal, and return the findings to fielders. They also require a devil's advocate. When the final proposal is signed off on, then the fielding group presents it to congress, not the lobbyists or their supporters. The funding for these groups comes directly from the lobbyists, who must finance their bill through congress, unless special exception is made. If a ton of special interest groups want to get their form in, they must wait their turn in line. The less work the fielding group has to do to clean up their request, validate it, and discover the pros and cons, the faster the lobby request will go through. This is just a rough idea off the top of my head. What are the issues you see with it?"
},
{
"docid": "89161",
"title": "",
"text": "\"You ask about the difference between credit and debit, but that may be because you're missing something important. Regardless of credit/debit, there is value in carrying two different cards associated with two different accounts. The reason is simply that because of loss, fraud, or your own mismanagement, or even the bank's technical error, any card can become unusable for some period of time. Exactly how long depends what happened, but just sending you a new card can easily take more than one business day, which might well be longer than you'd like to go without access to any funds. In that situation you would be glad of a credit card, and you would equally be glad of a second debit card on a separate account. So if your question is \"\"I have one bank account with one debit card, and the only options I'm willing to contemplate are (a) do nothing or (b) take a credit card as well\"\", then the answer is yes, take a credit card as well, regardless of the pros or cons of credit vs debit. Even if you only use the credit card in the event that you drop your debit card down a drain. So what you can now consider is the pros and cons of a credit card vs managing an additional bank account -- unless you seriously hate one or more of the cons of credit cards, the credit card is likely to win. My bank has given me a debit card on a cash savings account, which is a little scary, but would cover most emergencies if I didn't have a credit card too. Of course the interest rate is rubbish and I sometimes empty my savings account into a better investment, so I don't use it as backup, but I could. Your final question \"\"can a merchant know if I give him number of debit or credit card\"\" is already asked: Can merchants tell the difference between a credit card and embossed debit card? Yes they can, and yes there are a few things you can't (or might prefer not to) do with debit. The same could even be said of Visa vs. Mastercard, leading to the conclusion that if you have a Visa debit you should look for a Mastercard credit. But that seems to be less of an issue as time goes on and almost everywhere in Europe apparently takes both or neither. If you travel a lot outside the EU then you might want to be loaded down with every card under the sun, and three different kinds of cash, but you'd already know that without asking ;-)\""
},
{
"docid": "393866",
"title": "",
"text": "\"Like many things, there are pros and cons to using credit cards. The other folks on here have discussed the pros and length, so I'll just quickly summarize: Convenience of not having to carry cash. Delay paying your bills for a month with no penalty. Build your credit rating for a time when you need a big loan, like buying a house or starting a business. Provide easy access to credit for emergencies or special situations. Many credit cards provide \"\"rewards\"\" of various sorts that can effectively reduce the cost of what you buy. Protection against fraud. Extended warranty, often up to one year Damage warranty, covering breakage that might be explicitly excluded from normal warranty. But there are also disadvantages: One of the advantages of credit cards -- easy access to credit -- can also be a disadvantage. If you pay with cash, then when you run out of cash, you are forced to stop buying. But when you pay with credit, you can fall into the trap of buying things that you can't afford. You tell yourself that you'll pay for it when you get that next paycheck, but by the time the paycheck arrives, you have bought more things that you can't afford. Then you have to start paying interest on your credit card purchases, so now you have less money left over to pay off the bills. Many, many people have gotten into a death spiral where they keep piling up credit card debt until they are barely able to pay the interest every month, never mind pay off the original bill. And yes, it's easy to say, \"\"Credit cards are great as long as you use them responsibly.\"\" That may well be true. But some people have great difficulty being responsible about it. If you find that having a credit card in your pocket leads you to just not worry about how much you buy or what it costs, because, hey, you'll just put it on the credit card, then you will likely end up in serious trouble. If, on the other hand, you are just as careful about what you buy whether you are paying cash or using credit, and you never put more on the credit card than you can pay off in full when the bill arrives, then you should be fine.\""
},
{
"docid": "569224",
"title": "",
"text": "What most respondents are forgetting, is when a company allows its employees to purchase its shares at a discount with their salary, the employee is usually required to hold the stock for a number of years before they can sell them. The reason the company is allowing or promoting its employees to purchase its shares at a discount is to give the employees a sense of ownership of the company. Being a part owner in the company, the employee will want the company to succeed and will tend to be more productive. If employees were allowed to purchase the shares at a discount and sell them straight away, it would defeat this purpose. Your best option to decide whether or not to buy the shares is to work out if the investment is a good one as per any other investment you would undertake, i.e. determine how the company is currently performing and what its future prospects are likely to be. Regarding what percentage of pay to purchase the shares with, if you do decide to buy them, you need to work that out based on your current and future budgetary needs and your savings plan for the future."
},
{
"docid": "209716",
"title": "",
"text": "Well, you can just say that 1 dollar contributed = one share and pay out dividends based on number of shares. That makes it pretty easy to make things fair based. There are pros and cons with this pooling approach."
},
{
"docid": "229633",
"title": "",
"text": "There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio. You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters. The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere. As more people want to buy stocks, the price rises. Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere."
},
{
"docid": "103439",
"title": "",
"text": "The main problem I have with Uber is they represent themselves differently in some contexts than others. To most customers, Uber is Uber, not the individual who is driving. Conceptually, individuals not being able to shield themselves behind a corporation is an interesting idea, with both pros and cons."
},
{
"docid": "598807",
"title": "",
"text": "Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and many thousands of dollars. A bubble is not necessary to trigger a chain of events that can lead to loss of a home. If an interest only borrower is late on a payment, this often triggers a rate increase. Couple that with some other things that can happen negatively, and you are up $hit's creek. IMO it is not wise."
},
{
"docid": "25817",
"title": "",
"text": "\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \"\"Composite Index\"\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \"\"In most years 25 to 30 stocks in the S&P 500 are replaced,\"\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\""
},
{
"docid": "474006",
"title": "",
"text": "If you have a long enough time horizon, investing in the stock market while in a bad economy can turn out to be a very smart decision. If you need access to your capital in the short-term, 1-2 years, then it is probably a bad decision. If you have the ability to ride out the next few years, then you may be buying securities at an extremely low valuation. Take AAPL and MSFT for example. These are both technology stocks, which is by far the hottest sector in the economy now, and you can buy both of these companies for less than 13x earnings. Historically, you would have had to pay 20x or higher for high tech growth companies, but today you can buy these stocks at discounted valuations. Now AAPL may have a large market capitalization and a high stock price, but the simple fact is they are growing their earnings very quickly, they have best in class management, and they have $100 billion in cash and $50 billion in annual cash flow generation and you can buy the stock for a historically low multiple."
},
{
"docid": "553331",
"title": "",
"text": "Your cons say it all. I would not be buying stocks based soley on a high dividend yield. In fact companies with very high dividend yields tend to do poorer than companies investing at least part of their earnings back into the company. Make sure at least that the company's earnings is more than the dividend yield being offered."
},
{
"docid": "67625",
"title": "",
"text": "It appears your company is offering roughly a 25% discount on its shares. I start there as a basis to give you a perspective on what the 30% matching offer means to you in terms of value. Since you are asking for things to consider not whether to do it, below are a few considerations (there may be others) in general you should think about your sources of income. if this company is your only source of income, it is more prudent to make your investment in their shares a smaller portion of your overall investment/savings strategy. what is the holding period for the shares you purchase. some companies institute a holding period or hold duration which restricts when you can sell the shares. Generally, the shorter the duration period the less risk there is for you. So if you can buy the shares and immediately sell the shares that represents the least amount of relative risk. what are the tax implications for shares offered at such a discount. this may be something you will need to consult a tax adviser to get a better understanding. your company should also be able to provide a reasonable interpretation of the tax consequences for the offering as well. is the stock you are buying liquid. liquid, in this case, is just a fancy term for asking how many shares trade in a public market daily. if it is a very liquid stock you can have some confidence that you may be able to sell out of your shares when you need. personally, i would review the company's financial statements and public statements to investors to get a better understanding of their competitive positioning, market size and prospects for profitability and growth. given you are a novice at this it may be good idea to solicit the opinion of your colleagues at work and others who have insight on the financial performance of the company. you should consider other investment options as well. since this seems to be your first foray into investing you should consider diversifying your savings into a few investments areas (such as big market indices which typically should be less volatile). last, there is always the chance that your company could fail. Companies like Enron, Lehman Brothers and many others that were much smaller than those two examples have failed in the past. only you can gauge your tolerance for risk. As a young investor, the best place to start is to use index funds which track a broader universe of stocks or bonds as the first step in building an investment portfolio. once you own a good set of index funds you can diversify with smaller investments."
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "521095",
"title": "",
"text": "\"The major pros tend to be: The major cons tend to be: Being in California, you've got state income tax to worry about as well. It might be worth using some of that extra cash to hire someone who knows what they're doing to handle your taxes the first year, at least. I've always maxed mine out, because it's always seemed like a solid way to make a few extra dollars. If you can live without the money in your regular paycheck, it's always seemed that the rewards outweighed the risks. I've also always immediately sold the stock, since I usually feel like being employed at the company is enough \"\"eggs in that basket\"\" without holding investments in the same company. (NB: I've participated in several of these ESPP programs at large international US-based software companies, so this is from my personal experience. You should carefully review the terms of your ESPP before signing up, and I'm a software engineer and not a financial advisor.)\""
}
] | [
{
"docid": "390751",
"title": "",
"text": "\"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:\""
},
{
"docid": "95243",
"title": "",
"text": "So the key factor here, IMHO, is the amount we are talking about. $2K is just not a lot of money. If you lose every penny, you can recover. On the other hand it is unlikely to make you wealthy. So if I was you I would buy in, more for the fun of it all. Now if it was a large amount of money that we were talking about it would be about a percentage of my net worth. For example, lets say the minimum was 20K, and you really believed in the company. If I had a net worth of less than 200K, I would not do it. If I had a larger net worth, I would consider it unless I was near retirement. So if I was 30, hand a net worth of 300K, I would probably invest as even if I did lose it all, I could recover. Having said all that it does not sound like you completely agree that the company will be profitable. So in that case, don't buy. Also, I have the opportunity to buy my own company's stock at a discount. However, I do not for two reasons. The first is I don't like investing in the company I work for. Secondly, they require you to hold the stock for a year."
},
{
"docid": "197151",
"title": "",
"text": "Assuming US. The only con that I know of is that hassle factor. You have to remember to sell when you get the new shares, and your taxes become a bit more complicated; the discount that you receive is taxed as ordinary income, and then any change in the price of the stock between when you receive it and you sell it will be considered a capital gain or loss. It's not hard to account for properly if you keep good records."
},
{
"docid": "382452",
"title": "",
"text": "Theres obviously a ton of licensing/certifications that go into an insurance company. I'm wondering anyone has experience with a start up or small insurance company and can speak to the pros and cons of it. More specifically, is there a certain rule about how much money should be set aside as float assuming a policy limit of 10 million? I'd imagine it depends on the type of coverage to a large degree. Just beginning to start the process of researching this based on an unexpected bit of news/opportunity. Thanks."
},
{
"docid": "110465",
"title": "",
"text": "\"Consider that there are some low-probability, high-impact risk factors involved with property management. For example, an old house has lead paint and may have illegal modifications, unknown to you, that pose some hazard. All of your \"\"pros\"\" are logical, and the cons are relatively minor. Just consult an attorney to look for potential landmines.\""
},
{
"docid": "556696",
"title": "",
"text": "Typically, the discount is taxable at sale time But what about taxes? When the company buys the shares for you, you do not owe any taxes. You are exercising your rights under the ESPP. You have bought some stock. So far so good. When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income. Source: Turbotax. Second source. Your pretax rate of return would be: 17% (100/85) In your scenario where the stock price is fixed at $100. Your tax rate would be your marginal rate. If the stock stayed at 100, you would still be taxed as income on $15/share (the discount) and would receive no benefit for holding the stock one year. Assuming you are in the 25% tax bracket, your after tax rate of return would be 13% ((15*.75)+85)/85)"
},
{
"docid": "52185",
"title": "",
"text": "There are two sources for shares that employees buy through ESOPs. A company can simply buy the shares on the open market. The company must pay for the stock, but the employee then pays the company for the shares. If employees get a discount on the ESOP shares, the company would pay for that percentage directly. The company can choose to issue new shares. These new shares dilute the ownership of all the other current stockholders. While #2 is common when companies issue stock options, I'd be surprised to see it with an ESOP. In most cases, employees are limited in the amount of their salary they can devote towards the ESOP. If that limit is 10% and the discount that the employees get is 10%, the cost on a per-employee basis would only be 1% of that employees salary, which is a small expense."
},
{
"docid": "224320",
"title": "",
"text": "You need a blog, or a thread of your own. I want to learn about this, and you appear to be quite knowledgeable and thorough in your explanations. Would it be possible for you to make a thread, or reply, or pm explaining some of the pro's and cons of fiat money?"
},
{
"docid": "512827",
"title": "",
"text": "As with most strategies there are pros and cons associated with this approach: Advantages of using LEAPS: Disadvantages of using LEAPS: Read more about it in great detail on my blog: http://www.thebluecollarinvestor.com/leaps-and-covered-call-writing-2/"
},
{
"docid": "67625",
"title": "",
"text": "It appears your company is offering roughly a 25% discount on its shares. I start there as a basis to give you a perspective on what the 30% matching offer means to you in terms of value. Since you are asking for things to consider not whether to do it, below are a few considerations (there may be others) in general you should think about your sources of income. if this company is your only source of income, it is more prudent to make your investment in their shares a smaller portion of your overall investment/savings strategy. what is the holding period for the shares you purchase. some companies institute a holding period or hold duration which restricts when you can sell the shares. Generally, the shorter the duration period the less risk there is for you. So if you can buy the shares and immediately sell the shares that represents the least amount of relative risk. what are the tax implications for shares offered at such a discount. this may be something you will need to consult a tax adviser to get a better understanding. your company should also be able to provide a reasonable interpretation of the tax consequences for the offering as well. is the stock you are buying liquid. liquid, in this case, is just a fancy term for asking how many shares trade in a public market daily. if it is a very liquid stock you can have some confidence that you may be able to sell out of your shares when you need. personally, i would review the company's financial statements and public statements to investors to get a better understanding of their competitive positioning, market size and prospects for profitability and growth. given you are a novice at this it may be good idea to solicit the opinion of your colleagues at work and others who have insight on the financial performance of the company. you should consider other investment options as well. since this seems to be your first foray into investing you should consider diversifying your savings into a few investments areas (such as big market indices which typically should be less volatile). last, there is always the chance that your company could fail. Companies like Enron, Lehman Brothers and many others that were much smaller than those two examples have failed in the past. only you can gauge your tolerance for risk. As a young investor, the best place to start is to use index funds which track a broader universe of stocks or bonds as the first step in building an investment portfolio. once you own a good set of index funds you can diversify with smaller investments."
},
{
"docid": "212162",
"title": "",
"text": "PROS: Price stability, confidence in the market, manipulation of money supply for direct monetary policy transmission, not having politicians conduct short sighted policy so they can get reelected, etc. CONS: No checks/balances, few people control of the largest economy in the world, not democratic"
},
{
"docid": "474006",
"title": "",
"text": "If you have a long enough time horizon, investing in the stock market while in a bad economy can turn out to be a very smart decision. If you need access to your capital in the short-term, 1-2 years, then it is probably a bad decision. If you have the ability to ride out the next few years, then you may be buying securities at an extremely low valuation. Take AAPL and MSFT for example. These are both technology stocks, which is by far the hottest sector in the economy now, and you can buy both of these companies for less than 13x earnings. Historically, you would have had to pay 20x or higher for high tech growth companies, but today you can buy these stocks at discounted valuations. Now AAPL may have a large market capitalization and a high stock price, but the simple fact is they are growing their earnings very quickly, they have best in class management, and they have $100 billion in cash and $50 billion in annual cash flow generation and you can buy the stock for a historically low multiple."
},
{
"docid": "475108",
"title": "",
"text": "> “If the [Black-Scholes] formula is applied to extended time periods….it can produce absurd results.” > -Warren Buffett, 2008 Letter to Berkshire Hathaway Shareholders I will give your question more thought, and come back with a quantitative solution. It may be most fruitful to apply a backward-induction options pricing model with detailed scenario-based discounted cash flow valuation models supported by pro forma financial statement and investment analysis. Nonetheless, my initial reaction is inline with Warren Buffett's belief that in the long-run an assumption of the Black-Scholes options pricing model is invalid (see [here](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.613.1657&rep=rep1&type=pdf) and [here](http://www.elon.edu/docs/e-web/academics/business/economics/faculty/kurt/OptionValuationBuffetCritique_123113.pdf)). The perceived invalid assumption is that the distribution of expected future stock prices is *not* log-normal in the long-run. This non-log-normal view is especially true for a single company stock. This invalid assumption results in over-valuation of options prices from Black-Scholes - which makes it much better to sell long-term options than to buy them if market participants are using Black-Scholes pricing models. Again, without having done the math yet, my gut tells me if the option seller is using Black-Sholes pricing for long-dated options, you would be best to avoid buying them as the prices will be inflated compared to an economic reality fair price."
},
{
"docid": "281572",
"title": "",
"text": "That is where I think Walmart comes in to buy up a business like this. With their network of stores and the insane buying power they have the can push a good solid quality that the middle class American wants and do it very cheaply. I feel this will be their main combat against Amazon buying whole foods. Currently Walmart makes more on grocery sales than anything else as a hole and will continue to do so because of what and how they are doing it. Walmart is sneaky as fuck when it comes to what they can do and how they can do it. Even Walmart buying up Advanced Auto Parts is a solid counter move to Amazon buying Whole Foods...the next step is buying a Blue Apron type business... and with how Blue Apron is doing financially and given their name they are entering buy off territory. In my humble albeit non pro status in the stock market my 3 buys are Snap Chat, GoPro, and Walmart for long term retire and never have to worry about money again companies. I am by no means an expert but I have never come close to losing money in the stock market and do a good amount of research before I invest. Snapchat is my top 1 tbh. Sorry for going on a tangent lol"
},
{
"docid": "241135",
"title": "",
"text": "Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started."
},
{
"docid": "251376",
"title": "",
"text": "It takes a long time to bring these sort of cases to trial because of their complexity and the large sums of money that companies have to delay the process. It takes political will to go after these types of crimes. From the politics to building a case, it just seems to me that five years is a very short time frame. I don't know how or why it was set at five years, but due to what we know now, it might be a better idea to extend the statue, if the pros outweigh the cons."
},
{
"docid": "436548",
"title": "",
"text": "It's no coincidence that the companies really putting muscle behind this are some of the biggest in the world (Google, IBM, EY). As the article points out, they're bypassing colleges altogether to better access the best available talent. With the mega resources those companies have, all training can be provided on site. There's no need to wait 3-5 years to hire when they can do it now. There are definitely pros and cons to this, but it certainly levels the playing field. In theory, someone from a inner-city ghetto may outperform an ivy league graduate in a well-designed competency test, proving their worth based on merit rather than money. I expect it's something that will slowly begin to catch on as more businesses spot the opportunity."
},
{
"docid": "323214",
"title": "",
"text": "Check with local mechanics which cars they drive and dealers the buy from. Tell them your budget and needs and you'll find they're pretty consistent in their recommendations. Also, don't overlook dealers in favour of buying direct from owners, both have pros and cons. Dealers have to allow you to return the vehicle within a certain time frame, their name is also on the line. Some offer warranties to fix anything that goes wrong in the first x years. Do your research, but for old cars this can be a valuable saving. Also, some dealers offer to provide you with parts at cost for the life of the vehicle, also potential savings. Don't go in on a Saturday, do go in near the end of the month. Go back several times, compare, negotiate."
},
{
"docid": "80272",
"title": "",
"text": "I'm currently using Halifax. Pros: Cons: I'm might start using TD Waterhouse in future, as they claim to have no admin charge."
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "12232",
"title": "",
"text": "Some other answers mention the ability to sell at grant. This is very important. If you have that ability, think about your guaranteed return. In my case, I get a 15% discount on the lowest 6 month window price from the last two years. If you do the math, the worst case return can be calculated: 1) Money that from the beginning of the window, I make 15% for 6 months (30% annual return guaranteed) 2) Money at the end of the window (say the last month) is 15% for one month (180% annual return guaranteed) In the end, your average holding window for your money is about 3 months (you can calculate it exactly). At that rate, you have a guaranteed 60% annual return. You can't beat that anywhere, with a significant upside if your company stock is increasing. So, if your company has an instant sell at grant option, you have to be brain dead not to do it. If it takes time to get your shares, then you need to look at the volatility of the stock to see how big the chance of losing money is. To generalize to a formula (if that's what you want): WM = purchase window (in months); D = Discount Percentage; GR = Guaranteed Return GR = 12/(WM/2) * D = 6*D/WM One last thing, If you are going to participate in ESPP, make you that you understand how to do your taxes yourself. I haven't found a tax person yet who does ESPP correctly (including an ex IRS agent), so I always have to do my taxes myself to make sure they get done correctly."
}
] | [
{
"docid": "344740",
"title": "",
"text": "\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \"\"buy the home now with a mortgage\"\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\""
},
{
"docid": "212162",
"title": "",
"text": "PROS: Price stability, confidence in the market, manipulation of money supply for direct monetary policy transmission, not having politicians conduct short sighted policy so they can get reelected, etc. CONS: No checks/balances, few people control of the largest economy in the world, not democratic"
},
{
"docid": "484825",
"title": "",
"text": "Older folk might wish to let the dividends and cap gains be paid in cash, and use that cash towards their RMDs (required distributions). If you are investing in mutual funds and wish to keep adding to the funds you've selected, the reinvestment is a simple way to avoid having to visit the account and make a new purchase. In other words, you invest $5500, buy the fund, and X years from now, you simply have more shares of the fund but no cash o worry about. The pro is as mentioned, and the con is really for the 70-1/2+ people who will need to take their RMDs. (Although even they can take the RMD in kind, as fund shares)"
},
{
"docid": "257722",
"title": "",
"text": "\"Here's a link to an online calculator employing the Discounted Cash Flow method: Discounted Cash Flows Calculator. Description: This calculator finds the fair value of a stock investment the theoretically correct way, as the present value of future earnings. You can find company earnings via the box below. [...] They also provide a link to the following relevant article: Investment Valuation: A Little Theory. Excerpt: A company is valuable to stockholders for the same reason that a bond is valuable to bondholders: both are expected to generate cash for years into the future. Company profits are more volatile than bond coupons, but as an investor your task is the same in both cases: make a reasonable prediction about future earnings, and then \"\"discount\"\" them by calculating how much they are worth today. (And then you don't buy unless you can get a purchase price that's less than the sum of these present values, to make sure ownership will be worth the headache.) [...]\""
},
{
"docid": "149306",
"title": "",
"text": "This is allowed somewhat infrequently. You can often purchase stocks through DRIPs which might have little or no commission. For example Duke Energy (DUK) runs their plan internally, so you are buying from them directly. There is no setup fee, or reinvestment fee. There is a fee to sell. Other companies might have someone else manage the DRIP but might subsidize some transaction costs giving you low cost to invest. Often DRIPs charge relatively large amounts to sell and they are not very nimble if trading is what you are after. You can also go to work for a company, and often they allow you to buy stock from them at a discount (around 15% discount is common). You can use a discount broker as well. TradeKing, which is not the lowest cost broker, allows buys and sells at 4.95 per trade. If trading 100 shares that is similar in cost to the DUK DRIP."
},
{
"docid": "392124",
"title": "",
"text": "\"I think it really depends on what work/lifestyle you are looking for. I'm sure your more than capable of going down either route, but you should weigh up the pros and cons of each A consultant would be great, you'd be your own boss and you have overall say on how your business/career plans out, but be prepared to put in a hell of a lot of work to get it off the ground. Long hours, little time for social/family etc. But in the long run it'll pay off Employee, no worries about running your company, just turn up and perform your duties. You'll get the whole benefit package: healthcare/pension etc. You can probably go on expense paid training courses etc It depends, do you want to just be an employee working \"\"for the man\"\" or do you want to be \"\"the man\"\"? I wish you luck in whatever you do! :D\""
},
{
"docid": "216356",
"title": "",
"text": "The loan is private, so the business is more of a red-herring. The fact that you're closing it and lost a lot of money explains the loan, but is rather irrelevant otherwise as the loan is personal. Do consider potential tax benefits on writing off a loss, talk to a local tax adviser on that. Pros: Cons: I'm sure there are more considerations, of course, and I'm not familiar with the Canadian social safety nets to understand how much of a damage con #1 would be."
},
{
"docid": "475108",
"title": "",
"text": "> “If the [Black-Scholes] formula is applied to extended time periods….it can produce absurd results.” > -Warren Buffett, 2008 Letter to Berkshire Hathaway Shareholders I will give your question more thought, and come back with a quantitative solution. It may be most fruitful to apply a backward-induction options pricing model with detailed scenario-based discounted cash flow valuation models supported by pro forma financial statement and investment analysis. Nonetheless, my initial reaction is inline with Warren Buffett's belief that in the long-run an assumption of the Black-Scholes options pricing model is invalid (see [here](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.613.1657&rep=rep1&type=pdf) and [here](http://www.elon.edu/docs/e-web/academics/business/economics/faculty/kurt/OptionValuationBuffetCritique_123113.pdf)). The perceived invalid assumption is that the distribution of expected future stock prices is *not* log-normal in the long-run. This non-log-normal view is especially true for a single company stock. This invalid assumption results in over-valuation of options prices from Black-Scholes - which makes it much better to sell long-term options than to buy them if market participants are using Black-Scholes pricing models. Again, without having done the math yet, my gut tells me if the option seller is using Black-Sholes pricing for long-dated options, you would be best to avoid buying them as the prices will be inflated compared to an economic reality fair price."
},
{
"docid": "551485",
"title": "",
"text": "This is very much possible and happens quite a lot. In the US, for example, promotional offers by credit card companies where you pay no interest on the balance for a certain period are a very common thing. The lender gains a new customer on such a loan, and usually earns money from the spending via the merchant fees (specifically for credit cards, at least). The pro is obviously free money. The con is that this is usually for a short period of time (longest I've seen was 15 months) after which if you're not careful, high interest rates will be charged. In some cases, interest will be charged retroactively for the whole period if you don't pay off the balance or miss the minimum payment due."
},
{
"docid": "402174",
"title": "",
"text": "I use GnuCash which I really like. However, I've never used any other personal finance software so I can't really compare. Before GnuCash, I used an Excel spreadsheet which works fine for very basic finances. Pros Cons"
},
{
"docid": "532139",
"title": "",
"text": "The upvoted answers fail to note that dividends are the only benefit that investors collectively receive from the companies they invest in. If you purchase a share for $100, and then later sell it for $150, you should note that there is always someone that purchases the same share for $150. So, you get $150 immediately, but somebody else has to pay $150 immediately. So, investors collectively did not receive any money from the transaction. (Yes, share repurchase can be used instead of dividends, but it can be considered really another form of paying dividends.) The fair value of a stock is the discounted value of all future dividends the stock pays. It is so simple! This shows why dividends are important. Somebody might argue that many successful companies like Berkshire Hathaway do not pay dividend. Yes, it is true that they don't pay dividend now but they will eventually have to start paying dividend. If they reinvest potential dividends continuously, they will run out of things to invest in after several hundred years has passed. So, even in this case the value of the stock is still the discounted value of all future dividends. The only difference is that the dividends are not paid now; the companies will start to pay the dividends later when they run out of things to invest in. It is true that in theory a stock could pay an unsustainable amount of dividend that requires financing it with debt. This is obviously not a good solution. If you see a company that pays dividend while at the same time obtaining more cash from taking more debt or from share issues, think twice whether you want to invest in such a company. What you need to do to valuate companies fairly is to estimate the amount of dividend that can sustain the expected growth rate. It is typically about 60% of the earnings, because a part of the earnings needs to be invested in future growth, but the exact figure may vary depending on the company. Furthermore, to valuate a company, you need the expected growth rate of dividends and the discount rate. You simply discount all future dividends, correcting them up by the expected dividend growth rate and correcting them down by the discount rate."
},
{
"docid": "281572",
"title": "",
"text": "That is where I think Walmart comes in to buy up a business like this. With their network of stores and the insane buying power they have the can push a good solid quality that the middle class American wants and do it very cheaply. I feel this will be their main combat against Amazon buying whole foods. Currently Walmart makes more on grocery sales than anything else as a hole and will continue to do so because of what and how they are doing it. Walmart is sneaky as fuck when it comes to what they can do and how they can do it. Even Walmart buying up Advanced Auto Parts is a solid counter move to Amazon buying Whole Foods...the next step is buying a Blue Apron type business... and with how Blue Apron is doing financially and given their name they are entering buy off territory. In my humble albeit non pro status in the stock market my 3 buys are Snap Chat, GoPro, and Walmart for long term retire and never have to worry about money again companies. I am by no means an expert but I have never come close to losing money in the stock market and do a good amount of research before I invest. Snapchat is my top 1 tbh. Sorry for going on a tangent lol"
},
{
"docid": "83238",
"title": "",
"text": "\"Two types of people: (1) Suckers (2) People who feel that investment advisors/brokers make too little money and want to help out by paying insane commissions. Think I'm kidding. Check out this article: \"\"Variable Annuity Pros and Cons\"\" Seriously, for 99% of us, they are a raw deal for everyone except the person selling them.\""
},
{
"docid": "453524",
"title": "",
"text": "This is what is called a Structured Product. The linked page gives an overview of the relative pros and cons. They tend to hold the bulk of funds in bonds and then used equity index futures and other derivatives to match returns on the S&P, or other indices tracked. All combine to provide the downside protection. Note that your mother did not receive the dividends paid by the constituent companies. She only received the capital return. Here is a link to Citigroup (Europe) current structured product offerings. Here is a link to Fidelity's current offerings of structured products. Here is Investopedia's article detailing the pitfalls. The popularity of these products appears to be on the wane, having been heavily promoted and sold by the providers at the time your mother invested. Most of these products only provide 100% protection of capital if the market does not fall by a specified amount, either in successive reporting periods or over the life of the product. There are almost as many terms and conditions imposed on the protection as there are structured products available. I have no personal experience buying this type of product, preferring to have the option to trade and receive dividend income."
},
{
"docid": "564648",
"title": "",
"text": "Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket."
},
{
"docid": "95243",
"title": "",
"text": "So the key factor here, IMHO, is the amount we are talking about. $2K is just not a lot of money. If you lose every penny, you can recover. On the other hand it is unlikely to make you wealthy. So if I was you I would buy in, more for the fun of it all. Now if it was a large amount of money that we were talking about it would be about a percentage of my net worth. For example, lets say the minimum was 20K, and you really believed in the company. If I had a net worth of less than 200K, I would not do it. If I had a larger net worth, I would consider it unless I was near retirement. So if I was 30, hand a net worth of 300K, I would probably invest as even if I did lose it all, I could recover. Having said all that it does not sound like you completely agree that the company will be profitable. So in that case, don't buy. Also, I have the opportunity to buy my own company's stock at a discount. However, I do not for two reasons. The first is I don't like investing in the company I work for. Secondly, they require you to hold the stock for a year."
},
{
"docid": "25817",
"title": "",
"text": "\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \"\"Composite Index\"\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \"\"In most years 25 to 30 stocks in the S&P 500 are replaced,\"\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\""
},
{
"docid": "306834",
"title": "",
"text": "\"I'd put more money down and avoid financing. I personally don't think car debt is good debt and if you can't afford the car, you are better off with a cheaper car. Also, you should read up on the 0% offer before deciding to commit. Here's one article that is slightly dated, but discusses some pros and cons of 0% financing. My main point though is that 0% financing is not \"\"free\"\" and you need to consider the cost of that financing before making the purchase. Aside from the normal loan costs of having a monthly payment, possibly buying too much car by looking at monthly cost, etc., a 0% financing offer usually forces you to give the dealer/financing company any rebates that are due to you, in essence making the car cost more.\""
},
{
"docid": "197151",
"title": "",
"text": "Assuming US. The only con that I know of is that hassle factor. You have to remember to sell when you get the new shares, and your taxes become a bit more complicated; the discount that you receive is taxed as ordinary income, and then any change in the price of the stock between when you receive it and you sell it will be considered a capital gain or loss. It's not hard to account for properly if you keep good records."
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "197151",
"title": "",
"text": "Assuming US. The only con that I know of is that hassle factor. You have to remember to sell when you get the new shares, and your taxes become a bit more complicated; the discount that you receive is taxed as ordinary income, and then any change in the price of the stock between when you receive it and you sell it will be considered a capital gain or loss. It's not hard to account for properly if you keep good records."
}
] | [
{
"docid": "94710",
"title": "",
"text": "PenFed Platinum Cashback Rewards Visa Card is another good choice. Pros: Cons:"
},
{
"docid": "301609",
"title": "",
"text": "KMyMoney Pros: Cons:"
},
{
"docid": "257722",
"title": "",
"text": "\"Here's a link to an online calculator employing the Discounted Cash Flow method: Discounted Cash Flows Calculator. Description: This calculator finds the fair value of a stock investment the theoretically correct way, as the present value of future earnings. You can find company earnings via the box below. [...] They also provide a link to the following relevant article: Investment Valuation: A Little Theory. Excerpt: A company is valuable to stockholders for the same reason that a bond is valuable to bondholders: both are expected to generate cash for years into the future. Company profits are more volatile than bond coupons, but as an investor your task is the same in both cases: make a reasonable prediction about future earnings, and then \"\"discount\"\" them by calculating how much they are worth today. (And then you don't buy unless you can get a purchase price that's less than the sum of these present values, to make sure ownership will be worth the headache.) [...]\""
},
{
"docid": "509608",
"title": "",
"text": "Since your child is 2, he has a long time horizon for investment. Assuming the savings will be used at age 19, that's 17 years. So, I think your best bet is to invest primarily in equities (i.e. stock-based funds) and inside an RESP. Why equities? Historically, equities have outperformed debt and cash over longer time periods. But, equities can be volatile in the short term. So, do purchase some fixed-income investments (e.g. 30% government bonds and money market funds), and do also spread your equity money around as well -- e.g. buy some international funds in addition to Canadian funds. Rebalance every year, and as your child gets closer to university age, start shifting some assets out of equities and into fixed-income, to reduce risk. You don't want the portfolio torpedoed by an economic crisis the year before the money is required! Next, why inside an RESP? Finally... what if your kid doesn't attend post-secondary education? First, you should probably get a Family RESP, not a Group RESP. Group RESPs have strict rules and may forfeit contributions if your kid doesn't attend. Have a look at Choosing the Right RESP and Canadian Capitalist's post The Pros and Cons of Group RESP Plans. In a Family plan, if none of your kids end up attending post-secondary education, then you forfeit the government match money -- the feds get it back through a 20% surtax on withdrawals. But, you'll have the option of rolling over remaining funds into your RRSP, if you have room."
},
{
"docid": "475108",
"title": "",
"text": "> “If the [Black-Scholes] formula is applied to extended time periods….it can produce absurd results.” > -Warren Buffett, 2008 Letter to Berkshire Hathaway Shareholders I will give your question more thought, and come back with a quantitative solution. It may be most fruitful to apply a backward-induction options pricing model with detailed scenario-based discounted cash flow valuation models supported by pro forma financial statement and investment analysis. Nonetheless, my initial reaction is inline with Warren Buffett's belief that in the long-run an assumption of the Black-Scholes options pricing model is invalid (see [here](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.613.1657&rep=rep1&type=pdf) and [here](http://www.elon.edu/docs/e-web/academics/business/economics/faculty/kurt/OptionValuationBuffetCritique_123113.pdf)). The perceived invalid assumption is that the distribution of expected future stock prices is *not* log-normal in the long-run. This non-log-normal view is especially true for a single company stock. This invalid assumption results in over-valuation of options prices from Black-Scholes - which makes it much better to sell long-term options than to buy them if market participants are using Black-Scholes pricing models. Again, without having done the math yet, my gut tells me if the option seller is using Black-Sholes pricing for long-dated options, you would be best to avoid buying them as the prices will be inflated compared to an economic reality fair price."
},
{
"docid": "91870",
"title": "",
"text": "I haven't seen any of the other answers address this point – shares are (a form of) ownership of a company and thus they are an entitlement to the proceeds of the company, including proceeds from liquidation. Imagine an (extreme, contrived) example whereby you own shares in a company that is explicitly intended to only exist for a finite and definite period, say to serve as the producers of a one-time event. Consider a possible sequence of major events in this company's life: So why would the shares of this hypothetical company be worth anything? Because the company itself is worth something, or rather the stuff that the company owns is worth something, even (or in my example, especially) in the event of its dissolution or liquidation. Besides just the stuff that a company owns, why else would owning a portion of a company be a good idea, i.e. why would I pay for such a privilege? Buying shares of a company is a good idea if you believe (and are correct) that a company will make larger profits or capture more value (e.g. buy and control more valuable stuff) than other people believe. If your beliefs don't significantly differ from others then (ideally) the price of the companies stock should reflect all of the future value that everyone expects it to have, tho that value is discounted based on time preference, i.e. how much more valuable a given amount of money or a given thing of value is today versus some time in the future. Some notes on time preference: But apart from whether you should buy shares in a specific company, owning shares can still be valuable. Not only are shares a claim on a company's current assets (in the event of liquidation) but they are also claims on all future assets of the company. So if a company is growing then the value of shares now should reflect the (discounted) future value of the company, not just the value of its assets today. If shares in a company pays dividends then the company gives you money for owning shares. You already understand why that's worth something. It's basically equivalent to an annuity, tho dividends are much more likely to stop or change whereas the whole point of an annuity is that it's a (sometimes) fixed amount paid at fixed intervals, i.e. reliable and dependable. As CQM points out in their answer, part of the value of stock shares, to those that own them, and especially to those considering buying them, is the expectation or belief that they can sell those shares for a greater price than what they paid for them – irrespective of the 'true value' of the stock shares. But even in a world where everyone (magically) had the same knowledge always, a significant component of a stock's value is independent of its value as a source of trading profit. As Jesse Barnum points out in their answer, part of the value of stocks that don't pay dividends relative to stocks that do is due to the (potential) differences in tax liabilities incurred between dividends and long-term capital gains. This however, is not the primary source of value of a stock share."
},
{
"docid": "8861",
"title": "",
"text": "\"Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of \"\"small account\"\" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100.\""
},
{
"docid": "498378",
"title": "",
"text": "\"This depends strongly on what you mean by \"\"stock trading\"\". It isn't a single game, but a huge number of games grouped under a single name. You can invest in individual stocks. If you're willing to make the (large) effort needed to research the companies and their current position and potentialities, this can yield large returns at high risk, or moderate returns at moderate risk. You need to diversify across multiple stocks, and multiple kinds of stocks (and probably bonds and other investment vehicles as well) to manage that risk. Or you can invest in managed mutual funds, where someone picks and balances the stocks for you. They charge a fee for that service, which has to be subtracted from their stated returns. You need to decide how much you trust them. You will usually need to diversify across multiple funds to get the balance of risk you're looking for, with a few exceptions like Target Date funds. Or you can invest in index funds, which automate the stock-picking process to take a wide view of the market and count on the fact that, over time, the market as a whole moves upward. These may not produce the same returns on paper, but their fees are MUCH lower -- enough so that the actual returns to the investor can be as good as, or better than, managed funds. The same point about diversification remains true, with the same exceptions. Or you can invest in a mixture of these, plus bonds and other investment vehicles, to suit your own level of confidence in your abilities, confidence in the market as a whole, risk tolerance, and so on. Having said all that, there's also a huge difference between \"\"trading\"\" and \"\"investing\"\", at least as I use the terms. Stock trading on a short-term basis is much closer to pure gambling -- unless you do the work to deeply research the stocks in question so you know their value better than other people do, and you're playing against pros. You know the rule about poker: If you look around the table and don't see the sucker, he's sitting in your seat... well, that's true to some degree in short-term trading too. This isn't quite a zero-sum game, but it takes more work to play well than I consider worth the effort. Investing for the long term -- defining a balanced mixture of investments and maintaining that mixture for years, with purchases and sales chosen to keep things balanced -- is a positive sum game, since the market does drift upward over time at a long-term average of about 8%/year. If you're sufficiently diversified (which is one reason I like index funds), you're basically riding that rise. This puts you in the position of betting with the pros rather than against them, which is a lower-risk position. Of course the potential returns are reduced too, but I've found that \"\"market rate of return\"\" has been entirely adequate, though not exciting. Of course there's risk here too, if the market dips for some reason, such as the \"\"great recession\"\" we just went through -- but if you're planning for the long term you can usually ride out such dips, and perhaps even see them as opportunities to buy at a discount. Others can tell you more about the details of each of these, and may disagree with my characterizations ... but that's the approach I've taken, based on advice I trust. I could probably increase my returns if I was willing to invest more time and effort in doing so, but I don't especially like playing games for money, and I'm getting quite enough for my purposes and spending near-zero effort on it, which is exactly what I want.\""
},
{
"docid": "525576",
"title": "",
"text": "There are quite a few ways; each has its own pro's and con's SWIFT: Fast reliable payment. Higher Charges. If payments are large and routine the charges can be less Remittance Service: Ideal for person to person transfer. Can be used by Companies to transfer to Individuals. Less Faster compared to SWIFT. Quite Cheaper compared to SWIFT Check's: Long time is getting it cleared in India. Typically around month. Quite Cheap. Almost NIL charges."
},
{
"docid": "494616",
"title": "",
"text": "There are some who argue that you should lease an electric car. These factors are in addition to all the normal pros and cons of leasing vs. buying. The technology is still new and is advancing rapidly. In 2-3 years, the newer model may have significantly improved features, range, and efficiency, as well as lower prices. If you are the type of person to upgrade regularly to the latest and greatest, leasing can make it a smoother transition. It is hard to predict the depreciation of the vehicles. This is both because of the above factors, but also because these kinds of cars are newer and so the statistical models used to predict their future values are less refined. The models for predicting gas car prices have been honed for decades. EV Manufacturers have in the past made some mistakes in their residual value estimations. When you lease a car, you get essentially an option to buy the car at the future predicted residual value. If, at the end of the lease, the market value of the car is higher than the residual value, you can purchase the car at the predetermined price, making yourself some extra money. If the value is lower than the residual, you can return the car or renegotiate. I know a relatively large number of electric vehicle owners. Most or all of the ones who got the vehicle new leased it. The rest bought used vehicles coming off lease, which can also be a good deal."
},
{
"docid": "224320",
"title": "",
"text": "You need a blog, or a thread of your own. I want to learn about this, and you appear to be quite knowledgeable and thorough in your explanations. Would it be possible for you to make a thread, or reply, or pm explaining some of the pro's and cons of fiat money?"
},
{
"docid": "90085",
"title": "",
"text": "Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan."
},
{
"docid": "80272",
"title": "",
"text": "I'm currently using Halifax. Pros: Cons: I'm might start using TD Waterhouse in future, as they claim to have no admin charge."
},
{
"docid": "103439",
"title": "",
"text": "The main problem I have with Uber is they represent themselves differently in some contexts than others. To most customers, Uber is Uber, not the individual who is driving. Conceptually, individuals not being able to shield themselves behind a corporation is an interesting idea, with both pros and cons."
},
{
"docid": "569224",
"title": "",
"text": "What most respondents are forgetting, is when a company allows its employees to purchase its shares at a discount with their salary, the employee is usually required to hold the stock for a number of years before they can sell them. The reason the company is allowing or promoting its employees to purchase its shares at a discount is to give the employees a sense of ownership of the company. Being a part owner in the company, the employee will want the company to succeed and will tend to be more productive. If employees were allowed to purchase the shares at a discount and sell them straight away, it would defeat this purpose. Your best option to decide whether or not to buy the shares is to work out if the investment is a good one as per any other investment you would undertake, i.e. determine how the company is currently performing and what its future prospects are likely to be. Regarding what percentage of pay to purchase the shares with, if you do decide to buy them, you need to work that out based on your current and future budgetary needs and your savings plan for the future."
},
{
"docid": "564648",
"title": "",
"text": "Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket."
},
{
"docid": "558703",
"title": "",
"text": "\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \"\"market maker\"\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \"\"retail\"\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\""
},
{
"docid": "474006",
"title": "",
"text": "If you have a long enough time horizon, investing in the stock market while in a bad economy can turn out to be a very smart decision. If you need access to your capital in the short-term, 1-2 years, then it is probably a bad decision. If you have the ability to ride out the next few years, then you may be buying securities at an extremely low valuation. Take AAPL and MSFT for example. These are both technology stocks, which is by far the hottest sector in the economy now, and you can buy both of these companies for less than 13x earnings. Historically, you would have had to pay 20x or higher for high tech growth companies, but today you can buy these stocks at discounted valuations. Now AAPL may have a large market capitalization and a high stock price, but the simple fact is they are growing their earnings very quickly, they have best in class management, and they have $100 billion in cash and $50 billion in annual cash flow generation and you can buy the stock for a historically low multiple."
},
{
"docid": "402174",
"title": "",
"text": "I use GnuCash which I really like. However, I've never used any other personal finance software so I can't really compare. Before GnuCash, I used an Excel spreadsheet which works fine for very basic finances. Pros Cons"
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "203139",
"title": "",
"text": "One major benefit to being able to buy discounted company stock is that you can sell in-the-money covered calls and potentially make more than you would selling at strike."
}
] | [
{
"docid": "95243",
"title": "",
"text": "So the key factor here, IMHO, is the amount we are talking about. $2K is just not a lot of money. If you lose every penny, you can recover. On the other hand it is unlikely to make you wealthy. So if I was you I would buy in, more for the fun of it all. Now if it was a large amount of money that we were talking about it would be about a percentage of my net worth. For example, lets say the minimum was 20K, and you really believed in the company. If I had a net worth of less than 200K, I would not do it. If I had a larger net worth, I would consider it unless I was near retirement. So if I was 30, hand a net worth of 300K, I would probably invest as even if I did lose it all, I could recover. Having said all that it does not sound like you completely agree that the company will be profitable. So in that case, don't buy. Also, I have the opportunity to buy my own company's stock at a discount. However, I do not for two reasons. The first is I don't like investing in the company I work for. Secondly, they require you to hold the stock for a year."
},
{
"docid": "229633",
"title": "",
"text": "There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio. You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters. The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere. As more people want to buy stocks, the price rises. Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere."
},
{
"docid": "498378",
"title": "",
"text": "\"This depends strongly on what you mean by \"\"stock trading\"\". It isn't a single game, but a huge number of games grouped under a single name. You can invest in individual stocks. If you're willing to make the (large) effort needed to research the companies and their current position and potentialities, this can yield large returns at high risk, or moderate returns at moderate risk. You need to diversify across multiple stocks, and multiple kinds of stocks (and probably bonds and other investment vehicles as well) to manage that risk. Or you can invest in managed mutual funds, where someone picks and balances the stocks for you. They charge a fee for that service, which has to be subtracted from their stated returns. You need to decide how much you trust them. You will usually need to diversify across multiple funds to get the balance of risk you're looking for, with a few exceptions like Target Date funds. Or you can invest in index funds, which automate the stock-picking process to take a wide view of the market and count on the fact that, over time, the market as a whole moves upward. These may not produce the same returns on paper, but their fees are MUCH lower -- enough so that the actual returns to the investor can be as good as, or better than, managed funds. The same point about diversification remains true, with the same exceptions. Or you can invest in a mixture of these, plus bonds and other investment vehicles, to suit your own level of confidence in your abilities, confidence in the market as a whole, risk tolerance, and so on. Having said all that, there's also a huge difference between \"\"trading\"\" and \"\"investing\"\", at least as I use the terms. Stock trading on a short-term basis is much closer to pure gambling -- unless you do the work to deeply research the stocks in question so you know their value better than other people do, and you're playing against pros. You know the rule about poker: If you look around the table and don't see the sucker, he's sitting in your seat... well, that's true to some degree in short-term trading too. This isn't quite a zero-sum game, but it takes more work to play well than I consider worth the effort. Investing for the long term -- defining a balanced mixture of investments and maintaining that mixture for years, with purchases and sales chosen to keep things balanced -- is a positive sum game, since the market does drift upward over time at a long-term average of about 8%/year. If you're sufficiently diversified (which is one reason I like index funds), you're basically riding that rise. This puts you in the position of betting with the pros rather than against them, which is a lower-risk position. Of course the potential returns are reduced too, but I've found that \"\"market rate of return\"\" has been entirely adequate, though not exciting. Of course there's risk here too, if the market dips for some reason, such as the \"\"great recession\"\" we just went through -- but if you're planning for the long term you can usually ride out such dips, and perhaps even see them as opportunities to buy at a discount. Others can tell you more about the details of each of these, and may disagree with my characterizations ... but that's the approach I've taken, based on advice I trust. I could probably increase my returns if I was willing to invest more time and effort in doing so, but I don't especially like playing games for money, and I'm getting quite enough for my purposes and spending near-zero effort on it, which is exactly what I want.\""
},
{
"docid": "163396",
"title": "",
"text": "What you will probably get is an option to buy, for £10,000, £10,000 worth of stock. If the stock price on the day your option is granted is £2.50, then that's 4,000 shares. Companies rarely grant discounted options, as there are tax disincentives. The benefit of the stock option is that when you exercise it, you still only pay £10,000, no matter what the 4,000 shares are now worth. This is supposed to be an incentive for you to work harder to increase the value of the company. You should also check the vesting schedule. You will typically not be able to exercise all your options for some years, although some portion of it may vest each year."
},
{
"docid": "209716",
"title": "",
"text": "Well, you can just say that 1 dollar contributed = one share and pay out dividends based on number of shares. That makes it pretty easy to make things fair based. There are pros and cons with this pooling approach."
},
{
"docid": "323214",
"title": "",
"text": "Check with local mechanics which cars they drive and dealers the buy from. Tell them your budget and needs and you'll find they're pretty consistent in their recommendations. Also, don't overlook dealers in favour of buying direct from owners, both have pros and cons. Dealers have to allow you to return the vehicle within a certain time frame, their name is also on the line. Some offer warranties to fix anything that goes wrong in the first x years. Do your research, but for old cars this can be a valuable saving. Also, some dealers offer to provide you with parts at cost for the life of the vehicle, also potential savings. Don't go in on a Saturday, do go in near the end of the month. Go back several times, compare, negotiate."
},
{
"docid": "8861",
"title": "",
"text": "\"Sure. For starters, you can put it in a savings account. Don't laugh, they used to pay noticeable interest. You know, back in the olden days. You could buy an I-bond from Treasury Direct. They're a government savings bond that pays a specified amount of interest (currently 0%, I believe), plus the amount of the inflation rate (something like 3.5% currently, I believe). You don't get paid the money -- the I-bond grows in value till you sell it. You can open a discount brokerage account, and buy 1 or more shares of stock in a company you like. Discount brokerages generally have a minimum of $500 or so, but will waive that if you set the account up as an IRA. Scot Trade, for instance. (An IRA, in case you didn't know, is a type of account that's tax free but you can't touch it till you turn 59 1/2. It's meant to help you save for retirement.) Incidentally, watch out of \"\"small account\"\" fees that some brokerages might charge you. Generally they're annual or monthly charges they'd charge you to cover their costs on your account -- since they're certainly not going to make it in commissions. That IRA at Scot Trade is no-fee. Speaking of commissions, those will be a big chunk of that $100. It'll be like $7-$10 to buy that stock -- a pretty big bite. However, many of these discount brokerages also offer some mutual funds for no commission. Those mutual funds, in turn, have minimums too, but once again if your account's an IRA many will waive the minimum or set it low -- like $100.\""
},
{
"docid": "558703",
"title": "",
"text": "\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \"\"market maker\"\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \"\"retail\"\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\""
},
{
"docid": "67625",
"title": "",
"text": "It appears your company is offering roughly a 25% discount on its shares. I start there as a basis to give you a perspective on what the 30% matching offer means to you in terms of value. Since you are asking for things to consider not whether to do it, below are a few considerations (there may be others) in general you should think about your sources of income. if this company is your only source of income, it is more prudent to make your investment in their shares a smaller portion of your overall investment/savings strategy. what is the holding period for the shares you purchase. some companies institute a holding period or hold duration which restricts when you can sell the shares. Generally, the shorter the duration period the less risk there is for you. So if you can buy the shares and immediately sell the shares that represents the least amount of relative risk. what are the tax implications for shares offered at such a discount. this may be something you will need to consult a tax adviser to get a better understanding. your company should also be able to provide a reasonable interpretation of the tax consequences for the offering as well. is the stock you are buying liquid. liquid, in this case, is just a fancy term for asking how many shares trade in a public market daily. if it is a very liquid stock you can have some confidence that you may be able to sell out of your shares when you need. personally, i would review the company's financial statements and public statements to investors to get a better understanding of their competitive positioning, market size and prospects for profitability and growth. given you are a novice at this it may be good idea to solicit the opinion of your colleagues at work and others who have insight on the financial performance of the company. you should consider other investment options as well. since this seems to be your first foray into investing you should consider diversifying your savings into a few investments areas (such as big market indices which typically should be less volatile). last, there is always the chance that your company could fail. Companies like Enron, Lehman Brothers and many others that were much smaller than those two examples have failed in the past. only you can gauge your tolerance for risk. As a young investor, the best place to start is to use index funds which track a broader universe of stocks or bonds as the first step in building an investment portfolio. once you own a good set of index funds you can diversify with smaller investments."
},
{
"docid": "556696",
"title": "",
"text": "Typically, the discount is taxable at sale time But what about taxes? When the company buys the shares for you, you do not owe any taxes. You are exercising your rights under the ESPP. You have bought some stock. So far so good. When you sell the stock, the discount that you received when you bought the stock is generally considered additional compensation to you, so you have to pay taxes on it as regular income. Source: Turbotax. Second source. Your pretax rate of return would be: 17% (100/85) In your scenario where the stock price is fixed at $100. Your tax rate would be your marginal rate. If the stock stayed at 100, you would still be taxed as income on $15/share (the discount) and would receive no benefit for holding the stock one year. Assuming you are in the 25% tax bracket, your after tax rate of return would be 13% ((15*.75)+85)/85)"
},
{
"docid": "246547",
"title": "",
"text": "As far as the spam mail goes, I own a rental (in Connecticut) and live in Massachusetts, I get very little mail related to this property. I view this as a non-compelling reason. Your other reasons pick up quick in value. The protection from the rest of your assets is helpful, and the one con for most is the inability to get a loan with such a structure, but in your case, a cash purchase is mentioned. I don't know what the fees are to start an LLC, but overall, I believe the pros outweigh the cons. Yes, your Pro 4 looks good, an ongoing business with a track record will help the next purchase."
},
{
"docid": "149306",
"title": "",
"text": "This is allowed somewhat infrequently. You can often purchase stocks through DRIPs which might have little or no commission. For example Duke Energy (DUK) runs their plan internally, so you are buying from them directly. There is no setup fee, or reinvestment fee. There is a fee to sell. Other companies might have someone else manage the DRIP but might subsidize some transaction costs giving you low cost to invest. Often DRIPs charge relatively large amounts to sell and they are not very nimble if trading is what you are after. You can also go to work for a company, and often they allow you to buy stock from them at a discount (around 15% discount is common). You can use a discount broker as well. TradeKing, which is not the lowest cost broker, allows buys and sells at 4.95 per trade. If trading 100 shares that is similar in cost to the DUK DRIP."
},
{
"docid": "512827",
"title": "",
"text": "As with most strategies there are pros and cons associated with this approach: Advantages of using LEAPS: Disadvantages of using LEAPS: Read more about it in great detail on my blog: http://www.thebluecollarinvestor.com/leaps-and-covered-call-writing-2/"
},
{
"docid": "25817",
"title": "",
"text": "\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \"\"Composite Index\"\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \"\"In most years 25 to 30 stocks in the S&P 500 are replaced,\"\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\""
},
{
"docid": "69184",
"title": "",
"text": "\"One alternative to bogleheadism is the permanent portfolio concept (do NOT buy the mutual fund behind this idea as you can easily obtain access to a low cost money market fund, stock index fund, and bond fund and significantly reduce the overall cost). It doesn't have the huge booms that stock plans do, but it also doesn't have the crushing blows either. One thing some advisers mention is success is more about what you can stick to than what \"\"traditionally\"\" makes sense, as you may not be able to stick to what traditionally makes sense (all people differ). This is an excellent pro and con critique of the permanent portfolio (read the whole thing) that does highlight some of the concerns with it, especially the big one: how well will it do in a world of high interest rates? Assuming we ever see a world of high interest rates, it may not provide a great return. The authors make the assumption that interest rates will be rising in the future, thus the permanent portfolio is riskier than a traditional 60/40. As we're seeing in Europe, I think we're headed for a world of negative interest rates - something in the past most advisers have thought was very unlikely. I don't know if we'll see interest rates above 6% in my lifetime and if I live as long as my father, that's a good 60+ years ahead. (I realize people will think this is crazy to write, but consider that people are willing to pay governments money to hold their cash - that's how crazy our world is and I don't see this changing.)\""
},
{
"docid": "212162",
"title": "",
"text": "PROS: Price stability, confidence in the market, manipulation of money supply for direct monetary policy transmission, not having politicians conduct short sighted policy so they can get reelected, etc. CONS: No checks/balances, few people control of the largest economy in the world, not democratic"
},
{
"docid": "241135",
"title": "",
"text": "Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started."
},
{
"docid": "564648",
"title": "",
"text": "Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket."
},
{
"docid": "402174",
"title": "",
"text": "I use GnuCash which I really like. However, I've never used any other personal finance software so I can't really compare. Before GnuCash, I used an Excel spreadsheet which works fine for very basic finances. Pros Cons"
}
] |
8834 | Pros/Cons of Buying Discounted Company Stock | [
{
"docid": "569303",
"title": "",
"text": "I see another way of looking at this that hasn't been addressed yet. By offering the discount, the company is attempting to change your behavior into doing something irrational, that benefits them at your expense. The company hopes for one (or more) of the following psychological effects to happen to you: The proper thing to do, if you have enough capital to prevent margin calls, it to short-sell the stock at the same instant the price is set, thus locking in the profit. Eventually you can take possession of the shares and deliver them to offset the short -- hopefully before you get a margin call from the stock dropping."
}
] | [
{
"docid": "475108",
"title": "",
"text": "> “If the [Black-Scholes] formula is applied to extended time periods….it can produce absurd results.” > -Warren Buffett, 2008 Letter to Berkshire Hathaway Shareholders I will give your question more thought, and come back with a quantitative solution. It may be most fruitful to apply a backward-induction options pricing model with detailed scenario-based discounted cash flow valuation models supported by pro forma financial statement and investment analysis. Nonetheless, my initial reaction is inline with Warren Buffett's belief that in the long-run an assumption of the Black-Scholes options pricing model is invalid (see [here](http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.613.1657&rep=rep1&type=pdf) and [here](http://www.elon.edu/docs/e-web/academics/business/economics/faculty/kurt/OptionValuationBuffetCritique_123113.pdf)). The perceived invalid assumption is that the distribution of expected future stock prices is *not* log-normal in the long-run. This non-log-normal view is especially true for a single company stock. This invalid assumption results in over-valuation of options prices from Black-Scholes - which makes it much better to sell long-term options than to buy them if market participants are using Black-Scholes pricing models. Again, without having done the math yet, my gut tells me if the option seller is using Black-Sholes pricing for long-dated options, you would be best to avoid buying them as the prices will be inflated compared to an economic reality fair price."
},
{
"docid": "251376",
"title": "",
"text": "It takes a long time to bring these sort of cases to trial because of their complexity and the large sums of money that companies have to delay the process. It takes political will to go after these types of crimes. From the politics to building a case, it just seems to me that five years is a very short time frame. I don't know how or why it was set at five years, but due to what we know now, it might be a better idea to extend the statue, if the pros outweigh the cons."
},
{
"docid": "141120",
"title": "",
"text": "You can't control the number of special interest groups. You can't control their stubbornness, animosity, or lack of foresight. What you can do is limit how and when special interest groups can press their views. Create a new team whose whole job is to field lobbying before it gets to congress. They see all the new bills, etc. and boil them down to simple terms, pros, and cons, before presenting them to congress. The final version must also be signed off on by the lobbying party before it is presented. You need a second party in this group: The Devil's Advocates - a group that is REQUIRED to argue against EVERY proposal. The whole reason for this group is to ensure that no proposal passes without contest. You need a group whose whole goal is to identify the impact of each proposal, and return the findings to fielders. They also require a devil's advocate. When the final proposal is signed off on, then the fielding group presents it to congress, not the lobbyists or their supporters. The funding for these groups comes directly from the lobbyists, who must finance their bill through congress, unless special exception is made. If a ton of special interest groups want to get their form in, they must wait their turn in line. The less work the fielding group has to do to clean up their request, validate it, and discover the pros and cons, the faster the lobby request will go through. This is just a rough idea off the top of my head. What are the issues you see with it?"
},
{
"docid": "94710",
"title": "",
"text": "PenFed Platinum Cashback Rewards Visa Card is another good choice. Pros: Cons:"
},
{
"docid": "494616",
"title": "",
"text": "There are some who argue that you should lease an electric car. These factors are in addition to all the normal pros and cons of leasing vs. buying. The technology is still new and is advancing rapidly. In 2-3 years, the newer model may have significantly improved features, range, and efficiency, as well as lower prices. If you are the type of person to upgrade regularly to the latest and greatest, leasing can make it a smoother transition. It is hard to predict the depreciation of the vehicles. This is both because of the above factors, but also because these kinds of cars are newer and so the statistical models used to predict their future values are less refined. The models for predicting gas car prices have been honed for decades. EV Manufacturers have in the past made some mistakes in their residual value estimations. When you lease a car, you get essentially an option to buy the car at the future predicted residual value. If, at the end of the lease, the market value of the car is higher than the residual value, you can purchase the car at the predetermined price, making yourself some extra money. If the value is lower than the residual, you can return the car or renegotiate. I know a relatively large number of electric vehicle owners. Most or all of the ones who got the vehicle new leased it. The rest bought used vehicles coming off lease, which can also be a good deal."
},
{
"docid": "272008",
"title": "",
"text": "\"Yes when I place an order with my broker they send it out to the exchange. - For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? I may be mistaken(I highly doubt it), but from my understanding you cannot trade directly through an exchange as a retail investor. BATS allows membership but it is only for Your firm must be a registered broker-dealer, registered with a Self Regulatory Organization (SRO) and connected with a clearing firm. No apple (aapl) is listed on the NASDAQ so trades go through the NASDAQ for aapl. Caterpillar Inc (CAT) is listed on the NYSE so trades go through the NYSE. The exchange you trade on is dependent on the security, if it is listed on the NYSE then you trade on the NYSE. As a regular investor you will be going through a broker. When looking to purchase a security it is more important to know about the company and less important to know what exchange it is listed on. Since there are rules a company must comply with for it to be listed on certain exchanges, it does make a difference but that is more the case when speaking about a stock listed Over the Counter(OTC) or NYSE. It is not important when asking NYSE or NASDAQ? Selecting a broker is something that's dependent on your needs. You should ask your self, \"\"whats important to me?\"\", \"\"Do I want apps(IE: iPhone, android)?\"\" \"\"Do I need fancy trading tools?\"\". Generally all the brokers you listed will most likely do the trick for you. Some review sites: Brokerage Review Online Broker Review 2012 Barron's 2012 Online Broker Review\""
},
{
"docid": "558703",
"title": "",
"text": "\"When you buy a share of stock, you are almost always buying from someone who previously purchased that share and now wants to sell it. The money -- minus broker's fee -- goes to that other investor, which may be a person, a company (rarely the company that issued the stock, but that will occasionally be the case), an investment fund, the \"\"market maker\"\" for that stock (websearch for definition of that term), or anyone else. They owned a small percentage of the company; you bought it from them and gave them the money for it, just as you would buy anything else. You don't know or care who you bought from; they don't know or care who they sold to; the market just found a buyer and seller who could agree on the price. There are a very few exceptions to that. The company may repurchase some of its own shares and/or sell them again, depending on its own financial needs and obligations. For example, my own employer has to purchase its own shares periodically so it has enough on hand to sell to employees at a slight discount through the Employee Stock Ownership Program. But you generally don't know that's who you're selling to; it happens like any other transaction. And during the Initial Public Offering, if you're lucky/privileged enough to get in on the first wave of purchases, you're buying from the investment bank that's managing this process ... though that's an almost vanishingly rare case for \"\"retail\"\" investors like us; we're more likely to get the shares after someone has already pushed the price up a bit. But really, when you buy a share the money goes to whoever you bought it from, and that's all you can know or need to know.\""
},
{
"docid": "319568",
"title": "",
"text": "\"To know if a stock is undervalued is not something that can be easily assessed (else, everybody would know which stock is undervalued and everybody will buy it until it reaches its \"\"true\"\" value). But there are methods to assess the value of a company, I think that the 3 most known methods are: If the assets of the company were to be sold right now and that all its debts were to be paid back right now, how much will be left? This remaining amount would be the fundamental value of your company. That method could work well on real estate company whose value is more or less the buildings that they own minus of much they borrowed to acquire them. It's not really usefull in the case of Facebook, as most of its business is immaterial. I know the value of several companies of the same sector, so if I want to assess the value of another company of this sector I just have to compare it to the others. For example, you find out that simiral internet companies are being traded at a price that is 15 times their projected dividends (its called a Price Earning Ratio). Then, if you see that Facebook, all else being equal, is trading at 10 times its projected dividends, you could say that buying it would be at a discount. A company is worth as much as the cash flow that it will give me in the future If you think that facebook will give some dividends for a certain period of time, then you compute their present value (this means finding how much you should put in a bank account today to have the same amount in the future, this can be done by dividing the amount by some interest rates). So, if you think that holding a share of a Facebook for a long period of time would give you (at present value) 100 and that the share of the Facebook is being traded at 70, then buy it. There is another well known method, a more quantitative one, this is the Capital Asset Pricing Model. I won't go into the details of this one, but its about looking at how a company should be priced relatively to a benchmark of other companies. Also there are a lot's of factor that could affect the price of a company and make it strays away from its fundamental value: crisis, interest rates, regulation, price of oil, bad management, ..... And even by applying the previous methods, the fundemantal value itself will remain speculative and you can never be sure of it. And saying that you are buying at a discount will remain an opinion. After that, to price companies, you are likely to understand financial analysis, corporate finance and a bit of macroeconomy.\""
},
{
"docid": "392124",
"title": "",
"text": "\"I think it really depends on what work/lifestyle you are looking for. I'm sure your more than capable of going down either route, but you should weigh up the pros and cons of each A consultant would be great, you'd be your own boss and you have overall say on how your business/career plans out, but be prepared to put in a hell of a lot of work to get it off the ground. Long hours, little time for social/family etc. But in the long run it'll pay off Employee, no worries about running your company, just turn up and perform your duties. You'll get the whole benefit package: healthcare/pension etc. You can probably go on expense paid training courses etc It depends, do you want to just be an employee working \"\"for the man\"\" or do you want to be \"\"the man\"\"? I wish you luck in whatever you do! :D\""
},
{
"docid": "241135",
"title": "",
"text": "Yes, you often can buy stocks directly from the company at little or no transaction cost. Many companies have either a Dividend Reinvestment Plan (DRIP) or a Direct Stock Plan (DSP). With these plans, you purchase shares directly from the company (although, often there is a third party transfer agent that handles the transaction), and the stock is issued in your name. This differs from purchasing stock from a broker, where the stock normally remains in the name of the broker. Generally, in order to begin participating in a DRIP, you need to already be a registered stockholder. This means that you need to purchase your first share of stock outside of the DRIP, and get it in your name. After that, you can register with the DRIP and purchase additional shares directly from the company. If the company has a DSP, you can begin purchasing shares directly without first being a stockholder. With the advent of discount brokers, DRIPs do not save as much money for regular investors as they once did. However, they can still sometimes save money for someone who wants to purchase shares on a regular basis over even a discount broker. If you are interested in DRIPs and DSPs and want to learn more, there is an informative website at dripinvesting.org that has lots of information on which DRIPs are available and how to get started."
},
{
"docid": "246547",
"title": "",
"text": "As far as the spam mail goes, I own a rental (in Connecticut) and live in Massachusetts, I get very little mail related to this property. I view this as a non-compelling reason. Your other reasons pick up quick in value. The protection from the rest of your assets is helpful, and the one con for most is the inability to get a loan with such a structure, but in your case, a cash purchase is mentioned. I don't know what the fees are to start an LLC, but overall, I believe the pros outweigh the cons. Yes, your Pro 4 looks good, an ongoing business with a track record will help the next purchase."
},
{
"docid": "306834",
"title": "",
"text": "\"I'd put more money down and avoid financing. I personally don't think car debt is good debt and if you can't afford the car, you are better off with a cheaper car. Also, you should read up on the 0% offer before deciding to commit. Here's one article that is slightly dated, but discusses some pros and cons of 0% financing. My main point though is that 0% financing is not \"\"free\"\" and you need to consider the cost of that financing before making the purchase. Aside from the normal loan costs of having a monthly payment, possibly buying too much car by looking at monthly cost, etc., a 0% financing offer usually forces you to give the dealer/financing company any rebates that are due to you, in essence making the car cost more.\""
},
{
"docid": "90085",
"title": "",
"text": "Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan."
},
{
"docid": "509608",
"title": "",
"text": "Since your child is 2, he has a long time horizon for investment. Assuming the savings will be used at age 19, that's 17 years. So, I think your best bet is to invest primarily in equities (i.e. stock-based funds) and inside an RESP. Why equities? Historically, equities have outperformed debt and cash over longer time periods. But, equities can be volatile in the short term. So, do purchase some fixed-income investments (e.g. 30% government bonds and money market funds), and do also spread your equity money around as well -- e.g. buy some international funds in addition to Canadian funds. Rebalance every year, and as your child gets closer to university age, start shifting some assets out of equities and into fixed-income, to reduce risk. You don't want the portfolio torpedoed by an economic crisis the year before the money is required! Next, why inside an RESP? Finally... what if your kid doesn't attend post-secondary education? First, you should probably get a Family RESP, not a Group RESP. Group RESPs have strict rules and may forfeit contributions if your kid doesn't attend. Have a look at Choosing the Right RESP and Canadian Capitalist's post The Pros and Cons of Group RESP Plans. In a Family plan, if none of your kids end up attending post-secondary education, then you forfeit the government match money -- the feds get it back through a 20% surtax on withdrawals. But, you'll have the option of rolling over remaining funds into your RRSP, if you have room."
},
{
"docid": "202140",
"title": "",
"text": "Is it worth saving HSA funds until retirement? Yes Are there pros and cons from a tax perspective? Mostly pros. This has all of the benefits of an IRA, but if you use it for medical expenses then you get to use the money tax free on the other side. Retirement seems to be the time you are most likely to need money for medical expenses. So why wouldn't you want to start saving tax free to cover those expenses? The cons are similar to other tax advantaged retirement accounts. If you withdraw before retirement time for non-medical purposes, you will pay penalties, but if you withdraw at retirement time, you will pay the same taxes you would pay on an IRA. I should note that I put my money where my mouth is and I max out my contribution to my HSA every year."
},
{
"docid": "553331",
"title": "",
"text": "Your cons say it all. I would not be buying stocks based soley on a high dividend yield. In fact companies with very high dividend yields tend to do poorer than companies investing at least part of their earnings back into the company. Make sure at least that the company's earnings is more than the dividend yield being offered."
},
{
"docid": "436548",
"title": "",
"text": "It's no coincidence that the companies really putting muscle behind this are some of the biggest in the world (Google, IBM, EY). As the article points out, they're bypassing colleges altogether to better access the best available talent. With the mega resources those companies have, all training can be provided on site. There's no need to wait 3-5 years to hire when they can do it now. There are definitely pros and cons to this, but it certainly levels the playing field. In theory, someone from a inner-city ghetto may outperform an ivy league graduate in a well-designed competency test, proving their worth based on merit rather than money. I expect it's something that will slowly begin to catch on as more businesses spot the opportunity."
},
{
"docid": "551485",
"title": "",
"text": "This is very much possible and happens quite a lot. In the US, for example, promotional offers by credit card companies where you pay no interest on the balance for a certain period are a very common thing. The lender gains a new customer on such a loan, and usually earns money from the spending via the merchant fees (specifically for credit cards, at least). The pro is obviously free money. The con is that this is usually for a short period of time (longest I've seen was 15 months) after which if you're not careful, high interest rates will be charged. In some cases, interest will be charged retroactively for the whole period if you don't pay off the balance or miss the minimum payment due."
},
{
"docid": "498378",
"title": "",
"text": "\"This depends strongly on what you mean by \"\"stock trading\"\". It isn't a single game, but a huge number of games grouped under a single name. You can invest in individual stocks. If you're willing to make the (large) effort needed to research the companies and their current position and potentialities, this can yield large returns at high risk, or moderate returns at moderate risk. You need to diversify across multiple stocks, and multiple kinds of stocks (and probably bonds and other investment vehicles as well) to manage that risk. Or you can invest in managed mutual funds, where someone picks and balances the stocks for you. They charge a fee for that service, which has to be subtracted from their stated returns. You need to decide how much you trust them. You will usually need to diversify across multiple funds to get the balance of risk you're looking for, with a few exceptions like Target Date funds. Or you can invest in index funds, which automate the stock-picking process to take a wide view of the market and count on the fact that, over time, the market as a whole moves upward. These may not produce the same returns on paper, but their fees are MUCH lower -- enough so that the actual returns to the investor can be as good as, or better than, managed funds. The same point about diversification remains true, with the same exceptions. Or you can invest in a mixture of these, plus bonds and other investment vehicles, to suit your own level of confidence in your abilities, confidence in the market as a whole, risk tolerance, and so on. Having said all that, there's also a huge difference between \"\"trading\"\" and \"\"investing\"\", at least as I use the terms. Stock trading on a short-term basis is much closer to pure gambling -- unless you do the work to deeply research the stocks in question so you know their value better than other people do, and you're playing against pros. You know the rule about poker: If you look around the table and don't see the sucker, he's sitting in your seat... well, that's true to some degree in short-term trading too. This isn't quite a zero-sum game, but it takes more work to play well than I consider worth the effort. Investing for the long term -- defining a balanced mixture of investments and maintaining that mixture for years, with purchases and sales chosen to keep things balanced -- is a positive sum game, since the market does drift upward over time at a long-term average of about 8%/year. If you're sufficiently diversified (which is one reason I like index funds), you're basically riding that rise. This puts you in the position of betting with the pros rather than against them, which is a lower-risk position. Of course the potential returns are reduced too, but I've found that \"\"market rate of return\"\" has been entirely adequate, though not exciting. Of course there's risk here too, if the market dips for some reason, such as the \"\"great recession\"\" we just went through -- but if you're planning for the long term you can usually ride out such dips, and perhaps even see them as opportunities to buy at a discount. Others can tell you more about the details of each of these, and may disagree with my characterizations ... but that's the approach I've taken, based on advice I trust. I could probably increase my returns if I was willing to invest more time and effort in doing so, but I don't especially like playing games for money, and I'm getting quite enough for my purposes and spending near-zero effort on it, which is exactly what I want.\""
}
] |
8855 | How do i get into investing stocks [duplicate] | [
{
"docid": "208165",
"title": "",
"text": "50 (dollars, Euros?) is a very small amount to invest. The first time I ever bought stock I picked a winner. It went up by about 40% in the first few months. I sold it and lost money. How? I only bought 10 shares at $7.50 each. The profit was less than the two commissions for buying and selling (about $17 a piece). If you are thinking of buying individual stocks, You simply need to save up more money before it will be practical. If you are not trying to beat the market, which is probably not something an amateur like you or I should attempt, then you should consider low cost index funds. I have money in mutual funds, some of which, have as low as a $100 minimum investment. I have moved entirely away from picking stocks. It was a good experience and I could afford to lose the money, but as a long term strategy, it just was not working for me. Note: This is coming from an American. If this somehow does not apply in Europe..."
}
] | [
{
"docid": "55920",
"title": "",
"text": "You have plenty of good answers, but I want to add something that might help you grow your intuition on stocks. There are a lot of differences between the example I am going to give and how the stock market actually runs, but the basic concepts are the same. Lets say your friend asks you if he can borrow some money to start up a company, in exchange you will have some ownership in this company. You have essentially just bought yourself some stock. Now as your friend starts to grow, he is doing well, but he needs more cash to buy assets in order to grow the company more. He is forced with an option, either give you some of the profits, or buy these assets sooner. You decide you don't really need the money right now, and think he can do a lot better with spending the money to buy stuff. This is essentially the same as a company electing to not pay dividends, but instead invest into the future. You as a stock holder are fine with it since you know the money is going toward investing in the future. Even if you never get paid a dividend, as a company grows, you can then turn around and sell the stock to someone else for more money then you gave originally. Of course you always take the risk of having the company failing and loosing some if not all of your investment, but that is just the risk of the market."
},
{
"docid": "341148",
"title": "",
"text": "I say, before investing your real capital into the Stock Market, play around on the virtual stock exchange game. It let's you invest with virtual capital and you can gain experience with the stock market. I wouldn't start investing in stock until I'm sure I can cover losses though. If you do intend to invest stocks so early in your career, then you should learn how to read SEC filings (not necessary, but helpful in understanding how investors think) such as 8-K/10-K/10-Q documents so you can predict profitability and growth of companies you invest in. Once you become a veteran of the stock market game, you probably won't need to read the SEC filings into too much detail - especially if you have a diverse portfolio. Good Luck. The one takeaway from this message would probably be: Stop! and play around on virtual stocks before immersing yourself in the real thing."
},
{
"docid": "106104",
"title": "",
"text": "\"If you sold the stock for a profit, you will owe tax on that profit. Whether it is taxed as short-term or long-term capital gains depends on how long you held the stock before selling it. Presumably you're going to invest this money into mutual funds or something of that sort. Those may pay dividends which can be reinvested, and will grow in value (you hope) just as the individual stock shares would (you hope). Assuming the advice you've been given is at all reasonable, there's no need for buyer's remorse here; you're just changing your investing style to a different point on the risk-versus-return curve. (If you have to ask this question, I tend to agree that you should do more homework before playing with shares in individual companieS ... unless you're getting thess shares at employee discount, in which case you should still seriously consider selling them fairly quickly and reinvesting the money in a more structured manner. In a very real sense your job is itself an \"\"investment\"\" in your employer; if they ever get into trouble you don't want that to hit both your income and investments.)\""
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "30887",
"title": "",
"text": "\"First, I'd like to congratulate you on your financial discipline in paying off your loans and living well within your means. I have friends who make more than twice your salary with similar debt obligations, and they barely scrape by month to month. If we combine your student loan debt and unallocated income each month, we get about $1,350. You say that $378 per month is the minimum payment for your loans, which have an average interest rate of about 3.5%. Thus, you have about $1,350 a month to \"\"invest.\"\" Making your loan payments is basically the same as investing with the same return as the loan interest rate, when it comes down to it. An interest rate of 3.5% is...not great, all things considered, and barely above inflation. However, that's a guaranteed return of 3.5%, more or less like a bond. As noted previously, the stock market historically averages 10% before inflation over the long run. The US stock market is right around its historic high at this point (DJIA is at 20,700 today, April 6th, 2017 - historic high hit just over 21,000 on March 1, 2017). Obviously, no one can predict the future, but I get the feeling that a market correction may be in order, especially depending on how things go in Washington in the next weeks or months. If that's the case (again, we have no way of knowing if it is), you'd be foolish to invest heavily in any stocks at this point. What I would do, given your situation, is invest the $1,350/month in a \"\"portfolio\"\" that's 50/50 stocks and \"\"bonds,\"\" where the bonds here are your student loans. Here, you have a guaranteed return of ~3.5% on the bond portion, and you can still hedge the other 50% on stocks continuing their run (and also benefiting from dividends, capital gains, etc. over time). I would apply the extra loan payments to the highest-interest loan first, paying only the minimum to the others. Once the highest-interest loan is paid off, move onto the next one. Once you have all your loans paid off, your portfolio will be pretty much 100% stocks, at which point you may want to add in some actual bonds (say a 90/10 or 80/20 split, depending on what you want). I'm assuming you're pretty young, so you still have plenty of time to let the magic of compounding interest do its work, even if you happen to get into the market right before it drops (well, that, and the fact that you won't really have much invested anyway). Again, let me stress that neither I nor anyone else has any way of knowing what will happen with the market - I'm just stating my opinion and what my course of action would be if I were in your shoes.\""
},
{
"docid": "148632",
"title": "",
"text": "Also, almost by definition rebalancing involves making more trades than you would have otherwise; wouldn't the additional trading fees you incurred in doing so reduce the benefits of this strategy? You forgot to mention taxes. Rebalancing does or rather can incur costs. One way to minimize the costs is to use the parts of the portfolio that have essentially zero cost of moving. These generally are the funds in your retirement accounts. In the United States they can be in IRAs or 401Ks; they can be regular or Roth. Selling winners withing the structure of the plan doesn't trigger capital gains taxes, and many have funds within them that have zero loads. Another way to reduce trading fees is to only rebalance once a year or once every two years; or by setting a limit on how far out of balance. For example don't rebalance at 61/39 to get back to 60/40 even if it has been two years. Given that the ratio of investments is often rather arbitrary to begin with, how do I know whether I'm selling high and buying low or just obstinately sticking with a losing asset ratio? The ratio used in an example or in an article may be arbitrary, but your desired ratio isn't arbitrary. You selected the ratio of your investments based on several criteria: your age, your time horizon, your goals for the money, how comfortable you are with risk. As these change during your investing career those ratios would also morph. But they aren't arbitrary. These decisions to rebalance are separate from the ones to sell a particular investment. You could sell Computer Company X because of how it is performing, and buy stock in Technology Company Y because you think it has a better chance of growing. That transaction would not be a re-balancing. Selling part of your stock in Domestic Company A to buy stock in international Company B would be part of a re-balancing."
},
{
"docid": "20662",
"title": "",
"text": "\"I hope I'm misunderstanding your plan... you want to invest in a way that will make SO MUCH that you pay back all of the loan payments with investment gains? Like the answer I gave on the preceding question, and like @littleadv's comment/mhoran's answers... don't do this. No good will come of it. This strategy requires higher returns, but does not necessarily give you a better return. But because you asked the question again, let me specify what you're missing... I do think that learning is a good thing. It boils down to two very significant problems that you haven't addressed: (1) Where are you getting your monthly \"\"income\"\" from? (2) Realistic vs. Daydreaming--How big do any gains have to be and does that exist in the real world in a way that you can capture? In a nutshell, if my answer to the last question showed that it's crazy to invest and pay back out of your capital and income... since you're trying to keep your capital and only pay back with monthly gains, this one will require even higher and thus more unrealistic gains. The model you're implying: If that's what you mean with this model, (which I think you do), then here are my two very key questions again: How are you getting your monthly income? Financial investments (i.e. stocks or bonds) will have two components of value. One component of value is the stream of payments, such as a monthly dividend from stocks that pay those, or the interest payment from a bond. The other is the ability to resell a security to another investor, receiving back your capital. So... you either have to find Bonds//Dividend stocks that pay >52% returns tax-free each year, and pay this loan off with the payments. (Or higher returns to cover taxes, but these kinds of investments do not exist for you.) OR you can try to invest in something, pray that it goes up ≥4.323% per month and so that you can sell it, pay back your loan payment with the proceeds, and use the capital to buy your next investment... that will go up 4.323% per month, to turn and sell it again. The pros that do model this type of speculation go into much more depth than you are capable of. They build models that incorporate probabilities for rates of return based on historical data. They have better information, and have specialized in calculating this all out. They even have access to better investment opportunities (like pre-IPO Twitter or private notes). You just won't find the opportunities to make this happen, each month, for 24 months. (Again, you won't find them. They do not exist for you in as an investor in securities) Realistic vs. Daydreaming So... clearly I hope that by now I have convinced you that these would be the required returns. They simply aren't available to you. If they were, you would still run into obstacles with converting 'book' returns into physical money that you could repay the loans with, and then continuing that growth. And while I appreciate the notion that 'if I could just make the payments each month, I'd have $10,000 after 24 months!' I guarantee you that you'll be better off finding another way to target that same investment. Along the lines of what mhoran said, if you aim for a basic 401K or other similar investment account and target it into the S&P500, you might see returns of anywhere from -25% to +25% over the next 24 months... but if things went like they tend to average for the S&P500, it's more like ~7% annually. Check out a \"\"savings target calculator\"\" like this one from Bankrate.com and put in the numbers... if you can save about $390 a month you'll be at $10K in 24 months. It's not as fun as the other, but you can actually expect to achieve that. You will not find consistent >50% returns on your money annually.\""
},
{
"docid": "212540",
"title": "",
"text": "\"So, you have $100k to invest, want a low-maintenance investment, and personal finance bores you to death. Oooohhh, investment companies are gonna love you. You'll hand them a wad of cash, and more or less say \"\"do what you want.\"\" You're making someone's day. (Just probably not yours.) Mutual fund companies make money off of you regardless of whether you make money or not. They don't care one bit how carefully you look at your investments. As long as the money is in their hands, they get their fee. If I had that much cash, I'd be looking around for a couple of distressed homes in good neighborhoods to buy as rentals. I could put down payments on two of them, lock in fixed 30-year mortgages at 4% (do you realize how stupid low that is?) and plop tenants in there. Lots of tax write-offs, cash flow, the works. It's a 10% return if you learn about it and do it correctly. Or, there have been a number of really great websites that were sold on Flippa.com that ran into five figures. You could probably pay those back in a year. But that requires some knowledge, too. Anything worthwhile requires learning, maintenance and effort. You'll have to research stocks, mutual funds, bonds, anything, if you want a better than average chance of getting worthwhile returns (that is, something that beats inflation, which savings accounts and CDs are unlikely to do). There is no magic bullet. If someone does manage to find a magic bullet, what happens? Everyone piles on, drives the price up, and the return goes down. Your thing might not be real estate, but what is your thing? What excites you (i.e., doesn't bore you to death)? There are lots of investments out there, but you'll get out of it what you put into it.\""
},
{
"docid": "96121",
"title": "",
"text": "\"If you mean, If I invest, say, $1000 in a stock that is growing at 5% per year, versus investing $1000 in an account that pays compound interest of 5% per year, how does the amount I have after 5 years compare? Then the answer is, They would be exactly the same. As Kent Anderson says, \"\"compound interest\"\" simply means that as you accumulate interest, that for the next interest cycle, the amount that they pay interest on is based on the previous cycle balance PLUS the interest. For example, suppose you invest $1000 at 5% interest compounded annually. After one year you get 5% of $1000, or $50. You now have $1050. At the end of the second year, you get 5% of $1050 -- not 5% of the original $1000 -- or $52.50, so you now have $1102.50. Etc. Stocks tend to grow in the same way. But here's the big difference: If you get an interest-bearing account, the bank or investment company guarantees the interest rate. Unless they go bankrupt, you WILL get that percentage interest. But there is absolutely no guarantee when you buy stock. It may go up 5% this year, up 4% next year, and down 3% the year after. The company makes no promises about how much growth the stock will show. It may show a loss. It all depends on how well the company does.\""
},
{
"docid": "180571",
"title": "",
"text": "\"The end result is basically the same, it's just a choice of whether you want to base the final amount you receive on your salary, or on the stock market. You pay in a set proportion of your salary, and receive a set proportion of your salary in return. The pension (both contributions and benefit) are based on your career earnings. You get x% of your salary every year from retirement until death. These are just a private investment, basically: you pay a set amount in, and whatever is there is what you get at the end. Normally you would buy an annuity with the final sum, which pays you a set amount per year from retirement until death, as with the above. The amount you receive depends on how much you pay in, and the performance of the investment. If the stock market does well, you'll get more. If it does badly, you could actually end up with less. In general (in as much as anything relating to the stock market and investment can be generalised), a Defined Benefit plan is usually considered better for \"\"security\"\" - or at least, public sector ones, and a majority of people in my experience would prefer one, but it entirely depends on your personal attitude to risk. I'm on a defined benefit plan and like the fact that I basically get a benefit based on a proportion of my salary and that the amount is guaranteed, no matter what happens to the stock market in the meantime. I pay in 9% of my salary get 2% of my salary as pension, for each year I pay into the pension: no questions, no if's or buts, no performance indicators. Others prefer a defined contribution scheme because they know that it is based on the amount they pay in, not the amount they earn (although to an extent it is still based on earnings, as that's what defines how much you pay in), and because it has the potential to grow significantly based on the stock market. Unfortunately, nobody can give you a \"\"which is best\"\" answer - if I knew how pension funds were going to perform over the next 10-50 years, I wouldn't be on StackExchange, I'd be out there making a (rather large) fortune on the stock market.\""
},
{
"docid": "561997",
"title": "",
"text": "I think your premise is slightly flawed. Every investment can add or reduce risk, depending on how it's used. If your ordering above is intended to represent the probability you will lose your principal, then it's roughly right, with caveats. If you buy a long-term government bond and interest rates increase while you're holding it, its value will decrease on the secondary markets. If you need/want to sell it before maturity, you may not recover your principal, and if you hold it, you will probably be subject to erosion of value due to inflation (inflation and interest rates are correlated). Over the short-term, the stock market can be very volatile, and you can suffer large paper losses. But over the long-term (decades), the stock market has beaten inflation. But this is true in aggregate, so, if you want to decrease equity risk, you need to invest in a very diversified portfolio (index mutual funds) and hold the portfolio for a long time. With a strategy like this, the stock market is not that risky over time. Derivatives, if used for their original purpose, can actually reduce volatility (and therefore risk) by reducing both the upside and downside of your other investments. For example, if you sell covered calls on your equity investments, you get an income stream as long as the underlying equities have a value that stays below the strike price. The cost to you is that you are forced to sell the equity at the strike price if its value increases above that. The person on the other side of that transaction loses the price of the call if the equity price doesn't go up, but gets a benefit if it does. In the commodity markets, Southwest Airlines used derivatives (options to buy at a fixed price in the future) on fuel to hedge against increases in fuel prices for years. This way, they added predictability to their cost structure and were able to beat the competition when fuel prices rose. Even had fuel prices dropped to zero, their exposure was limited to the pre-negotiated price of the fuel, which they'd already planned for. On the other hand, if you start doing things like selling uncovered calls, you expose yourself to potentially infinite losses, since there are no caps on how high the price of a stock can go. So it's not possible to say that derivatives as a class of investment are risky per se, because they can be used to reduce risk. I would take hedge funds, as a class, out of your list. You can't generally invest in those unless you have quite a lot of money, and they use strategies that vary widely, many of which are quite risky."
},
{
"docid": "328477",
"title": "",
"text": "\"Don't do it until you have educated yourself enough to know what you are doing. I hope you won't take this personally, but given that you are wandering around asking random strangers on the Internet how to \"\"get into investing,\"\" I feel safe in concluding that you are by no means a sophisticated enough investor to be choosing individual investments, nor should you be trusting financial advisors to choose investments for you. Believe me, they do not have your interests at heart. I usually advise people in your position to start by reading one book: A Random Walk Down Wall Street by Burton Malkiel. Once you've read the book by Malkiel you'll understand that the best strategy for all but the most sophisticated investors is to buy an index fund, which simply purchases a portfolio of ALL available stocks without trying to pick winners and losers. The best index funds are at Vanguard (there is also a Vanguard site for non-US residents). Vanguard is one of the very, very, very few honest players in the business. Unlike almost any other mutual fund, Vanguard is owned by its investors, so it has no profit motive. They never try to pick individual stocks, so they don't have to pay fancy high-priced analysts to pick stocks. If you find it impossible to open a Vanguard account from wherever you're living, find a local brokerage account that will allow you to invest in the US stock market. Many Vanguard mutual funds are available as ETFs which means that you buy and sell them just like any other stock on the US market, which should be easy to do from any reasonably civilized place.\""
},
{
"docid": "93397",
"title": "",
"text": "No, there is no downside. I personally don't use duplicate checks. I simply make a record of the checks I write in the check register. A copy of the check, whether a duplicate or a photo, isn't really proof of payment for anyone but yourself, as it is very easy to write a check after the fact and put a different date on it."
},
{
"docid": "84642",
"title": "",
"text": "\"Having worked for a financial company for years, my advice is to stay away from all the \"\"Freedom Funds\"\" offered. They're a new way for Fidelity to justify charging a higher management fee on those particular funds. That extra 1% or so a year is great for making the company money; it will kill your rate of return over the next 25+ years you're putting money into your retirement account. All these funds do is change the percentage of your funds in stocks vs. more fixed investments (bonds, etc.) so you have a higher percentage in stocks while you're young and slowly move the percentage more towards fixed as you get older. If you take a few hours every 5 years to re-balance your portfolio and just slowly shift more money towards fixed investments, you'll achieve the same thing WITHOUT the extra annual fee. So how much difference are we talking here? Let's do a quick example. Based on your salary of $70k and a 4% match by your company, you'll have $5,600 a year to put in your 401(k) (your 4% plus matched 4%). I'll also assume an 8% annual return for both funds. Here is what that 1% extra service charge will cost you: Fund with a 1% service charge: Annual Fee Paid Year 1 - $60.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $301.00 Total Fees Year 1 through 25: $3,782 Fund with a 2% service charge: Annual Fee Paid Year 1 - $121.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $472.00 Total Fees Year 1 through 25: $6,489 That's a total of $2,707 in extra fees over 25 years on just the investment you make this year! Next year if you invest the same amount in your 401k that will be another $2,707 paid over 25 years to the management company. This pattern repeats EACH year you pay the higher management fee. Trust me, if you invest that money in stock instead of paying it as fees, you'll have a whole lot more money saved when it's time to retire. My advice, pick a percentage you're comfortable with in stocks at your age, maybe 85 - 90%, and pick the stock funds with the lowest management fees (the remaining 10 - 15% should go into a fixed fund). Make sure you pick at least some of your stock money, I do 20 - 25%, and select a diverse (lots of different countries) international fund. For any retirement money you plan to save above the 4% getting matched by your company, set up a Roth IRA. That will give you the freedom to invest in any stocks or funds you want. Find some low-cost index funds (such as VTI for stocks, and BND for bonds) and put your money in those. Invest the same amount every month, automatically, and your cost average will work itself out through up markets and down. Good luck!\""
},
{
"docid": "80871",
"title": "",
"text": "long deep ITM calls is equivalent to owning the equity. You're going to pay alot and hence will start off in a hole already, and you aren't getting too much leverage there at all depending how deep ITM you go. Covariance scales, but assuming B-S in order to get nice scaling and ignoring the risks you are actually taking with options (unlimited down-size ie you can lose your entire investment in the option, people forget this) will screw you unless you really know what you are dong. Leverage means increasing your risk. long dep ITM is not obtaining much leverage and therefore not risking too much. but you aren't going ot get 3-4x leverage this way. you get leverage by saying: oh, i have 100, i could invest in 1 share of stock OR I could buy 100 worth of some option. If I pick a deep ITM (think strike = 0) it's identical to owing the stock. If i pick ATM, i have a ~50/50 chance of wining, so i should be able to double my upside. If I go OTM, i can increase my exposure to the upside while increasing hte chance that my options expire worthless. So really, i have no idea why deep ITM do what you are trying to do. and If you don't either, you probably shouldn't do it."
},
{
"docid": "231195",
"title": "",
"text": "I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs."
},
{
"docid": "471472",
"title": "",
"text": "A 401(k) is just a container. Like real-world containers (those that are usually made out of metal), you can put (almost) anything you want in it. Signing up for your employer's match is a great thing to do. Getting into the habit of saving a significant portion of your take-home pay early in your career is even better; doing so will put you lightyears ahead of lots of people by the time you approach retirement age. Even if you love your job, that will give you options you otherwise wouldn't have. There is no real reason why you can't start out by putting your retirement money in a short-term money-market fund within that 401(k). By doing so you will only earn a pittance, probably not even enough to keep up with inflation in today's economic environment, but at this point in your (savings and investment) career, that doesn't really matter much. What really matters is getting into the habit of setting that money aside every single time you get paid and not thinking much of it. And that's a lot easier if you start out early, especially at a time when you likely have received a significant net pay increase (salaried job vs college student). I know, everyone says to get the best return you can. But if you are just starting out, and feel the need to be conservative, then don't be afraid to at least start out that way. You can always rebalance into investment classes that have the potential for higher return -- and correspondingly higher volatility -- in a few years. In the meantime, you will have built a pretty nice capital that you can move into the stock market eventually. The exact rate of return you get in the first decade matters a lot less than how much money you set aside regularly and that you keep contributing. See for example Your Investment Plan Means Nothing If You Don’t Do This by Matt Becker (no affiliation), which illustrates how it takes 14 years for saving 5% at a consistent 10% return to beat saving 10% at a consistent 0% return. So look through what's being offered in terms of low-risk investments within that 401(k). Go ahead and pick a money-market fund or a bond fund if you want to start out easy. If it gets you into the habit of saving and sticking with it, then the overall return will beat the daylights out of the return you would get from a good stock market fund if you stop contributing after a year or two. Especially (but not only) if you do pick an interest-bearing investment, do make sure to pick one that has as low fees as you can possibly find for what you want, because otherwise the fees are going to eat a lot into your potential returns, benefiting the bank or investment house rather than yourself. Just keep an open mind, and very strongly consider shifting at least some of your investments into the stock market as you grow more comfortable over the next several years. You can always keep a portion of your money in various interest-bearing investments to act as a cushion in case the market slumps."
},
{
"docid": "507368",
"title": "",
"text": "\"I like Muro questions! No, I don't think they do. Because for me, as a personal finance investor type just trying to save for retirement, they mean nothing. If I cannot tell what the basic business model of a company is, and how that business model is profitable and makes money, then that is a \"\"no buy\"\" for me. If I do understand it, they I can do some more looking into the stock and company and see if I want to purchase. I buy index funds that are indexes of industries and companies I can understand. I let a fund manager worry about the details, but I get myself in the right ballpark and I use a simple logic test to get there, not the word of a rating agency. If belong in the system as a whole, I could not really say. I could not possibly do the level of accounting research and other investigation that rating agencies do, so even if the business model is sound I might lose an investment because the company is not an ethical one. Again, that is the job of my fund manager to determine. Furthermore and I mitigate that risk by buying indexes instead of individual stock.\""
},
{
"docid": "206505",
"title": "",
"text": "Regardless of how long the mortgage has left, the return you get on prepayments is identical to the mortgage rate. (What happens on your tax return is a different matter.) It's easier to get a decent financial calculator (The TI BA-35 is my favorite) than to construct spreadsheets which may or may not contain equation errors. When I duplicate John's numbers, $100K mortgage, 4% rate, I get a 60 mo remaining balance of 90,447.51 and with $50 extra, $87132.56, a diff of $3314.95. $314.95 return on the $3000. $315 over 5yrs is $63/yr, over an average $1500 put in, 63/1500 = 4.2%. Of course the simple math of just averaging the payment creates that .2% error. A 60 payment $50 returning $314.95 produces 4.000%. @Peter K - with all due respect, there's nothing for me about time value of money calculations that can be counter-intuitive. While I like playing with spreadsheets, the first thing I do is run a few scenarios and double check using the calculator. Your updated sheet is now at 3.76%? A time vaule of money calculation should not have rounding errors that larger. It's larger than my back of envelope calculation. @Kaushik - if you don't need the money, and would buy a CD at the rate of your mortgage, then pay early. Nothing wrong with that."
}
] |
8855 | How do i get into investing stocks [duplicate] | [
{
"docid": "474296",
"title": "",
"text": "\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \"\"Do Stocks Outperform Treasury Bills?\"\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \"\"The RRSP Secret\"\" by Greg Habstritt. \"\"Unshakeable\"\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\""
}
] | [
{
"docid": "314977",
"title": "",
"text": "They're still behind on Model 3 numbers. China would be about taking all the money they've hemoraged to get where they are here and duplicate it over there, so while it's possibly a wildly lucrative market, it won't be for quite some time and after a lot more spending. They just trimmed the fat on their workforce, which is probably a good move, but so many at once says that they needed to cut spending. Once the 3 is cranking out faster and AP2.5 is getting updates, the stock will probably make a good run, but for now it's going to flounder about close to where it is."
},
{
"docid": "252653",
"title": "",
"text": "\"I switched to the buy side, here is some things you should do. First of all, you already had 6 interviews. I would say the HR people are going to be less helpful because its harder to differentiate yourself. If you are talking to an investment portfolio, and they ask you any of type of... What are you interested in? How did you get into this space? You better have multiple stock pitches lined up. For example, on the the first question I'm interested in IM because I was exposed at an early age by my parents. Although I didn't know what I was doing, I kept following (STOCK 1, you're first crack in the doorway). *more about your background stuff* In fact, STOCK 1 turned out to be one of my best/worst trades. I thought it was going here and it went there due to this and that and etc...*more info about stock 1* Now, I like to look at names such as STOCK 2-5 because they are show (this multiple or that yield or these moats, depending on who you are talking to). That is how you get a job through an informational interview. As for how you get an informational interview? Go run through linkedin. Sort for investment management. Any person you have a 2nd degree network or Group network is fair game. Just shoot your common friend an email (hey whats up, i saw you were friends with X, i'm really interested in his company can you put me in touch). Although the end person may never respond, the connection is like almost guaranteed to help (assuming you're a nice friendly person). Recruiting for IM is a full time job. Even other industries as well. My roommate graduated Haas Business Undergrad program (top 3 in the country) in TWO years (not 2 letters and science + 2 business, but 2 total years) at 19 years old, took him a full year of recruiting and paying his own way out to NY to meet people to land an banking job (due to similar circumstances, as he was fully out of school and wasn't in the normal rotation). What really concerns me is you keep saying \"\"analysis.\"\" It makes me think that you have no clue what you want to do. Tell me what analysis means. If you want to recruit for IM, you better be watching the markets everyday (esp if you are unemployed), have opinions on lots of companies, etc.\""
},
{
"docid": "517323",
"title": "",
"text": "The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares."
},
{
"docid": "471472",
"title": "",
"text": "A 401(k) is just a container. Like real-world containers (those that are usually made out of metal), you can put (almost) anything you want in it. Signing up for your employer's match is a great thing to do. Getting into the habit of saving a significant portion of your take-home pay early in your career is even better; doing so will put you lightyears ahead of lots of people by the time you approach retirement age. Even if you love your job, that will give you options you otherwise wouldn't have. There is no real reason why you can't start out by putting your retirement money in a short-term money-market fund within that 401(k). By doing so you will only earn a pittance, probably not even enough to keep up with inflation in today's economic environment, but at this point in your (savings and investment) career, that doesn't really matter much. What really matters is getting into the habit of setting that money aside every single time you get paid and not thinking much of it. And that's a lot easier if you start out early, especially at a time when you likely have received a significant net pay increase (salaried job vs college student). I know, everyone says to get the best return you can. But if you are just starting out, and feel the need to be conservative, then don't be afraid to at least start out that way. You can always rebalance into investment classes that have the potential for higher return -- and correspondingly higher volatility -- in a few years. In the meantime, you will have built a pretty nice capital that you can move into the stock market eventually. The exact rate of return you get in the first decade matters a lot less than how much money you set aside regularly and that you keep contributing. See for example Your Investment Plan Means Nothing If You Don’t Do This by Matt Becker (no affiliation), which illustrates how it takes 14 years for saving 5% at a consistent 10% return to beat saving 10% at a consistent 0% return. So look through what's being offered in terms of low-risk investments within that 401(k). Go ahead and pick a money-market fund or a bond fund if you want to start out easy. If it gets you into the habit of saving and sticking with it, then the overall return will beat the daylights out of the return you would get from a good stock market fund if you stop contributing after a year or two. Especially (but not only) if you do pick an interest-bearing investment, do make sure to pick one that has as low fees as you can possibly find for what you want, because otherwise the fees are going to eat a lot into your potential returns, benefiting the bank or investment house rather than yourself. Just keep an open mind, and very strongly consider shifting at least some of your investments into the stock market as you grow more comfortable over the next several years. You can always keep a portion of your money in various interest-bearing investments to act as a cushion in case the market slumps."
},
{
"docid": "507368",
"title": "",
"text": "\"I like Muro questions! No, I don't think they do. Because for me, as a personal finance investor type just trying to save for retirement, they mean nothing. If I cannot tell what the basic business model of a company is, and how that business model is profitable and makes money, then that is a \"\"no buy\"\" for me. If I do understand it, they I can do some more looking into the stock and company and see if I want to purchase. I buy index funds that are indexes of industries and companies I can understand. I let a fund manager worry about the details, but I get myself in the right ballpark and I use a simple logic test to get there, not the word of a rating agency. If belong in the system as a whole, I could not really say. I could not possibly do the level of accounting research and other investigation that rating agencies do, so even if the business model is sound I might lose an investment because the company is not an ethical one. Again, that is the job of my fund manager to determine. Furthermore and I mitigate that risk by buying indexes instead of individual stock.\""
},
{
"docid": "17823",
"title": "",
"text": "\"I'd suggest you start by looking at the mutual fund and/or ETF options available via your bank, and see if they have any low-cost funds that invest in high-risk sectors. You can increase your risk (and potential returns) by allocating your assets to riskier sectors rather than by picking individual stocks, and you'll be less likely to make an avoidable mistake. It is possible to do as you suggest and pick individual stocks, but by doing so you may be taking on more risk than you suspect, even unnecessary risk. For instance, if you decide to buy stock in Company A, you know you're taking a risk by investing in just one company. However, without a lot of work and financial expertise, you may not be able to assess how much risk you're taking by investing in Company A specifically, as opposed to Company B. Even if you know that investing in individual stocks is risky, it can be very hard to know how risky those particular individual stocks are, compared to other alternatives. This is doubly true if the investment involves actions more exotic than simply buying and holding an asset like a stock. For instance, you could definitely get plenty of risk by investing in commercial real estate development or complicated options contracts; but a certain amount of work and expertise is required to even understand how to do that, and there is a greater likelihood that you will slip up and make a costly mistake that negates any extra gain, even if the investment itself might have been sound for someone with experience in that area. In other words, you want your risk to really be the risk of the investment, not the \"\"personal\"\" risk that you'll make a mistake in a complicated scheme and lose money because you didn't know what you were doing. (If you do have some expertise in more exotic investments, then maybe you could go this route, but I think most people -- including me -- don't.) On the other hand, you can find mutual funds or ETFs that invest in large economic sectors that are high-risk, but because the investment is diversified within that sector, you need only compare the risk of the sectors. For instance, emerging markets are usually considered one of the highest-risk sectors. But if you restrict your choice to low-cost emerging-market index funds, they are unlikely to differ drastically in risk (at any rate, far less than individual companies). This eliminates the problem mentioned above: when you choose to invest in Emerging Markets Index Fund A, you don't need to worry as much about whether Emerging Markets Index Fund B might have been less risky; most of the risk is in the choice to invest in the emerging markets sector in the first place, and differences between comparable funds in that sector are small by comparison. You could do the same with other targeted sectors that can produce high returns; for instance, there are mutual funds and ETFs that invest specifically in technology stocks. So you could begin by exploring the mutual funds and ETFs available via your existing investment bank, or poke around on Morningstar. Fees will still matter no matter what sector you're in, so pay attention to those. But you can probably find a way to take an aggressive risk position without getting bogged down in the details of individual companies. Also, this will be less work than trying something more exotic, so you're less likely to make a costly mistake due to not understanding the complexities of what you're investing in.\""
},
{
"docid": "115264",
"title": "",
"text": "I think that author does a disservice by writing such seemingly sensible articles without actually knowing how things work. If I didn’t know better, I would think this guy was teaching me something. It’s a shame he did not do research before he started writing. Let’s say you buy a classic car. You take super good care of it, all original, mint condition. You paid cash for it out of your savings. This is a balance sheet transaction that has nothing to do with income. You traded your cash asset for a classic car asset. Now let’s say this car is so rare and you keep it in such good condition that it gains value every year. Maybe it was worth $15k when you bought it, but this year it’s already worth $17k. Great job on making a great purchase! But is that $2k gain counted as income to you? No, it is not. The value of that asset on your balance sheet went up, but you did not make anything off of that increase in value because you have not sold it. If you had to pay taxes on the increase in value every year, those taxes would essentially force you to sell that car to pay the taxes just because you took care of it. Additionally, in the long term, no one would want to own anything, so this would destroy the value of everyone’s stuff, but I digress. In this example, amazon stock is the car. The author is seeing the increase in stock value adding to the balance sheets of the investors who bought the stock and confusing that with income. Back to our example, let’s say your car increased in value $2k a year for two years and you decide to sell it for $19k - now we are about to realize some income! Since you bought it for $15k and sold for $19k, you earned an income of the difference, or $4k. Your income wasn’t $19k, because you originally put $15k in cash into the car. That cash was already saved from income you made in the past, and it is not counted again as income in this sale. Because you did not work for this new car sale income, but it was derived from asset growth, the income is called capital gains. You invested your capital ($15k) into the asset (car), and that asset appreciated. When you sold it, you received capital (money) back in exchange for that asset. The capital you received is more than what you invested, which is to say you gained $4k of capital by investing in and then selling your asset (car). Because you held the car for two years, you qualify for lower long term capital gains tax rate on that $4k. Had you sold it after year 1, you would’ve paid your regular normal income tax rate on those capital gains. Either way, you owe the tax when you sell the asset, not when it appreciates. I’m sure you realize this already, but if we change the car to amazon stock in my story, this is exactly how it works with investors. The author gets several things wrong 1 - amazon profits are not passed through to shareholders for income tax purposes. If amazon paid dividends, those dividends would be taxed at payout at the long term capital gains rate, and they would be paid out of cash amazon has left after it already paid corporate taxes on profits. Amazon has decided they can add more value to investors by using cash to grow instead of paying dividends. When the investors sell the stock, they will owe capital gains on the growth of that stock. If amazon is correct that using cash to grow, then investors will effectively pay more when they sell the stock than they would pay today if dividends were paid. 2 - asset appreciation is not income. Those investors will realize the income when they sell the stock, and they will pay the tax then. 3 - he is missing the point entirely on why amazon runs a low profit or how business strategy translates into financials. Low prices are not a function of low profitability. Low profitability could be an adverse result of low pricing, but being low profit in order to be low price is a ridiculous and failing strategy. Amazon’s low pricing is a function of their unparalleled buying power, unparalleled consumer and product data, amazing logistics prowess, clever loyalty programs like amazon prime, and many other brilliant things they’ve done. Their low profitability is a function of their investment in things like amazon fresh, amazon Alexa, drone delivery, automated convenience stores, building out cloud computing infrastructure, and many other R&D projects, $4 billion in original content spending for amazon prime video, and all kinds of expenditures years ahead of when they become profitable. By the time consumers want it, amazon already built it three years ago - this is the power of amazon. Sometimes multi billion dollar experiments fail, and all that money was for nothing. Sometimes they lose money for a few years and then become the infrastructure that runs a third of the internet. Amazon does not let fear of failure stop them, they invest in growth with their cash. This is how Bezos thinks - how do we build the future, not how can I avoid tax I do need to make a disclaimer here - there could be special tax treatment of classic cars that makes my example not work. Also classic cars may not appreciate in value. I don’t know anything about classic cars, I just picked a politically neutral thing to put in my story and made some assumptions to illustrate how capital gains work. My story is definitely how stocks work, and probably cars, but I just want to point out that I don’t know shit about car collecting."
},
{
"docid": "565409",
"title": "",
"text": "As a landlord for 14 years with 10 properties, I can give a few pointers: be able and skilled enough to perform the majority of maintenance because this is your biggest expense otherwise. it will shock you how much maintenance rental units require. don't invest in real estate where the locality/state favors the tenant (e.g., New York City) in disputes. A great state is Florida where you can have someone evicted very quickly. require a minimum credit score of 620 for all tenants over 21. This seems to be the magic number that keeps most of the nightmare tenants out makes sure they have a job nearby that pays at least three times their annual rent every renewal, adjust your tenant's rent to be approximately 5% less than going rates in your area. Use Zillow as a guide. Keeping just below market rates keeps tenants from moving to cheaper options. do not rent to anyone under 30 and single. Trust me trust me trust me. you can't legally do this officially, but do it while offering another acceptable reason for rejection; there's always something you could say that's legitimate (bad credit, or chose another tenant, etc.) charge a 5% late fee starting 10 days after the rent is due. 20 days late, file for eviction to let the tenant know you mean business. Don't sink yourself too much in debt, put enough money down so that you start profitable. I made the mistake of burying myself and I haven't barely been able to breathe for the entire 14 years. It's just now finally coming into profitability. Don't get adjustable rate or balloon loans under any circumstances. Fixed 30 only. You can pay it down in 20 years and get the same benefits as if you got a fixed 20, but you will want the option of paying less some months so get the 30 and treat it like a 20. don't even try to find your own tenants. Use a realtor and take the 10% cost hit. They actually save you money because they can show your place to a lot more prospective tenants and it will be rented much sooner. Empty place = empty wallet. Also, block out the part of the realtor's agreement-to-lease where it states they keep getting the 10% every year thereafter. Most realtors will go along with this just to get the first year, but if they don't, find another realtor. buy all in the same community if you can, then you can use the same vendor list, the same lease agreement, the same realtor, the same documentation, spreadsheets, etc. Much much easier to have everything a clone. They say don't put all your eggs in one basket, but the reality is, running a bunch of properties is a lot of work, and the more similar they are, the more you can duplicate your work for free. That's worth a lot more day-to-day than the remote chance your entire community goes up in flames"
},
{
"docid": "67804",
"title": "",
"text": "I never intended to get into a big debate on taxation. My point was that a buyback is the sane as a divided. Would you agree to that? Here's an interesting test. Does he have the same problem with dividend producing stocks? If he does then how else are firms supposed to give s return to investors? (Don't even think about saying through price appreciation because I'm sure you also have a rant for the drive for stock price.) This isn't a do we tax or not. That's overly broad for this piece. Also he isn't talking about taxing away profits but using taxes to cause businesses to make investments. Wouldn't you agree that if that extra factory was unproductive if it wouldnt have had an economical case to be invested in otherwise? Issuing taxes as a blunt tool to cause businesses to throw money at random projects is about the definition of misallocation. Can we agree to this, absent a taxation debate i generally avoid like the plague? You really are in a corner on how a company effectively passes a return to those who invested in them without subverting the whole pricing mechanism. Unless that is your point to do. Government control for all investments yeah!"
},
{
"docid": "456389",
"title": "",
"text": "\"Scenario 1: Assume that you plan to keep the parking space for the rest of your life and collect the income from the rental. You say these spaces rent for $250 per month and there are fees of $1400 per year. Are there any other costs? Like would you be responsible for the cost of repaving at some point? But assuming that's covered in the $1400, the net profit is 250 x 12 - 1400 = $1600 per year. So now the question becomes, what other things could you invest your money in, and what sort of returns do those give? If, say, you have investments in the stock market that are generating a 10% annual return and you expect that rate of return to continue indefinitely, than if you pay a price that gives you a return of less than 10%, i.e. if you pay more than $16,000, then you would be better off to put the money in the stock market. That is, you should calculate the fair price \"\"backwards\"\": What return on investment is acceptable, and then what price would I have to pay to get that ROI? Oh, you should also consider what the \"\"occupancy rate\"\" on such parking spaces is. Is there enough demand that you can realistically expect to have it rented out 100% of the time? When one renter leaves, how long does it take to find another? And do you have any information on how often renters fail to pay the rent? I own a house that I rent out and I had two tenants in a row who failed to pay the rent, and the legal process to get them evicted takes months. I don't know what it takes to \"\"evict\"\" someone from a parking space. Scenario 2: You expect to collect rent on this space for some period of time, and then someday sell it. In that case, there's an additional piece of information you need: How much can you expect to get for this property when you sell it? This is almost surely highly speculative. But you could certainly look at past pricing trends. If you see that the value of a parking space in your area has been going up by, whatever, say 4% per year for the past 20 years, it's reasonable to plan on the assumption that this trend will continue. If it's been up and down and all over the place, you could be taking a real gamble. If you pay $30,000 for it today and when the time comes to sell the best you can get is $15,000, that's not so good. But if there is some reasonable consistent average rate of growth in value, you can add this to the expected rents. Like if you can expect it to grow in value by $1000 per year, then the return on your investment is the $1600 in rent plus $1000 in capital growth equals $2600. Then again do an ROI calculation based on potential returns from other investments.\""
},
{
"docid": "591950",
"title": "",
"text": "I am confused as to what the author was talking about when speaking about the lack of features and research tools for stocks and how that is such a huge negative of Robinhood. If anything, I want a cheap, simple platform to efficiently trade. I might as well save a few bucks on commission, right? I can do my research online and through SEC filings, I don't need e-trade to tell me what stocks to buy, I decide. Whether I buy Cisco stock through TD Ameritrade's phone system for $45 per transaction or for free through Robinhood I'm still owning the same stock, the same company, at the same price probably within fractions of a penny per share. I get what the author is saying though about the general aurora of the app that is encouraging for people to invest who should not be investing. Maybe I don't see the problem with it because I like to think that I know what I am doing and don't just treat it like gambling."
},
{
"docid": "452592",
"title": "",
"text": "You are already doing everything you can. If your employer does not have a 401(k) you are limited to investing in a Roth or a traditional IRA (Roth is post tax money, traditional IRA gives you a deduction so it is essentially pre tax money). The contribution limits are the same for both and contributing to either adds to the limit (so you can't duplicate). CNN wrote an article on some other ways to save: One thing you may want to bring up with your employer is that they could set up a SEP-IRA. This allows them to set a % (up to 25%) that they contribute pre-tax to an IRA for everyone at the company that has worked there at least 3 years. If you are at a small company, maybe everyone with that kind of seniority would take an equivalent pay cut to get the automatic retirement contribution? (Note that a SEP-IRA has to apply to everyone equally percentage wise that has worked there for 3 years, and the employer makes the contribution, not you)."
},
{
"docid": "418551",
"title": "",
"text": "\"Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is \"\"100 minus your age\"\". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the \"\"100\"\" number has varied. Some financial advisor types have suggested \"\"150\"\" or \"\"200\"\". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a \"\"passive\"\" index fund, not an actively managed fund with a high expense ratio. Personally, I like \"\"total market\"\" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/\""
},
{
"docid": "341148",
"title": "",
"text": "I say, before investing your real capital into the Stock Market, play around on the virtual stock exchange game. It let's you invest with virtual capital and you can gain experience with the stock market. I wouldn't start investing in stock until I'm sure I can cover losses though. If you do intend to invest stocks so early in your career, then you should learn how to read SEC filings (not necessary, but helpful in understanding how investors think) such as 8-K/10-K/10-Q documents so you can predict profitability and growth of companies you invest in. Once you become a veteran of the stock market game, you probably won't need to read the SEC filings into too much detail - especially if you have a diverse portfolio. Good Luck. The one takeaway from this message would probably be: Stop! and play around on virtual stocks before immersing yourself in the real thing."
},
{
"docid": "312445",
"title": "",
"text": "The best way I know of is to join an investment club. They club will act like a mutual fund, investing in stocks researched and selected by the group. Taking part in research and presenting results to the group for peer review is an excellent way to learn. You'll learn what is a good reason to invest and what isn't. You'll probably pick both winners and losers. The goal of participation is education. Some people learn how to invest and continue happily doing so. Others learn how to invest in single stocks and learn it is not for them."
},
{
"docid": "160170",
"title": "",
"text": "What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:"
},
{
"docid": "101220",
"title": "",
"text": "After several hours of trying to get various import methods to work (see comment to other answer), I ended up just adding all the splits by just gritting my teeth, against the inefficiency of at all, and entered them manually. The process took a couple hours, but at least now I have clean data. Duplicating an existing transaction with splits and just changing the date is (a lot) more keyboard efficient than editing an existing transaction and adding the splits (Alt+N, L, 1/1/2011) even when accounting for the overhead of deleting the now-duplicate imported transaction (Alt+N, D, Alt+D)."
},
{
"docid": "423083",
"title": "",
"text": "\"I get the sense that this is a \"\"the world is unfair; there's no way I can succeed\"\" question, so let's back up a few steps. Income is the starting point to all of this. That could be a job (or jobs), or running your own business. From there, you can do four things with your income: Obviously Spend and Give do not provide a monetary return - they give a return in other ways, such as quality of life, helping others, etc. Save gives you reserves for future expenses, but it does not provide growth. So that just leaves Invest. You seem to be focused on stock market investments, which you are right, take a very long time to grow, although you can get returns of up to 12% depending on how much volatility you're willing to absorb. But there are other ways to invest. You can invest in yourself by getting a degree or other training to improve your income. You can invest by starting a business, which can dramatically increase your income (in fact, this is the most common path to \"\"millionaire\"\" in the US, and probably in other free markets). You can invest by growing your own existing business. You can invest in someone else's business. You can invest in real estate, that can provide both value appreciation and rental income. So yes, \"\"investment\"\" is a key aspect of wealth building, but it is not limited to just stock market investment. You can also look at reducing expenses in order to have more money to invest. Also keep in mind that investment with higher returns come with higher risk (both in terms of volatility and risk of complete loss), and that borrowing money to invest is almost always unwise, since the interest paid directly reduces the return without reducing the risk.\""
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
}
] |
8855 | How do i get into investing stocks [duplicate] | [
{
"docid": "312821",
"title": "",
"text": "\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \"\"the market\"\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\""
}
] | [
{
"docid": "507368",
"title": "",
"text": "\"I like Muro questions! No, I don't think they do. Because for me, as a personal finance investor type just trying to save for retirement, they mean nothing. If I cannot tell what the basic business model of a company is, and how that business model is profitable and makes money, then that is a \"\"no buy\"\" for me. If I do understand it, they I can do some more looking into the stock and company and see if I want to purchase. I buy index funds that are indexes of industries and companies I can understand. I let a fund manager worry about the details, but I get myself in the right ballpark and I use a simple logic test to get there, not the word of a rating agency. If belong in the system as a whole, I could not really say. I could not possibly do the level of accounting research and other investigation that rating agencies do, so even if the business model is sound I might lose an investment because the company is not an ethical one. Again, that is the job of my fund manager to determine. Furthermore and I mitigate that risk by buying indexes instead of individual stock.\""
},
{
"docid": "423083",
"title": "",
"text": "\"I get the sense that this is a \"\"the world is unfair; there's no way I can succeed\"\" question, so let's back up a few steps. Income is the starting point to all of this. That could be a job (or jobs), or running your own business. From there, you can do four things with your income: Obviously Spend and Give do not provide a monetary return - they give a return in other ways, such as quality of life, helping others, etc. Save gives you reserves for future expenses, but it does not provide growth. So that just leaves Invest. You seem to be focused on stock market investments, which you are right, take a very long time to grow, although you can get returns of up to 12% depending on how much volatility you're willing to absorb. But there are other ways to invest. You can invest in yourself by getting a degree or other training to improve your income. You can invest by starting a business, which can dramatically increase your income (in fact, this is the most common path to \"\"millionaire\"\" in the US, and probably in other free markets). You can invest by growing your own existing business. You can invest in someone else's business. You can invest in real estate, that can provide both value appreciation and rental income. So yes, \"\"investment\"\" is a key aspect of wealth building, but it is not limited to just stock market investment. You can also look at reducing expenses in order to have more money to invest. Also keep in mind that investment with higher returns come with higher risk (both in terms of volatility and risk of complete loss), and that borrowing money to invest is almost always unwise, since the interest paid directly reduces the return without reducing the risk.\""
},
{
"docid": "123356",
"title": "",
"text": "\"Wow, I cannot believe this is a question. Of course reading the 10Ks and 10Qs from the SEC are incredibly beneficial. Especially if you are a follower of the investing gurus such as Warren Buffett, Peter Lynch, Shelby Davis. Personally I only read the 10K's I copy the pertinent numbers over to my spreadsheets so I can compare multiple companies that I am invested in. I'm sure there are easier ways to obtain the data. I'm a particular user of the discounted free cash flow methodology and buying/selling in thirds. I feel like management that says what they are going to do and does it (over a period of years) is something that cannot be underestimated in investing. yes, there are slipups, but those tend to be well documented in the 10Qs. I totally disagree in the efficient market stuff. I tend to love using methodologies like Hewitt Heisermans \"\" It's Earnings that Count\"\" you cannot do his power-staircase without digging into the 10Qs. by using his methodology I have several 5 baggers over the last 5 years and I'm confident that I'll have more. I think it is an interesting factoid as well that the books most recommended for investing in stocks on Amazon all advocate reading and getting information from 10Ks. The other book to read is Peter Lynch's one-up-wall-street. The fact is money manager's hands are tied when it comes to investing, especially in small companies and learning over the last 6 years how to invest on my own has given me that much more of my investing money back rather than paying it to some money manager doing more trades than they should to get commision fees.\""
},
{
"docid": "561997",
"title": "",
"text": "I think your premise is slightly flawed. Every investment can add or reduce risk, depending on how it's used. If your ordering above is intended to represent the probability you will lose your principal, then it's roughly right, with caveats. If you buy a long-term government bond and interest rates increase while you're holding it, its value will decrease on the secondary markets. If you need/want to sell it before maturity, you may not recover your principal, and if you hold it, you will probably be subject to erosion of value due to inflation (inflation and interest rates are correlated). Over the short-term, the stock market can be very volatile, and you can suffer large paper losses. But over the long-term (decades), the stock market has beaten inflation. But this is true in aggregate, so, if you want to decrease equity risk, you need to invest in a very diversified portfolio (index mutual funds) and hold the portfolio for a long time. With a strategy like this, the stock market is not that risky over time. Derivatives, if used for their original purpose, can actually reduce volatility (and therefore risk) by reducing both the upside and downside of your other investments. For example, if you sell covered calls on your equity investments, you get an income stream as long as the underlying equities have a value that stays below the strike price. The cost to you is that you are forced to sell the equity at the strike price if its value increases above that. The person on the other side of that transaction loses the price of the call if the equity price doesn't go up, but gets a benefit if it does. In the commodity markets, Southwest Airlines used derivatives (options to buy at a fixed price in the future) on fuel to hedge against increases in fuel prices for years. This way, they added predictability to their cost structure and were able to beat the competition when fuel prices rose. Even had fuel prices dropped to zero, their exposure was limited to the pre-negotiated price of the fuel, which they'd already planned for. On the other hand, if you start doing things like selling uncovered calls, you expose yourself to potentially infinite losses, since there are no caps on how high the price of a stock can go. So it's not possible to say that derivatives as a class of investment are risky per se, because they can be used to reduce risk. I would take hedge funds, as a class, out of your list. You can't generally invest in those unless you have quite a lot of money, and they use strategies that vary widely, many of which are quite risky."
},
{
"docid": "3463",
"title": "",
"text": "You seem to think that stock exchanges are much more than they actually are. But it's right there in the name: stock exchange. It's a place where people exchange (i.e. trade) stocks, no more and no less. All it does is enable the trading (and thereby price finding). Supposedly they went into mysterious bankruptcy then what will happen to the listed companies Absolutely nothing. They may have to use a different exchange if they're planning an IPO or stock buyback, that's all. and to the shareholder's stock who invested in companies that were listed in these markets ? Absolutley nothing. It still belongs to them. Trades that were in progress at the moment the exchange went down might be problematic, but usually the shutdown would happen in a manner that takes care of it, and ultimately the trade either went through or it didn't (and you still have the money). It might take some time to establish this. Let's suppose I am an investor and I bought stocks from a listed company in NYSE and NYSE went into bankruptcy, even though NYSE is a unique business, meaning it doesn't have to do anything with that firm which I invested in. How would I know the stock price of that firm Look at a different stock exchange. There are dozens even within the USA, hundreds internationally. and will I lose my purchased stocks ? Of course not, they will still be listed as yours at your broker. In general, what will happen after that ? People will use different stock exchanges, and some of them migth get overloaded from the additional volume. Expect some inconveniences but no huge problems."
},
{
"docid": "115264",
"title": "",
"text": "I think that author does a disservice by writing such seemingly sensible articles without actually knowing how things work. If I didn’t know better, I would think this guy was teaching me something. It’s a shame he did not do research before he started writing. Let’s say you buy a classic car. You take super good care of it, all original, mint condition. You paid cash for it out of your savings. This is a balance sheet transaction that has nothing to do with income. You traded your cash asset for a classic car asset. Now let’s say this car is so rare and you keep it in such good condition that it gains value every year. Maybe it was worth $15k when you bought it, but this year it’s already worth $17k. Great job on making a great purchase! But is that $2k gain counted as income to you? No, it is not. The value of that asset on your balance sheet went up, but you did not make anything off of that increase in value because you have not sold it. If you had to pay taxes on the increase in value every year, those taxes would essentially force you to sell that car to pay the taxes just because you took care of it. Additionally, in the long term, no one would want to own anything, so this would destroy the value of everyone’s stuff, but I digress. In this example, amazon stock is the car. The author is seeing the increase in stock value adding to the balance sheets of the investors who bought the stock and confusing that with income. Back to our example, let’s say your car increased in value $2k a year for two years and you decide to sell it for $19k - now we are about to realize some income! Since you bought it for $15k and sold for $19k, you earned an income of the difference, or $4k. Your income wasn’t $19k, because you originally put $15k in cash into the car. That cash was already saved from income you made in the past, and it is not counted again as income in this sale. Because you did not work for this new car sale income, but it was derived from asset growth, the income is called capital gains. You invested your capital ($15k) into the asset (car), and that asset appreciated. When you sold it, you received capital (money) back in exchange for that asset. The capital you received is more than what you invested, which is to say you gained $4k of capital by investing in and then selling your asset (car). Because you held the car for two years, you qualify for lower long term capital gains tax rate on that $4k. Had you sold it after year 1, you would’ve paid your regular normal income tax rate on those capital gains. Either way, you owe the tax when you sell the asset, not when it appreciates. I’m sure you realize this already, but if we change the car to amazon stock in my story, this is exactly how it works with investors. The author gets several things wrong 1 - amazon profits are not passed through to shareholders for income tax purposes. If amazon paid dividends, those dividends would be taxed at payout at the long term capital gains rate, and they would be paid out of cash amazon has left after it already paid corporate taxes on profits. Amazon has decided they can add more value to investors by using cash to grow instead of paying dividends. When the investors sell the stock, they will owe capital gains on the growth of that stock. If amazon is correct that using cash to grow, then investors will effectively pay more when they sell the stock than they would pay today if dividends were paid. 2 - asset appreciation is not income. Those investors will realize the income when they sell the stock, and they will pay the tax then. 3 - he is missing the point entirely on why amazon runs a low profit or how business strategy translates into financials. Low prices are not a function of low profitability. Low profitability could be an adverse result of low pricing, but being low profit in order to be low price is a ridiculous and failing strategy. Amazon’s low pricing is a function of their unparalleled buying power, unparalleled consumer and product data, amazing logistics prowess, clever loyalty programs like amazon prime, and many other brilliant things they’ve done. Their low profitability is a function of their investment in things like amazon fresh, amazon Alexa, drone delivery, automated convenience stores, building out cloud computing infrastructure, and many other R&D projects, $4 billion in original content spending for amazon prime video, and all kinds of expenditures years ahead of when they become profitable. By the time consumers want it, amazon already built it three years ago - this is the power of amazon. Sometimes multi billion dollar experiments fail, and all that money was for nothing. Sometimes they lose money for a few years and then become the infrastructure that runs a third of the internet. Amazon does not let fear of failure stop them, they invest in growth with their cash. This is how Bezos thinks - how do we build the future, not how can I avoid tax I do need to make a disclaimer here - there could be special tax treatment of classic cars that makes my example not work. Also classic cars may not appreciate in value. I don’t know anything about classic cars, I just picked a politically neutral thing to put in my story and made some assumptions to illustrate how capital gains work. My story is definitely how stocks work, and probably cars, but I just want to point out that I don’t know shit about car collecting."
},
{
"docid": "283971",
"title": "",
"text": "Those are some very broad questions and I don't think I can answer them completely, but I will add what I can. Barron's Finance and Investment Handbook is the best reference book I have found. It provides a basic description/definition for every type of investment available. It covers stocks, preferred stocks, various forms of bonds as well as mortgage pools and other exotic instruments. It has a comprehensive dictionary of finance terms as well. I would definitely recommend getting it. The question about how people invest today is a huge one. There are people who simply put a monthly amount into a mutual fund and simply do that until retirement on one side and professional day traders who move in and out of stocks or commodities on a daily basis on the other."
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "206505",
"title": "",
"text": "Regardless of how long the mortgage has left, the return you get on prepayments is identical to the mortgage rate. (What happens on your tax return is a different matter.) It's easier to get a decent financial calculator (The TI BA-35 is my favorite) than to construct spreadsheets which may or may not contain equation errors. When I duplicate John's numbers, $100K mortgage, 4% rate, I get a 60 mo remaining balance of 90,447.51 and with $50 extra, $87132.56, a diff of $3314.95. $314.95 return on the $3000. $315 over 5yrs is $63/yr, over an average $1500 put in, 63/1500 = 4.2%. Of course the simple math of just averaging the payment creates that .2% error. A 60 payment $50 returning $314.95 produces 4.000%. @Peter K - with all due respect, there's nothing for me about time value of money calculations that can be counter-intuitive. While I like playing with spreadsheets, the first thing I do is run a few scenarios and double check using the calculator. Your updated sheet is now at 3.76%? A time vaule of money calculation should not have rounding errors that larger. It's larger than my back of envelope calculation. @Kaushik - if you don't need the money, and would buy a CD at the rate of your mortgage, then pay early. Nothing wrong with that."
},
{
"docid": "75097",
"title": "",
"text": "From Chase FAQ it looks like this is a regular ACH transfer. ACH transactions can be reversed under certain conditions. I haven't been able to find some authoritative link on this, so I suggest this (thenest.com budgeting blog) instead: Allowed Reasons You can have ACH transactions reversed for one of three reasons under the rules: wrong money amount, wrong account or duplicated transactions. For example, if your mortgage bill is for $756.00, but your lender's website messes up and you're charged $856.00, the transaction is reversible it because it's the wrong dollar amount. If the website charges you $756.00 twice, the second duplicated transaction is reversible. Reversal Procedures You might have to bring a mistake to the originator's attention to get it fixed. Only the originator -- the person or company taking or sending money -- can ask for a reversal. For example, if you have a transaction for a wrong dollar amount from your lender's website, the originator is the lender. An originator is supposed to send the reversal within 24 hours of the error's discovery and within five banking days of the original transaction. When a reversal is required because of a wrong amount or wrong account, the originator must send a correcting entry with the right information. Bank's Responsibility A bank should honor an ACH reversal, even if it means debiting a customer's account again because of a correcting transaction. However, the bank doesn't have to debit your account if you closed it or the new transaction would overdraw it. Your bank does have to tell you if a correcting entry is going to take money out of your account, but the bank doesn't need your permission to do it."
},
{
"docid": "63296",
"title": "",
"text": "\"If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable. Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. \"\"But wait,\"\" you say, \"\"that's not the same - my net worth has decreased!\"\" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, \"\"no we're not done, we're still building our business!\"\". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market.\""
},
{
"docid": "160170",
"title": "",
"text": "What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:"
},
{
"docid": "451276",
"title": "",
"text": "How do you manage things like right of way? Duplication of services etc? Are we to assume that all actors will build in good faith and allow all to access these pieces of infrastructure. What happens if we clog up all the first few meters of underground with network cable and the one water company needs to upgrade piping to meet population needs? Who co-ordinates all these kinds of things to ensure it works well? How are these people paid? Where do their interests lie? In the event of a big highway project tearing through a neighborhood who represents the people of the neighborhood and ensures their interests are heard as well? What about public services that are in no way profitable for a company to run or manage? I would love to just let the perfect free market reign however it completely ignores all kinds of physical and logistic realities."
},
{
"docid": "456389",
"title": "",
"text": "\"Scenario 1: Assume that you plan to keep the parking space for the rest of your life and collect the income from the rental. You say these spaces rent for $250 per month and there are fees of $1400 per year. Are there any other costs? Like would you be responsible for the cost of repaving at some point? But assuming that's covered in the $1400, the net profit is 250 x 12 - 1400 = $1600 per year. So now the question becomes, what other things could you invest your money in, and what sort of returns do those give? If, say, you have investments in the stock market that are generating a 10% annual return and you expect that rate of return to continue indefinitely, than if you pay a price that gives you a return of less than 10%, i.e. if you pay more than $16,000, then you would be better off to put the money in the stock market. That is, you should calculate the fair price \"\"backwards\"\": What return on investment is acceptable, and then what price would I have to pay to get that ROI? Oh, you should also consider what the \"\"occupancy rate\"\" on such parking spaces is. Is there enough demand that you can realistically expect to have it rented out 100% of the time? When one renter leaves, how long does it take to find another? And do you have any information on how often renters fail to pay the rent? I own a house that I rent out and I had two tenants in a row who failed to pay the rent, and the legal process to get them evicted takes months. I don't know what it takes to \"\"evict\"\" someone from a parking space. Scenario 2: You expect to collect rent on this space for some period of time, and then someday sell it. In that case, there's an additional piece of information you need: How much can you expect to get for this property when you sell it? This is almost surely highly speculative. But you could certainly look at past pricing trends. If you see that the value of a parking space in your area has been going up by, whatever, say 4% per year for the past 20 years, it's reasonable to plan on the assumption that this trend will continue. If it's been up and down and all over the place, you could be taking a real gamble. If you pay $30,000 for it today and when the time comes to sell the best you can get is $15,000, that's not so good. But if there is some reasonable consistent average rate of growth in value, you can add this to the expected rents. Like if you can expect it to grow in value by $1000 per year, then the return on your investment is the $1600 in rent plus $1000 in capital growth equals $2600. Then again do an ROI calculation based on potential returns from other investments.\""
},
{
"docid": "30887",
"title": "",
"text": "\"First, I'd like to congratulate you on your financial discipline in paying off your loans and living well within your means. I have friends who make more than twice your salary with similar debt obligations, and they barely scrape by month to month. If we combine your student loan debt and unallocated income each month, we get about $1,350. You say that $378 per month is the minimum payment for your loans, which have an average interest rate of about 3.5%. Thus, you have about $1,350 a month to \"\"invest.\"\" Making your loan payments is basically the same as investing with the same return as the loan interest rate, when it comes down to it. An interest rate of 3.5% is...not great, all things considered, and barely above inflation. However, that's a guaranteed return of 3.5%, more or less like a bond. As noted previously, the stock market historically averages 10% before inflation over the long run. The US stock market is right around its historic high at this point (DJIA is at 20,700 today, April 6th, 2017 - historic high hit just over 21,000 on March 1, 2017). Obviously, no one can predict the future, but I get the feeling that a market correction may be in order, especially depending on how things go in Washington in the next weeks or months. If that's the case (again, we have no way of knowing if it is), you'd be foolish to invest heavily in any stocks at this point. What I would do, given your situation, is invest the $1,350/month in a \"\"portfolio\"\" that's 50/50 stocks and \"\"bonds,\"\" where the bonds here are your student loans. Here, you have a guaranteed return of ~3.5% on the bond portion, and you can still hedge the other 50% on stocks continuing their run (and also benefiting from dividends, capital gains, etc. over time). I would apply the extra loan payments to the highest-interest loan first, paying only the minimum to the others. Once the highest-interest loan is paid off, move onto the next one. Once you have all your loans paid off, your portfolio will be pretty much 100% stocks, at which point you may want to add in some actual bonds (say a 90/10 or 80/20 split, depending on what you want). I'm assuming you're pretty young, so you still have plenty of time to let the magic of compounding interest do its work, even if you happen to get into the market right before it drops (well, that, and the fact that you won't really have much invested anyway). Again, let me stress that neither I nor anyone else has any way of knowing what will happen with the market - I'm just stating my opinion and what my course of action would be if I were in your shoes.\""
},
{
"docid": "228488",
"title": "",
"text": "You say you have 90% in stocks. I'll assume that you have the other 10% in bonds. For the sake of simplicity, I'll assume that your investments in stocks are in nice, passive indexed mutual funds and ETFs, rather than in individual stocks. A 90% allocation in stocks is considered aggressive. The problem is that if the stock market crashes, you may lose 40% or more of your investment in a single year. As you point out, you are investing for the long term. That's great, it means you can rest easy if the stock market crashes, safe in the hope that you have many years for it to recover. So long as you have the emotional willpower to stick with it. Would you be better off with a 100% allocation in stocks? You'd think so, wouldn't you. After all, the stock market as a whole gives better expected returns than the bond market. But keep in mind, the stock market and the bond market are (somewhat) negatively correlated. That means when the stock market goes down, the bond market often goes up, and vice versa. Investing some of your money in bonds will slightly reduce your expected return but will also reduce your standard deviation and your maximum annual loss. Canadian Couch Potato has an interesting write-up on how to estimate stock and bond returns. It's based on your stocks being invested equally in the Canadian, U.S., and international markets. As you live in the U.S., that likely doesn't directly apply to you; you probably ignore the Canadian stock market, but your returns will be fairly similar. I've reproduced part of that table here: As you can see, your expected return is highest with a 100% allocation in stocks. With a 20 year window, you likely can recover from any crash. If you have the stomach for it, it's the allocation with the highest expected return. Once you get closer to retirement, though, you have less time to wait for the stock market to recover. If you still have 90% or 100% of your investment in stocks and the market crashes by 44%, it might well take you more than 6 years to recover. Canadian Couch Potato has another article, Does a 60/40 Portfolio Still Make Sense? A 60/40 portfolio is a fairly common split for regular investors. Typically considered not too aggressive, not too conservative. The article references an AP article that suggests, in the current financial climate, 60/40 isn't enough. Even they aren't recommending a 90/10 or a 100/0 split, though. Personally, I think 60/40 is too conservative. However, I don't have the stomach for a 100/0 split or even a 90/10 split. Okay, to get back to your question. So long as your time horizon is far enough out, the expected return is highest with a 100% allocation in stocks. Be sure that you can tolerate the risk, though. A 30% or 40% hit to your investments is enough to make anyone jittery. Investing a portion of your money in bonds slightly lowers your expected return but can measurably reduce your risk. As you get closer to retirement and your time horizon narrows, you have less time to recover from a stock market crash and do need to be more conservative. 6 years is probably too short to keep all your money in stocks. Is your stated approach reasonable? Well, only you can answer that. :)"
},
{
"docid": "120297",
"title": "",
"text": "How do you find good quality dividend stocks? That is an easy one. Past performance has always been my key to this answer. also remember why you are investing in the first place. Do you want cash flow, security or capital growth. Also let's not forget... how much time do you want to devote to this venture. There is going to be a balance in your investing and your returns. More time in... the higher returns you get. As for finding good dividend stocks, look to the Dividend Aristocrats or the Dividend Contenders. These companies have consistently increased their payouts to their investors for years. There is a trading strategy that could escalate your returns. Dividend Capturing, simply put... You buy the stock before the ex-date and sell after date of record. Thus collecting a dividend and moving on to the next one. Warning: though this is a profitable strategy, it only works with certain stocks so do your research or find a good source."
},
{
"docid": "331008",
"title": "",
"text": "\"I would like to first point out that there is nothing special about a self-managed investment portfolio as compared to one managed by someone else. With some exceptions, you can put together exactly the same investment portfolio yourself as a professional investor could put together for you. Not uncommonly, too, at a lower cost (and remember that cost is among the, if not the, best indicator(s) of how your investment portfolio will perform over time). Diversification is the concept of not \"\"putting all your eggs in one basket\"\". The idea here is that there are things that happen together because they have a common cause, and by spreading your investments in ways such that not all of your investments have the same underlying risks, you reduce your overall risk. The technical term for risk is generally volatility, meaning how much (in this case the price of) something fluctuates over a given period of time. A stock that falls 30% one month and then climbs 40% the next month is more volatile than one that falls 3% the first month and climbs 4% the second month. The former is riskier because if for some reason you need to sell when it is down, you lose a larger portion of your original investment with the former stock than with the latter. Diversification, thus, is reducing commonality between your investments, generally but not necessarily in an attempt to reduce the risk of all investments moving in the same direction by the same amount at the same time. You can diversify in various ways: Do you see where I am going with this? A well-diversed portfolio will tend to have a mix of equity in your own country and a variety of other countries, spread out over different types of equity (company stock, corporate bonds, government bonds, ...), in different sectors of the economy, in countries with differing growth patterns. It may contain uncommon classes of investments such as precious metals. A poorly diversified portfolio will likely be restricted to either some particular geographical area, type of equity or investment, focus on some particular sector of the economy (such as medicine or vehicle manufacturers), or so on. The poorly diversified portfolio can do better in the short term, if you time it just right and happen to pick exactly the right thing to buy or sell. This is incredibly hard to do, as you are basically working against everyone who gets paid to do that kind of work full time, plus computer-algorithm-based trading which is programmed to look for any exploitable patterns. It is virtually impossible to do for any real length of time. Thus, the well-diversified portfolio tends to do better over time.\""
},
{
"docid": "144824",
"title": "",
"text": "There are not as many options here as you fear. If you have no other investments outside this 401K it is even easier. Outside accounts include IRA, Roth IRA, taxable investments (mutual funds, ETF, individual stocks), Employee stock purchase plans. Amount: make sure you put enough in to get all the company match. I assume that in your case the 9% will do so, but check your documents. The company match will be with pre-tax funds. Roth vs Regular 401K? Most people in their lifetime will need a mix of Roth and Regular retirement accounts. You need to determine if it is better for you to pay the tax on your contributions now or later. Which accounts? If you are going to invest in a target date fund, you can ignore the rest of the options. The target date fund is a mixture of investments that will change over the decades. Calculate which one fits your expected retirement date and go with it. If you want to be able to control the mix, then you will need to pick several funds. The selection depends on what non-401K investments you have. Now here is what I considered the best advice. Decide Roth or regular, and just put the money into the most appropriate target date fund with the Roth/regular split you want. Then after the money starts flowing into your account, research the funds involved, the fees for those funds, and how you want to invest. Then move the money into the funds you want. Don't waste another day deciding how to invest. Just get started. The best part of a 401K, besides the match, is that you can move money between funds without worrying about taxes. If you realize that you want to put extra emphasis on the foreign stocks, or Mid-cap; just move the funds and redirect future contributions."
}
] |
8874 | When can you adjust for (and re-allow) a disallowed year-end (December) wash-sale loss? | [
{
"docid": "403025",
"title": "",
"text": "Disallowed losses are created when you buy a stock */- 30 days of a sale at a loss. When you sell and have no shares left, the loss is taken. You can't have no shares and leftover disallowed loss."
}
] | [
{
"docid": "34810",
"title": "",
"text": "\"I'm going to look just at purchase price. Essentially, you can't always claim the whole of the purchase price (or 95% your case) in the year (the accounting period) of purchase, but you get a percentage of the value of the car each year, called writing down allowance, which is a capital allowance. It is similar to depreciation, but based on HRMC's own formula. In fact, it seems you probably can claim 95% of the purchase price, because the value is less than £1000. The logic is a bit involved, but I hope you can understand it. You could also claim simplified expenses instead, which is just based on a rate per mile, but you can't claim both. Note, by year I mean whatever your account period is. This could be the normal financial year, but you would probably have a better idea about this. See The HMRC webpage on this for more details. The big idea is that you record the value of any assets you are claiming writing down allowance on in one of a number of pools, that attract the same rate of writing down allowance, so you don't need to record the value of each asset separately. They are similar to accounts in accounting, so they have an opening balance, and closing balance. If you use an asset for personal use, it needs a pool to itself. HRMC call that a single asset pool. So, to start with, look at the Business Cars section, and look at the Rates for Cars section, to determine the rate you can claim. Each one links to a further article, which gives more detail if you need it. Your car is almost certainly in the special rate category. Special rate is 8% a year, main rate is 18%, and First year allowance is essentially 100%. Then, you look at the Work out what you can claim article. That talks you through the steps. I'll go through your example. You would have a pool for your car, which would end the account period before you bought the vehicle at zero (step 1). You then add the value of the car in the period you bought it (Step 2). You would reduce the value of the pool if you dispose of it in the same year (Step 3). Because the car is worth less than £1,000 (see the section on \"\"If you have £1,000 or less in your pool\"\"), you would normally be able to claim the whole value of the pool (the value of the car) in the first accounting period, and reduce the value of the pool to zero. As you use the car for personal use, you only claim 95% of the value, but still reduce the pool to zero. See the section on \"\"Items you use outside your business\"\". This £1000 is adjusted if your accounting period lasts more or less than 12 months. Once the pool is down to zero that it you don't need to think about it any more for tax purposes, apart from if you are claiming other motoring expenses, or if you sell it. It gets more complicated if the car is more expensive. I'll go through an example for a car worth £2,000. Then, after Step 3, on the year of purchase, you would reduce the value of the pool by 8%, and claim 95% of the reduction. This would be a 160 reduction, and 95%*160 = 152 claim, leaving the value of 1860 in the pool. You then follow the same steps for the next year, start with 1840 in the pool, reduce the value by 8%, then claim 95% of the reduction. This continues until you sell or dispose of the car (Step 3), or the value of the pool is 1000 or less, then you claim all of it in that year. Selling the car, or disposing of the car is discussed in the Capital allowances when you sell an asset article. The basic idea is that if you have already reduced the value of the pool to zero, the price you sell the car for is added you your profits for that year (See \"\"If you originally claimed 100% of the item\"\"), if you still have anything in the pool, you reduce the value of the pool by the sale value, and if it reduces to below zero (to -£200, say), you add that amount (£200, in this case), to your profits. If the value is above zero, you keep applying writing down allowances. In your case, that seems to just means if you sell the car in the same year you buy it, you claim the difference (or 95% of it) as writing down allowance, and if you do it later, you claim the purchase price in the year of purchase, and add 95% of the sale price to your profits in the year you sell it. I'm a bit unclear about starting \"\"to use it outside your business\"\", which doesn't seem to apply if you use it outside the business to start with. You can claim simplified expenses for vehicles, if you are a sole trader or partner, but not if you claim capital allowances (such as writing down allowances) on them, or you include a separate expense in your accounts for motoring expenses. It's a flat rate of 45p a mile for the first 10,000 miles, and 25p per mile after that, for cars, and 24p a mile for motorcycles. See the HRMC page on Simplifed Mileage expenses for details. For any vehicle you decide to either claim capital allowances claim running costs separately, or claim simplified mileage expenses, and \"\"Once you use the flat rates for a vehicle, you must continue to do so as long as you use that vehicle for your business.you have to stick with that decision for that vehicle\"\". In your case, it seems you can claim 95% of the purchase price in the accounting period you buy it, and if you sell it you add 95% of the sale price to your profits in that accounting period. It gets more complicated if you have a car worth more than £1000, adjusted for the length of the accounting period. Also, if you change how you use it, consult the page on selling selling an asset, as you may have disposed of it. You can also use simplified mileage expenses, but then you can't claim capital allowances, or claim running costs separately for that car. I hope that makes sense, please comment if not, and I'll try to adjust the explanation.\""
},
{
"docid": "571124",
"title": "",
"text": "\"According to Wikipedia this is still a wash sale: In the USA wash sale rules are codified in \"\"26 USC § 1091 - Loss from wash sales of stock or securities.\"\" Under Section 1091, a wash sale occurs when a taxpayer sells or trades stock or securities at a loss, and within 30 days before or after the sale:\""
},
{
"docid": "299211",
"title": "",
"text": "\"-Alain Wertheimer I'm a hobbyist... Most (probably all) of those older items were sold both prior to my establishing the LLC This is a hobby of yours, this is not your business. You purchased all of these goods for your pleasure, not for their future profit. The later items that you bought after your LLC was establish served both purposes (perks of doing what you love). How should I go about reporting this income for the items I don't have records for how much I purchased them for? There's nothing you can do. As noted above, these items (if you were to testify in court against the IRS). \"\"Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.\"\" Source Do I need to indicate 100% of the income because I can't prove that I sold it at a loss? Yes, if you do not have previous records you must claim a 100% capital gain. Source Addition: As JoeTaxpayer has mentioned in the comments, the second source I posted is for stocks and bonds. So at year begin of 2016, I started selling what I didn't need on eBay and on various forums [January - September]. Because you are not in the business of doing this, you do not need to explain the cost; but you do need to report the income as Gross Income on your 1040. Yes, if you bought a TV three years ago for a $100 and sold it for $50, the IRS would recognize you earning $50. As these are all personal items, they can not be deducted; regardless of gain or loss. Source Later in the year 2016 (October), I started an LLC (October - December) If these are items that you did not record early in the process of your LLC, then it is reported as a 100% gain as you can not prove any business expenses or costs to acquire associated with it. Source Refer to above answer. Refer to above answer. Conclusion Again, this is a income tax question that is split between business and personal use items. This is not a question of other's assessment of the value of the asset. It is solely based on the instruments of the IRS and their assessment of gains and losses from businesses. As OP does not have the necessary documents to prove otherwise, a cost basis of $0 must be assumed; thus you have a 100% gain on sale.\""
},
{
"docid": "385071",
"title": "",
"text": "PCI requires that any Point of Sale is receiving patches & security updates. XP has been end of life'd since 2014. Its close cousin, POSReady 2009, will be supported through April 2019. So if this XP system interacts in any way with cardholder data, it's almost certainly not PCI compliant unless Santander has some enterprise agreement to support XP past its end of life. XP and 2009 don't support TLS 1.1 or TLS 1.2, which is going to be a big deal on July 1, 2018, when PCI mandates that TLS 1.0 is disallowed."
},
{
"docid": "383532",
"title": "",
"text": "\"First of all, since you're 16 - you will not invest in anything. You cannot, you're a minor. You cannot enter contracts, and as such - you cannot transact in property. Your bank accounts are all UGMA accounts. I.e.: your guardian (or someone else who's the trustee on the account) will be the one transacting, not you. You can ask them to do trades, but they don't have to. They must make decisions in your best interest, which trades may not necessarily be. If however they decide to make trades, or earn interest, or make any other decision that results in gains - these are your gains, and you will be taxed on them. The way taxes work is that you're taxed on income. You're free to do with it whatever you want, but you're taxed on it. So if you realized gains by selling stocks, and reinvested them - you had income (the gains) which you did with whatever you felt like (reinvested). The taxman doesn't care what you did with the gains, the taxman cares that you had them. For losses it is a bit more complicated, and while you can deduct losses - there are limitations on how much you can deduct, and some losses cannot be deducted at all when realized (like wash sale losses or passive activity losses). When you have stock transactions, you will probably need to file a tax return reporting the transactions and your gains/losses on them. You may end up not paying any tax at all, but since the broker is reporting the transactions - you should too, if only to avoid IRS asking why you didn't. This, again, should be done by your guardian, since you personally cannot legally sign documents. You asked if your gains can affect your parents' taxes. Not exactly - your parents' taxes can affect you. This is called \"\"Kiddie Tax\"\" (unofficially of course). You may want read about it and take it into account when discussing your investments with your guardian/parents. If kiddie tax provisions apply to you - your parents should probably discuss it with their tax adviser.\""
},
{
"docid": "132219",
"title": "",
"text": "Calculating and adjusting cost basis accurately is a daunting task, but there is a (paid) online tool, NetBasis, which will automatically calculate and adjust your cost basis. It is used by brokerage firms and Fortune 500 companies and is available to the public. Go to netbasis.com. All you need are the purchase and sale dates and shares of the stock or mutual fund and the system has the rest of the information, such as corporate actions (splits, spin-offs, etc), pricing, and dividends and it also will apply the appropriate IRS rules for inherited and gifted shares. The regulation also gives investors the option to choose calculation methods. Not only does NetBasis automatically calculate the method you choose, it will also give the results for all options and allow you to choose the best result. NetBasis also provides you with detailed supporting documentation which shows all of the calculations and the adjustments in chronological order. NetBasis has data going back as far as 1925, so it will accurately calculate cost basis for your old American Telegraph and Telephone shares. NetBasis also handles complex investment scenarios such as wash sales, short sales, return of capital, etc. Moderator's note: Disclosure: The answerer's profile indicates they are affiliated with NetBasis."
},
{
"docid": "88575",
"title": "",
"text": "\"A mutual fund's return or yield has nothing to do with what you receive from the mutual fund. The annual percentage return is simply the percentage increase (or decrease!) of the value of one share of the mutual fund from January 1 till December 31. The cash value of any distributions (dividend income, short-term capital gains, long-term capital gains) might be reported separately or might be included in the annual return. What you receive from the mutual fund is the distributions which you have the option of taking in cash (and spending on whatever you like, or investing elsewhere) or of re-investing into the fund without ever actually touching the money. Regardless of whether you take a distribution as cash or re-invest it in the mutual fund, that amount is taxable income in most jurisdictions. In the US, long-term capital gains are taxed at different (lower) rates than ordinary income, and I believe that long-term capital gains from mutual funds are not taxed at all in India. You are not taxed on the increase in the value of your investment caused by an increase in the share price over the year nor do you get deduct the \"\"loss\"\" if the share price declined over the year. It is only when you sell the mutual fund shares (back to the mutual fund company) that you have to pay taxes on the capital gains (if you sold for a higher price) or deduct the capital loss (if you sold for a lower price) than the purchase price of the shares. Be aware that different shares in the sale might have different purchase prices because they were bought at different times, and thus have different gains and losses. So, how do you calculate your personal return from the mutual fund investment? If you have a money management program or a spreadsheet program, it can calculate your return for you. If you have online access to your mutual fund account on its website, it will most likely have a tool called something like \"\"Personal rate of return\"\" and this will provide you with the same calculations without your having to type in all the data by hand. Finally, If you want to do it personally by hand, I am sure that someone will soon post an answer writing out the gory details.\""
},
{
"docid": "479985",
"title": "",
"text": "Not sure I understand your question. If you're talking about paying off the payable, you decrease the liability and decrease an asset. Aka when you actually pay the wages, decrease cash and decrease wages payable. If you're talking about closing expense accounts, you simply credit the expense to zero and debit retained earnings for the same amount (which will reduce RE since RE is equity and has a normal credit balance). If you're talking about accruing revenue, you simply do the opposite of an expense. If revenue is accrued, then you credit a revenue account (increase it) and increase cash or acc receivable. If you're closing a revenue account, you debit the account to zero and credit Retained Earnings or Income Summary (which eventually gets closed into RE anyways). The sum of these revenues and expenses will leave you either with a debit or credit balance in RE. A credit balance means you have a profit and a debit balance means you have a loss. Other expenses like sales tax and other expenses excluding COGS might also be taken directly from RE or identified at the time of sale and held in its own separate account. But I'm not sure if this will answer your question since I'm not sure what you're asking."
},
{
"docid": "400730",
"title": "",
"text": "Yes. As long as the stock is in a taxable account (i.e. not a tax deferred retirement account) you'll pay gain on the profit regardless of subsequent purchases. If the sale is a loss, however, you'll risk delaying the claim for the loss if you repurchase identical shares within 30 days of that sale. This is called a wash sale."
},
{
"docid": "483394",
"title": "",
"text": "What might make more sense is to 'capture' your losses. Sell out the funds you have, move into something else that is different enough that the IRS won't consider it a wash sale, and you can then use those losses to offset gains (you can even carry them forward) You would still be in the market, just having made a sort of 'sideways move'. A month or two later (once you are clear of wash sale rules) you could shift back to your original choices. (this answer presumes you are in the US, or somewhere that lets you use losses to offset gains)"
},
{
"docid": "177674",
"title": "",
"text": "You add the wash sale loss to your cost basis for the other transaction so you would have two entries in your schedule d reporting 1.) Listing the $2000 loss as a wash 2.) The cost basis for your second transaction is thus $1000+$2000 = $3000 so when it was sold for $2000 you now have a reportable loss of $1000. For more information see here.... http://www.ehow.com/how_5313540_calculate-wash-sale.html"
},
{
"docid": "490176",
"title": "",
"text": "\"Individuals most definitely can have NOL. This is covered in the IRS publication 536. What is the difference between NOL and capital loss? NOL is Net Operating Loss. I.e.: a situation where your (allowable) expenses and deductions exceed your gross income. Basically it means that you have negative income for that year, for tax purposes. Capital loss occurs when the total amount of your capital gains reported on Schedule D is negative. What are their relations then? Not all expenses and deductions that you usually put on your tax return are allowed for NOL calculation. For example, capital loss is not allowed. I.e.: if you earned $2000 and you lost in stocks $3000 - you do not get a $1K NOL. Capital losses are excluded from NOL calculation and in this scenario you still have non-negative income for NOL purposes even though it is offset in full by capital loss deduction and your \"\"taxable income\"\" line is negative. The $1K that was not allowed - gets carried forward to the next year using the Capital Loss Carryover Worksheet in the instructions to Schedule D. You calculate your NOL using form 1045 schedule A. You can use the form 1045 to apply the NOL to prior 2 years, or you can elect to apply it only to future years (up to 20 years). In what cases, capital loss can be NOL? Never.\""
},
{
"docid": "11122",
"title": "",
"text": "\"Disclaimer: I am neither a lawyer nor a tax-expert This page on the HMRC site lists several pages that appear to be relevant, starting with CG78401 - Foreign currency: delayed remittances and on to CG78408 - Foreign currency: example which seems pertinent to your case [paraphrased]: A property bought in 1983 is sold for a [taxable] gain in one tax-year (1986/87) but the proceeds cannot be released/remitted to the UK until later (1991/92), by which time currency fluctuations have created a second [taxable] gain. The size of the first gain (selling the property) is determined by the exchange rate in effect at the time of the sale but because of local restrictions, this can be deferred. The size of the second gain (currency movement) is determined by the change in exchange-rate between the time of the sale and the time of conversion. In your case, the first \"\"gain\"\" was actually a loss, so I believe you should be able to use this to offset any tax due second gain. This page states that losses can be claimed up to four years after the end of the tax-year in which they were incurred, so you are probably still OK. (The example makes application under TCGA92/S279 to defer the gain made on the original sale [because of the inability to transfer funds], but as I understand it, this is primarily to avoid a tax liability in that year. Since you made a loss on the sale, there wouldn't have been a tax liability, so there would be no need to defer it).\""
},
{
"docid": "349674",
"title": "",
"text": "Does allowing family to stay at the rental jeopardize my depreciation? No, accumulated depreciation that hasn't been deducted reduces your basis in the event of sale. That doesn't go anywhere. Accumulating more may not be allowed though. If the property is no longer rental (i.e.: personal use, your family member lives there for free), you cannot claim expenses or depreciation on it. If you still rent it out to your family member, but not at the fair market value, then you can only claim expenses up to the rental income. I.e.: you can only depreciate up to the extent the depreciation (after all the expenses) not being over the income generated. You cannot generate losses in such case, even if disallowed. If you rent to your family member at the market rate (make sure it is properly documented), then the family relationship really doesn't matter. You continue accumulating expenses as usual."
},
{
"docid": "23217",
"title": "",
"text": "It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules)."
},
{
"docid": "507276",
"title": "",
"text": "\"Are these all of the taxes or is there any additional taxes over these? Turn-over tax is not for retail investors. Other taxes are paid by the broker as part of transaction and one need not worry too much about it. Is there any \"\"Income tax\"\" to be paid for shares bought/holding shares? No for just buying and holding. However if you buy and sell; there would be a capital gain or loss. In stocks, if you hold a security for less than 1 year and sell it; it is classified as short term capital gain and taxes at special rate of 15%. The loss can be adjusted against any other short term gain. If held for more than year it is long term capital gain. For stock market, the tax is zero, you can't adjust long term losses in stock markets. Will the money received from selling shares fall under \"\"Taxable money for FY Income tax\"\"? Only the gain [or loss] will be tread as income not the complete sale value. To calculate gain, one need to arrive a purchase price which is price of stock + Brokerage + STT + all other taxes. Similar the sale price will be Sales of stock - Brokerage - STT - all other taxes. The difference is the gain. Will the \"\"Dividend/Bonus/Buy-back\"\" money fall under taxable category? Dividend is tax free to individual as the company has already paid dividend distribution tax. Bonus is tax free event as it does not create any additional value. Buy-Back is treated as sale of shares if you have participated. Will the share-holder pay \"\"Dividend Distribution Tax\"\"? Paid by the company. What is \"\"Capital Gains\"\"? Profit or loss of buying and selling a particular security.\""
},
{
"docid": "511066",
"title": "",
"text": "\"For restricted stock, I think the vesting date meets the requirements of the second wash sale trigger from IRS Pub 550: Wash Sales: Acquire substantially identical stock or securities in a fully taxable trade I base this on these two quotes from IRS Pub 525: Restricted Property: any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. - Until the property becomes substantially vested, it is owned by the person who makes the transfer to you, usually your employer. So on the vest date: The transfer is taxable Ownership is transferred to you That seems close enough to \"\"a fully taxable trade\"\" for me. Maybe this changes if you pay the tax on the stock on the grant date. See Pub 525: Restricted Property: Choosing to include in income for year of transfer. Obviously, if this is important you should consult your tax advisor. Technicalities aside, I don't think it passes the sniff test. You're getting salable shares when the restricted stock vests. If you're selling other shares at a loss within 30 days of the vesting date, that smells like a wash sale to me.\""
},
{
"docid": "471602",
"title": "",
"text": "\"Agree 100 %. Nothing drives me more batty than when I hear a health food nut complaining about GMO food or \"\"chemicals\"\". I ALWAYS challenge them on it. RE GMO: \"\"Do you eat apples and bananas? Did you know farmers have been gene splicing apples and bananas since the 1800s? There has literally not been a single apple sold in stores since the early 1900s that is not spliced. All of those Apple\"\" varieties\"\" in the store are a result of splicing over the years, including your overpriced \"\"organic\"\" ones. RE \"\"chemicals\"\" like ammonia: \"\"Ammonia is 100% natural. Your own body produces ammonia all the time, as do all other mammals. You can find ammonia residue on most fruits and vegetables in the grocery store that haven't yet been thoroughly washed (read: almost all, including organic) Most all chemicals are found in nature. Water itself is a chemical and can kill you if ingested beyond normal guidelines. When consumed according to guidelines there is no difference between one chemical and another, like water. Show me the science behind your concern, don't try to frighten people with the word \"\"chemicals\"\" which is meaningless.\""
},
{
"docid": "347946",
"title": "",
"text": "\"To answer your question briefly: net income is affected by many things inside and outside of management control, and must be supplemented by other elements to gain a clear picture of a company's health. To answer your question in-depth, we must look at the history of financial reporting: Initially, accounting was primarily cash-based. That is, a business records a sale when a customer pays them cash, and records expenses when cash goes out the door. This was not a perfectly accurate system, as cashflow might be quite erratic even if sales are stable (collection times may differ, etc.). To combat problems with cash-based accounting, financial reporting moved to an accrual-based system. An accrual is the recording of an item before it has fully completed in a cash transaction. For example, when you ship goods to a customer and they owe you money, you record the revenue - then you record the future collection of cash as a balance sheet item, rather than an income statement item. Another example: if your landlord charges you rent on December 31st for the past year, then in each month leading up to December, you accrue the expense on the income statement, even though you haven't paid the landlord yet. Accrual-based accounting leaves room for accounting manipulation. Enron is a prime example; among other things, they were accruing revenue for sales that had not occurred. This 'accelerated' their income, by having it recorded years before cash was ever collectible. There are specific guidelines that restrict doing things like this, but management will still attempt to accelerate net income as much as possible under accounting guidelines. Public companies have their financial statements audited by unrelated accounting firms - theoretically, they exist to catch material misstatements in the financial statements. Finally, some items impacting profit do not show up in net income - they show up in \"\"Other Comprehensive Income\"\" (OCI). OCI is meant to show items that occurred in the year, but were outside of management control. For example, changes in the value of foreign subsidiaries, due to fluctuations in currency exchange rates. Or changes in the value of company pension plan, which are impacted by the stock market. However, while OCI is meant to pick up all non-management-caused items, it is a grey area and may not be 100% representative of this idea. So in theory, net income is meant to represent items within management control. However, given the grey area in accounting interpretation, net income may be 'accelerated', and it also may include some items that occurred by some 'random business fluke' outside of company control. Finally, consider that financial statements are prepared months after the last year-end. So a company may show great profit for 2015 when statements come out in March, but perhaps Jan-March results are terrible. In conclusion, net income is an attempt at giving what you want: an accurate representation of the health of a company in terms of what is under management control. However it may be inaccurate due to various factors, from malfeasance to incompetence. That's why other financial measures exist - as another way to answer the same question about a company's health, to see if those answers agree. ex: Say net income is $10M this year, but was only $6M last year - great, it went up by $4M! But now assume that Accounts Receivable shows $7M owed to the company at Dec 31, when last year there was only $1M owed to the company. That might imply that there are problems collecting on that additional revenue (perhaps revenue was recorded prematurely, or perhaps they sold to customers who went bankrupt). Unfortunately there is no single number that you can use to see the whole company - different metrics must be used in conjunction to get a clear picture.\""
}
] |
8934 | Dividend yield for multiple years? | [
{
"docid": "244334",
"title": "",
"text": "I've recently discovered that Morningstar provides 5yr avgs of a few numbers, including dividend yield, for free. For example, see the right-hand column in the 'Current Valuation' section, 5th row down for the 5yr avg dividend yield for PG: http://financials.morningstar.com/valuation/price-ratio.html?t=PG®ion=usa&culture=en-US Another site that probably has this, and alot more, is YCharts. But that is a membership site so you'll need to join (and pay a membership fee I believe.) YCharts is supposedly pretty good for long-term statistical information and trend graphs for comparing and tracking stocks."
}
] | [
{
"docid": "327556",
"title": "",
"text": "\"You are asking multiple questions here, pieces of which may have been addressed in other questions. A bond (I'm using US Government bonds in this example, and making the 'zero risk of default' assumption) will be priced based on today's interest rate. This is true whether it's a 10% bond with 10 years left (say rates were 10% on the 30 yr bond 20 years ago) a 2% bond with 10 years, or a new 3% 10 year bond. The rate I use above is the 'coupon' rate, i.e. the amount the bond will pay each year in interest. What's the same for each bond is called the \"\"Yield to Maturity.\"\" The price adjusts, by the market, so the return over the next ten years is the same. A bond fund simply contains a mix of bonds, but in aggregate, has a yield as well as a duration, the time-and-interest-weighted maturity. When rates rise, the bond fund will drop in value based on this factor (duration). Does this begin to answer your question?\""
},
{
"docid": "182057",
"title": "",
"text": "\"> If the stock price goes down it wouldn't make sense that ABC had a higher dividend yield, so my argument was you have to make assume the stock price went down because it could have cost less for other reasons, but you don't have to assume the dividend yield which would make it a good investment. I'm not sure I understand your argument. The wording doesn't seem clear to me (\"\"you have to make assume\"\"? make assume? \"\"but you don't have to assume the dividend yield\"\" assume it what?) Dividend yield has a negative correlation with stock price. If price goes down, all else being equal, yield rises.\""
},
{
"docid": "191006",
"title": "",
"text": "\"Historically that 'divide by 1000' rule of thumb is what many people in Australia have thought of as normal, and yes, it's about a 5.2% gross yield. Net of expenses, perhaps 3-4%, without allowing for interest. If you're comparing this to shares, I think the right comparison is to the dividend yield, not to the overall PE. A dividend yield of about 3-5% is also about typical: if you look at the Vanguard Index Australian Shares Fund as a proxy for the ASX the yield last year was about 4%. Obviously a 4% return is not very competitive with a term deposit. But with both shares and housing you can hope for some capital growth in addition to the income yield. If you get 4% rental yield plus 5% growth it is more attractive. Is it \"\"good\"\" to buy at what people have historically thought was \"\"normal\"\"? Perhaps you are better off looking around, or sitting out, until you find a much better price than normal. \"\"Is 5% actually historically normal?\"\" deserves a longer answer.\""
},
{
"docid": "15785",
"title": "",
"text": "Price doesn't mean anything. Price is simply total value (market capitalization) divided by number of shares. Make sure you consider historical dividends when hunting for big yields. It's very possible that the data you're pulling is only the annualized yield on the most recent dividend payment. Typically dividends are declared in dollar terms. The total amount of the dividend to be issued is then divided by the number of shares and paid out. Companies rarely (probably never but rarely to avoid the peanut gallery comments about the one company that does this) decide dividend payments based on some proportion of the stock price. Between company A and company B paying approximately the same historical yield, I'd look at both companies to make sure neither is circling the tank. If both look strong, I'd probably buy a bit of both. If one looks terrible buy the other one. Don't pick based on the price."
},
{
"docid": "378508",
"title": "",
"text": "You might want to look up Dividend Yield Trap. Many stocks with high dividend yields got that way not because they decided to increase their dividend, but because their prices have dropped. Usually the company is not in good shape and will reduce their dividend, and you're stuck with a low-yield stock which has also decreased in price."
},
{
"docid": "163354",
"title": "",
"text": "Victor, Yes the drop in price does completely cancel the dividend at first. However, as others have noted, there are other forces working on the price as well. If dividends were pointless then the following scenario would be true: Let's assume, hypothetically, two identical stocks, only one of which pays a 2% annual dividend quarterly. At the end of the year we would expect the share price of the dividend stock to be 2% lower than the non-dividend stock. And an equal investment in both stocks would yield exactly the same amount of money. So that is a hypothetical, and here is real market example: I compared, i.e. took the ratio of Vanguard's S&P 500 ETF (VOO) closing price to the S&P 500 Index closing price from sep 9, (2010-2014), after accounting for the VOO 2013 split. The VOO pays a quarterly dividend(about 2%/year), the S&P is an index, hence no dividend. The VOO share price, reduced each quarter by the dividend, still grew more than the S&P each year except 2012 to 2013, but looking at the entire 4yr period the VOO share price grew 80.3987% while S&P grew 80.083% (1/3 of 1% more for VOO). VOO does drop about 1/2% relative to S&P on every ex date, but obviously it makes it up. There are other forces working on VOO. VOO is trade-able, therefore subject to supply/demand pressures, while the S&P 500 is not. So for the VOO ETF the data does not indicate pointless dividends but instead implies dividends are free money. StockCharts.com supports this. S&P500 for last 1244 days (9/8/2010) shows 90% growth http://stockcharts.com/freecharts/perf.php?%24SPX while VOO for last 1244 days shows 105% growth http://stockcharts.com/freecharts/perf.php?VOO"
},
{
"docid": "594959",
"title": "",
"text": "\"I can think of one major income source you didn't mention, dividends. Rather than withdrawing from your pension pot, you can roll it over to a SIPP, invest it in quality dividend growth stocks, then (depending on your pension size) withdraw only the dividends to live on. The goal here is that you buy quality dividend growth stocks. This will mean you rarely have to sell your investments, and can weather the ups and downs of the market in relative comfort, while using the dividends as your income to live off of. The growth aspect comes into play when considering keeping up with inflation, or simply growing your income. In effect, companies grow the size of their dividend payments and you use that to beat the effects of inflation. Meanwhile, you do get the benefit of principle growth in the companies you've invested in. I don't know the history of the UK stock market, but the US market has averaged over 7% total return (including dividends) over the long term. A typical dividend payout is not much better than your annuity option though -- 3% to 4% is probably achievable. Although, looking at the list of UK Dividend Champion list (companies that have grown their dividend for 25 years continuous), some of them have higher yields than that right now. Though that might be a warning sign... BTW, given all the legal changes around buy-to-lets recently (increases stamp duty on purchase, reduction in mortgage interest deduction, increased paperwork burden due to \"\"right to rent\"\" laws, etc.) you want to check this carefully to make sure you're safe on forecasting your return.\""
},
{
"docid": "235391",
"title": "",
"text": "\"In a sentence, stocks are a share of equity in the company, while bonds are a share of credit to the company. When you buy one share of stock, you own a (typically infinitesimal) percentage of the company. You are usually entitled to a share of the profits of that company, and/or to participate in the business decisions of that company. A particular type of stock may or may not pay dividends, which is the primary way companies share profits with their stockholders (the other way is simply by increasing the company's share value by being successful and thus desirable to investors). A stock also may or may not allow you to vote on company business; you may hear about companies buying 20% or 30% \"\"interests\"\" in other companies; they own that percentage of the company, and their vote on company matters is given that same weight in the total voting pool. Typically, a company offers two levels of stocks: \"\"Common\"\" stock usually has voting rights attached, and may pay dividends. \"\"Preferred\"\" stock usually gives up the voting rights, but pays a higher dividend percentage (maybe double or triple that of common stock) and may have payment guarantees (if a promised dividend is missed in one quarter and then paid in the next, the preferred stockholders get their dividend for the past and present quarters before the common shareholders see a penny). Governments and non-profits are typically prohibited from selling their equity; if a government sold stock it would basically be taxing everyone and then paying back stockholders, while non-profit organizations have no profits to pay out as dividends. Bonds, on the other hand, are a slice of the company's debt load. Think of bonds as kind of like a corporate credit card. When a company needs a lot of cash, it will sell bonds. A single bond may be worth $10, $100, or $1000, depending on the investor market being targeted. This is the amount the company will pay the bondholder at the end of the term of the bond. These bonds are bought by investors on the open market for less than their face value, and the company uses the cash it raises for whatever purpose it wants, before paying off the bondholders at term's end (usually by paying each bond at face value using money from a new package of bonds, in effect \"\"rolling over\"\" the debt to the next cycle, similar to you carrying a balance on your credit card). The difference between the cost and payoff is the \"\"interest charge\"\" on this slice of the loan, and can be expressed as a percentage of the purchase price over the remaining term of the bond, as its \"\"yield\"\" or \"\"APY\"\". For example, a bond worth $100 that was sold on Jan 1 for $85 and is due to be paid on Dec 31 of the same year has an APY of (15/85*100) = 17.65%. Typically, yields for highly-rated companies are more like 4-6%; a bond that would yield 17% is very risky and indicates a very low bond rating, so-called \"\"junk status\"\".\""
},
{
"docid": "286267",
"title": "",
"text": "\"Indeed, the correlation has been across all stocks and even branching out to other asset classes on a lot of days. As a sort of \"\"hedge\"\" I like to use high yielding dividend stocks as my trading vehicles. If all stocks are going to trade in tandem I may as well have downside protection built in. Dividends do that. I gain from a churning market and if I get the macro wrong then I can double or even triple down for the div yield. I like it...so far no holes in the plan have formed up. Been working well for a couple of years. As far as the macro I think the correlation to the euro will break if Italy gets past its late January '12 auction. My whole thesis falls apart if that auction does not snap the capital markets like a twig. I'd have to get more bullish overall. If they also get past the big Febuary auction then I think the euro will be convincingly out of the woods.\""
},
{
"docid": "62346",
"title": "",
"text": "A 20% dividend yield in most companies would make me very suspicious. Most dividend yields are in the 2-3% range right now and a 20% yield would make me worry that the company was in trouble, the stock price had crashed and the dividend was going to be cut, the company was going to go out of business or both."
},
{
"docid": "70389",
"title": "",
"text": "Is it safe to invest in a portfolio of dividend stocks yielding 7-9% with the money borrowed at 3-4% from one of these brokerages? Yes and no. It depends on your risk profile! Any investment has its risks of losing your capital, but not investing is a guaranteed risk, as you will be guaranteed to fall behind the rate of inflation. Regarding investing on margin, this can increase your gains but can also increase your loses. Regarding the stock market - when investing in stocks you should not only look at the dividend rate but also the capital gain or loss potential. Remember in regards to investing on margin, if the share price drop too much you can get a margin call no matter how much dividend you are getting. It is no use gaining 9% in dividend yield per year if you are losing 15% or more in capital each year. Also, what is the risk of the dividend rate being cut back or dividends not being paid at all in the future? These are some of the risks you should consider before investing and derive a risk management plan as part of your investment plan before you invest. No investment is totally safe or risk free, but it is less risky than not investing at all, as long as you understand the risks involved and have a risk management plan in place as part of your overall investment plan."
},
{
"docid": "435722",
"title": "",
"text": "what do you mean exactly? Do you have a future target price and projected future dividend payments and you want the present value (time discounted price) of those? Edit: The DCF formula is difficult to use for stocks because the future price is unknown. It is more applicable to fixed-income instruments like coupon bonds. You could use it but you need to predict / speculate a future price for the stock. You are better off using the standard stock analysis stuff: Learn Stock Basics - How To Read A Stock Table/Quote The P/E ratio and the Dividend yield are the two most important. The good P/E ratio for a mature company would be around 20. For smaller and growing companies, a higher P/E ratio is acceptable. The dividend yield is important because it tells you how much your shares grow even if the stock price stays unchanged for the year. HTH"
},
{
"docid": "571614",
"title": "",
"text": "\"> Firstly, comparing debt to GDP is comparing a stock to a flow, you're committing a transgression that is warned about in Econ 101. Perhaps you should learn a bit more. He's talking bonds not stocks ... and even with stocks you've got a dividend discount model for establishing fair value (sum of discounted dividend flows = fair value of the company), etc.. With regard to the size of debt, you need to consider 3 things: current interest expense (as a % of both GDP and Income (taxe revenue)), refinance cost ( change in interest expense if total debt is refinanced at current rates), and the first derivative of interest expense w.r.t. current yields. This helps one understand the probability of a \"\"death spiral\"\" such as what was experienced in Greece (et. al.) where it was *impossible* to make debt payments at refinance rates. The fact is that with US interest expenses on the debt of $450B/year this is 13.5% of all government revenue. If you factor in the interest expenses with even slightly higher yields ... one sees that you can quickly get a debt crisis. If Trump gives as large a tax cut as he has promised, it has a much higher prospect of a debt death spiral. Do the math.\""
},
{
"docid": "458345",
"title": "",
"text": "Great answers. Here's my two cents: First, don't forget to look at the overall picture, not just the dividend. Study the company's income statement, balance sheet and cash flow statement for the last few years. Make sure they have good earnings potential, and are not carrying too much debt. I know it's dull, but it's better to miss an opportunity than to buy a turkey and watch the dividends and the share price tank. I went through this with BAC (Bank of America) a couple of years ago. They had a 38-year history of rising dividends when I bought them, and the yield was about 8%. Then the banking crisis happened and the dividend went from $2.56/share to $0.04, and the price fell from $40 to $5. (I stuck with it, continuing to buy at lower and lower prices, and eventually sold them all at $12 and managed to break even, but it was not a pleasant experience) Do your homework. :) Still, one of the most reliable ways to judge a company's dividend-paying ability is to look at its dividend history. Once a company has started paying a dividend there is a strong expectation from shareholders that these payments will continue, and the company's management will try very hard to maintain them. (Though sometimes this doesn't work out, e.g. BAC) You should see an uninterrupted stream of non-decreasing payments over a period of at least 5 years (this timeframe is just a rule of thumb). Well-established, profitable companies also tend to increase their dividends over time, which has the added benefit of pushing up their share price. So you're getting increasing dividends and capital gains. Next, look at the company's payout ratio over time, and the actual cost of the dividend. Can the projected earnings cover the dividend cost without going above the payout ratio? If not, then the dividend is likely to get reduced. In the case of CIM, the dividend history is short and erratic. The earnings are also all over the place, so it's hard to predict what will happen next year. The company is up to its eyeballs debt (current ratio is .2), and its earnings have dropped by 20% in the last quarter. They have lost money in two of the last three years, even though earning have jumped dramatically. This is a very young company, and in my opinion it is too early for them to be paying dividends. A very speculative stock, and you are more likely to make money from capital gains than dividends. AAE is a different story. They are profitable, and have a long dividend history, although the dividend was cut in half recently. This may be a good to buy them hoping the dividend comes back once the economy recovers. However, they are trading at over 40 times earnings, which seems expensive, considering their low profit margins. Before investing your money, invest in your education. :) Get some books on interpretation of financial staments, and learn how to read the numbers. It's sort of like looking at the codes in The Matrix, and seeing the blonde in the red dress (or whatever it was). Good luck!"
},
{
"docid": "495600",
"title": "",
"text": "\"Question 1: How do I start? or \"\"the broker\"\" problem Get an online broker. You can do a wire transfer to fund the account from your bank. Question 2: What criticism do you have for my plan? Dividend investing is smart. The only problem is that everyone's currently doing it. There is an insatiable demand for yield, not just individual investors but investment firms and pension funds that need to generate income to fund retirements for their clients. As more investors purchase the shares of dividend paying securities, the share price goes up. As the share price goes up, the dividend yield goes down. Same for bonds. For example, if a stock pays $1 per year in dividends, and you purchase the shares at $20/each, then your yearly return (not including share price fluctuations) would be 1/20 = 5%. But if you end up having to pay $30 per share, then your yearly return would be 1/30 or 3.3% yield. The more money you invest, the bigger this difference becomes; with $100K invested you'd make about $1.6K more at 5%. (BTW, don't put all your money in any small group of stocks, you want to diversify). ETFs work the same way, where new investors buying the shares cause the custodian to purchase more shares of the underlying securities, thus driving up the price up and yield down. Instead of ETFs, I'd have a look at something called closed end funds, or CEFs which also hold an underlying basket of securities but often trade at a discount to their net asset value, unlike ETFs. CEFs usually have higher yields than their ETF counterparts. I can't fully describe the ins and outs here in this space, but you'll definately want to do some research on them to better understand what you're buying, and HOW to successfully buy (ie make sure you're buying at a historically steep discount to NAV [https://seekingalpha.com/article/1116411-the-closed-end-fund-trifecta-how-to-analyze-a-cef] and where to screen [https://www.cefconnect.com/closed-end-funds-screener] Regardless of whether you decide to buy stocks, bonds, ETFs, CEFs, sell puts, or some mix, the best advice I can give is to a) diversify (personally, with a single RARE exception, I never let any one holding account for more than 2% of my total portfolio value), and b) space out your purchases over time. b) is important because we've been in a low interest rate environment since about 2009, and when the risk free rate of return is very low, investors purchase stocks and bonds which results in lower yields. As the risk free rate of return is expected to finally start slowly rising in 2017 and gradually over time, there should be gradual downward pressure (ie selling) on the prices of dividend stocks and especially bonds meaning you'll get better yields if you wait. Then again, we could hit a recession and the central banks actually lower rates which is why I say you want to space your purchases out.\""
},
{
"docid": "472011",
"title": "",
"text": "\"I will add another point to ChrisinEdmonton's answer... I recognize that this is perhaps appropriate as a comment--or maybe 1/2 of an answer, but the comment formatting is inadequate for what I want to say. The magic formula that you need to understand is this: (Capital Invested) * (Rate of Return) = (Income per Period) When ChrisinEdmonton says that you need $300,000, he is doing some basic algebra... (Capital Required) = (Income per Period) / (Rate of Return) So if you're looking at $12,000 per year in passive income as a goal, and you can find a \"\"safe\"\" 4% yield, then what ChrisinEdmonton did is: $12,000 / 0.04 = $300,000 You can use this to play around with different rates of return and see what investment options you can find to purchase. Investment categories like REITs will risk your principal a little more, but have some of the highest dividend yields of around 8%--12%. You would need $100,000--$150,000 at those yields. Some of the safest approaches would be bonds or industrial stocks that pay dividends. Bonds exist around 3%--4%, and industrial dividend stocks (think GE or UTX or Coca Cola) tend to pay more like 2%-3%. The key point I'm trying to make is that if you're looking for this type of passive income, I recommend that you don't plan on the income coming from gains to the investment... This was something that ChrisinEdmonton wasn't entirely clear about. It can be complicated and expensive to whittle away at a portfolio and spend it along the way.\""
},
{
"docid": "189142",
"title": "",
"text": "\"Dividend yields can also reflect important information about the company's status. For example, a company that has never lowered or stopped paying dividends is a \"\"strong\"\" company because it has the cash/earnings power to maintain its dividend regardless of the market. Ideally, a company should pay dividends for at least 10 years for an investor to consider the company as a \"\"consistent payer.\"\" Furthermore, when a company pays dividend, it generally means that it has more cash than it can profitably reinvest in the business, so companies that pay dividends tend to be older but more stable. An important exception is REIT's and their ilk - to avoid taxation, these types of funds must distribute 90% of their earnings to their shareholders, so they pay very high dividends. Just look at stocks like NLY or CMO to get an idea. The issue here, however, is two fold: So a high dividend can be great [if it has been paid consistently] or risky [if the company is new or has a short payment history], and dividends can also tell us about what the company's status is. Lastly, taxation on dividend income is higher than taxation on capital gains, but by reinvesting dividends you can avoid this tax and lower your potential capital gain amount, thus limiting taxes. http://www.tweedy.com/resources/library_docs/papers/highdiv_research.pdf is an excellent paper on dividend yields and investing.\""
},
{
"docid": "553331",
"title": "",
"text": "Your cons say it all. I would not be buying stocks based soley on a high dividend yield. In fact companies with very high dividend yields tend to do poorer than companies investing at least part of their earnings back into the company. Make sure at least that the company's earnings is more than the dividend yield being offered."
},
{
"docid": "109639",
"title": "",
"text": "With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply. Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups. But, no, not all the stocks will perform the way the index is predicted to. (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased)"
}
] |
8934 | Dividend yield for multiple years? | [
{
"docid": "116675",
"title": "",
"text": "Dividend yield is a tough thing to track because it's a moving target. Dividends are paid periodically the yield is calculated based on the stock price when the dividend is declared (usually, though some services may update this more frequently). I like to calculate my own dividend by annualizing the dividend payment divided by my cost basis per share. As an example, say you have shares in X, Co. X issues a quarterly dividend of $1 per share and the share price is $100; coincidentally this is the price at which you purchased your shares. But a few years goes by and now X issues it's quarterly dividend of $1.50 per share, and the share price is $160. However your shares only cost you $100. Your annual yield on X is 6%, not the published 3.75%. All of this is to say that looking back on dividend yields is somewhat similar to nailing jello to the wall. Do you look at actual dividends paid through the year divided by share price? Do you look at the annualized dividend at the time of issue then average those? The stock price will fluctuate, that will change the yield; depending on where you bought your stock, your actual yield will vary from the published amount as well."
}
] | [
{
"docid": "221477",
"title": "",
"text": "I second the Yahoo! Finance key stats suggestion, but I like Morningstar even better: http://quote.morningstar.com/stock/s.aspx?t=roic They show projected yield, based on the most recent dividend; the declared and ex-dividend dates, and the declared amount; and a table of the last handful of dividend payments. Back to Yahoo, if you want to see the whole dividend history, select Historical Prices, and from there, select Dividends Only. http://finance.yahoo.com/q/hp?s=ROIC&a=10&b=3&c=2009&d=00&e=4&f=2012&g=v"
},
{
"docid": "355089",
"title": "",
"text": "You might have to pay a premium for the stocks on the dividend tax–free exchanges. For example, HSBC on the NYSE yields 4.71% versus HSBC on the LSE which yields only 4.56%. Assuming the shares are truly identical, the only reason for this (aside from market fluctuations) is if the taxes are more favorable in the UK versus the US, thus increasing demand for HSBC on the LSE, raising the price, and reducing the yield. A difference of 0.15% in yield is pretty insignificant relative to a 30% versus 0% dividend tax. But a key question is, does your country have a foreign tax credit like the US does? If so you (usually) end up getting that 30% back, just delayed until you get your tax return, and the question of which exchange to buy on becomes not so clear cut. If your country doesn't have such a tax credit, then yes, you'll want to buy on an exchange where you won't get hit with the dividend tax. Note that I got this information from a great article I read several months back (site requires free registration to see it all unfortunately). They discuss the case of UN versus UL--both on the NYSE but ADRs for Unilever in the Netherlands and the UK, respectively. The logic is very similar to your situation."
},
{
"docid": "102138",
"title": "",
"text": "\"Probably the most important thing in evaluating a dividend yield is to compare it to ITSELF (in the past). If the dividend yield is higher than it has been in the past, the stock may be cheap. If it is lower, the stock may be expensive. Just about every stock has a \"\"normal\"\" yield for itself. (It's zero for non-dividend paying stocks.) This is based on the stock's perceived quality, growth potential, and other factors. So a utility that normally yields 5% and is now paying 3% is probably expensive (the price in the denominator is too high), while a growth stock that normally yields 2% and is now yielding 3% (e.g. Intel or McDonald'sl), may be cheap.\""
},
{
"docid": "244754",
"title": "",
"text": "You can use long-term options called LEAPS to increase dividend yield. Here's how it works: Let's say you buy a dividend-yielding stock for $38 that pays an annual dividend of $2 for a 5.3% yield. Next, you SELL a deep-in-the-money LEAPS options. In this hypothetical we'll sell the $25 call option for $13. That now reduces our cost basis from $38 to $25. Since the dividend remains @ $2, our yield is now $2/$25 = 8%. Now there are issues that may need to be dealt with like early assignment of the option where rolling the option may be necessary. More details of this strategy can be found on my website."
},
{
"docid": "378508",
"title": "",
"text": "You might want to look up Dividend Yield Trap. Many stocks with high dividend yields got that way not because they decided to increase their dividend, but because their prices have dropped. Usually the company is not in good shape and will reduce their dividend, and you're stuck with a low-yield stock which has also decreased in price."
},
{
"docid": "517637",
"title": "",
"text": "\"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\""
},
{
"docid": "472011",
"title": "",
"text": "\"I will add another point to ChrisinEdmonton's answer... I recognize that this is perhaps appropriate as a comment--or maybe 1/2 of an answer, but the comment formatting is inadequate for what I want to say. The magic formula that you need to understand is this: (Capital Invested) * (Rate of Return) = (Income per Period) When ChrisinEdmonton says that you need $300,000, he is doing some basic algebra... (Capital Required) = (Income per Period) / (Rate of Return) So if you're looking at $12,000 per year in passive income as a goal, and you can find a \"\"safe\"\" 4% yield, then what ChrisinEdmonton did is: $12,000 / 0.04 = $300,000 You can use this to play around with different rates of return and see what investment options you can find to purchase. Investment categories like REITs will risk your principal a little more, but have some of the highest dividend yields of around 8%--12%. You would need $100,000--$150,000 at those yields. Some of the safest approaches would be bonds or industrial stocks that pay dividends. Bonds exist around 3%--4%, and industrial dividend stocks (think GE or UTX or Coca Cola) tend to pay more like 2%-3%. The key point I'm trying to make is that if you're looking for this type of passive income, I recommend that you don't plan on the income coming from gains to the investment... This was something that ChrisinEdmonton wasn't entirely clear about. It can be complicated and expensive to whittle away at a portfolio and spend it along the way.\""
},
{
"docid": "109639",
"title": "",
"text": "With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply. Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups. But, no, not all the stocks will perform the way the index is predicted to. (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased)"
},
{
"docid": "235391",
"title": "",
"text": "\"In a sentence, stocks are a share of equity in the company, while bonds are a share of credit to the company. When you buy one share of stock, you own a (typically infinitesimal) percentage of the company. You are usually entitled to a share of the profits of that company, and/or to participate in the business decisions of that company. A particular type of stock may or may not pay dividends, which is the primary way companies share profits with their stockholders (the other way is simply by increasing the company's share value by being successful and thus desirable to investors). A stock also may or may not allow you to vote on company business; you may hear about companies buying 20% or 30% \"\"interests\"\" in other companies; they own that percentage of the company, and their vote on company matters is given that same weight in the total voting pool. Typically, a company offers two levels of stocks: \"\"Common\"\" stock usually has voting rights attached, and may pay dividends. \"\"Preferred\"\" stock usually gives up the voting rights, but pays a higher dividend percentage (maybe double or triple that of common stock) and may have payment guarantees (if a promised dividend is missed in one quarter and then paid in the next, the preferred stockholders get their dividend for the past and present quarters before the common shareholders see a penny). Governments and non-profits are typically prohibited from selling their equity; if a government sold stock it would basically be taxing everyone and then paying back stockholders, while non-profit organizations have no profits to pay out as dividends. Bonds, on the other hand, are a slice of the company's debt load. Think of bonds as kind of like a corporate credit card. When a company needs a lot of cash, it will sell bonds. A single bond may be worth $10, $100, or $1000, depending on the investor market being targeted. This is the amount the company will pay the bondholder at the end of the term of the bond. These bonds are bought by investors on the open market for less than their face value, and the company uses the cash it raises for whatever purpose it wants, before paying off the bondholders at term's end (usually by paying each bond at face value using money from a new package of bonds, in effect \"\"rolling over\"\" the debt to the next cycle, similar to you carrying a balance on your credit card). The difference between the cost and payoff is the \"\"interest charge\"\" on this slice of the loan, and can be expressed as a percentage of the purchase price over the remaining term of the bond, as its \"\"yield\"\" or \"\"APY\"\". For example, a bond worth $100 that was sold on Jan 1 for $85 and is due to be paid on Dec 31 of the same year has an APY of (15/85*100) = 17.65%. Typically, yields for highly-rated companies are more like 4-6%; a bond that would yield 17% is very risky and indicates a very low bond rating, so-called \"\"junk status\"\".\""
},
{
"docid": "49312",
"title": "",
"text": "Usually I've seen people treat the dividend like a separate cash flow, which is discounted if the company doesn't have a well-established dividend history. I've never really seen dividends rolled into a total return chart (except in the context of an article), probably because dividend reinvestment is a nightmare of record-keeping in a taxable account, and most folks don't do it. One of my brokers (TD Ameritrade) does allow you to plot dividend yield historically on their charts."
},
{
"docid": "269550",
"title": "",
"text": "Buy a fund of bonds, there are plenty and are registered on your stockbroker account as 'funds' rather than shares. Otherwise, to the individual investor, they can be considered as the same thing. Funds (of bonds, rather than funds that contain property or shares or other investments) are often high yield, low volatility. You buy the fund, and let the manager work it for you. He buys bonds in accordance to the specification of the fund (ie some funds will say 'European only', or 'global high yield' etc) and he will buy and sell the bonds regularly. You never hold to maturity as this is handled for you - in many cases, the manager will be buying and selling bonds all the time in order to give you a stable fund that returns you a dividend. Private investors can buy bonds directly, but its not common. Should you do it? Up to you. Bonds return, the company issuing a corporate bond will do so at a fixed price with a fixed yield. At the end of the term, they return the principal. So a 20-year bond with a 5% yield will return someone who invests £10k, £500 a year and at the end of the 20 years will return the £10k. The corporate doesn't care who holds the bond, so you can happily sell it to someone else, probably for £10km give or take. People say to invest in bonds because they do not move much in value. In financially difficult times, this means bonds are more attractive to investors as they are a safe place to hold money while stocks drop, but in good times the opposite applies, no-one wants a fund returning 5% when they think they can get 20% growth from a stock."
},
{
"docid": "435722",
"title": "",
"text": "what do you mean exactly? Do you have a future target price and projected future dividend payments and you want the present value (time discounted price) of those? Edit: The DCF formula is difficult to use for stocks because the future price is unknown. It is more applicable to fixed-income instruments like coupon bonds. You could use it but you need to predict / speculate a future price for the stock. You are better off using the standard stock analysis stuff: Learn Stock Basics - How To Read A Stock Table/Quote The P/E ratio and the Dividend yield are the two most important. The good P/E ratio for a mature company would be around 20. For smaller and growing companies, a higher P/E ratio is acceptable. The dividend yield is important because it tells you how much your shares grow even if the stock price stays unchanged for the year. HTH"
},
{
"docid": "522040",
"title": "",
"text": "\"The company was paying \"\"only\"\" $1 a share in dividends, compared to $10 a share in earnings. That is a so-called payout ratio of 10%, which is low. A more normal payout ratio would be 40%, something like $4 a share. If a $13 stock had a $4 dividend, the dividend yield would be about 30%, which would be \"\"too high,\"\" meaning that the price would go up to drive down the resulting yield. Even $1 a share on a $13 stock is a high dividend of about 7%, allowing for appreciation to say, the $20-$25 range. Graham was a great believer in the theory that management should pay out \"\"most\"\" of its earnings in dividends. He believed that by holding dividends so far below earnings, the company was either being \"\"stingy,\"\" or signalling that the $10 a share of earnings was unsustainable. Either of these would be bad for the stock. For instance, if $1 a share in dividends actually represented a 40% payout ratio, it would signal management's belief that they could normally earn only $2.50 a year instead of $10.\""
},
{
"docid": "281841",
"title": "",
"text": "\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \"\"basket\"\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \"\"DJI 30\"\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\""
},
{
"docid": "259341",
"title": "",
"text": "\"Some investment trusts have \"\"zero dividend preference shares\"\" which deliver all their gains as capital gains rather than income, even if the trust was investing in income yielding stocks. They've rather gone out of fashion after a scandal some years ago (~2000). Good 2014 article on them here includes the quote \"\"Because profits from zero dividend preference shares are taxed as capital gains, they can be used tax efficiently if you are smart about how you use your annual capital gains tax allowance.\"\"\""
},
{
"docid": "542667",
"title": "",
"text": "There are strategies based on yields. Dogs of the Dow being a specific example while Miller Howard has a few studies around dividends that may be of use if you additional material. Selling off a portion of the holding can run into problems as how could one hold 10 shares, selling a non-zero whole number every year for over 20 years if the stock doesn't ever pay a dividend in additional shares or cash?"
},
{
"docid": "453521",
"title": "",
"text": "A stock dividend converts some of the reserves and surplus on the company's balance sheet into paid-up capital and securities premium account without involving any actual cash outflow to the shareholders. While cash dividends are eyed by the investors due to their cash yield, issuance of stock dividends are indicators of growing confidence of the management and the shareholders in the company. The fact that shareholders want to convert free cash sitting on the balance sheet (which can ideally be taken out as dividends) into blocked money in exchange for shares is symbolic to their confidence in the company. This in turn is expected to lead to an increase in market price of the stock."
},
{
"docid": "70389",
"title": "",
"text": "Is it safe to invest in a portfolio of dividend stocks yielding 7-9% with the money borrowed at 3-4% from one of these brokerages? Yes and no. It depends on your risk profile! Any investment has its risks of losing your capital, but not investing is a guaranteed risk, as you will be guaranteed to fall behind the rate of inflation. Regarding investing on margin, this can increase your gains but can also increase your loses. Regarding the stock market - when investing in stocks you should not only look at the dividend rate but also the capital gain or loss potential. Remember in regards to investing on margin, if the share price drop too much you can get a margin call no matter how much dividend you are getting. It is no use gaining 9% in dividend yield per year if you are losing 15% or more in capital each year. Also, what is the risk of the dividend rate being cut back or dividends not being paid at all in the future? These are some of the risks you should consider before investing and derive a risk management plan as part of your investment plan before you invest. No investment is totally safe or risk free, but it is less risky than not investing at all, as long as you understand the risks involved and have a risk management plan in place as part of your overall investment plan."
},
{
"docid": "226264",
"title": "",
"text": "CHN is a Closed-End Fund. CHN actually pays out three types of distributions: In the case of CHN, they appear to be paying yearly. The most recent dividend, with exdate of 18 Dec 2014, consisted of $3.4669 of Long-term capital gains and $0.2982 cash dividend. Prior to that, the dividend with exdate of 19 Dec 2013 consisted of $2.8753 long-term capital gains and $0.4387 cash dividend. For a standard dividend yield you typically would not expect short-term and long-term capital events to be included in a yield calculation, as these events really only occur in relation to a fund rebalancing (changing its investments) and are not really due to the actual performance of the fund in any way. Most free sites that provide dividend information do not make a distinction on the dividend type. Data source: Premium Data Full Disclosure: I am a co-owner of Premium Data/Norgate."
}
] |
8937 | “In-the-Money” vs “Out-of-the-Money” Call Options | [
{
"docid": "469888",
"title": "",
"text": "\"First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. \"\"In the money\"\" means the price of a stock is trading above the strike price, if a call, or below it, if a put. On 10/20 of some year, Intel was trading at $23.34. The January $25 call strike was just $0.70, and April's was $1.82. These were out of the money. The $25 puts were \"\"in the money\"\" by $1.66 so you could have paid $1.90 for the Jan $25 put, with $.24 of time premium. By November, the price rose and the put fell, to $.85, all time premium. As with stocks, the key thing is to only buy calls of stock that are going to go up. If a stock will fall, buy puts. Curious, what was the class discussion just before the teacher gave you this image?\""
}
] | [
{
"docid": "372417",
"title": "",
"text": "\"Here are some things to consider if you want to employ a covered call strategy for consistent returns. The discussion also applies to written puts, as they're functionally equivalent. Write covered calls only on fairly valued stock. If the stock is distinctly undervalued, just buy it. By writing the call, you cap the gains that it will achieve as the stock price gravitates to intrinsic value. If the stock is overvalued, sell it, or just stay away. As the owner of a covered call position, you have full exposure to the downside of the stock. The premium received is normally way too small to protect against much of a drop in price. The ideal candidate doesn't change in price much over the life of the position. Yes, this is low volatility, which brings low option premiums. As a seller you want high premiums. But this can't be judged in a vacuum. No matter how high the volatility in absolute terms, as a seller you're betting the market has overpriced volatility. If volatility is high, so premiums are fat, but the market is correct, then the very real risk of the stock dropping over the life of the position offsets the premium received. One thing to look at is current implied volatility for the at-the-money (ATM), near-month call. Compare it to the two-year historical volatility (Morningstar has this conveniently displayed). Moving away from pure volatility, consider writing calls about three months out, just slightly out of the money. The premium is all time value, and the time value decay accelerates in the final few months. (In theory, a series of one-month options would be higher time value, but there are frictional costs, and no guarantee that today's \"\"good deal\"\" will be repeatable twelve time per year.) When comparing various strikes and expirations, compare time value per day. To compare the same statistic across multiple companies, use time value per day as a percent of capital at risk. CaR is the price of the stock less the premium received. If you already own the stock, track it as if you just bought it for this strategy, so use the price on the day you wrote the call. Along with time value per day, compare the simple annualized percent return, again, on capital at risk, measuring the return if a) the stock is called away, and b) the stock remains unchanged. I usually concentrate more on the second scenario, as we get the capital gain on the stock regardless, without the option strategy. Ideally, you can also calculate the probability (based on implied volatility) of the stock achieving these price points by expiration. Measuring returns at many possible stock prices, you can develop an overall expected return. I won't go into further detail, as it seems outside the scope here. Finally, I usually target a minimum of 25% annualized if the stock remains unchanged. You can, of course, adjust this up or down depending on your risk tolerance. I consider this to be conservative.\""
},
{
"docid": "16081",
"title": "",
"text": "1.45 and 1.40 are the last trade prices. The last trade (1.45) for the 27 strike call must have occurred earlier than the last trade (1.40) for the 26 strike call. These options have low liquidity and don't trade very often. You have to look at the bid and ask prices to see what people are currently bidding and asking for those options. As you can see, the premium based on the bids and asks does decrease the further you go out of the money."
},
{
"docid": "187214",
"title": "",
"text": "Check out this site: http://www.m-x.ca/produits_options_actions_en.php (Under the Trading Strategies). If you have a background in math or eco or are comfortable with graphs, I suggest you graph the payoffs of each of these strategies. It will really help you understand it. If you need help with this, let me know and I can draw a couple out for you. Your question is rather vague but also complicated however I will try to answer it. First off, many investors buy options to hedge against a current position in a stock (already own the stock). But you can also try to make money off of options rather than protecting yourself. Let's suppose you anticipate that a stock will increase in value so you want to capitalize on this. Suppose further that you have a small amount of money to invest, say $100. Suppose the stock is currently at $100 so that you can only afford 1 share. Suppose there is a call option out there with strike $105 that costs you only $1. Let's compare two scenarios: The stock increases to $120 at the maturity date of the option. So, you made a lot more money with the same initial investment. The amount of money you put in is small (i.e. can be perceived as low risk). However, if the stock price ended up being $104.90 then your options are worthless (i.e. can be perceived as high risk). HTH."
},
{
"docid": "310837",
"title": "",
"text": "\"I look for buying a call option only at the money, but first understand the background above: Let's suppose X stock is being traded by $10.00 and it's January The call option is being traded by $0.20 with strike $11.00 for February. (I always look for 2% prize or more) I buy 100 stocks by $10.00 each and sell the option, earning $0.20 for each X stock. I will have to deliver my stocks by $11.00 (strike value agreed). No problem for me here, I took the prize plus the gain of $1.00. (continuing from item 3) I still can sell the option for the next month with strike equal or higher than that I bought. For instance, I can sell a call option of strike $10.00 and it might be worth to deliver stocks by $10.00 and take the prize. (continuing from item 3) Probably, it won't be possible to sell a call option with strike at the price that I paid for the stock, but that's not a problem. At the end of the option life (in February), the strike was $11.00 but the stock's price is $8.00. I got the $0.20 as prize and my stocks are free for trade again. I'll sell the call option for March with strike $9.00 (taking around 2% of prize). Well, I don't want to sell my stocks by $9.00 and make loss, right? But I'm selling the call option anyway. Then I wait till the price of the stock gets near the strike value (almost ATM) and I \"\"re-buy\"\" the option sold (Example: [StockX]C9 where C means month = March) and sell again the call option with higher strike to April (Example [StockX]D10, where D means month = April) PS.: At item 9 there should be no loss between the action of \"\"re-buy\"\" and sell to roll-out to the next month. When re-buying it with the stock's price near the strike, option value for March (C9) will be lower than when selling it to April (D10). This isn't any rule to be followed, this is just a conservative (I think they call it hedge) way to handle options and stocks. Few free to make money according to your goals and your style. The perfect rule is the one that meet your expectation, don't take the generalized rules too serious.\""
},
{
"docid": "362473",
"title": "",
"text": "\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \"\"close out an options position\"\", you just have to create the \"\"opposite\"\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \"\"mini options contracts\"\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \"\"I cannot use this strategy to buy stocks like GOOGL\"\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\""
},
{
"docid": "481070",
"title": "",
"text": "An expired option is a stand-alone event, sold at $X, with a bought at $0 on the expiration date. The way you phrased the question is ambiguous, as 'decrease toward zero' is not quite the same as expiring worthless, you'd need to buy it at the near-zero price to then sell another covered call at a lower strike. Edit - If you entered the covered call sale properly, you find that an in-the-money option results in a sale of the shares at expiration. When entered incorrectly, there are two possibilities, the broker buys the option back at the market close, or you wake up Sunday morning (the options 'paperwork' clears on Saturday after expiration) finding yourself owning a short position, right next to the long. A call, and perhaps a fee, are required to zero it out. As you describe it, there are still two transactions to report, the option at $50 strike that you bought and sold, the other a stock transaction that has a sale price of the strike plus option premium collected."
},
{
"docid": "393418",
"title": "",
"text": "By buying the call option, you are getting the benefit of purchasing the underlying shares (that is, if the shares go up in value, you make money), but transferring the risk of the shares reducing in value. This is more apparent when you are using the option to offset an explicit risk that you hold. For example, if you have a short position, you are at unlimited risk of the position going up in value. You could decide you only want to take the risk that it might rise to $X. In that case, you could buy a call option with $X strike price. Then you have transferred the risk that the position goes over $X to the counterpart, since, even if the shares are trading at $X+$Y you can close out the short position by purchasing the shares at $X, while the option counterpart will lose $Y."
},
{
"docid": "138703",
"title": "",
"text": "This can be done, you can be prosecuted for some forms of it, in any case there are more riskless ways of doing what you suggested. First, buying call options from market makers results in market makers buying shares at the same delta as the call option. (100 SHARES X DELTA = How many shares MM's bought). You can time this with the volume and depth of the shares market to get a bigger resulting move caused by your options purchase to get bigger quote changes in your option. So on expiration day you can be trade near at the money options back and forth between being out the money and in the money. You would exit the position into liquidity at a profit. The risk here is that you can be sitting on a big options position, where the commissions costs get really big, but you can spread this out amongst several options contracts. Second, you can again take advantage of market maker inefficiencies by getting your primary position (whether in the share market or options market) placed, and then your other position being a very large buy order a few levels below the best bid. Many market makers and algorithms will jump in front of your, they think they are being smart, but it will raise the best bid and likely make a few higher prints for the mark, raising the price of your call option. And eventually remove your large buy order. Again, you exit into liquidity. This is called spoofing. There have been some regulatory actions against people in doing this in the last few years. As for consequences, you need to put things into perspective. US capital market regulators have the most nuanced regulations and enforcement actions of worldwide capital market regulators, and even then they get criticized for being unable or unwilling to curb these practices. With that perspective American laws are basically a blueprint on what to do in 100 other country's stock exchanges, where the legislature has never gotten around to defining the same laws, the securities regulator is even more underfunded and toothless, and the markets more inefficient. Not advice, just reality."
},
{
"docid": "449280",
"title": "",
"text": "\"You seem to have it right. You will be selling what's known as a covered call. When you sell the call, you enter it as \"\"sell to open\"\" and the system should see that you own the stock. You need to be approved for options trading, not all accounts are. As far as this particular trade goes - No, the stock doesn't necessarily get called away the day it's in the money, but it can be. If the stock closes just in the money around the time of expiration are you ok will selling it for the strike price? Remember, the option buyer is taking a small risk, the cost of this option, hoping the stock will go far above that price.\""
},
{
"docid": "351833",
"title": "",
"text": "\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \"\"free\"\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \"\"normal.\"\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \"\"in the money\"\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \"\"cheap\"\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\""
},
{
"docid": "432111",
"title": "",
"text": "I do this often with shares that I own - mostly as a learning/experience-building exercise, since I don't own enough individual stocks to make me rich (and don't risk enough to make me broke). Suppose I own 1,000 shares of X. I don't expect my shares to go down, but I want to be compensated in case they do go down. Sure, I could put in a stop-loss order, but another option is to sell a call above where the stock is now (out-of-the-money). So I get the premium regardless of what happens. From there three things can happen: So a covered call essentially lets you give up some upside for some compensation against downward moves. Mathematically it's roughly equivalent to selling a put option - you make a little money (from the premium) if the stock goes up but can lose a lot if the stock plummets. So you would sell call options if:"
},
{
"docid": "132288",
"title": "",
"text": "I do this often and have never had a problem. My broker is TD Ameritrade and they sent several emails (and even called and left a message) the week of expiry to remind me I had in the money options that would be expiring soon. Their policy is to automatically exercise all options that are at least $.01 in the money. One email was vaguely worded, but it implied that they could liquidate other positions to raise money to exercise the options. I would have called to clarify but I had no intention of exercising and knew I would sell them before expiry. In general though, much like with margin calls, you should avoid being in the position where the broker needs to (or can do) anything with your account. As a quick aside: I can't think of a scenario where you wouldn't be able to sell your options, but you probably are aware of the huge spreads that exist for many illiquid options. You'll be able to sell them, but if you're desperate, you may have to sell at the bid price, which can be significantly (25%?) lower than the ask. I've found this to be common for options of even very liquid underlyings. So personally, I find myself adjusting my limit price quite often near expiry. If the quote is, say, 3.00-3.60, I'll try to sell with a limit of 3.40, and hope someone takes my offer. If the price is not moving up and nobody is biting, move down to 3.30, 3.20, etc. In general you should definitely talk to your broker, like others have suggested. You may be able to request that they sell the options and not attempt to exercise them at the expense of other positions you have."
},
{
"docid": "576364",
"title": "",
"text": "\"You're forgetting the fundamental issue, that you never have to actually exercise the options you buy. You can either sell them to someone else or, if they're out of the money, let them expire and take the loss. It isn't uncommon at all for people to buy both a put and call option (this is a \"\"straddle\"\" when the strike price of both the put and call are the same). From Investopedia.com: A straddle is an options strategy in which the investor holds a position in both a call and put with the same strike price and expiration date, paying both premiums. This strategy allows the investor to make a profit regardless of whether the price of the security goes up or down, assuming the stock price changes somewhat significantly. Read more: Straddle http://www.investopedia.com/terms/s/straddle.asp#ixzz4ZYytV0pT\""
},
{
"docid": "424868",
"title": "",
"text": "\"The biggest issue is determining how committed you are to this \"\"niece\"\". When setting up an account (529/prepaid tuition/Universal Gift to Minors/Coverdell/Roth) you are making a commitment that locks you into some provisions. They all have different amounts of control, and can impact taxes and financial aid. The states involved can even be important. Some will give tax breaks. How they handle state vs private schools and out of state schools will also differ. The problem is that it is hard enough knowing what a kid 10-18 years from now is going to want to do, or be able to do. The government has crafted some provisions to handle these complex issues: scholarships, going to a service academy, going to a private school, death of the child...what I don't think they have covered is ending the relationship. The best option is to set aside the money in a regular account, with no special tax provisions; and then when they are close to graduating determine the best way to handle the transfer. Yes you may have given up some tax benefits, but it will still be your money. You will have to determine how this money will be transferred, but that will depend on the tax rules, and financial aid policies in the future. Options include gift to niece, direct payment, graduation gift...\""
},
{
"docid": "305770",
"title": "",
"text": "Options can have a negligible time premium. For American1 calls the time premium is never negative. If it had a negative premium it would be profitable to exercise it immediately. A deep in the money call has a delta of exactly one. That is, it's price movements completely mirror the price movements of the underlying stock. That means an option seller can buy stock and completely hedge his short option position. The seller of the option may be in an position to buy with very little margin and take your money and invest it. For example, consider a stock trading at $7.50, with its January 2014 $4 call option trading at $3.50. For one option, representing 100 shares, a trader could take your 350 dollars and invest it, and only use a small portion of the money to buy the stock on margin. Market-makers can typically borrow money at very low interest rates. If you have high borrowing costs, or are unable to buy on margin, then buying deep in the money calls can be a good strategy. Long story short, option sellers are making money off selling these deep in the money calls even with almost zero time premium. So, in general, there's no way to make money by buying them. 1. An American call is a call that can be exercised at any time up to and including its expiration date."
},
{
"docid": "112321",
"title": "",
"text": "\"Simple answer: Breakeven is when the security being traded reaches a price equal to the cost of the option plus the option's strike price, assuming you choose to exercise it. So for example, if you paid $1.00 for,say, a call option with a strike price of $19.00, breakeven would be when the security itself reaches $20.00. That being said, I can't imagine why you'd \"\"close out a position\"\" at the breakeven point. You wouldn't make or lose money doing that, so it wouldn't be rational. Now, as the option approaches expiration, you may make adjustments to the position to reflect shifts in momentum of the stock. So, if it looks as though the stock may not reach the option strike price, you could close out the position and take your lumps. But if the stock has momentum that will carry it past the strike price by expiration, you may choose to augment your position with additional contracts, although this would obviously mean the new contracts would be priced higher, which raises your dollar cost basis, and this may not make much sense. Another option in this scenario is that if the stock is going to surpass strike price, it might be a good opportunity to buy additional calls with either later expiration dates or with higher strike prices, depending on how much higher you speculate the stock will climb. I've managed to make some money doing this, buying options with strike prices just a dollar or two higher (or lower when playing puts), because the premiums were (in my opinion) underpriced to the potential peak of the stock by the expiration date. Sometimes the new options were actually slightly cheaper than my original positions, so my dollar cost basis overall dropped somewhat, improving my profit percentages.\""
},
{
"docid": "89484",
"title": "",
"text": "You could have both options exercised (and assigned to you) on the same day, but I don't think you could lose money on both on the same day. The reason is that while exercises are immediate, assignments are processed after the markets close at the end of each day. See http://www.888options.com/help/faq/assignment.jsp for details. So you would get both assignments at the same time, that night. The net effect should be that you don't own any stock (someone would put you the stock, then it'd be called away) and you don't have the options anymore. You should have incoming cash of $1500 selling the stock to the call exerciser and outgoing cash of $1300 buying from the put exerciser, right? So you would have no more options but $200 more cash in your account in the morning. You bought at 13 and sold at 15. This options position is an agreement to buy at 13 and sell at 15 at someone else's option. The way you lose money is if one of the options isn't exercised while the other is, i.e. if the stock is below 13 so nobody is going to opt to buy from you at 15, but they'll sell to you at 13; or above 15 so nobody is going to opt to sell to you at 13, but they'll buy from you at 15. You make money if neither is exercised (you keep the premium you sold for) or both are exercised (you keep the gap between the two, plus the premium). Having both exercised is surely rare, since early exercise is rare to begin with, and tends to happen when options are deep in the money; so you'd expect both to be exercised if both are deep in the money at some point. Having both be exercised on the same day ... can't be common, but it's maybe most likely just before expiration with minimal time value, if the stock moves around quickly so both options are in the money at some point during the day."
},
{
"docid": "139387",
"title": "",
"text": "\"A little terminology: Grant: you get a \"\"gift\"\" with strings attached. \"\"Grant\"\" refers to the plan (legal contract) under which you get the stock options. Vesting: these are the strings attached to the grant. As long as you're employed by the company, your options will vest every quarter, proportionally. You'll become an owner of 4687 or 4688 options every quarter. Each such vest event means you'd be getting an opportunity to buy the corresponding amount of stocks at the strike price (and not the current market price which may be higher). Buying is called exercising. Exercising a nonqualified option is a taxable event, and you'll be taxed on the value of the \"\"gift\"\" you got. The value is determined by the difference between the strike price (the price at which you have the option to buy the stock) and the actual fair market value of the stock at the time of vest (based on valuations). Options that are vested are yours (depending on the grant contract, read it carefully, leaving the company may lead to forfeiture). Options that are not vested will disappear once you leave the company. Exercised options become stocks, and are yours. Qualified vs Nonqualifed - refers to the tax treatment. Nonqualified options don't have any special treatment, qualified do. 3.02M stocks issued refers to the value of the options. Consider the total valuation of the company being $302M. With $302M value and 3.02M stocks issued, each stock is worth ~$100. Now, in a year, a new investor comes in, and another 3.02M stocks are issued (if, for example, the new investor wants a 50% stake). In this case, there will be 6.04M stocks issued, for 302M value - each stock is worth $50 now. That is called dilution. Your grant is in nominal options, so in case of dilution, the value of your options will go down. Additional points: If the company is not yet public, selling the stocks may be difficult, and you may own pieces of paper that no-one else wants to buy. You will still pay taxes based on the valuations and you may end up paying for these pieces of paper out of your own pocket. In California, it is illegal to not pay salary to regular employees. Unless you're a senior executive of the company (which I doubt), you should be paid at least $9/hour per the CA minimum wages law.\""
},
{
"docid": "46291",
"title": "",
"text": "Think of it this way: 1) You buy 1k in call options that will let you buy 100k of stock when they expire in the money in a year. 2) You take the 99k you would have spent on the stock and invest it in a risk free savings account. 3) Assume the person who sold you the call, immediately hedges the position by buying 100k of stock to deliver when the options expire. The amount of money you could make on risk free interest needs to be comparable to the premium you paid the option writer for tying up their capital, or they wouldn't have made the trade. So higher risk free rates would mean a higher call price. NOTE: The numbers are not equal because of the risk in writing the option, but they will move the same direction."
}
] |
8947 | Can a Roth IRA be used as a savings account? | [
{
"docid": "455398",
"title": "",
"text": "Sounds like a bad idea. The IRA is built on the power of compounding. Removing contributions will hurt your retirement savings, and you will never be able to make that up. Instead, consider tax-free investments. State bonds, Federal bonds, municipal bonds, etc. For example, I invest in California muni bonds fund which gives me ~3-4% annual dividend income - completely tax free. In addition - there's capital appreciation of your fund holdings. There are risks, of course, for example rate changes will affect yields and capital appreciation, so consult with someone knowledgeable in this area (or ask another question here, for the basics). This will give you the same result as you're expecting from your Roth IRA trick, without damaging your retirement savings potential."
}
] | [
{
"docid": "67410",
"title": "",
"text": "\"The tax code is a hodgepodge of rules that are often tough to explain. The reality is that it's our Congress that writes the tax code, and they often have conflicting goals among themselves. In theory, someone said \"\"How about we force withdrawals at some point. After all, these are retirement accounts, not 'give your kid a huge inheritance account'.\"\" And the discussion continued from there. The age 70-1/2 was arbitrary. 70 happens to be the age for maximum Social Security benefits. But the average retirement age is 63. To make things more confusing, one can easily start taking IRA or 401(k) withdrawals at age 59-1/2, but for 401(k) as early as 55 if you separate from the job at 55 or later. One can also take withdrawals earlier from an IRA with tax, but no penalty using Sec 72(t) rules (such as 72(t)(2)(A)(iv) on Substantially Equal Periodic Payments). To add to the confusion, Roth IRA? No RMDs. Roth 401(k), RMDs once separated from service. Since the money has already been taxed, it's the tax on the growth the government loses. My advice to the reader would be to move the Roth 401(k) to a Roth IRA before 70-1/2. My advice to congress would be to change the code to have the same rules for both accounts. Whether one agrees that a certain rule is 'fair' to them or others is up to them. I think we can agree that the rules are remarkably complex, from origin to execution. And a moving target. You can see just from the history of this site how older questions are often revisited as code changes occur.\""
},
{
"docid": "102501",
"title": "",
"text": "Theoretically there is limited demand for risky investments, so higher-risk asset classes should outperform lower-risk asset classes over sufficiently long time periods. In practice, I believe this is true, but it could be several decades before a risky portfolio starts to outperform a more conservative one. Stocks are considered more risky than most assets. Small-cap stocks and emerging market stocks are particularly high-risk. I would consider low-fee ETFs in these areas, like VB or VWO. If you want to seek out the absolute riskiest investments, you could pick individual stocks of companies in dire financial situations, as Bank of America was a couple years ago. Most importantly, if you don't expect to need the money soon, I would maximize your contribution to tax-advantaged accounts since they will grow exponentially faster than taxable accounts. Over 50 years, a 401(k) or IRA will generally grow at least 50% more than a taxable account, maybe more depending on the tax-efficiency of your investments. Try to contribute the maximum ($17,500 for most people in 2014) if you can. If you can save more than that, I'd suggest contributing a Roth 401k rather than a traditional 401(k) - since Roth contributions are post-tax, the effective contribution limit is higher. Also contribute to a Roth IRA (up to $5,500 in 2014), using a backdoor Roth if necessary."
},
{
"docid": "403103",
"title": "",
"text": "The primary advantage of an IRA or 401k is you get taxed effectively one time on the money (when you contribute for Roth, or when you withdraw for Traditional), whereas you get taxed effectively multiple times on some of the money in a taxable account (on all the money when you contribute, plus on the earnings part when you withdraw). Of course, you have to be able to withdraw without penalty for it to be optimally advantageous. And you said you want to retire decades early, so that is probably not retirement age. However, withdrawing early does not necessarily mean you have a penalty. For example: you can withdraw contributions to a Roth IRA at any time without tax or penalty; Roth 401k can be rolled over into Roth IRA; other types of accounts can be converted to Roth IRA and the principal of the conversion can be withdrawn after 5 years without penalty."
},
{
"docid": "551403",
"title": "",
"text": "\"From a purely analytical standpoint, assuming you are investing your Roth IRA contributions in broad market securities (such as the SPDR S&P 500 ETF, which tracks the S&P 500), the broader market has historically had more upward movement than downward, and therefore a dollar invested today will have a greater expected value than a dollar invested tomorrow. So from this perspective, it is better to \"\"max out\"\" your Roth on the first day of the contribution year and immediately invest in broad market (or at least well diversified) securities. That being said, opportunity costs must also be taken into account--every dollar you use to fund your Roth IRA is a dollar that is no longer available to be invested elsewhere (hence, a lost opportunity). With this in mind, if you are currently eligible for a 401k in which your employer matches some portion of your contributions, it is generally advised that you contribute to the 401k up to the employer-match. For example, if your employer matches 75% of contributions up to 3.5% of your gross salary, then it is advisable that you first contribute this 3.5% to your 401k before even considering contributing to a Roth IRA. The reasoning behind this is two-fold: first, the employer-match can be considered as a guaranteed Return on Investment--so for example, for an employer that matches 75%, for every dollar you contribute you already have earned a 75% return up to the employer's limit. Secondly, 401k contributions have tax implications: not only is the money contributed to the 401k pre-tax (i.e., contributions are not taxed), it also reduces your taxable income, so the marginal tax benefit of these contributions must also be taken into account. Keep in mind that in the usual circumstances, 401k disbursements are taxable. Finally, many financial advisors will also suggest establishing an \"\"emergency fund\"\", which is money that you will not use unless you suffer an emergency that has an impact on your normal income--loss of job, medical emergency, etc. These funds are often kept in highly liquid accounts (savings accounts, money-market funds, etc.) so they can be accessed immediately when you run into one of \"\"life's little surprises\"\". Generally, it is advised that an emergency fund between $500-$1000 is established ASAP, and over time the emergency fund should be increased until it has reached a value equivalent to the sum of 8 months' worth of expenses. If funding an IRA is preventing you from working towards such an emergency fund, then you may want to consider waiting on maxing out the IRA before you have that EF established. Of course, it goes without saying that credit card balances with APRs other than 0.00% (or similar) should be paid off before an IRA is funded, since while you can only hope to match the market at best (between 10-15% a year) in your IRA investments, paying down credit card balances is an instant \"\"return\"\" of whatever the APR is, which usually tends to be between a 15-30% APR. In a nutshell, assuming you are maxing out your 401k (if applicable), have an emergency fund established, are not carrying any high-APR credit card balances, and are able to do so, historical price movements in the markets suggest that funding your Roth IRA upfront and investing these funds immediately in a broadly diversified portfolio will yield a higher expected return than funding the account periodically throughout the year (using dollar cost averaging or similar strategies). If this is not the case, take some time to consider the opportunity costs you are incurring from not fully contributing to your 401k, carrying high credit card balances, or not having a sufficient emergency fund established. This is not financial advice specific to any individual and your mileage may vary. Consider consulting a Certified Financial Planner, Certified Public Accountant, etc. before making any major financial decisions.\""
},
{
"docid": "266457",
"title": "",
"text": "TL; DR version of my answer: In view of your age and the fact that you have just opened a Roth IRA account with Vanguard, choose the Reinvest Dividend and Capital Gains distributions option. If Vanguard is offering an option of having earnings put into a money market settlement account, it might be that you have opened your Roth IRA account with Vanguard's brokerage firm. Are you doing things like investing your Roth money into CDs or bonds (including zero-coupon or STRIP bonds) or individual stocks? If so, then the money market settlement account (might be VMMXX, the Vanguard Prime Money Market Fund) within the Roth IRA account is where all the money earned as interest on the CDs or bonds, dividends from the stocks, and the proceeds (including any resulting capital gains) from the sales of any of these will go. You can then decide where to invest that money (all within the Roth IRA). Leaving the money in the settlement account for a long time is not a good idea even if you are just accumulating the money so as to be able to buy 100 shares of APPL or GOOG at some time in the future. Put it into a CD in your Roth IRA brokerage account while you wait. If your Roth IRA is invested only in Vanguard's mutual funds and is likely to remain so in the foreseeable future, then you don't really need an account with their brokerage. You can still use a money market settlement fund to transfer money between various mutual fund investments within the Roth IRA account, but it really is adding an extra layer of money movement where it is not really necessary. You can sell one Vanguard mutual fund and invest the proceeds into another Vanguard mutual fund or even into several Vanguard funds without needing to have the funds transit through a money market account. Vanguard calls such a transaction an Exchange on their site. And, of course, you can just choose to reinvest all the dividends and capital gains distributions made by a mutual fund into the fund itself. Mutual funds allow purchases of fractional shares (down to three or even four decimal places) instead of insisting on integer numbers of shares let alone round lots of 100 shares. All this, of course, within the Roth IRA."
},
{
"docid": "492971",
"title": "",
"text": "\"Whether you contribute to an IRA (Traditional or Roth) and whether you contribute to a 401k (Traditional or Roth) are independent. IRAs have one contribution limit, and 401ks have another contribution limits, and these limits are independent. I see no reason why you wouldn't maximize the amount of money in tax-advantaged accounts, if you can afford to. In your first year of work, especially if you only work for part of the year, you're likely in a lower tax bracket than in the future, so Roth is better than Traditional. Another thing to note is that the money in the Roth IRA can be part of your \"\"safety net\"\" -- contributions to a Roth IRA (but not earnings) can be withdrawn at any time without tax or penalty. So if there is an emergency you can withdraw it, and it wouldn't be any worse than in a taxable account. And if you don't need it, then it will enjoy the tax benefits of being in the IRA.\""
},
{
"docid": "1219",
"title": "",
"text": "You can contribute to a Traditional IRA instead of a Roth. The main difference is a contribution to a Roth is made with after tax money but at retirement you can withdraw the money tax free. With a Traditional IRA your contribution is tax-deductible but at retirement the withdrawal is not tax free. This is why most people prefer a Roth if they can contribute. You can also contribute to your work's 401k plan assuming they have one. And you can always save for retirement in a regular account."
},
{
"docid": "387338",
"title": "",
"text": "With a Roth IRA, you can withdraw the contributions at any time without penalty as long as you don't withdraw the earnings/interest. There are some circumstances where you can withdraw the earnings such as disability (and maybe first home). Also, the Roth IRA doesn't need to go through your employer and I wouldn't do it through your employer. I have mine setup through Fidelity though I'm not sure if they have any guaranteed 3% return unless it was a CD. All of mine is in stocks. Your wife could also setup a Roth IRA so over 2 years, you could contribute $20,000. If I was you, I would just max out any 403-b matches (which you surely are at 25% of gross income) and then save my down payment money in a normal money market/savings account. You are doing good contributing almost 25% to the 403-b. There are also some income limitations on Roth IRAs. I believe for a married couple, it is $160k."
},
{
"docid": "398520",
"title": "",
"text": "Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one."
},
{
"docid": "436884",
"title": "",
"text": "Luke, I'd like to point out some additional benefits of the Roth IRA accounts 1) Going Roth, you can effectively increase the amount of your contribution to your IRA account. In your example, you are assuming that your contribution to Roth IRA is in fact $ 85 ($100 less $ 15 tax paid). In reality, albeit more costly, Roth IRA allows you to contribute full $ 100 ($117.65 less $ 17.65 tax incurred.) Using this method you can in fact grow your tax-free funds to $ 1.006.27 over 30 years. The larger you effective tax rate is, the larger will be the difference between your maximum effective Traditional vs Roth IRA contribution will be. 2) Should you need to access your IRA funds in case of emergency (unqualified event of not buying your first home, nor paying for your college education), Roth IRA account contributions can be withdrawn without incurring the 10% penalty charge, that would be imposed on your unqualified Traditional IRA distribution. 3) As other contributors noted it's hard to believe that lower US tax rates would prevail. Chances are you will be contributing to Traditional 401k later throughout your work life. Having a Roth IRA account would afford you a tax diversification needed to hedge against possible tax rate hikes coming in the future. Considering the gloomy future of the Social Security funding, and ever-growing US national debt, can we really expect for there to not be any tax rate increases in the next 20-40 years?! By the way, as others pointed out your effective tax rate will always be lower than your marginal tax bracket."
},
{
"docid": "540389",
"title": "",
"text": "\"What you're describing is a non-deductible traditional IRA. That is what happens when your employer 401K or your high income disqualifies gou from using a traditional IRA the normal way. Yes, non-deductible traditional IRAs are stupid.** Now let's be clear on the mechanism behind the difference. There's an axiom of tax law that the same money can't be taxed twice. This is baked so deep into tax law that it often isn't even specified particularly. The IRS is not allowed to impose tax on money already taxed, i.e. The original contribution on an ND Trad IRA. So this is not a new kind of IRA, it is simply a Trad IRA with an asterisk. **But then, some say so are deductible traditional IRAs when compared to the Roth. The real power of an ND Trad IRA is that it can be converted to Roth at all income levels. This is called the \"\"Roth Backdoor\"\". It combines three factors. Contribute to an ND Trad IRA, stick it in a money market/sweep fund, and a week later convert to Roth, pay taxes on the 17 cents of growth in the sweep fund since the rest was already taxed. The net effect is to work the same as a Roth contribution - not tax deductible, becomes a Roth, and is not taxed on distribution. If you already have traditional IRA money that you contributed that wasn't taxed, this really screws things up. Because you can't segment or LIFO your IRA money, the IRS considers it one huge bucket, and requires you draw in proportion. EEK! Suppose you contribute $5000 to an IRA in a non-deductible mode. But you also have a different IRA funded with pretax money that now has $45,000. As far as IRS is concerned, you have one $50,000 IRA and only $5000 (10%) is post-tax. You convert $5000 to Roth and IRS says 90% of that money is taxable, since it's the same pool of money. You owe taxes on all of it less the $500 fraction that was pre-taxed, and $4500 of already-taxed IRA remains in the account. The math gets totally out-of-hand after just a couple of conversions. Your best bet is to convert the whole shebang at one time -- and to avoid a monstrous tax hit, do this in a gap year.\""
},
{
"docid": "61022",
"title": "",
"text": "\"From the way you frame the question it sounds like you more or less know the answer already. Yes - you can make a non-deductable contribution to a traditional IRA and convert it to a Roth IRA. Here is Wikipedia's explanation: Regardless of income but subject to contribution limits, contributions can be made to a Traditional IRA and then converted to a Roth IRA.[10] This allows for \"\"backdoor\"\" contributions where individuals are able to avoid the income limitations of the Roth IRA. There is no limit to the frequency with which conversions can occur, so this process can be repeated indefinitely. One major caveat to the entire \"\"backdoor\"\" Roth IRA contribution process, however, is that it only works for people who do not have any pre-tax contributed money in IRA accounts at the time of the \"\"backdoor\"\" conversion to Roth; conversions made when other IRA money exists are subject to pro-rata calculations and may lead to tax liabilities on the part of the converter. [9] Do note the caveat in the second paragraph. This article explains it more thoroughly: The IRS does not allow converters to specify which dollars are being converted as they can with shares of stock being sold; for the purposes of determining taxes on conversions the IRS considers a person’s non-Roth IRA money to be a single, co-mingled sum. Hence, if a person has any funds in any non-Roth IRA accounts, it is impossible to contribute to a Traditional IRA and then “convert that account” to a Roth IRA as suggested by various pundits and the Wikipedia piece referenced above – conversions must be performed on a pro-rata basis of all IRA money, not on specific dollars or accounts. Say you have $20k of pre-tax assets in a traditional IRA, and make a non-deductable contribution of $5k. The account is now 80% pre-tax assets and 20% post-tax assets, so if you move $5k into a Roth IRA, $4k of it would be taxed in the conversion. The traditional IRA would be left with $16k of pre-tax assets and $4k of post-tax assets.\""
},
{
"docid": "411669",
"title": "",
"text": "I think you need to understand the options better before you go around calling anything worthless... $11k in a 1% savings account gets you just over $100 each year. Obviously you're not buying Ferraris with your returns but it's $100 more than your checking account will pay you. And, you're guaranteed to get your money back. I think a CD ladder is a great way to store your emergency fund. The interest rate on a CD is typically a bit better than a regular savings account, though the money is locked away and while we seem to be on the cusp of a rate increase it might not be the best time to put the money in jail. Generally there is some sort of fee or lost interest from cashing a CD early. You're still guaranteed to get your money back. Stock trading is probably a terrible idea. If you want some market exposure I'd take half of the money and buy a low expense S&P ETF, I wouldn't put my whole savings if I were you (or if I were me). Many large brokers have an S&P ETF option that you can generally buy with no commission and no loads. Vanguard is a great option VOO, Schwab has an S&P mutual fund SWPPX, and there are others. Actively trading individual stocks is a great way to let commissions and fees erode your account. There are some startup alternatives with lower fees, but personally I would stay away from individual stock picking unless you are in school for Finance and have some interest in paying attention and you're ready to possibly never see the money again. You're not guaranteed to get your money back. There are also money market accounts. These will typically pay some interest based on exposing your funds to some risk. It can be a bit better return than a savings account, but I probably wouldn't bother. An IRA (ROTH and Traditional) is just an account wrapper that offers certain tax benefits while placing certain restrictions on the use of some or all of the money until you reach retirement age. As a college student you should probably be more concerned about an emergency fund or traveling than retirement savings, though some here may disagree with me. With your IRA you can buy CDs or annuities, or stocks and ETFs or any other kind of security. Depending on what you buy inside the IRA, you might not be guaranteed to get your money back. First you need to figure out what you'd like to use the money for. Then, you need to determine when you'd need the money for that use. Then, you need to determine if you can sleep at night while your stock account fluctuates a few percent each day. If you can't, or you don't have answers for these questions, a savings account is a really low friction/low risk place store money and combat inflation while you come up with answers for those questions."
},
{
"docid": "259227",
"title": "",
"text": "\"To summarize your starting situation: You want to: Possible paths: No small business Get a job. Invest the 300K in safe liquid investments then move the maximum amount each year into your retirement accounts. Depending on which company you work for that could include 401K (Regular or Roth), deductible IRA, Roth IRA. The amount of money you can transfer is a function of the options they give you, how much they match, and the amount of income you earn. For the 401K you will invest from your paycheck, but pull an equal amount from the remainder of the 300K. If you are married you can use the same procedure for your spouse's account. You current income funds any vacations or splurges, because you will not need to put additional funds into your retirement plan. By your late 30's the 300K will now be fully invested in retirement account. Unfortunately you can't touch much of it without paying penalties until you are closer to age 60. Each year before semi-retirement, you will have to invest some of your salary into non-retirement accounts to cushion you between age 40 and age 60. Invest/start a business: Take a chunk of the 300K, and decide that in X years you will use it to start a small business. This chunk of money must be liquid and invested safely so that you can use it when you want to. You also don't want to invest it in investments that have a risk of loss. Take the remaining funds and invest it as described in the no small business section. You will completely convert funds to retirement funds earlier because of a smaller starting amount. Hopefully the small business creates enough income to allow you to continue to fund retirement or semi-retirement. But it might not. Comment regarding 5 year \"\"rules\"\": Roth IRA: you have to remain invested in the Roth IRA for 5 years otherwise your withdrawal is penalized. Investing in stocks: If your time horizon is short, then stocks are too volatile. If it drops just before you need the money, it might not recover in time. Final Advice: Get a financial adviser that will lay out a complete plan for a fixed fee. They will discuss investment options, types not particular funds. They will also explain the tax implications of investing in various retirement accounts, and how that will impact your semi-retirement plans. Review the plan every few years as tax laws change.\""
},
{
"docid": "216243",
"title": "",
"text": "To your question. Yes. What you propose is typically called the back door Roth. You make the (non-deductible) IRA deposit, and soon after, convert to Roth. As long as you have no other existing IRA, the process is simple, and actually a loophole that's still open. If you have an existing IRA, the conversion may be partially taxed based on untaxed balance. As comments frequently get overlooked, I'm adding @DilipSarwate excellent warning regarding this - Depending on the value of the existing Traditional IRA and its pre-existing basis, if any, the backdoor Roth conversion might be almost completely taxable. Example: Traditional IRA worth $250K with zero basis. New nondeductible contribution increase value to $255.5K and basis $5.5K. Converting $5.5K into a Roth IRA leaves $250K in the Traditional IRA with basis $5381.60. That is, of that $5500 conversion, only $118.40 was nontaxable and so, not only is the original $5500 taxable income to the OP but he also owes taxes on $5381.60 of that $5.5K conversion. In short, discussions of backdoor Roth conversions as a great idea should always be tempered with an acknowledgement that it does not work very well if there is any other money in the Traditional IRA. Once that nondeductible contribution enters a Traditional IRA, it does not come out completely until all your Traditional IRA accounts are drained of all money. All your Traditional IRA money is considered by the IRS to be in a single pot, and you can't set up a Traditional IRA (possibly with a new custodian) via nondeductible contribution, convert just that Traditional IRA account into a Roth IRA account, and claim that the whole conversion amount is nontaxable because all the tax-deferred money is in the other IRAs that you haven't touched at all. Last - you disclosed that you are depositing to a Roth 401(k) to the match. Which prompts me to ask if this is best. If your marginal rate is 25% or higher, you are missing the opportunity to save 'off the top', at that rate, and 'fill the lower brackets' at retirement, or, via conversion, any year before then when you are in a lower bracket for whatever reason. See my answer for Saving for retirement: How much is enough? which addresses this further. From new comments - Won't his Roth 401k contributions max out his overall Roth contributions? No. They are separate numbers, each with own annual limits. Wouldn't this prevent any back-door Roth conversions? The 401(k) has no effect on back door Roth, except for the fact that the 401(k) and high income make the Roth IRA unavailable by normal deposit. Back door is the only door. At the end are you encouraging him to look for a Traditional 401(k) at work to max out, then contributing to a Roth? Yes! Read the linked SE article, and consider the annual withdrawal that would get you to 25%. As I wrote, it would take $2M+ to 'fill' the 15% bracket at retirement."
},
{
"docid": "114054",
"title": "",
"text": "\"I'm not following what's the meaning of \"\"open a mutual fund\"\". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades.\""
},
{
"docid": "512738",
"title": "",
"text": "Do you have an emergency fund? If so, one idea is to put money into a Roth IRA, and invest it conservatively (short term government bonds, or a IRA savings account). Since you can withdraw your contributions from a Roth at any time, this could serve as most of your emergency fund, which means you could then use your existing non-tax-sheltered emergency fund to pay down the loans. This way if an emergency does come up, you have access to the money. And if an emergency doesn't come up, you have some tax-sheltered funds that you would not otherwise have."
},
{
"docid": "264023",
"title": "",
"text": "\"when you contribute to a 401k, you get to invest pre-tax money. that means part of it (e.g. 25%) is money you would otherwise have to pay in taxes (deferred money) and the rest (e.g. 75%) is money you could otherwise invest (base money). growth in the 401k is essentially tax free because the taxes on the growth of the base money are paid for by the growth in the deferred portion. that is of course assuming the same marginal tax rate both now and when you withdraw the money. if your marginal tax rate is lower in retirement than it is now, you would save even more money using a traditional 401k or ira. an alternative is to invest in a roth account (401k or ira). in which case the money goes in after tax and the growth is untaxed. this would be advantageous if you expect to have a higher marginal tax rate during retirement. moreover, it reduces tax risk, which could give you peace of mind considering u.s. marginal tax rates were over 90% in the 1940's. a roth could also be advantageous if you hit the contribution limits since the contributions are after-tax and therefore more valuable. lastly, contributions to a roth account can be withdrawn at any time tax and penalty free. however, the growth in a roth account is basically stuck there until you turn 60. unlike a traditional ira/401k where you can take early retirement with a SEPP plan. another alternative is to invest the money in a normal taxed account. the advantage of this approach is that the money is available to you whenever you need it rather than waiting until you retire. also, investment losses can be deducted from earned income (e.g. 15-25%), while gains can be taxed at the long term capital gains rate (e.g. 0-15%). the upshot being that even if you make money over the course of several years, you can actually realize negative taxes by taking gains and losses in different tax years. finally, when you decide to retire you might end up paying 0% taxes on your long term capital gains if your income is low enough (currently ~50k$/yr for a single person). the biggest limitation of this strategy is that losses are limited to 3k$ per year. also, this strategy works best when you invest in individual stocks rather than mutual funds, increasing volatility (aka risk). lastly, this makes filing your taxes more complicated since you need to report every purchase and sale and watch out for the \"\"wash sale\"\" rules. side note: you should contribute enough to get all the 401k matching your employer offers. even if you cash out the whole account when you want the money, the matching (typically 50%-200%) should exceed the 10% early withdrawal penalty.\""
},
{
"docid": "136879",
"title": "",
"text": "\"Wow. It's clear I'm outnumbered. When I'm approached with the question (and keep in mind, it's usually a couple data points and little else) \"\"I am getting started, with no other money do I fund a retirement or emergency account?\"\" I often suggest they put the funds into a Roth, in a money market fund, and treat it like an emergency account. If there's in fact an emergency, there's no penalty to withdraw the deposit and we're talking peanuts for interest today. With no emergency, two things could happen: A) As the account grows beyond what's needed for emergencies, the excess can be invested long term. B) As the investor earns more money and saves up enough to have a true emergency account separate from the IRA, the Roth can be fully invested long term. The 'Bad idea' stems from the view that one is using their Roth as an emergency account, which of course is bad. The subtle difference is one has no retirement savings and puts their Emergency account into the otherwise unused Roth. As time passes, they've protected more funds to grow tax free. In the end, the most important thing is whether the person is saving and not tapping for simple non-emergency things. I'd rather see a guy with $25K in his Roth and no other funds than to have $5000 in his bank account because every time it gets larger he feels compelled to spend it. My answer to Matt is to treat it for now as you intended, low risk, CD or cash (money market).\""
}
] |
8947 | Can a Roth IRA be used as a savings account? | [
{
"docid": "461592",
"title": "",
"text": "(To be clear, IRA accounts are just wrappers, and can contain a large variety of investments. I'm restricting myself to the usual setup of investment in the stock market.) So, let's say you have $5000 in savings, as an emergency fund. Of the top of my head, putting some of it into a Roth IRA could backfire in the following ways: The basic principle here is that the stock market is not a good place for storing your emergency cash, which needs to be secured against loss and immediately accessible. Once you're happy with your level of emergency cash, however, tax-advantaged investment accounts are a reasonable next step."
}
] | [
{
"docid": "152603",
"title": "",
"text": "Don't forget inflation. With a Roth 401k (or IRA), you don't pay any taxes on inflationary or real gains. You pay taxes at the beginning and then no more taxes (unless you invest money after you distributed from it). With a regular, taxable investment account (not a 401k or IRA), you pay taxes on the initial amount. And then you pay taxes on the gains, both inflationary and real. So you effectively pay taxes on the inflated principal twice. Once at initial earning and once when it shows up as inflationary gains. I'll give an example later. With a traditional 401k (or IRA), you pay no taxes on the initial amount. You pay taxes on the distributed amount. That includes taxes on gains, but it only taxes them once, not twice. All the taxes are paid at distribution time. Here's a semirealistic example. This is not a real example with real numbers, but the numbers shouldn't be ridiculously off. They could happen. I'm going to ignore variation and pretend that all the numbers will be the same each year so as to simplify the math. So you pay a 25% marginal tax rate and want to invest $12,000 plus any tax savings. Roth: $12,000 principal Traditional IRA (Trad): $16,000 principal with $4000 in tax savings Taxable Investment Account (TIA): $12,000 principal Let's assume that you make an 8% rate of return and inflation is 3%. Both numbers are possible, although higher and lower numbers have occurred in the past. That gives you returns of $960 for the Roth and TIA cases and a return of $1280 for the Trad case. Pay no annual taxes on the Roth or Trad cases. Pay 25% marginal tax on the TIA case, that's $240. Balances after one year: Roth: $12,960 Trad: $17,280 TIA: $12,720 Inflation decreases the value of the Roth and TIA cases by $360 in the Roth and TIA cases. And by $480 in the Trad case. Ten years of inflationary gains (cumulative): Roth: $5354 Trad: $7138 TIA: $4872 Net buildup (including inflationary gains): Roth: $25,907 Trad: $34,543 TIA: $23,168 Real value (minus inflation to maintain spending power): Roth: $20,554 Trad: $27,405 TIA: $18,109 Now take out $3000 per year, after taxes. That's $3000 in the the Roth and TIA cases, as you already paid the taxes. In the Trad case, that's $4000 because you have to pay 25% tax which will cost $1000. Do that for five years and the new balances are Roth: $9931 Trad: $13,241 TIA: $5973 The TIA will run out in the 8th year. The Roth and Trad will both run out in the 9th year. So to summarize. The Traditional IRA initially grows the most. The TIA grows the least. The TIA is tax-advantaged over the Traditional IRA at that point, but it still runs out first. The Roth IRA grows about the same as the Traditional after taxes are included. Note that I left out the matching contribution from a 401k. That would help both those options. I assumed that the marginal tax rate would be 25% on the Traditional IRA distributions. It might be only 15%, which would increase the advantage of the Traditional IRA. I assumed that the 15% rate on capital returns would still be true for the entire period. If that is increased, the TIA option gets a lot worse. Inflation could be higher or lower. As stated earlier, the TIA account is hit the worst by inflation."
},
{
"docid": "232930",
"title": "",
"text": "Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential."
},
{
"docid": "146735",
"title": "",
"text": "Your question boils down to saving for a house or saving for retirement. Why not do both? If you invest in a Roth 401k or Roth IRA you can withdraw any contributions that are at least 5 years old without penalty (assuming you're willing to put off purchasing a little longer than your original 2-3 years). If you qualify as a first time home buyer (i.e. you haven't owned a home in at least 2 years) you can withdraw investment earnings as well if your distribution is earmarked towards the down payment and is no more than $10000. Although you won't be penalized for using investment earnings for a down payment you will still have to pay taxes on them. So this may be more appealing to someone that has enough contributions to avoid dipping into the investment earnings. The only other downside is that contributions to a Roth investment are not tax deductible like Traditional IRA and 401k contributions are. Instead, they grow tax free and distributions are tax free when you reach retirement age."
},
{
"docid": "403103",
"title": "",
"text": "The primary advantage of an IRA or 401k is you get taxed effectively one time on the money (when you contribute for Roth, or when you withdraw for Traditional), whereas you get taxed effectively multiple times on some of the money in a taxable account (on all the money when you contribute, plus on the earnings part when you withdraw). Of course, you have to be able to withdraw without penalty for it to be optimally advantageous. And you said you want to retire decades early, so that is probably not retirement age. However, withdrawing early does not necessarily mean you have a penalty. For example: you can withdraw contributions to a Roth IRA at any time without tax or penalty; Roth 401k can be rolled over into Roth IRA; other types of accounts can be converted to Roth IRA and the principal of the conversion can be withdrawn after 5 years without penalty."
},
{
"docid": "95390",
"title": "",
"text": "\"Where are you from? The Netherlands has tax treaties with different countries that may offer you some additional options. The Netherlands calculates a maximum tax free contribution to your pension each year based on your income. If you contributed less than you were allowed to (pensioengat), you can invest the difference between your actual and allowed contributions in special retirement investments that usually offer tax advantages. A gap like this can be due to getting a bonus or a raise. After looking around, the investments available are either a special savings account (banksparen) or an annuity (lijfrente). Your allowed contributions to both will be tax deductible and the investment itself is excluded from wealth tax (box 3 taxes). I also see Aegon offering an \"\"investment annuity\"\" that lets you invest in any of 7 of their mutual funds until a certain date at which time you liquidate and use the proceeds to fund an annuity. With the Dutch retirement options, wou will not in general get the same freedom of choice or low costs associated with IRAs in the US. I'm not sure about ISAs in the UK. It's also important to check any tax agreements between countries to ensure your chosen investment vehicle gets the tax advantaged treatment in your home country as it does in the Netherlands. For US citizens, this is important even when living abroad. For others, it is important if you return to your home country and still have this investment. If you are a US citizen, you have an additional option. The US / Dutch tax treaty allows you to make these contributions to preexisting (i.e. you had these before moving to NL) retirement accounts in the US like an IRA. Note that in practice it may be difficult to contribute to an existing Roth IRA because you would need to have earned income after the foreign income tax deduction but less than the maximum income for a Roth contribution.\""
},
{
"docid": "136879",
"title": "",
"text": "\"Wow. It's clear I'm outnumbered. When I'm approached with the question (and keep in mind, it's usually a couple data points and little else) \"\"I am getting started, with no other money do I fund a retirement or emergency account?\"\" I often suggest they put the funds into a Roth, in a money market fund, and treat it like an emergency account. If there's in fact an emergency, there's no penalty to withdraw the deposit and we're talking peanuts for interest today. With no emergency, two things could happen: A) As the account grows beyond what's needed for emergencies, the excess can be invested long term. B) As the investor earns more money and saves up enough to have a true emergency account separate from the IRA, the Roth can be fully invested long term. The 'Bad idea' stems from the view that one is using their Roth as an emergency account, which of course is bad. The subtle difference is one has no retirement savings and puts their Emergency account into the otherwise unused Roth. As time passes, they've protected more funds to grow tax free. In the end, the most important thing is whether the person is saving and not tapping for simple non-emergency things. I'd rather see a guy with $25K in his Roth and no other funds than to have $5000 in his bank account because every time it gets larger he feels compelled to spend it. My answer to Matt is to treat it for now as you intended, low risk, CD or cash (money market).\""
},
{
"docid": "147889",
"title": "",
"text": "With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt. Without the match, the analysis is more about the cost within the 401(k). The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain. Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost. My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can. (The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA)"
},
{
"docid": "512738",
"title": "",
"text": "Do you have an emergency fund? If so, one idea is to put money into a Roth IRA, and invest it conservatively (short term government bonds, or a IRA savings account). Since you can withdraw your contributions from a Roth at any time, this could serve as most of your emergency fund, which means you could then use your existing non-tax-sheltered emergency fund to pay down the loans. This way if an emergency does come up, you have access to the money. And if an emergency doesn't come up, you have some tax-sheltered funds that you would not otherwise have."
},
{
"docid": "398520",
"title": "",
"text": "Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one."
},
{
"docid": "222836",
"title": "",
"text": "It sounds like you're comparing (1) the backdoor Roth IRA and (2) the mega backdoor Roth. Although the names are similar they are considerably different, and not mutually exclusive. The goal of the backdoor Roth IRA is to contribute to a Roth IRA even if you are over the income limits. This is accomplished by contributing to a non-deductible Traditional IRA and then converting to Roth. Both of these steps have no income limit (unlike a direct Roth IRA contribution, which does), and only the earnings (which should be minimal) will be taxed. More info here (mirror). The goal of the mega backdoor Roth is to get a lot of money into Roth accounts through salary deferral. This is accomplished by making non-Roth after-tax contributions to your 401(k) after exhausting the $18,000 limit (in 2017) for pre-tax + Roth employee contributions. The after-tax contributions (potentially up to $36,000 for 2017) can be rolled over to the Roth 401(k) or to a Roth IRA, while the earnings can be rolled over to the pre-tax 401(k) or a Traditional IRA, or taxed like regular income and converted to Roth along with the contributions. More info here (mirror)."
},
{
"docid": "411034",
"title": "",
"text": "I wrote an article about this a while ago with detailed instructions, so I'll link to it here. Here's a snippet about how to use the Roth IRA loophole and report it properly: You don’t have any Traditional/Rollover IRA at all. You deposit up to the yearly maximum (currently $5500) into a traditional IRA. In your case, you re-characterized, which means you essentially deposited. The fact that it lost money may help you later if you have extra amounts in Traditional IRA. You convert your traditional IRA to become Roth IRA ($5500 change designation from Traditional IRA to Roth IRA). You fill IRS form 8606 and attach it to your yearly tax return, no tax due. You have a fully funded Roth IRA account. If you have amounts in the Traditional IRA in excess to what you contributed last year - it becomes a bit more complicated and you need to prorate. See my article for a detailed example. On the form 8606 you fill the numbers as they are. You deposited to IRA 5500, you converted 5100, your $400 loss is lost (unless you have more money in IRA from elsewhere). If you completely distribute your IRA, you can deduct the $400 on your Schedule A, if you itemize."
},
{
"docid": "271266",
"title": "",
"text": "\"If you're single, the only solution I'm aware of, assuming you are truly getting a 1099-misc and not a W-2 (and don't have a W-2 option available, like TAing), is to save in a nondeductible account for now. Then, when you later do have a job, use that nondeductible account (in part) to fund your retirement accounts. Particularly the first few years (if you're a \"\"young\"\" grad student in particular), you'll probably be low enough on the income side that you can fit this in - in particular if you've got a 401k or 403b plan at work; make your from-salary contributions there, and make deductible IRA or Roth IRA contributions from your in-school savings. If you're not single, or even if you are single but have a child, you have a few other options. Spouses who don't have earned income, but have a spouse who does, can set up a Spousal IRA. You can then, combined, save up to your spouse's total earned income (or the usual per-person maximums). So if you are married and your wife/husband works, you can essentially count his/her earned income towards your earned income. Second, if you have a child, consider setting up a 529 plan for them. You're probably going to want to do this anyway, right? You can even do this for a niece or nephew, if you're feeling generous.\""
},
{
"docid": "204479",
"title": "",
"text": "\"If you're making big money at 18, you should be saving every penny you can in tax-advantaged retirement accounts. (If your employer offers it, see if you can do a Roth 401(k), as odds are good you'll be in a higher tax bracket at retirement than you are now and you will benefit from the Roth structure. Otherwise, use a regular 401(k). IRAs are also an option, but you can put more money into a 401(k) than you can into an IRA.) If you do this for a decade or two while you're young, you'll be very well set on the road to retirement. Moreover, since you think \"\"I've got the money, why not?\"\" this will actually keep the money from you so you can do a better job of avoiding that question. Your next concern will be post-tax money. You're going to be splitting this between three basic sorts of places: just plain spending it, saving/investing it in bank accounts and stock markets, or purchasing some other form of capital which will save you money or provide you with some useful capability that's worth money (e.g. owning a condo/house will help you save on rent - and you don't have to pay income taxes on that savings!) 18 is generally a little young to be setting down and buying a house, though, so you should probably look at saving money for a while instead. Open an account at Vanguard or a similar institution and buy some simple index funds. (The index funds have lower turnover, which is probably better for your unsheltered accounts, and you don't need to spend a bunch of money on mutual fund expense ratios, or spend a lot of time making a second career out of stock-picking). If you save a lot of your money for retirement now, you won't have to save as much later, and will have more income to spend on a house, so it'll all work out. Whatever you do, you shouldn't blow a bunch of money on a really fancy new car. You might consider a pretty-nice slightly-used car, but the first year of car ownership is distressingly close to just throwing your money away, and fancy cars only make it that much worse. You should also try to have some fun and interesting experiences while you're still young. It's okay to spend some money on them. Don't waste money flying first-class or spend tooo much money dining out, but fun/interesting/different experiences will serve you well throughout your life. (By contrast, routine luxury may not be worth it.)\""
},
{
"docid": "424841",
"title": "",
"text": "If your budget allows for it, max out both plans! However, in my opinion, you're on the right path: The advantage of also contributing to the Roth 401(k) in this case would be: This second point is the main reason that you should also invest in a 401(k), using that as a retirement savings vehicle alongside your Roth IRA. One caveat is that you should ensure that you'll have sufficient savings so that you won't need to dip into either plan - it'd be a shame to reduce the investment base from which you can grow your savings tax free. Personally, I'd view my contributions in the Roth IRA as an emergency fund to be used only in the direst circumstances."
},
{
"docid": "65567",
"title": "",
"text": "If you have just started an IRA (presumably with a contribution for 2012), you likely have $5000 in it, or $10,000 if you made a full contribution for 2013 as well. At this time, I would recommend putting it all in a single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 Index have lower costs (annual expense fees) than actively managed funds, and most investment companies offer such mutual funds, with Fidelity, Vanguard, Schwab, to name a few, having very low expenses even among index funds. Later, when you have more money in the account, you can consider diversifying into more funds, buying stocks and bonds, investing in ETFs, etc. Incidentally, if you are just starting out and your Roth IRA is essentially your first investment experience, be aware that you do not need a brokerage account for your Roth IRA until you have more money in the account to invest and specifically want to buy individual stocks and bonds instead of just mutual funds. If you opened a brokerage account for your Roth IRA, close it and transfer the Roth IRA to your choice of mutual fund company; else you will be paying annual fees to the brokerage for maintaining your account, inactivity fees since you won't be doing any trading, etc. The easiest way to do this is to go to the mutual fund company web site and tell them that you want to transfer your IRA to them (not roll over your IRA to them) and they will take care of all the paper work and collecting your money from the brokerage (ditto if your Roth IRA is with a bank or another mutual fund company). Then close your brokerage account."
},
{
"docid": "433371",
"title": "",
"text": "BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion."
},
{
"docid": "266457",
"title": "",
"text": "TL; DR version of my answer: In view of your age and the fact that you have just opened a Roth IRA account with Vanguard, choose the Reinvest Dividend and Capital Gains distributions option. If Vanguard is offering an option of having earnings put into a money market settlement account, it might be that you have opened your Roth IRA account with Vanguard's brokerage firm. Are you doing things like investing your Roth money into CDs or bonds (including zero-coupon or STRIP bonds) or individual stocks? If so, then the money market settlement account (might be VMMXX, the Vanguard Prime Money Market Fund) within the Roth IRA account is where all the money earned as interest on the CDs or bonds, dividends from the stocks, and the proceeds (including any resulting capital gains) from the sales of any of these will go. You can then decide where to invest that money (all within the Roth IRA). Leaving the money in the settlement account for a long time is not a good idea even if you are just accumulating the money so as to be able to buy 100 shares of APPL or GOOG at some time in the future. Put it into a CD in your Roth IRA brokerage account while you wait. If your Roth IRA is invested only in Vanguard's mutual funds and is likely to remain so in the foreseeable future, then you don't really need an account with their brokerage. You can still use a money market settlement fund to transfer money between various mutual fund investments within the Roth IRA account, but it really is adding an extra layer of money movement where it is not really necessary. You can sell one Vanguard mutual fund and invest the proceeds into another Vanguard mutual fund or even into several Vanguard funds without needing to have the funds transit through a money market account. Vanguard calls such a transaction an Exchange on their site. And, of course, you can just choose to reinvest all the dividends and capital gains distributions made by a mutual fund into the fund itself. Mutual funds allow purchases of fractional shares (down to three or even four decimal places) instead of insisting on integer numbers of shares let alone round lots of 100 shares. All this, of course, within the Roth IRA."
},
{
"docid": "518266",
"title": "",
"text": "FASFA financial aid formulas determine 'expected family contribution'. For example my alma mater now has a 'list price of over $65k/year. The average student today actually pays $42k/year after grants. Students with rich parents pay more than that. Students with poor parents pay less than that. Lets say list prices for my kids colleges average $110k/year while they are in school. If we 'only' make $200k then based on our income alone, EFC would start in the low $50ks per year. If we have $1M saved in taxable accounts, 529s, rental properties, etc, then we also have to pay 5.64% of the value of those every year for the eight years my kids will be attending - an *extra* $56.4k/year every year for 8 years. If that $1M is in assets that don't count such as retirement accounts and equity in primary residence, then it doesn't increase the price my kids are billed. That's a pretty big incentive to put everything I can in home equity, Roth IRA, Spousal Roth IRA, traditional 401k, after-tax 401k, and HSA. If I could afford to save more I'd switch from traditional to Roth 401k and pre-pay retirement taxes at a higher marginal rate rather than have the savings on the side subjected to the college wealth/income taxes which are effectively a much higher difference between the 25% (now) and 15% (later) federal tax brackets. Profile and consensus formulas have slightly different percentages and count some home equity if you have an expensive house, but the general idea is the same."
},
{
"docid": "114054",
"title": "",
"text": "\"I'm not following what's the meaning of \"\"open a mutual fund\"\". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades.\""
}
] |
8959 | How is the opening-day price of a stock decided? | [
{
"docid": "250164",
"title": "",
"text": "When a stock is going to become public there's a level of analysis required to figure out the range of IPO price that makes sense. For a company that's somewhat mature, and has a sector to compare it to, you can come up with a range that would be pretty close. For the recent linkedin, it's tougher to price a somewhat unique company, running at a loss, in a market rich with cash looking for the next great deal. If one gives this any thought, an opening price that's so far above the IPO price represents a failure of the underwriters to price it correctly. It means the original owners just sold theirvshares for far less than the market thought they were worth on day one. The day of IPO the stock opens similar to how any stock would open at 9:30, there are bids and asks and a price at which supply (the ask) and demand (bid) balance. For this IPO, it would appear that there were enough buyers to push the price to twice the anticipated open and it's maintained that level since. It's possible to have a different system in which a Dutch auction is used to make the shares public, in theory this can work, it's just not used commonly."
}
] | [
{
"docid": "567034",
"title": "",
"text": "You want to buy when the stock market is at an all-time low for that day. Unfortunately, you don't know the lowest time until the end of the day, and then you, uh can't buy the stock... Now the stock market is not random, but for your case, we can say that effectively, it is. So, when should you buy the stock to hopefully get the lowest price for the day? You should wait for 37% of the day, and then buy when it is lower than it has been for all of that day. Here is a quick example (with fake data): We have 18 points, and 37% of 18 is close to 7. So we discard the first 7 points - and just remember the lowest of those 7. We bear in mind that the lowest for the first 37% was 5. Now we wait until we find a stock which is lower than 5, and we buy at that point: This system is optimal for buying the stock at the lowest price for the day. Why? We want to find the best position to stop automatically ignoring. Why 37%? We know the answer to P(Being in position n) - it's 1/N as there are N toilets, and we can select just 1. Now, what is the chance we select them, given we're in position n? The chance of selecting any of the toilets from 0 to K is 0 - remember we're never going to buy then. So let's move on to the toilets from K+1 and onwards. If K+1 is better than all before it, we have this: But, K+1 might not be the best price from all past and future prices. Maybe K+2 is better. Let's look at K+2 For K+2 we have K/K+1, for K+3 we have K/K+2... So we have: This is a close approximation of the area under 1/x - especially as x → ∞ So 0 + 0 + ... + (K/N) x (1/K + 1/K+1 + 1/K+2 ... + 1/N-1) ≈ (K/N) x ln(N/K) and so P(K) ≈ (K/N) x ln(N/K) Now to simplify, say that x = K/N We can graph this, and find the maximum point so we know the maximum P(K) - or we can use calculus. Here's the graph: Here's the calculus: To apply this back to your situation with the stocks, if your stock updates every 30 seconds, and is open between 09:30 and 16:00, we have 6.5 hours = 390 minutes = 780 refreshes. You should keep track of the lowest price for the first 289 refreshes, and then buy your stock on the next best price. Because x = K/N, the chance of you choosing the best price is 37%. However, the chance of you choosing better than the average stock is above 50% for the day. Remember, this method just tries to mean you don't loose money within the day - if you want to try to minimise losses within the whole trading period, you should scale this up, so you wait 37% of the trading period (e.g. 37% of 3 months) and then select. The maths is taken from Numberphile - Mathematical Way to Choose a Toilet. Finally, one way to lose money a little slower and do some good is with Kiva.org - giving loans to people is developing countries. It's like a bank account with a -1% interest - which is only 1% lower than a lot of banks, and you do some good. I have no affiliation with them."
},
{
"docid": "260085",
"title": "",
"text": "\"Some technical indicators (e.g. Williams %R) indicate whether the market is overbought or oversold. ... Every time a stock or commodity is bought, it is also sold. And vice versa. So how can anything ever be over-bought or over-sold? But I'm sure I'm missing something. What is it? You're thinking of this as a normal purchase, but that's not really how equity markets operate. First, just because there are shares of stock purchased, it doesn't mean that there was real investor buyer and seller demand for that instrument (at that point in time). Markets have dedicated middlemen called Market Makers, who are responsible to make sure that there is always someone to buy or sell; this ensures that all instruments have sufficient liquidity. Market Makers may decide to lower their bid on a stock based on a high number of sellers, or raise their ask for a high number of buyers. During an investor rush to buy or sell an instrument (perhaps in response to a news release), it's possible for Market Makers to accumulate a large number of shares, without end-investors being involved on both sides of the transaction. This is one example of how instruments can be over-bought or over-sold. Since Williams %R creates over-bought and over-sold signals based on historical averages of open / close prices, perhaps it's better to think of these terms as \"\"over-valued\"\" and \"\"under-valued\"\". Of course, there could be good reason for instruments to open or close outside their expected ranges, so Williams %R is just a tool to give you clues... not a real evaluation of the instrument's true value.\""
},
{
"docid": "449280",
"title": "",
"text": "\"You seem to have it right. You will be selling what's known as a covered call. When you sell the call, you enter it as \"\"sell to open\"\" and the system should see that you own the stock. You need to be approved for options trading, not all accounts are. As far as this particular trade goes - No, the stock doesn't necessarily get called away the day it's in the money, but it can be. If the stock closes just in the money around the time of expiration are you ok will selling it for the strike price? Remember, the option buyer is taking a small risk, the cost of this option, hoping the stock will go far above that price.\""
},
{
"docid": "480691",
"title": "",
"text": "As stock prices have declined, the net worth of people has come down. Imagine owning a million shares of a stock worth $100/share. This is worth $100,000,000. Now, if the stock is suddenly trading at $50/share then some would say you have lost $50,000,000. The value of the stock is less. The uncertainty is always there as there are differences between one day's close and another day's open possibly. The sale price is likely to be near the last trade is what is being used here. If you place a market order to sell your stock, the price may move between the time the order is placed and when it is filled. There are limit orders that could be used if you want to control the minimum price you get though you give up that the order has to be filled as otherwise people could try to sell shares for millions of dollars that wouldn't work out well."
},
{
"docid": "227304",
"title": "",
"text": "Quoted from money.howstuffworks.com: NASDAQ has come up with an auction approach called the opening cross. Here's how it works. In the morning, a computer program looks at all the orders that have come in overnight in each different stock. Based on those orders, the program picks a price level that would be the best opening price. However, it also looks to see if there's a trade imbalance. For example, if a company announced bad news after the market closed, there might be 10 times more sell orders than buy orders. NASDAQ then broadcasts the price and imbalance information to its network of dealers with the goal of offsetting the imbalance. It then lets dealers place orders. This all happens very quickly, in a time window of two minutes or so, right before the market opens. Dealers can place orders, and those orders are factored into the opening price. Further reading here: Opening Price calculation"
},
{
"docid": "265365",
"title": "",
"text": "There are several reasons it is not recommended to trade stocks pre- or post-market, meaning outside of RTH (regular trading hours). Since your question is not very detailed I have to assume you trade with a time horizon of at least more than a day, meaning you do not trade intra-day. If this is true, all of the above points are a non-issue for you and a different set of points becomes important. As a general rule, using (3) is the safest regardless of what and how you trade because you get price guarantee in trade for execution guarantee. In the case of mid to longer term trading (1 week+) any of those points is viable, depending on how you want to do things, what your style is and what is the most comfortable for you. A few remarks though: (2) are market orders, so if the open is quite the ride and you are in the back of the execution queue, you can get significant slippage. (1) may require (live) data of the post-market session, which is often not easy to come by for the entire US stock universe. Depending on your physical execution method (phone, fax, online), you may lack accurate information of the post-market. If you want to execute orders based on RTH and only want to do that after hours because of personal schedule constraints, this is not really important. Personally I would always recommend (3), independent of the use case because it allows you more control over your orders and their fills. TL;DR: If you are trading long-term it does not really matter. If you go down to the intra-day level of holding time, it becomes relevant."
},
{
"docid": "209863",
"title": "",
"text": "\"IPO's are priced so that there's a pop\"\" on the opening day.\"\" If I were IPOing my company and the price \"\"popped\"\" on the open, I would think the underwriter priced it too low. In fact if I were to IPO, I'd seek an underwriter whose offerings consistently traded on the first day pretty unchanged. That means they priced it correctly. In the 90's IPO boom, there were stocks that opened up 3X and more. The original owners must have been pretty upset as the poor pricing guidance the underwriter offered.\""
},
{
"docid": "189612",
"title": "",
"text": "Approximately 5.3 billion ounces have been mined. This puts the total value of all gold in the world at about $9.5 trillion, based on $1800/oz. Total world net worth was $125T in 2006. There's an odd thing that happens when one asset's value is suddenly such a large percent of all assets. (This reminds me of how and why the tech bubble burst. Cisco and EMC would have been worth more than all other stocks combined if they grew in the 00's like they did in the 90's.) Production (in 2005/6) ran about 80 million oz/yr. Just over 1.5% impact to total supply, so you are right in that observation. On the other hand, the limited amount out here, means that if everyone decided to put their wealth in gold, it would be done by driving the price to bubblicious levels. One can study this all day, and parse out how much is in investment form (as compared to jewelry, etc) and realize that a few trillion dollars in value pales in comparison to the wealth of the US alone, let alone the world. Half the world can't buy two oz if they tried. Of course there's pressure to reopen mines that had costs pushing $800/oz. Understand that the supply of $300 gold is long gone. As the easy gold has been mined, and cost goes up, there's a point where mines close. But as the price of gold trades at these levels, the mines that couldn't produce at $600 are now opening."
},
{
"docid": "85484",
"title": "",
"text": "\"In the US, stocks are listed on one exchange but can be traded on multiple venues. You need to confirm exactly what your data is showing: a) trades on the primary-listed exchange; or b) trades made at any venue. Also, the trade condition codes are important. Only certain trade condition codes contribute towards the day's open/high/low/close and some others only contribute towards the volume data. The Consolidated Tape Association is very clear on which trades should contribute towards each value - but some vendors have their own interpretation (or just simply an erroneous interpretation of the specifications). It may surprise you to find that the majority of trading volume for many stocks is not on their primary-listed exchange. For example, on 2 Mar 2015, NASDAQ:AAPL traded a total volume across all venues was 48096663 shares but trading on NASDAQ itself was 12050277 shares. Trades can be cancelled. Some data vendors do not modify their data to reflect these busted trades. Some data vendors also \"\"snapshot\"\" their feed at a particular point in time of the data. Some exchanges can provide data (mainly corrections) 4-5 hours after the closing bell. By snapshotting the data too early and throwing away any subsequent data is a typical cause of data discrepancies. Some data vendors also round prices/volumes - but stocks don't just trade to two decimal places. So you may well be comparing two different sets of trades (with their own specific inclusion rules) against the same stock. You need to confirm with your data sources exactly how they do things. Disclosure: Premium Data is an end-of-day daily data vendor.\""
},
{
"docid": "251002",
"title": "",
"text": "When using the Stochastic Indicator your basic aim is to buy (go long) when the stochastic becomes oversold (goes below 20%) and then the %K line crosses above the %D line at a market low, and to sell (go short) when the stochastic becomes overbought (goes above 80%) and then the %K line crosses below the %D line at a market high. Other indicators or candlestick patters can also be used to further confirm the trade. Below is a chart of a trade I recently took on GUD.AX using the Slow Stochastic in combination with support and resistance levels as well as a candlestick pattern. When I conducted my stock search on the evening of 28th July 2015, GUD was one of the results from the search that I particularly liked. The Slow Stochastic had just made a crossover in the oversold area just as the price was bouncing off its recent lows at the support line. But what I really like about this opportunity was that there was also a bullish reversal candle (a Hammer) at this short term market bottom. The high for the day was $8.34, so I placed a stop buy order to buy the stock tomorrow if the price opened or moved above this high of today. So I would only buy if the stock hit or moved above $8.35 during the next days trading. So if the stock opened and stayed below the previous day's high I would not buy the stock and my order would be canceled at the end of the day. This is very important because it stops you from getting into trades that don't go in the direction you want. If this happens then you could check the chart again after market close to see if it is still worthwhile to place a new order for the next day. On the 29th July 2015 the stock did open higher at $8.42 (which is where my order got executed) and closed at $8.46. So I ended up buying slightly above my target price but it did move higher on the day, so a successful entry overall. I had placed my initial stop loss at $8.09 (just below the low of the previous day of $8.10). If the trade had gone against me in the following days the most I would have lost was 1% of my total account capital. My target for this trade was $9.86 (just below the resistance line near $10), which would represent a 5% gain against my total account capital (or approx. 16.7% gain on the trade). So my win to loss ratio was 5:1. As you can see from the chart, the next day gapped up at the open and prices continued moving up strongly during the day. The next day was a slightly negative day, and then a few days later, on the 5th August 2015 my target price of $9.86 was reached (with a high of $9.88 for that day), so my order was closed for a total profit of 16.7% on the face value of the trade. However, as I bought on margin (using CFDs) my actual profit on the initial margin I had invested was 167%. My total time in the trade was 7 days, and I spent about an hour in the evening doing my searches and placing my orders, then less than 10 minutes managing the trade each evening after market close. The stock did go up a bit further after my profit target was reached, but the day after that the price started to fall as the price hit the resistance line and the Slow Stochastic did a crossover in the overbought area. Overall, this was a very ideal trade and I was very happy with it. Not all my trades reach my profit targets and I may get stopped out at a smaller profit or I might make a small loss (as I move my stops up as the price moves up). The key to successful trading over the long term is to keep you losses small and let your profits run (with my longer term trend trading I don't have profit targets and let my profits run until I get stopped out, but with my shorter term trading I do use a profit target usually 5 or 6 times the size of my initial stop). If you have an average win to average loss ratio of 3:1 or higher and have a success rate of 50% winners you will make money over the long term."
},
{
"docid": "327369",
"title": "",
"text": "\"The Fed doesn't exactly have a specific schedule when they decide to create a new dollar. Instead, they engage in open market operations, creating and destroying money as is necessary to preserve a certain interest rate for lending and borrowing. It's an ongoing process. When the Fed meets periodically and they see that inflation is getting out of hand, they will raise that rate; when they see that the economy is weak, they will lower it. They change the target rate from time to time, but they seldom tell people exactly what they'll do in advance, aside from them recently saying that rates will remain incredibly low \"\"for an extended period of time\"\". There are people who trade futures contracts based on what they think these rates will be, and the Fed does publish information on what the market thinks the probabilities are. That's probably the closest thing to telling you \"\"how much and when\"\". If you want to know about the size of the money supply, ask the Federal Reserve; you probably want series H.6, Money Stock Measures. For an explanation of what the data series there means, ask Wikipedia: you're probably interested in M2, because that's what actually affects the economy, though M0 is closer to what they actually \"\"print\"\" (currency, bills and coins, and deposits at the central bank). If you're concerned about the actual real value of your dollar dropping, the actual value drop is better understood by looking at either the inflation rate, or an exchange rate against a foreign currency (and depending on what you were hoping to use that dollar for, there are a couple of different inflation rates). The standard inflation rate which measures what happens in your day to day life is the consumer price index, published by the BLS. There are a variety of forecasts of this, but I'm not aware of any official government-agency forecasts.\""
},
{
"docid": "386487",
"title": "",
"text": "This would otherwise be a comment, but I wish to share an image. A stock I happened to own, gapped up on the open to $9.20 and slowly worked its way down to $8.19 where it closed up 6% but near its low for the day. This is an addendum to my comment above, warning about buying a stock on the open when news is coming out. Or more important, to be mindful of that news and the impact it might have on the stock. In this case, when the news came out and the stock had closed at $7.73, one would need to decide if he wished to buy it at any cost, or place a limit order. I've redacted the name of the company, as this discussion has nothing to do with any particular stock, I'm just offering an example of the effect I warned about, three weeks ago. (Full disclosure, I got out at $8.70 in the first minutes of trading.)"
},
{
"docid": "96926",
"title": "",
"text": "The mutual fund will price at day's end, while the ETF trades during the day, like a stock. If you decide at 10am, that some event will occur during the day that will send the market up, the ETF is preferable. Aside from that, the expenses are identical, a low .14%. No real difference especially in a Roth."
},
{
"docid": "370760",
"title": "",
"text": "\"I don't know why there is so much confusion on such a simple concept. The answer is very simple. A stock must eventually pay dividends or the whole stock market is just a cheap ponzi scheme. A company may temporarily decided to reinvest profits into R&D, company expansion, etc. but obviously if they promised to never pay dividends then you can never participate in the profits of the company and there is simply no intrinsic value to the stock. For all of you saying 'Yeah but the stock price will go up!', please people get a life. The only reason the price goes up is in anticipation of dividend yield otherwise WHY would the price go up? \"\"But the company is worth more and the stock is worth more\"\" A stocks value is not set by the company but by people who buy and sell in the open market. To think a stock's price can go up even if the company refuses to pay dividends is analogous to : Person A says \"\"Hey buy these paper clips for $10\"\". But those paper clips aren't worth that. \"\"It doesn't matter because some fool down the line will pay $15\"\". But why would they pay that? \"\"Because some fool after him will pay $20\"\" Ha Ha!\""
},
{
"docid": "438190",
"title": "",
"text": "When a delisting happens, the primary process involves, the firm or the entity, trying to buy everyone out so that they can take the firm private by delisting from the stock exchanges. As the firm wants to buy everyone out, the current owners of the equity have the upper hand. They wouldn't want to sell if they believe the firm has a brighter future. So to compensate the existing holders, the buyer needs to compensate the current holders of any future loss, so they pay a premium to buy them out. Hence the prices offered will be more than the current existing price. And in anticipation of a premium the stocks price rises on this speculation. The other scenario is if the current holder(s) decide no to sell their holdings and are small in number, dependent on exchange regulations, and the buyer manages to de-list the stock, the holders might loose out i.e. they have to find another buyer who wants to buy which becomes difficult as the liquidity for the stock is very minimal. if any stock is DE-listed and then we can not trade on it, In India if the promoters capital is more than 90%, he can get the stock de-listed. There is a process, he has to make an open offer at specified price to minority shareholders. The minority shareholder can refuse to sell. Once the stock is de-listed, it means it cannot be traded on a given exchange. However you can still sell / buy by directly finding a buyer / seller and it's difficult compared to a listed stock."
},
{
"docid": "370304",
"title": "",
"text": "I've never seen a dividend, split or other corporate action during the day, but I have seen trade suspended a few times when something big happened. The market opening price is not in general the same as the close of the previous day. It can gap up or down and does frequently. I don't know of an api to find out if the dividend was cash or stock, but stock dividends are a lot less common."
},
{
"docid": "525231",
"title": "",
"text": "\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,[email protected]), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\""
},
{
"docid": "125298",
"title": "",
"text": "\"It depends on how the program is run. If the company runs the program out of treasury stock (shares that are authorized, but not issued), then there aren't any shares being purchased on the open market. Because of that, the share price wouldn't be affected. If you look in your employer's annual report, you will probably find how the program is run and how many shares are issued annually under that program. By comparing that to the daily trading volume of the company's stock you can gauge whether there's any likelihood of the share price being affected by the employee purchases. That is, of course, if shares are being purchased on the open market. For example, here is Books-A-Million's program, as described in their 2011 annual report: Employee Stock Purchase Plan The Company maintains an employee stock purchase plan under which shares of the Company’s common stock are reserved for purchase by employees at 85% of the fair market value of the common stock at the lower of the market value for the Company’s stock as of the beginning of the fiscal year or the end of the fiscal year. On May 20, 2010, the stockholders of the Company approved an additional 200,000 shares available for issuance under the plan, bringing the aggregate number of shares that may be awarded to 600,000. Of the total reserved shares, 391,987, 373,432 and 289,031 shares have been purchased as of January 29, 2011, January 30, 2010 and January 31, 2009, respectively. This describes an instance of the employee purchase program being run from unissued stock, not open market purchases. From it, we can tell 18,555 shares were issued during the past fiscal year. As their average daily volume is ~40,000 shares, if the program were run from a single open market purchase, it would have potential to \"\"move the market\"\". One would think, though, that a company running it from open market purchases would spread the purchases over a period of time to avoid running up the price on themselves.\""
},
{
"docid": "141141",
"title": "",
"text": "\"Something to note is that when a company announces a share buyback program there is usually a time frame and amount of shares that are important details as it isn't like the company will make one big buy back of stock generally. Rather it may take months or even years as noted in the Wikipedia article about share repurchases. Wikipedia covers some of the technical details here but to give a specific set of answers: When a company announces a share buyback program, who do they actually buy back the shares from? From the Wikipedia link: \"\"Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights, and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction.\"\" Thus, there are open market and a couple of other possibilities. Openly traded shares on a stock exchange? Possibly, though there are other options. Is there a fixed price that they buy back at? Sometimes. I'd think a \"\"fixed price tender offer\"\" would imply a fixed price though the open market way may take various prices. If I own shares in that company, can I get them to buy back my shares? Selective Buy-Backs is noted in Wikipedia as: \"\"In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. In the US, no special shareholder approval of a selective buy-back is required. In the UK, the scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favor of a special resolution to approve a selective buy-back. The notice to shareholders convening the meeting to vote on a selective buy-back must include a statement setting out all material information that is relevant to the proposal, although it is not necessary for the company to provide information already disclosed to the shareholders, if that would be unreasonable.\"\" Thus it is possible, though how probable is another question. While not in the question, something to consider is how the buybacks can be done as a result of offsetting the dilution of employees who have stock options that may exercise them and spread the earnings over more shares, but this is more on understanding the employee stock option scenario that various big companies use when it comes to giving employees an incentive to help the stock price.\""
}
] |
8970 | What's the difference, if any, between stock appreciation and compound interest? | [
{
"docid": "187583",
"title": "",
"text": "\"Compounding is just the notion that the current period's growth (or loss) becomes the next period's principal. So, applied to stocks, your beginning value, plus growth (or loss) in value, plus any dividends, becomes the beginning value for the next period. Your value is compounded as you measure the performance of the investment over time. Dividends do not participate in the compounding unless you reinvest them. Compound interest is just the principle of compounding applied to an amount owed, either by you, or to you. You have a balance with which a certain percentage is calculated each period and is added to the balance. The new balance is used to calculate the next period's interest, which again adds to the balance, etc. Obviously, it's better to be on the receiving end of a compound interest calculation than on the paying end. Interest bearing investments, like bonds, pay simple interest. Like stock dividends, you would have to invest the interest in something else in order to get a compounding effect. When using a basic calculator tool for stocks, you would include the expected average annual growth rate plus the expected annual dividend rate as your \"\"interest\"\" rate. For bonds you would use the coupon rate plus the expected rate of return on whatever you put the interest into as the \"\"interest\"\" rate. Factoring in risk, you would just have to pick a different rate for a simple calculator, or use a more complex tool that allows for more variables over time. Believe it or not, this is where you would start seeing all that calculus homework pay off!\""
}
] | [
{
"docid": "149555",
"title": "",
"text": "\"Well, the first one is based on the \"\"Pert\"\" formula for continuously-compounded present value, while the second one is the periodically-compounded variant. Typically, the continuously-compounded models represent the ideal; as the compounding period of time-valued money shrinks towards zero, and the discount rate (or interest rate if positive) stays constant over the time period examined, the periodic equation's results approach that of the continuously-compounded equation. Those two assumptions (a constant rate and continuous balance adjustment from interest) that allow simplification to the continuous form are usually incorrect in real-world finance; virtually all financial institutions accrue interest monthly, for a variety of reasons including simpler bookkeeping and less money paid or owed in interest. They also, unless prohibited by contract, accrue this interest based on a rate that can change daily or even more granularly based on what financial markets are doing. Most often, the calculation is periodic based on the \"\"average daily balance\"\" and an agreed rate that, if variable, is based on the \"\"average daily rate\"\" over the previous observed period. So, you should use the first form for fast calculation of a rough value based on estimated variables. You should use the second form when you have accurate periodic information on the variables involved. Stated alternately, use the first form to predict the future, use the second form in retrospect to the past.\""
},
{
"docid": "179527",
"title": "",
"text": "If S&P crashes, these currencies will appreciate. Note that the above is speculation, not fact. There is definitely no guarantee that, say, the CHF/CAD currency pair is inversely linked to the performance of the US stock market when measured in USD, let alone to the performance of the US stock market as measured in CAD. How can a Canadian get exposure to a safe haven currency like CHF and JPY? I don't want a U.S. dollar denominated ETF. Three simple options come to mind, if you still want to pursue that: Have money in your bank account. Go to your bank, tell them that you want to buy some Swiss francs or Japanese yen. Walk out with a physical wad of cash. Put said wad of cash somewhere safe until needed. It is possible that the bank will tell you to come back later as they might not have the physical cash available at the branch office, but this isn't anything really unusual; it is often highly recommended for people who travel abroad to have some local cash on hand. Contact your bank and tell them that you want to open an account denominated in the foreign currency of your choice. They might ask some questions about why, there might be additional fees associated with it, and you'll probably have to pay an exchange fee when transferring money between it and your local-currency-denominated accounts, but lots of banks offer this service as a service for those of their customers that have lots of foreign currency transactions. If yours doesn't, then shop around. Shop around for money market funds that focus heavily or exclusively on the currency area you are interested in. Look for funds that have a native currency value appreciation as close as possible to 0%. Any value change that you see will then be tied directly to the exchange rate development of the relevant currency pair (for example, CHF/CAD). #1 and #3 are accessible to virtually anyone, no large sums of money needed (in principle). Fees involved in #2 may or may not make it a practical option for someone handling small amounts of money, but I can see no reason why it shouldn't be a possibility again in principle."
},
{
"docid": "475984",
"title": "",
"text": "\"Thanks for pointing out [the study](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1748851). It's a slightly different cause than what I was describing when I posted this. Specifically, they show an effect not when the names get confused, but rather when the name similarity simply brings more attention to the stock. I was surprised nobody mentioned that in response to my post. But also interesting is that they had to control for simple confusion between stock symbols, which implies that ticker confusion has a known effect. So I dug into research on that and quickly found [this study](http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2010-Aarhus/EFMA2010_0161_fullpaper.pdf) found \"\"a high positive correlation between returns on two matching stocks with similar ticker symbols\"\".\""
},
{
"docid": "393439",
"title": "",
"text": "Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). No. That's exactly what the SO is NQ for. Read more on the differences between ISO and NQSO here. Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). At this point you no longer have NQSO, you have RSU. If you filed 83(b) when you exercised, then you pay capital gains tax when they vest. If you didn't - its ordinary income to you. NQSO is a red herring here since once exercised they no longer exist. If you didn't file 83(b), then when the stock vests the difference between the FMV at vest and the money you spent on it when exercising (if any) is considered wages and taxed as ordinary income (+FICA etc). From that point the RSU becomes a regular stock investment and the capital gains clock starts ticking."
},
{
"docid": "167438",
"title": "",
"text": "Congrats! That's a solid accomplishment for someone who is not even in college yet. I graduated college 3 years ago and I wish I was able to save more in college than I did. The rule of thumb with saving: the earlier the better. My personal portfolio for retirement is comprised of four areas: Roth IRA contributions, 401k contributions, HSA contributions, Stock Market One of the greatest things about the college I attended was its co-op program. I had 3 internships - each were full time positions for 6 months. I strongly recommend, if its available, finding an internship for whatever major you are looking into. It will not only convince you that the career path you chose is what you want to do, but there are added benefits specifically in regards to retirement and savings. In all three of my co-ops I was able to apply 8% of my paycheck to my company's 401k plan. They also had matching available. As a result, my 401k had a pretty substantial savings amount by the time I graduated college. To circle back to your question, I would recommend investing the money into a Roth IRA or the stock market. I personally have yet to invest a significant amount of money in the stock market. Instead, I have been maxing out my retirement for the last three years. That means I'm adding 18k to my 401k, 5.5k to my Roth, and adding ~3k to my HSA (there are limits to each of these and you can find them online). Compounded interest is amazing (I'm just going to leave this here... https://www.moneyunder30.com/power-of-compound-interest)."
},
{
"docid": "371392",
"title": "",
"text": "\"I think the real answer to your question here is diversification. You have some fear of having your money in the market, and rightfully so, having all your money in one stock, or even one type of mutual fund is risky as all get out, and you could lose a lot of your money in such a stock-market based undiversified investment. However, the same logic works in your rental property. If you lose your tennant, and are unable to find a new one right away, or if you have some very rare problem that insurance doesn't cover, your property could become very much not a \"\"break even\"\" investment very quickly. In reality, there isn't any single investment you can make that has no risk. Your assets need to be balanced between many different market-investments, that includes bonds, US stocks, European stocks, cash, etc. Also investing in mutual funds instead of individual stocks greatly reduces your risk. Another thing to consider is the benefits of paying down debt. While investments have a risk of not performing, if you pay off a loan with interest payments, you definitely will save the money you would have paid in interest. To be specific, I'd recommend the following plan -\""
},
{
"docid": "314478",
"title": "",
"text": "\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\""
},
{
"docid": "474705",
"title": "",
"text": "\"Time Value of Money - The simple calculation for this is FV = PV * (1+r)^N which reads The Future Value is equal to the Present Value times 1 plus the interest rate multiplied by itself by the number of periods that will pass. A simple way to look at this is that if interest rates were 5%/yr a dollar would be worth (1.05)^N where N is the number of years passing. The concept of compound interest cannot be separated from the above. Compounding is accounting for the interest on the interest that has accrued in prior periods. If I lend you a dollar at 6% simple interest for 30 years, you would pay me back $1 + $1.80 or $2.80. But - 1.06^30 = 5.74 so that dollar compounded at 6% annually for 30 years is $5.74. Quite a difference. Often, the time value of money is discussed in light of inflation. A dollar today is not the same dollar as 30 years ago or 30 years hence. In fact, inflation has eroded the value of the dollar by a factor of 3 over the past 30 years. An average item costing $100 would now cost $300. So when one invests, at the very least they try to stay ahead of inflation and seek additional return for their risk. One quirk of compounding is the \"\"rule of 72.\"\" This rule states that if you divide the interest rate into the number 72 the result is the number of years to double. So 10% per year will take about 7.2 years to double, 8%, 9 years, etc. It's not 100% precise, but a good \"\"back of napkin\"\" calculation. When people talk about the total payments over the thirty year life of a mortgage, they often ignore the time value of money. That payment even ten years from now has far less value than the same payment today.\""
},
{
"docid": "591694",
"title": "",
"text": "\"The correct answer to this question is: the person who the short sells the stock to. Here's why this is the case. Say we have A, who owns the stock and lends it to B, who then sells it short to C. After this the price drops and B buys the stock back from D and returns it to A. The outcome for A is neutral. Typically stock that is sold short must be held in a margin account; the broker can borrow the shares from A, collect interest from B, and A has no idea this is going on, because the shares are held in a street name (the brokerage's name) and not A. If A decides during this period to sell, the transaction will occur immediately, and the brokerage must shuffle things around so the shares can be delivered. If this is going to be difficult then the cost for borrowing shares becomes very high. The outcome for B is obviously a profit: they sold high first and bought (back) low afterwards. This leaves either C or D as having lost this money. Why isn't it D? One way of looking at this is that the profit to B comes from the difference in the price from selling to C and buying from D. D is sitting on the low end, and thus is not paying out the profit. D bought low, compared to C and this did not lose any money, so C is the only remaining choice. Another way of looking at it is that C actually \"\"lost\"\" all the money when purchasing the stock. After all, all the money went directly from C to B. In return, C got some stock with the hope that in the future C could sell it for more than was paid for it. But C literally gave the money to B, so how could anybody else \"\"pay\"\" the loss? Another way of looking at it is that C buys a stock which then decreases in value. C is thus now sitting on a loss. The fact that it is currently only a paper loss makes this less obvious; if the stock were to recover to the price C bought at, one might conclude that C did not lose the money to B. However, in this same scenario, D also makes money that C could have made had C bought at D's price, proving that C really did lose the money to B. The final way of seeing that the answer is C is to consider what happens when somebody sells a stock which they already hold but the price goes up; who did they lose out on the gain to? The person again is; who bought their stock. The person would buys the stock is always the person who the gain goes to when the price appreciates, or the loss comes out of if the price falls.\""
},
{
"docid": "117602",
"title": "",
"text": "\"Basically, your CC is (if normal) compounded monthly, based on a yearly APR. To calculate the amount of interest you'd pay on each of these accounts in a year, pull up a spreadsheet like Office Excel. Put in your current balance, then multiply it by the annual interest rate divided by 12, and add that quantity to the balance. Subtract any payment you make, and the result is your new balance. You can project this out for several months to get a good estimate of what you'll pay; in accounting or finance terms, what you're creating is an \"\"amortization table\"\". So, with a $10,000 balance, at 13.99% interest and making payments of $200/mo, the amortization table for one year's payments might look like: As you can see, $200 isn't paying down this card very quickly. In one year, you will have paid $2,400, of which $1,332.25 went straight into the bank's pockets in interest charges, reducing your balance by only $1,067.75. Up the payments to $300/mo, and in 1 year you will have paid $3,600, and only been charged $1,252.24 in interest, so you'll have reduced your balance by $2,347.76 to only $7,652.24, which further reduces interest charges down the line. You can track the differences in the Excel sheet and play \"\"what-ifs\"\" very easily to see the ramifications of spending your $5,000 in various ways. Understand that although, for instance, 13.99% may be your base interest rate, if the account has become delinquent, or you made any cash advances or balance transfers, higher or lower interest rates may be charged on a portion of the balance or the entire balance, depending on what's going on with your account; a balance transfer may get 0% interest for a year, then 19.99% interest after that if not paid off. Cash advances are ALWAYS charged at exorbitantly high rates, up to 40% APR. Most credit card bills will include what may be called an \"\"effective APR\"\", which is a weighted average APR of all the various sub-balances of your account and the interest rates they currently have. Understand that your payment first pays off interest accrued during the past cycle, then pays down the principal on the highest-interest portion of the balance first, so if you have made a balance transfer to another card and are using that card for purchases, the only way to avoid interest on the transfer at the post-incentive rates is to pay off the ENTIRE balance in a year. The minimum payment on a credit card USED to be just the amount of accrued interest or sometimes even less; if you paid only the minimum payment, the balance would never decrease (and may increase). In the wake of the 2008 credit crisis, most banks now enforce a higher minimum payment such that you would pay off the balance in between 3 and 5 years by making only minimum payments. This isn't strictly required AFAIK, but because banks ARE required by the CARD Act to disclose the payoff period at the minimum payment (which would be \"\"never\"\" under most previous policies), the higher minimum payments give cardholders hope that as long as they make the minimum payments and don't charge any more to the card, they will get back to zero.\""
},
{
"docid": "399511",
"title": "",
"text": "Teach them that money can help solve most (if not all the problems) in life. If they truly appreciate the value of saving every single penny, eventually they will come to realize that if you don't touch your money (waste it on useless things you don't need such as eating out) that it can grow. Also teach them the value of compounding interest, even a TFSA/high interest savings account with a modest 3-4% annual ROI can be big with yearly additions and no withdrawals for a lifetime. Tell them to take Johnny Appleseed for example. Johnny starts up his TFSA with help from mom and dad at the age of 15, let's say they put in $5000 all together. Now let's say he adds in a modest $2500 to his TFSA every year until he is 55 years old. If the TFSA has an interest rate of 4%, then when he's 55 he'll have over half a million dollars in the bank and he really didn't have to do much besides not touch it."
},
{
"docid": "91926",
"title": "",
"text": "\"For the mortgage, you're confusing cause and effect. Loans like mortgages generally have a very simple principle behind them: at any given time, the interest charged at that time is the product of the amount still owing and the interest rate. So for example on a mortgage of $100,000, at an interest rate of 5%, the interest charged for the first year would be $5,000. If you pay the interest plus another $20,000 after the first year, then in the second year the interest charge would be $4,000. This view is a bit of an over-simplification, but it gets the basic point across. [In practice you would actually make payments through the year so the actual balance that interest is charged on would vary. Different mortgages would also treat compounding slightly differently, e.g. the interest might be added to the mortgage balance daily or monthly.] So, it's natural that the interest charged on a mortgage reduces year-by-year as you pay off some of the mortgage. Mortgages are typically setup to have constant payments over the life of the mortgage (an \"\"amortisation schedule\"\"), calculated so that by the end of the planned mortgage term, you'll have paid off all of the principal. It's a straightforward effect of the way that interest works in general that these schedules incorporate higher interest payments early on in the mortgage, because that's the time when you owe more money. If you go for a 15-year mortgage, each payment will involve you paying off significantly more principal each time than with a 30-year mortgage for the same balance - because with a 15-year mortgage, you need to hit 0 after 15 years, not 30. So since you pay off the principal faster, you naturally pay less interest even when you just compare the first 15 years. In your case what you're talking about is paying off the mortgage using the 30-year payments for the first 15 years, and then suddenly paying off the remaining principal with a lump sum. But when you do that, overall you're still paying off principal later than if it had been a 15-year mortgage to begin with, so you should be charged more interest, because what you've done is not the same as having a 15-year mortgage. You still will save the rest of the interest on the remaining 15 years of the term, unless there are pre-payment penalties. For the car loan I'm not sure what is happening. Perhaps it's the same situation and you just misunderstood how it was explained. Or maybe it's setup with significant pre-payment penalties so you genuinely don't save anything by paying early.\""
},
{
"docid": "581776",
"title": "",
"text": "So my Question is this, in reality is investment in equities like the stock market even remotely resemble the type of growth one would expect if investing the same money in an account with compounding interest? Generally no as there is a great deal of volatility when it comes to investing in stocks that isn't well represented by simply taking the compounded annual growth rate and assuming things always went up and never went down. This is adding in the swings that the market will take that at times may be a bit of a rude surprise to some people. Are all these prognosticators vastly underestimating how much savers need to be socking away by overstating what is realistic in terms of growth in investment markets? Possibly but not probably. Until we know definitively what the returns are from various asset classes, I'm not sure I'd want to claim that people need to save a ton more. I'll agree that the model misses how wide the swings are, not necessarily that the averages are too low or overstated."
},
{
"docid": "472537",
"title": "",
"text": "The price of a share has two components: Bid: The highest price that someone who wants to buy shares is willing to pay for them. Ask: The lowest price that someone who has a share is willing to sell it for. The ask is always higher than the bid, since if they were equal the buyer and seller would have a deal, make a transaction, and that repeats until they are not equal. For stock with high volume, there is usually a very small difference between the bid and ask, but a stock with lower volume could have a major difference. When you say that the share price is $100, that could mean different things. You could be talking about the price that the shares sold for in the most recent transaction (and that might not even be between the current bid and ask), or you could be talking about any of the bid, the ask, or some value in between them. If you have shares that you are interested in selling, then the bid is what you could immediately sell a share for. If you sell a share for $100, that means someone was willing to pay you $100 for it. If after buying it, they still want to buy more for $100 each, or someone else does, then the bid is still $100, and you haven't changed the price. If no one else is willing to pay more than $90 for a share, then the price would drop to $90 next time a transaction takes place and thats what you would be able to immediately sell the next share for."
},
{
"docid": "4429",
"title": "",
"text": "This is a purely numerical statement that you should be able to check (and you CPA friend should be able to prove, if true). The general advice, I think, is that you should not use your retirement funds this way, but general advice does not apply equally well to everyone. You didn't give enough information for us to compute the answer, so you're on your own there. If you do this (or have the CPA do it), make sure that it accounts for all pluses and minuses that you'll have. On the minus side, you get any direct penalties in addition to potential loss of right to contribute for a period of time, so make sure you consider both aspects, especially to any degree that you would lose an employer contribution or match. Also consider the fact that the money already in is tax advantaged, and you won't be able to replace that amount later. So there will be a compounding effect to what was lost. (This may or may not be balanced by a mortgage interest deduction down the road - My guess is that it will not, but, again, the details of your situation may dictate a different path. The mortgage interest deduction decreases each year as you pay more principal whereas the compounding from being tax deferred tends to increase each year.)"
},
{
"docid": "21903",
"title": "",
"text": "The value of money is not only in the earning and saving of it but also in the discipline in spending it. Any approach to teaching children about money must ensure a balance between the two otherwise they will either become fearful of spending (and so never actually learn that money is but a tool and can be enjoyed) or irresponsible (spending with abandon with all that concomitant misery): Teaching kids about money is a wonderful opportunity to instil discipline and values. Any strategy must be structured to suite the child's age and abilities as well. Trying to teach compound interest to too young a child will just become needlessly confusing and worrying for them. Hope this gives a few ideas."
},
{
"docid": "283893",
"title": "",
"text": "If this is the case, then shouldn't the difference between their annualized returns be same year on year? In general yes, however there difference has a compounding effect. i.e. if the difference if 5% first year, this money is invested and it would generate more of the said returns. However in reality as the corpus size of direct funds is very small, there difference is not very significant as other factors come into play."
},
{
"docid": "327560",
"title": "",
"text": "Generally, when I run across this kind of situation, I look for the Investor Relations section of the corporate website for a 'Stock Information' (or similar) tab or link. This usually contains information explaining the different shares classes, how they relate (if at all), voting and/or dividend rights, and taxation differences for the different classes. However, I have trouble finding such a page on a central BYD corporate investor relations page. I did find this page detailing the HK1211 shares: http://www.byd.com/investor/base_information.html. I don't know what or why, but something tells me this is an older page. Searching on, I also found this page which looks newer and clarifies that the difference you are seeing is between 'A' and 'H' shares. http://www.byd.cn/BYDEnglish/basic/article.jsp?articleId=1524676. (I'm guessing but I'd think somewhere in the announcements on this byd.cn site, you may find more details of any structural differences between share classes -- I just didn't want to page through them all.)"
},
{
"docid": "36405",
"title": "",
"text": "Damn, helpful Harry above me. So, in general, when compounding the value of an investment, if you're seeing an annualized interest rate of 4%, and the interest compounds monthly (or n number of times per year), you're going to multiply the Principal P by the growth rate (the interest rate), adjusted for the number of periods that your investment grows in a year. P_end = P * (1 + 0.04/n)^(n * t), where n = number of periods, and t = number of years. If the interest compounds annually, you earn P *(1.04), if it compounds monthly, you earn (1 + 0.04/12)^(12 * 1). Apply this logic to discounting future cash flows to their net present value. When discounting future cash flows, you're essentially determing the opportunity cost of now being unable to put your investment elsewhere and earning that corresponding interest (discount) rate. Thus, you would discount $1000 by (1 + 0.08/12)^1, and $2000, $3000 in a similar fashion. Then, as icing on the cake, sum up to get your cumulative net present value. Please let me know if any portion of my explanation is unclear; I would be happy to elaborate!"
}
] |
8970 | What's the difference, if any, between stock appreciation and compound interest? | [
{
"docid": "96121",
"title": "",
"text": "\"If you mean, If I invest, say, $1000 in a stock that is growing at 5% per year, versus investing $1000 in an account that pays compound interest of 5% per year, how does the amount I have after 5 years compare? Then the answer is, They would be exactly the same. As Kent Anderson says, \"\"compound interest\"\" simply means that as you accumulate interest, that for the next interest cycle, the amount that they pay interest on is based on the previous cycle balance PLUS the interest. For example, suppose you invest $1000 at 5% interest compounded annually. After one year you get 5% of $1000, or $50. You now have $1050. At the end of the second year, you get 5% of $1050 -- not 5% of the original $1000 -- or $52.50, so you now have $1102.50. Etc. Stocks tend to grow in the same way. But here's the big difference: If you get an interest-bearing account, the bank or investment company guarantees the interest rate. Unless they go bankrupt, you WILL get that percentage interest. But there is absolutely no guarantee when you buy stock. It may go up 5% this year, up 4% next year, and down 3% the year after. The company makes no promises about how much growth the stock will show. It may show a loss. It all depends on how well the company does.\""
}
] | [
{
"docid": "12034",
"title": "",
"text": "I assume I can/will need to file an 83(b) election, in order to avoid tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that the board has received my execution notice? The secretary of the board is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe."
},
{
"docid": "598295",
"title": "",
"text": "Apart from making money from the price difference, some stocks also give dividends, or bonus issues. For long term investors whom are looking for steady income, they may be more interested with the dividend pay-out instead of the capital-appreciation."
},
{
"docid": "323475",
"title": "",
"text": "First off, putting extra cash toward a mortgage early on, when most of the payments are going to interest, is the BEST time. If you pay an extra $1 on your mortgage today, you will save 30 years worth of interest (assuming a 30 year mortgage). If in 29 years you pay an extra dollar, you will only save 1 year worth of interest. That said, there are lots of things that go into a decision like this. Do you have other debts? How stable is your income? What is the interest rate on your mortgage compared to any other debts you may have or potential investments you might make? How much risk are you willing to take? Etc. Mortgages tend to be very low interest, and, at least in the U.S., the interest on them is tax-deductible, making the effective interest rate even lower. If you have some other loan, you are almost always better to pay the other loan off first. If you don't mind a little risk, you are usually better off to invest your money rather than pay off the mortgage. Suppose your mortgage is 5%. The average return on the stock market is something like 7% (according to my buddy who works for Wells Fargo). So if you put $1000 toward your mortgage, you'd save $50 the first year. (Ignoring compounding for simplicity, changes the exact numbers but not the basic idea.) If you put that same $1000 in the stock market, than if it's a typical year you'd make $70. You could put $50 of that toward paying the interest on your mortgage and you'd have $20 left to go on a wild spending spree. The catch is that the interest on a mortgage is fixed, while the return on an investment is highly variable. In an AVERAGE year the stock market might return 7%, but this year it might return 20% or it might lose 10% or a wide range of other possible numbers. (Well, you might have a variable rate mortgage, but there are still usually some defined limits on how much it can vary.)"
},
{
"docid": "231917",
"title": "",
"text": "1a. It isn't. Compound interest is compound interest. It works no different within a 401(k). 1b. Yes. 401(k)'s are made up of the same underlying assets that you could invest in with a regular brokerage account."
},
{
"docid": "31142",
"title": "",
"text": "\"Despite having a math degree, I basically only use basic algebra/probability/calculus on a day to day basis as my career has gone a different direction away from the modelling/quanty stuff. Some fun reading: * The SABR Model - [SABR/LIBOR Model](http://www.amazon.com/SABR-LIBOR-Market-Model-Interest-Rate/dp/0470740051) * Shevre's Stochastic Calculus for Finance - [Book 1](http://www.amazon.com/Stochastic-Calculus-Finance-Binomial-Textbooks/dp/0387249680/) & [Book 2](http://www.amazon.com/Stochastic-Calculus-Finance-Continuous-Time-Textbooks/dp/144192311X/) One of the big 'hard' problems is calibrating a swap curve w/ what's known as the 3s6s Basis. As a number of true quants have said to me it is a \"\"non-trivial problem\"\". Its basically trying to match two curves with different compounding over a number of different knot points. SABR Model, listed above, is all about calibrating and figuring out how the current rate enviroment is behaving, is it normal or lognormal? What is the blend between the two, how do you know when you are in a different environment etc. Can rates go negative?\""
},
{
"docid": "200054",
"title": "",
"text": "When you sell the stock your income is from the difference of prices between when you bought the stock and when you sold it. There's no interest there. The interest is in two places: the underlying company assets (which you own, whether you want it or not), and in the distribution of the income to the owners (the dividends). You can calculate which portion of the interest income constitutes your dividend by allocating the portions of your dividend in the proportions of the company income. That would (very roughly and unreliably, of course) give you an estimate what portion of your dividend income derives from the interest. Underlying assets include all the profits of the company that haven't been distributed through dividends, but rather reinvested back into the business. These may or may not be reflected in the market price of the company. Bottom line is that there's no direct correlation between the income from the sale of the stake of ownership and the company income from interest, if any correlation at all exists. Why would you care about interest income of Salesforce? Its not a bank or a lender, they may have some interest income, but that's definitely not the main income source of the company. If you want to know how much interest income exactly the company had, you'll have to dig deep inside the quarterly and annual reports, and even then I'm not sure if you'll find it as a separate item for a company that's not in the lending business."
},
{
"docid": "21903",
"title": "",
"text": "The value of money is not only in the earning and saving of it but also in the discipline in spending it. Any approach to teaching children about money must ensure a balance between the two otherwise they will either become fearful of spending (and so never actually learn that money is but a tool and can be enjoyed) or irresponsible (spending with abandon with all that concomitant misery): Teaching kids about money is a wonderful opportunity to instil discipline and values. Any strategy must be structured to suite the child's age and abilities as well. Trying to teach compound interest to too young a child will just become needlessly confusing and worrying for them. Hope this gives a few ideas."
},
{
"docid": "102119",
"title": "",
"text": "Compound interest is your friend. For such a low amount of cash, just pop it into savings accounts or deposits. When you reach about 1.500€ buy one very defensive stock that pays high dividends. With deposits, you don't risk anything, with one stock, you can lose 100% of the investment. That's why it's important to buy defensive stock (food, pharma, ...). Every time you hit 1.500€ after, buy another stock until you have about 10 different stock in different sectors, in different countries. Then buy more stock of the ones you have in portfolio. You're own strategy is pretty good also."
},
{
"docid": "216065",
"title": "",
"text": "You should also consider what the cost of the Put is, especially if the strike price is set at the current price, vs the average price delta of the security during the period between when you buy the put, and the expiration date. Also note the prices for puts on stocks with a lot of price volatility. There are a good number of situations where you may come out behind. If the stock stays the same price, you are out the premium you paid for the put. If the stock price rises less than the premium, you are out the difference between the two. If the stock price falls less than the premium, you are out the difference between the two. In order to be 'in the money' when writing a protective put, the stock has to either rise more than the premium you paid for the put (and you MUST sell, or hold and write off the expense of the put) or the stock price has to fall below the strike price to a level lower than the premium you paid, and you must SELL via the exercising the option. and you've protected yourself from a loss (presuming you were going to sell and not hold and see if the stock recovers. And since selling is required in both cases, if you've held the stock less than a year, then pay on any profits at short term rates (taxed as regular income) and if the price went down, you can't claim any loss (unless strike price was below your buy price), and would still need to pay if you had a net gain, and you likely can't deduct the price you paid for the put."
},
{
"docid": "384015",
"title": "",
"text": "http://www.investopedia.com/university/shortselling/shortselling1.asp 'Therein lies the major risk of short selling, the fear of infinite losses. While the maximum loss for a long investor is the amount invested in a security, the maximum loss for a short seller is theoretically infinite, since there is no upper limit to a stock’s price appreciation. This risk is compounded by the fact that during a short squeeze or buy-in...' Never have shorted a stock. Too intimidated by that!"
},
{
"docid": "495717",
"title": "",
"text": "\"Sorry in advance, but this will be long. Also, it sounds like your friend is a tool. I hope this \"\"friend\"\" is not also your financial advisor... they would be encouraging you to make a very poor investment decision. They also don't know how to do financial math. For what it's worth, I am not wrong. I have correctly answered a set of changing questions as you have asked them... Your friend is answering based on a third, completely different investment model, which you proposed in the edit to your last post. If that's what you meant all along, then you should have been more clear in the questions you were asking. Please let me layout the following: How the previous questions//investment proposals were built How to analyze this current proposal What your other option is Why the other option is best in a 'real world' market The First Question My understanding of the initial proposal was to take out a $10,000 loan, invest the proceeds, and expect to not have any money of your own tied up in this. Because that OP did not specify that this is an interest-only loan (you still haven't in any of your questions), the bank will require you to make payments back to them each month that include principal and interest. Your \"\"friend\"\" is talking about the total interest paid being the only cost of a loan. While that is (almost) true, regardless of what your friend says, significantly more cash is involved in making sure that all the payments are made on time---unless you set up an interest-only loan. But with the set up laid out in this post, and with the assumptions I specified there, the principal payments must be included because the borrower has to pay back the bank and isn't not tying up any of their own money. In that case, my initial analysis is correct--your breakeven is in the low teens for an annual required return. The Second Proposal Your second proposal... before any edits... refined things a little bit, to try to capture the any possible returns by not selling something. As I indicated there, (with what was an exaggerating assumption), the lack of clarity makes for an outlandish required return. The Second Proposal...with edits, or the one proposed above I will get to the one proposed above in a second, but first let me highlight a few problems with your friend's analysis. Simple interest: the only place (in the US at least) that will lend with simple interest is student loans. Any loan that you actually take out will be compound interest. Not an interest only loan: your \"\"friend\"\" is not calculating interest correctly. Since this isn't an interest-only loan, the principal balance will reduce every time you make a payment, by ~$320-$340 each month. This substantially reduces the total interest paid, to $272.79 over the total 24 months. \"\"Returns\"\": I don't know what country, or what business your friend works in, but \"\"returns\"\" are a very ambiguous concept. Investopedia defines returns as gains or losses. (I wish I could inhabit the lala land that your friend lives in when returns are always positive). TheFreeDictionary.com defines a return for finance as \"\"The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.\"\" When you have not made it clear that any other money is being used in this investment plan (as was the case in scheme #1 and scheme #2a,) the loan still has to be paid. So, clearly the principal must be included in the return calculations. How to evaluate this proposed investment scheme Key dimensions: Loan ($8,000 ... 24 months ... 0.27% monthly rate... monthly compounding... no loan origination fees) Monthly payment (PMT in Excel yields $344.70). Investment capital (starting = $8,000) Monthly Return (Investment yields... we hope it's positive!) Your monthly contribution from your salary Taxes = 10%. Transaction Fees = $20 Go and lookup how to build an amortization table for a loan in Excel. Your life will be infinitely better for it. Now, you get this loan set up and invested into something... (it costs $20 to buy the assets). So you've got $7980 chugging away earning interest. I calculate that your break even, with you paying in $344.70 of your own money each month is 1.81% annually, or 3.42% over the 24 month life of this scheme. That is using monthly compound interest for the payments, because that's what the real world would use, and using monthly compounding of the investments' returns. Your total interest expense would be $272.79. This seems feasible. But let's talk about what your other option is, given that you're ready to spend $344.70 each month on an investment. Your other option I understand the appeal of getting $8,000... right away... to invest in something. But the risk behind this is that if the market goes down (and markets do) you're stuck paying a fixed amount for your loan that is now worth less money. Your other option is to take your $344.70, and invest it step-by-step. (You would want to skip a month or two buying assets in the market, so that you can lessen transaction costs). This has two advantages: (1) you save yourself $272 in interest. (2) When the market goes down, you still win. With this strategy, you still win when the market goes down because of what is commonly called \"\"dollar cost averaging\"\". When the market is up, your investments are also up. When the market goes down, your previous investments decrease in value but you can invest new money at the lower rates. Why the step-by-step, invest your own money strategy is better At low rates (when you're looking for your break-even), the step-by-step model outperforms the loan. At higher rates of return (~4% + per year), you get the benefit of having the borrowed money earning more gains. In fact, for every continuous (meaning set... not changing month-to-month) interest rate that you can dream up that is greater than about 4% per year, the borrowed money earns more. At 10% per year, the borrowed money will earn about $500 more over the 2 years than your step by step investment would. BUT I recognize that you might feel like the market will always go up. That's what everyone thinks. And that's alright. But have one really bad month, or a couple of just-not-great-months, and your fixed 'loan' portfolio will underperform. Have a few really bad months, and your portfolio could be substantially reduced in value... but you would still be paying the same amount for it each month. And if that happened (say your assets declined -3% in 3 of the 24 months...) You'd be losing money relative to the step-by-step portfolio.\""
},
{
"docid": "308150",
"title": "",
"text": "\"If I understand correctly, the Traditional IRA, if you have 401k with an employer already, has the following features: Actually, #1 and #2 are characteristics of Roth IRAs, not Traditional IRAs. Only #3 is a characteristic of a Traditional IRA. Whether you have a 401(k) with your employer or not makes absolutely no difference in how your IRAs are taxed for the vast majority of people. (The rules for IRAs are different if you have a very high income, though). You're allowed to have and contribute to both kinds of accounts. (In fact, I personally have both). Traditional IRAs are tax deferred (not tax-free as people sometimes mistakenly call them - they're very different), meaning that you don't have to pay taxes on the contributions or profits you make inside the account (e.g. from dividends, interest, profits from stock you sell, etc.). Rather, you pay taxes on any money you withdraw. For Roth IRAs, the contributions are taxed, but you never have to pay taxes on the money inside the account again. That means that any money you get over and above the contributions (e.g. through interest, trading profits, dividends, etc.) are genuinely tax-free. Also, if you leave any of the money to people, they don't have to pay any taxes, either. Important point: There are no tax-free retirement accounts in the U.S. The distinction between different kinds of IRAs basically boils down to \"\"pay now or pay later.\"\" Many people make expensive mistakes in their retirement strategy by not understanding that point. Please note that this applies equally to Traditional and Roth 401(k)s as well. You can have Roth 401(k)s and Traditional 401(k)s just like you can have Roth IRAs and Traditional IRAs. The same terminology and logic applies to both kinds of accounts. As far as I know, there aren't major differences tax-wise between them, with two exceptions - you're allowed to contribute more money to a 401(k) per year, and you're allowed to have a 401(k) even if you have a high income. (By way of contrast, people with very high incomes generally aren't allowed to open IRAs). A primary advantage of a Traditional IRA is that you can (in theory, at least) afford to contribute more money to it due to the tax break you're getting. Also, you can defer taxes on any profits you make (e.g. through dividends or selling stock at a profit), so you can grow your money faster.\""
},
{
"docid": "85229",
"title": "",
"text": "Insurance - get estimate from an insurance agent who works with policies for commercial real estate. See comments below regarding incorporation. Taxes - if this was basic income for a simple LLC, estimating 25-40% and adjusting over time might work. Rental property is a whole different prospect. Financial experts who specialize in rental properties would be a good source of advice, and worth the cost. See below regarding incorporating. Real estate appreciation - not something you can count on for developed property. Appreciation used to be almost guaranteed to at least keep up with inflation. Now property values are not even guaranteed to go up. Never have been but the general rule was improved real estate in good repair appreciated in price. Even if property values increase over time, rental properties depreciate. In fact, for rental properties, you can claim a certain rate of depreciation over time as an expense on taxes. This depreciation could mean selling for less than you paid for the property after a number of years, and owing capital gains taxes, since you would owe the difference between the depreciated value and the sale price. Related to taxes are local codes. Some areas require you to have a property management license to handle buildings with more than a certain number of units. If you are going to own rental properties, you should protect your private financial life by incorporating. Form a company. The company will own the property and hire any maintenance people or property managers or security staff or any similar employment activities. The company takes out the insurance and pays taxes. The company can pay you a salary. So, bottom line, you can have the company pay all the expenses and take all the risks. Then, assuming there's any money left after expenses, the company can pay you a manager's salary. That way if the worst happens and a tenant breaks their hip in the shower and sues you for ONE MILLION DOLLARS and wins, the company folds and you walk away. You might even consider two companies. One to own the property and lease it to a property management company. The property management company can then go bankrupt in case of some sort of liability issue, in which case you still keep the property, form a new management company, repaint and rename the property and move on. TL;DR: Get insurance advice from insurance agent before you buy. Same for taxes from an accountant. Get trained as a property manager if your local codes require it (might be a good idea anyway). Incorporate and have the company take all the risks."
},
{
"docid": "368770",
"title": "",
"text": "\"The answer depends on what else you'd do with that 2%. But first, let's look at some actual numbers. For simplicity's sake, let's say you have a £100k mortgage outstanding, your payment is £1000 per month, and you want to pay £1000 extra per month. 2% interest, compounded monthly for simplicity, so .02/12 = .00167% per month. (Your interest is probably compounded daily, but this simplifies the math and isn't too far off of it.) If you don't pay it off early, then first month, you'll owe £100167, minus £1000, so £99167. Second month, £99332 after interest, then £98332 after payment. So on and so forth. After 24th month (2 years), you'll owe £79613 after that 24th payment. So you've paid off £20,000 of balance, at the cost of £24,000; total interest paid, £3,613. If you do pay off another £1000, so you put a total of £2000 in per month, which is penalized (.02*1000=£20) each payment, for a total of £48,000 paid over the 24 months. After that 24 months, you have a balance of £55,637, so a bit over £44k paid off, at the cost of £48k; total interest and fees paid, £3,637. So, at the end of the 24 month period, you've paid an extra £24 in interest/fees than you would have otherwise. You of course have a lower loan balance at the end, but you haven't saved any money overall, and if you're just refinancing at this point into a new loan, you're no better off (and very slightly worse off), even assuming the money will just sit in your bank account and do nothing. I think with daily compounding interest it will be around the same or slightly better, but it's not a significant amount. Now, there is a third option, perhaps: pay £24000 (so after penalty, £23,520) on the first month. This is that whole extra £1000 per month, all up front, where it makes the most difference for interest. This does help, some: you pay £3,172 in interest, around £450 less. Sounds good to me, right? Except, you might be able to make more than £450 with that £24,000. £450 is 1.875% of £24,000, meaning you just need to make a 2% return on your money to beat out this option (and in fact, that's not surprising, given the 2% interest rate!). Investing in the market, even conservatively, is likely, though not guaranteed, to be beneficial; over a 2 year period it's fairly risky, though if you can think over 5-10 years, it's very likely to be substantially better. Even a 4-5% return (well below long-term market averages) will be quite a bit better, and the market's down quite a bit right now - so it might be even better than that - though it's still a risk. You can make a term deposit (looks like \"\"Fixed rate bond\"\" is the term), even, and at least break even - right now it looks like 1.9% is common for a 2 year term deposit in the UK. In total - my recommendation would be against paying off the mortgage early, particularly in this 2% interest rate period. 2% is around inflation levels, meaning you're not really paying any real interest, from one point of view. Once the rates are higher (4%+) then it may be worth considering. The exception here - basically the standard exception to these questions - is if you are otherwise going to spend the money on luxuries. In that case, you're better off prepaying the mortgage, at least from a personal finance perspective, if you can do so up front - but not if you're going to do it monthly. What is better for you personally in this regard is a question only you can answer, of course.\""
},
{
"docid": "274360",
"title": "",
"text": "No. Income inside an RRSP is sheltered from income tax until you withdraw it. That is, indeed, the major benefit of RRSPs. Note that you will eventually declare this as income. Consider the following case: - in 2015, you make $1000 in income. - in 2015, you contribute $100 to your RRSPs. You store this in an account that pays interest, rather than investing it in stocks, bonds, or mutual funds. - between 2015 and 2025, your money makes an additional $100 in interest. - in 2025, you are retired and pull out the entire amount in your RRSP, i.e. $200. Now, between 2015 and 2025, you did not declare the income from interest. You'd have had to do this if the money was in a regular bank account (instead of an RRSP or a TFSA). Indeed, your bank would have issued tax forms in that case. But you don't report income sheltered in an RRSP. This is good, as it increases the power of compounding. In 2015, you pay tax on only $900 rather than the full $1000. In 2025, you pull out the entire $200. You report all $200 as income (or, actually, as a withdrawal from your RRSP, but it's the same thing). You pay tax on the initial $100 investment (which you did not do in 2015), and you also pay tax on the $100 that your investment has made (and which you are now pulling out). The hope is that your income is now lower, as you are retired. So you'll end up paying less income tax. Plus, your investment has had many years of opportunity to compound, tax-free. TL;DNR: You don't pay tax on, or report gains in, an RRSP account. The bank or investment house won't even issue tax forms, not until you withdraw the money."
},
{
"docid": "4429",
"title": "",
"text": "This is a purely numerical statement that you should be able to check (and you CPA friend should be able to prove, if true). The general advice, I think, is that you should not use your retirement funds this way, but general advice does not apply equally well to everyone. You didn't give enough information for us to compute the answer, so you're on your own there. If you do this (or have the CPA do it), make sure that it accounts for all pluses and minuses that you'll have. On the minus side, you get any direct penalties in addition to potential loss of right to contribute for a period of time, so make sure you consider both aspects, especially to any degree that you would lose an employer contribution or match. Also consider the fact that the money already in is tax advantaged, and you won't be able to replace that amount later. So there will be a compounding effect to what was lost. (This may or may not be balanced by a mortgage interest deduction down the road - My guess is that it will not, but, again, the details of your situation may dictate a different path. The mortgage interest deduction decreases each year as you pay more principal whereas the compounding from being tax deferred tends to increase each year.)"
},
{
"docid": "204866",
"title": "",
"text": "What are the risks pertaining to timing on long term index investments? The risks are countless for any investment strategy. If you invest in US stocks, and prices revert to the long term cyclically adjusted average, you will lose a lot of money. If you invest in cash, inflation may outpace interest rates and you will lose money. If you invest in gold, the price might go down and you will lose money. It's best to study history and make a reasonable decision (i.e. invest in stocks). Here are long term returns by asset class, computed by Jeremy Siegel: $1 invested in equities in 1801 equals $15.22 today if was not invested and $8.8 million if it was invested in stocks. This is the 'magic of compound interest' and cash / bonds have not been nearly as magical as stocks historically. 2) How large are these risks? The following chart shows the largest drawdowns (decreases in the value of an asset) since 1970 (source): Asset prices decrease in value frequently. Financial assets are volatile, but historically, they have increased over time, enabling investors to earn compounded returns (exponential growth of money is how to get rich). I personally view drawdowns as an excellent time to buy - it's like going on a shopping spree when everything in the store is discounted. 3) In case I feel not prepared to take these risks, how can I avoid them? The optimal asset allocation depends on the ability to take risk and your tolerance for risk. You are young and have a long investment horizon, so if stocks go down, you will have plenty of time to wait for them to go back up (if you're smart, you'll buy more stocks when they go down because they're cheap), so your ability to bear risk is high. From your description, it seems like you have a low risk tolerance (despite a high ability to be exposed to risk). Here's the return of various asset classes and how the average investor has fared over the last 20 years (source): Get educated (read Common Sense on Mutual Funds, A Random Walk Down Wall Street, etc.) and don't be average! Closing words: Investing in a globally diversified portfolio with a dollar cost averaging strategy is the best strategy for most investors. For investors that are unable to stay rational when markets are volatile (i.e. the investor uncontrollably sells their stocks when stocks decrease 20%), a more conservative asset allocation is recommended. Due to the nature of compounded interest, a conservative portfolio is likely to have a much lower future value."
},
{
"docid": "35533",
"title": "",
"text": "I would use neither method. Taking a short example first, with just three compounding periods, with interest rate 10%. The start value y0 is 1. So after three years the value is 1.331, the same as y0 (1 + 0.1)^3. Depreciating (like inflation) by 10% (to demonstrate) gets us back to y0 = 1 Appreciating and depreciating by 10% cancels out: Appreciating by 10% interest and depreciating by 3% inflation: This is the same as y0 (1 + 0.1)^3 (1 + 0.03)^-3 = 1.21805 So for 50 years the result is y0 (1 + 0.1)^50 (1 + 0.03)^-50 = 26.7777 Note You can of course use subtraction but the not using the inflation figure directly. E.g. (edit: This appears to be the Fisher equation.) 2nd Note Further to comments, here is a chart to illustrate how much the relative performance improves when inflation is accounted for. The first fund's return is 6% and the second fund's return varies from 3% to 6%. Inflation is 3%."
},
{
"docid": "372657",
"title": "",
"text": "\"Let's talk interest rates on your junk bonds. Even after all that the US has been through (and is still going through), the United States dollar is widely regarded as one of the safest safe havens for your money. As such it serves as a de facto baseline against which all other investments can be measured, the bar everyone has to pass: if you could earn 4% on a 5-year US Treasury bond, or earn 4% on anything else over the next 5 years, you pick the Treasury bond. In many ways this means that the interest rate on a Treasury bond is the closest single measure we have to the price of money all by itself. If someone is loaning you money, they could be loaning it to the Treasury instead; they are losing out by making this loan to you, and must charge you at least this rate just to break even. But most people/governments/countries aren't as credit-worthy as the US Treasury. A few are (the US treasury isn't magical, after all, just really good at what it does), but generally they are not. There is a possibility when loaning money to these entities that you will not get your money back. That is risk. All entities have some risk (even the US treasury!), and some have more than others; \"\"junk bonds\"\" have a somewhat elevated level of this risk. Now, you don't just take a risk on for free (unless you're being charitable or something, but I hope you can find better beneficiaries of charity than the average junk bond). You need to be compensated for that risk. Lenders will demand compensation commensurate with that risk - or they will just walk away without making any loans or buying any bonds because it's not worth it. The difference between the interest rate on a US Treasury bond and the interest rate on another bond, such as a junk bond, is the risk premium - the cost of carrying that risk. Therefore you can see that the interest rate on a junk bond is the price of money plus the risk premium. Now, the Federal Reserve adjusts the price of money from time to time, by buying and selling US Treasury bonds until the price is something they like. This means that one component of interest rate on a junk bond is the interest rate on the US Treasury bond, and it is effectively controlled by the Federal Reserve (through that layer of indirection). The other component of the interest rate on a junk bond is the risk premium. It's not generally possible to know in advance whether or not some company will actually default. People have to guess, and decide how comfortable they are taking that risk. This means that risk is more expensive (and interest rates are higher) when they think the companies in question are going through some hard times, and risk will also be more expensive when people decide that they can't take as many risks (perhaps they've already lost some money and need to take additional steps to protect the rest). It's definitely very hard for an individual to decide what the risk on a particular bond is. The good news is that you generally don't have to. There are a bunch of rich jerks, hedge funds, retirement funds, insurance companies, and other investment entities out there who spend all day looking at things like bonds, trying to estimate the risk. Their willingness to exploit minuscule differences between the interest rate on a bond and the real risk means that the average bond on the market will be fairly priced, according to what all those people think. Plenty of them can still be wrong, mind you (cf. mortgage-backed securities) but in the general case the price of any security reflects all the information everyone in the world has on it on average, so if you're wrong you're in good company. When you buy a nice diversified bond fund, you have access to a bunch of bonds at a pretty-standard price. So that's interest rates for you. But you asked about prices. As it turns out, they're the same thing! - just expressed slightly differently. One way or another a bond is essentially meant to be a stream of payments worth a certain amount in the end - this is why you'll hear them referred to sometimes as a \"\"fixed-income security\"\". The interest rate is essentially the difference between the price you pay now, and the value you receive later, except expressed as a rate. Technically, you could structure the bonds differently (e.g. does the bond pay little bits of interest as you go along, or just pay one big lump sum in the end?) but you can use Math to convert between these two situations, and figure out how much money is worth which when, so it doesn't really matter. Anyway. This means that rising interest rates means lower bond prices on bonds you already own (and falling interest rates means higher bond prices). So if the Federal Reserve increases interest rates, the face value of your bond funds will fall. Also, if people think that the companies issuing the bonds are too risky, the face value of those bonds will also fall. (You were probably expecting the latter effect, though.) Mind you, you will still get the same amount of future money out of them as you would otherwise: that's why they're fixed-income securities. However, a higher interest rate means \"\"I can get more money in the future for less money now\"\", and so people will be willing to pay you less for your bond in the present. This is known as interest rate risk. It is higher on longer term bonds, because those have more time to earn interest.\""
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "140738",
"title": "",
"text": "\"At 50 years old, and a dozen years or so from retirement, I am close to 100% in equities in my retirement accounts. Most financial planners would say this is way too risky, which sort of addresses your question. I seek high return rather than protection of principal. If I was you at 22, I would mainly look at high returns rather than protection of principal. The short answer is, that even if your investments drop by half, you have plenty of time to recover. But onto the long answer. You sort of have to imagine yourself close to retirement age, and what that would look like. If you are contributing at 22, I would say that it is likely that you end up with 3 million (in today's dollars). Will you have low or high monthly expenses? Will you have other sources of income such as rental properties? Let's say you rental income that comes close to covering your monthly expenses, but is short about 12K per year. You have a couple of options: So in the end let's say you are ready to retire with about 60K in cash above your emergency fund. You have the ability to live off that cash for 5 years. You can replenish that fund from equity investments at opportune times. Its also likely you equity investments will grow a lot more than your expenses and any emergencies. There really is no need to have a significant amount out of equities. In the case cited, real estate serves as your cash investment. Now one can fret and say \"\"how will I know I have all of that when I am ready to retire\"\"? The answer is simple: structure your life now so it looks that way in the future. You are off to a good start. Right now your job is to build your investments in your 401K (which you are doing) and get good at budgeting. The rest will follow. After that your next step is to buy your first home. Good work on looking to plan for your future.\""
}
] | [
{
"docid": "74583",
"title": "",
"text": "I agree with harmanjd – best to roll it over to an IRA. Not only does that afford you better control of your money as pointed out already, but: If you choose your IRA provider wisely, you can get an account that provides you with a much wider array of investing choices, including funds and ETFs that charge much lower fees than what you would have had access to in an employer 401(k) plan. But here's one thing to consider first: Do you hold any of your previous employer's stock in your old 401(k)? There are special rules you might want to be aware of. See this article at Marketwatch: If your 401(k) includes your company's stock, a rollover may be a bad move. Additional Resource:"
},
{
"docid": "490867",
"title": "",
"text": "Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian. Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company... If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined. Loans terms shouldn't change. Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods."
},
{
"docid": "449696",
"title": "",
"text": "I applied to a travel credit card after my local branch of Bank of America told me I should look into it due to my constant traveling. I've been with them for 3 years and have never had an issue and I was declined on my travel credit card even though I have a decent credit score of 730. I'm also a 22 year old and have my senior year of school to finish but have always been good with Bank of America. Is it because I'm young?"
},
{
"docid": "422421",
"title": "",
"text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you."
},
{
"docid": "163287",
"title": "",
"text": "\"Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market. How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to \"\"vest\"\". This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts. This will make it far easier for you to qualify for a mortgage later on. Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate. First, there will be fewer chances for the rate to go up. Second, even if the rate does go up, you will not owe the money very long.\""
},
{
"docid": "591168",
"title": "",
"text": "\"You have a few options: Option #1 - Leave the money where it is If your balance is over $5k - you should be able to leave the money in your former-employer's 401(k). The money will stay there and continue to be invested in the funds that you elect to invest in. You should at the very least be receiving quarterly statements for the account. Even better - you should have access to some type of an online account where you can transfer your investments, rebalance your account, conform to target, etc. If you do not have online account access than I'm sure you can still transfer investments and make trades via a paper form. Just reach out to the 401(k) TPA or Recordkeeper that administers your plan. Their contact info is on the quarterly statements you should be receiving. Option #2 - Rollover the money into your current employer's 401(k) plan. This is the option that I tend to recommend the most. Roll the money over into your current employer's 401(k) plan - this way all the money is in the same place and is invested in the funds that you elect. Let's say you wanted to transfer your investments to a new fund lineup. Right now - you have to fill out the paperwork or go through the online process twice (for both accounts). Moving the money to your current-employer's plan and having all the money in the same place eliminates this redundancy, and allows you to make one simple transfer of all your assets. Option #3 - Roll the money from your former-employer's plan into an IRA. This is a cool option, because now you have a new IRA with a new set of dollar limits. You can roll the money into a separate IRA - and contribute an additional $5,500 (or $6,500 if you are 50+ years of age). So this is cool because it gives you a chance to save even more for retirement. Many IRA companies give you a \"\"sign on bonus\"\" where if you rollover your former-employers 401(k)...they will give you a bonus (typically a few hundred bucks - but hey its free money!). Other things to note: Take a look at your plan document from your former-employer's 401(k) plan. Take a look at the fees. Compare the fees to your current-employer's plan. There could be a chance that the fees from your former-employer's plan are much higher than your current-employer. So this would just be yet another reason to move the money to your current-employer's plan. Don't forget you most likely have a financial advisor that oversees your current-employer's 401(k) plan. This financial advisor also probably takes fees from your account. So use his services! You are probably already paying for it! Talk to your HR at your employer and ask who the investment advisor is. Call the advisor and set up an appointment to talk about your retirement and financial goals. Ask him for his advice - its always nice talking to someone with experience face to face. Good luck with everything!\""
},
{
"docid": "367272",
"title": "",
"text": "One thing you didn't mention is whether the 401(k) offers a match. If it does, this is a slam-dunk. The $303 ($303, right?) is $3636/yr that will be doubled on deposit. It's typical for the first 5% of one's salary to capture the match, so this is right there. In 15 years, you'll still owe $76,519. But 15 * $7272 is $109,080 in your 401(k) even without taking any growth into account. The likely value of that 401(k) is closer to $210K, using 8% over that 15 years, (At 6%, it drops to 'only' $176K, but as I stated, the value of the match is so great that I'd jump right on that.) If you don't get a match of any kind, I need to edit / completely rip my answer. It morphs into whether you feel that 15 years (Really 30) the market will exceed the 4% cost of that money. Odds are, it will. The worst 15 year period this past century 2000-2014 still had a CAGR of 4.2%."
},
{
"docid": "489790",
"title": "",
"text": "\"There is no penalty for foreigners but rather a 30% mandatory income tax withholding from distributions from 401(k) plans. You will \"\"get it back\"\" when you file the income tax return for the year and calculate your actual tax liability (including any penalties for a premature distribution from the 401(k) plan). You are, of course, a US citizen and not a foreigner, and thus are what the IRS calls a US person (which includes not just US citizens but permanent immigrants to the US as well as some temporary visa holders), but it is entirely possible that your 401(k) plan does not know this explicitly. This IRS web page tells 401(k) plan administrators Who can I presume is a US person? A retirement plan distribution is presumed to be made to a U.S. person only if the withholding agent: A payment that does not meet these rules is presumed to be made to a foreign person. Your SSN is presumably on file with the 401(k) plan administrator, but perhaps you are retired into a country that does not have an income tax treaty with the US and that's the mailing address that is on file with your 401(k) plan administrator? If so, the 401(k) administrator is merely following the rules and not presuming that you are a US person. So, how can you get around this non-presumption? The IRS document cited above (and the links therein) say that if the 401(k) plan has on file a W-9 form that you submitted to them, and the W-9 form includes your SSN, then the 401(k) plan has valid documentation to associate the distribution as being made to a US person, that is, the 401(k) plan does not need to make any presumptions; that you are a US person has been proved beyond reasonable doubt. So, to answer your question \"\"Will I be penalized when I later start a regular monthly withdrawal from my 401(k)?\"\" Yes, you will likely have mandatory 30% income tax withholding on your regular 401(k) distributions unless you have established that you are a US person to your 401(k) plan by submitting a W-9 form to them.\""
},
{
"docid": "394549",
"title": "",
"text": "\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\""
},
{
"docid": "468841",
"title": "",
"text": "You should be able to take a loan out on the 401(k). You can't do a roll-over unless you leave your job. If your 401(k) is that bad, you should consider maxing out your IRA contributions first and putting the rest into your 401(k) - so if you're putting away about 7k a year, lower your withholding to 1500 and put 5500 into an IRA."
},
{
"docid": "417388",
"title": "",
"text": "The 401(k) contribution is Federal tax free, when you make the contribution, and most likely State too. I believe that is true for California, specifically. There was a court case some years ago about people making 401(k) or IRA contributions in New York, avoiding the New York state income tax. Then they moved to Florida (no income tax), and took the money out. New York sued, saying they had to pay the New York income tax that had been deferred, but the court said no. So you should be able to avoid California state income tax, and then later if you were to move to, for example, Texas (no income tax), have no state income tax liability. At the Federal level, you will have different problems. You won't have the money; it will be held by the 401(k) trustee. When you try to access the money (cash the account out), you will have to pay the deferred taxes. Effectively, when you remove the money it becomes income in the year it is removed. You can take the money out at any time, but if you are less than 59 1/2 at the time that you take it, there is a 10% penalty. The agreement is that the Feds let you defer paying the tax because it is going to finance your retirement, and they will tax it later. If you take it out before 59 1/2, they figure you are not retired yet, and are breaking your part of the agreement. Of course you can generally leave the money in the 401(k) plan with your old employer and let it grow until you are 59.5, or roll it over into another 401(k) with a new employer (if they let you), or into an IRA. But if you have returned to your own country, having an account in the U.S. would introduce both investment risk and currency risk. If you are in another country when you want the money, the question would be where your U.S. residence would be. If you live in California, then go to, say France, your U.S. residence would still be California, and you would still owe California income tax. If you move from California to Texas and then to France, your U.S. residence would be Texas. This is pretty vague, as you might have heard in the Rahm Emanual case -- was he a resident of Chicago or Washington, D.C.? Same problem with Howard Hughes who was born in Texas, but then spent most his life in California, then to Nevada, then to Nicaragua, and the Bahamas. When he died Texas, California and Nevada all claimed him as a resident, for estate taxes. The important thing is to be able to make a reasonable case that you are a resident of where ever you want to be -- driver's license, mailing address, living quarters, and so on."
},
{
"docid": "215149",
"title": "",
"text": "At a minimum, I would save 20-30k, because you need to have both a safety net and some money for home repairs. Very few people move into a house and then do zero repairs - painting, usually, at a minimum, and there's almost always something that comes up pretty soon after. Even if you're buying a condo, you'll want to be sure you can fix anything that needs fixing within that first year or two. Beyond that, you have to decide based on your risk tolerance and your other details, like your income. Taking a smaller mortgage means a guaranteed 3% to 4% return, right now. That's not quite what you'll probably get on the market over the long term, but how did your investments do last year? My 401(k) was down slightly... In order to do better than that 3-4%, you're going to have to invest in stocks (or ETFs or similar), meaning you could have 10+% swings potentially year over year, which if that's your only (extra) 50k might be more than you can tolerate. If you're very risk tolerant and mostly looking to make money over the long term, then it may be worth it to you. But if a larger mortgage makes it harder to pay the monthly payments (a meaningfully smaller buffer), or if your job is such that you might end up having to sell those investments at a loss to cover your mortgage for a few months because you (didn't make enough|got laid off|etc.), then you may want the smaller mortgage to make that less of a risk (though still setting aside the safety net in something minimally risky)."
},
{
"docid": "97490",
"title": "",
"text": "The money that you have under your control (e.g. in bank accounts, savings accounts, taxable investments, etc) is your money and there is no tax of any kind (either in India or in US) that needs to be paid when the money is transferred to India. As Dheer's answer says, you need to transfer all these monies within 7 years as per Indian tax law. For your 401(k) account, assuming that all the money is tax-deferred (i.e. you contributed to a regular 401(k) and not a Roth 401(k)), you will have separated from service as far as US tax law is concerned. So, check if it is at all possible to roll over the money into a similar scheme in India, specifically the Employees Provident Fund. Wikipedia says The schemes covers both Indian and international workers (for countries with which bilateral agreements have been signed; 14 such social security agreements are active). and so a rollover might be possible. If not, you could withdraw small amounts each year and avoid US income tax (but not the 10% excise tax), but how long you can continue holding 401(k) assets after return to India and whether that is long enough to drain the 401(k) are things that you need to find out."
},
{
"docid": "127664",
"title": "",
"text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\""
},
{
"docid": "425703",
"title": "",
"text": "I tried to roll my funds to my new company. But my hr department from my old job would not work with me on getting it straightened out. So I decided to either pull it all out or roll it into a 401 k and use it as a trial for stocks and investments. Simce it isn't a large amount of money to begin with"
},
{
"docid": "499606",
"title": "",
"text": "To answer your question: As far as what's available in addition to your 401(k) at work (most financial types will say to contribute up to the match first), you may qualify for a Roth IRA (qualification is based on income), if not, then you may have to go with a Traditional IRA. You and your husband can each have one and contribute up to the limit each year. After that, you could get just a straight up mutual fund, and/or contribute up to limit on your 401(k). My two cents: This may sound counter-intuitive (and I'm sure some folks will disagree), but instead of contributing to your 401(k) now, take whatever that amount is, and use it to pay extra on the car loan. Also take the extra being paid on the mortgage and pay it on the car loan too. Once the car loan is paid off, then set aside 15% of your gross income and use that amount to start your retirement investing. Any additional money beyond this can then go into the mortgage. Once it's paid off, then you can take the extra you were paying, plus the mortgage and invest that amount into mutual funds. You may want to check out Chris Hogan's Retire Inspired book or podcast as well."
},
{
"docid": "424841",
"title": "",
"text": "If your budget allows for it, max out both plans! However, in my opinion, you're on the right path: The advantage of also contributing to the Roth 401(k) in this case would be: This second point is the main reason that you should also invest in a 401(k), using that as a retirement savings vehicle alongside your Roth IRA. One caveat is that you should ensure that you'll have sufficient savings so that you won't need to dip into either plan - it'd be a shame to reduce the investment base from which you can grow your savings tax free. Personally, I'd view my contributions in the Roth IRA as an emergency fund to be used only in the direst circumstances."
},
{
"docid": "276574",
"title": "",
"text": "The Roth-IRA or for that matter a regular IRA is generally not connected to your place of employment. Now a 401(k) is linked to your place of employment. If the business no longer exists, they should have turned over the 401K. The US department of Labor has information regarding plans that have been abandoned. I suspect my plan is abandoned, but I have never received a notice of plan termination. How could I find out if a QTA has elected to terminate and wind up my 401(k) pension plan? EBSA has developed an Abandoned Plan searchable database to help participants and beneficiaries find out if a particular plan is in the process of being, or has been, terminated. The site is searchable by plan name or employer name and will provide the name and contact information for the QTA, if one exists. If you do not have access to a computer to conduct the search, you may contact one of EBSA’s Benefits Advisors to assist you by calling toll-free, 1.866.444.EBSA (3272)."
},
{
"docid": "165981",
"title": "",
"text": "\"Your question has a built in faulty premise. \"\"ASSUMING a person knows how to use and invest their money wisely\"\" I'd ask if you were wise enough to beat the investments offered in your 401(k) after expenses, and with respect to the potential tax savings. Then, since I'm a proponent of \"\"deposit to the match, even if you have to eat rice and beans to find the cash to do\"\" I'll extend the question to ask if you can beat the choices taking the match into account. 401(k) - Your $1000 starts as $1500 and has a tax due on withdrawal years later. AeroAccount - You start with $750 (after the tax) and might spend a decade before hitting $1500. Start your own company? That might be another story. But to invest in the market and still beat the matched 401(k) takes a bit more wisdom than I'd claim to have.\""
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "216365",
"title": "",
"text": "At 22 years old, you can afford to be invested 100% in the stock market. Like many others, I recommend that you consider low cost index funds if those are available in your 401(k) plan. Since your 401(k) contributions are usually made with each paycheck this gives you the added benefit of dollar cost averaging throughout your career. There used to be a common rule that you should put 100 minus your age as the percentage invested in the stock market and the rest in bonds, but with interest rates being so low, bonds have underperformed, so many experts now recommend 110 or even 120 minus your age for stocks percentage. My recommendation is that you wait until you are 40 and then move 25% into bonds, then increase it to 40% at 55 years old. At 65 I would jump to a 50-50 stock/bonds mix and when you start taking distributions I would move to a stable-value income portfolio. I also recommend that you roll your funds into a Vanguard IRA when you change jobs so that you take advantage of their low management fee index mutual funds (that have no fees for trading). You can pick whatever mix feels best for you, but at your age I would suggest a 50-50 mix between the S&P 500 (large cap) and the Russell 2000 (small cap). Those with quarterly rebalancing will put you a little ahead of the market with very little effort."
}
] | [
{
"docid": "31462",
"title": "",
"text": "\"In asnwer to your questions: As @joetaxpayer said, you really should look into a Solo 401(k). In 2017, this allows you to contribute up to $18k/year and your employer (the LLC) to contribute more, up to $54k/year total (subject to IRS rules). 401(k) usually have ROTH and traditional sides, just like IRA. I believe the employer-contributed funds also see less tax burden for both you and your LLC that if that same money had become salary (payroll taxes, etc.). You might start at irs.gov/retirement-plans/one-participant-401k-plans and go from there. ROTH vs. pre-tax: You can mix and match within years and between years. Figure out what income you want to have when you retire. Any year you expect to pay lower taxes (low income, kids, deductions, etc.), make ROTH contributions. Any year you expect high taxes (bonus, high wage, taxable capital gains, etc.), make pre-tax payments. I have had a uniformly bad experience with target date funds across multiple 401(k) plans from multiple plan adminstrators. They just don't perform well (a common problem with almost any actively managed fund). You probably don't want to deal with individual stocks in your retirement accounts, so rather pick passively managed index funds that track various markets segments you care about and just sit on them. For example, your high-risk money might be in fast-growing but volatile industries (e.g. tech, aerospace, medical), your medium-risk money might go in \"\"total market\"\" or S&P 500 index funds, and your low-risk money might go in treasury notes and bonds. The breakdown is up to you, but as an 18 year old you have a ~50 year horizon and so can afford to wait out anything short of another Great Depression (and maybe even that). So you'd want generally you want more or your money in the high-risk high-return category, rebalancing to lower risk investments as you age. Diversifying into real estate, foreign investments, etc. might also make sense but I'm no expert on those.\""
},
{
"docid": "439249",
"title": "",
"text": "\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\""
},
{
"docid": "313923",
"title": "",
"text": "Pay the 401(k) loan back as soon as possible. To be clear, the money from your 401(k) loan is no longer invested and working for you. It doesn't make sense to pull money out of your 401(k) investments and then invest it in something else. If you want to invest for retirement, pay back the loan and invest that money inside your 401(k). If you leave your job, the 401(k) loan needs to be paid back in full, or else taxes and penalties will apply. If you have put the funds in an IRA, they won't be available to you should you need to pay back the loan early. Instead of making a monthly payment to the 401(k) loan, pay off the loan and then make a monthly investment to an IRA."
},
{
"docid": "289064",
"title": "",
"text": "\"If you are the sole owner (or just you and your spouse) and expect to be that way for a few years, consider the benefits of an individual 401(k). The contribution limits are higher than an IRA, and there are usually no fees involved. You can google \"\"Individual 401k\"\" and any of the major investment firms (Fidelity, Schwab, etc) will set one up free of charge. This option gives you a lot of freedom to decide how much money to put away without any plan management fees. The IRS site has all the details in an article titled One-Participant 401(k) Plans. Once you have employees, if you want to set up a retirement plan for them, you'll need to switch to a traditional, employer-sponsored 401k, which will involve some fees on your part. I seem to recall $2k/yr in fees when I had a sponsored 401(k) for my company, and I'm sure this varies widely. If you have employees and don't feel a need to have a company-wide retirement plan, you can set up your own personal IRA and simply not offer a company plan to your employees. The IRA contribution limits are lower than an individual 401(k), but setting it up is easy and fee-free. So basically, if you want to spend $0 on plan management fees, get an individual 401(k) if you are self-employed, or an IRA for yourself if you have employees.\""
},
{
"docid": "232262",
"title": "",
"text": "\"The responses here are excellent. I'd add just a couple points. Debt is not generic. It ranges from low (my HELOC is 2.5%) to insane (24% credit card, anyone?). When I read about the obsession to be completely debt free, I ask questions. Are you saving in your 401(k) at least up to the match? I disagree with the \"\"debt is evil\"\" people who advise to ignore retirement savings while paying off every last debt. My company offers a dollar for dollar match on the first 5% of income deposited. So a $60K earner will see a $3000 deposit doubled. 5 years of this, and he has 1/2 a year's income in his retirement account, more with positive returns. (note - for those so fearful of losses, all 401(k) accounts have to offer a fixed income, low risk choice. currently 1% or less, but the opposite of \"\"I can lose it all\"\".) After that, paying off the higher debt is great. When it's time to hack away at student debt and mortgage, I am concerned that if it's at the risk of having no savings, I'd hold off. Consider - Two people in homes worth $250K. One has a mortgage of $250K and $100K in the bank. The other has his mortgage paid down to $150K. When they lose their jobs, the guy with the $100K in the bank has the funds to float himself through a period of unemployment as well as a house the bank is less likely to foreclose on. The guy with no money is in deep trouble, and the bank can sell his house for $150K and run away (after proper foreclosure proceedings of course.) My mortgage is one bill, like any other, and only a bit more than my property tax. I don't lose sleep over it. It will be paid before I retire, and before my 11yr old is off to college. I don't think you stupid for paying your low interest debt at your own pace.\""
},
{
"docid": "60032",
"title": "",
"text": "\"This turned out be a lot longer than I expected. So, here's the overview. Despite the presence of asset allocation calculators and what not, this is a subjective matter. Only you know how much risk you are willing to take. You seem to be aware of one rule of thumb, namely that with a longer investing horizon you can stand to take on more risk. However, how much risk you should take is subject to your own risk aversion. Honestly, the best way to answer your questions is to educate yourself about the individual topics. There are just too many variables to provide neat, concise answers to such a broad question. There are no easy ways around this. You should not blindly rely on the opinions of others, but rather use your own judgment to asses their advice. Some of the links I provide in the main text: S&P 500: Total and Inflation-Adjusted Historical Returns 10-year index fund returns The Motley Fool Risk aversion Disclaimer: These are the opinions of an enthusiastic amateur. Why should I invest 20% in domestic large cap and 10% in developing markets instead of 10% in domestic large cap and 20% in developing markets? Should I invest in REITs? Why or why not? Simply put, developing markets are very risky. Even if you have a long investment horizon, you should pace yourself and not take on too much risk. How much is \"\"too much\"\" is ultimately subjective. Specific to why 10% in developing vs 20% in large cap, it is probably because 10% seems like a reasonable amount of your total portfolio to gamble. Another way to look at this is to consider that 10% as gone, because it is invested in very risky markets. So, if you're willing to take a 20% haircut, then by all means do that. However, realize that you may be throwing 1/5 of your money out the window. Meanwhile, REITs can be quite risky as investing in the real estate market itself can be quite risky. One reason is that the assets are very much fixed in place and thus can not be liquidated in the same way as other assets. Thus, you are subject to the vicissitudes of a relatively small market. Another issue is the large capital outlays required for most commercial building projects, thus typically requiring quite a bit of credit and risk. Another way to put it: Donald Trump made his name in real estate, but it was (and still is) a very bumpy ride. Yet another way to put it: you have to build it before they will come and there is no guarantee that they will like what you built. What mutual funds or index funds should I investigate to implement these strategies? I would generally avoid actively managed mutual funds, due to the expenses. They can seriously eat into the returns. There is a reason that the most mutual funds compare themselves to the Lipper average instead of something like the S&P 500. All of those costs involved in managing a mutual fund (teams of people and trading costs) tend to weigh down on them quite heavily. As the Motley Fool expounded on years ago, if you can not do better than the S&P 500, you should save yourself the headaches and simply invest in an S&P 500 index fund. That said, depending on your skill (and luck) picking stocks (or even funds), you may very well have been able to beat the S&P 500 over the past 10 years. Of course, you may have also done a whole lot worse. This article discusses the performance of the S&P 500 over the past 60 years. As you can see, the past 10 years have been a very bumpy ride yielding in a negative return. Again, keep in mind that you could have done much worse with other investments. That site, Simple Stock Investing may be a good place to start educating yourself. I am not familiar with the site, so do not take this as an endorsement. A quick once-over of the material on the site leads me to believe that it may provide a good bit of information in readily digestible forms. The Motley Fool was a favorite site of mine in the past for the individual investor. However, they seem to have turned to the dark side, charging for much of their advice. That said, it may still be a good place to get started. You may also decide that it is worth paying for their advice. This blog post, though dated, compares some Vanguard index funds and is a light introduction into the contrarian view of investing. Simply put, this view holds that one should not be a lemming following the crowd, rather one should do the opposite of what everyone else is doing. One strong argument in favor of this view is the fact that as more people pile onto an investing strategy or into a particular market, the yields thin out and the risk of a correction (i.e. a downturn) increases. In the worst case, this leads to a bubble, which corrects itself suddenly (or \"\"pops\"\" thus the term \"\"bubble\"\") leading to quite a bit of pain for the unprepared participants. An unprepared participant is one who is not hedged properly. Basically, this means they were not invested in other markets/strategies that would increase in yield as a result of the event that caused the bubble to pop. Note that the recent housing bubble and resulting credit crunch beat quite heavily on the both the stock and bond markets. So, the easy hedge for stocks being bonds did not necessarily work out so well. This makes sense, as the housing bubble burst due to concerns over easy credit. Unfortunately, I don't have any good resources on hand that may provide starting points or discuss the various investing strategies. I must admit that I am turning my interests back to investing after a hiatus. As I stated, I used to really like the Motley Fool, but now I am somewhat suspicious of them. The main reason is the fact that as they were exploring alternatives to advertising driven revenue for their site, they promised to always have free resources available for those unwilling to pay for their advice. A cursory review of their site does show a decent amount of general investing information, so take these words with a grain of salt. (Another reason I am suspicious of them is the fact that they \"\"spammed\"\" me with lots of enticements to pay for their advice which seemed just like the type of advice they spoke against.) Anyway, time to put the soapbox away. As I do that though, I should explain the reason for this soapboxing. Simply put, investing is a risky endeavor, any way you slice it. You can never eliminate risk, you can only hope to reduce it to an acceptable level. What is acceptable is subject to your situation and to the magnitude of your risk aversion. Ultimately, it is rather subjective and you should not blindly follow someone else's opinion (professional or otherwise). Point being, use your judgment to evaluate anything you read about investing. If it sounds too good to be true, it probably is. If someone purports to have some strategy for guaranteed (steady) returns, be very suspicious of it. (Read up on the Bernard Madoff scandal.) If someone is putting on a heavy sales pitch, be weary. Be especially suspicious of anyone asking you to pay for their advice before giving you any solid understanding of their strategy. Sure, many people want to get paid for their advice in some way (in fact, I am getting \"\"paid\"\" with reputation on this site). However, if they take the sketchy approach of a slimy salesmen, they are likely making more money from selling their strategy, than they are from the advice itself. Most likely, if they were getting outsized returns from their strategy they would keep quiet about it and continue using it themselves. As stated before, the more people pile onto a strategy, the smaller the returns. The typical model for selling is to make money from the sale. When the item being sold is an intangible good, your risk as a buyer increases. You may wonder why I have written at length without much discussion of asset allocation. One reason is that I am still a relative neophyte and have a mostly high level understanding of the various strategies. While I feel confident enough in my understanding for my own purposes, I do not necessarily feel confident creating an asset allocation strategy for someone else. The more important reason is that this is a subjective matter with a lot of variables to consider. If you want a quick and simple answer, I am afraid you will be disappointed. The best approach is to educate yourself and make these decisions for yourself. Hence, my attempt to educate you as best as I can at this point in time. Personally, I suggest you do what I did. Start reading the Wall Street Journal every day. (An acceptable substitute may be the business section of the New York Times.) At first you will be overwhelmed with information, but in the long run it will pay off. Another good piece of advice is to be patient and not rush into investing. If you are in a hurry to determine how you should invest in a 401(k) or other such investment vehicle due to a desire to take advantage of an employer's matching funds, then I would place my money in an S&P 500 index fund. I would also explore placing some of that money into broad index funds from other regions of the globe. The reason for broad index funds is to provide some protection from the normal fluctuations and to reduce the risk of a sudden downturn causing you a lot pain while you determine the best approach for yourself. In this scenario, think more about capital preservation and hedging against inflation then about \"\"beating\"\" the market.\""
},
{
"docid": "425703",
"title": "",
"text": "I tried to roll my funds to my new company. But my hr department from my old job would not work with me on getting it straightened out. So I decided to either pull it all out or roll it into a 401 k and use it as a trial for stocks and investments. Simce it isn't a large amount of money to begin with"
},
{
"docid": "590902",
"title": "",
"text": "What you're describing is called timing the market. That is, if you correctly predict when the market will drop, you can sell before the drop, wait for the drop, then buy after the drop has occurred. Sell high, buy low. The fundamental problem with that, though, is: What ends up happening, on average, is you end up slightly behind. There's quite a lot of literature on this; see Betterment's explanation for example. Forbes (click through ad first) also has a detailed piece on the matter. Now, we're not really talking HFT issues here; and there are some structural things that some argue you can take advantage of (restrictions on some organizational investors, for example, similar to a blackjack dealer who has to hit on 16). However, everyone else knows about these too - so it's hard to gain much of an edge. Plenty of people say they can time the market right, and even yourself perhaps you timed a particular drop accurately. This tends to lead to false confidence though; how many drops that you timed badly do you remember? Ultimately, most investors end up slightly down when they attempt to time the market, because of the transaction costs (if you guess two drops, one 'right' and one 'wrong', and they have exactly opposite gains/losses before commissions, you will lose a bit on each due to commission), and because of the overall upward trend in the market (ie, if you picked at random one month a year to be out of the market, you'd lose around 10% annualized gains from doing that; same applies here). All of that aside, there is one major caveat: risk tolerance. If you are highly risk tolerant, say a 30 year old investing your 401(k), then you should stay in no matter what. If you're not - say you're 58 and retiring in a few years - then knowledge that there's a higher risk time period coming up might suggest moving to a less risky portfolio, even at the known cost of some gains."
},
{
"docid": "449828",
"title": "",
"text": "\"Your retirement PLAN is a lifelong plan and shouldn't be tied to your employer status. Max out your 401(k) contribution to the maximum that your employer matches (that's a 100% ROI!) and as much as you can afford. When you leave the work force rollover your 401(k) to an IRA account (e.g.: you can create an IRA account with any of the online brokerage firms Schwab, E-Trade, Sharebuilder, or go with a brick-and-mortar firm like JP Morgan, Stifel Nicolaus, etc.). You should have a plan: How much money do you need/month for your expenses? Accounting for inflation, how much is that going to be at retirement (whatever age you plan to retire)? How much money do you need to have so that 4.5% of that money will provide for your annual living expenses? That's your target retirement amount of savings. Now figure out how to get to that target. Rule #1 Invest early and invest often! The more money you can sock away early in your career the more time that money has to grow. If you aren't comfortable allocating your investments yourself then you could go with a Targeted Retirement Fund. These funds have a general \"\"date\"\" for retirement and the assets are allocated as appropriate for the amount of risk appropriate for the time to retirement.\""
},
{
"docid": "394549",
"title": "",
"text": "\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\""
},
{
"docid": "490867",
"title": "",
"text": "Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian. Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company... If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined. Loans terms shouldn't change. Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods."
},
{
"docid": "422421",
"title": "",
"text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you."
},
{
"docid": "591168",
"title": "",
"text": "\"You have a few options: Option #1 - Leave the money where it is If your balance is over $5k - you should be able to leave the money in your former-employer's 401(k). The money will stay there and continue to be invested in the funds that you elect to invest in. You should at the very least be receiving quarterly statements for the account. Even better - you should have access to some type of an online account where you can transfer your investments, rebalance your account, conform to target, etc. If you do not have online account access than I'm sure you can still transfer investments and make trades via a paper form. Just reach out to the 401(k) TPA or Recordkeeper that administers your plan. Their contact info is on the quarterly statements you should be receiving. Option #2 - Rollover the money into your current employer's 401(k) plan. This is the option that I tend to recommend the most. Roll the money over into your current employer's 401(k) plan - this way all the money is in the same place and is invested in the funds that you elect. Let's say you wanted to transfer your investments to a new fund lineup. Right now - you have to fill out the paperwork or go through the online process twice (for both accounts). Moving the money to your current-employer's plan and having all the money in the same place eliminates this redundancy, and allows you to make one simple transfer of all your assets. Option #3 - Roll the money from your former-employer's plan into an IRA. This is a cool option, because now you have a new IRA with a new set of dollar limits. You can roll the money into a separate IRA - and contribute an additional $5,500 (or $6,500 if you are 50+ years of age). So this is cool because it gives you a chance to save even more for retirement. Many IRA companies give you a \"\"sign on bonus\"\" where if you rollover your former-employers 401(k)...they will give you a bonus (typically a few hundred bucks - but hey its free money!). Other things to note: Take a look at your plan document from your former-employer's 401(k) plan. Take a look at the fees. Compare the fees to your current-employer's plan. There could be a chance that the fees from your former-employer's plan are much higher than your current-employer. So this would just be yet another reason to move the money to your current-employer's plan. Don't forget you most likely have a financial advisor that oversees your current-employer's 401(k) plan. This financial advisor also probably takes fees from your account. So use his services! You are probably already paying for it! Talk to your HR at your employer and ask who the investment advisor is. Call the advisor and set up an appointment to talk about your retirement and financial goals. Ask him for his advice - its always nice talking to someone with experience face to face. Good luck with everything!\""
},
{
"docid": "231662",
"title": "",
"text": "\"Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that. (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet - We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred. EDIT - With respect to davmp's comment, I'll offer the other extreme - In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal. The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 \"\"zero bracket\"\" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate). Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between. In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc. Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income.\""
},
{
"docid": "208263",
"title": "",
"text": "\"A long time ago, in a galaxy far far away, Rollover IRAs were used for funds that came from (were rolled over from) a 401(k) account or a 403(b) account. All that money (including any earnings in the interim) could be rolled over into a 401(k) plan with a new employer etc. One could make a regular contribution to a Rollover IRA but once such a commingling of money occurred, none of the money in the Rollover IRA could be rolled over into a 401(k) account etc. In those good old days when contributions to IRAs were made by paper check and \"\"deposit slip\"\", one had to write a letter to the Rollover IRA custodian certifying that the IRA owner understood that the contribution would destroy forever the possibility of rolling over the money into another 401(k) etc. All this went by the wayside a few years ago when the law changed and the distinction between Rollover IRAs and ordinary Traditional IRAs was eliminated. Commingling of IRA contributions and Rollover money from 401(k)s are permitted, and the entire IRA balance could be rolled over into a new 401(k) plan (provided the new plan accepted rollovers). However the adjectives still persist; like chili555, I too have IRAs that are still called Rollover IRA, they all have commingled funds, and if the law ever changes back, none of those IRA accounts would be eligible for rolling over into a new 401(k).\""
},
{
"docid": "74583",
"title": "",
"text": "I agree with harmanjd – best to roll it over to an IRA. Not only does that afford you better control of your money as pointed out already, but: If you choose your IRA provider wisely, you can get an account that provides you with a much wider array of investing choices, including funds and ETFs that charge much lower fees than what you would have had access to in an employer 401(k) plan. But here's one thing to consider first: Do you hold any of your previous employer's stock in your old 401(k)? There are special rules you might want to be aware of. See this article at Marketwatch: If your 401(k) includes your company's stock, a rollover may be a bad move. Additional Resource:"
},
{
"docid": "380615",
"title": "",
"text": "401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not."
},
{
"docid": "396097",
"title": "",
"text": "You might be confusing two different things. An advantage of investing over a long term is the compounding of returns. Those returns can be interest, dividends, or capital gains. The mix between them depends on what you invest it and how you invest in it. This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA. So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs. If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur. You also have to pay taxes on any capital gains which you realize during the year. These yearly tax payments are then money that you don't get the benefit of compounding on. With 401(k) and IRAs, you don't have to pay taxes during these intermediate years."
},
{
"docid": "336144",
"title": "",
"text": "\"Why it is good to be risky The reason why it is good to be risky is because risky investments can result in higher returns on your money. The problem with being risky, is there is a chance you can lose money. However, in the long term you can usually benefit from higher returns even if you have a few slip ups. Let me show you an example: These two lines are based off of placing $2,000 in a retirement fund at age of 20 and then at age of 25 start investing $6,500 a year (based off of a salary of $65,000 with a company that will 1 to 1 match up to 5% IRA contribution, presumably someone with a Master's should be able to get this) and then being able to increase your contribution amount by $150 a year as your salary begins to increase as well. The blue line assumes that all of this money that you are putting in a retirement account has a fixed 3% interest (compounded yearly for simplicity sake) every year until you retire. The red line is earning a 12% interest rate while you are 20 years old and then decreasing by 0.5% per year until you retire. Since this is using more risky investments when you are younger, I have even gone ahead and included losing 20% of your money when you are 24, another 20% when you are 29, and then again another 20% when you are 34. As you can see, even with losing 20% of your money 3 different times, you still end up with more money then you would have had if you stuck with a more conservative investment plan. If I change this to 50% each 3 times, you will still come out about equal to a more conservative investment. Now, I do have these 3 loses placed at a younger age when there is less to lose, but this is to be expected since you are being more risky when you are young. When you are closer to retirement you have less of a chance of losing money since you will be investing more conservatively. Why it is OK to be risky when you are young but not old Lets say you loose 20% of your $2,000 when you are young, you have 30-40 years to make that back. That's roughly $1 a month extra that you are having to come up with. So, if you have a risky investment go bad when you are young, you have plenty of time to account for it before you retire. Now lets say you have $1,000,000 when you are 5 years from retiring and loose 20% of it, you have to come up with an extra $3,333 a month if you want to retire on time. So, if you have a risky investment go bad when you are close to retiring, you will most likely have to work for many more years just to be able to recover from your loses. What to invest in This is a little bit more difficult question to answer. If there was one \"\"right\"\" way to invest your money, every one would be doing that one \"\"right\"\" way and would result in it not turning out to be that good of investment. What you need to do is come up with a plan for yourself. My biggest advice that I can give is to be careful with fees. Some places will charge a fixed dollar amount per trade, while others might charge a fixed dollar amount per month, while even others might charge a percentage of your investment. With only having $2,000 to invest, a large fee might make it difficult to make money.\""
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "523331",
"title": "",
"text": "Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings. Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough."
}
] | [
{
"docid": "380615",
"title": "",
"text": "401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not."
},
{
"docid": "396097",
"title": "",
"text": "You might be confusing two different things. An advantage of investing over a long term is the compounding of returns. Those returns can be interest, dividends, or capital gains. The mix between them depends on what you invest it and how you invest in it. This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA. So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs. If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur. You also have to pay taxes on any capital gains which you realize during the year. These yearly tax payments are then money that you don't get the benefit of compounding on. With 401(k) and IRAs, you don't have to pay taxes during these intermediate years."
},
{
"docid": "256448",
"title": "",
"text": "Their paperwork should help you along. Schwab is the broker and custodian, you are the administrator. There's virtually no paperwork after the account is opened, until you hit $250K in value, and then there's one extra IRS form you need to fill out each year. See One-Participant 401(k) Plans for a good IRS description of form 5500. Disclosure - I use the Schwab Solo 401(k) myself, and the only downsides, in my opinion, the don't offer a Roth flavor, and no loans are permitted. Both of these features would offer flexibility."
},
{
"docid": "145716",
"title": "",
"text": "\"Early this year I wrote an article Are you 401(k)o’ed? I described the data from a 401(k) expense survey and the punchline was that the average large retirement plan (over 1000 participants) expense was 1.08%, and for smaller plans it rose to 1.24%. As I commented below, if one's goal is to make deposits with income that avoid a tax of 25%, and hope to withdraw it at retirement at 15%, it doesn't take long for a 1% fee to completely negate the benefit of pretax savings. These numbers are averages, in the same article, I mention (ok, I brag) that my company plan has an S&P fund that costs .05%. That's 1% over 20 years. The sound bite of \"\"deposit to the match\"\" needs to be followed by \"\"depending on the choice of investments and their expenses\"\" within the 401(k). Every answer here has added excellent points, fennec's last sentence shouldn't be ignored, there's a phaseout for IRA deductibility, and another for Roth eligibility. For Married filing joint, IRA deduction starts to be lost at $92K, and Roth deposit disallowed at $173K. This adds a bit to the complexity of the decision, but doesn't change the implication of the 1%+ 401(k) fees.\""
},
{
"docid": "571142",
"title": "",
"text": "Post-tax (i.e. non-retirement account) investing is nothing to ignore. You don't mention a spouse, so for a start, you still have the $5500 to put in an IRA. The remaining investment funds will earn dividends, if any, at a tax preferred rate, and then the gain on sale will be taxed at 15% if the code doesn't change again. The gains accumulate tax deferred, and you control the timing of the sale. With a 401(k) all withdrawal are taxable as income. In your case, just the gain is taxed at a potential long term cap gain rate. Hopefully the new job pays more than the old one and the loss of 401(k) is compensated."
},
{
"docid": "42537",
"title": "",
"text": "The simplest way to consolidate the funds your old 401(k) plans is by doing what's called a Direct Rollover (whereby the funds go directly into the new plan and skips you completely) from each of the old plans into either an IRA that you establish with a provider of your choice or even into your current employer's 401(k) plan if that is available. That way, the funds are in one central account and available to invest. Plus it eliminates the mandatory 20% withholding if the rollover is indirect and is sent to you first before the deposit into the new plan. It is important to bear in mind that you have 60 calendar days from the date of distribution to get the full amount into the new plan and a rollover is considered a tax reportable, but not necessarily a taxable event provided you deposit the funds within the time frame allotted."
},
{
"docid": "439249",
"title": "",
"text": "\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\""
},
{
"docid": "422421",
"title": "",
"text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you."
},
{
"docid": "371886",
"title": "",
"text": "The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices."
},
{
"docid": "452830",
"title": "",
"text": "A few years ago I had been contributing with my employer to a 401(k). When I then moved abroad, I found it difficult to stay in touch with my 401(k). The toll-free numbers I had used inside the US, to contact the plan administrators, did not work from overseas."
},
{
"docid": "520116",
"title": "",
"text": "\"I have a mildly exceptional relationship with Social Security. When I was eight years old my father died, leaving nothing but a mountain of debt and an apartment full of trinkets. My mother received Social Security Survivor benefits checks in lieu of his child support payments, which kept me fed and clothed until I graduated high school. She also worked, sometimes multiple jobs, and did what she could to provide health and stability. I consider myself privileged even though we were often financially ... Disadvantaged. When I graduated high school and the checks from Social Security ended, I went on to college, financed a good portion of it, but also received a lot of scholarships and aid along the way. As I near 30, I still wear enough student debt equivalent of a new, mid-class sedan, but I am financially solvent, work a good job, and can afford my own rent, child support, actual child costs, and regular living expenses. While I can still ferret away some of my income into my 401(k), I still need to save for my child's education. I still need to save up for a home. I still have to save up for – and often spend for - a more immediate future. I do not anticipate Social Security being available to in any meaningful sense of the word, when I retire. But I \"\"already got mine\"\" in a sense, and I consider my SSI deductions to be contributions back into the system that kept me fed, kept me healthy, an kept me teachable. I preferred the notion that Social Security didn't become available until someone had exceeded their life expectancy. I preferred the notion that Social Security should never need to be used by anyone. I would much rather the safetynet never be depended upon. But the contributions were much appreciated all the same, and I can now appreciate how those contributions need to be a bit more randomized, more spread across the populace. I am pretty sure this is enough to have people shrieking a me that I'm done kind of socialist. All I know is that I miss that 4% from my paychecks (and I'll miss the full 6% when the \"\"holiday\"\" ends) but that it might help someone thrive, like it did me. My only regret is that the safety net is squandered on old people.\""
},
{
"docid": "367272",
"title": "",
"text": "One thing you didn't mention is whether the 401(k) offers a match. If it does, this is a slam-dunk. The $303 ($303, right?) is $3636/yr that will be doubled on deposit. It's typical for the first 5% of one's salary to capture the match, so this is right there. In 15 years, you'll still owe $76,519. But 15 * $7272 is $109,080 in your 401(k) even without taking any growth into account. The likely value of that 401(k) is closer to $210K, using 8% over that 15 years, (At 6%, it drops to 'only' $176K, but as I stated, the value of the match is so great that I'd jump right on that.) If you don't get a match of any kind, I need to edit / completely rip my answer. It morphs into whether you feel that 15 years (Really 30) the market will exceed the 4% cost of that money. Odds are, it will. The worst 15 year period this past century 2000-2014 still had a CAGR of 4.2%."
},
{
"docid": "590902",
"title": "",
"text": "What you're describing is called timing the market. That is, if you correctly predict when the market will drop, you can sell before the drop, wait for the drop, then buy after the drop has occurred. Sell high, buy low. The fundamental problem with that, though, is: What ends up happening, on average, is you end up slightly behind. There's quite a lot of literature on this; see Betterment's explanation for example. Forbes (click through ad first) also has a detailed piece on the matter. Now, we're not really talking HFT issues here; and there are some structural things that some argue you can take advantage of (restrictions on some organizational investors, for example, similar to a blackjack dealer who has to hit on 16). However, everyone else knows about these too - so it's hard to gain much of an edge. Plenty of people say they can time the market right, and even yourself perhaps you timed a particular drop accurately. This tends to lead to false confidence though; how many drops that you timed badly do you remember? Ultimately, most investors end up slightly down when they attempt to time the market, because of the transaction costs (if you guess two drops, one 'right' and one 'wrong', and they have exactly opposite gains/losses before commissions, you will lose a bit on each due to commission), and because of the overall upward trend in the market (ie, if you picked at random one month a year to be out of the market, you'd lose around 10% annualized gains from doing that; same applies here). All of that aside, there is one major caveat: risk tolerance. If you are highly risk tolerant, say a 30 year old investing your 401(k), then you should stay in no matter what. If you're not - say you're 58 and retiring in a few years - then knowledge that there's a higher risk time period coming up might suggest moving to a less risky portfolio, even at the known cost of some gains."
},
{
"docid": "74864",
"title": "",
"text": "I decided to open it with funds b/c the checking account I have is used as a savings, and has been stagnant. Doesn't make any noticeable interest, and I'm not tapping into it for now. Figured why not get some of it moving. Especially since I'm not working right now and am not contributing to retirement otherwise. The old 401(k)s have been sitting still for many years, and aren't that full. Really miss my old deferred compensation fund, that does well even when I'm not contributing!"
},
{
"docid": "553288",
"title": "",
"text": "Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal."
},
{
"docid": "397553",
"title": "",
"text": "T. Rowe is my new 401 k company and they have been pretty professional the problem was they required information from my old employer who refused to give it to them. But I am in touch my my old 401 k account and will be doing some more research into the companies and processes you guys have given me amd try to choose what is best for me"
},
{
"docid": "253545",
"title": "",
"text": "If your SIMPLE IRA is over two years old then you can roll your money to another qualified account such as a rollover IRA. The usual rollover rules apply. You have 60 days to deposit the funds in another qualified account and you are only allowed one such rollover in a 12 month window. If you are still within two years of opening your SIMPLE IRA, you can roll your funds to a SIMPLE IRA with another vendor, but you would then have to wait until that account is two years old before rolling it elsewhere. If you roll the money another type of IRA before your SIMPLE IRA account is two-years old, and under 59 1/2 years old, you will be subject to a 25% penalty (which is much higher than for other types of accounts). Many of the early distribution exceptions apply such as disability, etc. Edit: The first document linked above covers rules for running a SIMPLE IRA. All the specific regulations linked in the second document apply to all IRAs of all types. There is no specific prohibition from rolling only a portion of the money to another qualified account. There are prohibitions against rolling money more than one time in a 12 month period. The usual obstacle to rolling money from a retirement account--like a 401(k)--is that the 401(k) plan is written to prohibit withdrawals while the employee is still employed at the company."
},
{
"docid": "4181",
"title": "",
"text": "\"As other responders said, you can certainly roll over multiple 401(k) into a single account. An added benefit of such rollover (besides the ease of tracking) is that you can shop around for your Rollover IRA provider and find the one that gives you the specific mutual funds that you want to invest in, the lowest expenses, etc. - in short, find the best fit to your priorities. There are also \"\"lemon\"\" 401(k) plans and if you are in one of them, get out! And rollover is the way out. There is also one possibility to keep an eye on as it happens rarely, but it does happen - rolling a 401(k) over into another 401(k). I've done it once when I started a job at a company that had a great 401(k) with a good selection of low-cost mutual funds. I rolled the 401(k) from one previous job in to this 401(k) to take advantage of it. At the same time I kept a Rollover IRA, combining the 401(k) from all other jobs; it had more investment options and provided some flexibility.\""
},
{
"docid": "417388",
"title": "",
"text": "The 401(k) contribution is Federal tax free, when you make the contribution, and most likely State too. I believe that is true for California, specifically. There was a court case some years ago about people making 401(k) or IRA contributions in New York, avoiding the New York state income tax. Then they moved to Florida (no income tax), and took the money out. New York sued, saying they had to pay the New York income tax that had been deferred, but the court said no. So you should be able to avoid California state income tax, and then later if you were to move to, for example, Texas (no income tax), have no state income tax liability. At the Federal level, you will have different problems. You won't have the money; it will be held by the 401(k) trustee. When you try to access the money (cash the account out), you will have to pay the deferred taxes. Effectively, when you remove the money it becomes income in the year it is removed. You can take the money out at any time, but if you are less than 59 1/2 at the time that you take it, there is a 10% penalty. The agreement is that the Feds let you defer paying the tax because it is going to finance your retirement, and they will tax it later. If you take it out before 59 1/2, they figure you are not retired yet, and are breaking your part of the agreement. Of course you can generally leave the money in the 401(k) plan with your old employer and let it grow until you are 59.5, or roll it over into another 401(k) with a new employer (if they let you), or into an IRA. But if you have returned to your own country, having an account in the U.S. would introduce both investment risk and currency risk. If you are in another country when you want the money, the question would be where your U.S. residence would be. If you live in California, then go to, say France, your U.S. residence would still be California, and you would still owe California income tax. If you move from California to Texas and then to France, your U.S. residence would be Texas. This is pretty vague, as you might have heard in the Rahm Emanual case -- was he a resident of Chicago or Washington, D.C.? Same problem with Howard Hughes who was born in Texas, but then spent most his life in California, then to Nevada, then to Nicaragua, and the Bahamas. When he died Texas, California and Nevada all claimed him as a resident, for estate taxes. The important thing is to be able to make a reasonable case that you are a resident of where ever you want to be -- driver's license, mailing address, living quarters, and so on."
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "134931",
"title": "",
"text": "At 22yo, unless you have a terminal illness, you have many years to earn and save a lot more that you will have in your 401k right now (unless you have already been extremely lucky in the market with your 401k investments). This means that even if you lost everything in your 401k right now, it probably wouldn't hurt you that much over the long term. The net present value of all your future savings should far exceed the net present value of your 401k, if you plan to earn and save responsibly. So take as much risk as you want with it right now. There is no real benefit to playing safe with investments at your age. If you were asking me how much risk should you be taking with a $10m inheritance and no income or much prospects of an income, then I'd be giving you a very different answer."
}
] | [
{
"docid": "371886",
"title": "",
"text": "The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices."
},
{
"docid": "214248",
"title": "",
"text": "\"I live near historic Concord, Massachusetts, and frequently drive past Walden Pond. I'm reminded of Henry David Thoreau's words, \"\"Simplify, simplify, simplify.\"\" In my opinion, fewer is better. 2 checkbooks? I don't see how that makes budgeting any easier. The normal set of expenses are easily kept as one bucket, one account. The savings 2&3 accounts can also be combined and tracked if you really want to think of them as separate accounts. Now, when you talk about 'Retirement' that can be in tax-wise retirement accounts, e.g. 401(k), IRA, etc. or post tax regular brokerage accounts. In our situation, the Schwab non-retirement account was able to handle emergency (as money market funds) along with vacation/rainy day, etc, in CDs of different maturities. As an old person, I remember CDs at 10% or higher, so leaving money in lower interest accounts wasn't good. Cash would go to CDs at 1-5 year maturities to maximize interest, but keep money maturing every 6-9 months. Even with the goal of simplifying, my wife and I each have a 401(k), an IRA, and a Roth IRA, I also have an inherited Roth, and I manage my teen's Roth and brokerage accounts. That's 9 accounts right there. No way to reduce it. To wrap it up, I'd go back to the first 4 you listed, and use the #4 checking attached to the broker account to be the emergency fund. Now you're at 3. Any higher granularity can be done with a spreadsheet. Think of it this way - the day you see the house you love, will you not be so willing to give up that year's vacation?\""
},
{
"docid": "421455",
"title": "",
"text": "\"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account. The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year. In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the \"\"holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income\"\" effect to take over. Understand this now, not 30 years hence. Last - to answer your question, 'how much'? I often recommend what may seem a cliche \"\"continue to live like a student.\"\" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement. In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly. If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as \"\"retirement\"\" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target.\""
},
{
"docid": "88539",
"title": "",
"text": "There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently."
},
{
"docid": "590902",
"title": "",
"text": "What you're describing is called timing the market. That is, if you correctly predict when the market will drop, you can sell before the drop, wait for the drop, then buy after the drop has occurred. Sell high, buy low. The fundamental problem with that, though, is: What ends up happening, on average, is you end up slightly behind. There's quite a lot of literature on this; see Betterment's explanation for example. Forbes (click through ad first) also has a detailed piece on the matter. Now, we're not really talking HFT issues here; and there are some structural things that some argue you can take advantage of (restrictions on some organizational investors, for example, similar to a blackjack dealer who has to hit on 16). However, everyone else knows about these too - so it's hard to gain much of an edge. Plenty of people say they can time the market right, and even yourself perhaps you timed a particular drop accurately. This tends to lead to false confidence though; how many drops that you timed badly do you remember? Ultimately, most investors end up slightly down when they attempt to time the market, because of the transaction costs (if you guess two drops, one 'right' and one 'wrong', and they have exactly opposite gains/losses before commissions, you will lose a bit on each due to commission), and because of the overall upward trend in the market (ie, if you picked at random one month a year to be out of the market, you'd lose around 10% annualized gains from doing that; same applies here). All of that aside, there is one major caveat: risk tolerance. If you are highly risk tolerant, say a 30 year old investing your 401(k), then you should stay in no matter what. If you're not - say you're 58 and retiring in a few years - then knowledge that there's a higher risk time period coming up might suggest moving to a less risky portfolio, even at the known cost of some gains."
},
{
"docid": "19973",
"title": "",
"text": "\"Will it be more money for me now if I don't take it out? Yes Will it be more money for for my retirement if I do? Yes The difference will be the existence of a match and tax-deferral. If there is a match then you will have an instant 100% gain on the amount that is matched. From a tax standpoint, putting some in your 401(k) now will reduce your taxes this year - you will instead pay tax when you withdraw the money at retirement (the withdrawal will be considered \"\"income\"\" at that time). Other decision points: If there is no match, but you still want to add to retirement savings, then you could alternatively put the money in an IRA, which will give you more control over your investments than a 401(k) (which could be good or bad, depending on how investment savvy you are).\""
},
{
"docid": "136280",
"title": "",
"text": "A 401(k) is an investment just like any other investment. You generally get two types of return lumped into that number, but there can be more and you should read your funds prospectus carefully. If you aren't investing in direct companies, you're using mutual funds for instance, then you should read the funds prospectus to see how they handle these situations for the underlying securities they hold for you. Although I think this is the basic answer to the question as you asked."
},
{
"docid": "31462",
"title": "",
"text": "\"In asnwer to your questions: As @joetaxpayer said, you really should look into a Solo 401(k). In 2017, this allows you to contribute up to $18k/year and your employer (the LLC) to contribute more, up to $54k/year total (subject to IRS rules). 401(k) usually have ROTH and traditional sides, just like IRA. I believe the employer-contributed funds also see less tax burden for both you and your LLC that if that same money had become salary (payroll taxes, etc.). You might start at irs.gov/retirement-plans/one-participant-401k-plans and go from there. ROTH vs. pre-tax: You can mix and match within years and between years. Figure out what income you want to have when you retire. Any year you expect to pay lower taxes (low income, kids, deductions, etc.), make ROTH contributions. Any year you expect high taxes (bonus, high wage, taxable capital gains, etc.), make pre-tax payments. I have had a uniformly bad experience with target date funds across multiple 401(k) plans from multiple plan adminstrators. They just don't perform well (a common problem with almost any actively managed fund). You probably don't want to deal with individual stocks in your retirement accounts, so rather pick passively managed index funds that track various markets segments you care about and just sit on them. For example, your high-risk money might be in fast-growing but volatile industries (e.g. tech, aerospace, medical), your medium-risk money might go in \"\"total market\"\" or S&P 500 index funds, and your low-risk money might go in treasury notes and bonds. The breakdown is up to you, but as an 18 year old you have a ~50 year horizon and so can afford to wait out anything short of another Great Depression (and maybe even that). So you'd want generally you want more or your money in the high-risk high-return category, rebalancing to lower risk investments as you age. Diversifying into real estate, foreign investments, etc. might also make sense but I'm no expert on those.\""
},
{
"docid": "571142",
"title": "",
"text": "Post-tax (i.e. non-retirement account) investing is nothing to ignore. You don't mention a spouse, so for a start, you still have the $5500 to put in an IRA. The remaining investment funds will earn dividends, if any, at a tax preferred rate, and then the gain on sale will be taxed at 15% if the code doesn't change again. The gains accumulate tax deferred, and you control the timing of the sale. With a 401(k) all withdrawal are taxable as income. In your case, just the gain is taxed at a potential long term cap gain rate. Hopefully the new job pays more than the old one and the loss of 401(k) is compensated."
},
{
"docid": "127664",
"title": "",
"text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\""
},
{
"docid": "422421",
"title": "",
"text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you."
},
{
"docid": "394549",
"title": "",
"text": "\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\""
},
{
"docid": "417257",
"title": "",
"text": "You might want to bring this fancy new IRS rule to your employer's attention. If your employer sets it up, an After-Tax 401(k) Plan allows employees to contribute after-tax money above the $18k/year limit into a special 401(k) that allows deferral of tax on all earnings until withdrawal in retirement. Now, if you think about it, that's not all that special on its own. Since you've already paid tax on the contribution, you could imitate the above plan all by yourself by simply investing in things that generate no income until the day you sell them and then just waiting to sell them until retirement. So basically you're locking up money until retirement and getting zero benefit. But here's the cool part: the new IRS rule says you can roll over these contributions into a Roth 401(k) or Roth IRA with no extra taxes or penalties! And a Roth plan is much better, because you don't have to pay tax ever on the earnings. So you can contribute to this After-Tax plan and then immediately roll over into a Roth plan and start earning tax-free forever. Now, the article I linked above gets some important things slightly wrong. It seems to suggest that your company is not allowed to create a brand new 401(k) bucket for these special After-Tax contributions. And that means that you would have to mingle pre-tax and post-tax dollars in your existing Traditional 401(k), which would just completely destroy the usefulness of the rollover to Roth. That would make this whole thing worthless. However, I know from personal experience that this is not true. Your company can most definitely set up a separate After-Tax plan to receive all of these new contributions. Then there's no mingling of pre-tax and post-tax dollars, and you can do the rollover to Roth with the click of a button, no taxes or penalties owed. Now, this new plan still sits under the overall umbrella of your company's total retirement plan offerings. So the total amount of money that you can put into a Traditional 401(k), a Roth 401(k), and this new After-Tax 401(k) -- both your personal contributions and your company's match (if any) -- is still limited to $53k per year and still must satisfy all the non-discrimination rules for HCEs, etc. So it's not trivial to set up, and your company will almost certainly not be able to go all the way to $53k, but they could get a lot closer than they currently do."
},
{
"docid": "199237",
"title": "",
"text": "\"This is basically what financial advisers have been saying for years...that you should invest in higher risk securities when you are young and lower risk securities when you get older. However, despite the fact that this is taken as truth by so many financial professionals, financial economists have been unable to formulate a coherent theory that supports it. By changing the preferences of their theoretical investors, they can get solutions like putting all your investments in a super safe asset until you get to a minimum survival level for retirement and then investing aggressively and many other solutions. But for none of the typically assumed preferences does investing aggressively when young and becoming more conservative as you near retirement seem to be the solution. I'm not saying there can be no such preferences, but the difficulty in finding them makes me think maybe this idea is not actually correct. Couple of problems with your intuition that you should think about: It's not clear that things \"\"average out\"\" over time. If you lose a bunch of money in some asset, there's no reason to think that by holding that asset for a while you will make back what you lost--prices are not cyclical. Moreover, doesn't your intuition implicitly suggest that you should transition out of risky securities as you get older...perhaps after having lost money? You can invest in safe assets (or even better, the tangency portfolio from your graph) and then lever up if you do want higher risk/return. You don't need to change your allocation to risky assets (and it is suboptimal to do so--you want to move along the CAL, not the curve). The riskiness of your portfolio should generally coincide (negatively) with your risk-aversion. When you are older and more certain about your life expectancy and your assets, are you exposed to more or less risks? In many cases, less risks. This means you would choose a more risky portfolio (because you are more sure you will have enough to live on until death even if your portfolio takes a dive). Your actual portfolio consists both of your investments and your human capital (the present value of your time and skills). When you are young, the value of this capital changes significantly with market performance so you already have background risk. Buying risky securities adds to that risk. When you are old, your human capital is worth little, so your overall portfolio becomes less risky. You might want to compensate by increasing the risk of your investments. EDIT: Note that this point may depend on how risky your human capital is (how likely it is that your wage or job prospects will change with the economy). Overall the answer to your question is not definitively known, but there is theoretical evidence that investing in risky securities when young isn't optimal. Having said that, most people do seem to invest in riskier securities when young and safer when they are older. I suspect this is because with life experience people become less optimistic as they get older, not because it is optimal to do so. But I can't be sure.\""
},
{
"docid": "276574",
"title": "",
"text": "The Roth-IRA or for that matter a regular IRA is generally not connected to your place of employment. Now a 401(k) is linked to your place of employment. If the business no longer exists, they should have turned over the 401K. The US department of Labor has information regarding plans that have been abandoned. I suspect my plan is abandoned, but I have never received a notice of plan termination. How could I find out if a QTA has elected to terminate and wind up my 401(k) pension plan? EBSA has developed an Abandoned Plan searchable database to help participants and beneficiaries find out if a particular plan is in the process of being, or has been, terminated. The site is searchable by plan name or employer name and will provide the name and contact information for the QTA, if one exists. If you do not have access to a computer to conduct the search, you may contact one of EBSA’s Benefits Advisors to assist you by calling toll-free, 1.866.444.EBSA (3272)."
},
{
"docid": "468841",
"title": "",
"text": "You should be able to take a loan out on the 401(k). You can't do a roll-over unless you leave your job. If your 401(k) is that bad, you should consider maxing out your IRA contributions first and putting the rest into your 401(k) - so if you're putting away about 7k a year, lower your withholding to 1500 and put 5500 into an IRA."
},
{
"docid": "452830",
"title": "",
"text": "A few years ago I had been contributing with my employer to a 401(k). When I then moved abroad, I found it difficult to stay in touch with my 401(k). The toll-free numbers I had used inside the US, to contact the plan administrators, did not work from overseas."
},
{
"docid": "395840",
"title": "",
"text": "If you exceed the income limit for deducting a traditional IRA (which is very low if you are covered by a 401(k) ), then your IRA options are basically limited to a Roth IRA. The Cramer person probably meant to compare 401(k) and IRA from the same pre-/post-tax-ness, so i.e. Traditional 401(k) vs. Traditional IRA, or Roth 401(k) vs. Roth IRA. Comparing a Roth investment against a Traditional investment goes into a whole other topic that only confuses what is being discussed here. So if deducting a traditional IRA is ruled out, then I don't think Cramer's advice can be as simply applied regarding a Traditional 401(k). (However, by that logic, and since most people on 401(k) have Traditional 401(k), and if you are covered by a 401(k) then you cannot deduct a Traditional IRA unless you are super low income, that would mean Cramer's advice is not applicable in most situations. So I don't really know what to think here.)"
},
{
"docid": "425703",
"title": "",
"text": "I tried to roll my funds to my new company. But my hr department from my old job would not work with me on getting it straightened out. So I decided to either pull it all out or roll it into a 401 k and use it as a trial for stocks and investments. Simce it isn't a large amount of money to begin with"
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "356595",
"title": "",
"text": "Whatever you do, don't take your retirement savings to Vegas. Second, you should also consider investment expenses. Your investments profit after the managers pay themselves. Get the lowest expense ratio mutual funds you can. Third, most active managers do not beat the market. Index funds are your friends. They also tend to have the lower expense ratios."
}
] | [
{
"docid": "127664",
"title": "",
"text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\""
},
{
"docid": "525645",
"title": "",
"text": "HCE is defined as being above 120k$ or in the top 20 % of the company. The exact cutoff point might be different for each company. Typically, only the base salary is considered for that, but it's the company's (and 401(k)-plan's) decision. The IRS does not require HCE treatment; the IRS requires that 401(k) plans have a 'fair' distribution of usage between all employees. Very often, employees with lower income save (over-proportionally) less in their 401(k), and there is a line where the 401(k) plan is no longer acceptable to the IRS. HCE is a way for companies to ensure this forced balance; by limiting the amount of 401(k) savings for HCE, the companies ensure that the share of all contributions by below-HCE is appropriate. They will calculate/define the HCE cutoff point so that the required distribution is surely achieved. One of the consequences is that when you move over the HCE cutoff point, you can suddenly save a lot less in your 401(k). Nothing can be done about that. See this IRS page: https://www.irs.gov/retirement-plans/plan-participant-employee/definitions Highly Compensated Employee - An individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015 or 2016), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation."
},
{
"docid": "231662",
"title": "",
"text": "\"Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that. (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet - We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred. EDIT - With respect to davmp's comment, I'll offer the other extreme - In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal. The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 \"\"zero bracket\"\" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate). Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between. In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc. Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income.\""
},
{
"docid": "224434",
"title": "",
"text": "My answer would be yes. In addition, I'm not sure that anything requires you to roll your current 401(k) into a new one if you don't like the investment options. Keeping existing funds in your current 401(k) if you like their investment options might make sense for you (though they obviously wouldn't be adding funds once you're no longer an employee). As for the terms of the potential new 401(k), the matching percentage and vesting schedule match what I've seen at past employers. My current employer offers the same terms, but there's no vesting schedule."
},
{
"docid": "396097",
"title": "",
"text": "You might be confusing two different things. An advantage of investing over a long term is the compounding of returns. Those returns can be interest, dividends, or capital gains. The mix between them depends on what you invest it and how you invest in it. This advantage applies whether your investment is in a taxable brokerage account or in a tax-advantaged 401K or IRA. So, start investing early so that you have longer for this compounding of returns to happen. The second thing is the tax deferral you get from 401(k) or IRAs. If you invest in a ordinary taxable account, then you have to pay taxes on your interest and dividends for the year in which they occur. You also have to pay taxes on any capital gains which you realize during the year. These yearly tax payments are then money that you don't get the benefit of compounding on. With 401(k) and IRAs, you don't have to pay taxes during these intermediate years."
},
{
"docid": "595875",
"title": "",
"text": "If it were my money, I wouldn't put it in a 401(k) for this purpose. If you were working at a company that provided 401(k) matching, then it might be worth it to put the money in your employer's 401(k) because the employer chips in based on what you put in. But you're self-employed, so there's no matching unless you match it yourself. (Correct?) So, given that there's no matching, a 401(k) arrangement would have more restrictions than a non-tax-advantaged account (like a bank account, or a taxable money market account). This would be taxable in the year you earn the money, but then that's it. If you're expecting to pull out the money pre-retirement, I wouldn't put it in in the first place."
},
{
"docid": "403109",
"title": "",
"text": "Yes because I don't really need my savings at all, also screw me for trying to think ahead and investing in my 401(k). Government programs made social security into a worthless ponzi scheme, is it time to destroy 401(k) system now?"
},
{
"docid": "590902",
"title": "",
"text": "What you're describing is called timing the market. That is, if you correctly predict when the market will drop, you can sell before the drop, wait for the drop, then buy after the drop has occurred. Sell high, buy low. The fundamental problem with that, though, is: What ends up happening, on average, is you end up slightly behind. There's quite a lot of literature on this; see Betterment's explanation for example. Forbes (click through ad first) also has a detailed piece on the matter. Now, we're not really talking HFT issues here; and there are some structural things that some argue you can take advantage of (restrictions on some organizational investors, for example, similar to a blackjack dealer who has to hit on 16). However, everyone else knows about these too - so it's hard to gain much of an edge. Plenty of people say they can time the market right, and even yourself perhaps you timed a particular drop accurately. This tends to lead to false confidence though; how many drops that you timed badly do you remember? Ultimately, most investors end up slightly down when they attempt to time the market, because of the transaction costs (if you guess two drops, one 'right' and one 'wrong', and they have exactly opposite gains/losses before commissions, you will lose a bit on each due to commission), and because of the overall upward trend in the market (ie, if you picked at random one month a year to be out of the market, you'd lose around 10% annualized gains from doing that; same applies here). All of that aside, there is one major caveat: risk tolerance. If you are highly risk tolerant, say a 30 year old investing your 401(k), then you should stay in no matter what. If you're not - say you're 58 and retiring in a few years - then knowledge that there's a higher risk time period coming up might suggest moving to a less risky portfolio, even at the known cost of some gains."
},
{
"docid": "452126",
"title": "",
"text": "To expand on mhoran's answer - Once you mention the 401(k), we're compelled to ask (a) what is the match, if any, and (b) what are the expenses within the funds offered. Depositing to get the full match is going to get you the biggest return on your money. It's common to get a dollar for dollar match on the first 5 or 6% of your income. If the fees are high, you stop at the match, and move to an IRA for the next money you wish to save. At 22, I'd probably focus on the Roth. If you have access to a Roth 401(k), that's great, the match will be pre tax dollars and you'll get started with a decent tax status mix. These accounts can form the core of your investing. Most people have little left over once their retirement accounts are fully funded. And yes, reading to understand stocks is great, but also to understand why stock indexing is the best choice for most investors."
},
{
"docid": "422421",
"title": "",
"text": "First, read my answer here: Oversimplify it for me: the correct order of investing For me, the answer to your question comes down to how badly you want to get rid of your student loan debt. I recommend that you get rid of it as fast as possible, and that you sacrifice a little in your budget temporarily to make that happen. If that is what you want, here is what I would do. Following the steps in my other answer, I would pay off the student loans first. Cash out your non-retirement growth fund to jump start that, then challenge yourself to take as much of your paycheck as you can and throw it at the debt. Figure out how many months it will take before the debt is gone. Once the debt is gone, you won't have those monthly payments anymore and you won't be continually losing money in interest to the bank. At that point, you can build up your cash savings, invest in your employer's 401(k) plan for retirement, and start saving toward other long-term saving goals (car, house, etc.) To address some of your other concerns: If you cash out the non-retirement fund, you'll probably owe some capital gains tax. (Although, on a $3k investment, the long term rate won't add up to very much, depending on your tax bracket and cost basis.) You can't use the money from your non-retirement fund to invest in your 401(k). You can only contribute to your 401(k) via payroll deduction. To explicitly answer your question, your non-retirement fund is not bound by the limitations of retirement funds, meaning that you can cash it out and use it however you like without penalty, only paying perhaps a few hundred dollars of capital gains tax at tax time next year. Think of it as another source of cash for you."
},
{
"docid": "520116",
"title": "",
"text": "\"I have a mildly exceptional relationship with Social Security. When I was eight years old my father died, leaving nothing but a mountain of debt and an apartment full of trinkets. My mother received Social Security Survivor benefits checks in lieu of his child support payments, which kept me fed and clothed until I graduated high school. She also worked, sometimes multiple jobs, and did what she could to provide health and stability. I consider myself privileged even though we were often financially ... Disadvantaged. When I graduated high school and the checks from Social Security ended, I went on to college, financed a good portion of it, but also received a lot of scholarships and aid along the way. As I near 30, I still wear enough student debt equivalent of a new, mid-class sedan, but I am financially solvent, work a good job, and can afford my own rent, child support, actual child costs, and regular living expenses. While I can still ferret away some of my income into my 401(k), I still need to save for my child's education. I still need to save up for a home. I still have to save up for – and often spend for - a more immediate future. I do not anticipate Social Security being available to in any meaningful sense of the word, when I retire. But I \"\"already got mine\"\" in a sense, and I consider my SSI deductions to be contributions back into the system that kept me fed, kept me healthy, an kept me teachable. I preferred the notion that Social Security didn't become available until someone had exceeded their life expectancy. I preferred the notion that Social Security should never need to be used by anyone. I would much rather the safetynet never be depended upon. But the contributions were much appreciated all the same, and I can now appreciate how those contributions need to be a bit more randomized, more spread across the populace. I am pretty sure this is enough to have people shrieking a me that I'm done kind of socialist. All I know is that I miss that 4% from my paychecks (and I'll miss the full 6% when the \"\"holiday\"\" ends) but that it might help someone thrive, like it did me. My only regret is that the safety net is squandered on old people.\""
},
{
"docid": "449696",
"title": "",
"text": "I applied to a travel credit card after my local branch of Bank of America told me I should look into it due to my constant traveling. I've been with them for 3 years and have never had an issue and I was declined on my travel credit card even though I have a decent credit score of 730. I'm also a 22 year old and have my senior year of school to finish but have always been good with Bank of America. Is it because I'm young?"
},
{
"docid": "591168",
"title": "",
"text": "\"You have a few options: Option #1 - Leave the money where it is If your balance is over $5k - you should be able to leave the money in your former-employer's 401(k). The money will stay there and continue to be invested in the funds that you elect to invest in. You should at the very least be receiving quarterly statements for the account. Even better - you should have access to some type of an online account where you can transfer your investments, rebalance your account, conform to target, etc. If you do not have online account access than I'm sure you can still transfer investments and make trades via a paper form. Just reach out to the 401(k) TPA or Recordkeeper that administers your plan. Their contact info is on the quarterly statements you should be receiving. Option #2 - Rollover the money into your current employer's 401(k) plan. This is the option that I tend to recommend the most. Roll the money over into your current employer's 401(k) plan - this way all the money is in the same place and is invested in the funds that you elect. Let's say you wanted to transfer your investments to a new fund lineup. Right now - you have to fill out the paperwork or go through the online process twice (for both accounts). Moving the money to your current-employer's plan and having all the money in the same place eliminates this redundancy, and allows you to make one simple transfer of all your assets. Option #3 - Roll the money from your former-employer's plan into an IRA. This is a cool option, because now you have a new IRA with a new set of dollar limits. You can roll the money into a separate IRA - and contribute an additional $5,500 (or $6,500 if you are 50+ years of age). So this is cool because it gives you a chance to save even more for retirement. Many IRA companies give you a \"\"sign on bonus\"\" where if you rollover your former-employers 401(k)...they will give you a bonus (typically a few hundred bucks - but hey its free money!). Other things to note: Take a look at your plan document from your former-employer's 401(k) plan. Take a look at the fees. Compare the fees to your current-employer's plan. There could be a chance that the fees from your former-employer's plan are much higher than your current-employer. So this would just be yet another reason to move the money to your current-employer's plan. Don't forget you most likely have a financial advisor that oversees your current-employer's 401(k) plan. This financial advisor also probably takes fees from your account. So use his services! You are probably already paying for it! Talk to your HR at your employer and ask who the investment advisor is. Call the advisor and set up an appointment to talk about your retirement and financial goals. Ask him for his advice - its always nice talking to someone with experience face to face. Good luck with everything!\""
},
{
"docid": "79083",
"title": "",
"text": "\"All right, I will try to take this nice and slow. This is going to be a little long; try to bear with me. Suppose you contribute $100 to your newly opened 401(k). You now have $100 in cash and $0 in mutual funds in your 401(k) (and $100 less than you used to somewhere else). At some later date, you use that money within the 401(k) to buy a single share of the Acme World All-Market Index Fund which happens to trade at exactly $100 per share on the day your purchase goes through. As a result, you have $0 in cash and exactly one share of that fund (corresponding to $100) within your 401(k). Some time later, the price of the fund is up 10%, so your share is now worth $110. Since you haven't contributed anything more to your 401(k) for whatever reason, your cash holding is still $0. Because your holding is really denominated in shares of this mutual fund, of which you still have exactly one, the cash equivalent of your holding is now $110. Now, you can basically do one of two things: By selling the share, you protect against it falling in price, thus in a sense \"\"locking in\"\" your gain. But where do you put the money instead? You obviously can't put the money in anything else that might fall in price; doing so would mean that you could lose a portion of your gains. The only way to truly \"\"lock in\"\" a gain is to remove the money from your investment portfolio altogether. Roughly speaking, that means withdrawing the money and spending it. (And then you have to consider if the value of what you spent the money on can fluctuate, and as a consequence, fall. What's the value of that three weeks old jug of milk in the back of your refrigerator?) The beauty of compounding is that it doesn't care when you bought an investment. Let's say that you kept the original fund, which was at $110. Now, since that day, it is up another 5%. Since we are looking at the change of price of the fund over some period of time, that's 5% of $110, not 5% of the $100 you bought at (which was an arbitrary point, anyway). 5% of $110 is $5.50, which means that the value of your holding is now at $115.50 from a gain first of 10% followed by another 5%. If at the same day when the original fund was at $110 you buy another $100 worth of it, the additional 5% gain is realized on the sum of the two at the time of the purchase, or $210. Thus after the additional 5% gain, you would have not $210 (($100 + $100) + 5%), nor $205 (($100 + 5%) + $100), but $220.50 (($110 + $100) + 5%). See how you don't need to do anything in particular to realize the beauty of compounding growth? There is one exception to the above. Some investments pay out dividends, interest or equivalent in cash equivalents. (Basically, deposit money into an account of yours somewhere; in the case of retirement plans, usually within the same container where you are holding the investment. These dividends are generally not counted against your contribution limits, but check the relevant legal texts if you want to be absolutely certain.) This is somewhat uncommon in mutual funds, but very common in other investments such as stocks or bonds that you purchase directly (which you really should not do if you are just starting out and/or feel the need to ask this type of question). In that case, you need to place a purchase order yourself for whatever you want to invest the dividend in. If you don't, then the extra money of the dividend will not be growing along with your original investment.\""
},
{
"docid": "42537",
"title": "",
"text": "The simplest way to consolidate the funds your old 401(k) plans is by doing what's called a Direct Rollover (whereby the funds go directly into the new plan and skips you completely) from each of the old plans into either an IRA that you establish with a provider of your choice or even into your current employer's 401(k) plan if that is available. That way, the funds are in one central account and available to invest. Plus it eliminates the mandatory 20% withholding if the rollover is indirect and is sent to you first before the deposit into the new plan. It is important to bear in mind that you have 60 calendar days from the date of distribution to get the full amount into the new plan and a rollover is considered a tax reportable, but not necessarily a taxable event provided you deposit the funds within the time frame allotted."
},
{
"docid": "439249",
"title": "",
"text": "\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\""
},
{
"docid": "436331",
"title": "",
"text": "I suggest rolling it over to the 401(k) with your new employer. Particularly if they match any percentage of your contribution, it would be in your interest to take as much of that money as possible. When it comes to borrowing money from your 401(k), it looks like the issues AbraCadaver mentioned only apply if you don't pay back the money (http://www.kiplinger.com/article/real-estate/T010-C000-S002-borrowing-from-your-retirement-plan-to-buy-a-home.html). The reasonable argument against taking money out of your 401(k) to buy a home is that it leaves a dent in your retirement nest egg (and its earning power) during key earning years. On the plus side for borrowing from your 401(k), it's very low interest--and it's interest you're paying back to yourself over a 5-year period. At its current value, the most you could borrow from your 401(k) is $35K. If you're fortunate in where you live, that could be most or all of the downpayment. In my own experience, my wife borrowed against her 401(k) balance for the earnest money when we purchased a new home. Fortunately for us, an investor snapped up my previous home within 4 days of us listing it, so she was able to pay back her loan in full right away."
},
{
"docid": "232262",
"title": "",
"text": "\"The responses here are excellent. I'd add just a couple points. Debt is not generic. It ranges from low (my HELOC is 2.5%) to insane (24% credit card, anyone?). When I read about the obsession to be completely debt free, I ask questions. Are you saving in your 401(k) at least up to the match? I disagree with the \"\"debt is evil\"\" people who advise to ignore retirement savings while paying off every last debt. My company offers a dollar for dollar match on the first 5% of income deposited. So a $60K earner will see a $3000 deposit doubled. 5 years of this, and he has 1/2 a year's income in his retirement account, more with positive returns. (note - for those so fearful of losses, all 401(k) accounts have to offer a fixed income, low risk choice. currently 1% or less, but the opposite of \"\"I can lose it all\"\".) After that, paying off the higher debt is great. When it's time to hack away at student debt and mortgage, I am concerned that if it's at the risk of having no savings, I'd hold off. Consider - Two people in homes worth $250K. One has a mortgage of $250K and $100K in the bank. The other has his mortgage paid down to $150K. When they lose their jobs, the guy with the $100K in the bank has the funds to float himself through a period of unemployment as well as a house the bank is less likely to foreclose on. The guy with no money is in deep trouble, and the bank can sell his house for $150K and run away (after proper foreclosure proceedings of course.) My mortgage is one bill, like any other, and only a bit more than my property tax. I don't lose sleep over it. It will be paid before I retire, and before my 11yr old is off to college. I don't think you stupid for paying your low interest debt at your own pace.\""
},
{
"docid": "136280",
"title": "",
"text": "A 401(k) is an investment just like any other investment. You generally get two types of return lumped into that number, but there can be more and you should read your funds prospectus carefully. If you aren't investing in direct companies, you're using mutual funds for instance, then you should read the funds prospectus to see how they handle these situations for the underlying securities they hold for you. Although I think this is the basic answer to the question as you asked."
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "170625",
"title": "",
"text": "\"+1 on all the answers above. You're in a great position and have the right attitude. A good book on the subject is A Random Walk Down Wall Street - well worth a read. Essentially, go for low tax paying in, low tax taking out approach (in the uk that's a SIPP or ISA), a low cost well diversified unit fund (like a Vanguard LifeStrategy 100), on a low cost platform (\"\"Annual Management Charge\"\" in be UK). Keep paying a regular amount and let compound interest take care of things. I'd also add that you should think about what lifestyle you would want at specific ages and work out what you need to save to achieve these - even though they are probably a long time in the future, it makes your goals \"\"real\"\". Read Mr Money Moustache for some ideas http://www.mrmoneymustache.com\""
}
] | [
{
"docid": "417446",
"title": "",
"text": "\"I'm going to discuss this, in general, as specific investment advice isn't allowed here. What type of account is the $60K in now? I mean - Is it in a 401(k), IRA or regular account/CD/money market? You are still working? Does your company offer any kind of matched 401(k)? If so, take advantage of that right up the level they'll match. If not, are you currently depositing to pretax IRAs? You can't just deposit that $60K into an IRA if it isn't already, but you can put $11k/yr ($5 for you, $6K for hubby if you make $11K or more this year.) Now, disclaimer, I am anti-annuity. Like many who are pro or con on issues, this is my nature. The one type of annuity I actually like is the Immediate Annuity. The link is not for an end company, it shows quotes from many and is meant as an example. Today, a 65 yr old man can get $600/mo with a $100K purchase. This is 7.2%, in an economy in which rates are sub 3%. You give up principal in exchange for this higher annual return. This is a viable solution for the just-retired person whose money will run out when looking at a 4-5% withdrawal but 1% CD rate. In general, these products are no more complex that what I just described, unlike annuities sold to younger fold which combine high fees with returns that are so complex to describe that most agents can't keep their story straight. Aside from the immediate flavor, all other annuities are partial sold (there's a quote among finance folk - \"\"annuities are sold, not bought\"\") based on their tax deferral features. I don't suspect you are in a tax bracket where that feature has any value to you. At 48/54, with at least 10 years ahead of you, I'd research 'diversification' and 'asset allocation'. Even $60K is enough to proper invest these funds until you retire and then decide what's right for you. Beginners' Guide to Asset Allocation, Diversification, and Rebalancing is an interesting introduction, and it's written by the SEC, so your tax dollars paid for it. Some months ago, I wrote Diversifying to Reduce Risk, which falls short of a complete discussion of asset allocation, but it does illustrate the power of being in a stock/bond mix. The ups and downs were reduced significantly compared to the all stock portfolio. (for follow up or to help others reply to you, a bit more detail on the current investments, and how you are devastated, eg was there a huge loss from what you had a few years ago?) Edit - The original poster hasn't returned. Posted the question and left. It's unfortunate as this was someone who would benefit from the dialog, and the answers here can help others in a similar position, but I feel more discussion is in order for the OP. Last, I caught a downvote on my reply today. I take no offense, but curious which part of my answer the DVer disagreed with.\""
},
{
"docid": "127664",
"title": "",
"text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\""
},
{
"docid": "507892",
"title": "",
"text": "\"There's a bit of confusion here. Michael's article you linked is focused on the issue of post-tax 401(k) deposits. For those new to this, it sounds like we are talking about Roth 401(k) money. Not so. The Roth IRA was introduced in 1998, and the Roth 401(k) in 2006. Before '06, people had the ability to deposit more to their 401(k) than the pretax limit of $15,000 into the account as \"\"after tax\"\" deposits. My understanding is that these funds were analogous to the non-deducted IRA deposits for those outside the income limits. Michael goes on the point out that now, with the addition of Roth 401(k) and Roth IRAs, there are folk with pre and post Tax 401(k) funds and trying to crack them for transfer to Traditional IRA and Roth IRA may be problematic. Aside from a recent thread here, there are separate accounts for the Roth 401(k) and Traditional 401(k), and it's possible for the traditional to contain post tax money, which, given the recent introduction of the Roth 401(k) conversion, should be easily addressable.\""
},
{
"docid": "421455",
"title": "",
"text": "\"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account. The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year. In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the \"\"holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income\"\" effect to take over. Understand this now, not 30 years hence. Last - to answer your question, 'how much'? I often recommend what may seem a cliche \"\"continue to live like a student.\"\" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement. In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly. If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as \"\"retirement\"\" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target.\""
},
{
"docid": "256448",
"title": "",
"text": "Their paperwork should help you along. Schwab is the broker and custodian, you are the administrator. There's virtually no paperwork after the account is opened, until you hit $250K in value, and then there's one extra IRS form you need to fill out each year. See One-Participant 401(k) Plans for a good IRS description of form 5500. Disclosure - I use the Schwab Solo 401(k) myself, and the only downsides, in my opinion, the don't offer a Roth flavor, and no loans are permitted. Both of these features would offer flexibility."
},
{
"docid": "367272",
"title": "",
"text": "One thing you didn't mention is whether the 401(k) offers a match. If it does, this is a slam-dunk. The $303 ($303, right?) is $3636/yr that will be doubled on deposit. It's typical for the first 5% of one's salary to capture the match, so this is right there. In 15 years, you'll still owe $76,519. But 15 * $7272 is $109,080 in your 401(k) even without taking any growth into account. The likely value of that 401(k) is closer to $210K, using 8% over that 15 years, (At 6%, it drops to 'only' $176K, but as I stated, the value of the match is so great that I'd jump right on that.) If you don't get a match of any kind, I need to edit / completely rip my answer. It morphs into whether you feel that 15 years (Really 30) the market will exceed the 4% cost of that money. Odds are, it will. The worst 15 year period this past century 2000-2014 still had a CAGR of 4.2%."
},
{
"docid": "163287",
"title": "",
"text": "\"Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market. How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to \"\"vest\"\". This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts. This will make it far easier for you to qualify for a mortgage later on. Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate. First, there will be fewer chances for the rate to go up. Second, even if the rate does go up, you will not owe the money very long.\""
},
{
"docid": "520116",
"title": "",
"text": "\"I have a mildly exceptional relationship with Social Security. When I was eight years old my father died, leaving nothing but a mountain of debt and an apartment full of trinkets. My mother received Social Security Survivor benefits checks in lieu of his child support payments, which kept me fed and clothed until I graduated high school. She also worked, sometimes multiple jobs, and did what she could to provide health and stability. I consider myself privileged even though we were often financially ... Disadvantaged. When I graduated high school and the checks from Social Security ended, I went on to college, financed a good portion of it, but also received a lot of scholarships and aid along the way. As I near 30, I still wear enough student debt equivalent of a new, mid-class sedan, but I am financially solvent, work a good job, and can afford my own rent, child support, actual child costs, and regular living expenses. While I can still ferret away some of my income into my 401(k), I still need to save for my child's education. I still need to save up for a home. I still have to save up for – and often spend for - a more immediate future. I do not anticipate Social Security being available to in any meaningful sense of the word, when I retire. But I \"\"already got mine\"\" in a sense, and I consider my SSI deductions to be contributions back into the system that kept me fed, kept me healthy, an kept me teachable. I preferred the notion that Social Security didn't become available until someone had exceeded their life expectancy. I preferred the notion that Social Security should never need to be used by anyone. I would much rather the safetynet never be depended upon. But the contributions were much appreciated all the same, and I can now appreciate how those contributions need to be a bit more randomized, more spread across the populace. I am pretty sure this is enough to have people shrieking a me that I'm done kind of socialist. All I know is that I miss that 4% from my paychecks (and I'll miss the full 6% when the \"\"holiday\"\" ends) but that it might help someone thrive, like it did me. My only regret is that the safety net is squandered on old people.\""
},
{
"docid": "571142",
"title": "",
"text": "Post-tax (i.e. non-retirement account) investing is nothing to ignore. You don't mention a spouse, so for a start, you still have the $5500 to put in an IRA. The remaining investment funds will earn dividends, if any, at a tax preferred rate, and then the gain on sale will be taxed at 15% if the code doesn't change again. The gains accumulate tax deferred, and you control the timing of the sale. With a 401(k) all withdrawal are taxable as income. In your case, just the gain is taxed at a potential long term cap gain rate. Hopefully the new job pays more than the old one and the loss of 401(k) is compensated."
},
{
"docid": "88539",
"title": "",
"text": "There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently."
},
{
"docid": "439249",
"title": "",
"text": "\"With no match, the traditional 401(k) for someone otherwise in the 15% bracket makes little sense. I'd suggest contributing just enough if you were in the 25% bracket to be in the taxable 15% but no more. Use a Roth IRA if you are saving more than that. I'm adding this based on OP's statement that the fees on the 401(k) range .8-1.4%. I wrote an article Are you 401(k)o’ed? in which I discuss how fees of this range negate the benefit of the mantra \"\"save at 25% to withdraw at 15%\"\" and if one were in the 15% bracket to start, this level off fee will cost you money in no time at all. The people advising you to max out the 401(k) first, given the rest of your situation and that of the account, are misguided. I'd given them the benefit of the doubt and assume they don't have all the details. And with all due respect to the other posters here, everyone of them a bright, valued colleague, your answers should be addressed to the OP's exact situation. 15% bracket, no match, high fees. I suspect some of answers will change on reviewing this.\""
},
{
"docid": "489790",
"title": "",
"text": "\"There is no penalty for foreigners but rather a 30% mandatory income tax withholding from distributions from 401(k) plans. You will \"\"get it back\"\" when you file the income tax return for the year and calculate your actual tax liability (including any penalties for a premature distribution from the 401(k) plan). You are, of course, a US citizen and not a foreigner, and thus are what the IRS calls a US person (which includes not just US citizens but permanent immigrants to the US as well as some temporary visa holders), but it is entirely possible that your 401(k) plan does not know this explicitly. This IRS web page tells 401(k) plan administrators Who can I presume is a US person? A retirement plan distribution is presumed to be made to a U.S. person only if the withholding agent: A payment that does not meet these rules is presumed to be made to a foreign person. Your SSN is presumably on file with the 401(k) plan administrator, but perhaps you are retired into a country that does not have an income tax treaty with the US and that's the mailing address that is on file with your 401(k) plan administrator? If so, the 401(k) administrator is merely following the rules and not presuming that you are a US person. So, how can you get around this non-presumption? The IRS document cited above (and the links therein) say that if the 401(k) plan has on file a W-9 form that you submitted to them, and the W-9 form includes your SSN, then the 401(k) plan has valid documentation to associate the distribution as being made to a US person, that is, the 401(k) plan does not need to make any presumptions; that you are a US person has been proved beyond reasonable doubt. So, to answer your question \"\"Will I be penalized when I later start a regular monthly withdrawal from my 401(k)?\"\" Yes, you will likely have mandatory 30% income tax withholding on your regular 401(k) distributions unless you have established that you are a US person to your 401(k) plan by submitting a W-9 form to them.\""
},
{
"docid": "417388",
"title": "",
"text": "The 401(k) contribution is Federal tax free, when you make the contribution, and most likely State too. I believe that is true for California, specifically. There was a court case some years ago about people making 401(k) or IRA contributions in New York, avoiding the New York state income tax. Then they moved to Florida (no income tax), and took the money out. New York sued, saying they had to pay the New York income tax that had been deferred, but the court said no. So you should be able to avoid California state income tax, and then later if you were to move to, for example, Texas (no income tax), have no state income tax liability. At the Federal level, you will have different problems. You won't have the money; it will be held by the 401(k) trustee. When you try to access the money (cash the account out), you will have to pay the deferred taxes. Effectively, when you remove the money it becomes income in the year it is removed. You can take the money out at any time, but if you are less than 59 1/2 at the time that you take it, there is a 10% penalty. The agreement is that the Feds let you defer paying the tax because it is going to finance your retirement, and they will tax it later. If you take it out before 59 1/2, they figure you are not retired yet, and are breaking your part of the agreement. Of course you can generally leave the money in the 401(k) plan with your old employer and let it grow until you are 59.5, or roll it over into another 401(k) with a new employer (if they let you), or into an IRA. But if you have returned to your own country, having an account in the U.S. would introduce both investment risk and currency risk. If you are in another country when you want the money, the question would be where your U.S. residence would be. If you live in California, then go to, say France, your U.S. residence would still be California, and you would still owe California income tax. If you move from California to Texas and then to France, your U.S. residence would be Texas. This is pretty vague, as you might have heard in the Rahm Emanual case -- was he a resident of Chicago or Washington, D.C.? Same problem with Howard Hughes who was born in Texas, but then spent most his life in California, then to Nevada, then to Nicaragua, and the Bahamas. When he died Texas, California and Nevada all claimed him as a resident, for estate taxes. The important thing is to be able to make a reasonable case that you are a resident of where ever you want to be -- driver's license, mailing address, living quarters, and so on."
},
{
"docid": "425703",
"title": "",
"text": "I tried to roll my funds to my new company. But my hr department from my old job would not work with me on getting it straightened out. So I decided to either pull it all out or roll it into a 401 k and use it as a trial for stocks and investments. Simce it isn't a large amount of money to begin with"
},
{
"docid": "436331",
"title": "",
"text": "I suggest rolling it over to the 401(k) with your new employer. Particularly if they match any percentage of your contribution, it would be in your interest to take as much of that money as possible. When it comes to borrowing money from your 401(k), it looks like the issues AbraCadaver mentioned only apply if you don't pay back the money (http://www.kiplinger.com/article/real-estate/T010-C000-S002-borrowing-from-your-retirement-plan-to-buy-a-home.html). The reasonable argument against taking money out of your 401(k) to buy a home is that it leaves a dent in your retirement nest egg (and its earning power) during key earning years. On the plus side for borrowing from your 401(k), it's very low interest--and it's interest you're paying back to yourself over a 5-year period. At its current value, the most you could borrow from your 401(k) is $35K. If you're fortunate in where you live, that could be most or all of the downpayment. In my own experience, my wife borrowed against her 401(k) balance for the earnest money when we purchased a new home. Fortunately for us, an investor snapped up my previous home within 4 days of us listing it, so she was able to pay back her loan in full right away."
},
{
"docid": "253552",
"title": "",
"text": "\"First of all, the numbers you give are most probably nowhere near the total expenses you have/need to budget: Maybe you should have a look at the expenses you had over the last years (look at how much money came in and how much went to the savings and compare this expenses to the sum of all the expenses you have on your list of expenses as plausibility check. Just starting on some numbers you give and assuming the house is the main goal. House of 300 - 500 k€, assuming downpayment of 30 - 40 %, i.e. somewhere between 90 and 200 k€. I'll go on calculating with 150 k€ which would be 50 % of 300 k€ or 30 % of 500 k€. You want to be there in 8 - 15 a: this means saving 10 - 19 k€ per year. 19 k€/a is clearly impossible with 20 k€ net wage. 10 k€ with 20 k€ net wage means a savings quote of 50 %, so for each € you spend, one goes towards the house. This is doable in the sense that if you continue with 4 k€/a for rent plus a Harz 4 (= 400 €/month) style of life, that would put you to 9 k€ expenses/a, thus 1 k€ saving for unexpected disaster (I'd actually first get a couple of k€ together for such things, and then go as much as possible towards the house). Still, this is not the life style the rest of your goals sounds like. (You can update this somewhat with the expected income of your girlfriend/wife. But remember that she needs food and clothes as well and you assume she'll need a car of her own) Let me rephrase the savings goal of 150 k€: you'd try to save 3 times the median German household equity within 8 to 15 years. This should tell you that it is a very steep proposition. On the other hand, e.g. Slowakians manage to have a median household equity of ca 60 k€ out of a median income that is roughly half the median income in Germany. So again it is somehow possible, but it will be really tough to live a life style like a Slowakian or Harz 4ler between peers that spend roughly everything (good approximation as we're talking about savings rates above 50 % of net income) they earn. I think the \"\"easiest\"\" way to get your savings going is to postpone lifestyle upgrades. On the other hand, around Waldeck, 150 k€ would buy you a complete new house of the same size that costs 300 - 500 k€ around Darmstadt. So if you really want to go for the house, I'd recommend not only to save as hard as you can*, but also to look out for possibilities to relocate to a cheaper area. 8 - 15 years should be enough time to decide what area you'd like and then to look for an opportunity without too much pressure. And actually this should be enough time so that also your girlfriend/wife could get herself transferred to another Bundesland. * In reality saving as hard as possible will probably get you nowhere near 150 k€ (there are very few people who manage to do this - though they exist), but if you get to 75 k€ that would mean a reasonably good position for both starting negotiations with the bank about buying a 150 k€ house plus the corresponding payment of the mortgage. If you get there within less than 15 years that would also leave some air in case you change opinion with regard to kids and then leaves a reasonable amount of time to put together your pension. Consider your psychology about saving towards the house. Even if both of you know that you want it really hard, it may be good to enter a building savings contract (15 years should be reasonable for that way) which will enforce you to keep up the savings rate and also does not allow you to divert money for other purposes. However, I'd say that 6 months into the first job it may be a bit early to fix such savings rates. Maybe for the beginning a savings account that includes some hassle to get the money out again (set low limit and allow any outgoing money to go only to another account of yours) with an automatic savings deposit every month is a way how to safely determine the savings rate you can manage. Maybe you can use this to first put together your new emergency savings which should be first priority anyways. If you want to cut expenses in order to save, look at the recommendations for people who try to get out of debt: budget your expenses, cook yourself and enjoy this (maybe taking a cooking class together with your girlfriend is a lot of fun, leads to food that may even be more to your taste than restaurant stuff - and is much cheaper), keep book, pay in cash (not by card) and so on. If you're not a DIY person, try whether you could enjoy becoming one - no magic involved there. I guess the most important point is to find out how much you want the house and then how hard you are willing to save. This is something only you and your girlfriend can decide (together!). IMHO you really don't need to invest (unless you drop the house plan), you need to save towards your goals. You may decide to invest a small part of the money while saving in order to learn slowly how that works, but if the house goal is already kind of fixed in time, you don't want to find yourself in the situation that you have to get out of investments at a bad time in order to be able to buy the house. Even if you consider 15 years long enough to do some investing now and then get out some time during the next 15 years, you don't have any money to invest now. Later, the risk posed by the fixed point in time when you need the money is too large: Considering the rather steep saving propositions, the marginal costs of having less money are really large. This means you don't want to go for risky investments => plain old saving is what you need. Consider also that low house prices tend to come during economic crisis (people cannot pay mortgage and have to sell) so within the time window, you want to have your money for anticyclic buying if possible.\""
},
{
"docid": "165981",
"title": "",
"text": "\"Your question has a built in faulty premise. \"\"ASSUMING a person knows how to use and invest their money wisely\"\" I'd ask if you were wise enough to beat the investments offered in your 401(k) after expenses, and with respect to the potential tax savings. Then, since I'm a proponent of \"\"deposit to the match, even if you have to eat rice and beans to find the cash to do\"\" I'll extend the question to ask if you can beat the choices taking the match into account. 401(k) - Your $1000 starts as $1500 and has a tax due on withdrawal years later. AeroAccount - You start with $750 (after the tax) and might spend a decade before hitting $1500. Start your own company? That might be another story. But to invest in the market and still beat the matched 401(k) takes a bit more wisdom than I'd claim to have.\""
},
{
"docid": "371886",
"title": "",
"text": "The matching funds are free money, so it is a very good idea to take that money off the table. Look at it as free 100% return: you deposit $1000, your employer matches that $1000, you now have $2000 in your 401(k). (Obviously, I'm keeping things simple. Vesting schedules mean that the employer match isn't yours to keep immediately, but rather after some time; usually in chunks.) Beyond the employer match, you need to consider what is available for investment in a 401(k). Typically, your options are more limited then in an IRA. The cost of the 401(k) should be considered, as it isn't trivial for most. (The specifics will of course vary, but in large IRA accounts are cheaper.) So, it's about the opportunity costs. Up to the employer match, it doesn't matter as much that your investment choices are more limited in a 401(k), because you're getting 100% return just on the matching funds. Once that is exhausted, you have more opportunity for returns, due to having more options available to you, by going with an account that provides more choices. The overall principle here is that you have to look at the whole picture. This is similar to the notion that you should pay-down your high interest debt before investing, because from the perspective of investing the interest you're paying represent a loss, or negative return on investment, since money is going out of your accounts. Specific to your question, you have to consider the various types of investment vehicles available to you. It is not just about 401(k) and IRA accounts. You may also consider a straight brokerage account, a savings account, CDs, etc. The costs and returns that you can typically expect are your guides through the available choices."
},
{
"docid": "4810",
"title": "",
"text": "\"There is no equation. Only data that would help you come to the decision that's right for you. Assuming the 401(k) is invested in a stock fund of one sort or another, the choice is nearly the same as if you had $5K cash to either invest or pay debt. Since stock returns are not fixed, but are a random distribution that somewhat resembles a bell curve, median about 10%, standard deviation about 14%. It's the age old question of \"\"getting a guaranteed X% (paying the debt) or a shot at 8-10% or so in the market.\"\" This come up frequently in the decision to pre-pay mortgages at 4-5% versus invest. Many people will take the guaranteed 4% return vs the risk that comes with the market. For your decision, the 401(k) loan, note that the loan is due if you separate from the company for whatever reason. This adds an additional layer of risk and another data point to the mix. For your exact numbers, the savings is barely $50. I'd probably not do it. If the cards were 18%, I'd lean toward the loan, but only if I knew I could raise the cash to pay it back to not default.\""
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "10476",
"title": "",
"text": "As a 22 year old planning for your financial life, it is obvious to say that saving as much as you can to invest for the long run is the smartest thing to do from a financial point of view. In general, at this point, aged 22, you can take as much risk as you'll ever will. You're investing for the very long term (+30/+40 years). The downside of risk, the level of uncertainty on returns (positive or negative), is most significant on the short term (<5years). While the upside of risk, assuming you can expect higher returns the more risk you take, are most significant on the long term. In short: for you're financial life, it's smart to save as much as you can and invest these savings with a lot of risk. So, what is smart to invest in? The most important rule is to keep your investment costs as low as possible. Risk and returns are strongly related, however investment costs lower the returns, while you keep the risk. Be aware of the investment industry marketing fancy investment products. Most of them leave you with higher costs and lower returns. Research strongly suggests that an lowcost etf portfolio is our best choice. Personally, i disregard this new smart beta hype as a marketing effort from the financial industry. They charge more investment costs (that's a certain) and promise better returns because they are geniuses (hmmm...). No thanks. As suggested in other comments, I would go for an low cost (you shouldn't pay more than 0.2% per year) etf portfolio with a global diversification, with at least 90% in stocks. Actually that is what I've been doing for three years now (I'm 27 years old)."
}
] | [
{
"docid": "247614",
"title": "",
"text": "\"My two cents: I am a pension actuary and see the performance of funds on a daily basis. Is it normal to see down years? Yes, absolutely. It's a function of the directional bias of how the portfolio is invested. In the case of a 401(k) that almost always mean a positive directional bias (being long). Now, in your case I see two issues: The amount of drawdown over one year. It is atypical to have a 14% loss in a little over a year. Given the market conditions, this means that you nearly experienced the entire drawdown of the SP500 (which your portfolio is highly correlated to) and you have no protection from the downside. The use of so-called \"\"target-date funds\"\". Their very implication makes no sense. Essentially, they try to generate a particular return over the elapsed time until retirement. The issue is that the market is by all statistical accounts random with positive drift (it can be expected to move up in the long term). This positive drift is due to the fact that people should be paid to take on risk. So if you need the money 20 years from now, what's the big deal? Well, the issue is that no one, and I repeat, no one, knows when the market will experience long down moves. So you happily experience positive drift for 20 years and your money grows to a decent size. Then, right before you retire, the market shaves 20%+ of your investments. Will you recoup these damages? Most likely yes. But will that be in the timeframe you need? The market doesn't care if you need money or not. So, here is my advice if you are comfortable taking control of your money. See if you can roll your money into an IRA (some 401(k) plans will permit this) or, if you contribute less that the 401(k) contribution limit you make want to just contribute to an IRA (be mindful of the annual limits). In this case, you can set up a self-directed account. Here you will have the flexibility to diversify and take action as necessary. And by diversify, I don't mean that \"\"buy lots of different stuff\"\" garbage, I mean focus on uncorrelated assets. You can get by on a handful of ETFs (SPY, TLT, QQQ, ect.). These all have liquid options available. Once you build a base, you can lower basis by writing covered calls against these positions. This is allowed in almost all IRA accounts. In my opinion, and I see this far too often, your potential and drive to take control of your assets is far superior than the so called \"\"professionals or advisors\"\". They will 99% of the time stick you in a target date fund and hope that they make their basis points on your money and retire before you do. Not saying everyone is unethical, but its hard to care about your money more than you will.\""
},
{
"docid": "215149",
"title": "",
"text": "At a minimum, I would save 20-30k, because you need to have both a safety net and some money for home repairs. Very few people move into a house and then do zero repairs - painting, usually, at a minimum, and there's almost always something that comes up pretty soon after. Even if you're buying a condo, you'll want to be sure you can fix anything that needs fixing within that first year or two. Beyond that, you have to decide based on your risk tolerance and your other details, like your income. Taking a smaller mortgage means a guaranteed 3% to 4% return, right now. That's not quite what you'll probably get on the market over the long term, but how did your investments do last year? My 401(k) was down slightly... In order to do better than that 3-4%, you're going to have to invest in stocks (or ETFs or similar), meaning you could have 10+% swings potentially year over year, which if that's your only (extra) 50k might be more than you can tolerate. If you're very risk tolerant and mostly looking to make money over the long term, then it may be worth it to you. But if a larger mortgage makes it harder to pay the monthly payments (a meaningfully smaller buffer), or if your job is such that you might end up having to sell those investments at a loss to cover your mortgage for a few months because you (didn't make enough|got laid off|etc.), then you may want the smaller mortgage to make that less of a risk (though still setting aside the safety net in something minimally risky)."
},
{
"docid": "256448",
"title": "",
"text": "Their paperwork should help you along. Schwab is the broker and custodian, you are the administrator. There's virtually no paperwork after the account is opened, until you hit $250K in value, and then there's one extra IRS form you need to fill out each year. See One-Participant 401(k) Plans for a good IRS description of form 5500. Disclosure - I use the Schwab Solo 401(k) myself, and the only downsides, in my opinion, the don't offer a Roth flavor, and no loans are permitted. Both of these features would offer flexibility."
},
{
"docid": "313923",
"title": "",
"text": "Pay the 401(k) loan back as soon as possible. To be clear, the money from your 401(k) loan is no longer invested and working for you. It doesn't make sense to pull money out of your 401(k) investments and then invest it in something else. If you want to invest for retirement, pay back the loan and invest that money inside your 401(k). If you leave your job, the 401(k) loan needs to be paid back in full, or else taxes and penalties will apply. If you have put the funds in an IRA, they won't be available to you should you need to pay back the loan early. Instead of making a monthly payment to the 401(k) loan, pay off the loan and then make a monthly investment to an IRA."
},
{
"docid": "301616",
"title": "",
"text": "The managers of the 401(k) have to make their money somewhere. Either they'll make it from the employer, or from the employees via the expense ratio. If it's the employer setting up the plan, I can bet whose interest he'll be looking after. Regarding your last comment, I'd recommend looking outside your 401(k) for investing. If you get free money from your employer for contributing to your 401(k), that's a plus, but I wouldn't -- actually, I don't -- contribute anything beyond the match. I pay my taxes and I'm done with it."
},
{
"docid": "452830",
"title": "",
"text": "A few years ago I had been contributing with my employer to a 401(k). When I then moved abroad, I found it difficult to stay in touch with my 401(k). The toll-free numbers I had used inside the US, to contact the plan administrators, did not work from overseas."
},
{
"docid": "145716",
"title": "",
"text": "\"Early this year I wrote an article Are you 401(k)o’ed? I described the data from a 401(k) expense survey and the punchline was that the average large retirement plan (over 1000 participants) expense was 1.08%, and for smaller plans it rose to 1.24%. As I commented below, if one's goal is to make deposits with income that avoid a tax of 25%, and hope to withdraw it at retirement at 15%, it doesn't take long for a 1% fee to completely negate the benefit of pretax savings. These numbers are averages, in the same article, I mention (ok, I brag) that my company plan has an S&P fund that costs .05%. That's 1% over 20 years. The sound bite of \"\"deposit to the match\"\" needs to be followed by \"\"depending on the choice of investments and their expenses\"\" within the 401(k). Every answer here has added excellent points, fennec's last sentence shouldn't be ignored, there's a phaseout for IRA deductibility, and another for Roth eligibility. For Married filing joint, IRA deduction starts to be lost at $92K, and Roth deposit disallowed at $173K. This adds a bit to the complexity of the decision, but doesn't change the implication of the 1%+ 401(k) fees.\""
},
{
"docid": "421455",
"title": "",
"text": "\"The policy you quoted suggests you deposit 6% minimum. That $6,000 will cost you $4,500 due to the tax effect, yet after the match, you'll have $9,000 in the account. Taxable on withdrawal, but a great boost to the account. The question of where is less clear. There must be more than the 2 choices you mention. Most plans have 'too many' choices. This segues into my focus on expenses. A few years back, PBS Frontline aired a program titled The Retirement Gamble, in which fund expenses were discussed, with a focus on how an extra 1% in expenses will wipe out an extra 1/3 of your wealth in a 40 year period. Very simple to illustrate this - go to a calculator and enter .99 raised to the power of 40. .669 is the result. My 401(k) has an expense of .02% (that's 1/50 of 1%) .9998 raised to the same 40 gives .992, in other words, a cost of .8% over the full 40 years. My wife and I are just retired, and will have less in expenses for the rest of our lives than the average account cost for just 1 year. In your situation, the knee-jerk reaction is to tell you to maximize the 401(k) deposit at the current (2016) $18,000. That might be appropriate, but I'd suggest you look at the expense of the S&P index (sometime called Large Cap Fund, but see the prospectus) and if it's costing much more than .75%/yr, I'd go with an IRA (Roth, if you can't deduct the traditional IRA). Much of the value of the 401(k) beyond the match is the tax differential, i.e. depositing while in the 25% bracket, but withdrawing the funds at retirement, hopefully at 15%. It doesn't take long for the extra expense and the \"\"holy cow, my 401(k) just turned decades of dividends and long term cap gains into ordinary income\"\" effect to take over. Understand this now, not 30 years hence. Last - to answer your question, 'how much'? I often recommend what may seem a cliche \"\"continue to live like a student.\"\" Half the country lives on $54K or less. There's certainly a wide gray area, but in general, a person starting out will choose one of 2 paths, living just at, or even above his means, or living way below, and saving, say, 30-40% off the top. Even 30% doesn't hit the extreme saver level. If you do this, you'll find that if/when you get married, buy a house, have kids, etc. you'll still be able to save a reasonable percent of your income toward retirement. In response to your comment, what counts as retirement savings? There's a concept used as part of the budgeting process known as the envelope system. For those who have an income where there's little discretionary money left over each month, the method of putting money aside into small buckets is a great idea. In your case, say you take me up on the 30-40% challenge. 15% of it goes to a hard and fast retirement account. The rest, to savings, according to the general order of emergency fund, 6-12 months expenses, to cover a job loss, another fund for random expenses, such as new transmission (I've never needed one, but I hear they are expensive), and then the bucket towards house down payment. Keep in mind, I have no idea where you live or what a reasonable house would cost. Regardless, a 20-25% downpayment on even a $250K house is $60K. That will take some time to save up. If the housing in your area is more, bump it accordingly. If the savings starts to grow beyond any short term needs, it gets invested towards the long term, and is treated as \"\"retirement\"\" money. There is no such thing as Saving too much. When I turned 50 and was let go from a 30 year job, I wasn't unhappy that I saved too much and could call it quits that day. Had I been saving just right, I'd have been 10 years shy of my target.\""
},
{
"docid": "163287",
"title": "",
"text": "\"Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market. How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to \"\"vest\"\". This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts. This will make it far easier for you to qualify for a mortgage later on. Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate. First, there will be fewer chances for the rate to go up. Second, even if the rate does go up, you will not owe the money very long.\""
},
{
"docid": "269385",
"title": "",
"text": "I think you understood much of what I say, in general. Unfortunately, I didn't follow Patches math. What I gleen from your summary is a 1% match to the 10% invested, but a .8% expense. The ETF VOO has a .05% annual fee, a bit better than SPY. A quick few calculations show that the 10% bonus does offset a long run of the .75% excess expense compared to external investing. After decades, the 401(k) appears to still be a bit ahead. Not the dramatic delta suggested in the prior answer, but enough to stay with the 401(k) in this situation. The tiny match still makes the difference. Edit - the question you linked to. The 401(k) had no match, and an awful 1.2% annual expense. This combination is deadly for the younger investor. Always an exception to offer - a 25% marginal rate earner close to retiring at 15%. The 401(k) deposit saves him 25, but can soon be withdrawn at 15, it's worth a a few years of that fee to make this happen. For the young person who is planning a quick exit from the company, same deal."
},
{
"docid": "452126",
"title": "",
"text": "To expand on mhoran's answer - Once you mention the 401(k), we're compelled to ask (a) what is the match, if any, and (b) what are the expenses within the funds offered. Depositing to get the full match is going to get you the biggest return on your money. It's common to get a dollar for dollar match on the first 5 or 6% of your income. If the fees are high, you stop at the match, and move to an IRA for the next money you wish to save. At 22, I'd probably focus on the Roth. If you have access to a Roth 401(k), that's great, the match will be pre tax dollars and you'll get started with a decent tax status mix. These accounts can form the core of your investing. Most people have little left over once their retirement accounts are fully funded. And yes, reading to understand stocks is great, but also to understand why stock indexing is the best choice for most investors."
},
{
"docid": "425703",
"title": "",
"text": "I tried to roll my funds to my new company. But my hr department from my old job would not work with me on getting it straightened out. So I decided to either pull it all out or roll it into a 401 k and use it as a trial for stocks and investments. Simce it isn't a large amount of money to begin with"
},
{
"docid": "406561",
"title": "",
"text": "\"The limit on SEP IRA is 25%, not 20%. If you're self-employed (filing on Schedule C), then it's taken on net earning, which in your example would be 25% of $90,000. (https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people) JoeTaxpayer is correct as regards the 401(k) limits. The elective deferrals are per person - That's a cap in sum across multiple plans and across both traditional and Roth if you have those. In general, it's actually across other retirement plan types too - See below. If you're self-employed and set-up a 401(k) for your own business, the elective deferral is still aggregated with any other 401(k) plans in which you participate that year, but you can still make the employer contribution on your own plan. This IRS page is current a pretty good one on this topic: https://www.irs.gov/retirement-plans/one-participant-401k-plans Key quotes that are relevant: The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both: •Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: ◦$18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus •Employer nonelective contributions up to: ◦25% of compensation as defined by the plan, or ◦for self-employed individuals, see discussion below It continues with this example: The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $18,000 in 2015 and 2016. Although a plan's terms may place lower limits on contributions, the total amount allowed under the tax law doesn’t depend on how many plans you belong to or who sponsors those plans. EXAMPLE Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2015. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2015 were $36,500. This is the maximum that can be contributed to the plan for Ben for 2015. A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year. Notice in the example that Ben contributed more that than his elective limit in total (his was $24,000 in the example because he was old enough for the $6,000 catch-up in addition to the $18,000 that applies to everyone else). He did this by declaring an employer contribution of $12,500, which was limited by his compensation but not by any of his elective contributions. Beyond the 401(k), keep in mind that elective contributions are capped across different types of retirement plans as well, so if you have a SEP IRA and a solo 401(k), your total contributions across those plans are also capped. That's also mentioned in the example. Now to the extent that you're considering different types of plans, that's a whole question in itself - One that might be worth consulting a dedicated tax advisor. A few things to consider (not extensive list): As for payroll / self-employment tax: Looks like you will end up paying Medicare, including the new \"\"Additional Medicare\"\" tax that came with the ACA, but not SS: If you have wages, as well as self-employment earnings, the tax on your wages is paid first. But this rule only applies if your total earnings are more than $118,500. For example, if you will have $30,000 in wages and $40,000 in selfemployment income in 2016, you will pay the appropriate Social Security taxes on both your wages and business earnings. In 2016, however, if your wages are $78,000, and you have $40,700 in net earnings from a business, you don’t pay dual Social Security taxes on earnings more than $118,500. Your employer will withhold 7.65 percent in Social Security and Medicare taxes on your $78,000 in earnings. You must pay 15.3 percent in Social Security and Medicare taxes on your first $40,500 in self-employment earnings and 2.9 percent in Medicare tax on the remaining $200 in net earnings. https://www.ssa.gov/pubs/EN-05-10022.pdf Other good IRS resources:\""
},
{
"docid": "490867",
"title": "",
"text": "Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian. Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company... If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined. Loans terms shouldn't change. Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods."
},
{
"docid": "165981",
"title": "",
"text": "\"Your question has a built in faulty premise. \"\"ASSUMING a person knows how to use and invest their money wisely\"\" I'd ask if you were wise enough to beat the investments offered in your 401(k) after expenses, and with respect to the potential tax savings. Then, since I'm a proponent of \"\"deposit to the match, even if you have to eat rice and beans to find the cash to do\"\" I'll extend the question to ask if you can beat the choices taking the match into account. 401(k) - Your $1000 starts as $1500 and has a tax due on withdrawal years later. AeroAccount - You start with $750 (after the tax) and might spend a decade before hitting $1500. Start your own company? That might be another story. But to invest in the market and still beat the matched 401(k) takes a bit more wisdom than I'd claim to have.\""
},
{
"docid": "276574",
"title": "",
"text": "The Roth-IRA or for that matter a regular IRA is generally not connected to your place of employment. Now a 401(k) is linked to your place of employment. If the business no longer exists, they should have turned over the 401K. The US department of Labor has information regarding plans that have been abandoned. I suspect my plan is abandoned, but I have never received a notice of plan termination. How could I find out if a QTA has elected to terminate and wind up my 401(k) pension plan? EBSA has developed an Abandoned Plan searchable database to help participants and beneficiaries find out if a particular plan is in the process of being, or has been, terminated. The site is searchable by plan name or employer name and will provide the name and contact information for the QTA, if one exists. If you do not have access to a computer to conduct the search, you may contact one of EBSA’s Benefits Advisors to assist you by calling toll-free, 1.866.444.EBSA (3272)."
},
{
"docid": "417388",
"title": "",
"text": "The 401(k) contribution is Federal tax free, when you make the contribution, and most likely State too. I believe that is true for California, specifically. There was a court case some years ago about people making 401(k) or IRA contributions in New York, avoiding the New York state income tax. Then they moved to Florida (no income tax), and took the money out. New York sued, saying they had to pay the New York income tax that had been deferred, but the court said no. So you should be able to avoid California state income tax, and then later if you were to move to, for example, Texas (no income tax), have no state income tax liability. At the Federal level, you will have different problems. You won't have the money; it will be held by the 401(k) trustee. When you try to access the money (cash the account out), you will have to pay the deferred taxes. Effectively, when you remove the money it becomes income in the year it is removed. You can take the money out at any time, but if you are less than 59 1/2 at the time that you take it, there is a 10% penalty. The agreement is that the Feds let you defer paying the tax because it is going to finance your retirement, and they will tax it later. If you take it out before 59 1/2, they figure you are not retired yet, and are breaking your part of the agreement. Of course you can generally leave the money in the 401(k) plan with your old employer and let it grow until you are 59.5, or roll it over into another 401(k) with a new employer (if they let you), or into an IRA. But if you have returned to your own country, having an account in the U.S. would introduce both investment risk and currency risk. If you are in another country when you want the money, the question would be where your U.S. residence would be. If you live in California, then go to, say France, your U.S. residence would still be California, and you would still owe California income tax. If you move from California to Texas and then to France, your U.S. residence would be Texas. This is pretty vague, as you might have heard in the Rahm Emanual case -- was he a resident of Chicago or Washington, D.C.? Same problem with Howard Hughes who was born in Texas, but then spent most his life in California, then to Nevada, then to Nicaragua, and the Bahamas. When he died Texas, California and Nevada all claimed him as a resident, for estate taxes. The important thing is to be able to make a reasonable case that you are a resident of where ever you want to be -- driver's license, mailing address, living quarters, and so on."
},
{
"docid": "88539",
"title": "",
"text": "There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently."
},
{
"docid": "194776",
"title": "",
"text": "The S&P top 5 - 401(k) usually comply with the DOL's suggestion to offer at least three distinct investment options with substantially different risk/return objectives. Typically a short term bond fund. Short term is a year or less and it will rarely have a negative year. A large cap fund, often the S&P index. A balanced fund, offering a mix. Last, the company's stock. This is a great way to put all your eggs in one basket, and when the company goes under, you have no job and no savings. My concern about your Microsoft remark is that you might not have the choice to manage you funds with such granularity. Will you get out of the S&P fund because you think this one stock or even one sector of the S&P is overvalued? And buy into what? The bond fund? If you have the skill to choose individual stocks, and the 401(k) doesn't offer a brokerage window (to trade on your own) then just invest your money outside the 401(k). But. If they offer a matching deposit, don't ignore that."
}
] |
8974 | As a 22-year-old, how risky should I be with my 401(k) investments? | [
{
"docid": "478242",
"title": "",
"text": "At twenty-two, you can have anywhere between 100%-70% of your securities portfolio in equities. It is reasonable to start at 100% and reduce over time. The one thing that I would mention with that is that your target at retirement should be 70% stocks/30% bonds. You should NEVER have more than 30% bonds. Why? Because a 70/30 mix is both safer than 100% bonds and will give a higher return. Absent some market timing strategy (which as an amateur investor, you should absolutely avoid) or some complicated balancing scheme, there is never a reason to be at more than 30% bonds. A 50/50 mix of stocks and bonds or a 100% bonds ratio not only returns less than the 70/30 mix, it is actually riskier. Why? Because sometimes bonds fall. And when they do, stocks generally gain. And vice versa. Because of this behavior, the 70/30 mix is less likely to fall than 50% or 100% bonds. Does that mean that your stock percentage should never drop below 70%? No. If your portfolio contains things other than stocks and bonds, it is reasonable for stocks to fall below 70%. The problem is that when you drop stocks below 70%, you should drop bonds below 30% as well. So you keep the stock to bond ratio at 7:3. If you want to get a lower risk than a 70/30 mix, then you should move into cash equivalents. Cash equivalents are actually safer than stocks and bonds either individually or in combination. But at twenty-two, you don't really need more safety. At twenty-two, the first thing to do is to build your emergency fund. This should be able to handle six months of expenses without income. I recommend making it equal to six months of your income. The reason being that it is easy to calculate your income and difficult to be sure of expenses. Also, you can save six months of income at twenty-two. Are you going to stay where you are for the next five years? At twenty-two, the answer is almost certainly no. But the standard is the five year time frame. If you want a bigger place or one that is closer to work, then no. If you stay somewhere at least five years, then it is likely that the advantages to owning rather than renting will outweigh the costs of switching houses. Less than five years, the reverse is true. So you should probably rent now. You can max out your 401k and IRA now. Doing so even with a conservative strategy will produce big returns by sixty-seven. And perhaps more importantly, it helps keep your spending down. The less you do spend, the less you will feel that you need to spend. Once you fill your emergency fund, start building savings for a house. I would consider putting them in a Real Estate Investment Trust (REIT). A REIT will tend to track real estate. Since you want to buy real estate with the results, this is its own kind of safety. It fell in value? Houses are probably cheap. Houses increasing in price rapidly? A REIT is probably growing by leaps and bounds. You do this outside your retirement accounts, as you want to be able to access it without penalty."
}
] | [
{
"docid": "394549",
"title": "",
"text": "\"The company itself doesn't benefit. In most cases, it's an expense as the match that many offer is going to cost the company some percent of salary. As Mike said, it's part of the benefit package. Vacation, medical, dental, cafeteria plans (i.e. both flexible spending and dependent care accounts, not food), stock options, employee stock purchase plans, defined contribution or defined benefit pension, and the 401(k) or 403(b) for teachers. Each and all of these are what one should look at when looking at \"\"total compensation\"\". You allude to the lack of choices in the 401(k) compared to other accounts. Noted. And that lack of choice should be part of your decision process as to how you choose to invest for retirement. If the fess/selection is bad enough, you need to be vocal about it and request a change. Bad choices + no match, and maybe the account should be avoided, else just deposit to the match. Note - Keith thanks for catching and fixing one typo, I just caught another.\""
},
{
"docid": "199237",
"title": "",
"text": "\"This is basically what financial advisers have been saying for years...that you should invest in higher risk securities when you are young and lower risk securities when you get older. However, despite the fact that this is taken as truth by so many financial professionals, financial economists have been unable to formulate a coherent theory that supports it. By changing the preferences of their theoretical investors, they can get solutions like putting all your investments in a super safe asset until you get to a minimum survival level for retirement and then investing aggressively and many other solutions. But for none of the typically assumed preferences does investing aggressively when young and becoming more conservative as you near retirement seem to be the solution. I'm not saying there can be no such preferences, but the difficulty in finding them makes me think maybe this idea is not actually correct. Couple of problems with your intuition that you should think about: It's not clear that things \"\"average out\"\" over time. If you lose a bunch of money in some asset, there's no reason to think that by holding that asset for a while you will make back what you lost--prices are not cyclical. Moreover, doesn't your intuition implicitly suggest that you should transition out of risky securities as you get older...perhaps after having lost money? You can invest in safe assets (or even better, the tangency portfolio from your graph) and then lever up if you do want higher risk/return. You don't need to change your allocation to risky assets (and it is suboptimal to do so--you want to move along the CAL, not the curve). The riskiness of your portfolio should generally coincide (negatively) with your risk-aversion. When you are older and more certain about your life expectancy and your assets, are you exposed to more or less risks? In many cases, less risks. This means you would choose a more risky portfolio (because you are more sure you will have enough to live on until death even if your portfolio takes a dive). Your actual portfolio consists both of your investments and your human capital (the present value of your time and skills). When you are young, the value of this capital changes significantly with market performance so you already have background risk. Buying risky securities adds to that risk. When you are old, your human capital is worth little, so your overall portfolio becomes less risky. You might want to compensate by increasing the risk of your investments. EDIT: Note that this point may depend on how risky your human capital is (how likely it is that your wage or job prospects will change with the economy). Overall the answer to your question is not definitively known, but there is theoretical evidence that investing in risky securities when young isn't optimal. Having said that, most people do seem to invest in riskier securities when young and safer when they are older. I suspect this is because with life experience people become less optimistic as they get older, not because it is optimal to do so. But I can't be sure.\""
},
{
"docid": "449828",
"title": "",
"text": "\"Your retirement PLAN is a lifelong plan and shouldn't be tied to your employer status. Max out your 401(k) contribution to the maximum that your employer matches (that's a 100% ROI!) and as much as you can afford. When you leave the work force rollover your 401(k) to an IRA account (e.g.: you can create an IRA account with any of the online brokerage firms Schwab, E-Trade, Sharebuilder, or go with a brick-and-mortar firm like JP Morgan, Stifel Nicolaus, etc.). You should have a plan: How much money do you need/month for your expenses? Accounting for inflation, how much is that going to be at retirement (whatever age you plan to retire)? How much money do you need to have so that 4.5% of that money will provide for your annual living expenses? That's your target retirement amount of savings. Now figure out how to get to that target. Rule #1 Invest early and invest often! The more money you can sock away early in your career the more time that money has to grow. If you aren't comfortable allocating your investments yourself then you could go with a Targeted Retirement Fund. These funds have a general \"\"date\"\" for retirement and the assets are allocated as appropriate for the amount of risk appropriate for the time to retirement.\""
},
{
"docid": "481793",
"title": "",
"text": "I moved from contributing 10% to maxing as my salary rose over the course of three years after graduation. Because of my raises, my monthly take home still increased, so it was a pretty painless way to increase my 401(k) contribution and also avoid lifestyle inflation. That said, I would not do it if you have any credit card debt, school loans, or an auto loan. Pay that off first. Then work on maxing the 401(k). Personally I rate owning a home behind that, but that's partially because I'm in an area where the rent ratios are barely on the side of buying, so I don't find buying to be a pressing matter. One thing to investigate is if your company offers a Roth 401(k) option. It's a nice option where you can go Roth without worrying about income limits. My personal experience does not include a Roth IRA because when I still qualified for one I didn't know much about them, and now that I know about them I have the happy issue of not qualifying."
},
{
"docid": "462481",
"title": "",
"text": "\"I'll add 2 observations regarding current answers. Jack nailed it - a 401(k) match beats all. But choose the right flavor account. You are currently in the 15% bracket (i.e. your marginal tax rate, the rate paid on the last taxed $100, and next taxed $100.) You should focus on Roth. Roth 401(k) (and if any company match, that goes into a traditional pretax 401(k). But if they permit conversions to the Roth side, do it) You have a long time before retirement to earn your way into the next tax bracket, 25%. As your income rises, use the deductible IRA/ 401(k) to take out money pretax that would otherwise be taxed at 25%. One day, you'll be so far into the 25% bracket, you'll benefit by 100% traditional. But why waste the opportunity to deposit to Roth money that's taxed at just 15%? To clarify the above, this is the single rate table for 2015: For this discussion, I am talking taxable income, the line on the tax return designating this number. If that line is $37,450 or less, you are in the 15% bracket and I recommend Roth. Say it's $40,000. In hindsight on should put $2,550 in a pretax account (Traditional 401(k) or IRA) to bring it down to the $37,450. In other words, try to keep the 15% bracket full, but not push into 25%. Last, after enough raises, say you at $60,000 taxable. That, to me is \"\"far into the 25% bracket.\"\" $20,000 or 1/3 of income into the 401(k) and IRA and you're still in the 25% bracket. One can plan to a point, and then use the IRA flavors to get it dead on in April of the following year. To Ben's point regarding paying off the Student Loan faster - A $33K income for a single person, about to have the new expense of rent, is not a huge income. I'll concede that there's a sleep factor, the long tern benefit of being debt free, and won't argue the long term market return vs the rate on the loan. But here we have the probability that OP is not investing at all. It may take $2000/yr to his 401(k) capture the match (my 401 had a dollar for dollar match up to first 6% of income). This $45K, after killing the card, may be his only source for the extra money to replace what he deposits to his 401(k). And also serve as his emergency fund along the way.\""
},
{
"docid": "269385",
"title": "",
"text": "I think you understood much of what I say, in general. Unfortunately, I didn't follow Patches math. What I gleen from your summary is a 1% match to the 10% invested, but a .8% expense. The ETF VOO has a .05% annual fee, a bit better than SPY. A quick few calculations show that the 10% bonus does offset a long run of the .75% excess expense compared to external investing. After decades, the 401(k) appears to still be a bit ahead. Not the dramatic delta suggested in the prior answer, but enough to stay with the 401(k) in this situation. The tiny match still makes the difference. Edit - the question you linked to. The 401(k) had no match, and an awful 1.2% annual expense. This combination is deadly for the younger investor. Always an exception to offer - a 25% marginal rate earner close to retiring at 15%. The 401(k) deposit saves him 25, but can soon be withdrawn at 15, it's worth a a few years of that fee to make this happen. For the young person who is planning a quick exit from the company, same deal."
},
{
"docid": "301616",
"title": "",
"text": "The managers of the 401(k) have to make their money somewhere. Either they'll make it from the employer, or from the employees via the expense ratio. If it's the employer setting up the plan, I can bet whose interest he'll be looking after. Regarding your last comment, I'd recommend looking outside your 401(k) for investing. If you get free money from your employer for contributing to your 401(k), that's a plus, but I wouldn't -- actually, I don't -- contribute anything beyond the match. I pay my taxes and I'm done with it."
},
{
"docid": "387011",
"title": "",
"text": "\"On thing the questioner should do is review the Summary Plan Description (SPD) for the 401(k) plan. This MAY have details on any plan imposed limits on salary deferrals. If the SPD does not have sufficient detail, the questioner should request a complete copy of current plan document and then review this with someone who knows how to read plan documents. The document for a 401(k) plan CAN specify a maximum percentage of compensation that a participant in the 401(k) plan can defer REGARDLESS of the maximum dollar deferral limit in Internal Revenue Code Section 402(g). For example, the document for a 401(k) plan can provide that participants can elect to defer any amount of their compensation (salary) BUT not to exceed ten percent (10%). Thus, someone whose salary is $50,000 per year will effectively be limited to deferring, at most, $5,000. Someone making $150,000 will effectively be limited to deferring, at most, $15,000. This is true regardless of the fact that the 2013 dollar limit on salary deferrals is $17,500. This is also true regardless of whether or not a participant may want to defer more than ten percent (10%) of compensation. This \"\"plan imposed\"\" limit on salary deferral contributions is permissible assuming it is applied in a nondiscriminatory manner. This plan imposed limit is entirely separate from any other rules or restrictions on salary deferral amounts that might be as a result of things like the average deferral percentage test.\""
},
{
"docid": "4181",
"title": "",
"text": "\"As other responders said, you can certainly roll over multiple 401(k) into a single account. An added benefit of such rollover (besides the ease of tracking) is that you can shop around for your Rollover IRA provider and find the one that gives you the specific mutual funds that you want to invest in, the lowest expenses, etc. - in short, find the best fit to your priorities. There are also \"\"lemon\"\" 401(k) plans and if you are in one of them, get out! And rollover is the way out. There is also one possibility to keep an eye on as it happens rarely, but it does happen - rolling a 401(k) over into another 401(k). I've done it once when I started a job at a company that had a great 401(k) with a good selection of low-cost mutual funds. I rolled the 401(k) from one previous job in to this 401(k) to take advantage of it. At the same time I kept a Rollover IRA, combining the 401(k) from all other jobs; it had more investment options and provided some flexibility.\""
},
{
"docid": "168561",
"title": "",
"text": "On my quarterly statement and the 401K plan website I can see the vesting for various categories. They total all these up and report the total balance and the vested balance. If I do the math I discover that the vested balance is equal to A + B + D + (60% of C) For my company at least, if I was to leave now I would get 60% of the Company match, which does include significant gains. This document for the Department of Labor discuss many aspects of 401K plans including vesting. In a defined contribution plan such as a 401(k) plan, you are always 100 percent vested in your own contributions to a plan, and in any subsequent earnings from your contributions. However, in most defined contribution plans you may have to work several years before you are vested in the employer’s matching contributions. (There are exceptions, such as the SIMPLE 401(k) and safe harbor 401(k), in which you are immediately vested in all required employer contributions. You also vest immediately in the SIMPLE IRA and the SEP.) Currently, employers have a choice of two different vesting schedules for employer matching 401(k) contributions, which are shown in Table 2. Your employer may use a schedule in which employees are 100 percent vested in employer contributions after 3 years of service (cliff vesting). Under graduated vesting, an employee must be at least 20 percent vested after 2 years, 40 percent after 3 years, 60 percent after 4 years, 80 percent after 5 years, and 100 percent after 6 years. If your automatic enrollment 401(k) plan requires employer contributions, you vest in those contributions after 2 years. Automatic enrollment 401(k) plans with optional matching contributions follow one of the vesting schedules noted above."
},
{
"docid": "88539",
"title": "",
"text": "There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently."
},
{
"docid": "247614",
"title": "",
"text": "\"My two cents: I am a pension actuary and see the performance of funds on a daily basis. Is it normal to see down years? Yes, absolutely. It's a function of the directional bias of how the portfolio is invested. In the case of a 401(k) that almost always mean a positive directional bias (being long). Now, in your case I see two issues: The amount of drawdown over one year. It is atypical to have a 14% loss in a little over a year. Given the market conditions, this means that you nearly experienced the entire drawdown of the SP500 (which your portfolio is highly correlated to) and you have no protection from the downside. The use of so-called \"\"target-date funds\"\". Their very implication makes no sense. Essentially, they try to generate a particular return over the elapsed time until retirement. The issue is that the market is by all statistical accounts random with positive drift (it can be expected to move up in the long term). This positive drift is due to the fact that people should be paid to take on risk. So if you need the money 20 years from now, what's the big deal? Well, the issue is that no one, and I repeat, no one, knows when the market will experience long down moves. So you happily experience positive drift for 20 years and your money grows to a decent size. Then, right before you retire, the market shaves 20%+ of your investments. Will you recoup these damages? Most likely yes. But will that be in the timeframe you need? The market doesn't care if you need money or not. So, here is my advice if you are comfortable taking control of your money. See if you can roll your money into an IRA (some 401(k) plans will permit this) or, if you contribute less that the 401(k) contribution limit you make want to just contribute to an IRA (be mindful of the annual limits). In this case, you can set up a self-directed account. Here you will have the flexibility to diversify and take action as necessary. And by diversify, I don't mean that \"\"buy lots of different stuff\"\" garbage, I mean focus on uncorrelated assets. You can get by on a handful of ETFs (SPY, TLT, QQQ, ect.). These all have liquid options available. Once you build a base, you can lower basis by writing covered calls against these positions. This is allowed in almost all IRA accounts. In my opinion, and I see this far too often, your potential and drive to take control of your assets is far superior than the so called \"\"professionals or advisors\"\". They will 99% of the time stick you in a target date fund and hope that they make their basis points on your money and retire before you do. Not saying everyone is unethical, but its hard to care about your money more than you will.\""
},
{
"docid": "468841",
"title": "",
"text": "You should be able to take a loan out on the 401(k). You can't do a roll-over unless you leave your job. If your 401(k) is that bad, you should consider maxing out your IRA contributions first and putting the rest into your 401(k) - so if you're putting away about 7k a year, lower your withholding to 1500 and put 5500 into an IRA."
},
{
"docid": "380615",
"title": "",
"text": "401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not."
},
{
"docid": "127664",
"title": "",
"text": "\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\""
},
{
"docid": "163287",
"title": "",
"text": "\"Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market. How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to \"\"vest\"\". This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts. This will make it far easier for you to qualify for a mortgage later on. Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate. First, there will be fewer chances for the rate to go up. Second, even if the rate does go up, you will not owe the money very long.\""
},
{
"docid": "553288",
"title": "",
"text": "Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal."
},
{
"docid": "525645",
"title": "",
"text": "HCE is defined as being above 120k$ or in the top 20 % of the company. The exact cutoff point might be different for each company. Typically, only the base salary is considered for that, but it's the company's (and 401(k)-plan's) decision. The IRS does not require HCE treatment; the IRS requires that 401(k) plans have a 'fair' distribution of usage between all employees. Very often, employees with lower income save (over-proportionally) less in their 401(k), and there is a line where the 401(k) plan is no longer acceptable to the IRS. HCE is a way for companies to ensure this forced balance; by limiting the amount of 401(k) savings for HCE, the companies ensure that the share of all contributions by below-HCE is appropriate. They will calculate/define the HCE cutoff point so that the required distribution is surely achieved. One of the consequences is that when you move over the HCE cutoff point, you can suddenly save a lot less in your 401(k). Nothing can be done about that. See this IRS page: https://www.irs.gov/retirement-plans/plan-participant-employee/definitions Highly Compensated Employee - An individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2014; $120,000 if the preceding year is 2015 or 2016), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation."
},
{
"docid": "74864",
"title": "",
"text": "I decided to open it with funds b/c the checking account I have is used as a savings, and has been stagnant. Doesn't make any noticeable interest, and I'm not tapping into it for now. Figured why not get some of it moving. Especially since I'm not working right now and am not contributing to retirement otherwise. The old 401(k)s have been sitting still for many years, and aren't that full. Really miss my old deferred compensation fund, that does well even when I'm not contributing!"
}
] |
8982 | Are Exchange-Traded Funds (ETFs) less safe than regular mutual funds? | [
{
"docid": "454610",
"title": "",
"text": "\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \"\"derivative\"\"? No it is not a derivative. It is a Mutual Fund.\""
}
] | [
{
"docid": "254230",
"title": "",
"text": "The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead. Considering mutual funds it is better to say Invest vs. Trade. Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...)"
},
{
"docid": "539263",
"title": "",
"text": "There are times when investing in an ETF is more convenient than a mutual fund. When you invest in a mutual fund, you often have an account directly with the mutual fund company, or you have an account with a mutual fund broker. Mutual funds often have either a front end or back end load, which essentially gives you a penalty for jumping in and out of funds. ETFs are traded exactly like stocks, so there is inherently no load when buying or selling. If you have a brokerage account and you want to move funds from a stock to a mutual fund, an ETF might be more convenient. With some accounts, an ETF allows you to invest in a fund that you would not be able to invest in otherwise. For example, you might have a 401k account through your employer. You might want to invest in a Vanguard mutual fund, but Vanguard funds are not available with your 401k. If you have access to a brokerage account inside your 401k, you can invest in the Vanguard fund through the associated ETF. Another reason that you might choose an ETF over a mutual fund is if you want to try to short the fund."
},
{
"docid": "309361",
"title": "",
"text": "Let’s compare your target fund, FFFFX to a well-known ETF, SPY; SPDR S&P 500 ETF. Source: Yahoo Finance The difference in performance over a longer time-frame is significant, You can and should carefully research better funds in order to improve performance. FULL DISCLOSURE: My own IRA is at Fidelity. Less than 10% of my IRA is in Fidelity mutual funds. None is in FFFFX."
},
{
"docid": "87261",
"title": "",
"text": "S & P Index Announcements would have notes on when there are changes to the index. For example in the S & P Small-cap 600 there is a change that takes affect on Feb. 19, 2013. As for how index funds handle changes to the fund, this depends a bit on the nature of the fund as open-end mutual funds would be different than exchange-traded funds. The open-end fund would have to sell and purchase to keep tracking the index which can be interesting to see how well this is handled to keep the transaction costs down while the ETFs will just unload the shares in the redemption units of the stock leaving the index while taking in new shares with creation units of the newly added stock to the index."
},
{
"docid": "504301",
"title": "",
"text": "What decision are you trying to make? Are you interested day trading stocks to make it rich? Or are you looking at your investment options and trying to decide between an actively managed mutual fund and an ETF? If the former, then precise statistics are hard to come by, but I believe that 99% of day traders would do better investing in an ETF. If the latter, then there are lots of studies that show that most actively managed funds do worse than index funds, so with most actively managed funds you are paying higher fees for worse performance. Here is a quote from the Bogleheads Guide to Investing: Index funds outperform approximately 80 percent of all actively managed funds over long periods of time. They do so for one simple reason: rock-bottom costs. In a random market, we don't know what future returns will be. However, we do know that an investor who keeps his or her costs low will earn a higher return than one who does not. That's the indexer's edge. Many people believe that your best option for investing is a diverse portfolio of ETFs, like this. This is what I do."
},
{
"docid": "354136",
"title": "",
"text": "\"This answer is applicable to the US. Similar rules may hold in some other countries as well. The shares in an open-ended (non-exchange-traded) mutual fund are not traded on stock exchanges and the \"\"market\"\" does not determine the share price the way it does for shares in companies as brokers make offers to buy and sell stock shares. The price of one share of the mutual fund (usually called Net Asset Value (NAV) per share) is usually calculated at the close of business, and is, as the name implies, the net worth of all the shares in companies that the fund owns plus cash on hand etc divided by the number of mutual fund shares outstanding. The NAV per share of a mutual fund might or might not increase in anticipation of the distribution to occur, but the NAV per share very definitely falls on the day that the distribution is declared. If you choose to re-invest your distribution in the same fund, then you will own more shares at a lower NAV per share but the total value of your investment will not change at all. If you had 100 shares currently priced at $10 and the fund declares a distribution of $2 per share, you will be reinvesting $200 to buy more shares but the fund will be selling you additional shares at $8 per share (and of course, the 100 shares you hold will be priced at $8 per share too. So, you will have 100 previous shares worth only $800 now + 25 new shares worth $200 for a total of 125 shares at $8 = $1000 total investment, just as before. If you take the distribution in cash, then you still hold the 100 shares but they are worth only $800 now, and the fund will send you the $200 as cash. Either way, there is no change in your net worth. However, (assuming that the fund is is not in a tax-advantaged account), that $200 is taxable income to you regardless of whether you reinvest it or take it as cash. The fund will tell you what part of that $200 is dividend income (as well as what part is Qualified Dividend income), what part is short-term capital gains, and what part is long-term capital gains; you declare the income in the appropriate categories on your tax return, and are taxed accordingly. So, what advantage is there in re-investing? Well, your basis in those shares has increased and so if and when you sell the shares, you will owe less tax. If you had bought the original 100 shares at $10 and sell the 125 shares a few years later at $11 and collect $1375, you owe (long-term capital gains) tax on just $1375-$1200 =$175 (which can also be calculated as $1 gain on each of the original 100 shares = $100 plus $3 gain on the 25 new shares = $175). In the past, some people would forget the intermediate transactions and think that they had invested $1000 initially and gotten $1375 back for a gain of $375 and pay taxes on $375 instead. This is less likely to occur now since mutual funds are now required to report more information on the sale to the shareseller than they used to in the past. So, should you buy shares in a mutual fund right now? Most mutual fund companies publish preliminary estimates in November and December of what distributions each fund will be making by the end of the year. They also usually advise against purchasing new shares during this period because one ends up \"\"buying a dividend\"\". If, for example, you bought those 100 shares at $10 on the Friday after Thanksgiving and the fund distributes that $2 per share on December 15, you still have $1000 on December 15, but now owe taxes on $200 that you would not have had to pay if you had postponed buying those shares till after the distribution was paid. Nitpickers: for simplicity of exposition, I have not gone into the detailed chronology of when the fund goes ex-dividend, when the distribution is recorded, and when cash is paid out, etc., but merely treated all these events as happening simultaneously.\""
},
{
"docid": "93836",
"title": "",
"text": "\"Because ETFs, unlike most other pooled investments, can be easily shorted, it is possible for institutional investors to take an arbitrage position that is long the underlying securities and short the ETF. The result is that in a well functioning market (where ETF prices are what they should be) these institutional investors would earn a risk-free profit equal to the fee amount. How much is this amount, though? ETFs exist in a very competitive market. Not only do they compete with each other, but with index and mutual funds and with the possibility of constructing one's own portfolio of the underlying. ETF investors are very cost-conscious. As a result, ETF fees just barely cover their costs. Typically, ETF providers do not even do their own trading. They issue new shares only in exchange for a bundle of the underlying securities, so they have almost no costs. In order for an institutional investor to make money with the arbitrage you describe, they would need to be able to carry it out for less than the fees earned by the ETF. Unlike the ETF provider, these investors face borrowing and other shorting costs and limitations. As a result it is not profitable for them to attempt this. Note that even if they had no costs, their maximum upside would be a few basis points per year. Lots of low-risk investments do better than that. I'd also like to address your question about what would happen if there was an ETF with exorbitant fees. Two things about your suggested outcome are incorrect. If short sellers bid the price down significantly, then the shares would be cheap relative to their stream of future dividends and investors would again buy them. In a well-functioning market, you can't bid the price of something that clearly is backed by valuable underlying assets down to near zero, as you suggest in your question. Notice that there are limitations to short selling. The more shares are short-sold, the more difficult it is to locate share to borrow for this purpose. At first brokers start charging additional fees. As borrowable shares become harder to find, they require that you obtain a \"\"locate,\"\" which takes time and costs money. Finally they will not allow you to short at all. Unlimited short selling is not possible. If there was an ETF that charged exorbitant fees, it would fail, but not because of short sellers. There is an even easier arbitrage strategy: Investors would buy the shares of the ETF (which would be cheaper than the value of the underlying because of the fees) and trade them back to the ETF provider in exchange for shares of the underlying. This would drain down the underlying asset pool until it was empty. In fact, it is this mechanism (the ability to trade ETF shares for shares of the underlying and vice versa) that keeps ETF prices fair (within a small tolerance) relative to the underlying indices.\""
},
{
"docid": "536120",
"title": "",
"text": "Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company"
},
{
"docid": "299284",
"title": "",
"text": "The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy. EDIT:For some reason I cannot add a comment, so I am putting my response here. @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment."
},
{
"docid": "554213",
"title": "",
"text": "See the following information: http://www.bogleheads.org/wiki/Treasury_Inflation_Protected_Security You can buy individual bonds or you can purchase many of them together as a mutual fund or ETF. These bonds are designed to keep pace with inflation. Buying individual inflation-protected US government bonds is about as safe as you can get in the investment world. The mutual fund or ETF approach exposes you to interest rate risk - the fund's value can (and sometimes does) drop. Its value can also increase if interest rates fall."
},
{
"docid": "198572",
"title": "",
"text": "\"I have a similar situation -- five different accounts between me and my wife. Just as you and @Alex B describe, I maintain my asset allocation across the combination of all accounts. I also maintain a spreadsheet to track the targets, deviations from the targets, amounts required to get back in balance, and overall performance. I (mostly) don't use mutual funds. I have selected, for each category, 1 or 2 ETFs. Choosing index ETFs with low expense ratios and a brokerage with cheap or free trades keeps expenses low. (My broker offers free ETF trades if you buy off their list as long as you aren't short-term trading; this is great for rebalancing for free 2 or 3 times a year.) Using ETFs also solves the minimum balance problem -- but watch out for commissions. If you pay $10 to buy $500 worth of an ETF, that's an immediate 2% loss; trade a couple of times a year and that ETF has to gain 5% just to break even. One issue that comes up is managing cash and avoiding transaction fees. Say your IRA has all the growth stock funds and your Roth has the bonds. Stocks do well and bonds do poorly, so you sell off some stocks, which creates a bunch of cash in your IRA. Now you want to buy some bonds but you don't have enough cash in your Roth, so you buy the bonds in your IRA. Not a problem at first but if you don't manage it you can end up with small amounts of various funds spread across all of your accounts. If you're not careful you can end up paying two commissions (in two different accounts) to sell off / purchase enough of a category to get back to your targets. Another problem I had is that only one account (401k) is receiving deposits on a regular basis, and that's all going into an S&P 500 index fund. This makes it so that my allocation is off by a fair amount every quarter or so -- too much in large cap equities, not enough of everything else. My solution to this going forward is to \"\"over-rebalance\"\" a couple of times a year: sell enough SPY from my other accounts so that I'm under-allocated in large caps by the amount I expect to add to my 401k over the next 3 months. (So that in six months at my next rebalancing I'm only 3 months over-allocated to large caps -- plus or minus whatever gains/losses there are.)\""
},
{
"docid": "119819",
"title": "",
"text": "\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\""
},
{
"docid": "17823",
"title": "",
"text": "\"I'd suggest you start by looking at the mutual fund and/or ETF options available via your bank, and see if they have any low-cost funds that invest in high-risk sectors. You can increase your risk (and potential returns) by allocating your assets to riskier sectors rather than by picking individual stocks, and you'll be less likely to make an avoidable mistake. It is possible to do as you suggest and pick individual stocks, but by doing so you may be taking on more risk than you suspect, even unnecessary risk. For instance, if you decide to buy stock in Company A, you know you're taking a risk by investing in just one company. However, without a lot of work and financial expertise, you may not be able to assess how much risk you're taking by investing in Company A specifically, as opposed to Company B. Even if you know that investing in individual stocks is risky, it can be very hard to know how risky those particular individual stocks are, compared to other alternatives. This is doubly true if the investment involves actions more exotic than simply buying and holding an asset like a stock. For instance, you could definitely get plenty of risk by investing in commercial real estate development or complicated options contracts; but a certain amount of work and expertise is required to even understand how to do that, and there is a greater likelihood that you will slip up and make a costly mistake that negates any extra gain, even if the investment itself might have been sound for someone with experience in that area. In other words, you want your risk to really be the risk of the investment, not the \"\"personal\"\" risk that you'll make a mistake in a complicated scheme and lose money because you didn't know what you were doing. (If you do have some expertise in more exotic investments, then maybe you could go this route, but I think most people -- including me -- don't.) On the other hand, you can find mutual funds or ETFs that invest in large economic sectors that are high-risk, but because the investment is diversified within that sector, you need only compare the risk of the sectors. For instance, emerging markets are usually considered one of the highest-risk sectors. But if you restrict your choice to low-cost emerging-market index funds, they are unlikely to differ drastically in risk (at any rate, far less than individual companies). This eliminates the problem mentioned above: when you choose to invest in Emerging Markets Index Fund A, you don't need to worry as much about whether Emerging Markets Index Fund B might have been less risky; most of the risk is in the choice to invest in the emerging markets sector in the first place, and differences between comparable funds in that sector are small by comparison. You could do the same with other targeted sectors that can produce high returns; for instance, there are mutual funds and ETFs that invest specifically in technology stocks. So you could begin by exploring the mutual funds and ETFs available via your existing investment bank, or poke around on Morningstar. Fees will still matter no matter what sector you're in, so pay attention to those. But you can probably find a way to take an aggressive risk position without getting bogged down in the details of individual companies. Also, this will be less work than trying something more exotic, so you're less likely to make a costly mistake due to not understanding the complexities of what you're investing in.\""
},
{
"docid": "442906",
"title": "",
"text": "Immediately move your Roth IRA out of Edward Jones and into a discount broker like Scottrade, Ameritrade, Fidelity, Vanguard, Schwab, or E-Trade. Edward Jones will be charging you a large fraction of your money (probably at least 1% explicitly and maybe another 1% in hidden-ish fees like the 12b-1). Don't give away several percent of your savings every year when you can have an account for free. Places like Edward Jones are appropriate only for people who are unwilling to learn about personal finance and happy to pay dearly as a result. Move your money by contacting the new broker, then requesting that they get your money out of Edward Jones. They will be happy to do so the right way. Don't try and get the money out yourself. Continue to contribute to your Roth as long as your tax bracket is low. Saving on taxes is a critically important part of being financially wise. You can spend your contributions (not gains) out of your Roth for any reason without penalty if you want/need to. When your tax bracket is higher, look at traditional IRA's instead to minimize your current tax burden. For more accessible ways of saving, open a regular (non-tax-advantaged) brokerage account. Invest in diversified and low-cost funds. Look at the expense ratios and minimize your portfolio's total expense. Higher fee funds generally do not earn the money they take from you. Avoid all funds that have a nonzero 12b-1 fee. Generally speaking your best bet is buying index funds from Fidelity, Vanguard, Schwab, or their close competitors. Or buying cheap ETF's. Any discount brokerage will allow you to do this in both your Roth and regular accounts. Remember, the reason you buy funds is to get instant diversification, not because you are willing to gamble that your mutual funds will outperform the market. Head to the bogleheads forum for more specific advice about 3 fund portfolios and similar suggested investment strategies like the lazy portfolios. The folks in the forums there like to give specific advice that's not appropriate here. If you use a non-tax-advantaged account for investing, buy and sell in a tax-smart way. At the end of the year, sell your poor performing stocks or funds and use the loss as a tax write-off. Then rebalance back to a good portfolio. Or if your tax bracket is very low, sell the winners and lock in the gains at low tax rates. Try to hold things more than a year so you are taxed at the long-term capital gains rate, rather than the short-term. Only when you have several million dollars, then look at making individual investments, rather than funds. In a non-tax-advantaged account owning the assets directly will help you write off losses against your taxes. But either way, it takes several million dollars to make the transactions costs of maintaining a portfolio lower than the fees a cheap mutual/index fund will charge."
},
{
"docid": "516880",
"title": "",
"text": "There are many technical answers above , but the short story to me is that very few active fund managers consistently beat the market. Look at the results of actively managed funds. Depending on whose analysis you read, you will find out that somewhere between 80-90% of fund managers in a given year do not beat passive index funds. So go figure how you will do compared to a mutual fund manager who has way more experience than you likely have. So, that in itself is moderately interesting, but if you look at same-manager performance over several consecutive years it is rare to find anyone that goes beats the market for more than a few years in a row. There are exceptions, but go pick one of these guys/gals - good luck. Getting in and out of the market is a loser. This is because there is no way to see market spikes and down turns. There are many behavioral studies that have been done that show people do the wrong thing: they sell after losses have occurred and they buy after the market has gone up. Missing an up spike and not being in before the spike is as devastating as missing a down turn and not getting out in time. There is another down side, if you are trading in a personal account, rather than a tax deferred account, going in and out of stocks has tax complications. In short, a broad based equity index will, over time, beat about anything out there and it will do it in a tax efficient manner. Exchange traded funds (ETFs) are a wonderful way to obtain diversification immediately at very low cost."
},
{
"docid": "409995",
"title": "",
"text": "The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security. Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees."
},
{
"docid": "78586",
"title": "",
"text": "\"Question 2 Some financial institutions can provide a way to invest small amounts with low or no cost fees over a period of time (like monthly, weekly, etc). For instance, a few brokerages have a way to buy specific ETFs for no cost (outside of the total expense ratio). Question 3 When someone says that investing is like buying a lottery ticket, they are comparing an event that almost always has at least a 99.9% of no return (large winnings) to an event that has much better odds. Even if I randomly pick a stock in the S&P 500 and solely invest in it, over the course of a given year, I do not face a 99.9% chance of losing everything. So comparing the stock market to a lottery, unless a specific lottery has much better odds (keep in mind that some of these jackpots have a 99.9999999% of no return) is not the same. Unfortunately, nothing truly safe exists - risk may mutate, but it's always present; instead, the probability of something being safe and (or) generating a return may be true for a given period of time, while in another given period of time, may become untrue. One may argue that holding cash is safer than buying an index fund (or stock, ETF, mutual fund, etc), and financially that may be true over a given period of time (for instance, the USD beat the SPY for the year of 2008). Benjamin Franklin, per a biography I'm reading, argued that the stock market was superior to gold (from the context, it sounds like the cash of his day) because of what the stock market represents: essentially you're betting on the economic output of workers. It's like saying, in an example using oil, that I believe that even though oil becomes a rare resource in the long run, human workers will find an alternative to oil and will lead to better living standards for all of us. Do civilizations like the Mongolian, Roman, and Ottoman empires collapse? Yes, and would holding the market in those days fail? Yes. But cash and gold might be useless too because we would still need someone to exchange goods with and we would need to have the correct resources to do so (if everyone in a city owns gold, gold has little value). The only \"\"safe bet\"\" in those days would be farming skill, land, crops and (or) livestock because even without trading, one could still provide some basic necessities.\""
},
{
"docid": "349668",
"title": "",
"text": "This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example)."
},
{
"docid": "522759",
"title": "",
"text": "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)."
}
] |
8982 | Are Exchange-Traded Funds (ETFs) less safe than regular mutual funds? | [
{
"docid": "200360",
"title": "",
"text": "\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \"\"authorized participants\"\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\""
}
] | [
{
"docid": "536120",
"title": "",
"text": "Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company"
},
{
"docid": "388585",
"title": "",
"text": "I'd personally use a standard brokerage account and invest in a mix of mutual funds, ETFs and individual stocks. Follow the municipal bond markets and be prepared to move into muni funds or ETFs when opportunities present themselves. If you buy on weakness, you can pull some great returns with reasonably safe investment."
},
{
"docid": "19936",
"title": "",
"text": "Make sure you have a budget, there is a pretty cool budget tracker that you can download here (it works in excel and is easy to use). The important thing is to not only make a budget but also keep in touch and track your budget, some free ebooks and other investment ebooks too. Just start with the budget tracker: http://www.futureassist.com.au/young-to-mid-life Focus on paying off debt first Next look at ETF's (Exchange Traded Funds) as a possible investment option - this is an Australian Government Website but ETF's all work in the same way: https://www.moneysmart.gov.au/investing/managed-funds/exchange-traded-funds-etfs"
},
{
"docid": "114054",
"title": "",
"text": "\"I'm not following what's the meaning of \"\"open a mutual fund\"\". You don't open a mutual fund, you invest in it. There's a minimum required investment ($2000? Could be, some funds have lower limits, you don't have to go with the Fidelity one necessarily), but in general it has nothing to do with your Roth IRA account. You can invest in mutual funds with any trading account, not just Roth IRA (or any other specific kind). If you invest in ETF's - you can invest in funds just as well (subject to the minimums set). As to the plan itself - buying and selling ETF's will cost you commission, ~2-3% of your investment. Over several months, you may get positive returns, and may get negative returns, but keep in mind that you start with the 2-3% loss on day 1. Within a short period of time, especially in the current economic climate (which is very unstable - just out of recession, election year, etc etc), I would think that keeping the cash in a savings account would be a better choice. While with ETF you don't have any guarantees other than -3%, then with savings accounts you can at least have a guaranteed return of ~1% APY (i.e.: won't earn much over the course of your internship, but you'll keep your money safe for your long term investment). For the long term - the fluctuations of month to month don't matter much, so investing now for the next 50 years - you shouldn't care about the stock market going 10% in April. So, keep your 1000 in savings account, and if you want to invest 5000 in your Roth IRA - invest it then. Assuming of course that you're completely positive about not needing this money in the next several decades.\""
},
{
"docid": "17823",
"title": "",
"text": "\"I'd suggest you start by looking at the mutual fund and/or ETF options available via your bank, and see if they have any low-cost funds that invest in high-risk sectors. You can increase your risk (and potential returns) by allocating your assets to riskier sectors rather than by picking individual stocks, and you'll be less likely to make an avoidable mistake. It is possible to do as you suggest and pick individual stocks, but by doing so you may be taking on more risk than you suspect, even unnecessary risk. For instance, if you decide to buy stock in Company A, you know you're taking a risk by investing in just one company. However, without a lot of work and financial expertise, you may not be able to assess how much risk you're taking by investing in Company A specifically, as opposed to Company B. Even if you know that investing in individual stocks is risky, it can be very hard to know how risky those particular individual stocks are, compared to other alternatives. This is doubly true if the investment involves actions more exotic than simply buying and holding an asset like a stock. For instance, you could definitely get plenty of risk by investing in commercial real estate development or complicated options contracts; but a certain amount of work and expertise is required to even understand how to do that, and there is a greater likelihood that you will slip up and make a costly mistake that negates any extra gain, even if the investment itself might have been sound for someone with experience in that area. In other words, you want your risk to really be the risk of the investment, not the \"\"personal\"\" risk that you'll make a mistake in a complicated scheme and lose money because you didn't know what you were doing. (If you do have some expertise in more exotic investments, then maybe you could go this route, but I think most people -- including me -- don't.) On the other hand, you can find mutual funds or ETFs that invest in large economic sectors that are high-risk, but because the investment is diversified within that sector, you need only compare the risk of the sectors. For instance, emerging markets are usually considered one of the highest-risk sectors. But if you restrict your choice to low-cost emerging-market index funds, they are unlikely to differ drastically in risk (at any rate, far less than individual companies). This eliminates the problem mentioned above: when you choose to invest in Emerging Markets Index Fund A, you don't need to worry as much about whether Emerging Markets Index Fund B might have been less risky; most of the risk is in the choice to invest in the emerging markets sector in the first place, and differences between comparable funds in that sector are small by comparison. You could do the same with other targeted sectors that can produce high returns; for instance, there are mutual funds and ETFs that invest specifically in technology stocks. So you could begin by exploring the mutual funds and ETFs available via your existing investment bank, or poke around on Morningstar. Fees will still matter no matter what sector you're in, so pay attention to those. But you can probably find a way to take an aggressive risk position without getting bogged down in the details of individual companies. Also, this will be less work than trying something more exotic, so you're less likely to make a costly mistake due to not understanding the complexities of what you're investing in.\""
},
{
"docid": "270992",
"title": "",
"text": "The main difference between an ETF and a Mutual Fund is Management. An ETF will track a specific index with NO manager input. A Mutual Fund has a manager that is trying to choose securities for its fund based on the mandate of the fund. Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11 if you wish. Mutual Funds (most) are valued at the end of each business day, so no intraday trading. Also ETFs are similar to stocks in that you need a buyer/seller for the ETF that you want/have. Whereas a mutual fund's units are sold back to itself. I do not know of many if any liquity issues with an ETF, but you could be stuck holding it if you can not find a buyer (usually the market maker). Mutual Funds can be closed to trading, however it is rare. Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability. Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF has a much smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps."
},
{
"docid": "371176",
"title": "",
"text": "First, you need to understand the difference in discussing types of investments and types of accounts. Certificate of Deposits (CDs), money market accounts, mutual funds, and stocks are all examples of types of investments. 401(k), IRA, Roth IRA, and taxable accounts are all examples of types of accounts. In general, those are separate decisions to make. You can invest in any type of investment inside any type of account. So your question really has two different parts: Tax-advantaged retirement accounts vs. Standard taxable accounts FDIC-insured CDs vs. at-risk investments (such as stock mutual funds) Retirement accounts are special accounts allowed by the federal government that allow you to delay (or, in some cases, completely avoid) paying taxes on your investment. The trade-off for these accounts is that, in general, you cannot access any of the money that you put into these accounts until you get to retirement age without paying a steep penalty. These accounts exist to encourage citizens to save for their own retirement. Examples of retirement accounts include 401(k) and IRAs. Standard taxable accounts have no tax advantages, but no restrictions, either. You can put money in and take money out whenever you like. However, anything that your investment earns is taxable each year. Inside any of these accounts, you can invest in FDIC-insured bank accounts, such as savings accounts or CDs, or you can invest in any number of non-insured investments, including money market accounts, bonds, mutual funds, stocks, precious metals, etc. Something you need to understand about investing in general is that your potential returns are directly related to the amount of risk that you take on. Investing in an insured investment, which is guaranteed by the government to never lose its value, will result in the lowest potential investment returns that you can get. Interest-bearing savings accounts are currently paying less than 1% interest. A CD will get you a slightly higher interest rate in exchange for you agreeing not to withdraw your money for a period of time. However, it takes a long time for your investments to grow with these investments. If you are earning 1%, it takes 72 years for your investment to double. If you are willing to take some risk, you can earn much more with your investments. Bonds are often considered quite safe; with a bond, you loan money to a government or corporation, and they pay you back with interest. The risk comes from the possibility that the government or corporation won't pay you back, so it is important to choose a bond from an entity that you trust. Stocks are shares in for-profit companies. Your potential investment gain is unlimited, but it is risky, as stocks can go down in value, and companies can close. However, it is important to note that if you take the largest 500 stocks together (S&P 500), the average value has consistently gone up over the long term. In the last 35 years, this average value has gone up about 11%. At this rate, your investment would double in less than 7 years. To avoid the risk of picking a losing stock, you can invest in a mutual fund, which is a collection of stocks, bonds, or other investments. The idea is that you can, with one investment, invest in many stocks, essentially earning the average performance of all the stocks. There is still risk, as the market can be down as a whole, but you are insulated from any one stock being bad because you are diversified. If you are investing for something in the long-term future, such as retirement, stock mutual funds provide a good rate of return at an acceptably-low level of risk, in my opinion."
},
{
"docid": "332924",
"title": "",
"text": "\"I recommend avoiding trading directly in commodities futures and options. If you're not prepared to learn a lot about how futures markets and trading works, it will be an experience fraught with pitfalls and lost money – and I am speaking from experience. Looking at stock-exchange listed products is a reasonable approach for an individual investor desiring added diversification for their portfolio. Still, exercise caution and know what you're buying. It's easy to access many commodity-based exchange-traded funds (ETFs) on North American stock exchanges. If you already have low-cost access to U.S. markets, consider this option – but be mindful of currency conversion costs, etc. Yet, there is also a European-based company, ETF Securities, headquartered in Jersey, Channel Islands, which offers many exchange-traded funds on European exchanges such as London and Frankfurt. ETF Securities started in 2003 by first offering a gold commodity exchange-traded fund. I also found the following: London Stock Exchange: Frequently Asked Questions about ETCs. The LSE ETC FAQ specifically mentions \"\"ETF Securities\"\" by name, and addresses questions such as how/where they are regulated, what happens to investments if \"\"ETF Securities\"\" were to go bankrupt, etc. I hope this helps, but please, do your own due diligence.\""
},
{
"docid": "93836",
"title": "",
"text": "\"Because ETFs, unlike most other pooled investments, can be easily shorted, it is possible for institutional investors to take an arbitrage position that is long the underlying securities and short the ETF. The result is that in a well functioning market (where ETF prices are what they should be) these institutional investors would earn a risk-free profit equal to the fee amount. How much is this amount, though? ETFs exist in a very competitive market. Not only do they compete with each other, but with index and mutual funds and with the possibility of constructing one's own portfolio of the underlying. ETF investors are very cost-conscious. As a result, ETF fees just barely cover their costs. Typically, ETF providers do not even do their own trading. They issue new shares only in exchange for a bundle of the underlying securities, so they have almost no costs. In order for an institutional investor to make money with the arbitrage you describe, they would need to be able to carry it out for less than the fees earned by the ETF. Unlike the ETF provider, these investors face borrowing and other shorting costs and limitations. As a result it is not profitable for them to attempt this. Note that even if they had no costs, their maximum upside would be a few basis points per year. Lots of low-risk investments do better than that. I'd also like to address your question about what would happen if there was an ETF with exorbitant fees. Two things about your suggested outcome are incorrect. If short sellers bid the price down significantly, then the shares would be cheap relative to their stream of future dividends and investors would again buy them. In a well-functioning market, you can't bid the price of something that clearly is backed by valuable underlying assets down to near zero, as you suggest in your question. Notice that there are limitations to short selling. The more shares are short-sold, the more difficult it is to locate share to borrow for this purpose. At first brokers start charging additional fees. As borrowable shares become harder to find, they require that you obtain a \"\"locate,\"\" which takes time and costs money. Finally they will not allow you to short at all. Unlimited short selling is not possible. If there was an ETF that charged exorbitant fees, it would fail, but not because of short sellers. There is an even easier arbitrage strategy: Investors would buy the shares of the ETF (which would be cheaper than the value of the underlying because of the fees) and trade them back to the ETF provider in exchange for shares of the underlying. This would drain down the underlying asset pool until it was empty. In fact, it is this mechanism (the ability to trade ETF shares for shares of the underlying and vice versa) that keeps ETF prices fair (within a small tolerance) relative to the underlying indices.\""
},
{
"docid": "31581",
"title": "",
"text": "When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that."
},
{
"docid": "237133",
"title": "",
"text": "\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \"\"cost of doing business\"\".\""
},
{
"docid": "377429",
"title": "",
"text": "In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees."
},
{
"docid": "29184",
"title": "",
"text": "\"Does the bolded sentence apply for ETFs and ETF companies? No, the value of an ETF is determined by an exchange and thus the value of the share is whatever the trading price is. Thus, the price of an ETF may go up or down just like other securities. Money market funds can be a bit different as the mutual fund company will typically step in to avoid \"\"Breaking the Buck\"\" that could happen as a failure for that kind of fund. To wit, must ETF companies invest a dollar in the ETF for every dollar that an investor deposited in this aforesaid ETF? No, because an ETF is traded as shares on the market, unless you are using the creation/redemption mechanism for the ETF, you are buying and selling shares like most retail investors I'd suspect. If you are using the creation/redemption system then there are baskets of other securities that are being swapped either for shares in the ETF or from shares in the ETF.\""
},
{
"docid": "400196",
"title": "",
"text": "Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require."
},
{
"docid": "44578",
"title": "",
"text": "\"I use TIAA-Cref for my 403(b) and Fidelity for my solo 401(k) and IRAs. I have previously used Vanguard and have also used other discount brokers for my IRA. All of these companies will charge you nothing for an IRA, so there's really no point in comparing cost in that respect. They are all the \"\"cheapest\"\" in this respect. Each one will allow you to purchase their mutual funds and those of their partners for free. They will charge you some kind of fee to invest in mutual funds of their competitors (like $35 or something). So the real question is this: which of these institutions offers the best mutual and index funds. While they are not the worst out there, you will find that TIAA-Cref are dominated by both Vanguard and Fidelity. The latter two offer far more and larger funds and their funds will always have lower expense ratios than their TIAA-Cref equivalent. If I could take my money out of TIAA-Cref and put it in Fidelity, I'd do so right now. BTW, you may or may not want to buy individual stocks or ETFs in your account. Vanguard will let you trade their ETFs for free, and they have lots. For other ETFs and stocks you will pay $7 or so (depends on your account size). Fidelity will give you free trades in the many iShares ETFs and charge you $5 for other trades. TIAA-Cref will not give you any free ETFs and will charge you $8 per trade. Each of these will give you investment advice for free, but that's about what it's worth as well. The quality of the advice will depend on who picks up the phone, not which institution you use. I would not make a decision based on this.\""
},
{
"docid": "26939",
"title": "",
"text": "Don't start by investing in a few individual companies. This is risky. Want an example? I'm thinking of a big company, say $120 billion or so, a household name, and good consistent dividends to boot. They were doing fairly well, and were generally busy trying to convince people that they were looking to the future with new environmentally friendly technologies. Then... they went and spilled a bunch of oil into the Gulf of Mexico. Yes, it wasn't a pretty picture if BP was one of five companies in your portfolio that day. Things would look a lot better if they were one of 500 or 5000 companies, though. So. First, aim for diversification via mutual funds or ETFs. (I personally think you should probably start with the mutual funds: you avoid trading fees, for one thing. It's also easier to fit medium-sized dollar amounts into funds than into ETFs, even if you do get fee-free ETF trading. ETFs can get you better expense ratios, but the less money you have invested the less important that is.) Once you have a decent-sized portfolio - tens of thousands of dollars or so - then you can begin to consider holding stocks of individual companies. Take note of fees, including trading fees / commissions. If you buy $2000 worth of stock and pay a $20 commission you're already down 1%. If you're holding a mutual fund or ETF, look at the expense ratio. The annualized real return on the stock market is about 4%. (A real return is after adjusting for inflation.) If your fee is 1%, that's about a quarter of your earnings, which is huge. And while it's easy for a mutual fund to outperform the market by 1% from time to time, it's really really hard to do it consistently. Once you're looking at individual companies, you should do a lot of obnoxious boring stupid research and don't just buy the stock on the strength of its brand name. You'll be interested in a couple of metrics. The main one is probably the P/E ratio (price/earnings). If you take the inverse of this, you'll get the rate at which your investment is making you money (e.g. a P/E of 20 is 5%, a P/E of 10 is 10%). All else being equal, a lower P/E is a good thing: it means that you're buying the company's income really cheap. However, all else is seldom equal: if a stock is going for really cheap, it's usually because investors don't think that it's got much of a future. Earnings are not always consistent. There are a lot of other measures, like beta (correlation to the market overall: riskier volatile stocks have higher numbers), gross margins, price to unleveraged free cash flow, and stuff like that. Again, do the boring research, otherwise you're just playing games with your money."
},
{
"docid": "225964",
"title": "",
"text": "One advantage not pointed out yet is that closed-end funds typically trade on stock exchanges, whereas mutual funds do not. This makes closed-end funds more accessible to some investors. I'm a Canadian, and this particular distinction matters to me. With my regular brokerage account, I can buy U.S. closed-end funds that trade on a stock exchange, but I cannot buy U.S. mutual funds, at least not without the added difficulty of somehow opening a brokerage account outside of my country."
},
{
"docid": "409995",
"title": "",
"text": "The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security. Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees."
},
{
"docid": "406920",
"title": "",
"text": "Exchange-traded funds are bought and sold like stocks so you'd be able to place stop orders on them just like you could for individual stocks. For example, SPY would be the ticker for an S & P 500 ETF known as a SPDR. Open-end mutual funds don't have stop orders because of how the buying and selling is done which is on unknown prices and often in fractional shares. For example, the Vanguard 500 Index Investor shares(VFINX) would be an example of an S & P 500 tracker here."
}
] |
9060 | Buying puts without owning underlying | [
{
"docid": "511093",
"title": "",
"text": "Yes, it's completely normal to buy (and sell) puts and other options without holding the underlying. However, every (US) brokerage I know of only permits this within a margin account. I don't know why...probably a legal reason. You don't actually have to use the margin in a margin account. If you want to trade options, though, you will need a margin account."
}
] | [
{
"docid": "63565",
"title": "",
"text": "\"My original answer contained a fundamental error: it turns out that it is not true that any exchange can create its own product to track any underlying index. If the underlying index is copyrighted (such as the S&P indices, Russell indices, Dow Jones indices, etc.) then the exchange must enter into a licensing agreement (usually exclusive) with the copyright holder in order to use the index's formula (and name). Without such a license the exchange would only be able to approximate the underlying index, and I don't think that happens very much (because how would you market such a product?). The CME offers several futures (and other derivatives) whose face value is equivalent to some multiple of the S&P500's value on the date when the product expires. When such a product is actively traded, it may serve as a reasonable indicator of the \"\"market\"\"'s expectation of the S&P500's future value. So, you could pay attention to the front month of the CME's S&P 500 Mini future, which trades from 17:00-16:00 Chicago time, Sunday night through Friday afternoon. But remember that the prices quoted there are As another example, if you care about the Russell 2000 index, until 2017 the ICE Exchange happened to hold the license for its derivatives. They traded from 20:00-17:30 New York time, Sunday night through Friday afternoon. But in mid-2017 CME bought that license as well, so now you'll want to track it here. Moral: There's almost always some \"\"after hours\"\" product out there tracking whatever index you care about, but you may have to do some digging to find it, and it might not be all that useful for your specific purpose.\""
},
{
"docid": "525390",
"title": "",
"text": "\"A company has 100,000 shares and 100,000 unexercised call options (company issued). Share price and strike price both at $1. What country is this related to? I ask because, in the US, most people I know associate a \"\"call\"\" option with the instrument that is equivalent to 100 shares. So 100,000 calls would be 10,000,000 shares, which exceeds the number of shares you're saying the company has. I don't know if that means you pulled the numbers out of thin air, or whether it means you're thinking of a different type of option? Perhaps you meant incentive stock options meant to be given to employees? Each one of those is equivalent to a single share. They just aren't called \"\"call options\"\". In the rest of my answer, I'm going to assume you meant stock options. I assume the fact that these options exist will slow any price increases on the underlying shares due to potential dilution? I don't think the company can just create stock options without creating the underlying shares in the first place. Said another way, a more likely scenario is that company creates 200,000 shares and agrees to float 50% of them while reserving the other 50% as the pool for incentive employee stock. They then choose to give the employees options on the stock in the incentive pool, rather than outright grants of the stock, for various reasons. (One of which is being nice to the employees in regards to taxes since there is no US tax due at grant time if the strike price is the current price of the underlying stock.) An alternative scenario when the company shares are liquidly traded is that the company simply plans to buy back shares from the market in order to give employees their shares when options are exercised. In this case, the company needs the cash on hand, or cash flow to take money from, to buy those shares at current prices. Anyway, in either case, there is no dilution happening WHEN the options get exercised. Any dilution happened before or at the time the options were created. Meaning, the total number of shares in the company was already pre-set at an earlier time. As a result, the fact that the options exist in themselves will not slow price changes on the stock. However, price changes will be impacted by the total float of shares in the company, or the impact to cash flow if the company has to buy shares to redeem its option commitments. This is almost the same thing you're asking about, but it is technically different as to timing. If this is the case, can this be factored into any option pricing models like black-scholes? You're including the effect just by considering the total float of shares and net profits from cash flow when doing your modelling.\""
},
{
"docid": "359778",
"title": "",
"text": "The risk situation of the put option is the same whether you own the stock or not. You risk $5 and stand to gain 0 to $250 in the period before expiration (say $50 if the stock reaches $200 and you sell). Holding the stock or not changes nothing about that. What is different is the consideration as to whether or not to buy a put when you own the stock. Without an option, you are holding a $250 asset (the stock), and risking that money. Should you sell and miss opportunity for say $300? Or hold and risk loss of say $50 of your $250? So you have $250 at risk, but can lock in a sale price of $245 for say a month by buying a put, giving you opportunity for the $300 price in that month. You're turning a risk of losing $250 (or maybe only $50 more realistically) into a risk of losing only $5 (versus the price your stock would get today)."
},
{
"docid": "525231",
"title": "",
"text": "\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,[email protected]), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\""
},
{
"docid": "242663",
"title": "",
"text": "\"Some thoughts on your questions in order, Duration: You might want to look at the longest-dated option (often a \"\"LEAP\"\"), for a couple reasons. One is that transaction costs (spread plus commission, especially spread) are killer on options, so a longer option means fewer transactions, since you don't have to keep rolling the option. Two is that any fundamentals-based views on stocks might tend to require 3-5 years to (relatively) reliably work out, so if you're a fundamental investor, a 3-6 month option isn't great. Over 3-6 months, momentum, short-term news, short squeezes, etc. can often dominate fundamentals in determining the price. One exception is if you just want to hedge a short-term event, such as a pending announcement on drug approval or something, and then you would buy the shortest option that still expires after the event; but options are usually super-expensive when they span an event like this. Strike: Strike price on a long option can be thought of as a tradeoff between the max loss and minimizing \"\"insurance costs.\"\" That is, if you buy a deeply in-the-money put or call, the time value will be minimal and thus you aren't paying so much for \"\"insurance,\"\" but you may have 1/3 or 1/2 of the value of the underlying tied up in the option and subject to loss. If you buy a put or call \"\"at the money,\"\" then you might have only say 10% of the value of the underlying tied up in the option and subject to loss, but almost the whole 10% may be time value (insurance cost), so you are losing 10% if the underlying stock price stays flat. I think of the deep in-the-money options as similar to buying stocks on margin (but the \"\"implied\"\" interest costs may be less than consumer margin borrowing rates, and for long options you can't get a margin call). The at-the-money options are more like buying insurance, and it's expensive. The commissions and spreads add significant cost, on top of the natural time value cost of the option. The annual costs would generally exceed the long-run average return on a diversified stock fund, which is daunting. Undervalued/overvalued options, pt. 1: First thing is to be sure the options prices on a given underlying make sense at all; there are things that \"\"should\"\" hold, for example a synthetic long or short should match up to an actual long or short. These kinds of rules can break, for example on LinkedIn (LNKD) after its IPO, when shorting was not permitted, the synthetic long was quite a bit cheaper than a real long. Usually though this happens because the arbitrage is not practical. For example on LNKD, the shares to short weren't really available, so people doing synthetic shorts with options were driving up the price of the synthetic short and down the price of the synthetic long. If you did actually want to be long the stock, then the synthetic long was a great deal. However, a riskless arbitrage (buy synthetic long, short the stock) was not possible, and that's why the prices were messed up. Another basic relationship that should hold is put-call parity: http://en.wikipedia.org/wiki/Put%E2%80%93call_parity Undervalued/overvalued options, pt. 2: Assuming the relationship to the underlying is sane (synthetic positions equivalent to actual positions) then the valuation of the option could focus on volatility. That is, the time value of the option implies the stock will move a certain amount. If the time value is high and you think the stock won't move much, you might short the option, while if the time value is low and you think the stock will move a lot, you might buy the option. You can get implied volatility from your broker perhaps, or Morningstar.com for example has a bunch of data on option prices and the implied components of the price model. I don't know how useful this really is though. The spreads on options are so wide that making money on predicting volatility better than the market is pretty darn hard. That is, the spread probably exceeds the amount of the mispricing. The price of the underlying is more important to the value of an option than the assumed volatility. How many contracts: Each contract is 100 shares, so you just match that up. If you want to hedge 100 shares, buy one contract. To get the notional value of the underlying multiply by 100. So say you buy a call for $30, and the stock is trading at $100, then you have a call on 100 shares which are currently priced at $10,000 and the option will cost $30*100=3,000. You are leveraged about 3 to 1. (This points to an issue with options for individual investors, which is that one contract is a pretty large notional value relative to most portfolios.)\""
},
{
"docid": "316037",
"title": "",
"text": "You are long the puts. By exercising them you force the underlying stock to be bought from you at your strike price. Let's say your strike it $100 and the stock is currently $25. Buy 100 shares and exercise 1 (bought/long) put. That gives you $7500 of new money, so do the previous sentence over again in as many 'units' as you can."
},
{
"docid": "427145",
"title": "",
"text": "In Australia there are 2 type of warrants (I don't know if it is the same in the US, UK and other countries), the first are trading warrants and the second are instalment warrants. The trading warrants are exactly what it says, they are used for trading. They are similar to option and have calls and puts. As Cameron says, they differ from exchange traded options in that they are issued by the financial companies whereas options are generally written by other investors. Instalment warrants on the other hand are usually bought and sold by investors with a longer term view. There are no calls and puts and you can just go long with them. They are also issued by financial companies, and how they work is best explained through an example: if I was to buy a stock directly say I would be paying $50 per share, however an instalment warrant in the underlying stock may be offered for $27 per warrant. I could buy the warrant directly from the company when it is issued or on the secondary market just like shares. I would pay the $27 per warrant upfront, and then in 2 years time when the warrant expires I have the choice to purchase the underlying stock for the strike price of say $28, roll over to a new issue of warrants, sell it back on the secondary market, or let it expire, in which case I would receive any intrinsic value left in the warrant. You would have noticed that the warrant purchase price plus the strike price adds up to more than the share price ($55 compared to $50). This is the interest component inherent in the warrant which covers the borrowing costs until expiry, when you pay the second portion (the strike price) and receive the underlying shares. Another difference between Instalment warrants and trading warrants (and options) is that with instalment warrants you still get the full dividends just like the shares, but at a higher yield than the shares."
},
{
"docid": "127743",
"title": "",
"text": "As many people here have pointed out, a CFD is a contract for difference. When you invest in stock at eToro, you buy a CFD reflecting a bid on the price movement of the underlying stock, however, you do not actually own the stock or hold any rights shareholders have. The counterparty to the CFD is eToro. When you close your position, eToro shall pay you the amount representing the difference between your buy and sell price for each stock. I suggest you read the following article about CFDs, it explains everything clearly and thoroughly: http://www.investopedia.com/articles/stocks/09/trade-a-cfd.asp#axzz2G9ZsmX3A As some of the responders have pointed out, and as is mentioned in the article, a broker can potentially misquote the prices of underlying assets in order to manipulate CFDs to their advantage. However, eToro is a highly reputable broker, with over 2 million active accounts, and we guarantee accurate stock quotes. Furthermore, eToro is regulated in Europe (Germany, UK, France, etc.) by institutions that exact strict regulations on the CFD trading sector, and we are obligated to comply with these regulations, which include accurate price quoting. And of course, CFD trading at eToro has tremendous benefits. Unlike a direct stock investment, eToro allows you to invest as much or as little as you like in your favorite stocks, even if the amount is less than the relevant stock price (i.e. fraction stocks). For example: if you invest $10 in Microsoft, and on the day of execution eToro’s average aggregated price was $30 after a spread of 0.1%, you will then have a CFD representing 0.33 stocks of Microsoft in your eToro account. In addition, with eToro you can invest in stock in the context of a social trading network, meaning that you can utilize the stock trading expertise of other trader to your advantage by following them, learning their strategies, and even copying their stock investments automatically. To put it briefly, you won’t be facing the stock market alone! Before you make a decision, I suggest that you try stock trading with an eToro demo account. A free demo account grants you access to all our instruments at real market rates, as well as access to our social network where you can view and participate in trader discussions about trading stocks with eToro, all without risking your hard earned money. Bottom line – it’s free, there are no strings attached, and you can get a much firmer idea of what trading stocks with eToro is like. If you have any further questions, please don’t hesitate to contact us through our site: www.etoro.com."
},
{
"docid": "411888",
"title": "",
"text": "\"**Modern portfolio theory** Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk, defined as variance. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return. Economist Harry Markowitz introduced MPT in a 1952 essay, for which he was later awarded a Nobel Prize in economics. *** **Option (finance)** In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specific strike price on a specified date, depending on the form of the option. The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount in a premium. The seller has the corresponding obligation to fulfill the transaction—to sell or buy—if the buyer (owner) \"\"exercises\"\" the option. An option that conveys to the owner the right to buy at a specific price is referred to as a call; an option that conveys the right of the owner to sell at a specific price is referred to as a put. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/finance/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^| [^Source](https://github.com/kittenswolf/WikiTextBot) ^] ^Downvote ^to ^remove ^| ^v0.27\""
},
{
"docid": "224069",
"title": "",
"text": "\"You need to interpret \"\"security\"\" appropriately in Wikipedia's definition. You should think of it as saying: to be long in a put, means the holder of the position owns the put and will profit if the price of the put goes up And what makes the price of the put go up? -- the price of the underlying stock going down.\""
},
{
"docid": "375302",
"title": "",
"text": "Generally not, however some brokers may allow it. My previous CFD Broker - CMC Markets, used to allow you to adjust the leverage from the maximum allowed for that stock (say 5%) to 100% of your own money before you place a trade. So obviously if you set it at 100% you pay no interest on holding open long positions overnight. If you can't find a broker that allows this (as I don't think there would be too many around), you can always trade within your account size. For example, if you have an account size of $20,000 then you only take out trades that have a face value up to the $20,000. When you become more experienced and confident you can increase this to 2 or 3 time your account size. Maybe, if you are just starting out, you should first open a virtual account to test your strategies out and get used to using leverage. You should put together a trading plan with position sizing and risk management before starting real trading, and you can test these in your virtual trading before putting real money on the table. Also, if you want to avoid leverage when first starting out, you could always start trading the underlying without any leverage, but you should still have a trading plan in place first."
},
{
"docid": "291996",
"title": "",
"text": "\"Dividends are a way of distributing profits from operating a business to the business owners. Why would you call it \"\"wasting money\"\" is beyond me. Decisions about dividend distribution are made by the company based on its net revenue and the needs of future capital. In some jurisdictions (the US, for example), the tax policy discourages companies from accumulating too much earnings without distributing dividends, unless they have a compelling reason to do so. Stock price is determined by the market. The price of a stock is neither expensive nor cheap on its own, you need to look at the underlying company and the share of it that the stock represents. In case of Google, according to some analysts, the price is actually quite cheap. The analyst consensus puts the target price for the next 12 months at $921 (vs. current $701).\""
},
{
"docid": "229242",
"title": "",
"text": "A synthetic position mimics the payout of a financial instrument. Synthetics are attractive when the liquidity/availability of an instrument is low or there is a mismatch in fees or values of the synthetic's components which could lead to arbitrage. In speculative trades, the seller of a CDS takes a positive view of the credit worthiness of the underlying security. The buyer of a CDS has a negative view of the credit of the underlying. So in this example, there is a limit on buying or shorting corporate bonds by how many bonds the company has issued, and the value you have to invest in the bond itself, so if you wanted heavy exposure to this company's credit; you would be limited by how many you could buy. Whereas with a CDS you can mimic the performance with a synthetic position; and as long as there is someone to take the other side of it, you can buy or sell however many you want and have more exposure than the debt the company issued would allow on its own. Hope that makes some sense."
},
{
"docid": "298833",
"title": "",
"text": "I use futures options as a sort of hedge to an underwater position that I want to hold onto. If I am short at 3900 on /NQ and it moves up 3910 then I can sell a put against my position. For example, I sell this month's 3850 put for 15.00. If the NQ continues up to 3920, I can probably buy back that put for ~12.00 and sell the 3860 for 15.00. Rinse and repeat if it keeps moving up. If then the NQ moves down to 3900 then my futures position will be up +10 where my futures options put position will only be down about -3 for a net of +7. I suppose you could also trade a futures option by itself instead of the future's contract if you didn't want to risk as much $ in a day trade. Keep in mind that price you see for a future's options relates to the underlying. For /NQ 1 point = $20 so if a 3850 put costs 15.00 that is really $300. ES (Sp 500 futures) 1 point = $50 so a 1900 put that costs 15.00 would really be $750."
},
{
"docid": "488009",
"title": "",
"text": "$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value."
},
{
"docid": "5257",
"title": "",
"text": "The different levels are somewhat related to levels of risk. Writing a covered call is pretty low risk, in the sense that if I buy the stock but sell a call, I now have a lower cost for the stock, and however low the stock drops, I'm still slightly better off than the regular stock buyer. Covered call writing is often used to generate premium income from a stock portfolio, and less as a tool for speculation. Buying a call or put is simpler in execution, but the risk of losing the entire amount spent (I actually avoid the word invested here) due to leverage involved isn't just a possibility — it can be pretty likely depending on the strike price. Put writing and uncovered (naked) call writing can entail even higher risk relative to the premium received — consider extreme moves in the underlying to understand the potential losses involved. The more sophisticated trades are presumed to take a bit more experience and tolerance for risk and each broker has its own set of criteria to allow the client to trade at each level."
},
{
"docid": "336541",
"title": "",
"text": "\"There is unlimited risk in taking a naked call option position. The only risk in taking a covered call position is that you will be required to sell your shares for less than the going market price. I don't entirely agree with the accepted answer given here. You would not lose the amount you paid to buy the shares. Naked Call Option Suppose take a naked call option position by selling a call option. Since there is no limit on how high the price of the underlying share can go, you can be forced to either buy back the option at a very high price, or, in the case that the option is exercised, you can be force. to buy the underlying shares at a very high price and then sell them to the option holder at a very low price. For example, suppose you sell an Apple call option with a strike price of $100 at a premium of $2.50, and for this you receive a payment of $250. Now, if the price of Apple skyrockets to, say, $1000, then you would either have to buy back the option for about $90,000 = 100 x ($1000-$100), or, if the holder exercised the option, then you would need to buy 100 Apple shares at the market price of $1000 per share, costing you $100,000, and then sell them to the option holder at the strike price of $100 for $10,000 = 100 x $100. In either case, you would show a loss of $90,000 on the share transaction, which would be slightly offset by a $250 credit for the premium you received selling the call. There is no limit on the potential loss since there is no limit on how high the underlying share price can go. Covered Call Option Consider now the case of a covered call option. Since you hold the underlying shares, any loss you make on the option position would be \"\"covered\"\" by the profit you make on the underlying shares. Again, suppose you own 100 Apple shares and sell a call option with a strike price of $100 at a premium of $2.50 to earn a payment of $250. If the price of Apple skyrockets to $1000, then there are again two possible scenarios. One, you buy back the option at a premium of about $900 costing you $90,000. In order to cover this cost you would then sell your 100 Apple shares at the market price of $1000 per share to realise $100,000 = 100 x $1000. On the other hand, if your option is exercised, then you would deliver your 100 Apple shares to the option holder at the contracted strike price of $100 per share, thus receiving just $10,000 = 100 x $100. The only \"\"loss\"\" is that you have had to sell your shares for much less than the market price.\""
},
{
"docid": "294688",
"title": "",
"text": "The only use of options that I will endorse is selling them. If you believe the market is going down then sell covered, out of the money, calls. Buying calls or buying puts usually wastes money. That is because of a quality called Theta. If the underlying security stays the same the going price of an option will decrease, every day, by the Theta amount. Think of options as insurance. A person only makes money by selling insurance, not by buying it."
},
{
"docid": "193303",
"title": "",
"text": "The value of an option has 2 components, the extrinsic or time value element and the intrinsic value from the difference in the strike price and the underlying asset price. With either an American or European option the intrinsic value of a call option can be 'locked in' any time by selling the same amount of the underlying asset (whether that be a stock, a future etc). Further, the time value of any option can be monitised by delta hedging the option, i.e. buying or selling an amount of the underlying asset weighted by the measure of certainty (delta) of the option being in the money at expiry. Instead, the extra value of the American option comes from the financial benefit of being able to realise the value of the underlying asset early. For a dividend paying stock this will predominantly be the dividend. But for non-dividend paying stocks or futures, the buyer of an in-the-money option can realise their intrinsic gains on the option early and earn interest on the profits today. But what they sacrifice is the timevalue of the option. However when an option becomes very in the money and the delta approaches 1 or -1, the discounting of the intrinsic value (i.e. the extra amount a future cash flow is worth each day as we draw closer to payment) becomes larger than the 'theta' or time value decay of the option. Then it becomes optimal to early exercise, abandon the optionality and realise the monetary gains upfront. For a non-dividend paying stock, the value of the American call option is actually the same as the European. The spot price of the stock will be lower than the forward price at expiry discounted by the risk free rate (or your cost of funding). This will exactly offset the monetary gain by exercising early and banking the proceeds. However for an option on a future, the value today of the underlying asset (the future) is the same as at expiry and its possible to fully realise the interest earned on the money received today. Hence the American call option is worth more. For both examples the American put option is worth more, slightly more so for the stock. As the stock's spot price is lower than the forward price, the owner of the put option realises a higher (undiscounted) intrinsic profit from selling the stock at the higher strike price today than waiting till expiry, as well as realising the interest earned. Liquidity may influence the perceived value of being able to exercise early but its not a tangible factor that is added to the commonly used maths of the option valuation, and isn't really a consideration for most of the assets that have tradeable option markets. It's also important to remember at any point in the life of the option, you don't know the future price path. You're only modelling the distribution of probable outcomes. What subsequently happens after you early exercise an American option no longer has any bearing on its value; this is now zero! Whether the stock subsequently crashes in price is irrelevent. What is relevant is that when you early exercise a call you 'give up' all potential upside protected by the limit to your downside from the strike price."
}
] |
9060 | Buying puts without owning underlying | [
{
"docid": "40447",
"title": "",
"text": "In the money puts and calls are subject to automatic execution at expiration. Each broker has its own rules and process for this. For example, I am long a put. The strike is $100. The stock trades at the close, that final friday for $90. I am out to lunch that day. Figuratively, of course. I wake up Saturday and am short 100 shares. I can only be short in a margin account. And similarly, if I own calls, I either need the full value of the stock (i.e. 100*strike price) or a margin account. I am going to repeat the key point. Each broker has its own process for auto execution. But, yes, you really don't want a deep in the money option to expire with no transaction. On the flip side, you don't want to wake up Monday to find they were bought out by Apple for $150."
}
] | [
{
"docid": "526574",
"title": "",
"text": "Buying a put is hedging. You won't lose as much if the market goes down, but you'll still lose capital: lower value of your long positions. Buying an ultrashort like QID is safer than shorting a stock because you don't have the unlimited losses you could have when you short a stock. It is volatile. It's not a whole lot different than buying a put; it uses futures and swaps to give the opposing behavior to the underlying index. Some places indicate that the tax consequences could be severe. It is also a hedge if you don't sell your long positions. QID opposes the NASDAQ 100 which is tech-heavy so bear (!) that in mind. Selling your long positions gets you out of equities completely. You'll be responsible for taxes on capital gains. It gets your money off of the table, as opposed to playing side bets or buying insurance. (Sorry for the gambling analogy but that's a bit how I feel with stock indices now :) )."
},
{
"docid": "316866",
"title": "",
"text": "\"A straddle is an options strategy in which one \"\"buys\"\" or \"\"sells\"\" options of the same maturity (expiry date) that allow the \"\"buyer\"\" or \"\"seller\"\" to profit based on how much the price of the underlying security moves, regardless of the direction of price movement. IE: A long straddle would be: You buy a call and a put at the same strike price and the same expiration date. Your profit would be if the underlying asset(the stock) moves far enough down or up(higher then the premiums you paid for the put + call options) (In case, one waits till expiry) Profit = Expiry Level - Strike Price - (Premium Paid for Bought Options) Straddle\""
},
{
"docid": "163670",
"title": "",
"text": "\"Long here does not mean you wish for the underlying stock to increase in value, in fact, as the chart shows, just the opposite is true. \"\"Long means you bought the derivative, and you own the option. The guy that sold it to you is at your mercy, he is short the put, and it's your decision to put the stock to him should it fall in value. The value of the put itself rises with the falling stock price, you are long the put and want the put, itself, to rise in value.\""
},
{
"docid": "591229",
"title": "",
"text": "I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture."
},
{
"docid": "5257",
"title": "",
"text": "The different levels are somewhat related to levels of risk. Writing a covered call is pretty low risk, in the sense that if I buy the stock but sell a call, I now have a lower cost for the stock, and however low the stock drops, I'm still slightly better off than the regular stock buyer. Covered call writing is often used to generate premium income from a stock portfolio, and less as a tool for speculation. Buying a call or put is simpler in execution, but the risk of losing the entire amount spent (I actually avoid the word invested here) due to leverage involved isn't just a possibility — it can be pretty likely depending on the strike price. Put writing and uncovered (naked) call writing can entail even higher risk relative to the premium received — consider extreme moves in the underlying to understand the potential losses involved. The more sophisticated trades are presumed to take a bit more experience and tolerance for risk and each broker has its own set of criteria to allow the client to trade at each level."
},
{
"docid": "369031",
"title": "",
"text": "If you hold a future plus enough cash collateral it is economically equivalent to owning the underlying asset or shorting the underlying asset. In general financial assets such as stock indices have a positive expected return - that's the main difference between investing and gambling. There's nothing that special about futures, they are just another contractual form of asset ownership. Well, one difference is that regulations or brokerages allow individual investors more leverage with options and futures than with straight borrowing. But this is more a regulatory issue than a conceptual issue with the securities themselves. In theory regulators or brokers could require you to hold enough collateral to make a future equivalent to buying the underlying."
},
{
"docid": "279693",
"title": "",
"text": "There is (almost) always money involved somewhere, but it doesn't have to come from you. It can be investors, credit cards, or even seller-financing (I've done all 3). Examples: If you can find partners with the money to make the deals happen, then your job is to put the deal together. Find the properties, negotiate the price, even get the property under contract (all without any obligation or cost on your part... yes it absolutely can be done). Then your partners will fund the deal if it's good enough and their terms are met, etc. In some areas you can put a property on a credit card. If you find a house say for $25,000 that will rent for $300/month, and you can put it on a credit card (especially at zero percent for a year or something similar), then you can generate cashflow as a landlord without putting up any cash of your own on the purchase. Of course there are many risks associated with landlording and i could tell you horror stories... but we're not addressing that here. You can negotiate a sale with an owner who agrees to finance the entire purchase for you. I once purchased 3 properties at once this way from a seller who financed the entire sale, all closing costs, everything, this way. Of course they needed a lot of repair and such so I had to fund that another way, but at least the purchase itself cost me no money out of pocket. So these infomercials/courses are not inherently scams in the sense that what they are teaching is (usually... I'm sure there are exceptions) true. However they generally give you enough information to get into trouble, and not out. But that's what true learning is... it's getting into trouble and finding a way out that doesn't kill you. =) That's called experience, and you can't buy that for any price."
},
{
"docid": "346389",
"title": "",
"text": "The only way to hedge a position is to take on a countervailing position with a higher multiplier as any counter position such as a 1:1 inverse ETF will merely cancel out the ETF it is meant to hedge yielding a negative return roughly in the amount of fees & slippage. For true risk-aversion, continually selling the shortest term available covered calls is the only free lunch. A suboptimal version, the CBOE BuyWrite Index, has outperformed its underlying with lower volatility. The second best way is to continually hedge positions with long puts, but this can become very tax-complicated since the hedged positions need to be rebalanced continually and expensive depending on option liquidity. The ideal, assuming no taxes and infinite liquidity, is to sell covered calls when implied volatility is high and buy puts when implied volatility is low."
},
{
"docid": "230646",
"title": "",
"text": "\"A Credit Default Swap (CDS) is a contract between two parties. A useful analogy is insurance (but by no means exact). I pay a quarterly premium in order to insure myself against another event. In this case, it might be that I own some IBM Bonds. I am happy to own those bonds, and like the \"\"coupon\"\" that they pay me. But I am a little worried about IBM going bankrupt. So I can find someone willing to sell me a CDS. So long as I keep up my \"\"premium\"\" payments, if IBM goes into default on their bonds, I get a payout. This analogy does break down at a couple of levels. Firstly there is no requirement that I have to own the IBM bond in the first place. I can in effect then \"\"take a view\"\" on IBM going into default by purchasing a CDS without owning the underlying asset. Also in the real insurance world, there are various capital requirements that the companies have to adhere to, while CDS market, being essentially unregulated has none. So to summarize, and while The Pedia has a pretty good article, they are good both to hedge your bet (i.e. protect your actual owned asset) or as a speculative tool to take a \"\"view\"\" on the likelihood of a company to go bankrupt.\""
},
{
"docid": "529996",
"title": "",
"text": "This is a great question for understanding how futures work, first let's start with your assumptions The most interesting thing here is that neither of these things really matters for the price of the futures. This may seem odd as a futures contract sounds like you are betting on the future price of the index, but remember that the current price already includes the expectations of future earnings as well! There is actually a fairly simple formula for the price of a futures contract (note the link is for forward contracts which are very similar but slightly more simple to understand). Note, that if you are given the current price of the underlying the futures price depends essentially only on the interest rate and the dividends paid during the length of the futures contract. In this case the dividend rate for the S&P500 is higher than the prevailing interest rate so the futures price is lower than the current price. It is slightly more complicated than this as you can see from the formula, but that is essentially how it works. Note, this is why people use futures contracts to mimic other exposures. As the price of the future moves (pretty much) in lockstep with the underlying and sometimes using futures to hedge exposures can be cheaper than buying etfs or using swaps. Edit: Example of the effect of dividends on futures prices For simplicity, let's imagine we are looking at a futures position on a stock that has only one dividend (D) in the near term and that this dividend happens to be scheduled for the day before the futures' delivery date. To make it even more simple lets say the price of the stock is fairly constant around a price P and interest rates are near zero. After the dividend, we would expect the price of the stock to be P' ~ P - D as if you buy the stock after the dividend you wouldn't get that dividend but you still expect to get the rest of the value from additional future cash flows of the company. However, if we buy the futures contract we will eventually own the stock but only after the dividend happens. Since we don't get that dividend cash that the owners of the stock will get we certainly wouldn't want to pay as much as we would pay for the stock (P). We should instead pay about P' the (expected) value of owning the stock after that date. So, in the end, we expect the stock price in the future (P') to be the futures' price today (P') and that should make us feel a lot more comfortable about what we our buying. Neither owning the stock or future is really necessarily favorable in the end you are just buying slightly different future expected cash flows and should expect to pay slightly different prices."
},
{
"docid": "408398",
"title": "",
"text": "I understand that it is an evil people have to put up with. I would still bitch about it regardless of whether it is something I use or not (CFDs, which I think are dangerous, should not be banned IMO). But then again, this is off topic. On the issue, to my understanding (and putting aside whether the 25k minimum applies to futures or future options as well), if you buy an option on a future, and if it works anything like a stock option in terms of paying a premium for a right to buy the underlying security (call option), then technically you would have the RIGHT, but not obligation to buy a future at a past price. I am not an export on futures or options, but from my understanding, that is what I understood future options to be . I first heard about them from Jim Rogers in hot commodities. For more info see: http://www.investopedia.com/articles/optioninvestor/02/061302.asp"
},
{
"docid": "121334",
"title": "",
"text": "consider capital requirements and risk timeframes. With options, the capital requirements are far smaller than owning the underlying securities with stops. Options also allow one to constrain risk to a timeframe of ones own choosing (the expiration date of the contract). If you own or are short the underlying security, there is no time horizon."
},
{
"docid": "561123",
"title": "",
"text": "\"While you would probably not use your ATM card to buy a $1M worth mansion, I've heard urban legends about people who bought a house on a credit card. While can't say its reliable, I wouldn't be surprised that some have actual factual basis. I myself had put a car down-payment on my credit card, and had I paid the sticker price, the dealer would definitely have no problem with putting the whole car on the credit card (and my limits would allow it, even for a luxury brand). The instruments are the same. There's nothing special you need to have to pay a million dollars. You just write a lot of zeroes on your check, but you don't need a special check for that. Large amounts of money are transferred electronically (wire-transfers), which is also something that \"\"regular\"\" people do once or twice in their lives. What might be different is the way these purchases are financed. Rich people are not necessarily rich with cash. Most likely, they're rich with equity: own something that's worth a lot. In this case, instead of a mortgage secured by the house, they can take a loan secured by the stocks they own. This way, they don't actually cash out of the investment, yet get cash from its value. It is similarly to what we, regular mortals, do with our equity in primary residence and HELOCs. So it is not at all uncommon that a billionaire will in fact have tons of money owed in loans. Why? Because the billions owned are owned through stock valuation, and the cash used is basically a loan secured by these stocks. It might happen that the stocks securing the loans become worthless, and that will definitely be a problem both to the (now ex-)billionaire and the bank. But until then, they can get cash from their investment without cashing out and without paying taxes. And if they're lucky enough to die before they need to repay the loans - they saved tons on money on taxes.\""
},
{
"docid": "127743",
"title": "",
"text": "As many people here have pointed out, a CFD is a contract for difference. When you invest in stock at eToro, you buy a CFD reflecting a bid on the price movement of the underlying stock, however, you do not actually own the stock or hold any rights shareholders have. The counterparty to the CFD is eToro. When you close your position, eToro shall pay you the amount representing the difference between your buy and sell price for each stock. I suggest you read the following article about CFDs, it explains everything clearly and thoroughly: http://www.investopedia.com/articles/stocks/09/trade-a-cfd.asp#axzz2G9ZsmX3A As some of the responders have pointed out, and as is mentioned in the article, a broker can potentially misquote the prices of underlying assets in order to manipulate CFDs to their advantage. However, eToro is a highly reputable broker, with over 2 million active accounts, and we guarantee accurate stock quotes. Furthermore, eToro is regulated in Europe (Germany, UK, France, etc.) by institutions that exact strict regulations on the CFD trading sector, and we are obligated to comply with these regulations, which include accurate price quoting. And of course, CFD trading at eToro has tremendous benefits. Unlike a direct stock investment, eToro allows you to invest as much or as little as you like in your favorite stocks, even if the amount is less than the relevant stock price (i.e. fraction stocks). For example: if you invest $10 in Microsoft, and on the day of execution eToro’s average aggregated price was $30 after a spread of 0.1%, you will then have a CFD representing 0.33 stocks of Microsoft in your eToro account. In addition, with eToro you can invest in stock in the context of a social trading network, meaning that you can utilize the stock trading expertise of other trader to your advantage by following them, learning their strategies, and even copying their stock investments automatically. To put it briefly, you won’t be facing the stock market alone! Before you make a decision, I suggest that you try stock trading with an eToro demo account. A free demo account grants you access to all our instruments at real market rates, as well as access to our social network where you can view and participate in trader discussions about trading stocks with eToro, all without risking your hard earned money. Bottom line – it’s free, there are no strings attached, and you can get a much firmer idea of what trading stocks with eToro is like. If you have any further questions, please don’t hesitate to contact us through our site: www.etoro.com."
},
{
"docid": "386762",
"title": "",
"text": "It's a matter of risk and reward. And its origin goes back to the Black Scholles equation, which is sort of a bell curve of possible outcomes. Do you see that from $36 to $34 strike, you are putting up over 35% more money to lower your break even by 30 cents? If I were to bet* $2000, I could buy 3 of the $34 contracts but almost 5 of the $36 strike. If the stock went to $45, I'd be far better off. *I say 'bet' because simply buying puts or calls, absent any underlying asset, is akin to gambling, not investing. I do it all the time, but with my Vegas money."
},
{
"docid": "126146",
"title": "",
"text": "See http://blogs.reuters.com/felix-salmon/2011/04/30/why-the-sec-should-look-at-levered-etfs/?dlvrit=60132, http://symmetricinfo.org/2011/04/are-investors-in-levered-short-treasury-etfs-a-disaster-waiting-to-happen-pt1/, and the articles linked from it: The issue with holding a levered ETF past 1 day is that investors expose themselves to path dependency in the underlying.... The reason for the difference in payouts comes from the fact that the manager of the levered ETF promises you a multiple of the daily returns of the underlying. To be able to promise you these daily returns, the ETF manager has to buy/sell some of the underlying every day to position himself to have a constant leverage ratio the next day. The short video below explains this process in detail for a 2x long ETF, but the same result holds for a 2x short ETF: the manager has to buy more of the underlying on a day when the underlying increases in value and sell more of the underlying when the underlying goes down in value ."
},
{
"docid": "528034",
"title": "",
"text": "\"As other people have posted starting with \"\"fictional money\"\" is the best way to test a strategy, learn about the platform you are using, etc. That being said I would about how Fundamental Analysis works . Fundamental Analysis is the very basis of learning about an assets true value is priced. However in my humble opinion, I personally just stick with Index funds. In layman's terms Index Funds are essentially computer programs that buy or sell the underlying assets based on the Index they are associated with in the portion of the underlying index. Therefore you will usually be doing as good or as bad as the market. I personally have the background, education, and skillsets to build very complex models to do fundamental analysis but even I invest primarily in index funds because a well made and well researched stock model could take 8 hours or more and Modern Portfolio Theory would suggest that most investors will inevitably have a regression to the mean and have gains equal to the market rate or return over time. Which is what an index fund already does but without the hours of work and transaction cost.\""
},
{
"docid": "271741",
"title": "",
"text": "\"Yes this is possible in the most liquid securities, but currently it would take several days to get filled in one contract at that amount There are also position size limits (set by the OCC and other Self Regulatory Organizations) that attempt to prevent people from cornering a market through the options market. (getting loads of contacts without effecting the price of the underlying asset, exercising those contracts and suddenly owning a huge stake of the asset and nobody saw it coming - although this is still VERY VERY possible) So for your example of an option of $1.00 per contract, then the position size limits would have prevented 100 million of those being opened (by one person/account that is). Realistically, you would spread out your orders amongst several options strike prices and expiration dates. Stock Indexes are some very liquid examples, so for the Standard & Poors you can open options contracts on the SPY ETF, as well as the S&P 500 futures, as well as many other S&P 500 products that only trade options and do not have the ability to be traded as the underlying shares. And there is also the saying \"\"liquidity begets liquidity\"\", meaning that because you are making the market more liquid, other large market participants will also see the liquidity and want to participate, where they previously thought it was too illiquid and impossible to close a large position quickly\""
},
{
"docid": "71424",
"title": "",
"text": "Let me add a few thoughts that have not been mentioned so far in the other answers. Note that for the decision of buying vs. renting a home i.e. for personal use, not for renting out there's a rule of thumb that if the price for buying is more than 20 year's (cold) rents it is considered rather expensive. I don't know how localized this rule of thumb is, but I know it for Germany which is apparently the OP's country, too. There are obviously differences between buying a house/flat for yourself and in order to rent it out. As others have said, maintenance is a major factor for house owners - and here a lot depends on how much of that you do yourself (i.e. do you have the possibility to trade working hours for costs - which is closely related to financial risk exposure, e.g. increasing income by cutting costs as you do maintenance work yourself if you loose your day-time job?). This plays a crucial role for landlords I know (they're all small-scale landlords, and most of them do put in substantial work themselves): I know quite a number of people who rent out flats in the house where they actually live. Some of the houses were built with flats and the owner lives in one of the flats, another rather typical setup is that people built their house in the way that a smaller flat can easily be separated and let once the kids moved out (note also that the legal situation for the landlord is easier in that special case). I also know someone who owns a house several 100 km away from where they live and they say they intentionally ask a rent somewhat below the market price for that (nice) kind of flat so that they have lots of applicants at the same time and tenants don't move out as finding a new tenant is lots of work and costly because of the distance. My personal conclusion from those points is that as an investment (i.e. not for immediate or future personal use) I'd say that the exact circumstances are very important: if you are (stably) based in a region where the buying-to-rental-price ratio is favorable, you have the necessary time and are able to do maintenance work yourself and there is a chance to buy a suitable house closeby then why not. If this is not the case, some other form of investing in real estate may be better. On the other hand, investing in further real estate closeby where you live in your own house means increased lump risk - you miss diversification into regions where the value of real estate may develop very differently. There is one important psychological point that may play a role with the observed relation between being rich and being landlord. First of all, remember that the median wealth (without pensions) for Germany is about 51 k€, and someone owning a morgage-free 150 k€ flat and nothing else is somewhere in the 7th decile of wealth. To put it the other way round: the question whether to invest 150 k€ into becoming a landlord is of practical relevance only for rich (in terms of wealth) people. Also, asking this question is typically only relevant for people who already own the home they live in as buying for personal use will typically have a better return than buying in order to rent. But already people who buy for personal use are on average wealthier (or at least on the track to become more wealthy in case of fresh home owners) than people who rent. This is attributed to personal characteristics and the fact that the downpayment of the mortgage enforces saving behaviour (which is typically kept up once the house is paid, and is anyways found to be more pronounced than for non-house-owners). In contrast, many people who decide never to buy a home fall short of their initial savings/investment plans (e.g. putting the 150 k€ into an ETF for the next 21 years) and in the end spend considerably more money - and this group of people rarely invests into directly becoming a landlord. Assuming that you can read German, here's a relevant newspaper article and a related press release."
}
] |
9088 | Brokerage account for charity | [
{
"docid": "569461",
"title": "",
"text": "If the charity accepts stock, you can avoid the tax on the long term cap gain when you donate it. e.g. I donate $10,000 in value of Apple. I write off $10,000 on my taxes, and benefit with a $2500 refund. If I sold it, I'd have nearly a $1500 tax bill (bought long enough ago, the basis is sub $100). Any trading along the way, and it's on you. Gains long or short are taxed on you. It's only the final donation that matters here. Edit - to address Anthony's comment on other answer - I sell my Apple, with a near $10,000 gain (it's really just $9900) and I am taxed $1500. Now I have $8500 cash I donate and get $2125 back in a tax refund. By donating the stock I am ahead nearly $375, and the charity, $1500."
}
] | [
{
"docid": "31703",
"title": "",
"text": "It depends what you want to do with them. If you are just simply going to drip-feed into pre-identified shares or ETFs every few months at the market price, you don't need fancy features: just go with whoever is cheaper. You can always open another account later if you need something more exotic. Some brokerages are associated with banks and that may give you a benefit if you already deal with that bank: faster transfers (anz-etrade), or zero brokerage (westpac brokerage on westpac structured products.) There's normally no account fee so you can shop around."
},
{
"docid": "8849",
"title": "",
"text": "It was then we determined that with our large revel in within the textiles, recycling enterprise. We'd begin in our quest to help Africa and open our first cash 4 garments shop. At Recycle four Cash for clothes kent, we offer a friendly, rapid and reliable provider to every person seeking our offerings. We remember the fact that you may favor donating your garb to charity; HOWEVER, did you already know by the point the retail outlet of the charity pays its walking costs, handiest a small percent will go to the actual charity. Should you desire to donate the monies we pay you to the charity."
},
{
"docid": "536610",
"title": "",
"text": "\"The wash sale rule only applies when the sale in question is at a loss. So the rule does not apply at all to your cases 3, 4, 7, 8, 11, 12, 15, and 16, which all start with a gain. You get a capital gain at the first sale and then a separately computed gain / loss at the second sale, depending on the case, BUT any gain or loss in the IRA is not a taxable event due to the usual tax-advantaged rules for the IRA. The wash sale does not apply to \"\"first\"\" sales in your IRA because there is no taxable gain or loss in that case. That means that you wouldn't be seeking a deduction anyway, and there is nothing to get rolled into the repurchase. This means that the rule does not apply to 1-8. For 5-8, where the second sale is in your brokerage account, you have a \"\"usual\"\" capital gain / loss as if the sale in the IRA didn't happen. (For 1-4, again, the second sale is in the IRA, so that sale is not taxable.) What's left are 9-10 (Brokerage -> IRA) and 13-14 (Brokerage -> Brokerage). The easier two are 13-14. In this case, you cannot take a capital loss deduction for the first sale at a loss. The loss gets added to the basis of the repurchase instead. When you ultimately close the position with the second sale, then you compute your gain or loss based on the modified basis. Note that this means you need to be careful about what you mean by \"\"gain\"\" or \"\"loss\"\" at the second sale, because you need to be careful about when you account for the basis adjustment due to the wash sale. Example 1: All buys and sells are in your brokerage account. You buy initially at $10 and sell at $8, creating a $2 loss. But you buy again within the wash sale window at $9 and sell that at $12. You get no deduction after the first sale because it's wash. You have a $1 capital gain at the second sale because your basis is $11 = $9 + $2 due to the $2 basis adjustment from wash sale. Example 2: Same as Example 1, except that final sale is at $8 instead of at $12. In this case you appear to have taken a $2 loss on the first buy-sell and another $1 loss on the second buy-sell. For taxes however, you cannot claim the loss at the first sale due to the wash. At the second sale, your basis is still $11 (as in Example 1), so your overall capital loss is the $3 dollars that you might expect, computed as the $8 final sale price minus the $11 (wash-adjusted) basis. Now for 9-10 (Brokerage->IRA), things are a little more complicated. In the IRA, you don't worry about the basis of individual stocks that you hold because of the way that tax advantages of those accounts work. You do need to worry about the basis of the IRA account as a whole, however, in some cases. The most common case would be if you have non-deductable contributions to your traditional IRA. When you eventually withdraw, you don't pay tax on any distributions that are attributable to those nondeductible contributions (because you already paid tax on that part). There are other cases where basis of your account matters, but that's a whole question in itself - It's enough for now to understand 1. Basis in your IRA as a whole is a well-defined concept with tax implications, and 2. Basis in individual holdings within your account don't matter. So with the brokerage-IRA wash sale, there are two questions: 1. Can you take the capital loss on the brokerage side? 2. If no because of the wash sale, does this increase the basis of your IRA account (as a whole)? The answer to both is \"\"no,\"\" although the reason is not obvious. The IRS actually put out a Special Bulletin to answer the question specifically because it was unclear in the law. Bottom line for 9-10 is that you apparently are losing your tax deduction completely in that case. In addition, if you were counting on an increase in the basis of your IRA to avoid early distribution penalties, you don't get that either, which will result in yet more tax if you actually take the early distribution. In addition to the Special Bulletin noted above, Publication 550, which talks about wash sale rules for individuals, may also help some.\""
},
{
"docid": "461821",
"title": "",
"text": "Yes many people operate accounts in usa from outside usa. You need a brokerage account opened in the name of your sister and then her username and password. Remember that brokerages may check the location of login and may ask security questions before login. So when your sister opens her account , please get the security questions. Also note that usa markets open ( 7.00 pm or 8.00 pm IST depending on daylight savings in usa). So this means when they close at 4:00 pm ET, it will be 1:30 or 2:30 am in India. This means it will affect your sleeping hours if you intend to day trade. Also understand that there are some day trading restrictions and balances associate. Normally brokerages need 25,000 $ for you to be a day trader. Finally CFA is not a qualification to be a trader and desire to become a trader doesn't make one a trader. TO give an analogy , just because you want to be a cricketer doesn't make you one. It needs a lot of practice and discipline.Also since in bangladesh , you will always convert the usa amount to bangladeshi currency and think of profits and losses in those terms. This might actually be bad."
},
{
"docid": "102442",
"title": "",
"text": "Some brokerages will allow you to enroll your account in a dividend reinvestment plan -- TD Ameritrade and I think Schwab for example. The way the plan works is that they would take your $4 and give you whatever fractional share of the ETF it is worth on the payment date. There are no fees associated with this purchase (or at least there are in the programs I've seen -- if you have to pay a fee, look for another brokerage). You may also be able to enroll specific securities instead of the entire account into dividend reinvestment. Call your brokerage to see what they offer."
},
{
"docid": "546509",
"title": "",
"text": "Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing."
},
{
"docid": "225964",
"title": "",
"text": "One advantage not pointed out yet is that closed-end funds typically trade on stock exchanges, whereas mutual funds do not. This makes closed-end funds more accessible to some investors. I'm a Canadian, and this particular distinction matters to me. With my regular brokerage account, I can buy U.S. closed-end funds that trade on a stock exchange, but I cannot buy U.S. mutual funds, at least not without the added difficulty of somehow opening a brokerage account outside of my country."
},
{
"docid": "349668",
"title": "",
"text": "This is more than likely a thing about your financial institution and the exchanges where they trade shares. Some exchanges cannot/will not handle odd lot transactions. Most established brokerages have software and accounting systems that will deal in round lots with the exchanges, but can track your shares individually. Sometimes specific stocks cannot be purchased in odd lots due to circumstances specific to that stock (trading only on a specific exchange, for example). Most brokerages offer dollar-cost averaging programs, but may limit which stocks are eligible, due to odd lot and partial share purchases. Check with your brokerage to see if they can support odd lot and/or DCA purchases. You may find another similar ETF with similar holdings that has better trading conditions, or might consider an open-end mutual fund with similar objectives. Mutual funds allow partial share purchases (you have $100 to invest today, and they issue you 35.2 shares, for example)."
},
{
"docid": "580056",
"title": "",
"text": "Unless I'm misunderstanding something, you don't need to move your assets into a new type of account to accomplish your goal of letting your money grow in a low cost vanguard index fund. Simply reallocate your assets within the Inherited IRA. If the brokerage you're in doesn't meet your needs (high transaction fees, no access to the Vanguard funds you're interested in) you can always move to a low cost brokerage. The new brokerage can help you transfer your assets so that the Inherited IRA remains intact. You will not have a tax burden if you do this reallocation and you'll be able to feel good about your diversification with a low cost index fund. You will, however, have to pay taxes on your RMD. Since you're young I can't imagine that your RMD will be greater than the $5k you can invest in a Roth IRA. If it is, you can open a personal account and keep letting the the money grow."
},
{
"docid": "328703",
"title": "",
"text": "Yes, depending on what you're trying to achieve. If its just a symbolic gift - you can use a service like this. There are several companies providing this service, look them up, but the prices are fairly the same. You'll end up getting a real stock certificate, but it will cost a lot of overhead (around $40 to get the certificate, and then another $40 to deposit it into a brokerage account if you want to sell it on a stock exchange). So although the certificate is real and the person whose name on it is a full-blown shareholder, it doesn't actually have much value (unless you buy a Google or Apple stock, where the price is much much higher than the fees). Take into account that it takes around 2 months for the certificate to be issued and mailed to you, so time accordingly. Otherwise, you can open a custodial brokerage account, and use it to buy stocks for the minor. Both ways are secure and legal, each for its own purpose and with its own fees."
},
{
"docid": "536151",
"title": "",
"text": "As per the SIPC website: Most customers can expect to receive their property in one to three months. When the records of the brokerage firm are accurate, deliveries of some securities and cash to customers may begin shortly after the trustee receives the completed claim forms from customers, or even earlier if the trustee can transfer customer accounts to another broker-dealer. Delays of several months usually arise when the failed brokerage firm’s records are not accurate. It also is not uncommon for delays to take place when the troubled brokerage firm or its principals were involved in fraud. Source link: http://www.sipc.org/Who/SIPCQuestions/SIPCQuestion3.aspx"
},
{
"docid": "263088",
"title": "",
"text": "Keep in mind the ex-dividend date is different from the payable date (the day the dividend is paid). That means the market price will already have adjusted lower due to the dividend. Short answer: you get the lower price when reinvesting. So here's Vanguard's policy, it should be similar to most brokers: When reinvesting dividends, Vanguard Brokerage Services combines the cash distributions from the accounts of all clients who have requested reinvestment in the same security, and then uses that combined total to purchase additional shares of the security in the open market. Vanguard Brokerage will attempt to purchase the reinvestment shares by entering a market order at the market opening on the payable date. The new shares are divided proportionately among the clients' accounts, in whole and fractional shares rounded to three decimal places. If the total purchase can't be completed in one trade, clients will receive shares purchased at the weighted average price paid by Vanguard Brokerage Services."
},
{
"docid": "252475",
"title": "",
"text": "A protection similar to FDIC for banks is provided to brokerage accounts' owners by SIPC. Neither FDIC nor SIPC provide protection or insurance against identity thefts or frauds, only bank/brokerage failures. Your investment losses are obviously not insured either. For fraud liability check your bank/brokerage policies, you can get insurance for identity theft from your insurance provider (its an optional coverage with many home-owner/renter insurance policies)."
},
{
"docid": "307409",
"title": "",
"text": "\"JoeTaxpayer's advice is solid - reallocating to your target asset allocation is the right move. You should have an Investor Policy Statement (IPS) that maps out your financial objectives, risk tolerance, liquidity constraints, etc. From the IPS, you can determine your target asset allocation and rebalance accordingly. A few more comments: It sounds like 100% of your 401k is in US stocks. You might have other accounts that make your overall portfolio globally diversified, but if not, you want to make sure to set a target asset allocation for a global portfolio. Your statement \"\"If this were in my brokerage account I'd probably cash out some of the profits and hold onto it and buy more shares as the market eventually comes back down. But this being a 401k which has semi-monthly deposits from my paycheck, do I just leave it?\"\" is a bit counterintuitive. If you are going to try to time the market (a very hard task), it is better to use a retirement account, so you don't have to realize capital gains. Timing the market is probably a bad idea, but if you engage in market timing, it is probably better to use a retirement account than a brokerage account. If you would like to tilt your asset allocation based on the market valuation, I recommend researching Shiller's Cyclically Adjusted Price to Earnings ratio.\""
},
{
"docid": "226303",
"title": "",
"text": "I know in the UK at least, 99% of the time even legitimate collectors don't work directly for the charity. They work for independent for-profit companies. The companies collect a large comission (around £50-£70) for every direct debit signup. The guy that knocks on your door will see very little of it. Have a look at this: http://blogs.mirror.co.uk/investigations/2005/08/just-6-for-eight-days-work-for.html The bags you get through your door for clothing donations are run on a similar basis - the clothes and profit go to a private company, which makes a donation to the charity out of their profits. Sometimes as little as 0.1% of your donation will go the charity. Always go direct to your chosen charity."
},
{
"docid": "412226",
"title": "",
"text": "There are no legal reasons preventing you from trading as a F-1 visa holder, as noted in this Money.SE answer. Per this article, here are the things you need to set up an account: What do I need to have for doing Stock trading as F1 student ? Typically, most of the stock brokerage firms require Social Security Number (SSN) for stock trading. The reason is that, for your capital gains, it is required by IRS for tax purposes. If you work on campus, then you would already get SSN as part of the job application process…Typically, once you get the on-campus job or work authorization using CPT or OPT , you use that offer letter and take all your current documents like Passport, I-20, I-94 and apply for SSN at Social Security Administration(SSA) Office, check full details at SSA Website . SSN is typically used to report job wages by employer for tax purposes or check eligibility of benefits to IRS/Government. I do NOT have SSN, Can I still do stock trading as F1 student ? While many stock brokerage firms require SSN, you are not out of luck, if you do not have one…you will have to apply for an ITIN Number ( Individual Taxpayer Identification Number ) and can use the same when applying for stock brokerage account. While some of the firms accept ITIN number, it totally depends on the stock brokering firm and you need to check with the one that you are interested in. The key thing is that you'll need either a SSN or ITIN to open a US-based brokerage account."
},
{
"docid": "537153",
"title": "",
"text": "You will be charged a stock borrow fee, which is inversely related to the relative supply of the stock you are shorting. IB claims to pay a rebate on the short proceeds, which would offset part or all of that fee, but it doesn't appear relevant in your case because: It is a bit strange to me that IB would not require you to keep the cash in your account, as they need the cash to collateralize the stock borrow with the lending institution. In fact, per Regulation T, the short position requires an initial margin of 150%, which includes the short proceeds. As described by Investopedia: In the first table of Figure 1, a short sale is initiated for 1,000 shares at a price of $50. The proceeds of the short sale are $50,000, and this amount is deposited into the short sale margin account. Along with the proceeds of the sale, an additional 50% margin amount of $25,000 must be deposited in the account, bringing the total margin requirement to $75,000. At this time, the proceeds of the short sale must remain in the account; they cannot be removed or used to purchase other securities. Here is a good answer to your question from The Street: Even though you might see a balance in your brokerage account after shorting a stock, you're actually looking at a false credit, according to one big brokerage firm. That money is acting as collateral for the short position. So, you won't have use of these funds for investment purposes and won't earn interest on it. And there are indeed costs associated with shorting a stock. The broker has to find stock to loan to you. That might come out of a broker's own inventory or might be borrowed from another stock lender."
},
{
"docid": "349417",
"title": "",
"text": "Your definition of 'outside your country' might need some redefinition, as there are three different things going on here . . . Your financial adviser appears to be highlighting the currency risk associated with point three. However, consider these risk scenarios . . . A) Your country enters a period of severe financial difficulty, and money markets shut down. Your brokerage becomes insolvent, and your investments are lost. In this scenario the fact of whether your investments were in an overseas index such as the S&P, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigated this scenario is an account with an overseas broker. B) Your country's stock market enters a sustained and deep bear market, decimating the value of shares in its companies. In this scenario the fact of whether your investments were made in from a brokerage overseas, or were purchased from an account denominated in a different currency, would be irrelevant. The only thing that would have mitigate this scenario is investment in shares and indices outside your home country. Your adviser has a good point; as long as you intend to enjoy your retirement in your home country then it might be advisable to remove currency risk by holding an account in Rupees. However, you might like to consider reducing the other forms of risk by holding non-Indian securities to create a globally diversified portfolio, and also placing some of your capital in an account with a broker outside your home country (this may be very difficult to do in practice)."
},
{
"docid": "400495",
"title": "",
"text": "In general, all income is taxable, regardless of the source. If you living in the U.S. -- I don't think you said anywhere where you live -- then if you are donating this money to charity, you would have to declare the income, and then declare a deduction for the charitable contribution. At that point the two would cancel out and the net result is that you wouldn't have to pay any tax on the income, but you can't just leave it off your tax return. Well, even if you donated all of it to charity to that you don't have to pay income taxes on it, you would still have to pay social security taxes, and it would still affect your social security benefits when you retire. If you're saying that the organization receiving the money is itself a charity, as opposed to donating the money to some other organization that is a charity, than you usually have to be registered as a charity with the IRS to avoid income taxes. There are still forms to file to report the income, but you wouldn't have to pay taxes. There are some exceptions to the requirement to register, basically if your organization is very small and for certain religious organizations."
}
] |
9088 | Brokerage account for charity | [
{
"docid": "561377",
"title": "",
"text": "I don't understand the logic in the other answer, and I think it doesn't make sense, so here is my take: You pay taxes on income, not on sales price. So if you put X $ of your own money in the account and it becomes X + Y $ in the future, at the moment of liquidation, you will own taxes on the Y $. Never on the X $, as it was your own (already taxed) money to begin with. The difference between long-term and short-term gains just influences the tax rate on Y. If you donate the gain alone (the Y $) to charity, you can deduct Y from your tax base. So adding Y to your tax base and then deducting Y again obviously leaves your tax base at the old value, so you pay no extra taxes. Which seems logical, as you didn't make any money in the process. Aside from extreme cases where the deductible gain is too large a percentage from your income or negative, I don't see why this would ever be different. So you can take your original 100 $ back out and donate all gains, and be fine. Note that potential losses are seen different, as the IRA regulations are not symmetric."
}
] | [
{
"docid": "173088",
"title": "",
"text": "\"What is a stock? A share of stock represents ownership of a portion of a corporation. In olden times, you would get a physical stock certificate (looking something like this) with your name and the number of shares on it. That certificate was the document demonstrating your ownership. Today, physical stock certificates are quite uncommon (to the point that a number of companies don't issue them anymore). While a one-share certificate can be a neat memento, certificates are a pain for investors, as they have to be stored safely and you'd have to go through a whole annoying process to redeem them when you wanted to sell your investment. Now, you'll usually hold stock through a brokerage account, and your holdings will just be records in a database somewhere. You'll pick a broker (more on that in the next question), instruct them to buy something, and they'll keep track of it in your account. Where do I get a stock? You'll generally choose a broker and open an account. You can read reviews to compare different brokerages in your country, as they'll have different fees and pricing. You can also make sure the brokerage firm you choose is in good standing with the financial regulators in your country, though one from a major national bank won't be unsafe. You will be required to provide personal information, as you are opening a financial account. The information should be similar to that required to open a bank account. You'll also need to get your money in and out of the account, so you'll likely set up a bank transfer. It may be possible to request a paper stock certificate, but don't be surprised if you're told this is unavailable. If you do get a paper certificate, you'll have to deal with considerably more hassle and delay if you want to sell later. Brokers charge a commission, which is a fee per trade. Let's say the commission is $10/trade. If you buy 5 shares of Google at $739/share, you'd pay $739 * 5 + $10 = $3705 and wind up with $3695 worth of stock in your account. You'd pay the same commission when you sell the stock. Can anyone buy/own/use a stock? Pretty much. A brokerage is going to require that you be a legal adult to maintain an account with them. There are generally ways in which a parent can open an account on behalf of an underage child though. There can be different types of restrictions when it comes to investing in companies that are not publicly held, but that's not something you need to worry about. Stocks available on the public stock market are available to, well, the public. How are stocks taxed? Taxes differ from country to country, but as a general rule, you do have to provide the tax authorities with sufficient information to determine what you owe. This means figuring out how much you purchased the stock for and comparing that with how much you sold it for to determine your gain or loss. In the US (and I suspect in many other countries), your brokerage will produce an annual report with at least some of this information and send it to the tax authorities and you. You or someone you hire to do your taxes will use that report to compute the amount of tax owed. Your brokerage will generally keep track of your \"\"cost basis\"\" (how much you bought it for) for you, though it's a good idea to keep records. If you refuse to tell the government your cost basis, they can always assume it's $0, and then you'll pay more tax than you owe. Finding the cost basis for old investments can be difficult many years later if the records are lost. If you can determine when the stock was purchased, even approximately, it's possible to look back at historical price data to determine the cost. If your stock pays a dividend (a certain amount of money per-share that a company may pay out of its profits to its investors), you'll generally need to pay tax on that income. In the US, the tax rate on dividends may be the same or less than the tax rate on normal wage income depending on how long you've held the investment and other rules.\""
},
{
"docid": "32671",
"title": "",
"text": "\"The receiving Roth IRA custodian will almost certainly not charge you anything; they are eager to get their hands on the money. In fact, the easiest and most efficient way is to fill out the forms for opening a Roth IRA account with the new custodian (most of this can be done online, but it might be necessary to print out a paper form, sign it and send/fax it to the company), tell them that the Roth IRA will be funded by a trustee-to-trustee transfer from the current custodian, and tell them to go get the money from the online bank who is the current custodian of your Roth IRA account. Don't approach your online bank and tell them to send the money to your new Roth IRA custodian; it will cost money and take more time and the likelihood of a screw-up is way too high. The current custodian might charge you a fee for closing the account, or for \"\"breaking a CD\"\" if that savings account is a CD and you are withdrawing the money before the maturity date of the CD. This will be spelled out in the Roth IRA custodial agreement that you accepted when you opened the account (but most likely did not read in full when you received it, and might even have discarded). One final note: with just $11K, please do not open a brokerage account for your Roth IRA and invest in stocks, bonds etc. For now, invest all your Roth IRA in a single low-cost mutual fund (preferably an index fund such as the Vanguard S&P 500 Index fund or Fidelity Spartan 500 fund); you can branch out into more funds when you have more money in your Roth IRA. Investing in these funds does not need you to have a brokerage account; you can do it directly on the fund's website. Avoid (for now) the siren song of Exchange-Traded Funds (ETFs) because you need to have a brokerage account to buy and sell them. When you have more money in your Roth IRA account, say in ten years' time, you can start investing in individual stocks, ETFs and the like through a brokerage account, but don't do it now.\""
},
{
"docid": "412226",
"title": "",
"text": "There are no legal reasons preventing you from trading as a F-1 visa holder, as noted in this Money.SE answer. Per this article, here are the things you need to set up an account: What do I need to have for doing Stock trading as F1 student ? Typically, most of the stock brokerage firms require Social Security Number (SSN) for stock trading. The reason is that, for your capital gains, it is required by IRS for tax purposes. If you work on campus, then you would already get SSN as part of the job application process…Typically, once you get the on-campus job or work authorization using CPT or OPT , you use that offer letter and take all your current documents like Passport, I-20, I-94 and apply for SSN at Social Security Administration(SSA) Office, check full details at SSA Website . SSN is typically used to report job wages by employer for tax purposes or check eligibility of benefits to IRS/Government. I do NOT have SSN, Can I still do stock trading as F1 student ? While many stock brokerage firms require SSN, you are not out of luck, if you do not have one…you will have to apply for an ITIN Number ( Individual Taxpayer Identification Number ) and can use the same when applying for stock brokerage account. While some of the firms accept ITIN number, it totally depends on the stock brokering firm and you need to check with the one that you are interested in. The key thing is that you'll need either a SSN or ITIN to open a US-based brokerage account."
},
{
"docid": "391876",
"title": "",
"text": "\"You need a brokerage account to invest in ETFs (there are many different kinds of ETFs, not just one) and that usually means having some amount already deposited with them into the \"\"cash account\"\" in your name. Once the brokerage account is established, you can send whatever money from each paycheck to the brokerage and tell them to invest it in the ETF of your choice. There are no restrictions as to how much money you can send if you send them a check. If you want the money to be withheld from your paycheck, then of course, the limit is the amount of the take-home pay, and whether your employer offers such a service will affect the issue. If you are wanting to invest in ETFs through your employer's 401(k) plan (or 403(b) plan), there are lots of other considerations.\""
},
{
"docid": "345091",
"title": "",
"text": "You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It should be noted that SIPC does not protect investors against loss of value or bad advice. As far as having multiple brokerage accounts for security, I personally don’t think it’s necessary to have multiple accounts for that reason. Depending on account or transaction fees, it might not hurt to have multiple accounts. It can actually be beneficial to have multiple accounts so long as each account serves a purpose in your overall financial plan. For example, I have three brokerage accounts, each of which serves a specific purpose. One provides low cost stock and bond transactions, another provides superior market data, and the third provides low cost mutual fund transactions. If you’re worried about asset security, there are a few things you can do to protect yourself. I would recommend you begin by consulting a qualified financial advisor about your risk profile. You stated that a considerable portion of your total assets are in securities. Depending on your risk profile and the amount of your net worth held in securities, you might be better served by moving your money into lower risk asset classes. I’m not an attorney or a financial advisor. This is not legal advice or financial advice. You can and should consult your own attorney and financial advisor."
},
{
"docid": "491843",
"title": "",
"text": "There is no way to find out what future will be if you have only quote from past. In other words, nobody is able to trade history successfully and nobody will be able, ever. Quote's movement is not random. Quote is not price. Because brokerage account is not actual money. Any results in past do not guarantee you anything. Brokerage accounts should only have portions of money which you are ready to loose completely. Example: Investment firms recommended buying falling Enron stocks, even when it collapsed 3 times, then - bankrupt, suddenly. What a surprise!"
},
{
"docid": "225162",
"title": "",
"text": "Assuming a USA taxable account: Withdrawing funds from a brokerage account has nothing to do with taxes. Taxes are owed on the profit when you sell a stock, no matter what you do with the funds. Taxes are owed on any dividends the stock produces, no matter what you do with the dividend. The brokerage sends you a form 1099 each year that shows the amounts of dividends and profits. You have to figure out the taxes from that."
},
{
"docid": "546509",
"title": "",
"text": "Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing."
},
{
"docid": "168402",
"title": "",
"text": "\"I am in a different situation, because I earn more than I spend, but I have found that I need to make the money inaccessible if I want to really avoid spending it. I used to just throw my paychecks into a high-yield savings account, but eventually the balance was large enough that a \"\"large purchase\"\" didn't seem like \"\"that much\"\" (because I would have had so much left in the account after the purchase). It was way too easy for me to spend way too much. Now, I invest my savings automatically. The obvious benefit is my money has a much higher growth rate than a simple savings account (especially with fed interest rates so low). I invest most of my savings in 401(k)/IRA retirement accounts, where there are severe penalties for withdrawing prior to retirement age. Then, I invest a significant portion to a regular brokerage account, where the money is invested in stock and bond funds. This money is accessible within a few days of whenever I need it. The remainder of my savings goes into a savings account as cash I can get to at any time. All 3 accounts grow with every paycheck (market fluctuations aside). This 3-tiered system helps me to categorize my savings as \"\"Never, ever touch\"\" (retirement accounts), \"\"Touch, only if I can wait 3 days and am willing to pay taxes\"\" (brokerage account), or \"\"touch whenever you need it, with no penalties\"\" (Savings account). If my savings account grows too much, I'll move money from there to the brokerage account (where it has more growth potential). The longer my money is invested in the brokerage accounts, the less taxes I'll need to pay when I sell/withdraw the funds, so that's even more incentive for me to keep those funds where they are. I have credit cards, so in my opinion, having to wait 3 days for funds from my investment account to become accessible is considered \"\"accessible in an emergency,\"\" because my credit cards can be used to cover a large purchase for 3 days, and as long as I pay it off within the grace period, there's no interest charged. tl;dr investing is probably the smartest way to both grow your money and prevent the urge to spend it right away. My advice is to start with a 401(k) or IRA as soon as you can, since the younger you are, the more time until retirement that your money has to compound. Investing $100 more a month can mean hundreds of thousands of additional dollars in your account when you're ready to retire.\""
},
{
"docid": "252475",
"title": "",
"text": "A protection similar to FDIC for banks is provided to brokerage accounts' owners by SIPC. Neither FDIC nor SIPC provide protection or insurance against identity thefts or frauds, only bank/brokerage failures. Your investment losses are obviously not insured either. For fraud liability check your bank/brokerage policies, you can get insurance for identity theft from your insurance provider (its an optional coverage with many home-owner/renter insurance policies)."
},
{
"docid": "301477",
"title": "",
"text": "If you want higher returns you may have to take on more risk. From lowest returns (and usually lower risk) to higher returns (and usually higher risk), Bank savings accounts, term deposits, on-line savings accounts, offset accounts (if you have a mortgage), fixed interest eg. Bonds, property and stock markets. If you want potentially higher returns then you can go for derivatives like options or CFDs, FX or Futures. These usually have higher risks again but as with any investments some risks can be partly managed. Also, CMC Markets charges $11 commission up to $10,000 trade. This is actually quite a low fee - based on your $7,000, $22 for in and out of a position would be less than 0.32% (of course you might want to buy into more than one company - so your brokerage would be slightly higher). Still this is way lower than full service brokerage which could be $100 or more in and then again out again. What ever you decide to do, get yourself educated first."
},
{
"docid": "443951",
"title": "",
"text": "\"It is difficult to find investment banks that offer both low fees and low minimum investments. If you google around for \"\"no-fee low-minimum mutual funds\"\" you can find various articles with recommendations, such as this one. One fund they mention that looks promising is the Schwab Total Stock Market Index Fund, which apparently has a minimum investment of only $100 and an expense ratio of 0.09%. (I've never heard of this fund before, so I'm just repeating the info from the site. Be sure to look into it more thoroughly to see if there are any hidden costs here. I'm not recommending this fund, just mentioning it as an example of what you may be able to find.) Another possibility is to make use of funds in an existing brokerage account that you use for yourself. This could allow you to make use of Craig W.'s suggestion about ETFs. For instance, if you already have a brokerage account at Vanguard or another firm, you could add $100 to the account and buy some particular fund, mentally earmarking it as your daughter's.\""
},
{
"docid": "540285",
"title": "",
"text": "My bank (USAA) moves money to and from a USAA brokerage account instantly. They also have instant transfers from their money market funds to checking, savings, and brokerage. It takes the 3 days to go to another institution, though."
},
{
"docid": "266457",
"title": "",
"text": "TL; DR version of my answer: In view of your age and the fact that you have just opened a Roth IRA account with Vanguard, choose the Reinvest Dividend and Capital Gains distributions option. If Vanguard is offering an option of having earnings put into a money market settlement account, it might be that you have opened your Roth IRA account with Vanguard's brokerage firm. Are you doing things like investing your Roth money into CDs or bonds (including zero-coupon or STRIP bonds) or individual stocks? If so, then the money market settlement account (might be VMMXX, the Vanguard Prime Money Market Fund) within the Roth IRA account is where all the money earned as interest on the CDs or bonds, dividends from the stocks, and the proceeds (including any resulting capital gains) from the sales of any of these will go. You can then decide where to invest that money (all within the Roth IRA). Leaving the money in the settlement account for a long time is not a good idea even if you are just accumulating the money so as to be able to buy 100 shares of APPL or GOOG at some time in the future. Put it into a CD in your Roth IRA brokerage account while you wait. If your Roth IRA is invested only in Vanguard's mutual funds and is likely to remain so in the foreseeable future, then you don't really need an account with their brokerage. You can still use a money market settlement fund to transfer money between various mutual fund investments within the Roth IRA account, but it really is adding an extra layer of money movement where it is not really necessary. You can sell one Vanguard mutual fund and invest the proceeds into another Vanguard mutual fund or even into several Vanguard funds without needing to have the funds transit through a money market account. Vanguard calls such a transaction an Exchange on their site. And, of course, you can just choose to reinvest all the dividends and capital gains distributions made by a mutual fund into the fund itself. Mutual funds allow purchases of fractional shares (down to three or even four decimal places) instead of insisting on integer numbers of shares let alone round lots of 100 shares. All this, of course, within the Roth IRA."
},
{
"docid": "264123",
"title": "",
"text": "\"Regardless of what the credit reporting agencies or brokerages say, the fact is that brokerage margin is not reported to the credit reporting agencies. I have \"\"borrowed\"\" hundreds of thousands of dollars on margin from dozens of brokerages over the years and have never seen a dime of it reported nor have I ever heard of it ever being reported for someone else. ...and it's easy to see why this would be so because \"\"borrowing\"\" on margin isn't really borrowing at all because you always must have positive equity in the account at all times. So you aren't borrowing anything, you just have an investment contract that determines your gains/losses as if you had borrowed (in other words, it's simulated).\""
},
{
"docid": "476923",
"title": "",
"text": "\"The account I have found that works best as a HSA is Alliant Credit Union. They have fee-free HSA (no fees for almost all types of transactions or monthly fees) and a fairly decent online banking website. I've been with them for about 5 years now without trouble. FYI - They are a credit union not a bank so you do have to make a small $10 donation to one of their charities to become \"\"eligible\"\" for opening the account.\""
},
{
"docid": "403701",
"title": "",
"text": "This is really an extended comment on the last paragraph of @BenMiller's answer. When (the manager of) a mutual fund sells securities that the fund holds for a profit, or receives dividends (stock dividends, bond interest, etc.), the fund has the option of paying taxes on that money (at corporate rates) and distributing the rest to shareholders in the fund, or passing on the entire amount (categorized as dividends, qualified dividends, net short-term capital gains, and net long-term capital gains) to the shareholders who then pay taxes on the money that they receive at their own respective tax rates. (If the net gains are negative, i.e. losses, they are not passed on to the shareholders. See the last paragraph below). A shareholder doesn't have to reinvest the distribution amount into the mutual fund: the option of receiving the money as cash always exists, as does the option of investing the distribution into a different mutual fund in the same family, e.g. invest the distributions from Vanguard's S&P 500 Index Fund into Vanguard's Total Bond Index Fund (and/or vice versa). This last can be done without needing a brokerage account, but doing it across fund families will require the money to transit through a brokerage account or a personal account. Such cross-transfers can be helpful in reducing the amounts of money being transferred in re-balancing asset allocations as is recommended be done once or twice a year. Those investing in load funds instead of no-load funds should keep in mind that several load funds waive the load for re-investment of distributions but some funds don't: the sales charge for the reinvestment is pure profit for the fund if the fund was purchased directly or passed on to the brokerage if the fund was purchased through a brokerage account. As Ben points out, a shareholder in a mutual fund must pay taxes (in the appropriate categories) on the distributions from the fund even though no actual cash has been received because the entire distribution has been reinvested. It is worth keeping in mind that when the mutual fund declares a distribution (say $1.22 a share), the Net Asset Value per share drops by the same amount (assuming no change in the prices of the securities that the fund holds) and the new shares issued are at this lower price. That is, there is no change in the value of the investment: if you had $10,000 in the fund the day before the distribution was declared, you still have $10,000 after the distribution is declared but you own more shares in the fund than you had previously. (In actuality, the new shares appear in your account a couple of days later, not immediately when the distribution is declared). In short, a distribution from a mutual fund that is re-invested leads to no change in your net assets, but does increase your tax liability. Ditto for a distribution that is taken as cash or re-invested elsewhere. As a final remark, net capital losses inside a mutual fund are not distributed to shareholders but are retained within the fund to be written off against future capital gains. See also this previous answer or this one."
},
{
"docid": "434066",
"title": "",
"text": "\"My Schwab panel has the following options: As an example, when I go in to \"\"Wire Transfer,\"\" it prompts me to select which Schwab account, then Domestic or International wire, then amount etc. This will likely depend on the brokerage, I don't think Scottrade or Zecco/Tradeking was this integrated. Personally, I keep brokerage funds pretty well segregated from the remainder of my finances. I transfer money in and out from a more used checking account to keep the accounting more simple.\""
},
{
"docid": "339106",
"title": "",
"text": "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."
}
] |
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